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 June 30, 1999
------------------------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-24097
CNL Hospitality Properties, Inc.
(Exact name of registrant as specified in its charter)
Maryland 59-3396369
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 E. South Street
Orlando, Florida 32801
(Address of principal (Zip Code)
executives offices)
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.
18,345,588 shares of common stock, $.01 par value, outstanding as of August 5,
1999.
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Part I Page
<S> <C>
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 6-15
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 16-26
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 26
Part II
Other Information 27-31
</TABLE>
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- ----------------
<S> <C>
ASSETS
Land, buildings and equipment on operating leases,
less accumulated depreciation of $845,625 and
$384,166, respectively $27,906,924 $ 28,368,383
Investment in unconsolidated subsidiary 39,350,470 --
Cash and cash equivalents 63,669,254 13,228,923
Restricted cash 204,132 82,407
Certificate of deposit 5,015,822 5,016,575
Due from related party 49,085 --
Receivables 34,412 28,257
Dividends receivable 777,324 --
Organization costs, less accumulated amortization of
$24,973 and $5,221, respectively -- 19,752
Loan costs, less accumulated amortization of $71,863
and $12,980, respectively 44,233 78,282
Accrued rental income 75,970 44,160
Other assets 3,980,239 1,989,951
---------------- ------------------
$141,107,865 $ 48,856,690
================ ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ -- $ 9,600,000
Interest payable -- 66,547
Accounts payable and accrued expenses 51,102 337,215
Due to related parties 1,033,584 318,937
Security deposits 1,417,500 1,417,500
---------------- ------------------
Total liabilities 2,502,186 11,740,199
---------------- ------------------
Commitments and contingencies (Note 12)
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 15,793,039
and 4,321,908 shares, respectively, and outstanding
15,792,539 and 4,321,908 shares, respectively 157,925 43,219
Capital in excess of par value 139,823,971 37,289,402
Accumulated distributions in excess of net earnings (1,376,217 ) (216,130 )
---------------- ------------------
Total stockholders' equity 138,605,679 37,116,491
---------------- ------------------
$141,107,865 $ 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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
-------------- --------------- ------------- ------------
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Revenues:
Rental income from operating
leases $ 748,908 $ -- $1,486,526 $ --
FF&E Reserve income 65,006 -- 126,033 --
Dividend income 658,288 -- 900,131 --
Interest and other income 614,875 232,006 907,739 371,159
--------------- --------------- -------------- --------------
2,087,077 232,006 3,420,429 371,159
--------------- --------------- -------------- --------------
Expenses:
Interest and loan cost amortization 32,757 -- 233,330 --
General operating and
administrative 119,973 61,263 308,029 146,656
Professional services 8,066 15,078 29,272 20,530
Asset management fees to
related party 17,871 -- 67,436 --
State taxes 593 -- 5,968 --
Depreciation and amortization 239,657 1,000 493,415 2,000
--------------- --------------- -------------- --------------
418,917 77,341 1,137,450 169,186
--------------- --------------- -------------- --------------
Earnings Before Equity in Loss of
Unconsolidated Subsidiary 1,668,160 154,665 2,282,979 201,973
Equity in Loss of Unconsolidated
Subsidiary After Deduction of
Preferred Stock Dividends (205,911 ) -- (390,450 ) --
--------------- --------------- -------------- --------------
Net Earnings $1,462,249 $ 154,665 $1,892,529 $ 201,973
=============== =============== ============== ==============
Earnings Per Share of Common Stock
(Basic and Diluted) $ 0.12 $ 0.07 $ 0.20 $ 0.11
=============== =============== ============== ==============
Weighted Average Number of Shares
of Common Stock Outstanding 12,330,853 2,162,300 9,391,870 1,820,362
=============== =============== ============== ==============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 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 distribution reinvestment
plan 3,169,368 31,694 31,661,984 -- 31,693,67
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 distribution reinvestment
plan 11,471,131 114,711 114,596,604 -- 114,711,315
Retirement of common stock (500 ) (5 ) (4,595 ) -- (4,600)
Stock issuance costs -- -- (12,057,440 ) -- (12,057,440)
Net earnings -- -- -- 1,892,529 1,892,529
Distributions declared and paid
($0.36 per share) -- -- -- (3,052,616 ) (3,052,616)
------------ ------------ -------------- --------------- --------------
Balance at June 30, 1999 15,792,539 $157,925 $139,823,971 $(1,376,217 ) $138,605,679
============ ============ ============== =============== ==============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
--------------- ----------------
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Increase (Decrease) in Cash and Cash Equivalents:
Net Cash Provided by Operating Activities $2,033,757 $ 210,452
----------------- -----------------
Cash Flows from Investing Activities:
Investment in unconsolidated subsidiary (37,172,643 ) --
Investment in certificates of deposit -- (1,500,000 )
Increase in restricted cash (121,725 ) --
Increase in other assets (4,509,931 ) (633,866 )
----------------- -----------------
Net cash used in investing activities (41,804,299 ) (2,133,866 )
----------------- -----------------
Cash Flows from Financing Activities:
Reimbursement of acquisition and stock
issuance costs paid by related parties
on behalf of the Company (1,914,280 ) (70,150 )
Payment on line of credit (9,600,000 ) --
Increase in loan costs (24,834 ) --
Subscriptions received from stockholders 114,711,315 12,252,880
Retirement of shares of common stock (4,600 ) --
Distributions to stockholders (3,052,616 ) (257,086 )
Payment of stock issuance costs (9,919,083 ) (1,213,762 )
Other 14,971 (2,500 )
----------------- -----------------
Net cash provided by financing activities 90,210,873 10,709,382
----------------- -----------------
Net Increase in Cash and Cash Equivalents 50,440,331 8,785,968
Cash and Cash Equivalents at Beginning of Period 13,228,923 8,869,838
----------------- -----------------
Cash and Cash Equivalents at End of Period $ 63,669,254 $ 17,655,806
================= =================
</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>
Six Months Ended
June 30,
1999 1998
--------------- ----------------
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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 $ 418,353 $ 20,302
Stock issuance costs 1,539,215 58,403
----------------- ----------------
$ 1,957,568 $ 78,705
================= ================
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 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. 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 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 financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of the management, necessary to a fair
statement of the results for the interim periods presented. Operating
results for the quarter and six months ended June 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
financial statements, have been derived from audited financial
statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 1998.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 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 financial statements have been
reclassified to conform with the 1999 presentation. These
reclassifications had no effect on stockholders' equity or net
earnings.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-Up Activities," which became effective for the Company as of
January 1, 1999. The adoption of this SOP did not have a material
effect on the Company.
3. Public Offerings:
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 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 Six Months Ended June 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. The seven Hotels owned
by Hotel Investors as of June 30, 1999, and the remaining Hotel to be
acquired by Hotel Investors, were or will be acquired after completion
of construction.
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, which agreements included
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 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 expected 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 Six Months Ended June 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
additional shares up to 50,886 shares of Class A Preferred Stock and
CNL Hospitality Partners, LP will receive additional shares 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 June 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.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
4. Investment in Unconsolidated Subsidiary - Continued:
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. Then, cash flow from operations
will be distributed to the Company with respect to its Class B
Preferred Stock. Next, cash flow will be distributed to 100 CNL 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 at June 30, 1999:
Land, buildings and equipment on operating
leases, less accumulated depreciation $167,512,025
Cash 3,844,504
Loan costs, less accumulated amortization 665,993
Accrued rental income 82,523
Deposits and other assets 3,024,073
Liabilities 90,712,647
Redeemable preferred stock - Class A 48,336,090
Stockholders' equity 36,080,382
Revenues 3,798,398
Net earnings 1,079,561
During the quarter and six months ended June 30, 1999, the Company
recorded $658,288 and $900,131, respectively, in dividend income and an
equity in loss after deduction of preferred stock dividends of
$205,911 and $390,450, respectively, resulting in net earnings of
$452,377 and $509,681, respectively, attributable to this investment.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 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. In connection therewith, the
Company incurred $24,565 and $54,043 in interest expense during the
quarter and six months ended June 30, 1999, respectively.
6. Other Assets:
Other assets as of June 30, 1999 and December 31, 1998 were $3,980,239
and $1,989,951, respectively, which consisted of acquisition fees and
miscellaneous acquisition expenses that will be allocated to future
Properties, and other prepaid expenses.
7. Redemption of Shares:
In October 1998, the Board of Directors elected to implement the
Company's redemption plan. Under the redemption plan, the Company may
elect to redeem shares, subject to certain conditions and limitations.
During the quarter ended June 30, 1999, 500 shares of common stock were
redeemed at $9.20 per share ($4,600) and retired.
8. Stock Issuance Costs:
The Company has incurred certain expenses of 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 six months ended June 30, 1999 and the year ended December
31, 1998, the Company incurred $12,057,440 and $3,606,871,
respectively, in organizational and offering costs, including
$7,976,937 and $2,535,494, respectively, in commissions and marketing
support and due diligence expense reimbursement fees (see Note 10). Of
these amounts $12,057,440 and $3,601,898, respectively, have been
treated as stock issuance costs and for the year ended December 31,
1998, $4,973 has been treated as organization costs. The stock issuance
costs have been charged to stockholders' equity subject to the three
percent cap described above.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
9. Distributions:
For the six months ended June 30, 1999 and 1998, approximately 64 and
100 percent, respectively, of distributions paid to stockholders were
considered ordinary income and for the six months ended June 30, 1999,
approximately 36 percent was considered a return of capital to
stockholders for federal income tax purposes. No amounts distributed to
the stockholders for the six months ended June 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% return on
their invested capital. The characterization for tax purposes of
distributions declared for the six months ended June 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 six months ended June 30, 1999 and 1998, the Company
incurred $7,478,378 and $918,966, respectively, in selling commissions
due to CNL Securities Corp. for services in connection with the
offering of shares. A substantial portion of these amounts ($6,978,557
and $857,875, 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, a portion of which may
be reallowed to other broker-dealers. During the six months ended June
30, 1999 and 1998, the Company incurred $498,559 and $61,264,
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, 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 with the date the offering begins. No Soliciting
Dealer Warrant, 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 Six Months Ended June 30, 1999 and 1998
10. Related Party Transactions - Continued:
The Advisor is entitled to receive acquisition fees for services in
finding, negotiating the leases of and acquiring Properties on behalf
of the Company equal to 4.5% of gross proceeds, loan proceeds from
permanent financing and amounts outstanding on the line of credit, if
any, at the time of listing, but excluding that portion of the
permanent financing used to finance Secured Equipment Leases. During
the six months ended June 30, 1999 and 1998, the Company incurred
$5,057,012 and $551,380, 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 June 30,
1999.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor will receive a monthly asset management
fee of one-twelfth of 0.60% of the Company's real estate value and the
outstanding principal balance of any Mortgage Loans as of the end of
the preceding month. The management fee, which will not exceed fees
which are competitive for similar services in the same geographic area,
may or may not be taken, in whole or in part as to any year, in the
sole discretion of the Advisor. All or any portion of the management
fee not taken as to any fiscal year shall be deferred without interest
and may be taken in such other fiscal year as the Advisor shall
determine. During the quarter and six months ended June 30, 1999, the
Company incurred $17,871 and $67,436 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 six months ended June 30:
1999 1998
---------------- ----------------
Stock issuance costs $1,709,008 $154,337
General operating and
administrative expenses 150,380 76,082
================ ================
$1,859,388 $230,419
================ ================
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
10. Related Party Transactions - Continued:
The amounts due to related parties consisted of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------- ----------------
<S> <C>
Due to CNL Securities Corp.:
Commissions $ 568,726 $66,063
Marketing support and due
diligence expense
reimbursement fee 20,944 4,404
---------------- ----------------
589,670 70,467
---------------- ----------------
Due to the Advisor:
Expenditures incurred on
behalf of the Company and
accounting and
administrative services 255,642 110,496
Acquisition fees 188,272 137,974
---------------- ----------------
443,914 248,470
---------------- ----------------
$1,033,584 $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 six months ended June 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 Six Months Ended June 30, 1999 and 1998
12. Commitments and Contingencies:
As of June 30, 1999, the Company has entered into agreements to acquire,
directly or indirectly, four hotel Properties. In connection with three
of these agreements, the Company was required by the seller to obtain a
letter of credit. The letter of credit was collateralized by a $5,000,000
certificate of deposit. In connection with the letter of credit, the
Company incurred $22,500 in closing costs. In connection with the
remaining agreement, Hotel Investors was required by the seller to pay a
deposit of $3,000,000 which is being held in escrow by the title company.
Of this amount, Five Arrows contributed $1,680,000 and the Company
contributed $1,320,000.
Pursuant to the purchase agreement in connection with the acquisition of
the two Properties directly owned by the Company, the Company may be
required to make an additional payment of up to $1 million, contingent
upon these Properties achieving certain gross earnings before interest,
taxes, depreciation and amortization, as compared to the original
purchase price pursuant to a formula during a 36 month period ending July
31, 2001. Rental income will be adjusted upward in accordance with the
lease agreements for any such amount paid.
13. Subsequent Events:
During the period July 1, 1999 through August 5, 1999, the Company
received subscription proceeds for an additional 2,555,549 shares
($25,555,486) of common stock.
On July 1, 1999 and August 1, 1999, the Company declared distributions
totalling $964,344 and $1,086,775, respectively, or $0.0604 per share of
common stock, payable in September 1999, to stockholders of record on
July 1, 1999 and August 1, 1999, respectively.
On July 15, 1999, the Company redeemed 2,500 shares of common stock for
$23,000 or $9.20 per share.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information, including, without limitation, the Year 2000
Compliance disclosure, that are not historical facts may be forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Act of 1934. Although the Company believes that
the expectations reflected in such forward-looking statements are based upon
reasonable assumptions, the Company's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference include the following: changes in general economic
conditions, changes in local and national real estate conditions, continued
availability of proceeds from the Company's offering, the ability of the Company
to obtain permanent financing on satisfactory terms, the ability of the Company
to identify suitable investments, the ability of the Company to locate suitable
tenants for its properties and borrowers for its mortgage loans and secured
equipment leases, and the ability of such tenants and borrowers to make payments
under their respective leases, mortgage loans or secured equipment leases.
Introduction
CNL Hospitality Properties, Inc. was organized in Maryland on June 12,
1996. CNL Hospitality GP Corp. and CNL Hospitality LP Corp. are wholly owned
subsidiaries of CNL Hospitality Properties, Inc., organized in Delaware in June
1998. CNL Hospitality Partners, LP is a Delaware limited partnership formed in
June 1998. CNL Hospitality GP Corp. and CNL Hospitality LP Corp. are the general
and limited 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
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 June 30, 1999, the Company had
received subscription proceeds of $7,657,757 (765,776 shares) from its 1999
Offering, including 8,840 shares ($88,403) 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 Advisors, Inc. (the "Advisor") for acquisition fees, are
substantially the same as those for the Initial Offering.
As of August 5, 1999, the Company had received aggregate subscription
proceeds of $183,285,880 (18,328,588 shares) from its Initial Offering and 1999
Offering, including $161,040 (16,104 shares) through its reinvestment plan. As
of August 5, 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 $163,477,500. The
Company has used net proceeds from the offerings to invest, directly or
indirectly, approximately $63,098,200 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 $9,334,400 in
acquisition fees and expenses, leaving approximately $84,697,300 available for
investment in Properties and Mortgage Loans.
<PAGE>
Liquidity and Capital Resources - Continued
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 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 borrowing. The Company currently has a $30,000,000 initial
line of credit and plans to obtain one or more revolving lines of credit in an
aggregate amount up to $100,000,000, and may, in addition, also obtain permanent
financing. The lines of credit may be repaid with offering proceeds, working
capital or permanent financing. Although the Board of Directors anticipates that
the lines of credit will be in an amount up to $100,000,000 and that the
aggregate amount of permanent financing will not exceed 30% of the Company's
total assets, the maximum amount the Company may borrow, absent a satisfactory
showing that a higher level of borrowing is appropriate as approved by a
majority of the Independent Directors, is 300% of the Company's net assets.
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. During the six months ended June 30, 1999, the
Company repaid $9,600,000 relating to the line of credit. In connection with the
line of credit, the Company incurred a commitment fee, legal fees and closing
costs of $93,596. The proceeds were used in connection with the purchase of two
hotel Properties and the commitment to acquire three additional Properties. The
Company has not yet received a commitment for any permanent financing and there
is no assurance that the Company will obtain any long-term financing on
satisfactory terms.
At the Company's annual meeting of stockholders held on May 12, 1999, the
stockholders approved an amendment to the Company's Amended and Restated
Articles of Incorporation proposed by the Board of Directors to expand the class
of investors for whom they are authorized to waive the common and preferred
share ownership limitation under certain circumstances. On May 26, 1999, this
amendment became effective. The Board of Directors believes that this will allow
the Company to take better advantage of investments that are in the best
interest of the Company.
<PAGE>
Liquidity and Capital Resources - Continued
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. The seven Hotels owned by Hotel Investors as of June 30,
1999, and the remaining Hotel to be acquired by Hotel Investors, were or will
be acquired after completion of construction.
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,
which agreements included customary closing conditions, including inspection of
and due diligence on the completed Properties. The aggregate purchase price of
all eight Hotels, once acquired, was 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 expected 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 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.
<PAGE>
Liquidity and Capital Resources - Continued
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 additional shares up to 50,886 shares of
Class A Preferred Stock, and CNL Hospitality Partners, LP will receive
additional shares 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
of common stock. Therefore, as of June 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. Then, cash flow from
operations will be distributed to the Company with respect to its Class B
Preferred Stock. Next, cash flow will be distributed to 100 CNL 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.
<PAGE>
Liquidity and Capital Resources - Continued
As of August 5, 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 was required by the
seller to obtain a letter of credit. The letter of credit was collateralized by
a $5,000,000 certificate of deposit. In connection with the letter of credit,
the Company incurred $22,500 in closing costs. In connection with the remaining
agreement, Hotel Investors was required by the seller to pay a deposit of
$3,000,000 which is being held in escrow by the title company. Of this amount,
Five Arrows contributed $1,680,000 and the Company contributed $1,320,000. There
can be no assurance that any or all of the conditions will be satisfied or, if
satisfied, that one or more of these Properties will be acquired by the Company.
The Company is presently negotiating to acquire additional Properties, but as of
August 5, 1999, the Company had not acquired any such Properties or entered into
any Mortgage Loans. In addition, as of August 5, 1999, the Company had not
entered into any arrangements creating a reasonable probability a particular
Property, Mortgage Loan or Secured Equipment Lease would be funded.
The Properties are, and are expected to be, leased on a long-term,
triple-net basis, meaning that tenants are generally required to pay all repairs
and maintenance, property taxes, insurance and utilities. Rental payments under
the leases are expected to exceed the Company's operating expenses. For these
reasons, no short-term or long-term liquidity problems associated with operating
the Properties are currently anticipated by management.
Until Properties are acquired, or Mortgage Loans are entered into, net
offering proceeds are held in short-term, highly liquid investments, such as
demand deposit accounts at commercial banks, certificates of deposits and money
market accounts with less than a 30-day maturity date, which management believes
to have appropriate safety of principal. This investment strategy provides high
liquidity in order to facilitate the Company's use of these funds to acquire
Properties at such time as Properties suitable for acquisition are located or to
fund Mortgage Loans. At June 30, 1999, the Company had $63,669,254 invested in
such short-term investments as compared to $13,228,923 at December 31, 1998. The
increase in the amount invested in short-term investments primarily reflects
proceeds received from the sale of shares. These funds will be used primarily to
purchase additional Properties and make Mortgage Loans, to pay offering and
acquisition expenses, distributions to stockholders and other Company expenses
and, in management's discretion, to create cash reserves.
<PAGE>
Liquidity and Capital Resources - Continued
During the six months ended June 30, 1999 and 1998, affiliates of the
Company incurred on behalf of the Company $1,539,215 and $58,403, respectively,
for certain organizational and offering expenses, $418,353 and $20,302,
respectively, for certain acquisition expenses, and $169,220 and $58,172,
respectively for certain operating expenses. As of June 30, 1999 and 1998, the
Company owed the Advisor $443,914 and $60,918, respectively, for such amounts,
unpaid fees and administrative expenses (including services for accounting;
financial, tax and regulatory compliance and reporting; stockholder
distributions and reporting; due diligence and marketing; and investor
relations). The Advisor has agreed to pay or reimburse to the Company all
offering expenses in excess of three percent of gross offering proceeds.
During the six months ended June 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
$2,033,757 and $210,452, respectively. Based on current and anticipated future
cash from operations, the Company declared and paid distributions to its
stockholders of $3,052,616 and $257,086 during the six months ended June 30,
1999 and 1998, respectively. In addition, on July 1, 1999 and August 1, 1999,
the Company declared distributions to stockholders of record on July 1, 1999 and
August 1, 1999, totalling $964,344 and $1,086,775, respectively, ($0.0604 per
share), payable in September 1999.
For the six months ended June 30, 1999 and 1998, approximately 64 percent
and 100 percent, respectively, of the distributions received by stockholders
were considered to be ordinary income and for the six months ended June 30,
1999, approximately 36 percent was considered a return of capital for federal
income tax purposes. No amounts distributed or to be distributed to the
stockholders as of June 30, 1999, were required to be or have been treated by
the Company as a return of capital for purposes of calculating the stockholders'
8% return on their invested capital.
Management believes that the Properties are adequately covered by
insurance. In addition, the Advisor has obtained contingent liability coverage
for the Company. This insurance policy is intended to reduce the Company's
exposure in the unlikely event a tenant's insurance policy lapses or is
insufficient to cover a claim relating to a Property.
As of June 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 six
months ended June 30, 1999, revenues relating to the FF&E Reserve of the
Properties directly owned by the Company and indirectly owned through Hotel
Investors, totalled $126,033 and $59,976, respectively, of which $20,000 is
included in receivables as of June 30, 1999. Due to the fact that the Properties
are leased on a long-term, triple-net basis, management does not believe that
other working capital reserves are necessary at this time. Management has the
right to cause the Company to maintain additional reserves if, in their
discretion, they determine such reserves are required to meet the Company's
working capital needs.
<PAGE>
Liquidity and Capital Resources - Continued
Management is not aware of any material trends, favorable or unfavorable,
in either capital resources or the outlook for long-term cash generation, nor
does management expect any material changes in the availability and relative
cost of such capital resources. Management expects that the cash to be generated
from operations will be adequate to pay operating expenses and to make
distributions to stockholders.
Results of Operations
As of June 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 June
30, 1999 are owned by the Company, or in the case of the seven Properties owned
indirectly, by Hotel Investors, and have been reported as additional rent.
During the quarter and six months ended June 30, 1999, the Company earned
$748,908 and $1,486,526, respectively, from the two wholly owned Properties,
including $13,084 and $24,326, respectively, in contingent rental income. The
Company also earned $65,006 and $126,033 in FF&E Reserve income during the
quarter and six months ended June 30, 1999, respectively. Because the Company
has not yet acquired all of its Properties, revenues for the six months ended
June 30, 1999, represent only a portion of revenues which the Company is
expected to earn in future periods.
During the six months ended June 30, 1999, the Company owned and leased
seven Properties indirectly through the investment in Hotel Investors, as
described above. In connection therewith, during the quarter and six months
ended June 30, 1999, the Company recorded $658,288 and $900,131, respectively,
in dividend income and an equity in loss after deduction of preferred stock
dividends of $205,911 and $390,450, respectively, resulting in net earnings of
$452,377 and $509,681, respectively, attributable to this investment.
During the six months ended June 30, 1999 and 1998, the Company also
earned $907,739 and $371,159, respectively, in interest income from investments
in money market accounts and other short-term highly liquid investments and
other income, of which $614,875 and $232,006 was earned during the quarters
ended June 30, 1999 and 1998, respectively. The increase in interest income
during the six months ended June 30, 1999 as compared to the six months ended
June 30, 1998, is primarily attributable to the receipt of subscription proceeds
that are being temporarily invested in money market accounts or other
short-term, highly liquid investments
<PAGE>
Results of Operations - Continued
pending investment in Properties or Mortgage Loans. Interest income is expected
to increase as the Company invests subscription proceeds received in the future
in highly liquid investments pending investment in Properties and Mortgage
Loans. However, as net offering proceeds from the Company's offerings are
invested in Properties and used to make Mortgage Loans, the percentage of the
Company's total revenues from interest income from investments in money market
accounts or other short term, highly liquid investments is expected to decrease.
Operating expenses, including interest expense and depreciation and
amortization expense, were $1,137,450 and $169,186 for the six months ended June
30, 1999 and 1998, respectively of which $418,917 and $77,341 were incurred for
the quarters ended June 30, 1999 and 1998, respectively. Total operating
expenses were greater due to the fact that the Company owned an interest in nine
Properties during the six months ended June 30, 1999, as compared to none during
the six months ended June 30, 1998. In addition, the Company had a weighted
average balance outstanding on its line of credit of $3,200,000 during the six
months ended June 30, 1999. The Company did not have any borrowings on its line
of credit during the six months ended June 30, 1998. Operating expenses,
including asset management fees and depreciation and amortization expense,
represent only a portion of operating expenses which the Company is expected to
incur during a full year in which the Company owns Properties. The dollar amount
of operating expenses is expected to increase as the Company acquires additional
Properties and invests in Mortgage Loans. However, general and administrative
expenses as a percentage of total revenues is expected to decrease as the
Company acquires additional Properties and invests in Mortgage Loans.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, "Reporting on the Cost of Start-Up
Activities," which became effective for the Company as of January 1, 1999. The
adoption of this SOP did not have a material effect on the Company.
The Company is subject to interest rate risk through outstanding balances
on its variable rate line of credit. The Company may mitigate this risk by
paying down the line of credit from offering proceeds should interest rates rise
substantially. As of June 30, 1999, the Company had repaid the outstanding
balance on the line of credit.
Year 2000 Compliance
The Year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process
date-sensitive information beyond January 1, 2000. The Company does not have any
information technology systems or any non-information technology systems other
than those located on the Company's Properties described below. The Advisor and
affiliates of the Advisor provide all services requiring the use of information
and non-information technology systems pursuant to a management agreement with
the Company. The information technology system of the affiliates of the Advisor
consists of a network of personal computers and servers built using hardware and
software from mainstream suppliers. The non-information technology systems of
the affiliates of the Advisor are primarily facility related and include
building security systems, elevators, fire suppressions, HVAC,
<PAGE>
Year 2000 Compliance - Continued
electrical systems and other utilities. The affiliates of the Advisor have no
internally generated programmed software coding to correct, as substantially all
of the software utilized by the Advisor and affiliates is purchased or licensed
from external providers. The non-information technology systems located on the
Properties owned by the Company are generally the responsibility of the tenant
and any repairs or replacements will be paid out of the FF&E Reserve. To the
extent that such expenditures are in excess of the amounts available in the FF&E
Reserve, the Company will be required to fund such amounts. Rental income will
be adjusted upward in accordance with the lease agreements for any such amount
paid.
In early 1998, the Advisor and affiliates formed a Year 2000 committee
(the "Y2K Team") for the purpose of identifying, understanding and addressing
the various issues associated with the Year 2000 problems. The Y2K Team consists
of members from the Advisor and its affiliates, including representatives from
senior management, information systems, telecommunications, legal, office
management, accounting and property management. The Y2K Team's initial step in
assessing the Company's Year 2000 ("Y2K") readiness consists of identifying any
systems that are date sensitive and, accordingly, could have potential Y2K
problems. The Y2K Team is in the process of conducting inspections, interviews
and tests to identify which of the systems of the Advisor and affiliates could
have a potential Y2K problem.
The information system of the Advisor and its affiliates is comprised of
hardware and software applications from mainstream suppliers; accordingly, the
Y2K Team is in the process of contacting the respective vendors and
manufacturers to verify the Y2K compliance of their products. In addition, the
Y2K Team has also requested and is evaluating documentation from other companies
with which the Company has a material third party relationship, including the
Company's tenants, major vendors, financial institutions and transfer agent. The
Company depends on its tenants for rents and cash flows, its financial
institutions for availability of cash and financing and its transfer agent to
maintain and track investor information. The Y2K Team has also requested and is
evaluating documentation from the non-information technology systems providers
of the Advisor and affiliates. Although the Advisor continues to receive
positive responses from its third party relationships regarding their Y2K
compliance, the Advisor cannot be assured that the tenants, financial
institutions, transfer agent, other vendors and non-information technology
system providers have adequately considered the impact of the Year 2000. The
Advisor is not able to measure the effect on the operations of the Advisor and
its affiliates of any third party's failure to adequately address the impact of
the Year 2000.
The Advisor and its affiliates have identified and have implemented
upgrades for certain hardware equipment. In addition, the Advisor and its
affiliates have identified certain software applications which will require
upgrades to become Year 2000 compliant. The Advisor expects all of these
upgrades as well as any other necessary remedial measures on the information
technology systems used in the business activities and operations of the Company
to be completed by September 30, 1999, although, the Advisor cannot be assured
that the upgrade solutions provided by the vendors have addressed all possible
Year 2000 issues. The Advisor does not expect the aggregate cost of the Year
2000 remedial measures to be material to the results of operations of the
Company.
<PAGE>
Year 2000 Compliance - Continued
The Advisor and affiliates have received certification from the Company's
transfer agent of its Y2K compliance. Due to the material relationship of the
Company with its transfer agent, the Y2K Team is evaluating the Year 2000
compliance of the systems of the transfer agent and expects to have the
evaluation completed by September 30, 1999. Despite the positive response from
the transfer agent and the evaluation of the transfer agent's system by the Y2K
Team, the Advisor cannot be assured that the transfer agent has addressed all
possible Year 2000 issues. In the event that the systems of the transfer agent
are not Y2K compliant, the worst case scenario of the Advisor would be that the
Advisor would have to allocate resources to internally perform the functions of
the transfer agent. The Advisor does not anticipate that the additional cost of
these resources would have a material impact on the Company.
Based upon the progress the Advisor and affiliates have made in
addressing the Year 2000 issues and their plan and timeline to complete the
compliance program, the Advisor does not foresee significant risks associated
with its Year 2000 compliance at this time. The Advisor plans to address its
significant Y2K issues prior to being affected by them; therefore, it has not
developed a comprehensive contingency plan. However, if the Advisor identifies
significant risks related to its Year 2000 compliance or if its progress
deviates from the anticipated timeline, the Advisor will develop contingency
plans as deemed necessary at that time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
See Item 2. Management's Discussion and Analysis of Financial Position
and Results of Operations for information related to quantitative and
qualitative disclosure about market risk.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities and Use of Proceeds.
(d) 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
August 5, 1999, the Company had used net offering proceeds
to invest, directly or indirectly, approximately $63,098,000
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 $7,789,000
in acquisition fees and certain acquisition expenses. As of
August 5, 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.
(a) The regular annual meeting of stockholders of the
Company was held in Orlando, Florida on May 12, 1999 for
the purposes of electing the board of directors and voting
on the proposal described below.
(b) Proxies for the meeting were solicited pursuant to Section
14(a) of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder, and there was
no solicitation in opposition to management's
solicitations.
All of management's nominees for director were elected.
(c) Two proposals were submitted to a vote of stockholders
as follows:
(1) The stockholders approved the election of the following
persons as directors of the Company:
Name For Withheld
Charles E. Adams 5,177,287 117,199
Robert A. Bourne 5,205,087 89,399
Lawrence A. Dustin 5,199,587 94,899
John A. Griswold 5,199,587 94,899
Matthew W. Kaplan 5,207,054 87,431
Craig M. McAllaster 5,197,587 96,899
James M. Seneff, Jr. 5,207,054 87,431
(2) The stockholders approved, with 4,768,401
affirmative votes, 205,718 negative votes, and
320,367 abstentions, the proposal to approve an
amendment to the Company's Amended and Restated
Articles of Incorporation to expand the class of
investors for whom the Board of Directors is
authorized to waive the common and preferred share
ownership limitations under certain circumstances.
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.) (Filed herewith.)
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, LLP, 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.)
27. Financial Data Schedule (Filed herewith.)
(b) The Company filed one report on Form 8-K, reporting
the June 16, 1999 investment in CNL Hotel Investors,
Inc., on June 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 13th day of August, 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 10.1
Advisory Agreement
<PAGE>
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT, dated as of June 17, 1999, is between CNL
HOSPITALITY PROPERTIES, INC., a corporation organized under the laws of the
State of Maryland (the "Company") and CNL HOSPITALITY ADVISORS, INC., a
corporation organized under the laws of the State of Florida (the "Advisor").
<PAGE>
W I T N E S S E T H
WHEREAS, the Company filed with the Securities and Exchange Commission
a Registration Statement (No. 333-9943) on Form S-11 covering 16,500,000 of its
common shares ("Initial Offering"), par value $.01, to be offered to the public;
WHEREAS, the Company filed with the Securities and Exchange Commission
a Registration Statement (No. 333-67787) on Form S-11 covering 27,500,000 of its
common shares ("Subsequent Offering"), par value $.01, to be offered to the
public, and the Company may subsequently issue securities other than such Shares
("Securities") or otherwise raise additional capital;
WHEREAS, the Initial Offering was terminated on June 17, 1999 and the
Subsequent Offering of 27,500,000 Shares commenced;
WHEREAS, the Company intends to qualify as a REIT (as defined below),
and to invest its funds in investments permitted by the terms of the
Registration Statement and Sections 856 through 860 of the Code (as defined
below);
WHEREAS, the Company desires to avail itself of the experience, sources
of information, advice, assistance and certain facilities available to the
Advisor and to have the Advisor undertake the duties and responsibilities
hereinafter set forth, on behalf of, and subject to the supervision, of the
Board of Directors of the Company all as provided herein; and
WHEREAS, the Advisor is willing to undertake to render such services,
subject to the supervision of the Board of Directors, on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
(1) Definitions. As used in this Advisory Agreement (the "Agreement"),
the following terms have the definitions hereinafter indicated:
Acquisition Expenses. Any and all expenses incurred by the Company, the
Advisor, or any Affiliate of either in connection with the selection or
acquisition of any Property or the making of any Mortgage Loan, whether or not
acquired, including, without limitation, legal fees and expenses, travel and
communications expenses, costs of appraisals, nonrefundable option payments on
property not acquired, accounting fees and expenses, and title insurance.
<PAGE>
Acquisition Fees. Any and all fees and commissions, exclusive of
Acquisition Expenses, paid by any person or entity to any other person or entity
(including any fees or commissions paid by or to any Affiliate of the Company or
the Advisor) in connection with making or investing in Mortgage Loans or the
purchase, development or construction of a Property, including, without
limitation, real estate commissions, acquisition fees, finder's fees, selection
fees, development fees, construction fees, nonrecurring management fees,
consulting fees, loan fees, points, the Secured Equipment Lease Servicing Fee,
or any other fees or commissions of a similar nature. Excluded shall be
development fees and construction fees paid to any person or entity not
affiliated with the Advisor in connection with the actual development and
construction of any Property.
Advisor. CNL Hospitality Advisors, Inc., a Florida corporation, any
successor advisor to the Company, or any person or entity to which CNL
Hospitality Advisors, Inc. or any successor advisor subcontracts substantially
all of its functions.
Affiliate or Affiliated. As to any individual, corporation,
partnership, trust or other association (other than the Excess Shares Trust),
(i) any Person or entity directly or indirectly through one or more
intermediaries controlling, controlled by, or under common control with another
person or entity; (ii) any Person or entity, directly or indirectly owning or
controlling ten percent (10%) or more of the outstanding voting securities of
another Person or entity; (iii) any officer, director, partner, or trustee of
such Person or entity; (iv) any Person ten percent (10%) or more of whose
outstanding voting securities are directly or indirectly owned, controlled, or
held, with power to vote, by such other Person; and (v) if such other Person or
entity is an officer, director, partner, or trustee of a Person or entity, the
Person or entity for which such Person or entity acts in any such capacity.
Appraised Value. Value according to an appraisal made by an Independent
Appraiser.
Articles of Incorporation. The Articles of Incorporation of the Company
under Title 2 of the Corporations and Associations Article of the Annotated Code
of Maryland, as amended from time to time.
Asset Management Fee. The fee payable to the Advisor for day-to-day
professional management services in connection with the Company and its
investments in Properties and Mortgage Loans pursuant to this Agreement.
Assets. Properties, Mortgage Loans and Secured Equipment Leases,
collectively.
Average Invested Assets. For a specified period, the average of the
aggregate book value of the assets of the Company invested, directly or
indirectly, in equity interests in and loans secured by real estate before
reserves for depreciation or bad debts or other similar non-cash reserves,
computed by taking the average of such values at the end of each month during
such period.
Board of Directors or Board. The persons holding such office, as of any
particular time, under the Articles of Incorporation of the Company, whether
they be the Directors named therein or additional or successor Directors.
Bylaws. The bylaws of the Company, as the same are in effect from time
to time.
Cause. With respect to the termination of this Agreement, fraud,
criminal conduct, willful misconduct or willful or negligent breach of fiduciary
duty by the Advisor, breach of this Agreement, a default by the Sponsor under
the guarantee by the Sponsor to the Company or the bankruptcy of the Sponsor.
Change of Control. A change of control of the Company of such a nature
that would be required to be reported in response to the disclosure requirements
of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended, as enacted and in force on the date hereof (the "Exchange
Act"), whether or not the Company is then subject to such reporting
requirements; provided, however, that, without limitation, a change of control
shall be deemed to have occurred if: (i) any "person" (within the meaning of
Section 13(d) of the Exchange Act) is or becomes the "beneficial owner" (as that
term is defined in Rule 13d-3, as enacted and in force on the date hereof, under
the Exchange Act) of securities of the Company representing 8.5% or more of the
combined voting power of the Company's securities then outstanding; (ii) there
occurs a merger, consolidation or other reorganization of the Company which is
not approved by the Board of Directors of the Company; (iii) there occurs a
sale, exchange, transfer or other disposition of substantially all of the assets
of the Company to another entity, which disposition is not approved by the Board
of Directors of the Company; or (iv) there occurs a contested proxy solicitation
of the Stockholders of the Company that results in the contesting party electing
candidates to a majority of the Board of Directors' positions next up for
election.
Code. Internal Revenue Code of 1986, as amended from time to time, or
any successor statute thereto. Reference to any provision of the Code shall mean
such provision as in effect from time to time, as the same may be amended, and
any successor provision thereto, as interpreted by any applicable regulations as
in effect from time to time.
Company. CNL Hospitality Properties, Inc., a corporation organized
under the laws of the State of Maryland.
Company Property. Any and all property, real, personal or otherwise,
tangible or intangible, including Mortgage Loans and Secured Equipment Leases,
which is transferred or conveyed to the Company (including all rents, income,
profits and gains therefrom), and which is owned or held by, or for the account
of, the Company.
Competitive Real Estate Commission. A real estate or brokerage
commission for the purchase or sale of property which is reasonable, customary,
and competitive in light of the size, type, and location of the property. The
total of all real estate commissions paid by the Company to all Persons
(including the Subordinated Disposition Fee payable to the Advisor) in
connection with any Sale of one or more of the Company's Properties shall not
exceed the lesser of (i) a Competitive Real Estate Commission or (ii) six
percent of the gross sales price of the Property or Properties.
Contract Purchase Price. The amount actually paid or allocated (as of
the date of purchase) to the purchase, development, construction or improvement
of property, exclusive of Acquisition Fees and Acquisition Expenses.
Contract Sales Price. The total consideration received by the Company
for the sale of Company Property.
Director. A member of the Board of Directors of the Company.
Distributions. Any distributions of money or other property by the
Company to owners of Equity Shares, including distributions that may constitute
a return of capital for federal income tax purposes.
Equipment. The furniture, fixtures and equipment used at Hotel Chains.
Equity Interest. The stock of or other interests in, or warrants or
other rights to purchase the stock of or other interests in, any entity that has
borrowed money from the Company or that is a tenant of the Company or that is a
parent or controlling Person of any such borrower or tenant.
Equity Shares. Transferable shares of beneficial interest of the
Company of any class or series, including common shares or preferred shares.
Good Reason. With respect to the termination of this Agreement, (i) any
failure to obtain a satisfactory agreement from any successor to the Company to
assume and agree to perform the Company's obligations under this Agreement; or
(ii) any material breach of this Agreement of any nature whatsoever by the
Company.
Gross Proceeds. The aggregate purchase price of all Shares sold for the
account of the Company through the Subsequent Offering, without deduction for
Selling Commissions, volume discounts, the marketing support and due diligence
expense reimbursement fee or Offering Expenses. For the purpose of computing
Gross Proceeds, the purchase price of any Share for which reduced Selling
Commissions are paid to the Managing Dealer or a Soliciting Dealer (where net
proceeds to the Company are not reduced) shall be deemed to be $10.00.
Hotel Chains. The national and regional hotel chains, primarily limited
service, extended stay and full service chains, to be selected by the Advisor,
and who themselves or their franchisees will either (i) lease Properties
purchased by the Company, (ii) become borrowers under Mortgage Loans, or (iii)
become lessees or borrowers under Secured Equipment Leases.
Independent Appraiser. A qualified appraiser of real estate as
determined by the Board. Membership in a nationally recognized appraisal society
such as the American Institute of Real Estate Appraisers ("M.A.I.") or the
Society of Real Estate Appraisers ("S.R.E.A.") shall be conclusive evidence of
such qualification.
Independent Director. A Director who is not and within the last two
years has not been directly or indirectly associated with the Advisor by virtue
of (i) ownership of an interest in the Advisor or its Affiliates, (ii)
employment by the Advisor or its Affiliates, (iii) service as an officer or
director of the Advisor or its Affiliates, (iv) performance of services, other
than as a Director, for the Company, (v) service as a director or trustee of
more than three real estate investment trusts advised by the Advisor, or (vi)
maintenance of a material business or professional relationship with the Advisor
or any of its Affiliates. A business or professional relationship is considered
material if the gross revenue derived by the Director from the Advisor and
Affiliates exceeds 5% of either the Director's annual gross revenue during
either of the last two years or the Director's net worth on a fair market value
basis. An indirect relationship shall include circumstances in which a
Director's spouse, parents, children, siblings, mothers- or fathers-in-law,
sons- or daughters-in-law, or brothers- or sisters-in-law is or has been
associated with the Advisor, any of its Affiliates, or the Company.
Independent Expert. A person or entity with no material current or
prior business or personal relationship with the Advisor or the Directors and
who is engaged to a substantial extent in the business of rendering opinions
regarding the value of assets of the type held by the Company.
Initial Offering. The initial public offering of up to 16,500,000
Shares that was completed on June 17, 1999.
Invested Capital. The amount calculated by multiplying the total number
of Shares purchased by stockholders by the issue price, reduced by the portion
of any Distribution that is attributable to Net Sales Proceeds and by any
amounts paid by the Company to repurchase Shares pursuant to the Company's plan
for redemption of Shares.
Joint Ventures. The joint venture or general partnership arrangements
in which the Company is a co-venturer or general partner which are established
to acquire Properties.
Line of Credit. One or more lines of credit in an aggregate amount up
to $100,000,000, the proceeds of which will be used to acquire Properties and
make Mortgage Loans and Secured Equipment Leases.
Listing. The listing of the Shares of the Company on a national
securities exchange or over-the-counter market.
Managing Dealer. CNL Securities Corp., an Affiliate of the Advisor, or
such entity selected by the Board of Directors to act as the managing dealer for
the Subsequent Offering. CNL Securities Corp. is a member of the National
Association of Securities Dealers, Inc.
Mortgage Loans. In connection with mortgage financing provided by the
Company, the notes or other evidence of indebtedness or obligations which are
secured or collateralized by real estate owned by the borrower.
Net Income. For any period, the total revenues applicable to such
period, less the total expenses applicable to such period excluding additions to
reserves for depreciation, bad debts or other similar non-cash reserves;
provided, however, Net Income for purposes of calculating total allowable
Operating Expenses (as defined herein) shall exclude the gain from the sale of
the Company's assets.
<PAGE>
Net Sales Proceeds. In the case of a transaction described in clause
(i)(A) of the definition of Sale, the proceeds of any such transaction less the
amount of all real estate commissions and closing costs paid by the Company. In
the case of a transaction described in clause (i)(B) of such definition, Net
Sales Proceeds means the proceeds of any such transaction less the amount of any
legal and other selling expenses incurred in connection with such transaction.
In the case of a transaction described in clause (i)(C) of such definition, Net
Sales Proceeds means the proceeds of any such transaction actually distributed
to the Company from the Joint Venture. In the case of a transaction or series of
transactions described in clause (i)(D) of the definition of Sale, Net Sales
Proceeds means the proceeds of any such transaction less the amount of all
commissions and closing costs paid by the Company. In the case of a transaction
described in clause (ii) of the definition of Sale, Net Sales Proceeds means the
proceeds of such transaction or series of transactions less all amounts
generated thereby and reinvested in one or more Properties within 180 days
thereafter and less the amount of any real estate commissions, closing costs,
and legal and other selling expenses incurred by or allocated to the Company in
connection with such transaction or series of transactions. Net Sales Proceeds
shall also include, in the case of any lease of a Property consisting of a
building only, any Mortgage Loan or any Secured Equipment Lease, any amounts
from tenants, borrowers or lessees that the Company determines, in its
discretion, to be economically equivalent to proceeds of a Sale. Net Sales
Proceeds shall not include, as determined by the Company in its sole discretion,
any amounts reinvested in one or more Properties, Mortgage Loans, or Secured
Equipment Leases, to repay outstanding indebtedness, or to establish reserves.
Offering Expenses. Any and all costs and expenses, other than Selling
Commissions and the 0.5% marketing support and due diligence expense
reimbursement fee incurred by the Company, the Advisor or any Affiliate of
either in connection with the qualification and registration of the Company and
the marketing and distribution of Shares, including, without limitation, the
following: legal, accounting and escrow fees; printing, amending, supplementing,
mailing and distributing costs; filing, registration and qualification fees and
taxes; telegraph and telephone costs; and all advertising and marketing
expenses, including the costs related to investor and broker-dealer sales
meetings.
Operating Expenses. All costs and expenses incurred by the Company, as
determined under generally accepted accounting principles, which in any way are
related to the operation of the Company or to Company business, including (a)
advisory fees, (b) the Soliciting Dealer Servicing Fee, (c) the Asset Management
Fee, (d) the Performance Fee and (e) the Subordinated Incentive Fee, but
excluding (i) the expenses of raising capital such as Offering Expenses, legal,
audit, accounting, underwriting, brokerage, listing, registration, and other
fees, printing and other such expenses and tax incurred in connection with the
issuance, distribution, transfer, registration and Listing of the Shares, (ii)
interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation,
amortization and bad loan reserves, (v) the Advisor's subordinated 10% share of
Net Sales Proceeds, and (vi) Acquisition Fees and Acquisition Expenses, real
estate commissions on the sale of property, and other expenses connected with
the acquisition, and ownership of real estate interests, mortgage loans or other
property (such as the costs of foreclosure, insurance premiums, legal services,
maintenance, repair and improvement of property).
<PAGE>
Performance Fee. The fee payable to the Advisor upon termination of
this Agreement under certain circumstances if certain performance standards have
been met and the Subordinated Incentive Fee has not been paid.
Permanent Financing. The financing to acquire Assets, to pay the
Secured Equipment Lease Servicing Fee to pay a fee of 4.5% of any Permanent
Financing, excluding amounts to fund Secured Equipment Leases, as Acquisition
Fees, and to refinance outstanding amounts on the Line of Credit.
Person. An individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity, or any government or any agency or political subdivision
thereof, and also includes a group as that term is used for purposes of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, but does not
include (i) an underwriter that participates in a public offering of Equity
Shares for a period of sixty (60) days following the initial purchase by such
underwriter of such Equity Shares in such public offering, or (ii) CNL
Hospitality Advisors, Inc., during the period ending December 31, 1997, provided
that the foregoing exclusions shall apply only if the ownership of such Equity
Shares by an underwriter or CNL Hospitality Advisors, Inc. would not cause the
Company to fail to qualify as a REIT by reason of being "closely held" within
the meaning of Section 856(a) of the Code or otherwise cause the Company to fail
to qualify as a REIT.
Property or Properties. (i) The real properties, including the
buildings located thereon, or (ii) the real properties only, or (iii) the
buildings only, which are acquired by the Company, either directly or through
joint venture arrangements or other partnerships.
Prospectus. "Prospectus" means the same as that term as defined in
Section 2(10) of the Securities Act of 1993, including a preliminary Prospectus,
an offering circular as described in Rule 256 of the General Rules and
Regulations under the Securities Act of 1933 or, in the case of an intrastate
offering, any document by whatever name known, utilized for the purpose of
offering and selling securities to the public.
Real Estate Asset Value. The amount actually paid or allocated to the
purchase, development, construction or improvement of a Property, exclusive of
Acquisition Fees and Acquisition Expenses.
Registration Statement. The Registration Statement (No. 333-67787) on
Form S-11 registering the Shares to be sold in the Subsequent Offering.
REIT. A "real estate investment trust" under Sections 856 through 860
of the Code.
Sale or Sales. (i) Any transaction or series of transactions whereby:
(A) the Company sells, grants, transfers, conveys, or relinquishes its ownership
of any Property or portion thereof, including the lease of any Property
consisting of the building only, and including any event with respect to any
Property which gives rise to a significant amount of insurance proceeds or
condemnation awards; (B) the Company sells, grants, transfers, conveys, or
relinquishes its ownership of all or substantially all of the interest of the
Company in any Joint Venture in which it is a co-venturer or partner; (C) any
Joint Venture in which the Company as a co-venturer or partner sells, grants,
transfers, conveys, or relinquishes its ownership of any Property or portion
thereof, including any event with respect to any Property which gives rise to
insurance claims or condemnation awards; or (D) the Company sells, grants,
conveys or relinquishes its interest in any Mortgage Loan or Secured Equipment
Lease or portion thereof, including any event with respect to any Mortgage Loan
or Secured Equipment Lease which gives rise to a significant amount of insurance
proceeds or similar awards, but (ii) not including any transaction or series of
transactions specified in clause (i)(A), (i)(B), or (i)(C) above in which the
proceeds of such transaction or series of transactions are reinvested in one or
more Properties within 180 days thereafter.
Secured Equipment Leases. The Equipment financing made available by the
Company to operators of Hotel Chains pursuant to which the Company will finance,
through loans or direct financing leases, the Equipment.
Secured Equipment Lease Servicing Fee. The fee payable to the Advisor
by the Company out of the proceeds of the Line of Credit or Permanent Financing
for negotiating Secured Equipment Leases and supervising the Secured Equipment
Lease program equal to 2% of the purchase price of the Equipment subject to each
Secured Equipment Lease and paid upon entering into such lease or loan.
Securities. Any Equity Shares, Excess Shares, as such term is defined
in the Company's Articles of Incorporation, any other stock, shares or other
evidences of equity or beneficial or other interests, voting trust certificates,
bonds, debentures, notes or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general any instruments
commonly known as "securities" or any certificates of interest, shares or
participations in, temporary or interim certificates for, receipts for,
guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.
Shares. The common shares of the Company.
Soliciting Dealers. Broker-dealers who are members of the National
Association of Securities Dealers, Inc., or that are exempt from broker-dealer
registration, and who, in either case, have executed participating broker or
other agreements with the Managing Dealer to sell Shares.
Soliciting Dealer Servicing Fee. An annual fee of .20% of Invested
Capital (calculated using Shares sold in the Initial Offering) on December 31 of
each year, commencing in the year following the year in which the Initial
Offering terminated, payable to the Managing Dealer, which in turn may reallow
all or a portion of such fee to the Soliciting Dealers whose clients hold Shares
purchased in the Initial Offering on such date.
Sponsor. Any Person directly or indirectly instrumental in organizing,
wholly or in part, the Company or any Person who will control, manage or
participate in the management of the Company, and any Affiliate of such Person.
Not included is any Person whose only relationship with the Company is that of
an independent property manager of Company assets, and whose only compensation
is as such. Sponsor does not include independent third parties such as
attorneys, accountants, and underwriters whose only compensation is for
professional services. A Person may also be deemed a Sponsor of the Company by:
a. taking the initiative, directly or indirectly, in founding or
organizing the business or enterprise of the Company, either
alone or in conjunction with one or more other Persons;
b. receiving a material participation in the Company in
connection with the founding or organizing of the business of
the Company, in consideration of services or property, or both
services and property;
c. having a substantial number of relationships and contacts with
the Company;
d. possessing significant rights to control Company properties;
e. receiving fees for providing services to the Company which are
paid on a basis that is not customary in the industry; or
f. providing goods or services to the Company on a basis which
was not negotiated at arms length with the Company.
Stockholders. The registered holders of the Company's Equity Shares.
Stockholders' 8% Return. As of each date, an aggregate amount equal to
an 8% cumulative, noncompounded, annual return on Invested Capital.
Subordinated Disposition Fee. The Subordinated Disposition Fee as
defined in Paragraph 9(c).
Subordinated Incentive Fee. The fee payable to the Advisor under
certain circumstances if the Shares are listed on a national securities
exchange or over-the-counter market.
Subsequent Offering. The subsequent public offering of 27,500,000
Shares that commenced upon completion of the Initial Offering.
Termination Date. The date of termination of the Agreement.
Total Proceeds. The Gross Proceeds plus loan proceeds from Permanent
Financing, excluding loan proceeds used to finance Secured Equipment
Leases.
Total Property Cost. With regard to any Company Property, an amount
equal to the sum of the Real Estate Asset Value of such Property plus
the Acquisition Fees paid in connection with such Property.
<PAGE>
2%/25% Guidelines. The requirement pursuant to the guidelines of the
North American Securities Administrators Association, Inc. that, in any 12 month
period, total Operating Expenses not exceed the greater of 2% of the Company's
Average Invested Assets during such 12 month period or 25% of the Company's Net
Income over the same 12 month period.
Valuation. An estimate of value of the assets of the Company as
determined by an Independent Expert.
(2) Appointment. The Company hereby appoints the Advisor to serve as
its advisor on the terms and conditions set forth in this Agreement, and the
Advisor hereby accepts such appointment.
(3) Duties of the Advisor. The Advisor undertakes to use its best
efforts to present to the Company potential investment opportunities and to
provide a continuing and suitable investment program consistent with the
investment objectives and policies of the Company as determined and adopted from
time to time by the Directors. In performance of this undertaking, subject to
the supervision of the Directors and consistent with the provisions of the
Registration Statement, Articles of Incorporation and Bylaws of the Company, the
Advisor shall, either directly or by engaging an Affiliate:
(a) serve as the Company's investment and financial
advisor and provide research and economic and
statistical data in connection with the Company's
assets and investment policies;
(b) provide the daily management of the Company and
perform and supervise the various administrative
functions reasonably necessary for the management of
the Company;
(c) investigate, select, and, on behalf of the Company,
engage and conduct business with such Persons as the
Advisor deems necessary to the proper performance of
its obligations hereunder, including but not limited
to consultants, accountants, correspondents, lenders,
technical advisors, attorneys, brokers, underwriters,
corporate fiduciaries, escrow agents, depositaries,
custodians, agents for collection, insurers,
insurance agents, banks, builders, developers,
property owners, mortgagors, and any and all agents
for any of the foregoing, including Affiliates of the
Advisor, and Persons acting in any other capacity
deemed by the Advisor necessary or desirable for the
performance of any of the foregoing services,
including but not limited to entering into contracts
in the name of the Company with any of the foregoing;
(d) consult with the officers and Directors of the
Company and assist the Directors in the formulation
and implementation of the Company's financial
policies, and, as necessary, furnish the Directors
with advice and
<PAGE>
recommendations with respect to the making of
investments consistent with the investment objectives
and policies of the Company and in connection with
any borrowings proposed to be undertaken by the
Company;
(e) subject to the provisions of Paragraphs 3(g) and 4
hereof, (i) locate, analyze and select potential
investments in Properties, Mortgage Loans and
potential lessees of Secured Equipment Leases, (ii)
structure and negotiate the terms and conditions of
transactions pursuant to which investment in
Properties, Mortgage Loans will be made and Secured
Equipment Leases will be offered by the Company;
(iii) make investments in Properties, Mortgage Loans
and enter into Secured Equipment Leases on behalf of
the Company in compliance with the investment
objectives and policies of the Company; (iv) arrange
for financing and refinancing and make other changes
in the asset or capital structure of, and dispose of,
reinvest the proceeds from the sale of, or otherwise
deal with the investments in, Property, Mortgage
Loans and Secured Equipment Leases; and (v) enter
into leases and service contracts for Company
Property and, to the extent necessary, perform all
other operational functions for the maintenance and
administration of such Company Property;
(f) provide the Directors with periodic reports regarding
prospective investments in Properties, Mortgage Loans
and prospective lessees or borrowers of Secured
Equipment Leases;
(g) obtain the prior approval of the Directors (including
a majority of all Independent Directors) for any and
all investments in Properties, Mortgage Loans, and in
connection with the offering of Secured Equipment
Leases;
(h) negotiate on behalf of the Company with banks or
lenders for loans to be made to the Company and
negotiate on behalf of the Company with investment
banking firms and broker-dealers or negotiate private
sales of Shares and Securities or obtain loans for
the Company, but in no event in such a way so that
the Advisor shall be acting as broker-dealer or
underwriter; and provided, further, that any fees and
costs payable to third parties incurred by the
Advisor in connection with the foregoing shall be the
responsibility of the Company;
(i) obtain reports (which may be prepared by the Advisor
or its Affiliates), where appropriate, concerning the
value of investments or contemplated investments of
the Company in Properties, Mortgage Loans, and/or
Secured Equipment Leases;
(j) from time to time, or at any time reasonably
requested by the Directors, make reports to the
Directors of its performance of services to the
Company under this Agreement;
(k) provide the Company with all necessary cash
management services;
(l) do all things necessary to assure its ability to
render the services described in this Agreement;
(m) deliver to or maintain on behalf of the Company
copies of all appraisals obtained in connection with
the investments in Properties, Mortgage Loans;
(n) notify the Board of all proposed material
transactions before they are completed; and
(o) administer the Secured Equipment Lease program on
behalf of the Company.
(4) Authority of Advisor.
(a) Pursuant to the terms of this Agreement (including the
restrictions included in this Paragraph 4 and in Paragraph 7), and subject to
the continuing and exclusive authority of the Directors over the management of
the Company, the Directors hereby delegate to the Advisor the authority to (1)
locate, analyze and select investment opportunities, (2) structure the terms and
conditions of transactions pursuant to which investments will be made or
acquired for the Company, (3) acquire Properties, make Mortgage Loans and offer
Secured Equipment Leases in compliance with the investment objectives and
policies of the Company, (4) arrange for financing or refinancing Property,
Mortgage Loans and Secured Equipment Leases, (5) enter into leases and service
contracts for the Company's Property, and perform other property management
services, (6) oversee non-affiliated property managers and other non-affiliated
Persons who perform services for the Company; and (7) undertake accounting and
other record-keeping functions at the Property level.
(b) Notwithstanding the foregoing, any investment in
Properties, Mortgage Loans; or extension of a Secured Equipment Lease, including
any acquisition of Property by the Company (as well as any financing acquired by
the Company in connection with such acquisition) will require the prior approval
of the Directors (including a majority of the Independent Directors).
(c) If a transaction requires approval by the Independent
Directors, the Advisor will deliver to the Independent Directors all documents
required by them to properly evaluate the proposed investment in the Property,
Mortgage Loan or Secured Equipment Lease. The prior approval of a majority of
the Independent Directors and a majority of the Directors not otherwise
interested in the transaction will be required for each transaction with the
Advisor or its Affiliates.
The Directors may, at any time upon the giving of notice to the
Advisor, modify or revoke the authority set forth in this Paragraph 4. If and to
the extent the Directors so modify or revoke the authority contained herein, the
Advisor shall henceforth submit to the Directors for prior approval such
proposed transactions involving investments in Property as thereafter require
prior approval,
<PAGE>
provided, however, that such modification or revocation shall be effective upon
receipt by the Advisor and shall not be applicable to investment transactions to
which the Advisor has committed the Company prior to the date of receipt by the
Advisor of such notification.
(5) Bank Accounts. The Advisor may establish and maintain one or more
bank accounts in its own name for the account of the Company or in the name of
the Company and may collect and deposit into any such account or accounts, and
disburse from any such account or accounts, any money on behalf of the Company,
under such terms and conditions as the Directors may approve, provided that no
funds shall be commingled with the funds of the Advisor; and the Advisor shall
from time to time render appropriate accountings of such collections and
payments to the Directors and to the auditors of the Company.
(6) Records; Access. The Advisor shall maintain appropriate records of
all its activities hereunder and make such records available for inspection by
the Directors and by counsel, auditors and authorized agents of the Company, at
any time or from time to time during normal business hours. The Advisor shall at
all reasonable times have access to the books and records of the Company.
(7) Limitations on Activities. Anything else in this Agreement to the
contrary notwithstanding, the Advisor shall refrain from taking any action
which, in its sole judgment made in good faith, would (a) adversely affect the
status of the Company as a REIT, (b) subject the Company to regulation under the
Investment Company Act of 1940, or (c) violate any law, rule, regulation or
statement of policy of any governmental body or agency having jurisdiction over
the Company, its Equity Shares or its Securities, or otherwise not be permitted
by the Articles of Incorporation or Bylaws of the Company, except if such action
shall be ordered by the Directors, in which case the Advisor shall notify
promptly the Directors of the Advisor's judgment of the potential impact of such
action and shall refrain from taking such action until it receives further
clarification or instructions from the Directors. In such event the Advisor
shall have no liability for acting in accordance with the specific instructions
of the Directors so given. Notwithstanding the foregoing, the Advisor, its
directors, officers, employees and stockholders, and stockholders, directors and
officers of the Advisor's Affiliates shall not be liable to the Company or to
the Directors or Stockholders for any act or omission by the Advisor, its
directors, officers or employees, or Stockholders, directors or officers of the
Advisor's Affiliates except as provided in Paragraphs 20 and 21 of this
Agreement.
(8) Relationship with Directors. Directors, officers and employees of
the Advisor or an Affiliate of the Advisor or any corporate parents of an
Affiliate, or directors, officers or stockholders of any director, officer or
corporate parent of an Affiliate may serve as a Director and as officers of the
Company, except that no director, officer or employee of the Advisor or its
Affiliates who also is a Director or officer of the Company shall receive any
compensation from the Company for serving as a Director or officer other than
reasonable reimbursement for travel and related expenses incurred in attending
meetings of the Directors.
<PAGE>
(9) Fees.
(a) Asset Management Fee. The Company shall pay to the Advisor
as compensation for the advisory services rendered to the Company under
Paragraph 3 above a monthly fee in an amount equal to one-twelfth of .60% of the
Company's Real Estate Asset Value and the outstanding principal amount of the
Mortgage Loans (the "Asset Management Fee"), as of the end of the preceding
month. Specifically, Real Estate Asset Value equals the amount invested in the
Properties wholly owned by the Company, determined on the basis of cost, plus,
in the case of Properties owned by any Joint Venture or partnership in which the
Company is a co-venturer or partner, the portion of the cost of such Properties
paid by the Company, exclusive of Acquisition Fees and Expenses. The Asset
Management Fee shall be payable monthly on the last day of such month, or the
first business day following the last day of such month. The Asset Management
Fee, which will not exceed fees which are competitive for similar services in
the same geographic area, may or may not be taken, in whole or in part as to any
year, in the sole discretion of the Advisor. All or any portion of the Asset
Management Fee not taken as to any fiscal year shall be deferred without
interest and may be taken in such other fiscal year as the Advisor shall
determine.
(b) Acquisition Fees. The Company shall pay the Advisor a fee
in the amount of 4.5% of Total Proceeds as Acquisition Fees. Acquisition Fees
shall be reduced to the extent that, and, if necessary to limit, the total
compensation paid to all persons involved in the acquisition of any Property to
the amount customarily charged in arm's-length transactions by other persons or
entities rendering similar services as an ongoing public activity in the same
geographical location and for comparable types of Properties and to the extent
that other acquisition fees, finder's fees, real estate commissions, or other
similar fees or commissions are paid by any person in connection with the
transaction. The total of all Acquisition Fees and any Acquisition Expenses
shall be limited in accordance with the Articles of Incorporation.
(c) Subordinated Disposition Fee. If the Advisor or an
Affiliate provides a substantial amount of the services (as determined by a
majority of the Independent Directors) in connection with the Sale of one or
more Properties, the Advisor or an Affiliate shall receive a Subordinated
Disposition Fee equal to the lesser of (i) one-half of a Competitive Real Estate
Commission or (ii) 3% of the sales price of such Property or Properties. The
Subordinated Disposition Fee will be paid only if Stockholders have received
total Distributions in an amount equal to the sum of their aggregate Invested
Capital and their aggregate Stockholders' 8% Return. To the extent that
Subordinated Disposition Fees are not paid by the Company on a current basis due
to the foregoing limitation, the unpaid fees will be accrued and paid at such
time as the subordination conditions have been satisfied. The Subordinated
Disposition Fee may be paid in addition to real estate commissions paid to
non-Affiliates, provided that the total real estate commissions paid to all
Persons by the Company shall not exceed an amount equal to the lesser of (i) 6%
of the Contract Sales Price of a Property or (ii) the Competitive Real Estate
Commission. In the event this Agreement is terminated prior to such time as the
Stockholders have received total Distributions in an amount equal to 100% of
Invested Capital plus an amount sufficient to pay the Stockholders' 8% Return
through the Termination Date, an appraisal of the Properties then owned by the
Company shall be made and the Subordinated Disposition Fee on Properties
previously sold will be deemed earned if the Appraised Value of the Properties
then owned by the Company plus total Distributions received prior to the
Termination Date equals 100% of Invested Capital plus an amount sufficient to
pay the Stockholders' 8% Return through the Termination Date. Upon Listing, if
the Advisor has accrued but not been paid such Subordinated Disposition Fee,
then for purposes of determining whether the subordination conditions have been
satisfied, Stockholders will be deemed to have received a Distribution in the
amount equal to the product of the total number of Shares outstanding and the
average closing price of the Shares over a period, beginning 180 days after
Listing, of 30 days during which the Shares are traded.
(d) Subordinated Share of Net Sales Proceeds. The Subordinated Share of
Net Sales Proceeds shall be payable to the Advisor in an amount equal to 10% of
Net Sales Proceeds from Sales of assets of the Company after the Stockholders
have received Distributions equal to the sum of the Stockholders' 8% Return and
100% of Invested Capital. Following Listing, no Subordinated Share of Net Sales
Proceeds will be paid to the Advisor.
(e) Subordinated Incentive Fee. Upon Listing, the Advisor shall be paid
the Subordinated Incentive Fee in an amount equal to 10% of the amount by which
(i) the market value of the Company, measured by taking the average closing
price or average of bid and asked price, as the case may be, over a period of 30
days during which the Shares are traded, with such period beginning 180 days
after Listing (the "Market Value"), plus the total Distributions paid to
Stockholders from the Company's inception until the date of Listing, exceeds
(ii) the sum of (A) 100% of Invested Capital and (B) the total Distributions
required to be paid to the Stockholders in order to pay the Stockholders' 8%
Return from inception through the date the Market Value is determined. The
Company shall have the option to pay such fee in the form of cash, Securities, a
promissory note or any combination of the foregoing. The Subordinated Incentive
Fee will be reduced by the amount of any prior payment to the Advisor of a
deferred, subordinated share of Net Sales Proceeds from Sales of assets of the
Company.
(f) Secured Equipment Lease Servicing Fee. The Company shall pay to the
Advisor out of the Proceeds of the Line of Credit or Permanent Financing as
compensation for negotiating its respective Secured Equipment Leases and
supervising the Secured Equipment Lease program a fee equal to 2% of the
purchase price of the Equipment subject to each Secured Equipment Lease upon
entering into such lease or loan.
(g) Loans from Affiliates. If any loans are made to the Company by an
Affiliate of the Advisor, the maximum amount of interest that may be charged by
such Affiliate shall be the lesser of (i) 1% above the prime rate of interest
charged from time to time by The Bank of New York and (ii) the rate that would
be charged to the Company by unrelated lending institutions on comparable loans
for the same purpose. The terms of any such loans shall be no less favorable
than the terms available between non-Affiliated Persons for similar commercial
loans.
(h) Changes to Fee Structure. In the event of Listing, the Company and
the Advisor shall negotiate in good faith to establish a fee structure
appropriate for a perpetual-life entity. A majority of the Independent Directors
must approve the new fee structure negotiated with the Advisor. In negotiating a
new fee structure, the Independent Directors shall consider all of the factors
they deem relevant, including, but not limited to: (i) the amount of the
advisory fee in relation to the asset value, composition and profitability of
the Company's portfolio; (ii) the success of the Advisor in generating
opportunities that meet the investment objectives of the Company; (iii) the
rates charged to other REITs and to investors other than REITs by Advisors
performing the same or similar services; (iv) additional revenues realized by
the Advisor and its Affiliates through their relationship with the Company,
including loan administration, underwriting or broker commissions, servicing,
engineering, inspection and other fees, whether paid by the REIT or by others
with whom the REIT does business; (v) the quality and extent of service and
advice furnished by the Advisor; (vi) the performance of the investment
portfolio of the REIT, including income, conversion or appreciation of capital,
and number and frequency of problem investments; and (vii) the quality of the
Property, Mortgage Loan and Secured Equipment Lease portfolio of the Company in
relationship to the investments generated by the Advisor for its own account.
The new fee structure can be no more favorable to the Advisor than the current
fee structure.
(10) Expenses.
(a) In addition to the compensation paid to the Advisor
pursuant to Paragraph 9 hereof, the Company shall pay directly or reimburse the
Advisor for all of the expenses paid or incurred by the Advisor in connection
with the services it provides to the Company pursuant to this Agreement,
including, but not limited to:
(i) the Company's Offering Expenses;
(ii) Acquisition Expenses incurred in connection with the
selection and acquisition of Properties for goods and services provided by the
Advisor at the lesser of the actual cost or 90% of the competitive rate charged
by unaffiliated persons providing similar goods and services in the same
geographic location;
(iii) the actual cost of goods and services used by the
Company and obtained from entities not affiliated with the Advisor, other than
Acquisition Expenses, including brokerage fees paid in connection with the
purchase and sale of securities;
(iv) interest and other costs for borrowed money, including
discounts, points and other similar fees;
(v) taxes and assessments on income or Property and taxes as
an expense of doing business;
(vi) costs associated with insurance required in connection
with the business of the Company or by the Directors;
(vii) expenses of managing and operating Properties owned by
the Company, whether payable to an Affiliate of the Company or a non-affiliated
Person;
(viii) all expenses in connection with payments to the
Directors and meetings of the Directors and Stockholders;
<PAGE>
(ix) expenses associated with Listing or with the issuance
and distribution of Shares and Securities, such as selling commissions and fees,
advertising expenses, taxes, legal and accounting fees, Listing and registration
fees, and other Offering Expenses;
(x) expenses connected with payments of Distributions in
cash or otherwise made or caused to be made by the Directors to the
Stockholders;
(xi) expenses of organizing, revising, amending, converting,
modifying, or terminating the Company or the Articles of Incorporation;
(xii) expenses of maintaining communications with
Stockholders, including the cost of preparation, printing, and mailing annual
reports and other Stockholder reports, proxy statements and other reports
required by governmental entities;
(xiii) expenses related to negotiating and servicing
Mortgage Loans Secured Equipment Leases;
(xiv) expenses related to negotiating and servicing Secured
Equipment Leases and administering the Secured Equipment Lease program;
(xv) administrative service expenses (including personnel
costs; provided, however, that no reimbursement shall be made for costs of
personnel to the extent that such personnel perform services in transactions for
which the Advisor receives a separate fee at the lesser of actual cost or 90% of
the competitive rate charged by unaffiliated persons providing similar goods and
services in the same geographic location); and
(xvi) audit, accounting and legal fees.
(b) Expenses incurred by the Advisor on behalf of the Company
and payable pursuant to this Paragraph 10 shall be reimbursed no less than
monthly to the Advisor. The Advisor shall prepare a statement documenting the
expenses of the Company during each quarter, and shall deliver such statement to
the Company within 45 days after the end of each quarter.
(11) Other Services. Should the Directors request that the Advisor or
any director, officer or employee thereof render services for the Company other
than set forth in Paragraph 3, such services shall be separately compensated at
such rates and in such amounts as are agreed by the Advisor and the Independent
Directors of the Company, subject to the limitations contained in the Articles
of Incorporation, and shall not be deemed to be services pursuant to the terms
of this Agreement.
(12) Fidelity Bond. The Advisor shall maintain a fidelity bond for the
benefit of the Company which bond shall insure the Company from losses of up to
$10 million per occurrence and shall be of the type customarily purchased by
entities performing services similar to those provided to the Company by the
Advisor.
<PAGE>
(13) Reimbursement to the Advisor. The Company shall not reimburse the
Advisor at the end of any fiscal quarter for Operating Expenses that, in the
four consecutive fiscal quarters then ended (the "Expense Year") exceed the
greater of 2% of Average Invested Assets or 25% of Net Income (the "2%/25%
Guidelines") for such year. Within 60 days after the end of any fiscal quarter
of the Company for which total Operating Expenses for the Expense Year exceed
the 2%/25% Guidelines, the Advisor shall reimburse the Company the amount by
which the total Operating Expenses paid or incurred by the Company exceed the
2%/25% Guidelines. The Company will not reimburse the Advisor or its Affiliates
for services for which the Advisor or its Affiliates are entitled to
compensation in the form of a separate fee. All figures used in the foregoing
computation shall be determined in accordance with generally accepted accounting
principles applied on a consistent basis.
(14) Other Activities of the Advisor. Nothing herein contained shall
prevent the Advisor from engaging in other activities, including, without
limitation, the rendering of advice to other Persons (including other REITs) and
the management of other programs advised, sponsored or organized by the Advisor
or its Affiliates; nor shall this Agreement limit or restrict the right of any
director, officer, employee, or stockholder of the Advisor or its Affiliates to
engage in any other business or to render services of any kind to any other
partnership, corporation, firm, individual, trust or association. The Advisor
may, with respect to any investment in which the Company is a participant, also
render advice and service to each and every other participant therein. The
Advisor shall report to the Directors the existence of any condition or
circumstance, existing or anticipated, of which it has knowledge, which creates
or could create a conflict of interest between the Advisor's obligations to the
Company and its obligations to or its interest in any other partnership,
corporation, firm, individual, trust or association. The Advisor or its
Affiliates shall promptly disclose to the Directors knowledge of such condition
or circumstance. If the Sponsor, Advisor, Director or Affiliates thereof have
sponsored other investment programs with similar investment objectives which
have investment funds available at the same time as the Company, it shall be the
duty of the Directors (including the Independent Directors) to adopt the method
set forth in the Registration Statement or another reasonable method by which
properties are to be allocated to the competing investment entities and to use
their best efforts to apply such method fairly to the Company.
The Advisor shall be required to use its best efforts to present a
continuing and suitable investment program to the Company which is consistent
with the investment policies and objectives of the Company, but neither the
Advisor nor any Affiliate of the Advisor shall be obligated generally to present
any particular investment opportunity to the Company even if the opportunity is
of character which, if presented to the Company, could be taken by the Company.
The Advisor or its Affiliates may make such an investment in a property only
after (i) such investment has been offered to the Company and all public
partnerships and other investment entities affiliated with the Company with
funds available for such investment and (ii) such investment is found to be
unsuitable for investment by the Company, such partnerships and investment
entities.
In the event that the Advisor or its Affiliates is presented with a
potential investment which might be made by the Company and by another
investment entity which the Advisor or its Affiliates advises or manages, the
Advisor and its Affiliates shall consider the investment portfolio of each
entity, cash flow of each entity, the effect of the acquisition on the
diversification of each entity's portfolio, rental payments during any renewal
period, the estimated income tax effects of the purchase on each entity, the
policies of each entity relating to leverage, the funds of each entity available
for investment and the length of time such funds have been available for
investment. In the event that an investment opportunity becomes available which
is suitable for both the Company and a public or private entity which the
Advisor or its Affiliates are Affiliated, then the entity which has had the
longest period of time elapse since it was offered an investment opportunity
will first be offered the investment opportunity.
(15) Relationship of Advisor and Company. The Company and the Advisor
are not partners or joint venturers with each other, and nothing in this
Agreement shall be construed to make them such partners or joint venturers or
impose any liability as such on either of them.
(16) Term; Termination of Agreement. This Agreement shall continue in
force until June 16, 2000, subject to an unlimited number of successive one-year
renewals upon mutual consent of the parties. It is the duty of the Directors to
evaluate the performance of the Advisor or annually before renewing the
Agreement, and each such agreement shall have a term of no more than one year.
(17) Termination by Either Party. This Agreement may be terminated upon
60 days written notice without Cause or penalty, by either party (by a majority
of the Independent Directors of the Company or a majority of the Board of
Directors of the Advisor, as the case may be).
(18) Assignment to an Affiliate. This Agreement may be assigned by the
Advisor to an Affiliate with the approval of a majority of the Directors
(including a majority of the Independent Directors). The Advisor may assign any
rights to receive fees or other payments under this Agreement without obtaining
the approval of the Directors. This Agreement shall not be assigned by the
Company without the consent of the Advisor, except in the case of an assignment
by the Company to a corporation or other organization which is a successor to
all of the assets, rights and obligations of the Company, in which case such
successor organization shall be bound hereunder and by the terms of said
assignment in the same manner as the Company is bound by this Agreement.
(19) Payments to and Duties of Advisor Upon Termination. Payments to
the Advisor pursuant to this Section (19) shall be subject to the 2%/25%
Guidelines to the extent applicable.
(a) After the Termination Date, the Advisor shall not be
entitled to compensation for further services hereunder except it shall be
entitled to receive from the Company within 30 days after the effective date of
such termination all unpaid reimbursements of expenses and all earned but unpaid
fees payable to the Advisor prior to termination of this Agreement.
(b) Upon termination, the Advisor shall be entitled to payment
of the Performance Fee if performance standards satisfactory to a majority of
the Board of Directors, including a majority of the Independent Directors, when
compared to (a) the performance of the Advisor in comparison with its
performance for other entities, and (b) the performance of other advisors for
similar entities, have been met. If Listing has not occurred, the Performance
Fee, if any, shall equal 10% of the amount, if any, by which (i) the appraised
value of the assets of the Company on the Termination Date, less the amount of
all indebtedness secured by such assets, plus the total Distributions paid to
stockholders from the Company's inception through the Termination Date, exceeds
(ii) Invested Capital plus an amount equal to the Stockholders' 8% Return from
inception through the Termination Date. The Advisor shall be entitled to receive
all accrued but unpaid compensation and expense reimbursements in cash within 30
days of the Termination Date. All other amounts payable to the Advisor in the
event of a termination shall be evidenced by a promissory note and shall be
payable from time to time.
(c) The Performance Fee shall be paid in 12 equal quarterly
installments without interest on the unpaid balance, provided, however, that no
payment will be made in any quarter in which such payment would jeopardize the
Company's REIT status, in which case any such payment or payments will be
delayed until the next quarter in which payment would not jeopardize REIT
status. Notwithstanding the preceding sentence, any amounts which may be deemed
payable at the date the obligation to pay the Performance Fee is incurred which
relate to the appreciation of the Company's assets shall be an amount which
provides compensation to the Advisor only for that portion of the holding period
for the respective assets during which the Advisor provided services to the
Company.
(d) If Listing occurs, the Performance Fee, if any, payable
thereafter will be as negotiated between the Company and the Advisor. The
Advisor shall not be entitled to payment of the Performance Fee in the event
this Agreement is terminated because of failure of the Company and the Advisor
to establish, pursuant to Paragraph 9(h) hereof, a fee structure appropriate for
a perpetual-life entity at such time, if any, as Listing occurs.
(e) The Advisor shall promptly upon termination:
(i) pay over to the Company all money collected and held for
the account of the Company pursuant to this Agreement, after deducting any
accrued compensation and reimbursement for its expenses to which it is then
entitled;
(ii) deliver to the Directors a full accounting, including a
statement showing all payments collected by it and a statement of all money held
by it, covering the period following the date of the last accounting furnished
to the Directors;
(iii) deliver to the Directors all assets, including
Properties, Mortgage Loans, and Secured Equipment Leases, and documents of the
Company then in the custody of the Advisor; and
(iv) cooperate with the Company to provide an orderly
management transition.
(20) Indemnification by the Company. The Company shall indemnify and
hold harmless the Advisor and its Affiliates, including their respective
officers, directors, partners and employees, from all liability, claims, damages
or losses arising in the performance of their duties hereunder, and related
expenses, including reasonable attorneys' fees, to the extent such liability,
claims, damages or losses and related expenses are not fully reimbursed by
insurance, subject to any limitations imposed by the laws of the State of
Maryland or the Articles of Incorporation of the Company. Notwithstanding the
foregoing, the Advisor shall not be entitled to indemnification or be held
harmless pursuant to this paragraph 20 for any activity for which the Advisor
shall be required to indemnify or hold harmless the Company pursuant to
paragraph 21. Any indemnification of the Advisor may be made only out of the net
assets of the Company and not from Stockholders.
(21) Indemnification by Advisor. The Advisor shall indemnify and hold
harmless the Company from contract or other liability, claims, damages, taxes or
losses and related expenses including attorneys' fees, to the extent that such
liability, claims, damages, taxes or losses and related expenses are not fully
reimbursed by insurance and are incurred by reason of the Advisor's bad faith,
fraud, willful misfeasance, misconduct, negligence or reckless disregard of its
duties, but the Advisor shall not be held responsible for any action of the
Board of Directors in following or declining to follow any advice or
recommendation given by the Advisor.
(22) Notices. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving such notice, report or other communication is required by the Articles of
Incorporation, the Bylaws, or accepted by the party to whom it is given, and
shall be given by being delivered by hand or by overnight mail or other
overnight delivery service to the addresses set forth herein: To the Directors
and to the Company:
CNL Hospitality Properties, Inc.
400 East South Street
Orlando, Florida 32801
To the Advisor: CNL Hospitality Advisors, Inc.
400 East South Street
Orlando, Florida 32801
Either party may at any time give notice in writing to the other party of a
change in its address for the purposes of this Paragraph 22.
(23) Modification. This Agreement shall not be changed, modified,
terminated, or discharged, in whole or in part, except by an instrument in
writing signed by both parties hereto, or their respective successors or
assignees.
(24) Severability. The provisions of this Agreement are independent of
and severable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.
(25) Construction. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of Florida.
(26) Entire Agreement. This Agreement contains the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof. The express terms hereof
control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof.
This Agreement may not be modified or amended other than by an agreement in
writing.
(27) Indulgences, Not Waivers. Neither the failure nor any delay on the
part of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
(28) Gender. Words used herein regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.
(29) Titles Not to Affect Interpretation. The titles of paragraphs and
subparagraphs contained in this Agreement are for convenience only, and they
neither form a part of this Agreement nor are they to be used in the
construction or interpretation hereof.
(30) Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
(31) Name. CNL Hospitality Advisors, Inc. has a proprietary interest in
the name "CNL." Accordingly, and in recognition of this right, if at any time
the Company ceases to retain CNL Hospitality Advisors, Inc. or an Affiliate
thereof to perform the services of Advisor, the Directors of the Company will,
promptly after receipt of written request from CNL Hospitality Advisors, Inc.,
cease to conduct business under or use the name "CNL" or any diminutive thereof
and the Company shall use its best efforts to change the name of the Company to
a name that does not contain the name "CNL" or any other word or words that
might, in the sole discretion of the Advisor, be susceptible of indication of
some form of relationship between the Company and the Advisor or any Affiliate
thereof. Consistent with the foregoing, it is specifically recognized that the
Advisor or one or more of its Affiliates has in the past and may in the future
organize, sponsor or otherwise permit to exist other investment vehicles
(including vehicles for investment in real estate) and financial and service
organizations having "CNL" as a part of their name, all without the need for any
consent (and without the right to object thereto) by the Company or its
Directors.
<PAGE>
(32) Initial Investment. The Advisor has contributed to the Company
$200,000 in exchange for 20,000 Equity Shares (the "Initial Investment"). The
Advisor may not sell these shares while the Advisory Agreement is in effect,
although the Advisor may transfer such shares to Affiliates. The restrictions
included above shall not apply to any Equity Shares, other than the Equity
Shares acquired through the Initial Investment, acquired by the Advisor or its
Affiliates. The Advisor shall not vote any Equity Shares it now owns, or
hereafter acquires, in any vote for the removal of Directors or any vote
regarding the approval or termination of any contract with the Advisor or any of
its Affiliates.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
CNL HOSPITALITY PROPERTIES, INC.
By: /s/ James M. Seneff, Jr.
-----------------------------
Name: James M. Seneff, Jr.
Its: Chairman of the Board and
Chief Executive Officer
CNL HOSPITALITY ADVISORS, INC.
By: /s/ Robert A. Bourne
----------------------------
Name: Robert A. Bourne
Its: President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet of CNL Hospitality Properties, Inc. at June 30, 1999, and its
statement of income for the six months then ended and is qualified in its
entirety by reference to the Form 10-Q of CNL Hospitality Properties, Inc. for
the six months ended June 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 68,889,208 <F1>
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F2>
<PP&E> 28,752,549
<DEPRECIATION> 845,625
<TOTAL-ASSETS> 141,107,865
<CURRENT-LIABILITIES> 0 <F2>
<BONDS> 0
0
0
<COMMON> 157,925
<OTHER-SE> 138,447,754
<TOTAL-LIABILITY-AND-EQUITY> 141,107,865
<SALES> 0
<TOTAL-REVENUES> 3,420,429
<CGS> 0
<TOTAL-COSTS> 1,137,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 233,330
<INCOME-PRETAX> 1,892,529
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,892,529
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,892,529
<EPS-BASIC> .20
<EPS-DILUTED> .20
<FN>
<F1>Cash includes certificate of deposit and restricted cash totalling
$5,015,822 and $204,132, 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>
