Rule 424(b)(3)
No. 333-67787
CNL HOSPITALITY PROPERTIES, INC.
This Supplement is part of, and should be read in conjunction with, the
Prospectus dated March 30, 2000 and the Prospectus Supplement dated June 9,
2000. Capitalized terms used in this Supplement have the same meaning as in the
Prospectus unless otherwise stated herein.
Information as to proposed properties for which the Company has
received initial commitments and as to the number and types of Properties
acquired by the Company is presented as of August 22, 2000, and all references
to commitments or Property acquisitions should be read in that context. Proposed
properties for which the Company receives initial commitments, as well as
property acquisitions that occur after August 22, 2000, will be reported in a
subsequent Supplement.
At the annual meeting of stockholders of the Company, held on May 23,
2000, the stockholders of the Company approved amendments to the Articles of
Incorporation proposed by the Board of Directors to increase the number of
authorized shares of Common Stock and to expand the range of borrowers to which
the Company may make loans. These amendments became effective upon filing with
the Maryland State Department of Assessments and Taxation on June 27, 2000.
RECENT DEVELOPMENTS
On August 22, 2000, the Company acquired a Courtyard(R) by Marriott(R)
located in Alpharetta, Georgia, a Residence Inn(R) by Marriott(R) located in
Salt Lake City, Utah, in the community of Cottonwood, and three TownePlace
Suites(R) by Marriott(R) Properties located in Mount Laurel, New Jersey;
Scarborough, Maine, which is a suburb of Portland; and Tewksbury, Massachusetts.
The Alpharetta Property, which opened in January 2000, includes 153 guest rooms,
two meeting rooms with approximately 1,100 square feet, an indoor pool and spa,
an exercise room and a restaurant and lounge and is 26 miles north of downtown
Atlanta. The Cottonwood Property, which opened in August 1999, includes 144
guest rooms, a 690 square foot meeting room, an outdoor pool and spa, a
SportCourt(R) and an exercise room. The Mount Laurel Property opened in November
1999, the Scarborough Property opened in June 1999 and the Tewksbury Property
opened in July 1999. The Mount Laurel, Scarborough and Tewksbury Properties each
include 95 guest rooms, an outdoor swimming pool and an exercise room. The Mount
Laurel Property is located within 15 miles of downtown Philadelphia,
Pennsylvania, and the Tewksbury Property is 25 miles northwest of downtown
Boston.
As of August 22, 2000, the Company owned interests in 22 Properties and
had commitments to acquire an additional 8 properties. All of the Properties
owned by the Company are leased on a long-term, triple-net basis and the hotels
are all operated as national hotel chains.
On July 1 and August 1, 2000, the Board of Directors declared a
distribution of $0.0625 per Share to stockholders of record on July 1 and August
1, 2000, respectively, representing an annualized distribution rate of 7.50%.
THE OFFERINGS
Upon completion of its Initial Offering on June 17, 1999, the Company
had received aggregate subscriptions for 15,007,264 Shares totalling
$150,072,637 in Gross Proceeds, including 7,264 Shares ($72,637) issued pursuant
to the Reinvestment Plan. Following the completion of the Initial Offering, the
Company commenced this offering of up to 27,500,000 Shares. As of August 22,
2000, the Company had received aggregate subscriptions for 41,287,266 Shares
totalling $412,872,662 in Gross Proceeds, including 103,782 Shares ($1,037,819)
issued pursuant to the Reinvestment Plan from its Initial Offering and this
offering. As of August 22,
August 29, 2000 Prospectus Dated March 30, 2000
<PAGE>
2000, net proceeds to the Company from its offerings 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 $365,900,000. The
Company has used Net Offering Proceeds to invest, directly or indirectly,
approximately $296,600,000 in 22 hotel Properties, to pay $5,680,000 as deposits
on four additional hotel Properties, to redeem 75,761 Shares of Common Stock for
$696,997 and to pay approximately $22,400,000 in Acquisition Fees and certain
Acquisition Expenses, leaving approximately $40,500,000 available to invest in
Properties and Mortgage Loans.
CONFLICTS OF INTEREST
The following sentence replaces the first sentence in item 3 under the
heading " -- Certain Conflict Resolution Procedures" on page 34 of the
Prospectus.
The Company will not make loans to Affiliates, except (A) to wholly
owned subsidiaries of the Company, or (B) Mortgage Loans to Joint Ventures (and
joint ventures of wholly owned subsidiaries of the Company) in which no
co-venturer is the Sponsor, the Advisor, the Directors or any Affiliate of those
persons or of the Company (other than a wholly owned subsidiary of the Company)
subject to the restrictions governing Mortgage Loans in the Articles of
Incorporation (including the requirement to obtain an appraisal from an
independent expert).
BUSINESS
PROPERTY ACQUISITIONS
Palm Desert Portfolio. On June 16, 2000, the Company acquired two hotel
Properties. The Properties are a Courtyard by Marriott and a Residence Inn by
Marriott, both located in Palm Desert, California (the "Courtyard Palm Desert
Property" and the "Residence Inn Palm Desert Property").
The Company acquired the Palm Desert Properties for an aggregate
purchase price of $30,250,000 from PDH Associates LLC. In connection with the
purchase of the two Properties, the Company, as lessor, entered into a long-term
lease agreement. Both hotels are managed by Marriott International, Inc. The
general terms of the lease agreement are described in the section of the
Prospectus entitled "Business -- Description of Property Leases." The principal
features of the lease are as follows:
o The initial term of the lease is approximately 15 years.
o At the end of the initial lease term, the tenant will have two
consecutive renewal options of ten years each.
o The lease requires minimum rent payments to the Company of $3,025,000
per year allocated as follows: $1,351,000 per year for the Courtyard
Palm Desert Property and $1,674,000 per year for the Residence Inn Palm
Desert Property.
o In addition to minimum rent, for each lease year after the second lease
year, the lease will require percentage rent equal to seven percent of
room revenues, in excess of room revenues for the second lease year.
o A security deposit equal to approximately $416,000 for the Courtyard
Palm Desert Property and approximately $519,000 for the Residence Inn
Palm Desert Property has been retained by the Company as security for
the tenant's obligations under the lease.
o The tenant of the Courtyard Palm Desert and Residence Inn Palm Desert
Properties has established a reserve fund which will be used for the
replacement and renewal of furniture, fixtures and equipment relating
to the hotel Properties (the "FF&E Reserve"). Deposits to the FF&E
Reserve are made monthly as
<PAGE>
follows: 3% of gross receipts for the first lease year; 4% of gross
receipts for the second lease year; and 5% of gross receipts every
lease year thereafter. Funds in the FF&E Reserve and all property
purchased with funds from the FF&E Reserve shall be paid, granted and
assigned to the Company as additional rent.
o Marriott International, Inc. has guaranteed the tenant's obligation to
pay minimum rent under the lease. The guarantee terminates on the
earlier of the end of the third lease year or at such time as the net
operating income from the Properties exceeds minimum rent due under the
lease by 25% for any trailing 12-month period. The maximum amount of
the guarantee is $3,025,000. Upon acquisition of the TownePlace Suites
Newark Property, as described in "-- Pending Investments," the maximum
amount of the guarantee will increase to $6,405,400 and the guarantee
will cover minimum rent payments for the pending investment listed
above, the Gaithersburg and Merrifield Properties described below and
the Mira Mesa Property described in the Prospectus under the heading
"Business-- Property Acquisitions," in addition to the Palm Desert
Properties (collectively, the "Pooled Properties"). From this time, net
operating income from all of the Pooled Properties will be pooled in
determining whether the Pooled Properties' aggregate net operating
income exceeds the aggregate minimum rent due under the leases by 25%.
o In addition, upon the acquisition of the Little Lake Bryan Properties,
as described in " -- Pending Investments," the leases for the Little
Lake Bryan Properties will contain cross-default terms with respect to
the leases for the Pooled Properties, meaning that if the tenant to any
of the Little Lake Bryan Properties or the Pooled Properties defaults
on its obligations under its lease, the Company will have the ability
to pursue its remedies under the leases with respect to all of the
Little Lake Bryan Properties and the Pooled Properties, regardless of
whether the tenant of any such Property is under default under its
lease.
The federal income tax basis of the depreciable portion of the
Courtyard Palm Desert Property and the Residence Inn Palm Desert Property is
approximately $12,109,000 and $14,680,000, respectively.
The Courtyard Palm Desert Property, which opened in September 1999, has
151 guest rooms, three meeting rooms, a 60-seat dining room and lounge/bar area,
tennis courts, exercise room, pool and putting green. The Residence Inn Palm
Desert Property, which opened in February 1999, has seven two-story buildings
with 130 guest suites and a separate building with a lobby, hearth room, three
meeting rooms and a ballroom. Additional amenities include a swimming pool,
whirlpool, two tennis courts and a putting green. The hotel Properties are
located in the Coachella Valley, which according to Hospitality Real Estate
Counselors, Inc. (HREC) is one of the fastest growing areas in California. The
Residence Inn and Courtyard Properties are the first new hotels to be
constructed in Palm Desert in ten years. Other lodging facilities located in
proximity to the Courtyard Palm Desert and Residence Inn Palm Desert Properties
include the Marriott Desert Springs, an Embassy Suites, the Shadow Mountain
Resort, the Indian Wells Resort, the Miramonte Resort and the Renaissance
Esmeralda. The average occupancy rate, the average daily room rate and the
revenue per available room for the periods the hotels have been operational are
as follows:
<TABLE>
<CAPTION>
<S> <C>
Courtyard Palm Desert Property Residence Inn Palm Desert Property
----------------------------------------------------- -----------------------------------------------------
Average Average Revenue Average Average Revenue
Occupancy Daily Room per Available Occupancy Daily Room per Available
Year Rate Rate Room Rate Rate Room
-------------- -------------- -------------- ---------------- -------------- -------------- ----------------
*1999 50.50% $ 92.33 $46.62 50.50% $122.25 $61.74
**2000 68.20% 110.38 75.28 63.60% 149.33 94.97
</TABLE>
* Data for the Courtyard Palm Desert Property represents the period
September 1, 1999 through December 31, 1999 and data for the Residence
Inn Palm Desert Property represents the period February 19, 1999
through December 31, 1999.
** Data for 2000 represents the period January 1, 2000 through July 26, 2000.
The Company believes that the results achieved by the Properties for
1999, as shown in the table above, are not indicative of their long-term
operating potential, as the Properties had only been open since September and
February 1999, respectively.
SpringHill Suites by Marriott located in Gaithersburg, Maryland. On
July 28, 2000, the Company acquired a SpringHill Suites located in Gaithersburg,
Maryland (the "Gaithersburg Property") for $15,214,600 from SpringHill SMC
Corporation. The Company, as lessor, has entered into a long-term lease
agreement relating to this Property. The general terms of the lease agreement
are described in the Prospectus under the heading " -- Description of Property
Leases." The principal features of the lease are as follows:
o The initial term of the lease expires in approximately 15 years.
o At the end of the initial lease term, the tenant will have two
consecutive renewal options of ten years each.
o The lease requires minimum rent payments of $1,521,460 per year.
o In addition to minimum rent, for each lease year after the second lease
year, the lease requires percentage rent equal to seven percent of room
revenues, in excess of room revenues for the second lease year.
o A security deposit equal to $468,142 has been retained by the Company
as security for the tenant's obligations under the lease.
o The tenant has established an FF&E Reserve. Deposits to the FF&E
Reserve are made every four weeks as follows: 4% of gross receipts for
the first lease year and 5% of gross receipts every lease year
thereafter. Funds in the FF&E Reserve and all property purchased with
funds from the FF&E Reserve shall be paid, granted and assigned to the
Company as additional rent.
o Marriott International, Inc. has guaranteed the tenant's obligation to
pay minimum rent under the lease. The guarantee terminates on the
earlier of the end of the third lease year or at such time as the net
operating income from the hotel exceeds minimum rent due under the
lease by 25% for any trailing 12-month period. The maximum amount of
the guarantee is $1,521,460.
o The Gaithersburg Property is one of the Pooled Properties described
above in "Palm Desert Portfolio."
The estimated federal income tax basis of the depreciable portion of
the Gaithersburg Property is approximately $12.8 million.
The Gaithersburg Property, which opened in June 2000, is a SpringHill
Suites by Marriott located in Gaithersburg, Maryland. The Gaithersburg Property
includes 162 guest suites and approximately 500 square feet of meeting space.
The property is located approximately 15 miles northwest of the nation's
capital. Other lodging facilities located in proximity to the Gaithersburg
Property include two Courtyard by Marriott properties and a Quality Suites.
Residence Inn by Marriott located in Merrifield, Virginia. On July 28,
2000, the Company acquired a Residence Inn located in Merrifield, Virginia (the
"Merrifield Property") for $18,816,000 from Residence Inn by Marriott, Inc. The
Company, as lessor, has entered into a long-term lease agreement relating to
this Property. The general terms of the lease agreement are described in the
Prospectus under the heading " -- Description of Property Leases." The principal
features of the lease are as follows:
o The initial term of the lease expires in approximately 15 years.
o At the end of the initial lease term, the tenant will have two
consecutive renewal options of ten years each.
o The lease requires minimum rent payments of $1,881,600 per year.
o In addition to minimum rent, for each lease year after the second lease
year, the lease requires percentage rent equal to seven percent of room
revenues, in excess of room revenues for the second lease year.
o A security deposit equal to $578,954 has been retained by the Company
as security for the tenant's obligations under the lease.
o The tenant has established an FF&E Reserve. Deposits to the FF&E
Reserve are made every four weeks as follows: 2% of gross receipts for
the first lease year; 4% of gross receipts for the second lease year;
and 5% of gross receipts every lease year thereafter. Funds in the FF&E
Reserve and all property purchased with funds from the FF&E Reserve
shall be paid, granted and assigned to the Company as additional rent.
o Marriott International, Inc. has guaranteed the tenant's obligation to
pay minimum rent under the lease. The guarantee terminates on the
earlier of the end of the third lease year or at such time as the net
operating income from the hotel exceeds minimum rent due under the
lease by 25% for any trailing 12-month period. The maximum amount of
the guarantee is $1,881,600.
o The Merrifield Property is one of the Pooled Properties described above
in "Palm Desert Portfolio."
The estimated federal income tax basis of the depreciable portion of
the Merrifield Property is approximately $16.4 million.
The Merrifield Property, which opened in June 2000, is a Residence Inn
by Marriott located in Merrifield, Virginia. The Merrifield Property includes
159 guest suites, approximately 500 square feet of meeting space, an exercise
room and SportCourt(R). The property is located in Fairfax County, which
according to Hospitality Valuation Services (HVS) data, is one of the
fastest-growing areas in the Washington, D.C. area. Located approximately 12
miles west/southwest of the nation's capital, the hotel is within driving
distance of the legislative, judicial and executive branches of the United
States government. Other lodging facilities located in proximity to the
Merrifield Property include a Residence Inn by Marriott, a Homewood Suites and a
Homestead Village.
Courtyard by Marriott located in Alpharetta, Georgia, Residence Inn by
Marriott located in Salt Lake City, Utah and three TownePlace Suites by Marriott
located in Mount Laurel, New Jersey, Scarborough, Maine and Tewksbury,
Massachusetts. On August 22, 2000, the Company purchased five Properties for an
aggregate purchase price of approximately $52 million. The Properties are a
Courtyard by Marriott located in Alpharetta, Georgia (the "Alpharetta
Property"), a Residence Inn by Marriott located in Salt Lake City, Utah, in the
community of Cottonwood (the "Cottonwood Property") and three TownePlace Suites
Properties located in each of Mount Laurel, New Jersey (the "Mount Laurel
Property"), Scarborough, Maine (the "Scarborough Property") and Tewksbury,
Massachusetts (the "Tewksbury Property").
The Company acquired the Alpharetta Property for $13,877,000 from
Courtyard Management Corporation, the Cottonwood Property for $14,573,000 from
Residence Inn by Marriott, Inc. and the Mount Laurel, Scarborough and Tewksbury
Properties for $7,711,000, $7,160,000 and $9,050,000, respectively, from
TownePlace Management Corporation. In connection with the purchase of the five
Properties, the Company, as lessor, entered into five separate, long-term lease
agreements. The tenant of the Properties is the same unaffiliated lessee. The
leases on all five Properties are cross-defaulted. The general terms of the
lease agreements are described in "Business -- Description of Property Leases."
The principal features of the leases are as follows:
o The initial term of each lease expires in approximately 15 years.
o At the end of the initial lease term, the tenant will have two
consecutive renewal options of ten years.
o The leases require minimum rent payments as follows:
Minimum
Property Location Annual Rent
------------------------- ------------------- ---------------
Alpharetta Property Alpharetta, GA $1,387,700
Cottonwood Property Salt Lake City, UT 1,457,300
Mount Laurel Property Mount Laurel, NJ 771,100
Scarborough Property Scarborough, ME 716,000
Tewksbury Property Tewksbury, MA 905,000
<PAGE>
o A security deposit for each of the Properties has been retained by the
Company as security for the tenant's obligations under the leases as
follows:
Alpharetta Property $693,850
Cottonwood Property 728,650
Mount Laurel Property 385,550
Scarborough Property 358,000
Tewksbury Property 452,500
o The tenant of the five Properties has established an FF&E Reserve for
each Property which will be used for the replacement and renewal of
furniture, fixtures and equipment relating to the hotel Properties.
Deposits to the FF&E Reserve are made once every four weeks as follows:
(i) for the Alpharetta Property, 3% of gross receipts for the first
lease year; 4% of gross receipts for the second lease year; and 5% of
gross receipts every lease year thereafter, (ii) for the Cottonwood
Property, 2% of gross receipts for the first lease year; 4% of gross
receipts for the second lease year; and 5% of gross receipts every
lease year thereafter and (iii) for the Mount Laurel, Scarborough and
Tewksbury Properties, 4% of gross receipts for the first lease year; 5%
of gross receipts for the second lease year; and 6% of gross receipts
every lease year thereafter. Funds in the FF&E Reserve and all property
purchased with funds from the FF&E Reserve shall be paid, granted and
assigned to the Company as additional rent.
o Marriott International, Inc. has entered into an agreement with the
tenant in which Marriott International, Inc. has agreed to advance and
loan to the tenant any amounts needed to pay minimum rent under the
leases (the "Liquidity Facility Agreement"). The Liquidity Facility
Agreement terminates on the earlier of the end of the fourth lease year
or at such time as the net operating income from the Properties exceeds
minimum rent due under the leases by 25% for any trailing 12-month
period. The maximum amount of the liquidity facility is $5,237,100.
Upon acquisition of the Courtyard Overland Park Property and the three
SpringHill Suites Properties located in Centreville, Virginia, and
Charlotte and Raleigh, North Carolina, as described in "-- Pending
Investments," the maximum amount of the liquidity facility will
increase to $10,017,000 and the agreement will cover minimum rent
payments for the pending investments listed above, in addition to these
five Properties. From this time, net operating income from all nine
properties will be pooled in determining whether the properties'
aggregate net operating income exceeds the aggregate minimum rent due
under the leases by 25%. The tenant has assigned its rights to receive
advances under the Liquidity Facility Agreement to the lessor.
The estimated federal income tax basis of the depreciable portion of
the five Properties is as follows:
Alpharetta Property $12,280,000
Cottonwood Property 12,896,000
Mount Laurel Property 6,824,000
Scarborough Property 6,336,000
Tewksbury Property 8,009,000
The Alpharetta Property, which opened in January 2000, is a Courtyard
by Marriott located in Alpharetta, Georgia. The Alpharetta Property includes 153
guest rooms, two meeting rooms with approximately 1,100 square feet, an indoor
pool and spa, an exercise room and a restaurant and lounge. The property is
located approximately 26 miles north of downtown Atlanta. Other lodging
facilities located in proximity to the Alpharetta Property include an
AmeriSuites, a Hampton Inn & Suites, a Residence Inn by Marriott, a SpringHill
Suites by Marriott and a Sumner Suites.
The Cottonwood Property, which opened in August 1999, is a Residence
Inn by Marriott located in Salt Lake City, Utah, in the community of Cottonwood.
The Cottonwood Property includes 144 guest rooms, a 690 square foot meeting
room, an outdoor pool and spa, a SportCourt and an exercise room. Other lodging
facilities located in proximity to the Cottonwood Property include a Candlewood
Suites, a Homewood Suites and a Residence Inn by Marriott.
<PAGE>
The Mount Laurel Property, which opened in November 1999, is a
TownePlace Suites by Marriott located in Mount Laurel, New Jersey. The Mount
Laurel Property includes 95 guest rooms, an outdoor swimming pool and an
exercise room. The property is located within 15 miles of downtown Philadelphia,
Pennsylvania. Other lodging facilities located in proximity to the Mount Laurel
Property include a Courtyard by Marriott and a Fairfield Inn(R) by Marriott(R).
The Scarborough Property, which opened in June 1999, is a TownePlace
Suites by Marriott located in Scarborough, Maine, which is a suburb of Portland.
The Scarborough Property includes 95 guest rooms, an outdoor swimming pool and
an exercise room. Other lodging facilities located in proximity to the
Scarborough Property include an AmeriSuites, a Comfort Inn, a Fairfield Inn by
Marriott, a Hampton Inn, a Residence Inn by Marriott and another TownePlace
Suites by Marriott.
The Tewksbury Property, which opened in July 1999, is a TownePlace
Suites by Marriott located in Tewksbury, Massachusetts. The Tewksbury Property
includes 95 guest rooms, an outdoor swimming pool and an exercise room. The
property is located approximately 25 miles northwest of downtown Boston. Other
lodging facilities located in proximity to the Tewksbury Property include a
Hawthorn Suites, a Homewood Suites, a Residence Inn by Marriott and another
TownePlace Suites by Marriott.
The average occupancy rate, the average daily room rate and the revenue
per available room for the periods the hotels have been operational are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Revenue
Average Average per
Occupancy Daily Available
Property Location Year Rate Room Rate Room
--------------------- ------------------ ----------- --------------- -------------- ------------
Alpharetta Property Alpharetta, GA **2000 50.60% $96.83 $54.72
Cottonwood Property Salt Lake City, UT *1999 29.20% $85.10 $27.00
**2000 70.70% 90.97 66.90
Mount Laurel Property Mount Laurel, NJ *1999 26.10% $55.65 $15.04
**2000 68.60% 67.72 48.13
Scarborough Property Scarborough, ME *1999 65.70% $70.38 $47.44
**2000 64.20% 62.13 41.22
Tewksbury Property Tewksbury, MA *1999 72.60% $83.16 $62.60
**2000 83.00% 84.58 72.64
</TABLE>
* Data for the Cottonwood Property represents the period August 11, 1999
through December 31, 1999, data for the Mount Laurel Property
represents the period November 22, 1999 through December 31, 1999, data
for the Scarborough Property represents the period June 25, 1999
through December 31, 1999 and data for the Tewksbury Property
represents the period July 15, 1999 through December 31, 1999.
* Data for the Alpharetta Property represents the period January 7, 2000
through August 11, 2000 and data for the Cottonwood, Mount Laurel,
Scarborough and Tewksbury Properties represents the period January 1,
2000 through August 11, 2000.
The Company believes that the results achieved by the Properties, as
shown in the table above, may or may not be indicative of their long-term
operating potential, as the Properties opened between June 1999 and January
2000.
PENDING INVESTMENTS
As of August 22, 2000, the Company had initial commitments to acquire 8
additional hotel properties. These Properties are two Courtyard by Marriott
properties (one in each of Orlando, Florida and Overland Park, Kansas), one
Fairfield Inn by Marriott (in Orlando, Florida), four SpringHill Suites by
Marriott (one in each of Centreville, Virginia; Charlotte, North Carolina;
Orlando, Florida and Raleigh/Durham, North Carolina) and one TownePlace Suites
by Marriott (in Newark, California). The acquisition of each of these properties
is subject to the fulfillment of certain conditions. 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. If acquired, the
leases of these properties are expected to be entered into on substantially the
same terms described in the section of the Prospectus entitled "Business --
Description of Property Leases." In order to acquire all of these properties,
the Company must obtain additional funds through the receipt of additional
offering proceeds and/or debt financing.
Leases. Set forth below are summarized terms expected to apply to the
leases for each of the properties. More detailed information relating to a
property and its related lease will be provided at such time, if any, as the
property is acquired.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Estimated Purchase Lease Term and
Property Price Renewal Options
-------- ------------------ ---------------
Courtyard by Marriott (2) 15 years; two ten-year
Orlando, FL (1) renewal options
(the "Courtyard Little Lake Bryan
Property")
Hotel under construction
Fairfield Inn by Marriott (2) 15 years; two ten-year
Orlando, FL (1) renewal options
(the "Fairfield Inn Little Lake Bryan
Property")
Hotel under construction
SpringHill Suites by Marriott (2) 15 years; two ten-year
Orlando, FL (1) renewal options
(the "SpringHill Suites Little Lake
Bryan Property")
Hotel under construction
TownePlace Suites $13,600,000 15 years; two ten-year
Newark, CA (3) renewal options
(the "TownePlace Suites Newark Property")
Hotel under construction
Courtyard by Marriott $15,790,000 15 years; two ten-year
Overland Park, KS (4) renewal options
(the "Courtyard Overland
Park Property")
Hotel under construction
SpringHill Suites by Marriott $11,414,000 15 years; two ten-year
Centreville, VA (4) renewal options
(the "SpringHill Suites
Centreville Property")
Hotel under construction
SpringHill Suites by Marriott $11,773,000 15 years; two ten-year
Charlotte, NC (4) renewal options
(the "SpringHill Suites
Charlotte Property")
Hotel under construction
SpringHill Suites by Marriott $8,822,000 15 years; two ten-year
Raleigh/Durham, NC (4) renewal options
(the "SpringHill Suites
Raleigh/Durham Property")
Hotel under construction
</TABLE>
Minimum Annual
Rent Percentage Rent
-------------- ---------------
10% of the Company's total cost for each lease year after the
to purchase the property second lease year, 7% of revenues
in excess of revenues for the
second lease year
10% of the Company's total cost for each lease year after the
to purchase the property second lease year, 7% of revenues
in excess of revenues for the
second lease year
10% of the Company's total cost for each lease year after the
to purchase the property second lease year, 7% of revenues
in excess of revenues for the
second lease year
10% of the Company's total cost for each lease year after the
to purchase the property second lease year, 7% of revenues
in excess of revenues for the
second lease year
10% of the Company's total cost for each lease year after the
to purchase the property second lease year, 7% of revenues
in excess of revenues for the
second lease year
10% of the Company's total cost for each lease year after the
to purchase the property second lease year, 7% of revenues
in excess of revenues for the
second lease year
10% of the Company's total cost for each lease year after the
to purchase the property second lease year, 7% of revenues
in excess of revenues for the
second lease year
10% of the Company's total cost for each lease year after the
to purchase the property second lease year, 7% of revenues
in excess of revenues for the
second lease year
------------------------------
FOOTNOTES:
(1) The leases for the Courtyard Little Lake Bryan, the Fairfield Inn
Little Lake Bryan and the SpringHill Suites Little Lake Bryan
Properties are expected to be with the same unaffiliated lessee.
(2) The anticipated aggregate purchase price for the Courtyard Little Lake
Bryan, Fairfield Inn Little Lake Bryan and SpringHill Suites Little
Lake Bryan Properties is approximately $100 million.
(3) The Company may be obligated to fund up to an additional $1 million in
construction costs relating to this Property.
(4) The leases for the Courtyard Overland Park, the SpringHill Suites
Centreville, the SpringHill Suites Charlotte and the SpringHill Suites
Raleigh/Durham Properties are expected to be with the same unaffiliated
lessee.
<PAGE>
In addition to the above commitments, on August 28, 2000 the Company
entered into an agreement in principle to invest in a property in Phoenix,
Arizona (the "Desert Ridge Property"). The Desert Ridge Property will be owned
by a Joint Venture (the "Desert Ridge Joint Venture") between the Company,
Marriott International, Inc. or an affiliate thereof, and a partnership of which
an Affiliate of the Advisor will be the general partner. The Company is
anticipated to have a 44% equity interest in the Desert Ridge Joint Venture, and
an equivalent interest in the Desert Ridge Joint Venture's profits and losses.
The overall cost of the Property (including acquisition of land, development and
construction) is estimated to be approximately $285,000,000. The Company expects
that the Desert Ridge Joint Venture will obtain permanent financing from a third
party lender for approximately 60% of this amount, with such financing to be
secured by a mortgage on the Desert Ridge Property. In addition, Marriott
International, Inc. is expected to provide financing for an additional 20% of
this amount to the Desert Ridge Joint Venture, secured by pledges of the
co-venturers' equity interests in the Desert Ridge Joint Venture. The remaining
20% of the costs are expected to be financed by the co-venturers' equity
contributions to the Desert Ridge Joint Venture. In connection with the
development of the Desert Ridge Property, the Company anticipates that the
Desert Ridge Joint Venture will pay Development Fees to a wholly-owned
subsidiary of the Advisor that will act, along with Marriott International,
Inc., as co-developer of the Property. The Property will be leased to a
subsidiary of the Desert Ridge Joint Venture (which will also be an indirect
subsidiary of the Company and will make an election after January 1, 2001 to be
treated as a taxable REIT subsidiary under the Code) and will be managed by an
affiliate of Marriott International, Inc.
The Desert Ridge Property will be constructed on a 54 acre site as part
of a 5,700 acre master-planned development in northeastern Phoenix. The Property
will be operated as a Marriott Hotel and will include 950 guest rooms (including
85 suites), approximately 78,700 square feet of meeting and banquet facilities,
a full service health spa, eating and beverage facilities that seat 947 people,
two 18-hole golf courses and 8 tennis courts. The Desert Ridge Property is
currently anticipated to open to the public in December of 2002.
INVESTMENT OBJECTIVES AND POLICIES
In addition, the following sentence replaces item 16 under the heading
" -- Certain Investment Limitations" on page 97 of the Prospectus.
The Company will not make loans to the Advisor or its Affiliates,
except (A) to wholly owned subsidiaries of the Company, or (B) Mortgage Loans to
Joint Ventures (and joint ventures of wholly owned subsidiaries of the Company)
in which no co-venturer is the Sponsor, the Advisor, the Directors or any
Affiliate of those persons or of the Company (other than a wholly owned
subsidiary of the Company) subject to the restrictions governing Mortgage Loans
in the Articles of Incorporation (including the requirement to obtain an
appraisal from an independent expert).
SUMMARY OF THE
ARTICLES OF INCORPORATION AND BYLAWS
The following sentence replaces the first sentence of the first
paragraph under the heading " -- Description of Capital Stock" on page 100 of
the Prospectus.
The Company has authorized a total of 216,000,000 shares of capital
stock, consisting of 150,000,000 shares of Common Stock, $0.01 par value per
share, 3,000,000 shares of Preferred Stock ("Preferred Stock"), and 63,000,000
additional shares of excess stock ("Excess Shares"), $0.01 par value per share.
The fourth and fifth sentences in the second paragraph under the
heading "Prospectus Summary -- CNL Hospitality Properties, Inc. -- Our Business"
on page 5 of the Prospectus and the second paragraph under the heading "Summary
of the Articles of Incorporation and Bylaws -- Description of Capital Stock" on
page 100 of the Prospectus are deleted in their entirety.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Page
----
Updated Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 13
Condensed Consolidated Statements of Earnings for the quarters and six months ended
June 30, 2000 and 1999 14
Condensed Consolidated Statements of Stockholders' Equity for the six months ended
June 30, 2000 and year ended December 31, 1999 15
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2000
and 1999 16
Notes to Condensed Consolidated Financial Statements for the quarters and six months ended
June 30, 2000 and 1999 18
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2000 December 31,1999
----------------- ---------------------
ASSETS
Land, buildings and equipment on operating leases, less
accumulated depreciation of $3,532,719 and $1,603,334,
respectively $ 188,691,001 $112,227,771
Investment in unconsolidated subsidiary 37,526,856 38,364,157
Cash and cash equivalents 105,926,387 101,972,441
Restricted cash 720,985 275,630
Certificate of deposit 5,000,000 5,000,000
Dividends receivable 1,191,431 1,215,993
Receivables 411,521 112,184
Prepaid expenses 254,470 41,165
Loan costs, less accumulated amortization of $102,847 and
$86,627, respectively 50,749 51,969
Accrued rental income 95,555 79,399
Other assets 10,471,824 7,627,565
--------------- -----------------
$350,340,779 $266,968,274
=============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $ 10,000,000 $ --
Accounts payable and accrued expenses 758,481 405,855
Distributions payable 175,594 89,843
Due to related parties 948,585 995,500
Security deposits 8,404,002 5,042,054
Rents paid in advance 172,573 255,568
--------------- -----------------
Total liabilities 20,459,235 6,788,820
--------------- -----------------
Commitments and contingencies (Note 12)
Minority interest -- 7,124,615
--------------- -----------------
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. 150,000,000
and 60,000,000 authorized shares, respectively;
issued and outstanding 38,452,693 and 28,902,914
shares, respectively 384,527 289,029
Capital in excess of par value 339,270,298 256,231,833
Accumulated distributions in excess of net earnings (6,814,333 ) (3,466,023 )
Minority interest distributions in excess of contributions
and accumulated earnings (2,958,948 ) --
--------------- -----------------
Total stockholders' equity 329,881,544 253,054,839
--------------- -----------------
$350,340,779 $ 266,968,274
=============== =================
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Quarter Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------------- --------------- ------------- ------------
Revenues:
Rental income from operating
leases $3,250,909 $ 748,908 $ 5,976,803 $1,486,526
FF&E Reserve income 320,876 65,006 480,113 126,033
Dividend income 926,918 658,288 1,853,735 900,131
Interest and other income 2,191,979 614,875 3,961,188 907,739
--------------- --------------- -------------- --------------
6,690,682 2,087,077 12,271,839 3,420,429
--------------- --------------- -------------- --------------
Expenses:
Interest and loan cost amortization 8,112 32,757 16,222 233,330
General operating and
administrative 401,815 120,566 696,885 313,997
Professional services 36,300 8,066 81,637 29,272
Asset management fees to
related party 235,858 17,871 362,280 67,436
Depreciation and amortization 1,083,503 239,657 2,000,144 493,415
--------------- --------------- -------------- --------------
1,765,588 418,917 3,157,168 1,137,450
--------------- --------------- -------------- --------------
Earnings Before Equity in Loss of
Unconsolidated Subsidiary 4,925,094 1,668,160 9,114,671 2,282,979
Equity in Loss of Unconsolidated
Subsidiary After Deduction of
Preferred Stock Dividends (140,634 ) (205,911 ) (260,437 ) (390,450 )
Minority Interest (141,520 ) -- (266,210 ) --
--------------- --------------- -------------- --------------
Net Earnings $4,642,940 $1,462,249 $ 8,588,024 $1,892,529
=============== =============== ============== ==============
Earnings Per Share of Common Stock:
Basic $ 0.13 $ 0.12 $ 0.25 $ 0.20
=============== =============== ============== ==============
Diluted $ 0.13 $ 0.12 $ 0.25 $ 0.20
=============== =============== ============== ==============
Weighted Average Number of Shares
of Common Stock Outstanding:
Basic 36,163,184 12,330,853 33,693,585 9,391,870
=============== =============== ============== ==============
Diluted 36,163,184 12,330,853 33,693,585 9,391,870
=============== =============== ============== ==============
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, 2000 and Year Ended December 31, 1999
Minority interest
distributions in
Common stock Accumulated excess of con-
--------------------------- Capital in distributions tributions and
Number Par excess of in excess of net accumulated
of Shares value par value earnings earnings Total
-------------- ---------- -------------- ----------------- -------------- ---------------
Balance at December 31, 1998 4,321,908 $ 43,219 $37,289,402 $ (216,130 ) $ -- $37,116,491
Subscriptions received for
common stock through public
offerings and distribution
reinvestment plan 24,593,891 245,939 245,692,968 -- -- 245,938,907
Retirement of common stock (12,885 ) (129 ) (118,413 ) -- -- (118,542 )
Stock issuance costs -- -- (26,632,124 ) -- -- (26,632,124 )
Net earnings -- -- -- 7,515,988 -- 7,515,988
Distributions declared and paid
($.72 per share) -- -- -- (10,765,881 ) -- (10,765,881 )
-------------- ---------- --------------- -------------- -------------- ----------------
Balance at December 31, 1999 28,902,914 289,029 256,231,833 (3,466,023 ) -- 253,054,839
Subscriptions received for
common stock through public
offerings and distribution
reinvestment plan 9,612,655 96,127 96,030,423 -- -- 96,126,550
Retirement of common stock (62,876 ) (629 ) (577,826 ) -- -- (578,455 )
Stock issuance costs -- -- (12,414,132 ) -- -- (12,414,132 )
Net earnings -- -- -- 8,588,024 -- 8,588,024
Minority interest distributions in
excess of contributions and
accumulated earnings -- -- -- -- (2,958,948 ) (2,958,948 )
Distributions declared and paid
($.36 per share) -- -- -- (11,936,334 ) -- (11,936,334 )
-------------- ---------- --------------- -------------- -------------- ----------------
Balance at June 30, 2000 38,452,693 $384,527 $ 339,270,298 $ (6,814,333 ) $ (2,958,948 ) $329,881,544
============== ========== =============== ============== ============== ================
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
2000 1999
------------- ------------
Cash flows from operating activities:
Net earnings $ 8,588,024 $ 1,892,529
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 1,958,763 461,459
Amortization 41,381 90,839
Distributions received from investment in
unconsolidated subsidiary, net
of equity in loss 812,142 393,670
Minority interest 266,210 --
Changes in operating assets and
liabilities:
Dividends receivable 24,562 (707,373 )
Receivables (299,337 ) (5,402 )
Prepaid expenses (213,305 ) 3,810
Accrued rental income (16,156 ) (31,810 )
Accounts payable and accrued
expenses 352,626 (51,689 )
Due to related parties - operating expenses (46,915 ) (8,787 )
Security deposits 3,361,948 --
Rents paid in advance (82,995 ) (3,489 )
--------------- ---------------
Net cash provided by operating activities 14,746,948 2,033,757
--------------- ---------------
Cash flows from investing activities:
Additions to land, buildings and equipment on
operating leases (78,421,993 ) --
Investment in unconsolidated subsidiary -- (37,172,643 )
Increase in restricted cash (445,355 ) (121,725 )
Additions to other assets (2,844,259 ) (4,509,931 )
--------------- ---------------
Net cash used in investing activities (81,711,607 ) (41,804,299 )
--------------- ---------------
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Six Months Ended June 30,
2000 1999
---------------- --------------
Cash flows from financing activities:
Proceeds from note payable 10,000,000 --
Repayment of borrowings on line of credit -- (9,600,000 )
Subscriptions received from stockholders 96,126,550 114,711,315
Distributions to stockholders (11,936,334 ) (3,052,616 )
Distributions to minority interest (10,264,022 ) --
Retirement of common stock (578,455 ) (4,600 )
Payment of stock issuance costs (12,414,132 ) (11,833,363 )
Other (15,002 ) (9,863 )
----------------- --------------
Net cash provided by financing activities 70,918,605 90,210,873
----------------- --------------
Net increase in cash and cash equivalents 3,953,946 50,440,331
Cash and cash equivalents at beginning of period 101,972,441 13,228,923
----------------- --------------
Cash and cash equivalents at end of period $ 105,926,387 $ 63,699,254
================= ==============
Supplemental schedule of non-cash financing activities:
Distributions declared but not paid to minority
interest $ 175,594 $ --
================= ==============
</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, 2000 and 1999
1. Significant Accounting Policies:
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., CNL Hospitality LP Corp. and CNL
Philadelphia Annex, LLC (the "LLC").
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 to hotel operators. The Company may also
provide mortgage financing (the "Mortgage Loans") and furniture,
fixture and equipment financing ("Secured Equipment Leases") to
operators of hotel chains. 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.
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 and CNL Philadelphia Annex, LLC (an 89% owned limited
liability company). All significant intercompany balances and
transactions have been eliminated in consolidation. Interest of an
unaffiliated third party is reflected as minority interest.
Basis of Presentation - The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
the instructions to Form 10-Q and do not include all of the information
and note disclosures required by generally accepted accounting
principles. The condensed consolidated financial statements reflect all
adjustments, consisting of normal recurring adjustments, which are, in
the opinion of 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, 2000 may not be indicative of the results
that may be expected for the year ending December 31, 2000. Amounts as
of December 31, 1999, included in the condensed consolidated financial
statements have been derived from audited consolidated financial
statements as of that date.
These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's Form 10-K for the year ended December
31, 1999.
Certain items in the prior period's financial statements have been
reclassified to conform with the 2000 presentation, including a change
in the presentation of the cash flow from the direct to the indirect
method. These reclassifications had no effect on stockholders' equity
or net earnings.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101") which provides the staff's
views in applying generally accepted accounting principles to selected
revenue recognition issues. SAB 101 is not expected to have a material
impact on the Company's results of operations. SAB 101 requires the
Company to defer recognition of certain percentage rental income until
certain thresholds are met. We have adopted SAB 101 beginning January
1, 2000 without restatement of prior periods.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
2. 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"). The price per share and other
terms of the 1999 Offering, including the percentage of gross proceeds
payable (i) to the managing dealer for selling commissions and expenses
in connection with the offering and (ii) to CNL Hospitality Corp. (the
"Advisor") for acquisition fees, are substantially the same as the
Company's Initial Offering. As of June 30, 2000, the Company received
total subscription proceeds from the Initial Offering, the 1999
Offering and the sale of warrants of $385,084,634 (38,508,463 shares),
including $1,037,782 (103,778 shares) through the reinvestment plan.
On October 26, 1999, the Company filed a registration statement on Form
S-11 with the Securities and Exchange Commission in connection with the
proposed sale by the Company of up to 45,000,000 additional shares of
common stock ($450,000,000) (the "2000 Offering") in an offering
expected to commence immediately following the completion of the
Company's current offering of up to 27,500,000 shares of common stock
("the 1999 Offering"). Of the 45,000,000 shares of common stock to be
offered, up to 5,000,000 will be available to stockholders purchasing
shares through the reinvestment plan. The price per share and other
terms of the 2000 Offering, including the percentage of gross proceeds
payable (i) to the managing dealer for selling commissions and expenses
in connection with the offering and (ii) to the Advisor for acquisition
fees, are substantially the same as the Company's 1999 Offering. The
Company expects to use the net proceeds from the 2000 Offering to
purchase additional Properties and, to a lesser extent, make Mortgage
Loans.
3. Investment in Unconsolidated Subsidiary:
During 1999, the Company with Five Arrows Realty Securities II L.L.C.
("Five Arrows") formed a jointly owned real estate investment trust,
CNL Hotel Investors, Inc. ("Hotel Investors"), which acquired seven
hotel Properties. In order to fund the acquisition of the Properties,
Five Arrows invested approximately $48 million and the Company invested
approximately $38 million in Hotel Investors. Hotel Investors funded
the remaining amount of approximately $88 million with permanent
financing, collateralized by Hotel Investors' interests in the
Properties. In return for their respective investments, Five Arrows
received a 51% common stock interest and the Company received a 49%
common stock interest in Hotel Investors. Five Arrows received 48,337
shares of Hotel Investors' 8% Class A cumulative, preferred stock
("Class A Preferred Stock"), and the Company received 37,979 shares of
Hotel Investors' 9.76% Class B cumulative, preferred stock. The Class A
Preferred Stock is exchangeable upon demand into common stock of the
Company, using an exchange ratio based on the relationship between the
Company's operating results and those of Hotel Investors.
Five Arrows also invested approximately $14 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 were used by the
Company to fund approximately 38% of its funding commitment to Hotel
Investors.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
3. Investment in Unconsolidated Subsidiary - Continued:
The following presents condensed financial information for Hotel
Investors as of and for the six months ended and year ended:
<TABLE>
<CAPTION>
<S> <C>
June 30, December 31,
2000 1999
----------------- ----------------
Land, buildings and equipment on operating leases, net $162,776,797 $165,088,059
Cash and cash equivalents (including restricted cash) 8,353,443 5,172,658
Loan costs, net 678,232 708,006
Accrued rental income 407,599 283,914
Prepaid expenses, receivables and other assets 172,765 3,422,806
Liabilities 91,600,018 92,229,193
Redeemable preferred stock - Class A and Class B 85,361,864 85,361,864
Stockholders' deficit (4,573,046 ) (2,915,614 )
Revenues 9,566,890 13,025,978
Net earnings 3,285,740 4,104,936
Preferred stock dividends (3,817,244 ) 5,693,642
Loss applicable to common stockholders (531,504 ) (1,588,706 )
</TABLE>
During the six months ended June 30, 2000 and 1999, the Company
recorded $1,853,735 and $900,131, respectively, in dividend income and
$260,437 and $390,450, respectively, in equity in loss after deduction
of preferred stock dividends resulting in net earnings of $1,593,298
and $509,681, respectively attributable to this investment ($786,284
and $452,377 which represented net earnings from this investment for
the quarters ended June 30, 2000 and 1999, respectively).
4. Other Assets:
Other assets consist of acquisition fees and miscellaneous acquisition
expenses that will be allocated to future Properties and deposits.
5. Redemption of Shares:
The Company has a redemption plan under which the Company may elect to
redeem shares, subject to certain conditions and limitations. During
the quarter and six months months ended June 30, 2000, 48,271 and
62,876 shares of common stock , respectively, were redeemed and
retired.
6. Indebtedness:
The Company has a line of credit in the amount of $30,000,000 which
expires on July 30, 2003. 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
.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 the assignment of rents and leases. As of June 30,
2000 and December 31, 1999, the Company had no amounts outstanding
under the line of credit.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
6. Indebtedness - Continued:
In March 2000, the Company through the LLC entered into a Tax Increment
Financing Agreement with the Philadelphia Authority for Industrial
Development ("TIF Note") for $10 million which is collateralized by the
LLC's hotel Property. The principal and interest on the TIF Note is
expected to be fully paid by the LLC's hotel Property's incremental
property taxes over a period of twenty years. The payment of the
incremental property taxes is the responsibility of the tenant of the
hotel property. Interest on the TIF Note is 12.85% and payments are due
yearly through 2017. In the event that incremental property taxes are
insufficient to cover the principal and interest due, Marriott
International, Inc. is required to fund such shortfall pursuant to its
guarantee of the TIF Note.
7. Stock Issuance Costs:
The Company has incurred certain expenses in connection with its
offerings of common stock, 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. CNL Hospitality Corp. ("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 proceeds received from the sale of
shares of the Company in connection with the offerings.
During the six months ended June 30, 2000 and 1999, the Company
incurred $12,414,132 and $12,057,440, respectively, in stock issuance
costs, including $7,690,132 and $7,976,937, respectively, in
commissions and marketing support and due diligence expense
reimbursement fees (see Note 9). The stock issuance costs have been
charged to stockholders' equity subject to the three percent cap
described above.
8. Distributions:
For the six months ended June 30, 2000 and 1999, approximately 51
percent and 64 percent, respectively, of the distributions paid to
stockholders were considered ordinary income, and approximately 49
percent and 36 percent, respectively, were 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, 2000
and 1999 are required to be or have been treated by the Company as a
return of capital for purposes of calculating the stockholders' return
on their invested capital. The characterization for tax purposes of
distributions declared for the six months ended June 30, 2000 may not
be indicative of the characterization of distributions that may be
expected for the year ended December 31, 2000.
9. Related Party Transactions:
Certain directors and officers of the Company hold similar positions
with the Advisor and the managing dealer, CNL Securities Corp. These
affiliates are entitled to receive fees and compensation in connection
with the offerings, and the acquisition, management and sale of the
assets of the Company.
During the six months ended June 30, 2000 and 1999, the Company
incurred $7,209,499 and $7,478,378, respectively, in selling
commissions due to CNL Securities Corp. for services in connection with
its offerings. A substantial portion of these amounts ($7,151,903 and
$6,978,557, respectively) was or will be paid by CNL Securities Corp.
as commissions to other broker-dealers.
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, 2000 and 1999, the Company incurred $480,633 and $498,559,
respectively, of such fees, the majority of which were reallowed to
other broker-dealers and from which all bona fide due diligence
expenses were paid.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
9. Related Party Transactions - Continued:
CNL Securities Corp. will also receive, in connection with the
Company's initial offering of up to 16,500,000 shares of common stock
(the "Initial Offering"), a soliciting dealer servicing fee payable
annually by the Company beginning on December 31, 2000 in the amount of
0.20% of "invested capital", as defined in the Company's prospectus,
from the Initial Offering. CNL Securities Corp. in turn may reallow all
or a portion of such fee to soliciting dealers whose clients hold
shares on such date. As of June 30, 2000, no such fees had been
incurred.
In addition, in connection with its 1999 Offering, the Company has
agreed to issue and sell soliciting dealer warrants ("Soliciting Dealer
Warrants") to CNL Securities Corp. The price for each warrant will be
$0.0008 and one warrant will be issued for every 25 shares sold by the
managing dealer. All or a portion of the Soliciting Dealer Warrants may
be reallowed to soliciting dealers with prior written approval from,
and in the sole discretion of, the managing dealer, except where
prohibited by either federal or state securities laws. The holder of a
Soliciting Dealer Warrant will be entitled to purchase one share of
common stock from the Company at a price of $12.00 during the five year
period commencing the date the current offering began. No Soliciting
Dealer Warrants, however, will be exercisable until one year from the
date of issuance. During the six months ended June 30, 2000, the
Company issued approximately 650,550 Soliciting Dealer Warrants to CNL
Securities Corp. In addition, as of June 30, 2000, CNL Securities Corp.
was entitled to approximately 168,500 additional Soliciting Dealer
Warrants for shares sold during the quarter then ended.
The Advisor is entitled to receive acquisition fees for services in
identifying Properties and structuring the terms of leases of the
Properties and Mortgage Loans equal to 4.5% of the gross proceeds of
the offerings, 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, 2000 and
1999, the Company incurred $6,241,911 and $5,057,012, respectively, of
such fees. Such fees are included in land, buildings and equipment on
operating leases, investment in unconsolidated subsidiary and other
assets.
The Company incurs operating expenses which, in general, are those
expenses relating to administration of the Company on an ongoing basis.
Pursuant to the advisory agreement described below, the Advisor is
required to reimburse the Company the amount by which the total
operating expenses paid or incurred by the Company exceed in any four
consecutive fiscal quarters (the "Expense Year"), the greater of two
percent of average invested assets or 25 percent of net income (the
"Expense Cap"). For the Expense Years ended June 30, 2000 and 1999, the
Company's operating expenses did not exceed the Expense Cap.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor will receive a monthly asset management
fee of one-twelfth of 0.60% of the Company's real estate asset value
and the outstanding principal balance of any Mortgage Loans as of the
end of the preceding month. The management fee, which will not exceed
fees which are competitive for similar services in the same geographic
area, may or may not be taken, in whole or in part as to any year, in
the sole discretion of the Advisor. All or any portion of the
management fee not taken as to any fiscal year shall be deferred
without interest and may be taken in such other fiscal year, as the
Advisor shall determine. During the six months ended June 30, 2000 and
1999, the Company incurred $362,280 and $67,436, respectively, of such
fees.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
9. Related Party Transactions - Continued:
The Advisor and its affiliates provide various administrative services
to the Company, including services related to accounting; financial,
tax and regulatory compliance reporting; stockholder distributions and
reporting; due diligence and marketing; and investor relations
(including administrative services in connection with the offerings),
on a day-to-day basis. The expenses incurred for these services were
classified as follow for the six months ended June 30:
2000 1999
------------- -------------
Stock issuance costs $ 2,064,571 $ 1,709,008
General operating and
administrative expenses 138,923 150,380
Land, buildings and equipment
on operating leases and other
assets 735 --
------------- -------------
$ 2,204,229 $ 1,859,388
============= =============
The amounts due to related parties consisted of the following at:
<TABLE>
<CAPTION>
<S> <C>
June 30, 2000 December 31,1999
------------------ --------------------
Due to the Advisor:
Expenditures incurred on behalf
of the Company for accounting
and administrative services $ 30,412 $ 387,690
Acquisition fees 305,204 337,797
Management fees 362,270 19,642
--------------- ----------------
697,886 745,129
--------------- ----------------
Due to CNL Securities Corp.:
Commissions 235,030 229,834
Marketing support and due diligence
expense reimbursement fee 15,669 16,764
--------------- ----------------
250,699 246,598
--------------- ----------------
Due to other related party -- 3,773
--------------- ----------------
$948,585 $ 995,500
=============== ================
</TABLE>
During 1999, the Company opened three bank accounts in a bank in which
certain officers and directors of the Company serve as directors, and
in which an affiliate of the Advisor is a stockholder. The amount
deposited with this affiliate was $15,947,271 and $15,275,629 at June
30, 2000 and December 31, 1999, respectively.
10. Concentration of Credit Risk:
Crestline Capital Corp., which operates and leases two Properties, and
City Center Annex Tenant Corporation contributed more than ten percent
of the Company's total rental income for the quarter and six months
ended June 30, 2000. In addition, a significant portion of the
Company's rental income 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 2000 and subsequent years.
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
11. Earnings Per Share:
Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if other contracts to
issue common stock were exercised and shared in the earnings of the
Company. For the six months ended June 30, 2000, approximately 7.3
million shares related to the conversion of Hotel Investors' Class A
Preferred Stock into the Company's common stock were considered
dilutive after the application of the "if converted method" and were
included in the denominator of the diluted EPS calculation. The
numerator in the diluted EPS calculation includes an adjustment for the
net earnings of Hotel Investors for the applicable period.
The following represents the calculation of earnings per share and the
weighted average number of shares of potentially dilutive common stock
for the quarters and six months ended June 30:
<TABLE>
<CAPTION>
<S> <C>
Quarter Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
-------------- --------------- -------------- -------------
Basic Earnings Per Share:
Net earnings $ 4,642,940 $1,462,249 $ 8,588,024 $1,892,529
============== =============== ============== =============
Weighted average number of shares
outstanding 36,163,184 12,330,853 33,693,585 9,391,870
============== =============== ============== =============
Basic earnings per share $ 0.13 $ 0.12 $ 0.25 $ 0.20
============== =============== ============== =============
Diluted Earnings Per Share:
Net earnings $4,642,940 $1,462,249 $8,588,024 $1,892,529
Additional income attributable to
investment in unconsolidated
subsidiary assuming all Class A
Preferred Shares were converted 835,331 -- 1,692,802 --
-------------- --------------- -------------- -------------
Adjusted net earnings assuming
dilution $5,478,271 $1,462,249 $10,280,826 $1,892,529
============== =============== ============== =============
Weighted average number of shares
outstanding 36,163,184 12,330,853 33,693,585 9,391,870
Assumed conversion of Class A Preferred
Stock 7,362,682 -- 7,281,774 --
-------------- --------------- -------------- -------------
Adjusted weighted average
number of shares outstanding 43,525,866 12,330,853 40,975,359 9,391,870
============== =============== ============== =============
Diluted earnings per share $ 0.13 $ 0.12 $ 0.25 $ 0.20
============== =============== ============== =============
</TABLE>
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
12. Commitments and Contingencies:
The Company has commitments to acquire 15 hotel Properties for an
anticipated aggregate purchase price of approximately $255 million. In
connection with these commitments, the Company has deposits of
approximately $7.4 million held in escrow.
In connection with the acquisition of two Properties in 1998, the
Company may be required to make an additional payment (the "Earnout
Amount") of up to $1 million if certain earnout provisions are achieved
by July 31, 2001. After July 31, 2001, the Company will no longer be
obligated to make any payments under the earnout provision. The Earnout
Amount is equal to the difference between earnings before interest,
taxes, depreciation and amortization expense adjusted by an earnout
factor (7.44), and the initial purchase price. Rental income will be
adjusted upward in accordance with the lease agreements for any amount
paid. As of June 30, 2000, approximately $135,000 was payable under
this agreement.
In connection with the purchase of two Properties in June 2000, the
Company may be required to make an additional payment (the "Earnout
Provision") not to exceed $2,471,500 if certain earnout provisions are
achieved by the thirty-sixth month following the closing date of the
two properties ("Earnout Termination Date"). After the Earnout
Termination Date, the Company will no longer be obligated to make any
payments under the earnout provision. The Earnout Provision is equal to
the difference between earnings before interest, taxes, depreciation
and amortization expense adjusted by the earnout factor (7.33), and the
initial purchase price. Rental income will be adjusted upward in
accordance with the lease agreements for any amount paid. As of June
30, 2000 no such amounts were payable under this agreement.
In addition, in connection with the acquisition of the 89% interest in
the LLC, the Company and the minority interest holder each have the
right to obligate the other to sell or buy, respectively, the 11%
interest in the LLC. These rights are effective five years after the
hotel's opening or November 2004. The price for the 11% interest is
equal to 11% of the lesser of (a) an amount equal to the product of 8.5
multiplied times net house profit (defined as total hotel revenues less
property expenses) for the 13 period accounting year preceding the
notice of the option exercise, or (b) the appraised fair market value.
13. Subsequent Events:
During the period July 1, 2000 through August 7, 2000, the Company
received subscription proceeds for an additional 2,128,424 shares
($21,284,244) of common stock.
On July 1, 2000 and August 1, 2000, the Company declared distributions
totaling $2,404,414 and $2,513,813, respectively or $0.0625 per share
of common stock, payable in September 2000, to stockholders of record
on July 1 and August 1, 2000, respectively.
On July 28, 2000, the Company acquired two Properties located in
Gaithersburg, Maryland and Merrifield, Virginia for approximately $34.0
million. The Company has entered into long-term, triple-net leases, as
landlord, in connection with each of the Properties. These Properties
are being operated by the tenant, a subsidiary of Marriott
International, Inc., as a Courtyard by Marriott and a SpringHill Suites
by Marriott.
