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CNL HOSPITALITY PROPERTIES, INC.
Supplement No. 1, dated June 9, 2000
to Prospectus, dated March 30, 2000
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This Supplement is part of, and should be read in conjunction with, the
Prospectus dated March 30, 2000. This Supplement replaces all prior Supplements
to the Prospectus. 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 June 1, 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 June 1, 2000, will be reported in a
subsequent Supplement.
RECENT DEVELOPMENTS
The Company recently acquired two Wyndham(SM) Hotels with a new
prototype design located in Billerica, Massachusetts, a suburb of Boston, and
Denver, Colorado, in the Denver Tech Center. The Wyndham Billerica(SM) Property,
which opened in May 1999, has 210 guest rooms, including 14 suites. The Wyndham
Denver Property, referred to as the Wyndham Denver Tech Center(SM) Property
opened in November 1999 and has 180 guest rooms, including 18 suites.
The Wyndham Billerica Property is located within Technology Park, a 1.8
million square-foot commercial park, and within a four-mile radius of
approximately 3.7 million square feet of office, light industrial, and research
and development space. The Billerica area is home to a number of high-technology
companies and serves as the world headquarters for a major computer technology
company. The Property is less than 25 miles from Logan International Airport and
approximately 26 miles from Boston and its numerous historical sites.
The Wyndham Denver Tech Center Property is located within the Denver
Tech Center, a 12 million square-foot high-technology park with approximately
1,000 companies and more than 30,000 employees. Four other office parks are
within seven miles of the hotel and a fifth office park is currently under
construction. In total, more than 21 million square feet of office space is
within a seven-mile radius of the hotel. The Property is approximately ten miles
from downtown Denver and approximately 25 miles from Denver International
Airport. According to Hospitality Valuation Services (HVS) data, Denver is known
as a hub for cable operations and the telecommunications industry. Several
cable, satellite broadcast and telephone companies, as well as investment firms,
have facilities in the southern region of Denver.
As of June 1, 2000, the Company owned interests in 13 Properties and
had commitments to acquire an additional 17 properties. The Company's interest
in the Properties is focused on real estate only, not hotel operations. All of
the Properties owned by the Company are leased on a long-term triple net basis
to operators of national hotel chains.
THE OFFERINGS
GENERAL
A maximum of 27,500,000 Shares ($275,000,000) are being offered at a
purchase price of $10.00 per Share. Included in the 27,500,000 Shares offered,
the Company has registered 2,500,000 Shares ($25,000,000) available to
stockholders purchasing Shares in this offering who receive a copy of this
Prospectus or to stockholders
<PAGE>
who purchased Shares in the Initial Offering and who received a copy of the
related prospectus and who elect to participate in the Reinvestment Plan. Prior
to the conclusion of this offering, if any of the 2,500,000 Shares remain after
meeting anticipated obligations under the Reinvestment Plan, the Company may
decide to sell a portion of these Shares in this offering.
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, from 5,567 stockholders, 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 June 1, 2000, the Company had received aggregate subscriptions for
36,973,119 Shares totalling $369,731,187 in Gross Proceeds, including 74,863
Shares ($748,625) issued pursuant to the Reinvestment Plan from its Initial
Offering and this offering. As of June 1, 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 $329,000,000. The Company has used Net Offering Proceeds to
invest, directly or indirectly, approximately $180,000,000 in 13 hotel
Properties, to pay $7,120,800 as deposits on seven additional hotel Properties,
to redeem 27,490 Shares of Common Stock for $252,955 and to pay approximately
$19,100,000 in Acquisition Fees and certain Acquisition Expenses, leaving
approximately $122,300,000 available to invest in Properties and Mortgage Loans.
See "Business -- Pending Investments" for information on 17 Properties the
Company has entered into commitments to acquire.
As described in "The Offering" section of the Prospectus, the Board of
Directors may determine to engage in future offerings of Common Stock. In
connection therewith, the Board of Directors has approved a third offering by
the Company of up to 45,000,000 Shares, of which up to 5,000,000 Shares are
being offered to participants in our Reinvestment Plan in connection with the
third offering. The third offering will be at the same price and on
substantially the same terms as this offering. The third offering was declared
effective by the Securities and Exchange Commission on May 23, 2000. The Company
will not commence the third offering until after the completion of this
offering.
The Company currently anticipates that any Net Offering Proceeds
received from the third offering will be invested in hotel Properties or, to a
lesser extent, to make Mortgage Loans to hotel operators. The Company believes
that the net proceeds received from the third offering and any additional
offerings will enable the Company to continue to grow and take advantage of
acquisition opportunities until such time, if any, that the Company lists on a
national exchange. Under the Company's Articles of Incorporation, if the Company
does not list by December 31, 2007, it will commence an orderly liquidation of
its assets, and the distribution of the proceeds therefrom to its stockholders.
RISK FACTORS
TAX RISKS
The following information updates and replaces the third and fourth
paragraph on page 20 of the Prospectus.
Risks Associated with Loans Secured by Personal Property. In order to
qualify as a REIT, at least 75% of the value of our assets must consist of
investments in real estate, investments in other REITs, cash and cash
equivalents, and government securities. Our secured equipment leases would not
be considered real estate assets for federal income tax purposes. Therefore, the
value of the secured equipment leases, together with any other property that is
not considered a real estate asset for federal income tax purposes, must
represent in the aggregate less than 25% of our total assets.
In addition, we may not own securities in, or make secured equipment
loans to, any one company (other than a REIT) which have, in the aggregate, a
value in excess of 5% of our total assets. For federal income tax purposes, the
secured equipment leases would be considered loans. The value of the secured
equipment leases entered into with any particular tenant under a lease or
entered into with any particular borrower under a loan must not represent in
excess of 5% of our total assets.
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<PAGE>
MANAGEMENT COMPENSATION
For information concerning compensation and fees paid to the Advisor
and its Affiliates since the date of inception of the Company, see "Certain
Transactions."
BUSINESS
GENERAL
The following information updates and replaces the first full paragraph
and the second full paragraph on page 42 of the Prospectus.
The Company will borrow money to acquire Assets and to pay certain
fees. The Company intends to encumber Assets in connection with the borrowing.
The Company 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. On July 31, 1998, the Company entered into an initial $30,000,000
revolving Line of Credit to be used to acquire hotel Properties. See the section
of the Prospectus entitled "Business -- Borrowing" for a description of the
$30,000,000 Line of Credit. The Board of Directors anticipates that the
aggregate amount of any Permanent Financing, if obtained, will not exceed 30% of
the Company's total assets. The Permanent Financing would be used to acquire
Assets and pay a fee of 4.5% of any Permanent Financing, excluding amounts to
fund Secured Equipment Leases, as Acquisition Fees, to the Advisor for
identifying the Properties, structuring the terms of the acquisition and leases
of the Properties and structuring the terms of the Mortgage Loans. The Line of
Credit may be increased at the discretion of the Board of Directors and may be
repaid with offering proceeds, proceeds from the sale of assets, working capital
or Permanent Financing. The Line of Credit and Permanent Financing are the only
source of funds for making Secured Equipment Leases and for paying the Secured
Equipment Lease Servicing Fee to the Advisor. The Company has not yet received a
commitment for any Permanent Financing and there is no assurance that the
Company will obtain any Permanent Financing on satisfactory terms.
As of June 1, 2000, the Company had acquired, directly or indirectly,
13 hotel Properties consisting of land, building and equipment and had initial
commitments to acquire 17 additional Properties. However, as of June 1, 2000,
the Company had not entered into any arrangements that create a reasonable
probability that the Company will enter into any Mortgage Loan or Secured
Equipment Lease.
INVESTMENT OF OFFERING PROCEEDS
The following information updates and replaces the fourth full
paragraph on page 42 of the Prospectus.
Based on the purchase prices of the 30 Properties that the Company had
either acquired or committed to acquire as of June 1, 2000 and current market
conditions, the Company and the Advisor have estimated an average purchase price
of $10,000,000 to $40,000,000 per hotel Property. Assuming the Company receives
the full $250,000,000 in Gross Proceeds from this offering, for which there is
no assurance, and acquires the 17 Properties for which it has entered into
commitments, the Company could invest in a total portfolio of approximately 35
to 51 hotel Properties. In certain cases, the Company may become a co-venturer
in a Joint Venture that will own the Property. In each such case, the Company's
cost to purchase an interest in such Property will be less than the total
purchase price and the Company therefore will be able to acquire interests in a
greater number of Properties. In addition, the Board of Directors may determine
to engage in future offerings of Common Stock, the proceeds of which could be
used to acquire additional Properties or make Mortgage Loans. The Company may
also borrow to acquire Assets. See the section of the Prospectus entitled
"Business -- Borrowing." Management estimates that 10% to 15% of the Company's
investment for each hotel Property will be for the cost of land, 80% to 85% for
the cost of the building and 5% to 10% for the cost of furniture, fixtures and
equipment. See the section of the Prospectus entitled "Joint Venture
Arrangements" and "Risk Factors -- Real Estate and Other Investment Risks --
Possible Lack of Diversification Increases Risk of Investment." Management
cannot estimate the number of Mortgage Loans that may be entered into. The
Company may also borrow money to make Mortgage Loans.
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<PAGE>
PROPERTY ACQUISITIONS
Atlanta Portfolio.
The following information updates and replaces the seventh bullet point
and the third full paragraph on page 43, and the table on page 44 of the
Prospectus.
o Management fees payable to Crestline Hotels & Resorts, Inc., who was
assigned the management rights of Stormont Trice Management Corporation
on March 6, 2000, for operation of the Buckhead (Lenox Park) and
Gwinnett Place Properties are subordinated to minimum rents due to the
Company.
In connection with the acquisition of these two Properties, the Company
may be required to make an additional payment (the "Earnout Amount") of up to $1
million if certain earnout provisions are achieved by July 31, 2001. After July
31, 2001, the Company will no longer be obligated to make any payments under the
earnout provision. The Earnout Amount is equal to the difference between
earnings before interest, taxes, depreciation and amortization expense adjusted
by the earnout factor (7.44), and the initial purchase price. Rental income will
be adjusted upward in accordance with the lease agreements for any such amount
paid. As of March 31, 2000, approximately $97,000 was payable under this
agreement.
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>
Buckhead (Lenox Park) Property Gwinnett Place Property
------------------------------------------------------ -----------------------------------------------------
Average Average Revenue Average Average Revenue
Occupancy Daily Room per Available Occupancy Daily Room per Available
Year Rate Rate Room Rate Rate Room
-------------- -------------- -------------- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
*1997 42.93% $ 91.15 $39.13 39.08% $85.97 $33.60
1998 75.20% 99.70 75.01 74.10% 87.36 64.73
1999 81.00% 104.50 84.66 80.40% 88.16 70.84
**2000 79.30% 106.09 84.15 76.90% 91.81 70.64
</TABLE>
* Data for the Buckhead (Lenox Park) Property represents the period
August 7, 1997 through December 31, 1997 and data for the Gwinnett
Place Property represents the period August 1, 1997 through December
31, 1997.
** Data for 2000 represents the period January 1, 2000 through March 31,
2000.
Western International Portfolio.
The following information updates and replaces the table on page 48 of
the Prospectus.
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>
Revenue
Average Average per
Occupancy Daily Room Available
Property Location Year Rate Rate Room
------------------------------- ------------------ ----------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Legacy Park Property Plano, TX *1998 8.20% $ 45.28 $ 3.70
**1999 61.50% 89.09 54.80
***2000 67.10% 91.04 61.07
Market Center Property Dallas, TX *1998 37.90% $100.95 $ 38.26
**1999 69.20% 115.34 79.87
***2000 74.50% 137.44 102.42
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Revenue
Average Average per
Occupancy Daily Room Available
Property Location Year Rate Rate Room
------------------------------- ------------------ ----------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Hughes Center Property Las Vegas, NV *1998 47.30% $107.86 $ 51.00
**1999 75.20% 94.16 70.85
***2000 78.60% 106.78 83.96
Dallas Plano Property Plano, TX *1998 46.70% $ 88.79 $ 41.47
**1999 74.30% 75.38 56.03
***2000 90.40% 77.90 70.43
Scottsdale Downtown
Property Scottsdale, AZ **1999 39.30% $ 76.95 $ 30.26
***2000 72.30% 128.03 92.62
Lake Union Property Seattle, WA **1999 69.70% $116.72 $ 81.34
***2000 55.80% 106.16 59.26
Phoenix Airport Property Phoenix, AZ **1999 41.40% $ 83.88 $ 34.70
***2000 66.20% 119.80 79.26
</TABLE>
* Data for the Legacy Park Property represents the period December 23,
1998 through January 1, 1999, data for the Market Center Property
represents the period November 11, 1998 through January 1, 1999, data
for the Hughes Center Property represents the period October 1, 1998
through January 1, 1999 and data for the Dallas Plano Property
represents the period October 12, 1998 through January 1, 1999.
** Data for the Legacy Park, Market Center, Hughes Center and Dallas Plano
Properties represents the period January 2, 1999 through December 31,
1999, and data for the Scottsdale Downtown, Lake Union and Phoenix
Airport Properties represents the period May 22, 1999 through December
31, 1999.
*** Data for 2000 represents the period January 1, 2000 through March 24,
2000.
Courtyard(R) by Marriott(R) located in Philadelphia, Pennsylvania.
The following information updates and replaces the table on page 49 of
the Prospectus.
The average occupancy rate, the average daily room rate and the revenue
per available room for the period the hotel has been operational are as follows:
Philadelphia Downtown Property
---------------------------------------------------------
Average Average Revenue
Occupancy Daily Room per Available
Year Rate Rate Room
------------ --------------- ---------------- ----------------
*1999 25.20% $114.95 $28.97
**2000 37.10% 122.39 45.37
* Data for the Philadelphia Downtown Property represents the period
November 20, 1999 through December 31, 1999.
** Data for 2000 represents the period January 1, 2000 through March 24,
2000.
The Company believes that the results achieved by the Property, as
shown in the table above, are not indicative of its long-term operating
potential, as the Property had only been open since November 1999.
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<PAGE>
Residence Inn(R) by Marriott(R) located in Mira Mesa, California.
The following information updates and replaces the table on page 51 of
the Prospectus.
The average occupancy rate, the average daily room rate and the revenue
per available room for the period the hotel has been operational are estimated
to be as follows:
Mira Mesa Property
---------------------------------------------------------
Average Average Revenue
Occupancy Daily Room per Available
Year Rate Rate Room
------------ --------------- ---------------- ----------------
*1999 74.00% $104.00 $76.96
**2000 78.90% 121.00 95.50
* Data for the Mira Mesa Property represents the period September 20,
1999 through December 31, 1999.
** Data for 2000 represents the period January 1, 2000 through March 24,
2000.
The Company believes that the results achieved by the Property, as
shown in the table above, may or may not be indicative of its long-term
operating potential, as the Property had only been open since September 1999.
Wyndham Portfolio. On June 1, 2000, the Company acquired two hotel
Properties. The Properties are a Wyndham Hotel located in Billerica,
Massachusetts, a suburb of Boston (the "Wyndham Billerica Property"), and a
Wyndham Hotel located in Denver, Colorado, in the Denver Tech Center (the
"Wyndham Denver Tech Center Property").
The Company acquired the Wyndham Billerica Property for $25,092,000
from PAH Billerica Realty Company, LLC and the Wyndham Denver Tech Center
Property for $18,353,000 from WII Denver Tech, LLC. In connection with the
purchase of the two Properties, the Company, as lessor, entered into two
separate, long-term lease agreements. The leases on both Properties are
cross-defaulted. The general terms of the lease agreements are described in the
section of the Prospectus entitled "Business -- Description of Property Leases."
The principal features of the leases are as follows:
o The initial term of each lease is approximately 15 years.
o At the end of the initial lease term, the tenant will have three
consecutive renewal options of five years each.
o The leases require minimum rent payments to the Company of $2,509,200
per year for the Wyndham Billerica Property and $1,835,300 per year for
the Wyndham Denver Tech Center Property.
o Minimum rent payments will increase to $2,571,930 per year for the
Wyndham Billerica Property and $1,881,183 per year for the Wyndham
Denver Tech Center Property after the first lease year.
o In addition to minimum rent, for each calendar year, the leases require
percentage rent equal to 10% of the aggregate amount of all revenues
combined, for the Wyndham Billerica and the Wyndham Denver Tech Center
Properties, in excess of $13,683,000.
o A security deposit equal to $1,254,600 for the Wyndham Billerica
Property and $917,650 for the Wyndham Denver Tech Center Property has
been retained by the Company as security for the tenant's obligations
under the leases.
o Management fees payable to Wyndham International, Inc., for operation
of the Wyndham Billerica and Wyndham Denver Tech Center Properties are
subordinated to minimum rents due to the Company.
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<PAGE>
o The tenant of the Wyndham Billerica and Wyndham Denver Tech Center
Properties has established an FF&E Reserve. Deposits to the FF&E
Reserve are made monthly as 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.
In connection with the acquisition of these two Properties, the Company
may be required to make an additional payment (the "Earnout Amount") of up to
$2,471,500 if certain earnout provisions are achieved by June 1, 2003. After
June 1, 2003, the Company will no longer be obligated to make any payments under
the earnout provision. The Earnout Amount is equal to the difference between
earnings before interest, taxes, depreciation and amortization expense adjusted
by the earnout factor (7.33), and the initial purchase price. Rental income will
be adjusted upward in accordance with the lease agreements for any such amount
paid.
The federal income tax basis of the depreciable portion of the Wyndham
Billerica Property and the Wyndham Denver Tech Center Property is approximately
$21,500,000 and $14,700,000, respectively.
The Wyndham Billerica Property, which opened in May 1999, is a Wyndham
Hotel with a new prototype design located in Billerica, Massachusetts, a suburb
of Boston. The Wyndham Billerica Property has 210 guest rooms, including 14
suites, 4,346 square feet of meeting space, a 64-seat restaurant, a 33-seat
lounge, a library, an indoor pool and a fitness center and spa. The Property is
located within Technology Park, a 1.8 million square-foot commercial park. The
hotel is within a four-mile radius of approximately 3.7 million square feet of
office, light industrial, and research and development space. The Property is
accessible by a variety of local and interstate highways, and is less than 25
miles from Logan International Airport. The Billerica area is home to a number
of high-technology companies and serves as the world headquarters for a major
computer technology company. Billerica is approximately 26 miles from Boston and
its numerous historical sites, including The Freedom Trail, Paul Revere's House,
Old North Church, Faneuil Hall and the newly restored U.S.S. Constitution, the
U.S. Navy's oldest commissioned ship. Other lodging facilities located in
proximity to the Wyndham Billerica Property include a Courtyard by Marriott, a
Doubletree Hotel, a Homewood Suites, a Marriott, a Renaissance(R) Hotel and a
Wyndham Garden Hotel.
The Wyndham Denver Tech Center Property, which opened in November 1999,
is a Wyndham Hotel with a new prototype design located in Denver, Colorado. The
Wyndham Denver Tech Center Property has 180 guest rooms, including 18 suites,
4,040 square feet of meeting space, a 64-seat restaurant, a 33-seat lounge, a
library, an indoor pool and a fitness center and spa. The Property is located
within the Denver Tech Center, a 12 million square-foot high-technology park
with approximately 1,000 companies and more than 30,000 employees. The Center is
currently under expansion and several major companies are acquiring additional
office space near the Center. Four other office parks are within seven miles of
the hotel, including Greenwood Plaza, Inverness Business Park, Waterview
Development and Meridian International Business Center. A fifth office park,
ParkRidge Corporate Center, is currently under construction. In total, more than
21 million square feet of office space is within a seven-mile radius of the
hotel. The Property is accessible by a variety of local and interstate highways,
and is approximately ten miles from downtown Denver and approximately 25 miles
from Denver International Airport. According to Hospitality Valuation Services
(HVS) data, Denver is known as a hub for cable operations and the
telecommunications industry. Several cable, satellite broadcast and telephone
companies, as well as investment firms, have facilities in the southern region
of Denver. Other lodging facilities located in proximity to the Wyndham Denver
Tech Center Property include a Hyatt Regency, a Marriott, an Embassy Suites, a
Sheraton Hotel, a Hilton and a Summerfield Suites. 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>
Wyndham Billerica Property Wyndham Denver Tech Center Property
------------------------------------------------------ -----------------------------------------------------
Average Average Revenue Average Average Revenue
Occupancy Daily Room per Available Occupancy Daily Room per Available
Year Rate Rate Room Rate Rate Room
-------------- -------------- -------------- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
*1999 60.25% $109.38 $65.89 31.17% $76.40 $23.76
**2000 65.79% 117.76 77.47 55.04% 84.23 46.36
</TABLE>
* Data for the Wyndham Billerica Property represents the period May 15,
1999 through December 31, 1999 and data for the Wyndham Denver Tech
Center Property represents the period November 15, 1999 through
December 31, 1999.
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<PAGE>
** Data for 2000 represents the period January 1, 2000 through March 31,
2000.
The Company believes that the results achieved by the Properties, as
shown in the table above, are not indicative of their long-term operating
potential, as the Properties had only been open since May and November 1999,
respectively.
Wyndham Brands. The brand, Wyndham Hotels & Resorts(R), is part of
Wyndham International, Inc.'s portfolio of lodging brands. According to
Wyndham's company overview, Wyndham International, Inc. is one of the world's
largest hospitality and lodging companies serving business and leisure travelers
with hotels and resorts located in major metropolitan business centers and
leading vacation markets in the United States, Canada, the Caribbean, Mexico and
Europe. According to Wyndham data, as of February 2, 2000, Wyndham
International, Inc. owns, leases, manages and franchises more than 300 hotels
totalling more than 70,000 guest rooms.
PENDING INVESTMENTS
The following information updates and replaces the last two paragraphs
on page 51 and the table beginning on page 52 of the Prospectus.
As of June 1, 2000, the Company had initial commitments to acquire 17
additional hotel properties. These Properties are four Courtyard by Marriott
properties (one in each of Alpharetta, Georgia; Orlando, Florida; Overland Park,
Kansas and Palm Desert, California), one Fairfield Inn(R) by Marriott(R) (in
Orlando, Florida), five SpringHill Suites(TM) by Marriott(R) (one in each of
Centreville, Virginia; Charlotte, North Carolina; Gaithersburg, Maryland;
Orlando, Florida and Raleigh/Durham, North Carolina), three Residence Inn by
Marriott properties (one in each of Merrifield, Virginia; Palm Desert,
California and Cottonwood, Utah) and four TownePlace Suites(R) by Marriott(R)
(one in each of Tewksbury, Massachusetts; Mt. Laurel, New Jersey; Newark,
California and Scarborough, Maine). 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.
-8-
<PAGE>
<TABLE>
<CAPTION>
Estimated Purchase Lease Term and Minimum Annual
Property Price Renewal Options Rent
-------- ------------------- --------------- -----------------
<S> <C> <C> <C>
Courtyard by Marriott (2) 15 years; two ten-year 10% of the Company's total cost
Orlando, FL (1) renewal options to purchase the property
(the "Courtyard Little Lake Bryan
Property")
Hotel under construction
Fairfield Inn by Marriott (2) 15 years; two ten-year 10% of the Company's total cost
Orlando, FL (1) renewal options to purchase the property
(the "Fairfield Inn Little Lake Bryan
Property")
Hotel under construction
SpringHill Suites by Marriott (2) 15 years; two ten-year 10% of the Company's total cost
Orlando, FL (1) renewal options to purchase the property
(the "SpringHill Suites Little Lake
Bryan Property")
Hotel under construction
Residence Inn by Marriott $18,816,000 15 years; two ten-year 10% of the Company's total cost
Merrifield, VA (3) renewal options to purchase the property
(the "Residence Inn Merrifield Property")
Hotel under construction
SpringHill Suites $15,215,000 15 years; two ten-year 10% of the Company's total cost
Gaithersburg, MD (3) renewal options to purchase the property
(the "SpringHill Suites Gaithersburg
Property")
Hotel under construction
TownePlace Suites $13,600,000 15 years; two ten-year 10% of the Company's total cost
Newark, CA (3)(4) renewal options to purchase the property
(the "TownePlace Suites Newark Property")
Hotel under construction
Courtyard by Marriott $13,510,000 15 years; two ten-year 10% of the Company's total cost
Palm Desert, CA (3) renewal options to purchase the property
(the "Courtyard Palm
Desert Property")
Existing hotel
<CAPTION>
Property Percentage Rent
-------- ---------------
<S> <C>
Courtyard by Marriott for each lease year after the
Orlando, FL (1) second lease year, 7% of revenues
(the "Courtyard Little Lake Bryan in excess of revenues for the
Property") second lease year
Hotel under construction
Fairfield Inn by Marriott for each lease year after the
Orlando, FL (1) second lease year, 7% of revenues
(the "Fairfield Inn Little Lake Bryan in excess of revenues for the
Property") second lease year
Hotel under construction
SpringHill Suites by Marriott for each lease year after the
Orlando, FL (1) second lease year, 7% of revenues
(the "SpringHill Suites Little Lake in excess of revenues for the
Bryan Property") second lease year
Hotel under construction
Residence Inn by Marriott for each lease year after the
Merrifield, VA (3) second lease year, 7% of revenues
(the "Residence Inn Merrifield Property") in excess of revenues for the
Hotel under construction second lease year
SpringHill Suites for each lease year after the
Gaithersburg, MD (3) second lease year, 7% of revenues
(the "SpringHill Suites Gaithersburg in excess of revenues for the
Property") second lease year
Hotel under construction
TownePlace Suites for each lease year after the
Newark, CA (3)(4) second lease year, 7% of revenues
(the "TownePlace Suites Newark Property") in excess of revenues for the
Hotel under construction second lease year
Courtyard by Marriott for each lease year after the
Palm Desert, CA (3) second lease year, 7% of revenues
(the "Courtyard Palm in excess of revenues for the
Desert Property") second lease year
Existing hotel
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Estimated Purchase Lease Term and Minimum Annual
Property Price Renewal Options Rent
-------- ------------------- --------------- -----------------
Residence Inn by Marriott $16,740,000 15 years; two ten-year 10% of the Company's total cost
Palm Desert, CA (3) renewal options to purchase the property
(the "Residence Inn
Palm Desert Property")
Existing hotel
Courtyard by Marriott $13,877,000 15 years; two ten-year 10% of the Company's total cost
Alpharetta, GA (5) renewal options to purchase the property
(the "Courtyard Alpharetta Property")
Existing hotel
Courtyard by Marriott $15,790,000 15 years; two ten-year 10% of the Company's total cost
Overland Park, KS (5) renewal options to purchase the property
(the "Courtyard Overland
Park Property")
Hotel under construction
Residence Inn by Marriott $14,573,000 15 years; two ten-year 10% of the Company's total cost
Cottonwood, UT (5) renewal options to purchase the property
(the "Residence Inn
Cottonwood Property")
Existing hotel
SpringHill Suites by Marriott $11,414,000 15 years; two ten-year 10% of the Company's total cost
Centreville, VA (5) renewal options to purchase the property
(the "SpringHill Suites
Centreville Property")
Hotel under construction
SpringHill Suites by Marriott $11,773,000 15 years; two ten-year 10% of the Company's total cost
Charlotte, NC (5) renewal options to purchase the property
(the "SpringHill Suites
Charlotte Property")
Hotel under construction
SpringHill Suites by Marriott $8,822,000 15 years; two ten-year 10% of the Company's total cost
Raleigh/Durham, NC (5) renewal options to purchase the property
(the "SpringHill Suites
Raleigh/Durham Property")
Hotel under construction
<CAPTION>
Property Percentage Rent
-------- ---------------
<S> <C>
Residence Inn by Marriott for each lease year after the
Palm Desert, CA (3) second lease year, 7% of revenues
(the "Residence Inn in excess of revenues for the
Palm Desert Property") second lease year
Existing hotel
Courtyard by Marriott for each lease year after the
Alpharetta, GA (5) second lease year, 7% of revenues
(the "Courtyard Alpharetta Property") in excess of revenues for the
Existing hotel second lease year
Courtyard by Marriott for each lease year after the
Overland Park, KS (5) second lease year, 7% of revenues
(the "Courtyard Overland in excess of revenues for the
Park Property") second lease year
Hotel under construction
Residence Inn by Marriott for each lease year after the
Cottonwood, UT (5) second lease year, 7% of revenues
(the "Residence Inn in excess of revenues for the
Cottonwood Property") second lease year
Existing hotel
SpringHill Suites by Marriott for each lease year after the
Centreville, VA (5) second lease year, 7% of revenues
(the "SpringHill Suites in excess of revenues for the
Centreville Property") second lease year
Hotel under construction
SpringHill Suites by Marriott for each lease year after the
Charlotte, NC (5) second lease year, 7% of revenues
(the "SpringHill Suites in excess of revenues for the
Charlotte Property") second lease year
Hotel under construction
SpringHill Suites by Marriott for each lease year after the
Raleigh/Durham, NC (5) second lease year, 7% of revenues
(the "SpringHill Suites in excess of revenues for the
Raleigh/Durham Property") second lease year
Hotel under construction
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
Estimated Purchase Lease Term and Minimum Annual
Property Price Renewal Options Rent
-------- ------------------- --------------- -----------------
<S> <C> <C> <C>
TownePlace Suites by Marriott $9,050,000 15 years; two ten-year 10% of the Company's total cost
Tewksbury, MA (5) renewal options to purchase the property
(the "TownePlace Suites
Tewksbury Property")
Existing hotel
TownePlace Suites by Marriott $7,711,000 15 years; two ten-year 10% of the Company's total cost
Mt. Laurel, NJ (5) renewal options to purchase the property
(the "TownePlace Suites
Mt. Laurel Property")
Existing hotel
TownePlace Suites by Marriott $7,160,000 15 years; two ten-year 10% of the Company's total cost
Scarborough, ME (5) renewal options to purchase the property
(the "TownePlace Suites
Scarborough Property")
Existing hotel
<CAPTION>
Property Percentage Rent
-------- ---------------
<S> <C>
TownePlace Suites by Marriott for each lease year after the
Tewksbury, MA (5) first lease year, 7% of revenues
(the "TownePlace Suites in excess of proforma revenues for
Tewksbury Property") the second lease year
Existing hotel
TownePlace Suites by Marriott for each lease year after the
Mt. Laurel, NJ (5) first lease year, 7% of revenues
(the "TownePlace Suites in excess of proforma revenues for
Mt. Laurel Property") the second lease year
Existing hotel
TownePlace Suites by Marriott for each lease year after the
Scarborough, ME (5) first lease year, 7% of revenues
(the "TownePlace Suites in excess of proforma revenues for
Scarborough Property") the second lease year
Existing hotel
</TABLE>
----------
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 leases for the Residence Inn Merrifield, the SpringHill Suites
Gaithersburg, the TownePlace Suites Newark, the Courtyard Palm Desert
and the Residence Inn Palm Desert Properties are expected to be with
the same unaffiliated lessee.
(4) The Company may be obligated to fund up to an additional $1 million in
construction costs relating to this Property.
(5) The leases for the Courtyard Alpharetta, the Courtyard Overland Park,
the Residence Inn Cottonwood, the SpringHill Suites Centreville, the
SpringHill Suites Charlotte, the SpringHill Suites Raleigh/Durham, the
TownePlace Suites Tewksbury, the TownePlace Suites Mt. Laurel and the
TownePlace Suites Scarborough Properties are expected to be with the
same unaffiliated lessee.
-11-
<PAGE>
Little Lake Bryan Properties.
The following information updates and replaces the second paragraph on
page 54, the last paragraph on page 55 and the table on page 56 of the
Prospectus.
The lodging market in the Lake Buena Vista area averaged 75.2%
occupancy and an average daily room rate of $116.35 for 1999. The Lake Buena
Vista lodging market also achieved a 9.6% growth in room demand on a compounded
annual basis over the last ten years.
Newark Property. The Newark Property, which is scheduled to open in
August 2000, is a TownePlace Suites by Marriott located in Newark, California,
near Silicon Valley. The Newark Property is expected to resemble a garden
apartment complex and include 127 guest suites. According to HVS data, Silicon
Valley is home to more than 33% of the 100 largest technology firms launched
since 1965 and currently boasts 11% of the nation's high-technology jobs. Due to
this high concentration of high-technology employment, personal wealth levels in
the area are 21.2% higher than the national average. One major high technology
firm, located just three miles from the hotel, recently completed a 1.1 million
square-foot expansion for its worldwide training facility and has begun
construction on an 800,000-square-foot research and development site. Additional
business growth within 3.5 miles includes the expansion of the Ardenwood
Business Park and the Baypoint Center Technology Park, a 500,000-square-foot
research and development property. The property is readily accessible by a
variety of local and county roadways, as well as some state highways. The San
Jose International Airport is located approximately 14 miles south of the hotel
and the Oakland International Airport is approximately 18 miles north of the
property.
The following chart provides additional information on systemwide
occupancy levels for Marriott systemwide lodging brands:
Total Occupancy Rate for 1999
Marriott Brand as Compared to
U.S. Lodging Industry
Occupancy Rate
--------------
U.S. Lodging Industry 63.3%
Courtyard by Marriott 73.2%
Fairfield Inn by Marriott 68.7%
Marriott Hotels, Resorts and Suites 73.8%
Residence Inn by Marriott 79.0%
Source: Smith Travel Research (U.S. Lodging Industry only) and
Marriott International, Inc. 1999 Form 10-K
SITE SELECTION AND ACQUISITION OF PROPERTIES
The following information updates and replaces the fourth full
paragraph on page 57 and the third full paragraph on page 59 of the Prospectus.
The purchase of each Property will be supported by an appraisal of the
real estate prepared by an independent appraiser. The Advisor, however, will
rely on its own independent analysis and not on such appraisals in determining
whether or not to recommend that the Company acquire a particular property. The
purchase price of each such Property or portfolio of Properties, plus any
Acquisition Fees paid by the Company in connection with such purchase, will not
exceed, in the case of an individual Property, the Property's appraised value
or, in the case of a portfolio of Properties, the total of the appraised values
of the Properties in the portfolio. (In connection with the acquisition of a
Property which is to be constructed or renovated, the comparison of the purchase
price and the appraised value of such Property ordinarily will be based on the
"stabilized value" of such Property.) The stabilized value is the value at the
point which the Property has reached its level of competitiveness at which it is
expected to operate over the long term. It should be noted that appraisals are
estimates of value and should not be relied upon as measures of true worth or
realizable value. Each appraisal will be maintained in the Company's records for
at least five years and will be available for inspection and duplication by any
stockholder.
-12-
<PAGE>
Construction and Renovation
In all situations where construction or renovation of a Property is
required, the Company also will have the right to review the developer's books,
records, and agreements during and following completion of construction to
verify actual costs.
BORROWING
The following information updates and replaces the first paragraph on
page 67 of the Prospectus.
The Company will borrow money to acquire Assets and to pay certain
related fees. The Company intends to encumber Assets in connection with the
borrowing. The Company plans to obtain one or more revolving Lines of Credit in
an aggregate amount up to $100,000,000, and may also obtain Permanent Financing.
The Line of Credit may be increased at the discretion of the Board of Directors
and may be repaid with offering proceeds, proceeds from the sale of assets,
working capital or Permanent Financing. The Line of Credit and Permanent
Financing are the only source of funds for making Secured Equipment Leases and
for paying the Secured Equipment Lease Servicing Fee.
SELECTED FINANCIAL DATA
The following table sets forth certain financial information for the
Company, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements included in Appendix B.
<TABLE>
<CAPTION>
Quarter Ended
March 31, March 31,
2000 1999 Year Ended December 31,
(Unaudited) (Unaudited) 1999 1998 1997 (1) 1996 (2)
--------------- ------------- --------------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $5,581,157 $1,333,352 $10,677,505 $1,955,461 $ 46,071 $ --
Net earnings 3,945,084 430,280 7,515,988 958,939 22,852 --
Cash distributions
declared (3) 5,522,124 998,652 10,765,881 1,168,145 29,776 --
Funds from operations (4) 5,456,911 787,347 10,478,103 1,343,105 22,852 --
Earnings per Share
Basic 0.13 0.07 0.47 0.40 0.03 --
Diluted 0.12 0.06 0.45 0.40 0.03 --
Cash distributions declared
per Share 0.18 0.17 0.72 0.47 0.05 --
Weighted average number
of Shares outstanding (5)
Basic 31,200,726 6,419,548 15,890,212 2,402,344 686,063 --
Diluted 38,622,874 7,812,448 21,437,859 2,402,344 686,063 --
<CAPTION>
March 31, March 31,
2000 1999 December 31,
(Unaudited) (Unaudited) 1999 1998 1997 1996
--------------- ------------- --------------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Total assets $309,122,011 $84,706,283 $266,968,274 $48,856,690 $9,443,476 $598,190
Total stockholders' equity 292,031,594 79,083,113 253,054,839 37,116,491 9,233,917 200,000
</TABLE>
(1) No operations commenced until the Company received minimum offering
proceeds and funds were released from escrow on October 15, 1997.
(2) Selected financial data for 1996 represents the period June 12, 1996
(date of inception) through December 31, 1996.
-13-
<PAGE>
(3) Cash distributions are declared by the Board of Directors and generally
are based on various factors, including cash available from operations.
Approximately 29%, 57%, 30%, 18% and 23% of cash distributions for the
quarters ended March 31, 2000 and 1999, and the years ended December
31, 1999, 1998 and 1997, respectively, represent a return of capital in
accordance with generally accepted accounting principles ("GAAP"). Cash
distributions treated as a return of capital on a GAAP basis represent
the amount of cash distributions in excess of accumulated net earnings
on a GAAP basis, including deductions for depreciation expense. The
Company has not treated such amount as a return of capital for purposes
of calculating Invested Capital and the Stockholders' 8% Return.
(4) Funds from operations ("FFO"), based on the revised definition adopted
by the Board of Governors of the National Association of Real Estate
Investment Trusts ("NAREIT") and as used herein, means net earnings
determined in accordance with GAAP, 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. FFO was developed by NAREIT as a
relative measure of performance and liquidity of an equity REIT in
order to recognize that income-producing real estate historically has
not depreciated on the basis determined under GAAP. However, FFO (i)
does not represent cash generated from operating activities determined
in accordance with GAAP (which, unlike FFO, generally reflects all cash
effects of transactions and other events that enter into the
determination of net earnings), (ii) is not necessarily indicative of
cash flow available to fund cash needs and (iii) should not be
considered as an alternative to net earnings determined in accordance
with GAAP as an indication of the Company's operating performance, or
to cash flow from operating activities determined in accordance with
GAAP as a measure of either liquidity or the Company's ability to make
distributions. Accordingly, the Company believes that in order to
facilitate a clear understanding of the consolidated historical
operating results of the Company, FFO should be considered in
conjunction with the Company's net earnings and cash flows as reported
in the accompanying financial statements and notes thereto. See
Appendix B -- Financial Information.
(5) The weighted average number of Shares outstanding is based upon the
period the Company was operational.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements generally are characterized by
the use of terms such as "believe," "expect" and "may." Although the Company
believes that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, the Company's actual results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference include the following: changes in
general economic conditions, changes in local and national real estate
conditions, the availability of capital from borrowings under the Company's Line
of Credit, 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 continue to identify suitable investments, the ability of the
Company to continue to locate suitable tenants for its Properties and borrowers
for its Mortgage Loans and Secured Equipment Leases, and the ability of such
tenants and borrowers to make payments under their respective leases, Mortgage
Loans or Secured Equipment Leases. Given these uncertainties, readers are
cautioned not to place undue reliance on such statements.
INTRODUCTION
The Company
The Company is a Maryland corporation that was organized 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. In this
section, 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 Company was formed to acquire 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 Company may also provide Mortgage Loans and Secured Equipment Leases
to operators of
-14-
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
Common Stock Offerings
The Company was formed in June 1996, at which time it received initial
capital contributions from the Advisor of $200,000 for 20,000 Shares of Common
Stock. On July 9, 1997, the Company commenced its Initial Offering of Shares of
Common Stock. Upon completion of the 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 $72,637 (7,264 Shares) through the
Company's Reinvestment Plan. Following the completion of its Initial Offering,
the Company commenced this offering of up to 27,500,000 Shares of Common Stock
($275,000,000). As of March 31, 2000, the Company had received subscriptions for
18,866,111 Shares totalling $188,661,114 in Gross Proceeds from this offering,
including $675,988 (67,599 Shares) through the Company's Reinvestment Plan.
As of March 31, 2000 and December 31, 1999, 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 $300,000,000 and $257,000,000, respectively. As of March 31, 2000,
the Company had used net proceeds from the offerings to invest directly or
indirectly, approximately $136,500,000 in 11 hotel Properties, to pay $7,120,800
as deposits on seven additional hotel Properties, to redeem 27,490 Shares of
Common Stock for $252,905 and to pay approximately $16,700,000 in Acquisition
Fees and certain Acquisition Expenses, leaving approximately $139,500,000
available for investment in Properties and Mortgage Loans.
On October 26, 1999, the Company filed a registration statement on Form
S-11 with the Securities and Exchange Commission in connection with the proposed
sale by the Company of up to an additional 45,000,000 Shares of Common Stock
($450,000,000) (the "2000 Offering") in an offering expected to commence
immediately following the completion of this offering. The 2000 Offering was
declared effective by the Securities and Exchange Commission on May 23, 2000. Of
the 45,000,000 Shares of Common Stock expected to be offered, up to 5,000,000
Shares are expected to be available to stockholders purchasing Shares through
the Reinvestment Plan. The price per Share and the other terms of the 2000
Offering, including the percentage of gross proceeds payable (i) to the Managing
Dealer for Selling Commissions and expenses in connection with the offering and
(ii) to the Advisor for Acquisition Fees, will be substantially the same as
those for the Initial Offering and this offering.
During the period April 1, 2000 through June 1, 2000, the Company
received additional net offering proceeds from this offering of approximately
$29,000,000 and as of June 1, 2000, had approximately $122,300,000 available for
investment in Properties and Mortgage Loans. The Company expects to use the
uninvested net proceeds, any additional net proceeds from the sale of Shares in
this offering, plus any net proceeds from the sale of Shares in the 2000
Offering to purchase additional Properties and, to a lesser extent, invest in
Mortgage Loans. See the section of the Prospectus entitled "Investment
Objectives and Policies." In addition, the Company intends to borrow money to
acquire Assets and to pay certain related fees. The Company intends to encumber
Assets in connection with such borrowings. The Company currently has a
$30,000,000 Line of Credit available, as described below. Borrowings on the Line
of Credit may be repaid with offering proceeds, proceeds from the sale of
assets, working capital or Permanent Financing. The maximum amount the Company
may borrow, absent a satisfactory showing that a higher level of borrowing is
appropriate as approved by a majority of the Independent Directors, is 300% of
the Company's Net Assets.
Redemptions
In October 1998, the Board of Directors elected to implement the
Company's redemption plan. Under the redemption plan, the Company elected to
redeem Shares, subject to certain conditions and limitations. During the quarter
ended March 31, 2000 and the year ended December 31, 1999, 14,605 and 12,885
Shares, respectively, were redeemed at $9.20 per Share for a total of $134,363
and $118,542, respectively. These Shares were retired from Shares outstanding of
Common Stock. No Shares were redeemed in 1998 or 1997.
-15-
<PAGE>
Indebtedness
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 indicate that there has been no substantial
deterioration, as determined by the bank in its reasonable discretion, of the
credit quality. Interest expense on each advance shall be payable monthly, with
all unpaid interest and principal due no later than five years from the date of
the advance. Advances under the Line of Credit will bear interest at either (i)
a rate per annum equal to 318 basis points above the London Interbank Offered
Rate (LIBOR) or (ii) a rate per annum equal to 30 basis points above the bank's
base rate, whichever the Company selects at the time advances are made. In
addition, a fee of 0.5% per advance will be due and payable to the bank on funds
as advanced. Each advance made under the Line of Credit will be collateralized
by an assignment of rents and leases. In addition, the Line of Credit provides
that the Company will not be able to further encumber the applicable hotel
Property during the term of the advance without the bank's consent. The Company
will be required, at each closing, to pay all costs, fees and expenses arising
in connection with the Line of Credit. The Company must also pay the bank's
attorney's fees, subject to a maximum cap, incurred in connection with the Line
of Credit and each advance. In connection with the Line of Credit, the Company
incurred a commitment fee, legal fees and closing costs of approximately
$138,000. Proceeds from the Line of Credit were used in connection with the
purchase of two hotel Properties and the commitment to acquire three additional
Properties during 1998. As of March 31, 2000 and December 31, 1999, the Company
had no amounts outstanding under the Line of Credit. The Company has not yet
received a commitment for any Permanent Financing and there is no assurance that
the Company will obtain any Permanent Financing on satisfactory terms.
During the quarter ended March 31, 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 each May, through May 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.
During the quarters ended March 31, 2000 and 1999, and the years ended
December 31, 1999, 1998 and 1997, Affiliates of the Company incurred on behalf
of the Company $933,778, $587,498, $3,257,822, $459,250 and $638,274,
respectively, for certain Organizational and Offering Expenses, $81,955,
$351,291, $653,231, $392,863 and $26,149, respectively, for certain Acquisition
Expenses, and $131,673, $62,145, $325,622, $98,212 and $11,003, respectively,
for certain Operating Expenses. As of March 31, 2000, the Company owed the
Advisor and other related parties $506,490, for expenditures incurred on behalf
of the Company and for Acquisition Fees. The Advisor has agreed to pay or
reimburse to the Company all Offering Expenses (excluding commissions and
marketing support and due diligence expense reimbursement fees) in excess of
three percent of gross offering proceeds.
Market Risk
The Company may be subject to interest rate risk through any
outstanding balances on its variable rate Line of Credit. The Company may
mitigate this risk by paying down any outstanding balances on the Line of Credit
from offering proceeds should interest rates rise substantially. There were no
amounts outstanding on its variable Line of Credit at March 31, 2000 and
December 31, 1999.
Property Acquisitions and Investments
As of December 31, 1998, the Company owned two Properties in the
Atlanta, Georgia area which were each being operated by the tenant as a
Residence Inn by Marriott. In February 1999, the Company executed a series of
agreements with Five Arrows pursuant to which the Company and Five Arrows formed
a jointly owned real estate investment trust, Hotel Investors, for the purpose
of acquiring up to eight Properties. At the time the agreement was entered into,
the eight Properties were either newly constructed or in various stages of
completion.
-16-
<PAGE>
In February 1999 and June 1999, Hotel Investors purchased seven of the
eight Properties for an aggregate purchase price of approximately $167 million
and paid $3 million as a deposit on the one remaining Property. For a
description of the Properties acquired, see the section of the Prospectus
entitled "Business -- Property Acquisitions -- Western International Portfolio."
The $3 million deposit relating to the eighth Property was refunded to Hotel
Investors by the seller in January 2000 as a result of Hotel Investors
exercising its option to terminate its obligation to purchase the Property under
the purchase and sale agreement.
In order to fund these purchases, 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 the Hotel Investors Loan. 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 Class A Preferred Stock and the
Company received 37,979 shares of Class B Preferred Stock. The Class A Preferred
Stock is exchangeable upon demand into Common Stock of the Company, as
determined pursuant to a formula 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.
Cash available for distributions of Hotel Investors is 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, representing the sum of its investment in Hotel
Investors and its approximately $14 million investment in the Company, described
below, on a per share basis, adjusted for any distributions received from the
Company. Then, cash available for distributions is distributed to the Company
with respect to its Class B Preferred Stock. Next, cash available for
distributions is distributed to 100 CNL Holdings, Inc. and affiliates'
associates who each own one share of Class C preferred stock in Hotel Investors,
to provide a quarterly, cumulative, compounded eight percent return. All
remaining cash available for distributions is distributed pro rata with respect
to the interest in the common shares.
Five Arrows also invested approximately $14 million in the Company
through the purchase of Common Stock pursuant to the Company's Initial Offering
and this offering, the proceeds of which were used by the Company to fund
approximately 38% of its funding commitment to Hotel Investors. During 1999,
approximately $3.7 million of this amount was initially treated as a loan due to
the stock ownership limitations specified in the Company's Articles of
Incorporation at the time of investment. Subsequently, this loan was converted
to Common Stock.
In addition to the above investments, Five Arrows purchased a 10%
interest in the Advisor. In connection with Five Arrow's investment in the
Company, the Advisor and Hotel Investors, certain Affiliates agreed to waive
certain fees otherwise payable to them by the Company. The Advisor is also the
advisor to Hotel Investors pursuant to a separate advisory agreement. The
Company will not 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.
On November 16, 1999, the Company acquired an 89% interest in the LLC
for approximately $58 million. The sole purpose of the LLC is to own and lease
the Courtyard by Marriott hotel Property located in Philadelphia, Pennsylvania.
This historic Property was recently renovated and converted into a hotel which
commenced operations in late November 1999.
In addition, on December 10, 1999, the Company acquired a newly
constructed Property located in Mira Mesa, California, for approximately $15.5
million. The Property is being operated by the tenant as a Residence Inn by
Marriott.
On June 1, 2000, the Company acquired two Wyndham Hotels located in
Billerica, Massachusetts and Denver, Colorado, for approximately $43.4 million.
Hotel Investors, the LLC and the Company, as lessors, have entered into
long-term, triple-net leases with operators of Hotel Chains, as described below
in "Liquidity Requirements."
-17-
<PAGE>
Commitments
As of June 1, 2000, the Company had initial commitments to acquire 17
additional hotel Properties for an anticipated aggregate purchase price of
approximately $278 million. The acquisition of each of these Properties is
subject to the fulfillment of certain conditions. In order to acquire all of
these Properties, the Company must obtain additional funds through the receipt
of additional offering proceeds and/or advances on the Line of Credit. In
connection with three of these agreements, the Company has a deposit, in the
form of a letter of credit, collateralized by a certificate of deposit,
amounting to $5 million. In connection with four of the remaining agreements,
the Company has a deposit of approximately $2.1 million held in escrow. 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.
As of June 1, 2000, the Company had not entered into any arrangements
creating a reasonable probability a particular Mortgage Loan or Secured
Equipment Lease would be funded. The Company is presently negotiating to acquire
additional Properties, but as of June 1, 2000, the Company had not acquired any
such Properties or entered into any Mortgage Loans.
Cash and Cash Equivalents
Until Properties are acquired, or Mortgage Loans are entered into, Net
Offering Proceeds are held in short-term (defined as investments with a maturity
of three months or less), highly liquid investments, such as demand deposit
accounts at commercial banks, certificates of deposit and money market accounts,
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 March 31, 2000, the
Company had $142,143,157 invested in such short-term investments as compared to
$101,972,441 at December 31, 1999. The increase in the amount invested in
short-term investments was primarily attributable to proceeds received from the
sale of Shares of Common Stock from this offering. These funds will be used to
purchase additional Properties, to make Mortgage Loans, to pay Offering Expenses
and Acquisition Expenses, to pay Distributions to stockholders and other Company
expenses and, in management's discretion, to create cash reserves.
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 at March 31, 2000 and December 31, 1999, was $15,534,326 and
$15,275,629, respectively.
Liquidity Requirements
The Company expects to meet its short-term liquidity requirements,
other than for Offering Expenses, acquisition and development of Properties and
investment in Mortgage Loans and Secured Equipment Leases, through cash flow
provided by operating activities. The Company believes that cash flow provided
by operating activities will be sufficient to fund normal recurring operating
expenses, regular debt service requirements and Distributions to stockholders.
To the extent that the Company's cash flow provided by operating activities is
not sufficient to meet such short-term liquidity requirements as a result, for
example, of unforeseen expenses due to tenants defaulting under the terms of
their lease agreements, the Company will use borrowings under its Line of
Credit.
Management believes that the Properties are adequately covered by
insurance. In addition, the Advisor has obtained contingent liability and
property coverage for the Company. This insurance policy is intended to reduce
the Company's exposure in the unlikely event a tenant's insurance policy lapses
or is insufficient to cover a claim relating to a Property.
The Company expects to meet its other short-term liquidity
requirements, including payment of Offering Expenses, Property acquisitions and
development and investment in Mortgage Loans and Secured Equipment Leases, with
additional advances under its Line of Credit and proceeds from its offerings.
The Company expects to meet its long-term liquidity requirements through short
or long-term, unsecured or secured debt financing or equity financing.
-18-
<PAGE>
Distributions
During the quarters ended March 31, 2000 and 1999, and the years ended
December 31, 1999, 1998 and 1997, 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 $5,827,348, $663,437,
$12,890,161, $2,776,965 and $22,469, respectively. Based on cash from operations
and dividends due to the Company from Hotel Investors, the Company declared and
paid Distributions to its stockholders of $5,522,124, $998,652, $10,765,881,
$1,168,145 and $29,776 during the quarters ended March 31, 2000 and 1999, and
the years ended December 31, 1999, 1998 and 1997, respectively. In addition, on
April 1, May 1 and June 1, 2000, the Company declared Distributions to
stockholders of record on April 1, May 1 and June 1, 2000, totalling $2,044,420,
$2,133,563 and $2,229,028, respectively (each representing $0.0604 per Share),
payable in June 2000. For the quarters ended March 31, 2000 and 1999,
approximately 48 percent and 41 percent, respectively, of the Distributions
received by stockholders were considered to be ordinary income and approximately
52 percent and 59 percent, respectively, were considered a return of capital for
federal income tax purposes. For the years ended December 31, 1999, 1998 and
1997, approximately 75 percent, 76 percent and 100 percent, respectively, of the
Distributions received by stockholders were considered to be ordinary income and
approximately 25 percent and 24 percent were considered a return of capital for
federal income tax purposes for the years ended December 31, 1999 and 1998,
respectively. No amounts distributed to the stockholders for the quarters ended
March 31, 2000 and 1999, and the years ended December 31, 1999, 1998 and 1997,
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 Invested Capital.
Other
The tenants of the Properties have established FF&E Reserve funds which
will be used for the replacement and renewal of furniture, fixtures and
equipment relating to the hotel Properties. 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 quarters ended March
31, 2000 and 1999, and the years ended December 31, 1999 and 1998, revenues
relating to the FF&E Reserve of the Properties directly owned by the Company
totalled $159,237, $61,027, $320,356 and $98,099, of which $133,908, $61,027,
$275,630 and $82,407, respectively, was classified as restricted cash. For the
quarter ended March 31, 2000 and the year ended December 31, 1999, revenues
relating to the FF&E Reserve of the Properties indirectly owned through Hotel
Investors totalled $176,221 and $343,264, of which $94,079 and $288,644,
respectively, was classified as restricted cash. No such amounts were
outstanding or earned during 1997. 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.
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, other than as referred to in this
Prospectus.
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 March 31, 2000 and December 31, 1999, the Company had acquired 11
Properties, either directly or indirectly, consisting of land, buildings and
equipment, and had entered into a long-term, triple-net lease agreement relating
to each of these Properties. The Property leases provide for minimum base annual
rental payments ranging from approximately $1,204,000 to $6,500,000, which are
payable in monthly installments. In addition, certain of 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 Properties directly or
indirectly owned by the Company, have been reported as additional rent for the
quarters ended March 31, 2000 and 1999 and the years ended December 31, 1999 and
1998.
-19-
<PAGE>
Comparison of quarter ended March 31, 2000 to quarter ended March 31,
1999
During the quarters ended March 31, 2000 and 1999, the Company earned
rental income from operating leases and FF&E Reserve income of $2,885,131 and
$798,645, respectively. No contingent rental income was earned for the quarters
ended March 31, 2000 and 1999. The increase in rental income and FF&E Reserve
income was due to the fact that the Company owned four Properties during the
quarter ended March 31, 2000, as compared to two Properties during the quarter
ended March 31, 1999. Because the Company has not yet acquired all of its
Properties, revenues for the quarter ended March 31, 2000, represent only a
portion of revenues which the Company is expected to earn in future periods.
During the quarter ended March 31, 2000, the Company owned and leased
seven Properties indirectly through its investment in Hotel Investors, as
described above in "Liquidity and Capital Resources -- Property Acquisitions and
Investments." In connection with its investment, the Company recognized $926,817
in dividend income and $119,803 in equity in loss of unconsolidated subsidiary
after deduction of preferred stock dividends, resulting in net earnings
attributable to this investment of $807,014.
During the quarters ended March 31, 2000 and 1999, the Company also
earned $1,769,209 and $292,864, respectively, in interest income from
investments in money market accounts and other short-term, highly liquid
investments and other income. The increase in interest income was primarily
attributable to increased offering proceeds in the current year being
temporarily invested in money market accounts or other short-term, highly liquid
investments pending investment in Properties and Mortgage Loans. As net offering
proceeds from this offering 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.
During the quarter ended March 31, 2000, Crestline Capital Corp.
("Crestline") (formerly STC Leasing Associates, LLC, which was acquired by
Crestline on March 6, 2000) and City Center Annex Tenant Corporation contributed
more than ten percent of the Company's total rental income. In addition, all of
the Company's rental income was earned from Properties operating as Marriott
brand chains during the quarter ended March 31, 2000. Although the Company
intends to acquire additional Properties located in various states and regions
and to carefully screen its tenants in order to reduce risks of default, failure
of these lessees or the Marriott chains could significantly impact the result 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.
Operating expenses, including interest expense and depreciation and
amortization expense, were $1,391,580 and $718,533 for the quarters ended March
31, 2000 and 1999, respectively (24.9% and 53.9%, respectively, of total
revenues). The increase in the dollar amount of operating expenses during the
quarter ended March 31, 2000, as compared to the same period for 1999, was
primarily as a result of the Company and the LLC owning two Properties directly
during the quarter ended March 31, 1999, compared to four properties during the
quarter ended March 31, 2000. This resulted in an increase in Asset Management
Fees of $76,857 and an increase in depreciation and amortization expense of
$662,883 for the quarter ended March 31, 2000, as compared to the same period
for 1999. Additionally, general operating and administrative expenses increased
as a result of Company growth, while interest expense, including loan cost
amortization, decreased from $200,573 for the quarter ended March 31, 1999 to
$8,110 for the quarter ended March 31, 2000. The decrease in interest expense
was a result of the Company not having any amounts outstanding on its Line of
Credit during the quarter ended March 31, 2000.
The dollar amount of operating expenses is expected to increase as the
Company acquires additional Properties and invests in Mortgage Loans. However,
general operating and administrative expenses as a percentage of total revenues
is expected to decrease as the Company acquires additional Properties and
invests in Mortgage Loans.
-20-
<PAGE>
Comparison of year ended December 31, 1999 to year ended December 31,
1998
During the years ended December 31, 1999 and 1998, the Company earned
rental income from operating leases, contingent rental income and FF&E Reserve
income of $4,230,995 and $1,316,599, respectively. The 221% increase in rental
income, contingent rental income and FF&E Reserve income was due to the fact
that the Company owned two Properties for the full year ended December 31, 1999,
as compared to two Properties for approximately six months during the year ended
December 31, 1998. In addition, the Company invested in two additional
Properties during 1999. Because the Company had not yet acquired all of its
Properties, revenues for the year ended December 31, 1999, represent only a
portion of revenues which the Company is expected to earn in future periods.
During the year ended December 31, 1999, the Company acquired and
leased seven Properties indirectly through its investment in Hotel Investors, as
described above in "Liquidity and Capital Resources -- Property Acquisitions and
Investments." In connection with its investment, the Company recognized
$2,753,506 in dividend income and $778,466 in equity in loss of unconsolidated
subsidiary after deduction of preferred stock dividends, resulting in net
earnings attributable to this investment of $1,975,040.
During the years ended December 31, 1999 and 1998, the Company also
earned $3,693,004 and $638,862, respectively, in interest income from
investments in money market accounts and other short-term, highly liquid
investments and other income. The 478% increase in interest income was primarily
attributable to increased offering proceeds received during 1999 being
temporarily invested in money market accounts or other short-term, highly liquid
investments pending investment in Properties and Mortgage Loans. As net offering
proceeds from this offering 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.
During the year ended December 31, 1999, two lessees, Crestline (which
operates and leases two Properties) and WI Hotel Leasing, LLC (which leases the
seven Properties in which the Company owns an interest through Hotel Investors),
each contributed more than ten percent of the Company's total rental income
(including the Company's share of total rental income from Hotel Investors). In
addition, all of the Company's rental income (including the Company's share of
total rental income from Hotel Investors) was earned from Properties operating
as Marriott brand chains. Although the Company intends to acquire additional
Properties located in various states and regions and to carefully screen its
tenants in order to reduce risks of default, failure of these lessees or the
Marriott 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 Crestline will decrease as additional Properties are
acquired and leased during 2000 and subsequent years.
Operating expenses, including interest expense and depreciation and
amortization expense, were $2,318,717 and $996,522 for the years ended December
31, 1999 and 1998, respectively (21.7% and 51%, respectively, of total
revenues). The increase in operating expenses during the year ended December 31,
1999, as compared to 1998, was primarily as a result of the Company owning two
Properties for approximately six months during 1998 compared to a full year
during 1999. Additionally, general operating and administrative expenses
increased as a result of Company growth, while interest expense decreased from
$350,322 for the year ended December 31, 1998 to $248,094 for the year ended
December 31, 1999. The decrease in interest expense of 29.2% was the result of
the Line of Credit being outstanding for two months in 1999 as compared to the
majority of 1998.
For the year ended December 31, 1999, the Company's Operating Expenses
did not exceed the Expense Cap. For the year ended December 31, 1998, the
Company's Operating Expenses exceeded the Expense Cap by $92,733; therefore, the
Advisor reimbursed the Company such amount in accordance with the Advisory
Agreement.
Comparison of year ended December 31, 1998 to year ended December 31,
1997
Operations of the Company commenced on October 15, 1997, when the
Company received the minimum offering proceeds of $2,500,000. As of December 31,
1998, the Company had acquired two Properties, each consisting of land, building
and equipment, and had entered into a long-term, triple-net lease agreement
relating to each of the Properties. The Company earned $1,316,599 in rental
income from operating leases and FF&E Reserve income from the two Properties
during the year ended December 31, 1998.
-21-
<PAGE>
During the years ended December 31, 1998 and 1997, the Company earned
$638,862 and $46,071, respectively, in interest income from investments in money
market accounts and other short-term, highly liquid investments. The increase
was attributable to offering proceeds being temporarily invested in money market
accounts or other short-term, highly liquid investments.
Operating expenses, including interest expense and depreciation and
amortization expense, were $996,522 and $23,219 for the years ended December 31,
1998 and 1997, respectively. Operating expenses increased during the year ended
December 31, 1998 as compared to the year ended December 31, 1997, primarily as
a result of the fact that the Company did not commence operations until October
15, 1997, and due to the fact that the Company acquired Properties and received
advances under the Line of Credit during 1998. As discussed above, for the year
ended December 31, 1998, the Company's Operating Expenses exceeded the Expense
Cap by $92,733; therefore, the Advisor reimbursed the Company such amount in
accordance with the Advisory Agreement. For the year ended December 31, 1997,
the Expense Cap was not applicable.
Other
The Company has elected, pursuant to Internal Revenue Code Section
856(c)(1), to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended, and related regulations. As a REIT, for
federal income tax purposes, the Company generally will not be subject to
federal income tax on income that it distributes to its stockholders. If the
Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax on its taxable income at regular corporate rates and will not
be permitted to qualify for treatment as a REIT for federal income tax purposes
for four years following the year during which qualification is lost. Such an
event could materially affect the Company's net earnings. However, the Company
believes that it is organized and operates in such a manner as to qualify for
treatment as a REIT for the years ended December 31, 1999, 1998 and 1997. In
addition, the Company intends to continue to operate the Company so as to remain
qualified as a REIT for federal income tax purposes.
The Company anticipates that its leases will be triple-net leases and
will contain provisions that management believes will mitigate the effect of
inflation. Such provisions will include clauses requiring the payment of
contingent rent based on certain gross sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease. Management expects that increases in gross sales volumes due to inflation
and real sales growth should result in an increase in rental income over time.
Continued inflation also may cause capital appreciation of the Company's
Properties. Inflation and changing prices, however, also may have an adverse
impact on the sales of the Properties and on potential capital appreciation of
the Properties.
Management of the Company currently knows of no trends that will have a
material adverse effect on liquidity, capital resources or results of
operations.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and executive officers of the Company are listed below:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
James M. Seneff, Jr. 53 Director, Chairman of the Board, and Chief Executive Officer
Robert A. Bourne 53 Director, Vice Chairman of the Board, and President
Matthew W. Kaplan 37 Director
Charles E. Adams 37 Independent Director
Lawrence A. Dustin 54 Independent Director
John A. Griswold 51 Independent Director
Craig M. McAllaster 48 Independent Director
Charles A. Muller 41 Chief Operating Officer and Executive Vice President
C. Brian Strickland 37 Vice President of Finance and Administration
Thomas J. Hutchison III 58 Executive Vice President
Jeanne A. Wall 41 Executive Vice President
Lynn E. Rose 51 Secretary and Treasurer
</TABLE>
Thomas J. Hutchison III. Executive Vice President. Mr. Hutchison serves
as an Executive Vice President of CNL Hospitality Corp., the Advisor of the
Company, and Hotel Investors. Mr. Hutchison serves as President and Chief
Operating Officer of CNL Real Estate Services, Inc., which is the parent company
of CNL Hospitality Corp. and CNL Health Care Corp. He also serves as the Chief
Operating Officer of CNL Community Development Corp. In addition, Mr. Hutchison
serves as an Executive Vice President of CNL Health Care Properties, Inc. Mr.
Hutchison joined CNL Financial Group, Inc. in January 2000 with more than 30
years of senior management and consulting experience in the real estate
development and services industries. He currently serves on the board of
directors of Restore Orlando, a nonprofit community volunteer organization.
Prior to joining CNL, Mr. Hutchison was president and owner of numerous real
estate services and development companies. From 1995 to 2000, he was chairman
and chief executive officer of Atlantic Realty Services, Inc. and TJH
Development Corporation. Since 1990, he has fulfilled a number of long-term
consulting assignments for large corporations, including managing a number of
large international joint ventures. From 1990 to 1991, Mr. Hutchison was the
court-appointed president and chief executive officer of General Development
Corporation, a real estate community development company, where he assumed the
day-to-day management of the $2.6 billion NYSE-listed company entering
re-organization. From 1986 to 1990, he was the chairman and chief executive
officer of a number of real estate-related companies engaged in the master
planning and land acquisition of forty residential, industrial and office
development projects. From 1978 to 1986, Mr. Hutchison was the president and
chief executive officer of Murdock Development Corporation and Murdock
Investment Corporation, as well as Murdock's nine service divisions. In this
capacity, he managed an average of $350 million of new development per year for
over nine years. Additionally, he expanded the commercial real estate activities
to a national basis, and established both a new extended care division and a
hotel division that grew to 14 properties. Mr. Hutchison was educated at Purdue
University and the University of Maryland Business School.
For information regarding other officers and directors see the section
of the Prospectus entitled "Management."
THE ADVISOR AND THE ADVISORY AGREEMENT
THE ADVISOR
The following information updates and replaces "The Advisor" section
beginning on page 84 of the Prospectus.
CNL Hospitality Corp. (formerly CNL Hospitality Advisors, Inc.) is a
Florida corporation organized in January 1997 to provide management, advisory
and administrative services. The Company originally entered into the Advisory
Agreement with the Advisor effective July 9, 1997. CNL Hospitality Corp., as
Advisor, has a fiduciary responsibility to the Company and the stockholders.
-23-
<PAGE>
The directors and executive officers of the Advisor are as follows:
<TABLE>
<CAPTION>
<S> <C>
James M. Seneff, Jr......................Chairman of the Board, Chief Executive Officer, and Director
Robert A. Bourne.........................Vice Chairman of the Board, President, and Director
Matthew W. Kaplan........................Director
Charles A. Muller........................Chief Operating Officer and Executive Vice President
C. Brian Strickland......................Senior Vice President of Finance and Administration
Thomas J. Hutchison III..................Executive Vice President
Jeanne A. Wall...........................Executive Vice President and Director
Lynn E. Rose.............................Secretary, Treasurer and Director
</TABLE>
The backgrounds of these individuals are described in the section of
the Prospectus entitled "Management -- Directors and Executive Officers."
Management anticipates that any transaction by which the Company would
become self-advised would be submitted to the stockholders for approval.
The Advisor currently owns 20,000 Shares of Common Stock. The Advisor
may not sell these Shares while the Advisory Agreement is in effect, although
the Advisor may transfer such Shares to Affiliates. Neither the Advisor, a
Director, or any Affiliate may vote or consent on matters submitted to the
stockholders regarding removal of the Advisor, Directors, or any of their
Affiliates, or any transaction between the Company and any of them. In
determining the requisite percentage in interest of Shares of Common Stock
necessary to approve a matter on which the Advisor, Directors, and any Affiliate
may not vote or consent, any Shares of Common Stock owned by any of them will
not be included.
CERTAIN TRANSACTIONS
The Managing Dealer is entitled to receive Selling Commissions
amounting to 7.5% of the total amount raised from the sale of Shares of Common
Stock for services in connection with the offering of Shares, a substantial
portion of which may be paid as commissions to other broker-dealers. For the
years ended December 31, 1998 and 1997, the Company incurred $2,377,026 and
$849,405, respectively, of such fees in connection with the Initial Offering, of
which $2,200,516 and $792,832, respectively, was paid by the Managing Dealer as
commissions to other broker-dealers. In addition, during the period January 1,
1999 through June 17, 1999, the Company incurred $6,904,047 of such fees in
connection with the Initial Offering, and during the period June 18, 1999
through June 1, 2000, the Company incurred $16,474,391 of such fees in
connection with this offering, the majority of which has been or will be paid by
CNL Securities Corp. as commissions to other broker-dealers.
In addition, the Managing Dealer 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. For the years ended December 31, 1998 and 1997, the
Company incurred $158,468 and $56,627, respectively, of such fees in connection
with the Initial Offering, the majority of which were reallowed to other
broker-dealers and from which all bona fide due diligence expenses were paid. In
addition, during the period January 1, 1999 through June 17, 1999, the Company
incurred $460,270 of such fees in connection with the Initial Offering, and
during the period June 18, 1999 through June 1, 2000, the Company incurred
$1,098,293 of such fees in connection with this offering, the majority of which
has been or will be reallowed to other broker-dealers and from which all bona
fide due diligence expenses were paid.
In addition, in connection with this offering, the Company has agreed
to issue and sell 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
with the date this offering began. No soliciting dealer warrants, however, will
be exercisable until one
-24-
<PAGE>
year from the date of issuance. During the quarter ended March 31, 2000, the
Company issued approximately 479,000 soliciting dealer warrants. As of March 31,
2000, in connection with this offering, CNL Securities Corp. was entitled to
approximately 171,500 additional soliciting dealer warrants for Shares sold
during the quarter then ended.
The Advisor is entitled to receive Acquisition Fees for services in
identifying the Properties and structuring the terms of the acquisition and
leases of the Properties and structuring the terms of the Mortgage Loans equal
to 4.5% of the total amount raised from the sale of Shares, 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. For the years ended December 31, 1998 and
1997, the Company incurred $1,426,216 and $509,643, respectively, of such fees
in connection with the Initial Offering. In addition, during the period January
1, 1999 through June 17, 1999, the Company incurred $4,712,413 of such fees in
connection with the Initial Offering, and during the period June 18, 1999
through June 1, 2000, the Company incurred $9,884,634 of such fees in connection
with this offering.
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 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. During the quarter ended March 31,
2000 and the years ended December 31, 1999 and 1998, the Company incurred
$126,422, $106,788 and $68,114, respectively, of such fees.
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 above, 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 2% of Average Invested Assets or 25% of Net Income (the "Expense
Cap"). During the year ended December 31, 1999, the Company's Operating Expenses
did not exceed the Expense Cap. During the year ended December 31, 1998, the
Company's Operating Expenses exceeded the Expense Cap by $92,733; therefore, the
Advisor reimbursed the Company such amount in accordance with the Advisory
Agreement.
The Advisor and its Affiliates provide accounting and administrative
services to the Company (including accounting and administrative services in
connection with the offering of Shares) on a day-to-day basis. For the quarter
ended March 31, 2000, and the years ended December 31, 1999, 1998 and 1997, the
Company incurred a total of $1,272,443, $4,206,709, $644,189 and $192,224,
respectively, for these services, $1,167,684, $3,854,739, $494,729 and $185,335,
respectively, of such costs representing stock issuance costs, $735, $124,
$9,084 and $0, respectively, representing acquisition related costs and
$104,024, $351,846, $140,376 and $6,889, respectively, representing general
operating and administrative expenses, including costs related to preparing and
distributing reports required by the Securities and Exchange Commission.
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 terms and conditions offered
by this bank are similar and competitive with terms offered by unrelated banks.
The Company believes that all amounts paid or payable by the Company to
Affiliates are fair and comparable to amounts that would be paid for similar
services provided by unaffiliated third parties.
DISTRIBUTION POLICY
DISTRIBUTIONS
The following information updates and replaces the "Distributions"
section beginning on page 98 of the Prospectus.
-25-
<PAGE>
The following table presents total Distributions and Distributions per
Share:
<TABLE>
<CAPTION>
2000 Quarter First
---------------------------- -------------
<S> <C>
Total Distributions $5,522,125
declared
Distributions per Share 0.181
<CAPTION>
1999 Quarter First Second Third Fourth Year
---------------------------- ------------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Total Distributions $998,652 $2,053,964 $3,278,456 $4,434,809 $10,765,881
declared
Distributions per Share 0.175 0.181 0.181 0.181 0.718
<CAPTION>
1998 Quarter First Second Third Fourth Year
---------------------------- ------------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Total Distributions $101,356 $155,730 $362,045 $549,014 $1,168,145
declared
Distributions per Share 0.075 0.075 0.142 0.175 0.467
</TABLE>
(1) In April, May and June 2000, the Company declared Distributions
totalling $2,044,420, $2,133,563 and $2,229,028, respectively, (each
representing $0.0604 per Share), payable in June 2000.
(2) For the quarter ended March 31, 2000, the years ended December 31, 1999
and 1998, and the period October 15, 1997 (the date operations of the
Company commenced) through December 31, 1997, approximately 48%, 75%,
76% and 100%, respectively, of the Distributions declared and paid were
considered to be ordinary income and for the quarter ended March 31,
2000 and the years ended December 31, 1999 and 1998, approximately 52%,
25% and 24%, respectively, were considered a return of capital for
federal income tax purposes. No amounts distributed to stockholders for
the periods presented 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 Invested Capital. Due to the fact that the
Company had not yet acquired all of its Properties and was still in the
offering stage as of March 31, 2000, the characterization of
Distributions for federal income tax purposes is not necessarily
considered by management to be representative of the characterization
of Distributions in future periods. In addition, the characterization
for tax purposes of Distributions declared for the quarter ended March
31, 2000 may not be indicative of the results that may be expected for
the year ending December 31, 2000.
(3) Distributions declared and paid for the years ended December 31, 1999
and 1998, represent distribution rates of 7.18% and 4.67%,
respectively, of Invested Capital. Distributions for the quarter ended
March 31, 2000, represent a distribution rate of 7.25% of Invested
Capital on an annualized basis.
The Company intends to continue to make regular Distributions to
stockholders. The payment of Distributions commenced in December 1997.
Distributions will be made to those stockholders who are stockholders as of the
record date selected by the Directors. Currently, Distributions are declared
monthly and paid quarterly during the offering period. In addition,
Distributions are expected to be declared monthly and paid quarterly during any
subsequent offering, and declared and paid quarterly thereafter. However, in the
future, the Board of Directors, in its discretion, may determine to declare
Distributions on a daily basis during the offering period. The Company is
required to distribute annually at least 95% of its real estate investment trust
taxable income (90% in 2001 and thereafter) to maintain its objective of
qualifying as a REIT. Generally, income distributed will not be taxable to the
Company under federal income tax laws if the Company complies with the
provisions relating to qualification as a REIT. If the cash available to the
Company is insufficient to pay such Distributions, the Company may obtain the
necessary funds by borrowing, issuing new securities, or selling Assets. These
methods of obtaining funds could affect future Distributions by increasing
operating costs. To the extent that Distributions to stockholders exceed
earnings and profits, such amounts constitute a return of capital for federal
income tax purposes, although such Distributions might not reduce stockholders'
aggregate Invested Capital. Distributions in kind shall not be permitted, except
for distributions of readily marketable securities; distributions of beneficial
interests in a liquidating trust established for the dissolution of the Company
and the liquidation of its assets in accordance with the terms of the Articles
of Incorporation; or distributions of in-kind property as long as the Directors
(i) advise each stockholder of the risks associated with direct ownership of the
property, (ii) offer each stockholder the election of receiving in-kind property
distributions, and (iii) distribute in-kind property only to those stockholders
who accept the Directors' offer.
-26-
<PAGE>
Distributions will be made at the discretion of the Directors,
depending primarily on net cash from operations (which includes cash received
from tenants except to the extent that such cash represents a return of
principal in regard to the lease of a Property consisting of building only,
distributions from joint ventures, and interest income from lessees of Equipment
and borrowers under Mortgage Loans, less expenses paid) and the general
financial condition of the Company, subject to the obligation of the Directors
to cause the Company to qualify and remain qualified as a REIT for federal
income tax purposes. The Company intends to increase Distributions in accordance
with increases in net cash from operations.
-27-
<PAGE>
APPENDIX B
FINANCIAL INFORMATION
------------------------------------------------------
THE UPDATED PRO FORMA FINANCIAL STATEMENTS AND THE UNAUDITED
FINANCIAL STATEMENTS OF CNL HOSPITALITY PROPERTIES, INC.
CONTAINED IN THIS ADDENDUM SHOULD BE READ IN CONJUNCTION WITH
APPENDIX B TO THE ATTACHED PROSPECTUS, DATED MARCH 30, 2000.
------------------------------------------------------
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pro Forma Consolidated Financial Information (unaudited):
Pro Forma Consolidated Balance Sheet as of March 31, 2000 B-2
Pro Forma Consolidated Statement of Earnings for the quarter ended March 31, 2000 B-3
Pro Forma Consolidated Statement of Earnings for the year ended December 31, 1999 B-4
Notes to Pro Forma Consolidated Financial Statements for the quarter ended
March 31, 2000 and the year ended December 31, 1999 B-5
Updated Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 B-8
Condensed Consolidated Statements of Earnings for the quarters ended March 31, 2000 and 1999 B-9
Condensed Consolidated Statements of Stockholders' Equity for the quarter ended
March 31, 2000 and the year ended December 31, 1999 B-10
Condensed Consolidated Statements of Cash Flows for the quarters ended March 31, 2000 and 1999 B-11
Notes to Condensed Consolidated Financial Statements for the quarters ended March 31, 2000
and 1999 B-13
</TABLE>
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Balance Sheet of CNL
Hospitality Properties, Inc. and subsidiaries (the "Company") gives effect to
(i) the receipt of an initial capital contribution of $200,000 from the Advisor,
$338,986,655 in gross offering proceeds from the sale of 33,900,805 shares of
common stock and the sale of warrants for the period from inception through
March 31, 2000, and the application of such funds to purchase three properties,
to acquire an 89 percent interest in a limited liability company which owns one
property, to invest in an unconsolidated subsidiary which owned seven properties
as of March 31, 2000, to place deposits on eight additional properties, to
redeem 27,490 shares of common stock pursuant to the Company's redemption plan,
and to pay offering expenses, acquisition fees and miscellaneous acquisition
expenses, (ii) the receipt of $31,398,095 in gross offering proceeds from the
sale of 3,139,810 additional shares for the period April 1, 2000 through June 1,
2000, (iii) the application of such funds to pay offering expenses, acquisition
fees and miscellaneous acquisition expenses, all as reflected in the pro forma
adjustments described in the related notes. The Unaudited Pro Forma Consolidated
Balance Sheet as of March 31, 2000, includes the transactions described in (i)
above, from its historical balance sheet, adjusted to give effect to the
transactions in (ii) and (iii) above as if they had occurred on March 31, 2000.
The Unaudited Pro Forma Consolidated Statements of Earnings for the
quarter ended March 31, 2000, includes the historical operating results of the
properties described in (i) above from the date of their acquisitions plus
operating results from (A) the later of (1) the date the property became
operational or (2) January 1, 1999, to (B) the earlier of (1) the date the
property was acquired by the Company or its unconsolidated subsidiary or (2) the
end of the pro forma period presented.
This pro forma consolidated financial information is presented for
informational purposes only and does not purport to be indicative of the
Company's financial results or condition if the various events and transactions
reflected therein had occurred on the dates, or been in effect during the
periods, indicated. This pro forma consolidated financial information should not
be viewed as indicative of the Company's financial results or conditions in the
future.
B-1
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
Pro Forma
ASSETS Historical Adjustments Pro Forma
-------------- --------------- --------------
<S> <C> <C> <C>
Land, buildings and equipment on operating leases $ 111,449,355 $46,277,433 (a) $157,726,788
Investment in unconsolidated subsidiary 37,878,065 -- 37,878,065
Cash and cash equivalents 142,143,157 (17,167,823 )(a) 124,975,334
Restricted cash 409,538 -- 409,538
Certificate of deposit 5,000,000 -- 5,000,000
Receivables 427,240 -- 427,240
Prepaid expenses 23,247 -- 23,247
Dividends receivable 1,280,395 -- 1,280,395
Loan costs 43,859 -- 43,859
Accrued rental income 78,276 -- 78,276
Other assets 10,388,879 (985,069 )(a) 9,403,810
---------------- -------------- --------------
$309,122,011 $28,124,541 $337,246,552
================ ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $ 10,000,000 $ -- $10,000,000
Accounts payable and accrued expenses 892,783 (385,920 ) (a) 506,863
Distribution payable 174,178 -- 174,178
Due to related parties 506,490 (375,786 ) (a) 130,704
Security deposits 5,042,054 -- 5,042,054
Rents paid in advance 474,912 -- 474,912
---------------- -------------- --------------
Total liabilities 17,090,417 (761,706 ) 16,328,711
---------------- -------------- --------------
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.
60,000,000 authorized shares; issued and
outstanding 33,873,315 shares; issued and
outstanding 37,013,125 shares, as adjusted 338,733 31,398 (a) 370,131
Capital in excess of par value 299,660,797 28,854,849 (a) 328,515,646
Accumulated distributions in excess of
net earnings (5,043,063) -- (5,043,063)
Minority interest distributions in excess of
contributions and accumulated earnings (2,924,873) -- (2,924,873)
---------------- -------------- --------------
Total stockholders' equity 292,031,594 28,886,247 320,917,841
---------------- -------------- --------------
$309,122,011 $ 28,124,541 $337,246,552
================ ============== ==============
</TABLE>
See accompanying notes to unaudited pro forma
consolidated financial statements.
B-2
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
QUARTER ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------ -------------- --------------
Revenues:
<S> <C> <C> <C>
Rental income from
operating leases $ 2,725,894 $ 1,810,208 (1) $ 4,536,102
FF&E reserve income 159,237 132,163 (2) 291,400
Dividend income 1,769,209 -- 1,769,209
Interest and other income 926,817 (253,758 )(4) 673,059
------------- ---------------- ----------------
5,581,157 1,688,613 7,269,770
------------- ---------------- ----------------
Expenses:
Interest and loan cost amortization 8,110 -- 8,110
General operating and
administrative 295,070 -- 295,070
Professional services 45,337 -- 45,337
Asset management fees to
related party 126,422 109,699 (5) 236,121
Depreciation and amortization 916,641 642,929 (6) 1,559,570
------------- ---------------- ----------------
1,391,580 752,628 2,144,208
------------- ---------------- ----------------
Earnings Before Equity in Loss
of Unconsolidated Subsidiary
After Deduction of Preferred
Stock Dividends and Minority Interest 4,189,577 935,985 5,125,562
Equity in Loss of Unconsolidated
Subsidiary After Deduction of
Preferred Stock Dividends (119,803) -- (119,803)
Minority Interest (124,690) -- (124,690)
------------- ---------------- ----------------
Net Earnings $ 3,945,084 $ 935,985 $ 4,881,069
============= ================ ================
Earnings Per Share of Common Stock (8):
Basic $ 0.13 $ 0.16
============= ================
Diluted $ 0.12 $ 0.15
============= ================
Weighted Average Number of Shares of
Common Stock Outstanding (8):
Basic 31,200,726 31,200,726
============= ================
Diluted 38,622,874 38,622,874
============= ================
</TABLE>
See accompanying notes to unaudited pro forma
consolidated financial statements.
B-3
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------ -------------- --------------
Revenues:
<S> <C> <C> <C>
Rental income from
operating leases $ 3,910,639 $ 1,978,683 (1) $ 5,889,322
FF&E reserve income 320,356 149,150 (2) 469,506
Dividend income 2,753,506 461,106 (3) 3,214,612
Interest and other income 3,693,004 (730,735 )(4) 2,962,269
------------- ---------------- ----------------
10,677,505 1,858,204 12,535,709
------------- ---------------- ----------------
Expenses:
Interest and loan cost amortization 248,094 -- 248,094
General operating and
administrative 626,649 -- 626,649
Professional services 69,318 -- 69,318
Asset management fees to
related party 106,788 119,908 (5) 226,696
Depreciation and amortization 1,267,868 702,766 (6) 1,970,634
------------- ---------------- ----------------
2,318,717 822,674 3,141,391
------------- ---------------- ----------------
Earnings Before Equity in Loss
of Unconsolidated Subsidiary
After Deduction of Preferred
Stock Dividends and Minority Interest 8,358,788 1,035,530 9,394,318
Equity in Loss of Unconsolidated
Subsidiary After Deduction of
Preferred Stock Dividends (778,466) (144,635)(7) (923,101)
Minority Interest (64,334) -- (64,334)
------------- ---------------- ----------------
Net Earnings $ 7,515,988 $ 890,895 $ 8,406,883
============= ================ ================
Earnings Per Share of Common Stock (8):
Basic $ 0.47 $ 0.53
============= ================
Diluted $ 0.45 $ 0.49
============= ================
Weighted Average Number of Shares of
Common Stock Outstanding (8):
Basic 15,890,212 15,918,577
============= ================
Diluted 21,437,859 21,466,224
============= ================
</TABLE>
See accompanying notes to unaudited pro forma
consolidated financial statements.
B-4
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000 AND
THE YEAR ENDED DECEMBER 31, 1999
Unaudited Pro Forma Consolidated Balance Sheet:
----------------------------------------------
(a) Represents gross proceeds of $31,398,095 from the sale of 3,139,810
shares during the period April 1, 2000 through June 1, 2000, used (i)
to purchase two properties for $46,277,433 (which includes closing
costs of $434,450 and acquisition fees and costs of $2,397,983, which
had been recorded as other assets as of March 31, 2000), (ii) to pay
acquisition fees and costs of $1,412,914 ($114,197 of which was accrued
at March 31, 2000 and which had been capitalized as other assets) and
(iii) to pay selling commissions and offering expenses of $2,511,848
which have been netted against stockholders' equity (a total of
$647,509 of which was accrued as of March 31, 2000).
<TABLE>
<CAPTION>
Acquisition
Fees and Costs
And Closing
Costs
Asset Value or Allocated
Purchase Price To Investment Total
--------------------- ----------------- --------------
<S> <C> <C> <C>
Wyndham in Billerica, MA $ 25,092,000 $ 1,635,999 $26,727,999
Wyndham in Denver, CO 18,353,000 1,196,434 19,549,434
-------------------- ----------------- ---------------
$ 43,445,000 $ 2,832,433 $46,277,433
==================== ================= ===============
</TABLE>
Unaudited Pro Forma Consolidated Statements of Earnings:
-------------------------------------------------------
(1) Represents adjustment to rental income from operating leases for the
properties acquired by the Company as of June 1, 2000 (the "Pro Forma
Properties"), for the period commencing (A) the later of (i) the date
the Pro Forma Property became operational by the previous owner or (ii)
January 1, 1999, to (B) the earlier of (i) the date the Pro Forma
Property was acquired by the Company or (ii) the end of the pro forma
period presented. The following presents the actual date the Pro Forma
Properties were acquired or placed in service by the Company as
compared to the date the Pro Forma Properties were treated as becoming
operational as a rental property for purposes of the Pro Forma
Consolidated Statements of Earnings.
<TABLE>
<CAPTION>
Date Pro Forma
Date Placed Property became
in Service Operational as
by the Company Rental Property
--------------- ---------------
<S> <C> <C>
Residence Inn in Mira Mesa, CA December 10, 1999 September 20, 1999
Courtyard in Philadelphia, PA November 20, 1999 November 20, 1999
Wyndham in Billerica, MA June 1, 2000 May 15, 1999
Wyndham in Denver, CO June 1, 2000 November 15, 1999
</TABLE>
Generally, the leases provide for the payment of percentage rent in
addition to base rental income. However, due to the fact that no
percentage rent was due under the leases for the Pro Forma Properties
during 1999 and the quarter ended March 31, 2000 that the Company held
the properties, no pro forma adjustment was made for percentage rental
income for the year ended December 31, 1999 and the quarter ended March
31, 2000.
B-5
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE QUARTER ENDED MARCH 31, 2000 AND
THE YEAR ENDED DECEMBER 31, 1999
Unaudited Pro Forma Consolidated Statements of Earnings - Continued:
-------------------------------------------------------------------
(2) Represents reserve funds which will be used for the replacement and
renewal of furniture, fixtures and equipment relating to the Pro Forma
Properties (the "FF&E Reserve"). The funds in the FF&E Reserve and all
property purchased with funds from the FF&E Reserve will be paid,
granted and assigned to the Company as additional rent. In connection
therewith, FF&E reserve income was earned at approximately three
percent of estimated annual gross revenues, per Pro Forma Property.
(3) Represents adjustment to dividend income earned on the Company's
$38,364,157 investment as of December 31, 1999, in the 9.76% Class B
cumulative preferred stock of the unconsolidated subsidiary, for the
period commencing (A) the later of (i) the date the properties owned by
the unconsolidated subsidiary became operational by the previous owner
or (ii) January 1, 1999, to (B) the earlier of (i) the date the
properties owned by the unconsolidated subsidiary were acquired or (ii)
the end of the pro forma period presented. The cash from the Company's
investment, along with loan proceeds and funds from an institutional
investor were used to purchase seven hotel properties which were
operational prior to the Company's investment in the unconsolidated
subsidiary. The following presents the actual date the unconsolidated
subsidiary properties were acquired or placed in service by the
unconsolidated subsidiary as compared to the date the unconsolidated
subsidiary's properties were treated as becoming operational for
purposes of the Pro Forma Consolidated Statements of Earnings:
<TABLE>
<CAPTION>
Pro Forma
Date Unconsolidated
Date Placed Subsidiary
in Service Properties became
by the Operational as
Unconsolidated Subsidiary Rental Property
------------------------- ---------------
<S> <C> <C>
Residence Inn Las Vegas, NV February 25, 1999 January 1, 1999
Residence Inn Plano, TX February 25, 1999 January 1, 1999
Marriott Suites Dallas, TX February 25, 1999 January 1, 1999
Courtyard Plano, TX February 25, 1999 January 1, 1999
Residence Inn Phoenix, AZ June 16, 1999 May 14, 1999
Courtyard Scottsdale, AZ June 16, 1999 May 21, 1999
Courtyard Seattle, WA June 16, 1999 May 22, 1999
</TABLE>
(4) Represents adjustment to interest income due to the decrease in the
amount of cash available for investment in interest bearing accounts
during the periods commencing (A) the later of (i) the dates the Pro
Forma Properties and the unconsolidated subsidiary's properties became
operational by the previous owners or (ii) January 1, 1999, through (B)
the earlier of (i) the actual date the Pro Forma Properties and the
unconsolidated subsidiary's properties were acquired or (ii) the end of
the pro forma period presented, as described in Note (1) and Note (3)
above for the year ended December 31, 1999. The estimated pro forma
adjustment is based upon the fact that interest income from interest
bearing accounts was earned at a rate of approximately four percent per
annum by the Company during the year ended December 31, 1999 and the
quarter ended March 31, 2000.
(5) Represents increase in asset management fees relating to the Pro Forma
Properties and the investment in unconsolidated subsidiary for the
period commencing (A) the later of (i) the date the Pro Forma
Properties and the unconsolidated subsidiary's properties became
operational by the previous owners or (ii) January 1, 1999, through (B)
the earlier of (i) the date the Pro Forma Properties and the
unconsolidated subsidiary's
B-6
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE QUARTER ENDED MARCH 31, 2000 AND
THE YEAR ENDED DECEMBER 31, 1999
Unaudited Pro Forma Consolidated Statements of Earnings - Continued:
-------------------------------------------------------------------
(5) properties were acquired or (ii) the end of the pro forma period
presented, as described in Notes (1) and (3) above. Asset management
fees are equal to 0.60% per year of the Company's Real Estate Asset
Value, including the investment in the unconsolidated subsidiary, as
defined in the Company's prospectus.
(6) Represents incremental increase in depreciation expense of the building
and the furniture, fixture and equipment ("FF&E") portions of the Pro
Forma Properties accounted for as operating leases using the
straight-line method. The buildings and FF&E are depreciated over
useful lives of 40 and seven years, respectively.
(7) Represents adjustment to equity in loss of unconsolidated subsidiary
after deduction of preferred stock dividends for the period commencing
(A) the date the unconsolidated subsidiary's properties became
operational by the previous owner, through (B) the earlier of (i) the
date the properties were acquired by the unconsolidated subsidiary or
(ii) the end of the pro forma period presented, as described in Note
(3) above. The following represents the Company's share of pro forma
net earnings or loss after deduction of preferred stock dividends
declared for the pro forma period ending December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Unconsolidated Subsidiary Pro Forma
Earnings Before Preferred Stock Dividends $ 4,769,743
8% Class A Cumulative Preferred Stock
Dividends (institutional investor) (3,431,011)
9.76% Class B Cumulative Preferred Stock
Dividends (the Company) (3,214,612)
8% Class C Cumulative Preferred Stock
Dividends (other investors) (8,000)
------------
Pro Forma Net Loss of Unconsolidated Subsidiary
After Preferred Stock Dividends $(1,883,880)
============
The Company's 49% Interest in the Pro Forma
Loss of the Unconsolidated Subsidiary $ (923,101)
============
</TABLE>
(8) Historical earnings per share were calculated based upon the weighted
average number of shares of common stock outstanding during the year
ended December 31, 1999 and the quarter ended March 31, 2000.
As a result of the investment in the unconsolidated subsidiary being
treated in the Pro Forma Consolidated Statements of Earnings as
invested beginning on January 1, 1999 (the date the first property
became operational), the Company assumed additional shares of common
stock were sold and net offering proceeds were available for investment
on January 1, 1999. Due to the fact that approximately 817,000 of these
shares of common stock were actually sold subsequent to January 1,
1999, the weighted average number of shares outstanding for the pro
forma year ended December 31, 1999 was adjusted. Pro forma earnings per
share were calculated based upon the weighted average number of shares
of common stock outstanding, as adjusted, during the year ended
December 31, 1999 and the quarter ended March 31, 2000.
B-7
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 December 31,1999
----------------- ---------------------
ASSETS
<S> <C> <C>
Land, buildings and equipment on operating leases, less
accumulated depreciation of $2,484,663 and $1,603,334,
respectively $111,449,355 $112,227,771
Investment in unconsolidated subsidiary 37,878,065 38,364,157
Cash and cash equivalents 142,143,157 101,972,441
Restricted cash 409,538 275,630
Certificate of deposit 5,000,000 5,000,000
Dividends receivable 1,280,395 1,215,993
Receivables 427,240 112,184
Prepaid expenses 23,247 41,165
Loan costs, less accumulated amortization of $94,737 and
$86,627, respectively 43,859 51,969
Accrued rental income 78,276 79,399
Other assets 10,388,879 7,627,565
--------------- -----------------
$309,122,011 $266,968,274
=============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $10,000,000 $ --
Accounts payable and accrued expenses 892,783 405,855
Distributions payable 174,178 89,843
Due to related parties 506,490 995,500
Security deposits 5,042,054 5,042,054
Rents paid in advance 474,912 255,568
--------------- -----------------
Total liabilities 17,090,417 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. 60,000,000
authorized shares, issued and outstanding
33,873,315 and 28,902,914 shares, respectively 338,733 289,029
Capital in excess of par value 299,660,797 256,231,833
Accumulated distributions in excess of net earnings (5,043,063) (3,466,023)
Minority interest distributions in excess of
contributions and accumulated earnings (2,924,873) --
--------------- -----------------
Total stockholders' equity 292,031,594 253,054,839
--------------- -----------------
$309,122,011 $266,968,274
=============== =================
</TABLE>
See accompanying notes to consolidated financial statements.
B-8
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Quarters Ended March 31,
2000 1999
--------------- -------------
Revenues:
<S> <C> <C>
Rental income from operating leases $ 2,725,894 $ 737,618
FF&E reserve income 159,237 61,027
Dividend income 926,817 241,843
Interest and other income 1,769,209 292,864
----------------- --------------
5,581,157 1,333,352
----------------- --------------
Expenses:
Interest and loan cost amortization 8,110 200,573
General operating and administrative 295,070 193,431
Professional services 45,337 21,206
Asset management fees to related party 126,422 49,565
Depreciation and amortization 916,641 253,758
----------------- --------------
1,391,580 718,533
----------------- --------------
Earnings Before Equity in Loss of Unconsolidated Subsidiary
After Deduction of Preferred Stock Dividends and Minority
Interest 4,189,577 614,819
Equity in Loss of Unconsolidated Subsidiary After Deduction of
Preferred Stock Dividends (119,803) (184,539)
Minority Interest (124,690) --
----------------- --------------
Net Earnings $ 3,945,084 $ 430,280
================= ==============
Earnings Per Share of Common Stock:
Basic $ 0.13 $ 0.07
================= ==============
Diluted $ 0.12 $ 0.06
================= ==============
Weighted Average Number of Shares of Outstanding:
Basic 31,200,726 6,419,548
================= ==============
Diluted 38,622,874 7,812,448
================= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
B-9
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Quarter Ended March 31, 2000 and Year Ended December 31, 1999
<TABLE>
<CAPTION>
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
------------ ----------- -------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
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) $ -- $253,054,839
Subscriptions received for
common stock through public
offerings and distribution
reinvestment plan 4,985,006 49,850 49,525,914 -- -- 49,575,764
Retirement of common stock (14,605) (146) (134,217) -- -- (134,363)
Stock issuance costs -- -- (5,962,733) -- -- (5,962,733)
Net earnings -- -- -- 3,945,084 -- 3,945,084
Minority interest distributions in
excess of contributions and
accumulated earnings -- -- -- -- (2,924,873) (2,924,873)
Distributions declared and paid
($.18 per share) -- -- -- (5,522,124) -- (5,522,124)
------------ ----------- --------------- -------------- -------------- -------------
Balance at March 31, 2000 33,873,315 $338,733 $299,660,797 $ (5,043,063) $(2,924,873) $292,031,594
============ =========== =============== ============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
B-10
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarters Ended March 31,
2000 1999
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,945,084 $ 430,280
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 881,329 230,834
Amortization 43,422 73,724
Distribution from investment in
unconsolidated subsidiary, net
of equity in loss 473,512 184,539
Minority interest 124,690 --
Changes in operating assets and
liabilities:
Dividends receivable (64,402) (241,843)
Receivables (315,056) 429
Prepaid expenses 17,918 (7,555)
Accrued rental income 1,123 (15,905)
Interest payable -- (36,152)
Accounts payable and accrued
expenses 398,103 58,094
Due to related parties - operating expenses 102,281 (9,519)
Rents paid in advance 219,344 (3,489)
--------------- ---------------
Net cash provided by operating activities 5,827,348 663,437
--------------- ---------------
Cash flows from investing activities:
Additions to land, buildings and equipment on
operating leases (125,645) --
Investment in unconsolidated subsidiary -- (23,983,718)
Investment in certificate of deposit -- (730,567)
Increase in restricted cash (133,908) (56,682)
Additions to other assets (2,823,904) (1,690,852)
--------------- ---------------
Net cash used in investing activities (3,083,457) (26,461,819)
--------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
B-11
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Quarters Ended March 31,
2000 1999
---------------- --------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from note payable 10,000,000 --
Repayment of borrowings on line of credit -- (9,600,000)
Proceeds from convertible loans -- 3,684,745
Subscriptions received from stockholders 49,575,764 47,730,318
Distributions to stockholders (5,522,124) (998,652)
Distributions to minority interest (10,000,000) --
Retirement of common stock (134,363) --
Payment of stock issuance costs (6,492,452) (5,396,076)
Other -- (10,029)
----------------- --------------
Net cash provided by financing activities 37,426,825 35,410,306
----------------- --------------
Net increase in cash and cash equivalents 40,170,716 9,611,924
Cash and cash equivalents at beginning of quarter 101,972,441 13,228,923
----------------- --------------
Cash and cash equivalents at end of quarter $ 142,143,157 $ 22,840,847
================= ==============
Supplemental schedule of non-cash financing activities:
Distributions declared but not paid to minority
interest $ 174,178 $ --
================= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
B-12
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 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 partners, respectively, of CNL Hospitality
Partners, LP. The term "Company" includes, unless the context otherwise
requires, CNL Hospitality Properties, Inc., CNL Hospitality Partners,
LP, CNL Hospitality GP Corp., 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
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
ended March 31, 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.
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 for the
Company's Initial Offering. As of March 31, 2000, the Company received
total subscription proceeds from the Initial Offering, the 1999
Offering and the sale of warrants of $338,733,751 (33,873,375 shares),
including $748,625 (74,863 shares) through the reinvestment plan.
B-13
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 2000 and 1999
2. Public Offerings - Continued:
-----------------------------
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 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 for 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 (the "Hotel Investors Loan"). 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 ("Class B 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.
The following presents condensed financial information for Hotel
Investors as of and for the quarter ended and year ended:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------- ---------------
<S> <C> <C>
Land, buildings and equipment on operating leases, net $163,941,510 $165,088,059
Cash and cash equivalents 8,578,188 4,884,014
Loan costs, net 693,092 708,006
Accrued rental income 365,183 283,914
Prepaid expenses, receivables and other assets 152,134 3,283,306
Liabilities 92,250,208 92,229,193
Redeemable preferred stock - Class A and Class B 86,314,361 85,361,864
Stockholders' deficit (3,982,913) (2,915,614)
Revenues 4,772,528 13,025,978
Net earnings 1,664,125 4,104,936
Preferred stock dividends 1,908,622 5,693,642
Loss applicable to common stockholders (244,497) (1,588,706)
</TABLE>
B-14
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 2000 and 1999
3. Investment in Unconsolidated Subsidiary - Continued:
---------------------------------------------------
During the quarter ended March 31, 2000, the Company recorded $926,817
in dividend income and $119,803 in equity in loss after deduction of
preferred stock dividends, resulting in net earnings of $807,014
attributable to this investment.
4. Other Assets:
------------
Other assets consists 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 three months ended March 31, 2000, 14,605 shares of common stock
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 March 31,
2000 and December 31, 1999, the Company had no amounts outstanding
under the line of credit.
During the quarter ended March 31, 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 each May, through May 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. The Advisor has agreed to pay all
organizational and offering expenses (excluding commissions and
marketing support and due diligence expense reimbursement fees) which
exceed three percent of the gross proceeds received from the sale of
shares of the Company in connection with the offerings.
During the three months ended March 31, 2000 and 1999, the Company
incurred $5,962,733 and $5,195,324, respectively, in stock issuance
costs, including $3,966,001 and $3,345,810, 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.
B-15
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 2000 and 1999
8. Distributions:
-------------
For the quarters ended March 31, 2000 and 1999, approximately 48
percent and 41 percent, respectively, of the distributions paid to
stockholders were considered ordinary income, and approximately 52
percent and 59 percent, respectively, were considered a return of
capital to stockholders for federal income tax purposes. No amounts
distributed to the stockholders for the quarters ended March 31, 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 quarter ended March 31, 2000 may not be
indicative of the results 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 quarters ended March 31, 2000 and 1999, the Company incurred
$3,718,126 and $3,136,697 respectively, in selling commissions due to
CNL Securities Corp. for services in connection with its offerings. A
substantial portion of these amounts ($3,681,508 and $2,927,797,
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 quarters ended March
31, 2000 and 1999, the Company incurred $247,875 and $209,113,
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 Securities Corp. will also receive, in connection with the Initial
Offering, a soliciting dealer servicing fee payable annually by the
Company beginning on December 31 of the year following the year in
which the offering is completed in the amount of 0.20% of the
stockholders' investment in the Company. 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 March 31, 2000, no such fees
had been incurred.
In addition, in connection with its current offering of common stock,
the Company has agreed to issue and sell soliciting dealer warrants
("Soliciting Dealer Warrants") to CNL Securities Corp. The 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
quarter ended March 31, 2000, the Company issued approximately 479,000
Soliciting Dealer Warrants. As of March 31, 2000, in connection with
the 1999 Offering, CNL Securities Corp. was entitled to approximately
171,500 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 quarters ended March 31, 2000 and
1999, the Company incurred $3,284,373 and $2,106,510, respectively, of
such fees. Such fees are included in land, buildings and equipment on
operating leases, investment in unconsolidated subsidiary and other
assets.
B-16
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 2000 and 1999
9. Related Party Transactions - Continued:
--------------------------------------
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 greater of two percent of average
invested assets or 25 percent of net income (the "Expense Cap"). For
the quarter ended March 31, 2000, 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 quarters ended March 31, 2000 and
1999, the Company incurred $126,422 and $49,565, respectively, of such
fees.
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 quarters ended March 31:
<TABLE>
<CAPTION>
2000 1999
------------- ---------------
<S> <C> <C>
Stock issuance costs $ 1,167,684 $ 883,881
General operating and
administrative expenses 104,024 85,731
Land, buildings and equipment on
operating leases and other
assets 735 3,806
------------- ---------------
$ 1,272,443 $ 973,418
============= ===============
<CAPTION>
The amounts due to related parties consisted of the following at:
March 31, 2000 December 31,1999
----------------- --------------------
<S> <C> <C>
Due to the Advisor:
Expenditures incurred on behalf
of the Company for accounting
and administrative services $ 193,167 $ 387,690
Acquisition fees 108,546 337,797
Management fees -- 19,642
------------- ----------------
301,713 745,129
------------- ----------------
Due to CNL Securities Corp.:
Commissions 191,863 229,834
Marketing support and due diligence
expense reimbursement fee 12,791 16,764
------------- ----------------
204,654 246,598
------------- ----------------
Due to other related party 123 3,773
------------- ----------------
$ 506,490 $ 995,500
============= ================
</TABLE>
B-17
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 2000 and 1999
9. Related Party Transactions - Continued:
--------------------------------------
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 $15,534,326 and $15,275,629 at March
31, 2000 and December 31, 1999, respectively.
10. Concentration of Credit Risk:
----------------------------
STC Leasing Associates, LLC, which was acquired by Crestline Capital
Corp. on March 6, 2000, 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 ended March 31, 2000.
In addition, all 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 this lessee 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.
11. Earnings Per Share:
-------------------
Basic 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
quarters ended March 31, 2000 and 1999, approximately 7.4 and 1.4
million shares, respectively, 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.
B-18
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 2000 and 1999
11. Earnings Per Share - Continued:
-------------------------------
The following represents the calculation of earnings per share and the
weighted average number of shares of potentially dilutive common stock
for the quarters ended March 31:
<TABLE>
<CAPTION>
2000 1999
-------------- ---------------
<S> <C> <C>
Basic Earnings Per Share:
Net earnings $3,945,084 $ 430,280
============== ===============
Weighted average number of shares outstanding 31,200,726 6,419,548
============== ===============
Basic earnings per share $ 0.13 $ 0.07
============== ===============
Diluted Earnings Per Share:
Net earnings $ 3,945,084 $ 430,280
Additional income attributable to investment in unconsolidated
subsidiary assuming all Class A Preferred Shares were converted 857,241 71,479
-------------- ---------------
Adjusted net earnings assuming dilution $ 4,802,325 $ 501,759
============== ===============
Weighted average number of shares outstanding 31,200,726 6,419,548
Assumed conversion of Class A Preferred Stock 7,422,148 1,392,900
-------------- ---------------
Adjusted weighted average number of
shares outstanding 38,622,874 7,812,448
============== ===============
Diluted earnings per share $ 0.12 $ 0.06
============== ===============
</TABLE>
12. Commitments and Contingencies:
-----------------------------
The Company has commitments to acquire six hotel Properties for an
anticipated aggregate purchase price of approximately $148 million. In
connection with these commitments, the Company has deposits of
approximately $6.6 million held in escrow. Additionally, the Company
has refundable deposits on two hotel properties that are currently
under negotiations in the amount of $500,000.
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 the earnout
factor (7.44), and the initial purchase price. Rental income will be
adjusted upward in accordance with the lease agreements for any amount
paid. As of March 31, 2000, approximately $97,000 was 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 which is 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.
B-19
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 2000 and 1999
13. Subsequent Events:
-----------------
During the period April 1, 2000 through April 24, 2000, the Company
received subscription proceeds for an additional 1,250,000 shares
($12,500,000) of common stock.
On April 1, 2000, the Company declared distributions totaling
$2,044,420, or $0.0604 per share of common stock, payable in June 2000,
to stockholders of record on April 1, 2000.
On April 18, 2000, the Company announced its intent to purchase two
hotel properties for an aggregate purchase price of approximately $44
million. In connection with these two properties, 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.
B-20
<PAGE>
INDEX TO OTHER FINANCIAL INFORMATION
The following summarized financial information is filed as part of this report
as a result of Marriott International, Inc. ("Marriott") guaranteeing lease
payments for two tenants relating to properties representing more than 20
percent of the Company's total assets as of March 31, 2000. The summarized
financial information presented for Marriott as of March 24, 2000 and for the
quarter ended March 24, 2000, was obtained from the Form 10-Q/A filed by
Marriott with the Securities and Exchange Commission for the quarter ended March
24, 2000.
Page
----
Marriott International, Inc. and Subsidiaries:
Selected Financial Data for the quarter ended March 24, 2000 B-22
B-21
<PAGE>
OTHER FINANCIAL INFORMATION
Marriott International, Inc. and Subsidiaries
Selected Financial Data
(in Millions, except per share data)
Condensed Consolidated Balance
------------------------------
Sheet Data:
-----------
March 24, 2000
------------------
Current assets $1,564
Noncurrent assets 5,986
Current liabilities 1,669
Noncurrent liabilities 3,091
Condensed Consolidated Statement of
-----------------------------------
Income Data:
------------
March 24, 2000
------------------
Gross revenues $2,172
Costs and expenses 2,078
Net income 94
Basic earnings per share .39
Diluted earnings per share .37
B-22
<PAGE>
APPENDIX E
STATEMENT OF ESTIMATED
TAXABLE OPERATING RESULTS
BEFORE DIVIDENDS PAID DEDUCTION
------------------------------------------------------
THE STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS BEFORE
DIVIDENDS PAID DEDUCTION IN THIS ADDENDUM UPDATES AND REPLACES
APPENDIX E TO THE ATTACHED PROSPECTUS, DATED MARCH 30, 2000.
------------------------------------------------------
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
BEFORE DIVIDENDS PAID DEDUCTION
PROPERTIES ACQUIRED FROM INCEPTION
THROUGH JUNE 1, 2000
For the Year Ended December 31, 1999 (Unaudited)
The following schedule presents unaudited estimated taxable operating
results before dividends paid deduction of each Property acquired, directly or
indirectly, by the Company from inception through June 1, 2000. The statement
presents unaudited estimated taxable operating results for each Property that
was operational as if the Property (i) had been acquired the earlier of (a) the
actual date acquired by the Company or (b) January 1, 1999, and (ii) had been
operational during the period January 1, 1999 through December 31, 1999. The
schedule should be read in light of the accompanying footnotes.
These estimates do not purport to present actual or expected operations
of the Company for any period in the future. The estimates were prepared on the
basis described in the accompanying notes which should be read in conjunction
herewith.
<TABLE>
<CAPTION>
Residence Inn by Marriott Residence Inn by Marriott
Buckhead (Lenox Park) (1) Gwinnett Place (1)
--------------------------------- --------------------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
<S> <C> <C>
Rental Income (5) $1,668,185 $1,220,977
FF&E Reserve Income (6) 166,584 127,865
Asset Management Fees (7) (94,388) (69,085)
Interest Expense (8) -- --
General and Administrative
Expenses (9) (132,144) (96,719)
-------------- ---------------
Estimated Cash Available from
Operations 1,608,237 1,183,038
Depreciation and Amortization
Expense (10) (11) (569,033) (425,414)
-------------- ---------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $1,039,204 $ 757,624
============== ===============
<CAPTION>
Residence Inn by Marriott
Mira Mesa
--------------------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
<S> <C>
Rental Income (5) $1,542,300
FF&E Reserve Income (6) 32,000
Asset Management Fees (7) (93,232)
Interest Expense (8) --
General and Administrative
Expenses (9) (123,384)
----------------
Estimated Cash Available from
Operations 1,357,684
Depreciation and Amortization
Expense (10) (11) (409,488)
----------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $ 948,196
================
</TABLE>
See Footnotes
<PAGE>
<TABLE>
<CAPTION>
Marriott Suites by Marriott Residence Inn by Marriott
Market Center (2) Hughes Center (2)
-------------------------------- ---------------------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
<S> <C> <C>
Rental Income (5) $1,665,666 $1,671,913
FF&E Reserve Income (6) 57,356 59,061
Asset Management Fees (7) (96,942) (97,305)
Interest Expense (8) (655,617) (647,853)
General and Administrative
Expenses (9) (133,254) (133,753)
-------------- ---------------
Estimated Cash Available from
Operations 837,209 852,063
Depreciation and Amortization
Expense (10) (11) (525,525) (472,372)
-------------- ---------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $ 311,684 $ 379,691
============== ===============
<CAPTION>
Residence Inn by Marriott
Dallas Plano (2)
-------------------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
<S> <C>
Rental Income (5) $590,198
FF&E Reserve Income (6) 18,694
Asset Management Fees (7) (34,349)
Interest Expense (8) (215,294)
General and Administrative
Expenses (9) (47,216)
---------------
Estimated Cash Available from
Operations 312,033
Depreciation and Amortization
Expense (10) (11) (184,169)
---------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $ 127,864
===============
</TABLE>
See Footnotes
-2-
<PAGE>
<TABLE>
<CAPTION>
Courtyard by Marriott Courtyard by Marriott
Scottsdale Downtown (2) Lake Union (2)
-------------------------------- ----------------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
<S> <C> <C>
Rental Income (5) $990,821 $1,808,515
FF&E Reserve Income (6) 13,884 51,932
Asset Management Fees (7) (57,666) (105,256)
Interest Expense (8) (403,572) (707,322)
General and Administrative
Expenses (9) (79,266) (144,681)
--------------- ----------------
Estimated Cash Available from
Operations 464,201 903,188
Depreciation and Amortization
Expense (10) (11) (226,498) (542,248)
--------------- ----------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $ 237,703 $ 360,940
=============== ================
<CAPTION>
Residence Inn by Marriott
Phoenix Airport (2)
-------------------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Rental Income (5) $1,078,591
FF&E Reserve Income (6) 15,347
Asset Management Fees (7) (62,774)
Interest Expense (8) (396,454)
General and Administrative
Expenses (9) (86,288)
--------------
Estimated Cash Available from
Operations 548,422
Depreciation and Amortization
Expense (10) (11) (338,234)
--------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $ 210,188
==============
</TABLE>
See Footnotes
-3-
<PAGE>
<TABLE>
<CAPTION>
Courtyard by Marriott Courtyard by Marriott
Legacy Park (2) Philadelphia Downtown (3)
--------------------------------- ----------------------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
<S> <C> <C>
Rental Income (5) $641,250 $ 5,785,000
FF&E Reserve Income (6) 18,073 161,674
Asset Management Fees (7) (37,321) (309,060)
Interest Expense (8) (247,351) --
General and Administrative
Expenses (9) (51,300) (462,800)
-------------- ---------------
Estimated Cash Available from
Operations 323,351 5,174,814
Depreciation and Amortization
Expense (10) (11) (201,256) (1,804,256)
-------------- ---------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $122,095 $ 3,370,558
============== ===============
<CAPTION>
Wyndham
Billerica (4)
----------------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
<S> <C>
Rental Income (5) $2,509,200
FF&E Reserve Income (6) 64,190
Asset Management Fees (7) (150,552)
Interest Expense (8) --
General and Administrative
Expenses (9) (513,520)
-----------------
Estimated Cash Available from
Operations 1,909,318
Depreciation and Amortization
Expense (10) (11) (787,694)
-----------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $1,121,624
=================
</TABLE>
See Footnotes
-4-
<PAGE>
<TABLE>
<CAPTION>
Wyndham
Denver Tech Center (4) Total
--------------------------------- ---------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
<S> <C> <C>
Rental Income (5) $1,835,300 $23,007,916
FF&E Reserve Income (6) 41,540 828,200
Asset Management Fees (7) (110,118) (1,318,048)
Interest Expense (8) -- (3,273,463)
General and Administrative
Expenses (9) (332,320) (2,336,645)
-------------- ---------------
Estimated Cash Available from
Operations 1,434,402 16,907,960
Depreciation and Amortization
Expense (10) (11) (600,411) (7,086,598)
-------------- ---------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $833,991 $9,821,362
============== ===============
</TABLE>
See Footnotes
-5-
<PAGE>
--------------------------------
FOOTNOTES:
(1) The lessee of the Buckhead (Lenox Park) and Gwinett Place Properties is
the same unaffiliated lessee.
(2) In February 1999, the Company formed a jointly owned real estate
investment trust, CNL Hotel Investors, Inc. ("CHI") with Five Arrows
Realty Securities II, L.L.C. to acquire seven hotel Properties. The
Company has a 49% ownership interest in CHI. The seven hotel Properties
are the Legacy Park, Market Center, Hughes Center, Dallas Plano,
Scottsdale Downtown, Lake Union and Phoenix Airport Properties. The
lessee of these seven hotel Properties is the same unaffiliated lessee.
For purposes of this table, the balances presented represent the 49%
interest owned by the Company.
(3) In November 1999, the Company acquired an 89% interest in CNL
Philadelphia Annex, LLC (formerly known as Courtyard Annex, L.L.C.) to
own and lease one hotel Property. The hotel Property is the
Philadelphia Downtown Property. For purposes of this table, the
balances presented represent the 89% interest owned by the Company.
(4) The lessee of the Wyndham Billerica and the Wyndham Denver Tech Center
Properties is the same unaffiliated lessee.
(5) Rental income does not include percentage rents, which will become due
if specified levels of gross receipts are achieved.
(6) Reserve funds will be used for the replacement and renewal of
furniture, fixtures and equipment related to the Properties ("FF&E
Reserve"). The funds in the FF&E Reserve and all property purchased
with the funds from the FF&E Reserve will be paid, granted and assigned
to the Company as additional rent. FF&E Reserve income earned is
estimated at three percent of projected hotel gross receipts. In
connection therewith, FF&E Reserve income will be earned at 1% of gross
revenues for the lease years one through four and has been estimated
based on projected gross revenues.
(7) The Properties will be managed pursuant to an advisory agreement
between the Company and CNL Hospitality Corp. (the "Advisor"), pursuant
to which the Advisor will receive monthly asset management fees in an
amount equal to one-twelfth of .60% of the Company's Real Estate Asset
Value as of the end of the preceding month as defined in such
agreement. See "Management Compensation."
(8) Estimated at 7.625% per annum based on the bank's base rate as of
February 24, 1999 and June 21, 1999, assuming $88 million was borrowed
to acquire the Legacy Park, Market Center, Hughes Center, Dallas Plano,
Scottsdale Downtown, Lake Union and Phoenix Airport Properties. For
purposes of this table, the amounts presented represent the 49%
interest owned by the Company.
(9) Estimated at 8% of gross rental income, based on the previous
experience of AffiliateS of the Advisor with another public REIT.
Amount does not include soliciting dealer servicing fee due to the fact
that the Company did not incur such fee for the year ended December 31,
1999.
-6-
<PAGE>
(10) The estimated federal tax basis of the depreciable portion of the
Properties and the number of years the assets have been depreciated on
the straight-line method is as follows (the balances are presented at
the Company's 49% interest in CHI and the 89% interest in CNL
Philadelphia Annex, LLC):
