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CNL HOSPITALITY PROPERTIES, INC.
Supplement No. 4, dated March 21, 2000
to Prospectus, dated June 4, 1999
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CNL Hospitality Properties, Inc., which we sometimes refer to as the
"Company," is a Maryland corporation which is qualified and operated for federal
income tax purposes as a REIT. Our address is CNL Center at City Commons, 450
South Orange Avenue, Orlando, Florida 32801, and our telephone number is (407)
650-1000 or toll free (800) 522-3863.
This Supplement is part of, and should be read in conjunction with, the
Prospectus dated June 4, 1999. 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 February 23, 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 February 23, 2000, will be reported in a
subsequent Supplement.
THE OFFERINGS
Upon completion of its Initial Offering on June 17, 1999, the Company
had received aggregate subscriptions for 15,007,264 Shares totalling
$150,072,637 in Gross Proceeds, 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 February 23, 2000, the Company had received aggregate
subscriptions for 31,575,269 Shares totalling $315,752,694 in Gross Proceeds,
including 50,382 Shares ($503,819) issued pursuant to the Reinvestment Plan from
its Initial Offering and this offering. As of February 23, 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 $281,300,000. The Company has used Net Offering Proceeds
from the offerings to invest, directly or indirectly, approximately $136,500,000
in 11 hotel Properties, to pay $6,600,000 as deposits on five additional hotel
Properties, to redeem 12,885 Shares of Common Stock for $118,542 and to pay
approximately $15,900,000 in Acquisition Fees and certain Acquisition Expenses,
leaving approximately $122,100,000 available to invest in Properties and
Mortgage Loans. See "Business -- Pending Investments" for information on six
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 (the "2000 Offering") of up to 45,000,000 Shares which is expected
to commence immediately following the completion of this offering. Of the up to
45,000,000 Shares expected to be offered, up to 5,000,000 Shares are expected to
be available to stockholders purchasing through the Reinvestment Plan. Until
such time, if any, as the stockholders approve an increase in the number of
authorized Shares of Common Stock of the Company, the 2000 Offering will be
limited to approximately 20,000,000 Shares. The Board of Directors expects to
submit, for a vote of the stockholders at its annual meeting in May 2000, a
proposal to increase the number of authorized Shares of Common Stock of the
Company from 60,000,000 to 150,000,000. The price per Share and the other terms
of the 2000 Offering, including the percentage of gross proceeds payable to the
Managing Dealer for Selling Commissions and expenses in connection with the
offering, payable to the Advisor for Acquisition Fees and Acquisition Expenses
and reimbursable to the Advisor for Offering Expenses, are expected to be the
same as those for this offering. Net proceeds from the 2000 Offering are
expected to be invested in additional Properties and Mortgage Loans. The Company
<PAGE>
believes that the net proceeds received from the 2000 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's Shares are listed on a national securities exchange or
over-the-counter market. 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.
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."
RISK FACTORS
OFFERING-RELATED RISKS
AN UNSPECIFIED PROPERTY OFFERING.
POTENTIAL INVESTORS CANNOT EVALUATE PROPERTIES NOT YET
ACQUIRED OR IDENTIFIED FOR ACQUISITION. We have established certain criteria for
evaluating hotel chains, particular properties and the operators of the
properties in which we may invest. See the "Business -- Standards for Investment
in Properties" and "Business -- General" sections for a description of these
criteria and the types of properties in which we intend to invest. We have not
set fixed minimum standards relating to creditworthiness of tenants and
therefore the Board of Directors has flexibility in assessing potential tenants.
In addition, as of the date of this Prospectus, we have purchased, directly or
indirectly, 11 hotels and have entered into commitments for the direct or
indirect acquisition of six additional hotel properties. The acquisition of the
six properties is subject to the fulfillment of certain conditions and 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.
In addition, the Board of Directors has approved an additional offering of
shares of common stock, and in the future may approve additional future
offerings, the proceeds of which may be invested in additional properties;
therefore, you will not have the opportunity to evaluate all the properties that
will be in our portfolio.
COMPANY-RELATED RISKS
LIMITED OPERATING HISTORY. As of the date of this Prospectus, the
Company has purchased, directly or indirectly, 11 properties, and prior to
October 15, 1997, the date our operations commenced, had no previous performance
history. As a result, you cannot be sure how the Company will be operated,
whether it will pursue the objectives described in this Prospectus or how it
will perform financially.
REAL ESTATE AND OTHER INVESTMENT RISKS
POSSIBLE LACK OF DIVERSIFICATION INCREASES RISK OF INVESTMENT. There is
no limit on the number of properties of a particular hotel chain which we may
acquire. However, under investment guidelines established by the Board of
Directors, no single hotel chain may represent more than 50% of the total
portfolio unless approved by the Board of Directors, including a majority of the
independent Directors. The Board of Directors, including a majority of the
independent Directors, will review the Company's properties and potential
investments in terms of geographic and hotel chain diversification. As of
February 23, 2000, all of the properties owned by the Company were
Marriott(R)-branded hotels. If we continue to concentrate our acquisitions with
Marriott chains or in the future concentrate our acquisitions on another chain,
it will increase the risk that our financial condition will be adversely
affected by a downturn in a particular market sub-segment or by the poor
judgment of a particular management group.
COMPANY WILL NOT CONTROL PROPERTY MANAGEMENT. Our tenants will be
responsible for maintenance and other day-to-day management of the properties.
Because our revenues will largely be derived from rents, our financial condition
will be dependent on the ability of third-party tenants that we do not control
to operate the properties successfully. We intend to enter into leasing
agreements only with tenants having substantial prior hotel experience. Although
we believe the tenants of the 11 properties directly or indirectly owned, and
the six properties identified as probable acquisitions, as of February 23, 2000,
have significant prior hotel experience, there is no assurance we will be able
to make such arrangements in the future. If our tenants are unable to operate
the properties successfully, they may not be able to pay their rent and they may
not generate significant percentage rent, which could adversely affect our
financial condition.
MISCELLANEOUS RISKS
POTENTIAL FOR DILUTION. Stockholders have no preemptive rights. If we
(i) commence a subsequent public offering of shares or securities convertible
into shares or (ii) otherwise issue additional shares, including shares issuable
upon exercise of the soliciting dealer warrants, investors purchasing shares in
this offering who do not participate in future stock issuances will experience
dilution in the percentage of their equity investment in the Company. 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 ($450,000,000) relating to a third
offering which is expect to commence immediately following the completion of
<PAGE>
this offering. The Board of Directors has not yet determined whether it will
engage in additional future offerings or other issuances of shares, although it
may do so if it is determined to be in the best interests of the Company. See
"Summary of the Articles of Incorporation and Bylaws -- Description of Capital
Stock -- Soliciting Dealer Warrants" and "The Offering -- Plan of Distribution."
TAX RISKS
RISKS ASSOCIATED WITH DISTRIBUTION REQUIREMENTS. Subject to certain
adjustments that are unique to REITs, a REIT generally must distribute 95% of
its taxable income (90% in 2001 and thereafter). For the purpose of determining
taxable income, we may be required to accrue interest, rent and other items
treated as earned for tax purposes but that we have not yet received. In
addition, we may be required not to accrue as expenses for tax purposes certain
items which actually have been paid or certain of the Company's deductions might
be disallowed by the Internal Revenue Service. As a result, we could have
taxable income in excess of cash available for distribution. If this occurs, we
may have to borrow funds or liquidate some of our assets in order to meet the
distribution requirement applicable to a REIT.
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE
HOW TO SUBSCRIBE
An investor who meets the suitability standards described above may
subscribe for Shares by completing and executing the Subscription Agreement and
delivering it to a Soliciting Dealer, together with a check for the full
purchase price of the Shares subscribed for, payable to "SouthTrust Bank, N.A.,
Escrow Agent." See "The Offering -- Subscription Procedures." Certain Soliciting
Dealers who have "net capital," as defined in the applicable federal securities
regulations, of $250,000 or more may instruct their customers to make their
checks for Shares subscribed for payable directly to the Soliciting Dealer. Care
should be taken to ensure that the Subscription Agreement is filled out
correctly and completely. Partnerships, individual fiduciaries signing on behalf
of trusts, estates, and in other capacities, and persons signing on behalf of
corporations and corporate trustees may be required to obtain additional
documents from Soliciting Dealers. Any subscription may be rejected by the
Company in whole or in part, regardless of whether the subscriber meets the
minimum suitability standards.
CONFLICTS OF INTEREST
The Company will be subject to various conflicts of interest arising
out of its relationship to the Advisor and its Affiliates, as described below.
The following indicates the relationship between the Company, the
Advisor and CNL Financial Group, Inc., including its Affiliates that will
provide services to the Company.
CNL FINANCIAL GROUP, INC. (1)
<TABLE>
<CAPTION>
Subsidiaries, Affiliates and Strategic Business Units
<S> <C>
Capital Markets: Retail:
--------------- ------
CNL Capital Markets, Inc. (2) Commercial Net Lease Realty, Inc. (6)
CNL Investment Company
CNL Securities Corp. (3) Restaurant:
----------
CNL Institutional Advisors, Inc. CNL American Properties Fund, Inc. (7)
Administrative Services: HOSPITALITY:
----------------------- -----------
CNL Shared Services, Inc. (4) CNL HOSPITALITY PROPERTIES, INC. (8)
Real Estate Services: Health Care:
-------------------- -----------
CNL Real Estate Services, Inc. (5) CNL Health Care Properties, Inc. (9)
CNL HOSPITALITY CORP.
(FORMERLY CNL HOSPITALITY ADVISORS, INC.) Financial Services:
------------------
CNL HOTEL DEVELOPMENT COMPANY CNL Finance, Inc.
CNL Health Care Corp. CNL Capital Corp.
CNL Health Care Development, Inc. CNL Advisory Services, Inc.
CNL Corporate Properties, Inc.
CNL Community Development Corp.
CNL Properties, Inc.
</TABLE>
(1) CNL Financial Group, Inc. (formerly CNL Group, Inc.) is a wholly owned
subsidiary of CNL Holdings, Inc. James M. Seneff, Jr., Chairman of the
Board and Chief Executive Officer of the Company, shares ownership and
voting control of CNL Holdings, Inc. with Dayle L. Seneff, his wife.
(2) CNL Capital Markets, Inc. is a wholly owned subsidiary of CNL Financial
Group, Inc. and is the parent company of CNL Investment Company.
(3) CNL Securities Corp. is a wholly owned subsidiary of CNL Investment
Company and has served as managing dealer in the offerings for various
CNL public and private real estate programs, including the Company.
(4) CNL Shared Services, Inc. (formerly CNL Corporate Services, Inc.) is a
wholly owned subsidiary of CNL Holdings, Inc., and together with other
Affiliates provides administrative services for various CNL entities,
including the Company.
(5) CNL Real Estate Services, Inc., a wholly owned subsidiary of CNL
Financial Group, Inc., is the parent company of CNL Hospitality Corp.;
CNL Health Care Corp.; CNL Corporate Properties, Inc.; CNL Properties,
Inc.; and CNL Community Development Corp.
(6) Commercial Net Lease Realty, Inc. is a REIT listed on the New York
Stock Exchange. Effective January 1, 1998, CNL Realty Advisors, Inc.
and Commercial Net Lease Realty, Inc. merged, at which time Commercial
Net Lease Realty, Inc. became self advised. James M. Seneff, Jr.
continues to hold the positions of Chief Executive Officer and Chairman
of the Board, and Robert A. Bourne continues to hold the position of
Vice Chairman of the Board of Commercial Net Lease Realty, Inc.
<PAGE>
(7) CNL American Properties Fund, Inc. is a public, unlisted REIT.
Effective September 1, 1999, CNL Fund Advisors, Inc., CNL Financial
Services, Inc., CNL Financial Corp. and CNL American Properties Fund,
Inc. merged, at which time CNL American Properties Fund, Inc. became
self advised. James M. Seneff, Jr. continues to hold the position of
Chairman of the Board and Robert A. Bourne continues to hold the
position of Vice Chairman of the Board of CNL American Properties Fund,
Inc.
(8) CNL Hospitality Properties, Inc. is a public, unlisted REIT. James M.
Seneff, Jr. holds the positions of Chief Executive Officer and Chairman
of the Board, and Robert A. Bourne holds the positions of President and
Vice Chairman of the Board of CNL Hospitality Properties, Inc. CNL
Hospitality Corp., a majority owned subsidiary of CNL Real Estate
Services, Inc., provides management and advisory services to the
Company pursuant to the Advisory Agreement.
(9) CNL Health Care Properties, Inc. is a public, unlisted REIT. James M.
Seneff, Jr. holds the positions of Chief Executive Officer and Chairman
of the Board, and Robert A. Bourne holds the positions of President and
director of CNL Health Care Properties, Inc. CNL Health Care Corp., a
wholly owned subsidiary of CNL Real Estate Services, Inc., provides
management and advisory services to CNL Health Care Properties, Inc.
pursuant to an advisory agreement.
ACQUISITION OF PROPERTIES
The Company will supplement this Prospectus during the offering period
to disclose the acquisition of a Property at such time as the Advisor believes
that a reasonable probability exists that the Company will acquire the Property,
including an acquisition from the Advisor or its Affiliates. Based upon the
experience of management of the Company and the Advisor and the proposed
acquisition methods, a reasonable probability that the Company will acquire a
Property normally will occur as of the date on which (i) a commitment letter is
executed by a proposed tenant, (ii) a satisfactory credit underwriting for the
proposed tenant has been completed, (iii) a satisfactory site inspection has
been completed, and (iv) a nonrefundable deposit has been paid on the property.
BUSINESS
GENERAL
The Company is a Maryland corporation that was organized on June 12,
1996. On June 15, 1998, the Company formed CNL Hospitality Partners, LP, a
wholly owned Delaware limited partnership (the "Partnership"). Properties
acquired are expected to be held by the Partnership and, as a result, owned by
the Company through the Partnership. The term "Company" includes CNL Hospitality
Properties, Inc. and its subsidiaries, CNL Hospitality GP Corp., CNL Hospitality
LP Corp. and CNL Hospitality Partners, LP.
The Company invests in Properties to be leased on a long-term
(generally, 10 to 20 years, plus renewal options for an additional 10 to 20
years), "triple-net" basis. With proceeds of this offering, the Company intends
to purchase primarily limited service, extended stay and full service hotel
Properties. "Triple-net" means that the tenant generally will be responsible for
repairs, maintenance, property taxes, utilities, and insurance. Some leases may,
however, obligate the tenant to fund, in addition to its lease payment, a
reserve fund up to a pre-determined amount. Generally, money in that fund may be
used by the tenant to pay for replacement of furniture and fixtures. The Company
may be responsible for other capital expenditures or repairs. The tenant
generally is responsible for replenishing the reserve fund and for paying a
specified return on the amount of capital expenditures paid for by the Company
in excess of amounts in the reserve fund. The Properties may consist of land and
building, the land underlying the building with the building owned by the tenant
or a third party, or the building only with the land owned by a third party. The
Company may provide Mortgage Loans to operators of Hotel Chains secured by real
estate owned by the operators. To a lesser extent, the Company may also offer
Secured Equipment Leases to operators of Hotel Chains pursuant to which the
Company will finance, through loans or direct financing leases, the Equipment.
<PAGE>
The Properties, which typically will be freestanding and will be
located across the United States, will be leased to operators of Hotel Chains to
be selected by the Advisor and approved by the Board of Directors. Each Property
acquisition and Mortgage Loan will be submitted to the Board of Directors for
approval. Properties purchased by the Company are expected to be leased under
arrangements generally requiring base annual rent equal to a specified
percentage of the Company's cost of purchasing a particular Property, with
percentage rent based on gross sales above specified levels and/or automatic
rent increases. See "Description of Property Leases -- Computation of Lease
Payments," below.
The Company will invest Net Offering Proceeds in Properties of selected
national and regional limited service, extended stay and full service Hotel
Chains. The Company believes that attractive opportunities exist to acquire
limited service, extended stay and full service hotels in urban and resort
locations. According to Smith Travel Research, a leading provider of lodging
industry statistical research, the hotel industry has been steadily improving
its financial performance over the past eight consecutive years. Also according
to Smith Travel Research, in 1998, the industry reached its highest absolute
level of pre-tax profit in its history at $20.9 billion, which is 23% more than
1997 and nearly double the amount earned in 1996.
PRE-TAX PROFITS
OF HOSPITALITY INDUSTRY
(IN BILLIONS)
Year Profitability
1993 $ 2.4
1994 5.5
1995 8.5
1996 12.5
1997 17.0
1998 20.9
SOURCE: SMITH TRAVEL RESEARCH
As indicated in the table below, the average daily room rate increased
4.0% in 1999, from $78.15 in 1998 to $81.27 in 1999, resulting in 12 consecutive
years of room rate growth.
HOSPITALITY INDUSTRY AVERAGE
DAILY ROOM RATE BY YEAR
Year Rate
1987 $52.58
1988 54.47
1989 56.35
1990 57.96
1991 58.08
1992 58.91
1993 60.53
1994 62.86
1995 65.81
1996 70.81
1997 75.31
1998 78.15
1999 81.27
SOURCE: SMITH TRAVEL RESEARCH
Revenue per available room also increased by 3.2% from $49.86 in 1998
to $51.44 in 1999. In 1999, growth in room supply exceeded growth in room demand
and resulted in a slight dip in occupancy. In 1999, total occupancy fell 0.8%
from 63.8% in 1998 to 63.3%. Growth in room demand exceeded the growth in new
room supply for each year from 1992 through 1996 and industry-wide occupancy
increased from a 20 year low of 61.8% in 1991 to 65% in 1996.
<PAGE>
According to American Hotel & Motel Association data, in 1997,
Americans traveling in the United States spent more than $1.38 billion per day,
$57.4 million per hour and $955,800 per minute on travel and tourism. In 1998,
total travel expenditures in the United States generated $495.1 billion in
sales. In addition, there were 51,000 hotel properties which included over 3.9
million hotel rooms. Hotels are a vital part of travel and tourism. In the
United States, the tourism industry, which globally is the world's largest
industry, is currently ranked third behind auto sales and retail food sales. In
terms of employment, the hotel industry supports over 7.6 million direct jobs,
generating $20.2 billion in wages. According to Smith Travel Research data,
United States lodging industry sales reached over $93 billion in 1998.
The Company intends to acquire limited service, extended stay and full
service hotel Properties. Limited service hotels generally minimize non-guest
room space and offer limited food service such as complimentary continental
breakfasts and do not have restaurant or lounge facilities on-site. Extended
stay hotels generally contain guest suites with a kitchen area and living area
separate from the bedroom. Extended stay hotels vary with respect to providing
on-site restaurant facilities. Full service hotels generally have conference or
meeting facilities and on-site food and beverage facilities.
Management intends to structure the Company's investments to allow it
to participate, to the maximum extent possible, in any sales growth in the hotel
industry, as reflected in the Properties that it owns. The Company therefore
intends to generally structure its leases with percentage rent requirements
which are based on gross sales of the hotel located on the Property over
specified levels. Gross sales may increase even absent real growth because
increases in the costs typically are passed on to the consumers through
increased prices, and increased prices are reflected in gross sales. In an
effort to provide regular cash flow to the Company, the Company intends to
structure its leases to provide a minimum level of rent which is payable
regardless of the amount of gross sales at a particular Property. The Company
also will endeavor to maximize growth and minimize risks associated with
ownership and leasing of real estate that operates in these industry segments
through careful selection and screening of its tenants (as described in
"Standards for Investment in Properties" below) in order to reduce risks of
default; monitoring statistics relating to hotel chains and continuing to
develop relationships in the industry in order to reduce certain risks
associated with investment in real estate. See "Standards for Investment in
Properties" below for a description of the standards which the Board of
Directors will employ in selecting Hotel Chains, operators and particular
Properties for investment.
Management expects to acquire Properties in part with a view to
diversification among the geographic location of the Properties. There are no
restrictions on the geographic area or areas within the United States in which
Properties acquired by the Company may be located. It is anticipated that the
Properties acquired by the Company will be located in various states and regions
within the United States.
The Company may provide Mortgage Loans, generally for the purchase of
buildings by tenants that lease the underlying land from the Company. However,
because it prefers to focus on investing in Properties, which have the potential
to appreciate, the Company currently expects to provide Mortgage Loans in the
aggregate principal amount of approximately 5% to 10% of Gross Proceeds.
Mortgage Loans will be secured by the building and improvements on the land. The
Company expects that the interest rate and terms (generally, 10 to 20 years) of
the Mortgage Loans will be similar to those of its leases.
The Company may also offer Secured Equipment Leases to operators of
Hotel Chains. The Secured Equipment Leases will consist primarily of leases of,
and loans for the purchase of, Equipment. As of the date of this Prospectus, the
Company has neither identified any prospective operators of Hotel Chains that
will participate in such financing arrangements nor negotiated any specific
terms of a Secured Equipment Lease. The Company cannot predict terms and
conditions of the Secured Equipment Leases, although the Company expects that
the Secured Equipment Leases will (i) have terms that equal or exceed the useful
life of the subject Equipment (although such terms will not exceed 7 years),
(ii) in the case of the leases, include an option for the lessee to acquire the
subject Equipment at the end of the lease term for a nominal fee, (iii) include
a stated interest rate, and (iv) in the case of the leases, provide that the
Company and the lessees will each treat the Secured Equipment Leases as loans
secured by personal property for federal income tax purposes. See "Federal
Income Tax Considerations -- Characterization of Secured Equipment Leases." In
addition, the Company expects that each of the Secured Equipment Leases will be
secured by the Equipment to which it relates. Payments received from lessees
under Secured Equipment Leases will be treated as payments of principal and
interest. All Secured Equipment Leases will be negotiated by the Advisor and
approved by the Board of Directors including a majority of the Independent
Directors.
<PAGE>
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 "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, 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 February 23, 2000, the Company had acquired, directly or
indirectly, 11 hotel Properties consisting of land, building and equipment and
had initial commitments to acquire, directly or indirectly, six additional
Properties. However, as of February 23, 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 Company has undertaken to supplement this Prospectus during the
offering period to disclose the use of proceeds of this offering to acquire
Properties at such time as the Company believes that a reasonable probability
exists that any such Property will be acquired by the Company. Based upon the
experience and acquisition methods of the Affiliates of the Company and the
Advisor, this normally will occur, with regard to acquisition of Properties, as
of the date on which (i) a commitment letter is executed by a proposed tenant,
(ii) a satisfactory credit underwriting for the proposed tenant has been
completed, (iii) a satisfactory site inspection has been completed, and (iv) a
nonrefundable deposit has been paid on the Property. However, the initial
disclosure of any proposed acquisition, cannot be relied upon as an assurance
that the Company ultimately will consummate such proposed acquisition or that
the information provided concerning the proposed acquisition will not change
between the date of such supplement and the actual purchase or extension of
financing. The terms of any borrowing by the Company will also be disclosed by
supplement following receipt by the Company of an acceptable commitment letter
from a potential lender.
Based on the purchase prices of the 11 Properties acquired directly or
indirectly by the Company as of February 23, 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 Gross Proceeds from this offering, for which there is no
assurance, the Company could invest in a total of approximately 16 to 31 hotel
Properties (including 5 to 20 additional Properties to be acquired with the
proceeds of this offering). 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. The Company may also borrow to
acquire Assets. See "Business -- Borrowing." Management estimates that 10% to
20% of the Company's investment for each hotel Property will be for the cost of
land and 80% to 90% for the cost of the building. See "Joint Venture
Arrangements" below 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.
Although management cannot estimate the number of Secured Equipment
Leases that may be entered into, it expects to fund the Secured Equipment Lease
program from the proceeds of the Line of Credit or Permanent Financing in an
amount not to exceed 10% of Gross Proceeds. Management has undertaken,
consistent with its objective of qualifying as a REIT for federal income tax
purposes, to ensure that the total value of all Secured Equipment Leases will
not exceed 25% of the Company's total assets, and that Secured Equipment Leases
to a single lessee, in the aggregate, will not exceed 5% of total assets.
PROPERTY ACQUISITIONS
<PAGE>
ATLANTA PORTFOLIO. On July 31, 1998, the Company acquired two hotel
Properties. The Properties are the Residence Inn(R) by Marriott(R) located in
the Buckhead (Lenox Park) area of Atlanta, Georgia (the "Buckhead (Lenox Park)
Property"), and the Residence Inn by Marriott located at Gwinnett Place in
Duluth, Georgia (the "Gwinnett Place Property").
The Company acquired the Buckhead (Lenox Park) Property for $15,731,414
from Buckhead Residence Associates, L.L.C. and the Gwinnett Place Property for
$11,514,125 from Gwinnett Residence Associates, L.L.C. In connection with the
purchase of the two Properties, the Company, as landlord, entered into two
separate, long-term lease agreements. The tenant of the Buckhead (Lenox Park)
and the Gwinnett Place Properties is the same unaffiliated tenant. The leases on
both Properties are cross-defaulted. The general terms of the lease agreements
are described in "Business -- Description of Property Leases." The principal
features of the leases are as follows:
o The initial term of each lease expires on August 31, 2017.
o At the end of the initial lease term, the tenant will have three
consecutive renewal options of five years.
o The leases require minimum rent payments to the Company of $1,651,798
per year for the Buckhead (Lenox Park) Property and $1,208,983 per year
for the Gwinnett Place Property.
o Minimum rent payments increased to $1,691,127 per year for the Buckhead
(Lenox Park) Property and $1,237,768 per year for the Gwinnett Place
Property after the first lease year.
o In addition to minimum rent, for each calendar year, the leases require
percentage rent equal to 15% of the aggregate amount of all revenues
combined, for the Buckhead (Lenox Park) and the Gwinnett Place
Properties, in excess of $8,080,000.
o A security deposit equal to $819,000 for the Buckhead (Lenox Park)
Property and $598,500 for the Gwinnett Place Property has been retained
by the Company as security for the tenant's obligations under the
leases.
o Management fees payable to Stormont Trice Management Corporation for
operation of the Buckhead (Lenox Park) and Gwinnett Place Properties
are subordinated to minimum rents due to the Company.
o The tenant of the Buckhead (Lenox Park) and Gwinnett Place Properties
has established a reserve fund which will be used for the replacement
and renewal of furniture, fixtures and equipment relating to the hotel
Properties (the "FF&E Reserve"). Deposits to the FF&E Reserve are made
monthly as 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 $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.
The federal income tax basis of the depreciable portion of the Buckhead
(Lenox Park) Property and the Gwinnett Place Property is approximately
$14,700,000 and $11,100,000, respectively.
The Buckhead (Lenox Park) Property and the Gwinnett Place Property
commenced operations on August 7, 1997 and July 29, 1997, respectively. The
Buckhead (Lenox Park) Property is situated in a 22 acre mixed-use development
and has 150 guest suites. The Gwinnett Place Property is located 30 minutes from
downtown Atlanta and has 132 guest suites. Other lodging facilities located in
proximity to the Buckhead (Lenox Park) Property include an Embassy Suites, a
Summerfield Suites, a Homewood Suites, an Amerisuites, a Courtyard(R) by
Marriott(R) and another Residence Inn by Marriott. Other lodging facilities
located in proximity to the Gwinnett Place Property include a Courtyard by
Marriott, an Amerisuites, a Sumner Suites and a Hampton Inn. The average
occupancy rate,
<PAGE>
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> <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
</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 1998 represents the period January 1, 1998 through
December 31, 1998.
*** Data for 1999 represents the period January 1, 1999 through
December 31, 1999.
The Company believes that the results achieved by the Properties for
year-end 1997, are not indicative of their long-term operating potential, as
both Properties had been open for less than six months during the reporting
period. On a proforma basis, had the Company owned the Properties as of January
1, 1998, combined net operating income before subordinated management fees would
have been 1.19 times base rent for the 12 months ended December 31, 1998. Actual
combined net income before subordinated management fees for the period January
1, 1999 through December 31, 1999, was 1.26 times base rent.
WESTERN INTERNATIONAL PORTFOLIO. In February 1999, the Company executed
a series of agreements with Five Arrows Realty Securities II L.L.C. ("Five
Arrows"), pursuant to which the Company and Five Arrows formed a jointly owned
real estate investment trust, CNL Hotel Investors, Inc. ("Hotel Investors"), for
the purpose of acquiring up to eight hotel Properties from various sellers
affiliated with Western International. At the time the agreement was entered
into, the eight Properties (four Courtyard by Marriott hotels, three Residence
Inn by Marriott hotels, and one Marriott Suites(R)) were either newly
constructed or in various stages of completion.
On February 25, 1999, Hotel Investors purchased four of the Properties
for an aggregate purchase price of approximately $90 million (the "Initial
Hotels") and paid $10 million as a deposit on the four remaining Properties. The
Initial Hotels are a Courtyard by Marriott located in Plano, Texas (the "Legacy
Park Property"), a Marriott Suites located in Dallas, Texas (the "Market Center
Property"), a Residence Inn by Marriott located in Las Vegas, Nevada (the
"Hughes Center Property") and a Residence Inn by Marriott located in Plano,
Texas (the "Dallas Plano Property"). On June 16, 1999, Hotel Investors purchased
three additional Properties (the "Additional Hotels") for an aggregate purchase
price of approximately $77 million. The Additional Hotels are a Courtyard by
Marriott located in Scottsdale, Arizona (the "Scottsdale Downtown Property"), a
Courtyard by Marriott located in Seattle, Washington (the "Lake Union Property")
and a Residence Inn by Marriott located in Phoenix, Arizona (the "Phoenix
Airport Property"). Hotel Investors applied $7 million of the $10 million
deposit toward the acquisition of the Additional Hotels. 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.
As of February 23, 2000, Hotel Investors owned seven of the newly constructed
Properties (the "Seven Hotels").
In order to fund these purchases, Five Arrows invested approximately
$48 million and the Company invested approximately $38 million in Hotel
Investors, through a wholly owned subsidiary, CNL Hospitality Partners, LP
("Hospitality Partners"). Hotel Investors funded the remaining amount of
approximately $88 million with permanent financing, secured 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, as determined pursuant to a
formula that is intended to make the conversion not dilutive to funds from
operations (based on the revised
<PAGE>
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" which is $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 8% 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. On April 30, 1999, this loan was
converted to 387,868 Shares of Common Stock. In addition to the above
investments, Five Arrows purchased a 10% interest in the Advisor. In connection
with Five Arrows' investment in the Company, the Advisor and Hotel Investors,
certain Affiliates have 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.
Hotel Investors acquired the Legacy Park Property for $12,694,000 from
PLC Hotel Property, Ltd., the Market Center Property for $32,973,000 from Marcen
Property, Ltd., the Hughes Center Property for $33,097,000 from LVHC Hotel
Property, Ltd., the Dallas Plano Property for $11,684,000 from PLR1 Hotel
Property, Ltd., the Scottsdale Downtown Property for $19,614,216 from SAHD
Property, LP, the Lake Union Property for $35,801,212 from Westlake Hotel
Property, LP and the Phoenix Airport Property for $21,351,707 from APRI Hotel
Property, LP. In connection with the purchase of the Seven Hotels, Hotel
Investors, as lessor, entered into seven separate, long-term lease agreements.
The lessee of the Seven Hotels is the same unaffiliated lessee. The leases on
all seven 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 expires on December 28, 2018.
o At the end of the initial lease term, the tenant will have three
consecutive renewal options of fifteen years.
o The leases require minimum rent payments as follows:
<TABLE>
<CAPTION>
Minimum Annual Rent
-----------------------------------
Year 2 and
Property Location Year 1 Thereafter
---------------------------------------- -------------------- -------------- --------------
<S> <C> <C> <C>
Legacy Park Property Plano, TX $1,308,673 $1,341,390
Market Center Property Dallas, TX 3,399,319 3,484,302
Hughes Center Property Las Vegas, NV 3,412,068 3,497,369
Dallas Plano Property Plano, TX 1,204,485 1,234,597
Scottsdale Downtown Property Scottsdale, AZ 2,022,084 2,072,636
Lake Union Property Seattle, WA 3,690,847 3,783,118
Phoenix Airport Property Phoenix, AZ 2,201,207 2,256,237
</TABLE>
o In addition to minimum rent, for lease years one and two, the leases
require percentage rent equal to 7.75% of the aggregate amount of all
room revenues combined, for the Seven Hotels, in excess of a combined
<PAGE>
quarterly threshold of $11,885,000. For lease year three and
thereafter, the leases require percentage rent equal to 7.75% of the
aggregate amount of all room revenues combined, for the Seven Hotels,
in excess of lease year two actual room revenues.
o The tenant of the Seven Hotels has established a FF&E Reserve which
will be used for the replacement and renewal of furniture, fixtures and
equipment relating to the hotel Properties. Deposits to the FF&E
Reserve are made once every four weeks as follows: (i) for the Legacy
Park, Hughes Center, Dallas Plano, Scottsdale Downtown, Lake Union and
Phoenix Airport Properties, 1% of gross receipts for the first lease
year; 3% of gross receipts for the second lease year; and 5% of gross
receipts every lease year thereafter and (ii) for the Market Center
Property, 1% of gross receipts for the first lease year; 2% of gross
receipts for the second lease year; 3% of gross receipts for the third
through fifth lease years; 4% of gross receipts for the sixth through
tenth lease years; and 5% of gross receipts for the eleventh lease year
and thereafter. Funds in the FF&E Reserve and all property purchased
with funds from the FF&E Reserve shall be paid, granted and assigned to
Hotel Investors.
o The tenant under each lease is required to maintain, for up to three
years from the commencement of the last lease for the Properties to be
executed (but the period will in no event end earlier than December 31,
2003), a liquid net worth equal to a minimum amount (the "Net Worth
Requirement"), which may be used solely to make payments under the
leases. The Net Worth Requirement may be reduced after twelve months to
the extent by which payment of rent exceeds cash available for lease
payments (gross revenues less property expenses) derived from the
Properties during the one-year period. In addition, providing that all
of the Properties have been opened for one year, the Net Worth
Requirement will terminate at such time that cash available for lease
payments for all of the Properties equals 125% of total minimum rent
due under the leases for 12 consecutive months; or that the lease is
terminated pursuant to its terms (other than for an event of default).
In connection with the acquisition of certain of the Properties, the
Company and Hotel Investors have entered into agreements with Marriott
International or one of its affiliates. Among other things, these agreements
require under certain circumstances that the Company or Hotel Investors obtain
the consent of, or offer the Property to, Marriott International or one of its
affiliates in the event that the Company or Hotel Investors wishes to sell the
Property to a third party. The Company believes that these agreements and the
terms thereof are consistent with standard practices in the hospitality
industry. Although Marriott International, Inc. has entered into a management
agreement relating to the Seven Hotels, it has not guaranteed the payments due
under the leases.
The estimated federal income tax basis of the depreciable portion of
the Seven Hotels is as follows.
Legacy Park Property $11,200,000
Market Center Property 30,500,000
Hughes Center Property 29,700,000
Dallas Plano Property 10,400,000
Scottsdale Downtown Property 16,900,000
Lake Union Property 29,300,000
Phoenix Airport Property 19,300,000
The Legacy Park Property is located approximately 25 miles north of the
city of Dallas and has 153 guest rooms and five suites. The Market Center
Property is approximately two miles northwest of the Dallas central business
district and has 266 guest suites. The Dallas Plano Property is located
approximately 25 miles north of the city of Dallas and has 126 guest suites.
According to Hospitality Valuation Services (HVS) data, Dallas has more than 200
planned industrial districts and is home to over 250 insurance companies and
many major oil companies. Since 1996, more than 20 regional and national
companies have relocated to or completed expansions in the area. Other lodging
facilities located in proximity to the Legacy Park Property include a Hampton
Inn, a Fairfield Inn(R) by Marriott(R), a LaQuinta Inn & Suites and another
Courtyard by Marriott. Other lodging facilities located in proximity to the
Market Center Property include a Renaissance(R) Hotel, an Embassy Suites, a
Sheraton Suites, a Wyndham Garden Hotel and a Courtyard by Marriott. Other
lodging facilities located in proximity to the Dallas Plano Property include a
Homewood Suites, a Bradford Suites, a Mainstay Suites, a La Quinta Inn & Suites,
a Courtyard by Marriott and another Residence Inn by Marriott.
<PAGE>
The Hughes Center Property is in a commercial park located east of the
Las Vegas strip and has 256 guest suites. According to HVS data, in 1998, Las
Vegas hosted approximately 4,000 conventions with more than 3.3 million people
in attendance. The 1998 economic impact of conventions was an estimated $4.2
billion. In addition, Las Vegas is known as the "Entertainment Capital of the
World," drawing more than 30 million visitors in 1998 and generating a 1998
hotel occupancy rate of 85.8% compared to the United States national average
occupancy rate of 64%. Other lodging facilities located in proximity to the
Hughes Center Property include an AmeriSuites, a Hawthorn Suites and another
Residence Inn by Marriott.
The Scottsdale Downtown Property is located approximately 15 miles
northeast of Phoenix Sky Harbor International Airport and has 176 guest rooms
and four suites. The Phoenix Airport Property is located approximately three
miles north of Phoenix Sky Harbor International Airport and has 200 guest
suites. According to HVS data, Arizona is one of the top two fastest growing
states in the nation, second only to the state of Nevada. Phoenix is the
fifteenth largest metropolis in the United States. Due to its location and
climate, Phoenix has become a convention destination with more than 347,238 room
nights booked in 1998. Other lodging facilities located in proximity to the
Scottsdale Downtown Property include a Hampton Inn, a Fairfield Inn by Marriott,
a Holiday Inn, a Comfort Suites, a Quality Suites, a Days Inn and a Ramada.
Other lodging facilities located in proximity to the Phoenix Airport Property
include a Double Tree Suites, an Embassy Suites, an Embassy Suites West, a
Wyndham Garden Hotel and a Holiday Inn Select.
The Lake Union Property is in downtown Seattle, near the University
district and the Seattle Center area and has 248 guest rooms and two suites.
According to HVS data, computer and electronic jobs in Seattle have grown by 300
percent in the past 20 years. Other lodging facilities located in proximity to
the Lake Union Property include a Residence Inn by Marriott, a Hampton Inn &
Suites, a Cavanaugh's Inn, a Warwick Hotel, a Mayflower and a Roosevelt Hotel.
Since the Seven Hotels were constructed in late 1998 and the first half
of 1999, limited operating history is available. Of the Seven Hotels, the Hughes
Center Property and the Dallas Plano Property were the earliest to commence
operations, in October 1998. Based on information provided to the Company by
Western International for the period ended December 31, 1998, the hotels located
on these Properties generated gross operating profits of $690,000 and $188,000,
respectively, which resulted in net operating profits (earnings before interest,
taxes and depreciation) of $394,000 and $55,000 respectively. The average
occupancy rate, the average daily room rate and the revenue per available room
for the periods the hotels have been operational are as follows:
<TABLE>
<CAPTION>
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
Market Center Property Dallas, TX *1998 37.90% $ 100.95 $ 38.26
**1999 69.20% 115.34 79.87
Hughes Center Property Las Vegas, NV *1998 47.30% $ 107.86 $ 51.00
**1999 75.20% 94.16 70.85
Dallas Plano Property Plano, TX *1998 46.70% $ 88.79 $ 41.47
**1999 74.30% 75.38 56.03
Scottsdale Downtown
Property Scottsdale, AZ **1999 39.30% $ 76.95 $ 30.26
Lake Union Property Seattle, WA **1999 69.70% $ 116.72 $ 81.34
Phoenix Airport Property Phoenix, AZ **1999 41.40% $ 83.88 $ 34.70
</TABLE>
<PAGE>
* 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.
The Company believes that the results achieved by the Initial Hotels
for 1998, and the Additional Hotels for 1999, as shown in the table above, are
not indicative of their long-term operating potential since, for these periods,
they each had been open for less than one year.
COURTYARD BY MARRIOTT LOCATED IN PHILADELPHIA, PENNSYLVANIA. On
November 16, 1999, the Company acquired an 89% interest in CNL Philadelphia
Annex, LLC (formerly Courtyard Annex, L.L.C.) (the "LLC"), a limited liability
company, a portion of which is indirectly owned by Marriott International, Inc.,
for $57,876,349. The sole purpose of the LLC is to own and lease a Courtyard by
Marriott hotel Property located in Philadelphia, Pennsylvania (the "Philadelphia
Downtown Property").
The LLC acquired and renovated the Philadelphia Downtown Property,
which is its sole asset. The LLC, as lessor, has entered into a long-term lease
agreement relating to this Property. The general terms of the lease agreement
are described in "Business -- Description of Property Leases." The principal
features of the lease are as follows:
o The initial term of the lease expires in approximately 15 years.
o At the end of the initial lease term, the tenant will have two
consecutive renewal options of seven years, five months and 14 days
each.
o The lease will require minimum rent payments of $6,500,000 per year.
o In addition to minimum rent, for each lease year after the second lease
year, the lease will require percentage rent equal to seven percent of
total hotel revenues, in excess of total hotel revenues for the second
lease year.
o A security deposit equal to $3,150,000 will be retained by the Company
as security for the tenant's obligations under the lease until the end
of the fifth lease year, at which time such security deposit will be
reduced to $2,000,000.
o The tenant has established a reserve fund which will be used for the
replacement and renewal of furniture, fixtures and equipment relating
to the hotel Property (the "FF&E Reserve"). Deposits to the FF&E
Reserve are made every four weeks 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 LLC as additional rent.
o Marriott International, Inc. has guaranteed the tenant's obligation to
pay minimum rent under the lease. The guarantee terminates on the
earlier of the end of the third lease year or at such time as the net
operating income from the Property exceeds minimum rent due under the
lease by 25% for any trailing 12-month period. The maximum amount of
the guarantee is $7,300,000.
o Five years after the hotel opening, the Company will have the right to
obligate CBM Annex, Inc. (the minority interest owner in the LLC) to
sell its 11% interest in the LLC and CBM Annex, Inc. will have the
right to obligate the Company to purchase its 11% interest in the LLC
for a price equal to 11% of the lesser of (a) an amount equal to the
product of 8.5 multiplied by the "net house profit" (defined as total
hotel revenues less property expenses) for the 13 period accounting
year preceding the notice of the option exercise, and (b) the appraised
fair market value.
<PAGE>
The estimated federal income tax basis of the depreciable portion of
the Philadelphia Downtown Property is approximately $58 million.
The Philadelphia Downtown Property is a recently restored building
listed on the National Register of Historic Places. The hotel commenced
operations in late November 1999. The Philadelphia Downtown Property is located
in the historic Penn Square district of Philadelphia and has 477 guest rooms and
21 suites, approximately 6,375 square feet of meeting and banquet rooms, a
160-seat cafe, an 80-seat lobby lounge, a gift shop, an exercise room and an
indoor pool and whirlpool. According to HVS data, Philadelphia is the fifth most
populous city in the United States, home to approximately 1.5 million residents.
Just three blocks from the hotel is the 1.3 million-square-foot Pennsylvania
Convention Center which hosted more than 180 events in 1999 with more than
817,000 people in attendance. Several historical and cultural sites are also
within walking distance of the hotel, including Independence National Historical
Park, home of the Liberty Bell, and Penn Station. Also in close proximity to the
Philadelphia Downtown Property is the Reading Terminal Market, and indoor
restaurant and retail area, and the Avenue of the Arts, the city's premier art,
theater and music district. Fine restaurants, recreational facilities and a
central shopping district with landmark department stores are equally close.
Other lodging facilities located in proximity to the Philadelphia Downtown
Property include a Marriott(R) Hotel, a Doubletree Hotel, a Wyndham Hotel, an
Embassy Suites, a Crowne Plaza, a Hawthorne Suites, a Sheraton Hotel, an Omni
Hotel and a Holiday Inn. 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
* Data for the Philadelphia Downtown Property represents the period
November 20, 1999 through December 31, 1999.
The Company believes that the results achieved by the Property for
year-end 1999, are not indicative of its long-term operating potential, as the
Property had been open for less than two months during the reporting period.
RESIDENCE INN BY MARRIOTT LOCATED IN MIRA MESA, CALIFORNIA. On December
10, 1999, the Company acquired a Residence Inn located in Mira Mesa, California
(the "Mira Mesa Property") for $15,530,000 from Residence Inn by Marriott, Inc.
The Company, as lessor, has entered into a long-term lease agreement relating to
this Property. The general terms of the lease agreement are described in
"Business -- Description of Property Leases." The principal features of the
lease are as follows:
o The initial term of the lease expires in approximately 15 years.
o At the end of the initial lease term, the tenant will have two
consecutive renewal options of ten years each.
o The lease will require minimum rent payments of $1,542,300 per year.
o In addition to minimum rent, for each lease year after the second lease
year, the lease will require percentage rent equal to seven percent of
room revenues, in excess of room revenues for the second lease year.
o A security deposit equal to $474,554 will be retained by the Company as
security for the tenant's obligations under the lease.
o The tenant will establish an FF&E Reserve. Deposits to the FF&E Reserve
will be made every four weeks as follows: 2% of gross receipts for the
first lease year; 4% of gross receipts for the second lease year; and
5% of gross receipts every lease year thereafter. Funds in the FF&E
Reserve and all property purchased with funds from the FF&E Reserve
shall be paid, granted and assigned to the Company as additional rent.
<PAGE>
o Marriott International, Inc. has guaranteed the tenant's obligation to
pay minimum rent under the lease. The guarantee terminates on the
earlier of the end of the third lease year or at such time as the net
operating income from the Property exceeds minimum rent due under the
lease by 25% for any trailing 12-month period. The maximum amount of
the guarantee is $1,542,300.
The estimated federal income tax basis of the depreciable portion of
the Mira Mesa Property is approximately $13.6 million.
The Mira Mesa Property is a newly constructed hotel which commenced
operations in late September 1999. The Mira Mesa Property is located in the
Sorrento Valley area of northern San Diego, California, approximately 18 miles
north of the downtown San Diego area, in the suburb of Sorrento Mesa. The hotel
has 150 guest suites, approximately 689 square feet of meeting space, a
restaurant and an indoor exercise room. According to the San Diego Regional
Economic Development Corporation, the San Diego area has more than 350 computer
software companies, the fourth-largest concentration of biotechnology companies
in the world and the third-highest concentration of telecommunications companies
in the world. According to HVS data, San Diego is a growing center for wireless
communications. San Diego's telecommunications industry has grown 26% each year
since 1993, and provides more than 25,000 jobs. Due to the tremendous growth in
the telecommunications and biomedical industries, San Diego area office
occupancy rose to 97% in 1998. To meet the demands, approximately 300,000 square
feet of new, high-end office space is currently under construction, including
the 150,000-square-foot Uniden building located approximately one block from the
Mira Mesa Property. In addition, more than one million square feet of industrial
and research and development space is under development in Sorrento Mesa. A
number of attractions and shopping areas are in close proximity to the Mira Mesa
Property, including Old Town San Diego, Sea World(R) California, the San Diego
Zoo and Qualcomm Stadium. The hotel is accessible by a variety of local, county,
state and interstate highways, and is less than 11 miles from the San Diego
International Airport. Other lodging facilities located in proximity to the Mira
Mesa Property include a Doubletree Hotel, a Wyndham Garden Hotel, an Embassy
Suites, a Courtyard by Marriott and another Residence Inn. 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% $104 $76.96
* Data for the Mira Mesa Property represents the period September 20,
1999 through December 31, 1999.
The Company believes that the results achieved by the Property for
year-end 1999, may or may not be indicative of its long-term operating
potential, as the Property had been open for less than four months during the
reporting period.
MARRIOTT BRANDS. The brands, Residence Inn by Marriott, Courtyard by
Marriott and Marriott Hotels, Resorts and Suites(R) are part of Marriott
International's portfolio of lodging brands. According to Marriott's corporate
profile, Marriott International is a leading worldwide hospitality company with
operations in the United States and 56 other countries and territories.
According to Marriott data, as of September 1999, Marriott International had
more than 1,810 hotels and resorts totalling approximately 345,000 rooms and
4,400 timeshare villas worldwide.
Each Residence Inn by Marriott hotel typically offers daily
complimentary breakfast and newspaper, a swimming pool and heated whirlpool.
Guest suites provide in-room modem jacks, separate living and sleeping areas and
a fully equipped kitchen with appliances and cooking utensils. According to
Marriott data, as of September 1999, Residence Inn by Marriott is the top
extended-stay lodging chain in the world, with 312 hotels in the United States
and seven in Canada and Mexico.
Each Courtyard by Marriott features superior guest accommodations for
both the business and pleasure traveler. Most of the rooms overlook a central
landscaped courtyard with an outdoor swimming pool and socializing area with a
gazebo. According to Marriott data, as of September 1999, Courtyard by Marriott
is the leading United
<PAGE>
States moderate price chain with 450 Courtyard by Marriott hotels in the United
States, Europe and the Asia-Pacific region.
Marriott Hotels, Resorts and Suites is Marriott International's line of
upscale, full-service hotels and suites. Each of the Marriott Hotels, Resorts
and Suites features multiple restaurants and lounges, fully equipped health
clubs, swimming pool, gift shop, concierge level, business center and meeting
facilities. According to Marriott data, as of September 1999, there were 345
Marriott Hotels, Resorts and Suites, 247 properties in the United States and 98
in 43 other countries and territories.
PENDING INVESTMENTS
As of February 23, 2000, the Company had initial commitments to
acquire, directly or indirectly, six hotel properties. These properties are one
Courtyard by Marriott (in Orlando, Florida), one Fairfield Inn by Marriott (in
Orlando, Florida), two SpringHill Suites(TM) by Marriott(R) (one in each of
Orlando, Florida and Gaithersburg, Maryland), one Residence Inn by Marriott (in
Merrifield, Virginia) and one TownePlace Suites(R) by Marriott(R) (in Newark,
California). The acquisition of each of these properties is subject to the
fulfillment of certain conditions. There can be no assurance that any or all of
the conditions will be satisfied or, if satisfied, that one or more of these
properties will be acquired by the Company. If acquired, the leases of these
properties are expected to be entered into on substantially the same terms
described in " -- Description of Property Leases." In order to acquire all of
these properties, the Company must obtain additional funds through the receipt
of additional offering proceeds and/or debt financing.
LEASES. Set forth below are summarized terms expected to apply to the
leases for each of the properties. More detailed information relating to a
property and its related lease will be provided at such time, if any, as the
property is acquired.
<PAGE>
<TABLE>
<CAPTION>
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
Orlando, FL (1) renewal options total cost to purchase
(the "Courtyard Little Lake the property
Bryan Property")
Hotel under construction
Fairfield Inn by Marriott (2) 15 years; two ten-year 10% of the Company's
Orlando, FL (1) renewal options total cost to purchase
(the "Fairfield Inn Little Lake the property
Bryan Property")
Hotel under construction
SpringHill Suites by Marriott (2) 15 years; two ten-year 10% of the Company's
Orlando, FL (1) renewal options total cost to purchase
(the "SpringHill Suites Little the property
Lake Bryan Property")
Hotel under construction
Residence Inn by Marriott $18,816,000 15 years; two ten-year 10% of the Company's
Merrifield, VA (3) renewal options total cost to purchase
(the "Residence Inn Merrifield the property
Property")
Hotel under construction
SpringHill Suites by Marriott $15,215,000 15 years; two ten-year 10% of the Company's
Gaithersburg, MD (3) renewal options total cost to purchase
(the "SpringHill Suites the property
Gaithersburg Property")
Hotel under construction
TownePlace Suites by Marriott $13,600,000 15 years; two ten-year 10% of the Company's
Newark, CA (3) (4) renewal options total cost to purchase
(the "TownePlace Suites the property
Newark Property")
Hotel under construction
Property Percentage Rent
- ------------------------------------- --------------------------------
Courtyard by Marriott for each lease year after the
Orlando, FL (1) second lease year, 7% of
(the "Courtyard Little Lake revenues in excess of revenues
Bryan Property") for the second lease year
Hotel under construction
Fairfield Inn by Marriott for each lease year after the
Orlando, FL (1) second lease year, 7% of
(the "Fairfield Inn Little Lake revenues in excess of revenues
Bryan Property") for the second lease year
Hotel under construction
SpringHill Suites by Marriott for each lease year after the
Orlando, FL (1) second lease year, 7% of
(the "SpringHill Suites Little revenues in excess of revenues
Lake Bryan Property") for the second lease year
Hotel under construction
Residence Inn by Marriott for each lease year after the
Merrifield, VA (3) second lease year, 7% of
(the "Residence Inn Merrifield revenues in excess of revenues
Property") for the second lease year
Hotel under construction
SpringHill Suites by Marriott for each lease year after the
Gaithersburg, MD (3) second lease year, 7% of
(the "SpringHill Suites revenues in excess of revenues
Gaithersburg Property") for the second lease year
Hotel under construction
TownePlace Suites by Marriott for each lease year after the
Newark, CA (3) (4) second lease year, 7% of
(the "TownePlace Suites revenues in excess of revenues
Newark Property") for the second lease year
Hotel under construction
</TABLE>
<PAGE>
- ----------------------
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 and the TownePlace Suites Newark 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.
<PAGE>
LITTLE LAKE BRYAN PROPERTIES. Three of the properties are located in
Little Lake Bryan, a 300-acre community planned by The Little Lake Bryan
Company. Included in the proposed acquisition are a 314-room Courtyard by
Marriott, a 389-room Fairfield Inn by Marriott and a 398-room SpringHill Suites
by Marriott (formerly Fairfield Suites(R) by Marriott(R)). The hotels are being
developed by Marriott International, Inc. with completion scheduled for the year
2000. The community is less than five miles from the WALT DISNEY WORLD(R) Resort
and less than ten miles from Sea World(R) Orlando, Universal Studios Escape(R)
and the Orange County Convention Center.
As shown below, the lodging market in the Lake Buena Vista area average
75.2% occupancy and an average daily room rate of $116.35 for 1999. The
following table reflects the hotel occupancy rates and daily room rates for
hotels in the Orlando area:
<TABLE>
<CAPTION>
ORLANDO AREA HOTEL OCCUPANCY RATES
AND AVERAGE DAILY ROOM RATES
ORLANDO LAKE BUENA VISTA*
AVERAGE AVERAGE
OCCUPANCY DAILY ROOM OCCUPANCY DAILY ROOM
YEAR RATE RATE RATE RATE
- -------------- ------------------- --------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
1993 72.2% $64.61 74.7% $103.09
1994 71.3% 65.85 76.3% 100.26
1995 74.6% 68.55 80.3% 96.99
1996 80.1% 73.04 82.5% 104.65
1997 78.7% 80.99 80.2% 116.18
1998 74.7% 82.12 78.0% 113.45
1999 71.7% 84.67 75.2% 116.35
</TABLE>
* Little Lake Bryan is part of the Lake Buena Vista market area.
SOURCE: SMITH TRAVEL RESEARCH
According to the Orlando/Orange County Convention and Visitors Bureau
1999 Orlando Area Market Summary, the number of domestic travelers visiting
Orlando in 1998 increased 4.5% over 1997 to 35.2 million visitors. In 1998,
Universal Studios Escape(R) drew an estimated 8.9 million visitors and Sea
World(R) Orlando had an estimated 4.9 million visitors. Area attractions
continue to grow with new developments.
In addition, according to the Orlando/Orange County Convention &
Visitors Bureau 1999 Orlando Area Market Summary, visitor arrivals at Orlando
International Airport increased from approximately 21,500,000 passengers in
1993, to 27,748,571 passengers in 1998. The number of domestic non-Florida
business travelers during 1998 was 3.5 million. In addition, more than 7.7
million international visitors arrived in Florida in 1998, for a national market
share of 16.8%. The Orlando area claimed 7.4% of the national market share. On
average, domestic non-Florida visitors spent $2,639 per party/per trip while
visiting Orlando in 1998.
<PAGE>
The Orange County Convention Center has 1.1 million square feet of
exhibition space. An independent study has ranked the center as number two in
the nation for continuous exhibition space. The following table reflects the
number of events which took place at the Orange County Convention Center between
1994 and 1998 and attendance levels for those events:
ORANGE COUNTY CONVENTION
CENTER ATTENDANCE
Year Number of Events Attendance
1994 188 705,824
1995 168 700,429
1996 240 1,017,679
1997 260 930,219
1998 244 967,363
SOURCE: ORLANDO/ORANGE COUNTY CVB
MERRIFIELD PROPERTY. The Merrifield Property, which is scheduled to
open in June 2000, is a Residence Inn by Marriott located in Merrifield,
Virginia. The Merrifield Property is expected to include 149 guest suites,
approximately 500 square feet of meeting space, an exercise room and
SportCourt(R). The property is located in Fairfax County, which according to HVS
data, is one of the fastest-growing areas in the Washington, D.C. area. The
hotel's specific location is within Jefferson Park, an office park that serves
as the national headquarters for the American Red Cross. Jefferson Park is
currently under expansion with the construction of two 208,000-square-foot
buildings that will house additional Red Cross employees. The site is also
expanding with new residential developments. The area surrounding the hotel site
is comprised of commercial, retail, residential and office developments. The
Yorktowne Center, a commercial/retail development, is to the immediate west of
the property. Eight Merrifield community shopping centers are within a radius of
eight miles from the Residence Inn. The Galleria mall, located just five miles
from the hotel, contains approximately one million square feet of retail space
and features major retail department stores, jewelry stores and boutiques.
Located approximately 12 miles west/southwest of the nation's capital, the hotel
is within driving distance of the legislative, judicial and executive branches
of the United States government.
GAITHERSBURG PROPERTY. The Gaithersburg Property, which is scheduled to
open in June 2000, is a SpringHill Suites by Marriott located in Gaithersburg,
Maryland. The Gaithersburg Property is expected to include 162 guest suites and
approximately 500 square feet of meeting space. The hotel is a few hundred yards
south of the fully leased Gaithersburg Washingtonian Center (Rio Center), which
features retail outlets, restaurants and entertainment. Another prominent office
complex, the Avenel Business Park, is less than three miles from the hotel.
Avenel Business Park houses a number of major companies and is 96% leased with
plans for a 177,000-square-foot expansion in 2000. The National Institute of
Standards of Technology (NIST), a federal government technology research
facility, is just four miles north of the Gaithersburg Property. In addition,
the property is located approximately 15 miles northwest of the nation's
capital.
NEWARK PROPERTY. The Newark Property, which is scheduled to open in
June 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.
<PAGE>
MARRIOTT BRANDS. Fairfield Inn by Marriott is a lower moderate-priced
hotel appealing to the business and leisure traveler. Fairfield Inn by Marriott
provides clean, convenient, quality accommodations and friendly hospitality at
an economical price. All Fairfield Inn by Marriott hotels feature a
complimentary continental breakfast, free local calls, large, well-lit work
desks and an outdoor swimming pool. According to Marriott data, as of September
1999, there were more than 400 Fairfield Inn by Marriott hotels nationwide.
SpringHill Suites by Marriott is Marriott's new, all-suite hotel in the
upper-moderate tier. SpringHill Suites by Marriott appeals to both business and
leisure travelers, especially women and families, with rooms that are up to 25
percent larger than comparable hotel rooms. Average stays range from one to five
nights. All SpringHill Suites by Marriott hotels feature a complimentary
continental breakfast, same-day dry-cleaning service, indoor swimming pool,
whirlpool spa and exercise room. According to Marriott data, as of September
1999, SpringHill Suites by Marriott had 30 hotels and was projected to grow to
32 hotels by year-end 1999 and 125 properties over the next five years with
locations throughout the United States.
TownePlace Suites by Marriott is Marriott's mid-priced, extended-stay
product accommodating practical travelers seeking home-like services and
amenities. All TownePlace Suites by Marriott hotels feature fully equipped
kitchens, an exercise room and an outdoor swimming pool. Guest suites offer
separate living and working areas, two-line telephones with data port and
premium television and movie channels. According to Marriott data, as of
September 1999, there were 48 TownePlace Suites by Marriott. Marriott expects
this brand to reach 130 hotels in 2000.
The following chart provides additional information on systemwide
occupancy levels for Marriott lodging brands:
TOTAL OCCUPANCY RATE FOR 1998
MARRIOTT BRAND AS COMPARED TO
U.S. LODGING INDUSTRY
Occupancy Rate
U.S. Lodging Industry 64.0%
Courtyard by Marriott 77.6%
Fairfield Inn by Marriott 72.4%
Marriott Hotels, Resorts and Suites 75.9%
Residence Inn by Marriott 80.6%
SOURCE: SMITH TRAVEL RESEARCH (U.S. LODGING INDUSTRY ONLY) AND
MARRIOTT INTERNATIONAL, INC. 1998 FORM 10-K
BORROWING
The Company will borrow money to acquire Assets and to pay certain
related fees. The Company intends to encumber Assets in connection with any
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, 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.
-56-
<PAGE>
On July 31, 1998, the Company entered into a revolving line of credit
and security agreement with a bank to be used by the Company to acquire hotel
Properties. The 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, in the bank's 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 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 loan will
be due and payable to the bank on funds as advanced. Each loan made under the
Line of Credit will be secured by the assignment of rents and leases. In
addition, the Line of Credit provides that the Company will not be able to
further encumber the applicable Property during the term of the loan 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 attorneys fees, subject to a maximum cap, incurred in
connection with the Line of Credit and each advance. As of February 23, 2000,
the Company had obtained and repaid three advances totalling $9,600,000 relating
to the Line of Credit. In connection with the Line of Credit, the Company
incurred a commitment fee, legal fees and closing costs of $138,000. The
proceeds were used in connection with the purchase of two hotel Properties
described in "Business -- Property Acquisitions" and in connection with the
agreement to acquire three additional hotel Properties described in "Business --
Pending Investments."
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>
1999 1998 1997 (1) 1996 (2)
--------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Year Ended December 31:
Revenues $10,677,505 $ 1,955,461 $ 46,071 $ --
Net earnings 7,515,988 958,939 22,852 --
Cash flows from operating activities 12,890,161 2,776,965 22,469 --
Cash distributions declared (3) 10,765,881 1,168,145 29,776 --
Funds from operations (4) 10,478,103 1,343,105 22,852 --
Earnings per share:
Basic 0.47 0.40 0.03 --
Diluted 0.45 0.40 0.03 --
Cash distributions declared per share 0.72 0.47 0.05 --
Weighted average number of shares
outstanding (5):
Basic 15,890,212 2,402,344 686,063 --
Diluted 21,437,859 2,402,344 686,063 --
1999 1998 1997 (1) 1996 (2)
--------------- ------------- ------------ ------------
At December 31:
Total assets $266,968,274 $ 48,856,690 $ 9,443,476 $ 598,190
Total stockholders' equity 253,054,839 37,116,491 9,233,917 200,000
</TABLE>
<PAGE>
(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.
(3) Approximately 30%, 18% and 23% of cash distributions for 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. 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 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, including, without limitation, the Year 2000
Readiness Disclosure, that are not historical facts, may be forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Act of 1934. These statements generally are
characterized by the use of terms such as "believe," "expect" and "may."
Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, the Company's
actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include the following: changes in general economic conditions, changes in local
and national real estate conditions, availability of capital from borrowings
under the Company's Line of Credit and security agreement, continued
availability of proceeds from the Company's offering, the ability of the Company
to obtain permanent financing on satisfactory terms, the ability of the Company
to identify suitable investments, the ability of the Company to locate suitable
tenants for its Properties and borrowers for its Mortgage Loans and Secured
Equipment Leases, and the ability of such tenants and borrowers to make payments
under their respective leases, Mortgage Loans or Secured Equipment Leases. Given
these uncertainties, readers are cautioned not to place undue reliance on such
statements.
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
<PAGE>
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 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 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). Of the 27,500,000 Shares of Common Stock offered, 2,500,000 are
available only to stockholders purchasing Shares through the Reinvestment Plan.
As of December 31, 1999, the Company had received subscriptions for 13,888,535
Shares totalling $138,885,350 in Gross Proceeds from this offering, including
$431,182 (43,118 Shares) through the Company's Reinvestment Plan. The price per
Share and the other terms of this offering, including the percentage of gross
proceeds payable (i) to the Managing Dealer for Selling Commissions and expenses
in connection with the offering and (ii) to the Advisor for Acquisition Fees,
are substantially the same as those for the Initial Offering.
As of December 31, 1999, net proceeds to the Company from its Initial
Offering and this offering of Shares and capital contributions from the Advisor,
after deduction of Selling Commissions, marketing support and due diligence
expense reimbursement fees and Organizational and Offering Expenses totalled
approximately $257,000,000. The Company had used net proceeds from offerings to
invest directly or indirectly, approximately $136,500,000 in 11 hotel
Properties, to pay $7,940,800 as a deposit on six additional hotel Properties,
to redeem 12,885 Shares of Common Stock for $118,542 and to pay approximately
$15,000,000 in Acquisition Fees and certain Acquisition Expenses, leaving
approximately $97,500,000 as of December 31, 1999, 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. 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, are expected to be substantially the same as those for the
Initial Offering and this offering.
During the period January 1, 2000 through February 23, 2000, the
Company received additional Net Offering Proceeds of approximately $24,000,000
and had approximately $122,100,000 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 "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, working capital or Permanent
Financing. The maximum amount the Company may borrow,
<PAGE>
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 year
ended December 31, 1999, 12,885 Shares were redeemed at $9.20 per Share
($118,542) and retired from Shares outstanding of Common Stock; no Shares were
redeemed in 1998 or 1997.
LINE OF CREDIT AND SECURITY AGREEMENT
On July 31, 1998, the Company entered into a Line of Credit and
security agreement with a bank to be used by the Company to acquire hotel
Properties. The 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 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
attorneys 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 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.
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 December 31, 1999.
PROPERTY ACQUISITIONS AND INVESTMENTS
As of December 31, 1998, the Company owned two Properties in the
Atlanta, Georgia area which were being operated by the tenant as 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.
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. The Properties
acquired were a Courtyard by Marriott located in Plano, Texas, a Marriott Suites
located in Dallas, Texas, a Residence Inn by Marriott located in Las Vegas,
Nevada, a Residence Inn by Marriott located in Plano, Texas, a Courtyard by
Marriott located in Scottsdale, Arizona, a Courtyard by Marriott located in
Seattle, Washington and a Residence Inn by Marriott located in Phoenix, Arizona.
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.
<PAGE>
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 have 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.
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."
COMMITMENTS
As of February 23, 2000, the Company had initial commitments to acquire
directly six hotel Properties for an anticipated aggregate purchase price of
approximately $148 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
<PAGE>
a certificate of deposit, amounting to $5 million. In connection with two of the
remaining agreements, the Company has a deposit of approximately $1.6 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 February 23, 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 February 23, 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.
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 December 31,
1999, the Company had $101,972,441 invested in such short-term investments as
compared to $13,228,923 at December 31, 1998. The increase in the amount
invested in short-term investments is primarily attributable to proceeds
received from the sale of Shares of Common Stock. 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 was $15,275,629 at December 31, 1999.
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.
Due to the fact that the Company leases its Properties on a triple-net
basis, meaning that tenants are generally required to pay all repairs and
maintenance, property taxes, insurance and utilities, management does not
believe that working capital reserves are necessary at this time. Management
believes that the Properties are adequately covered by insurance. In addition,
the Advisor has obtained contingent liability and property coverage for the
Company. This insurance policy is intended to reduce the Company's exposure in
the unlikely event a tenant's insurance policy lapses or is insufficient to
cover a claim relating to a Property. The Company expects to meet its other
short-term liquidity requirements, including 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.
DISTRIBUTIONS
During the years ended December 31, 1999, 1998 and 1997, the Company
generated cash from operations of $12,890,161, $2,776,965 and $22,469,
respectively. Based on cash from operations and dividends due to the Company
from Hotel Investors at December 31, 1999 (and received in January 2000), the
Company declared and paid Distributions to its stockholders of $10,765,881,
$1,168,145 and $29,776 during the years ended December 31, 1999, 1998 and 1997,
respectively. In addition, on January 1 and February 1, 2000, the Company
declared Distributions to stockholders of record on January 1 and February 1,
2000, totalling $1,745,931 and $1,835,433, respectively ($0.0604
<PAGE>
per share), payable in March 2000. 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 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.
DUE TO RELATED PARTIES
During the years ended December 31, 1999, 1998 and 1997, Affiliates of
the Company incurred on behalf of the Company $3,257,822, $459,250 and $638,274,
respectively, for certain Organizational and Offering Expenses, $653,231,
$392,863 and $26,149, respectively, for certain Acquisition Expenses, and
$325,622, $98,212 and $11,003, respectively, for certain Operating Expenses. As
of December 31, 1999 and 1998, the Company owed the Advisor and other related
parties $1,085,343 and $318,937, respectively, for expenditures incurred on
behalf of the Company and for Acquisition Fees. The Advisor has agreed to pay or
reimburse to the Company all Offering Expenses (excluding commissions and
marketing support and due diligence expense reimbursement fees) in excess of
three percent of gross offering proceeds.
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 years ended December
31, 1999 and 1998, revenues relating to the FF&E Reserve of the Properties
directly owned by the Company totalled $320,356 and $98,099, of which $275,630
and $82,407, respectively, is classified as restricted cash. No such amounts
were outstanding or earned during 1997. For the year ended December 31, 1999,
revenues relating to the FF&E Reserve of the Properties indirectly owned through
Hotel Investors totalled $343,264, of which $288,644 is classified as restricted
cash. Due to the fact that the Properties are leased on a long-term, triple-net
basis, management does not believe that other working capital reserves are
necessary at this time. Management has the right to cause the Company to
maintain additional reserves if, in their discretion, they determine such
reserves are required to meet the Company's working capital needs.
Results of Operations
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR END DECEMBER 31, 1998
As of December 31, 1999, the Company had acquired 11 Properties, either
directly or indirectly, consisting of land, building 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 a contingent rent computed as a percentage of the 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
years ended December 31, 1999 and 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. No contingent rental income
was earned for the year ended December 31, 1998. The 221% increase in rental
income, contingent rental income and FF&E Reserve income is 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 has 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.
<PAGE>
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 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 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 year ended December 31, 1999, two lessees, STC Leasing
Associates, LLC ("STC") (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 STC 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 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 a result of the
Line of Credit being outstanding for two months in 1999 as compared to the
majority of 1998.
Pursuant to the Advisory Agreement, the Advisor is required to
reimburse the Company the amount by which the total Operating Expenses paid or
incurred by the Company exceed the Expense Cap, as described above in "Liquidity
and Capital Resources -- Related Party Transactions." 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.
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.
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.
<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 made an election under Section 856(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), to be taxed as a REIT under the
Code beginning with its taxable year ended December 31, 1997. 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.
Year 2000 Readiness Disclosure
OVERVIEW OF YEAR 2000 COMPLIANCE ISSUES
The year 2000 compliance issues concern the ability of information and
non-information technology systems to properly recognize and process
date-sensitive information beyond January 1, 2000. The failure to accurately
recognize the year 2000 could result in a variety of problems from data
miscalculations to the failure of entire systems.
READINESS STATUS
The Advisor and its Affiliates generally provide all services requiring
the use of information and some non-information technology systems pursuant to
the Advisory Agreement with the Company. The Company generally does not directly
own information technology systems. The non-information technology systems of
the Advisor, its Affiliates and the Company are primarily facility related and
include hotel and building security systems, elevators, fire suppressions, HVAC,
electrical systems and other utilities. In early 1998, Affiliates of the Advisor
formed a year 2000 committee (the "Y2K Team") that assessed the readiness of any
systems that were date sensitive and
<PAGE>
completed upgrades for the hardware equipment and software that was not year
2000 compliant, as necessary. The cost for these upgrades and other remedial
measures was the responsibility of the Advisor and its Affiliates. The Company
has not incurred, and the Advisor and its Affiliates do not expect that the
Company will incur, any costs in connection with the year 2000 remedial
measures. In addition, the Y2K Team requested and received certifications of
compliance from other companies with which the Advisor, its Affiliates, and the
Company have material third party relationships.
In assessing the risks presented by the year 2000 compliance issues,
the Y2K Team identified potential worst case scenarios involving the failure of
the information and non-information technology systems used by the Company's
transfer agent, financial institutions and tenants. As of February 23, 2000, the
Company did not experience material disruption or other significant problems in
its information and non-information technology systems. In addition, as of the
same date, the Advisor was not aware of any material year 2000 compliance issues
relating to information and non-information technology systems of third parties
with which the Company maintains material relationships, including those of the
Company's transfer agent, financial institutions and tenants. Additionally, the
Company's interactions with the systems of its transfer agent, financial
institutions and tenants, have functioned normally. Until the Company's first
Distribution in 2000 and the delivery of the information by the transfer agent
to stockholders in early 2000, the Advisor will continue to monitor the year
2000 compliance of the transfer agent. In addition, the Advisor continues to
monitor the systems used by the Company and to maintain contact with third
parties with which the Company has material relationships with respect to year
2000 compliance and any year 2000 issues that may arise at a later date. The
Advisor will develop contingency plans relating to ongoing year 2000 issues at
the time that such issues are identified and such plans are deemed necessary.
Based on the information provided to the Y2K Team, the upgrades and
remedial measures by the Advisor and its Affiliates, and the normal functioning
to date of information and non-information technology systems used by the
Company and those third parties, the Advisor does not foresee significant risks
associated with its year 2000 compliance at this time. In addition, the Advisor
and its Affiliates do not expect to incur any material additional costs in
connection with the year 2000 compliance efforts. However, there can be no
assurance that the Advisor and its Affiliates or any third parties will not have
ongoing year 2000 compliance issues that may have adverse effects on the
Company.
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 52 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
Jeanne A. Wall 41 Executive Vice President
Lynn E. Rose 51 Secretary and Treasurer
</TABLE>
<PAGE>
JAMES M. SENEFF, JR. Director, Chairman of the Board and Chief
Executive Officer. Mr. Seneff is a director, Chairman of the Board and Chief
Executive Officer of CNL Hospitality Corp., the Advisor to the Company, and CNL
Hotel Investors, Inc., a real estate investment trust in which the Company owns
an interest. Mr. Seneff is a principal stockholder of CNL Holdings, Inc., the
parent company of CNL Financial Group, Inc. (formerly CNL Group, Inc.), a
diversified real estate company, and has served as a director, Chairman of the
Board and Chief Executive Officer of CNL Financial Group, Inc. since its
formation in 1980. CNL Financial Group, Inc. is the parent company, either
directly or indirectly through subsidiaries, of CNL Real Estate Services, Inc.,
CNL Hospitality Corp., CNL Capital Markets, Inc., CNL Investment Company and CNL
Securities Corp., the Managing Dealer in this offering. He also serves as a
director, Chairman of the Board and Chief Executive Officer of CNL Health Care
Properties, Inc., a public, unlisted real estate investment trust, as well as
CNL Health Care Corp., its advisor. Since 1992, Mr. Seneff has served as
Chairman of the Board and Chief Executive Officer of Commercial Net Lease
Realty, Inc., a public real estate investment trust that is listed on the New
York Stock Exchange. In addition, he has served as a director and Chairman of
the Board since inception in 1994, and served as Chief Executive Officer from
1994 through August 1999, of CNL American Properties Fund, Inc., a public,
unlisted real estate investment trust. He also served as a director, Chairman of
the Board and Chief Executive Officer of CNL Fund Advisors, Inc., the advisor to
CNL American Properties Fund, Inc., until it merged with the company in
September 1999. Mr. Seneff has also served as a director, Chairman of the Board
and Chief Executive Officer of CNL Securities Corp., since 1979; CNL Investment
Company, since 1990; and CNL Institutional Advisors, a registered investment
advisor for pension plans, since 1990. Mr. Seneff formerly served as a director
of First Union National Bank of Florida, N.A., and currently serves as the
Chairman of the Board of CNLBank. Since 1971, Mr. Seneff has been active in the
acquisition, development, and management of real estate projects and, directly
or through an affiliated entity, has served as a general partner or co-venturer
in over 100 real estate ventures. These ventures have involved the financing,
acquisition, construction, and leasing of restaurants, office buildings,
apartment complexes, hotels, and other real estate. Mr. Seneff served on the
Florida State Commission on Ethics and is a former member and past Chairman of
the State of Florida Investment Advisory Council, which recommends to the
Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration is Florida's principal
investment advisory and money management agency and oversees the investment of
more than $60 billion of retirement funds. Mr. Seneff received his degree in
Business Administration from Florida State University in 1968.
ROBERT A. BOURNE. Director, Vice Chairman of the Board and President.
Mr. Bourne serves as a director and President of CNL Hospitality Corp., the
Advisor to the Company, and CNL Hotel Investors, Inc., a real estate investment
trust in which the Company owns an interest. Mr. Bourne is also the President
and Treasurer of CNL Financial Group, Inc. (formerly CNL Group, Inc.); a
director and President of CNL Health Care Properties, Inc., a public, unlisted
real estate investment trust; as well as, a director and President of CNL Health
Care Corp., its advisor. Mr. Bourne also serves as a director of CNLBank. He has
served as a director since 1992, Vice Chairman of the Board since February 1996,
Secretary and Treasurer from February 1996 through 1997, and President from July
1992 through February 1996, of Commercial Net Lease Realty Inc., a public real
estate investment trust listed on the New York Stock Exchange. Mr. Bourne has
served as a director since inception in 1994, President from 1994 through
February 1999, Treasurer from February 1999 through August 1999, and Vice
Chairman of the Board since February 1999 of CNL American Properties Fund, Inc.,
a public, unlisted real estate investment trust. He also served as a director
and held various executive positions for CNL Fund Advisors, Inc., the advisor to
CNL American Properties Fund, Inc. prior to its merger with the company, from
1994 through August 1999. Mr. Bourne also serves as a director, President and
Treasurer for various affiliates of CNL Financial Group, Inc., including CNL
Investment Company, CNL Securities Corp., the Managing Dealer for this offering,
and CNL Institutional Advisors, Inc., a registered investment advisor for
pension plans. Since joining CNL Securities Corp. in 1979, Mr. Bourne has
participated as a general partner or co-venturer in over 100 real estate
ventures involved in the financing, acquisition, construction, and leasing of
restaurants, office buildings, apartment complexes, hotels, and other real
estate. Mr. Bourne began his career as a certified public accountant employed by
Coopers & Lybrand, Certified
<PAGE>
Public Accountants, from 1971 through 1978, where he attained the position of
tax manager in 1975. Mr. Bourne graduated from Florida State University in 1970
where he received a B.A. in Accounting, with honors.
MATTHEW W. KAPLAN. Director. Mr. Kaplan serves as a director of the
Advisor and Hotel Investors. Mr. Kaplan is a managing director of Rothschild
Realty Inc. where he has served since 1992, and where he is responsible for
securities investment activities including acting as portfolio manager of Five
Arrows Realty Securities LLC, a $900 million private investment fund. Mr. Kaplan
has been a director a WNY Group, Inc., a private corporation, since 1999. From
1990 to 1992, Mr. Kaplan served in the corporate finance department of
Rothschild Inc., an affiliate of Rothschild Realty Inc. Mr. Kaplan served as a
director of Ambassador Apartments Inc. from August 1996 through May 1998 and is
a member of the Urban Land Institute. Mr. Kaplan received a B.A. with honors
from Washington University in 1984 and a M.B.A. from the Wharton School of
Finance and Commerce at the University of Pennsylvania in 1988.
CHARLES E. ADAMS. Independent Director. Mr. Adams is the president and
a founding principal with Celebration Associates, Inc., a real estate advisory
and development firm with offices in Celebration, Florida and Charlotte, North
Carolina. Celebration Associates specializes in large-scale master-planned
communities, seniors' housing and specialty commercial developments. Mr. Adams
joined The Walt Disney Company in 1990 and from 1996 until May 1997 served as
vice president of community business development for The Celebration Company and
Walt Disney Imagineering. He was responsible for Celebration Education,
Celebration Network, Celebration Health, and Celebration Foundation, as well as
new business development, strategic alliances, retail sales and leasing,
commercial sales and leasing, the development of Little Lake Bryan and
Celebration. Previously, Mr. Adams was responsible for the initial residential,
amenity, sales and marketing, consumer research and master planning efforts for
Celebration. Additionally, Mr. Adams participated in the planning for
residential development at EuroDisney in Paris, France. He was a founding member
of the Celebration School Board of Trustees and served as president and founding
member of the Celebration Foundation Board of Directors. Mr. Adams is a founding
member of the Health Magic Steering Committee and council member on the
Recreation Development Council for the Urban Land Institute. Before joining The
Walt Disney Company in 1990, Mr. Adams worked with Trammell Crow Residential
developing luxury apartment communities in the Orlando and Jacksonville, Florida
areas. Mr. Adams received a B.A. from Northeast Louisiana University in 1984 and
a M.B.A. from Harvard Graduate School of Business in 1989.
LAWRENCE A. DUSTIN. Independent Director. Mr. Dustin is president of
the lodging division of Travel Services International, Inc., a specialized
distributor of leisure travel products and services. Mr. Dustin was a principal
of BBT, an advisory company specializing in hotel operations, marketing and
development, from September 1998 to August 1999. Mr. Dustin has over 30 years of
experience in the hospitality industry. From 1994 to September 1998, Mr. Dustin
served as senior vice president of lodging of Universal Studios Recreation
Group, where he was responsible for matters related to hotel development,
marketing, operations and management. Mr. Dustin supervised the overall process
of developing the five highly themed hotels and related recreational amenities
within Universal Studios Escape and provided guidance for hotel projects in
Universal City, California, Japan, and Singapore. From 1989 to 1994, Mr. Dustin
served as a shareholder, chief executive officer, and director of AspenCrest
Hospitality, Inc., a professional services firm which helped hotel owners
enhance both the operating performance and asset value of their properties. From
1969 to 1989, Mr. Dustin held various positions in the hotel industry, including
14 years in management with Westin Hotels & Resorts. Mr. Dustin received a B.A.
from Michigan State University in 1968.
JOHN A. GRISWOLD. Independent Director. Mr. Griswold serves as
president of Tishman Hotel Corporation, an operating unit of Tishman Realty &
Construction Co., Inc., founded in 1898. Tishman Hotel Corporation is a hotel
developer, owner and operator, and has provided such services for more than 85
hotels, totalling more than 30,000 rooms. Mr. Griswold joined Tishman Hotel
Corporation in 1985. From 1981 to 1985, Mr. Griswold served as general manager
of the Buena Vista Palace Hotel in The Walt Disney World Village. From 1978 to
1981, he served as vice president and general manager of the Homestead Resort, a
luxury condominium resort in Glen Arbor, Michigan. Mr. Griswold served as an
operations manager for The Walt Disney Company from 1971 to 1978. He was
responsible for operational, financial and future planning for multi-unit dining
facilities in Walt Disney World Village and Lake Buena Vista Country Club. He is
a member of the board of directors of the Florida Hotel & Motel Association,
Orlando/Orange County Convention & Visitors Bureau, Inc. and the First Orlando
Foundation. Mr. Griswold received a B.S. from the School of Hotel Administration
at Cornell University in Ithaca, New York.
<PAGE>
CRAIG M. MCALLASTER. Independent Director. Dr. McAllaster has served as
director of the executive MBA program at the Roy E. Crummer Graduate School of
Business at Rollins College since 1994. Besides his duties as director, he is on
the management faculty and serves as executive director of the international
consulting practicum programs at the Crummer School. Prior to Rollins College,
Dr. McAllaster was on the faculty at the School of Industrial and Labor
Relations and the Johnson Graduate School of Management, both at Cornell
University, and the University of Central Florida. Dr. McAllaster spent over ten
years in the consumer services and electronics industry in management,
organizational and executive development positions. He is a consultant to many
domestic and international companies in the areas of strategy and leadership.
Dr. McAllaster received a B.S. from the University of Arizona in 1973, a M.S.
from Alfred University in 1981 and a M.A. and Doctorate from Columbia University
in 1987.
CHARLES A. MULLER. Chief Operating Officer and Executive Vice
President. Mr. Muller joined CNL Hospitality Corp. in October 1996 and is
responsible for the planning and implementation of CNL's interest in hotel
industry investments, including acquisitions, development, project analysis and
due diligence. He currently serves as the Chief Operating Officer and Executive
Vice President of CNL Hospitality Corp., the Advisor, and Executive Vice
President of CNL Hotel Development Company. Mr. Muller joined CNL following more
than 15 years of broad-based hotel industry experience with firms such as
Tishman Hotel Corporation, Wyndham Hotels & Resorts, Pannell Kerr Forster and
AIRCOA Hospitality Services. Mr. Muller's background includes responsibility for
market review and valuation efforts, property acquisitions and development,
capital improvement planning, hotel operations and project management for
renovations and new construction. Mr. Muller served on the former Market,
Finance and Investment Analysis Committee of the American Hotel & Motel
Association and is a founding member of the Lodging Industry Investment Council.
He holds a bachelor's degree in Hotel Administration from Cornell University.
C. BRIAN STRICKLAND. Vice President of Finance and Administration. Mr.
Strickland currently serves as Senior Vice President of Finance and
Administration of CNL Hospitality Corp., the Advisor, and CNL Hotel Development
Company. Mr. Strickland supervises the companies' financial reporting, financial
control and accounting functions as well as the forecasting, budgeting and cash
management activities. He is also responsible for SEC compliance, equity and
debt financing activities and insurance for the companies. Mr. Strickland joined
CNL Hospitality Corp. in April 1998 with extensive accounting background. Prior
to joining CNL, he served as vice president of taxation with Patriot American
Hospitality, Inc., where he was responsible for implementation of tax planning
strategies on corporate mergers and acquisitions and where he performed or
assisted in strategic processes in the REIT industry. From 1989 to 1997, Mr.
Strickland served as a director of tax and asset management for Wyndham Hotels &
Resorts where he was integrally involved in structuring acquisitive
transactions, including the consolidation and initial public offering of Wyndham
Hotel Corporation and its subsequent merger with Patriot American Hospitality,
Inc. In his capacity of director of asset management, he was instrumental in the
development and opening of a hotel and casino in San Juan, Puerto Rico. Prior to
1989, Mr. Strickland was senior tax accountant for Trammell Crow Company where
he provided tax consulting services to regional development offices. From 1986
to 1988, Mr. Strickland was tax accountant for Ernst & Whinney where he was a
member of the real estate practice group. Mr. Strickland is a certified public
accountant and holds a bachelor's degree in accounting.
JEANNE A. WALL. Executive Vice President. Ms. Wall serves as Executive
Vice President and a director of CNL Hospitality Corp., the Advisor to the
Company. Ms. Wall also serves as Executive Vice President of CNL Health Care
Properties, Inc., a public, unlisted real estate investment trust, and CNL
Health Care Corp., its advisor. She also serves as a director for CNLBank. Ms.
Wall serves as Executive Vice President of CNL Financial Group, Inc. (formerly
CNL Group, Inc.). Ms. Wall has served as Chief Operating Officer of CNL
Investment Company and of CNL Securities Corp. since 1994 and has served as
Executive Vice President of CNL Investment Company since January 1991. In 1984,
Ms. Wall joined CNL Securities Corp. and in 1985, became Vice President. In
1987, she became a Senior Vice President and in July 1997, became Executive Vice
President of CNL Securities Corp. In this capacity, Ms. Wall serves as national
marketing and sales director and oversees the national marketing plan for the
CNL investment programs. In addition, Ms. Wall oversees product development,
communications and investor services for programs offered through participating
brokers. Ms. Wall also served as Senior Vice President of CNL Institutional
Advisors Inc., a registered investment advisor, from 1990 to 1993. Ms. Wall
served as Vice President of Commercial Net Lease Realty, Inc., a public real
estate investment trust listed on the New York Stock Exchange,
<PAGE>
from 1992 through 1997, and served as Vice President of CNL Realty Advisors,
Inc. from its inception in 1991 through 1997. Ms. Wall also served as Executive
Vice President of CNL American Properties Fund, Inc., a public, unlisted real
estate investment trust, from 1994 through August 1999, and as Executive Vice
President of CNL Fund Advisors, Inc., its advisor, from 1994 through August
1999, at which time it merged with CNL American Properties Fund, Inc. Ms. Wall
currently serves as a trustee on the Board of the Investment Program
Association, is a member of the Corporate Advisory Council for the International
Association for Financial Planning and is a member of the International Women's
Forum. In addition, she previously served on the Direct Participation Program
committee for the National Association of Securities Dealers, Inc. Ms. Wall
holds a B.A. in Business Administration from Linfield College and is a
registered principal of CNL Securities Corp.
LYNN E. ROSE. Secretary and Treasurer. Ms. Rose also serves as
Secretary, Treasurer and a director of CNL Hospitality Corp., the Advisor to the
Company, and as Secretary of the subsidiaries of the Company. Ms. Rose is
Secretary and Treasurer of CNL Health Care Properties, Inc., a public, unlisted
real estate investment trust, and serves as Secretary of its subsidiaries. In
addition, she serves as Secretary, Treasurer and a director of CNL Health Care
Corp., its advisor. Ms. Rose served as Secretary of CNL American Properties
Fund, Inc., a public, unlisted real estate investment trust, from 1994 through
August 1999, and served as Treasurer from 1994 through February 1999. She also
served as Treasurer of CNL Fund Advisors, Inc., from 1994 through July 1998, and
served as Secretary and a director from 1994 through August 1999, at which time
it merged with CNL American Properties Fund, Inc. Ms. Rose served as Secretary
and Treasurer of Commercial Net Lease Realty, Inc., a public real estate
investment trust listed on the New York Stock Exchange, from 1992 to February
1996, and as Secretary and a director of CNL Realty Advisors, Inc., its advisor,
from its inception in 1991 through 1997. She also served as Treasurer of CNL
Realty Advisors, Inc. from 1991 through February 1996. Ms. Rose, a certified
public accountant, has served as Secretary of CNL Financial Group, Inc.
(formerly CNL Group, Inc.) since 1987, served as Controller from 1987 to 1993
and has served as Chief Financial Officer since 1993. She also serves as
Secretary of the subsidiaries of CNL Financial Group, Inc. and holds various
other offices in the subsidiaries. In addition, she serves as Secretary for
approximately 50 additional corporations affiliated with CNL Financial Group,
Inc. and its subsidiaries. Ms. Rose has served as Chief Financial Officer and
Secretary of CNL Securities Corp. since July 1994. Ms. Rose oversees the tax and
legal compliance for over 375 corporations, partnerships and joint ventures, and
the accounting and financial reporting for over 200 entities. Prior to joining
CNL, Ms. Rose was a partner with Robert A. Bourne in the accounting firm of
Bourne & Rose, P.A., Certified Public Accountants. Ms. Rose holds a B.A. in
Sociology from the University of Central Florida. She was licensed as a
certified public accountant in 1979.
THE ADVISOR AND THE ADVISORY AGREEMENT
THE ADVISOR
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.
The directors and 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....................Vice President of Finance and Administration
Jeanne A. Wall.........................Executive Vice President and Director
Lynn E. Rose...........................Secretary, Treasurer and Director
</TABLE>
The backgrounds of these individuals are described above under
"Management -- Directors and Executive Officers."
Management anticipates that any transaction by which the Company would
become self-administered would be submitted to the stockholders for approval.
THE ADVISORY AGREEMENT
The Advisory Agreement, which was entered into by the Company with the
unanimous approval of the Board of Directors, including the Independent
Directors, expires one year after the date of execution, subject to successive
one-year renewals upon mutual consent of the parties. The current Advisory
Agreement expires on June 16, 2000. In the event that a new Advisor is retained,
the previous Advisor will cooperate with the Company and the Directors in
effecting an orderly transition of the advisory functions. The Board of
Directors (including a majority of the Independent Directors) shall approve a
successor Advisor only upon a determination that the Advisor possesses
sufficient qualifications to perform the advisory functions for the Company and
that the compensation to be received by the new Advisor pursuant to the new
Advisory Agreement is justified.
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 February 23, 2000, the Company incurred $12,426,003 of such fees in
connection with this offering, the majority of which has been or will be paid 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 February 23, 2000, the Company incurred
$828,400 of such fees in connection with this offering, the majority of which
were 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 the
date this offering began. No Soliciting Dealer Warrants, however, will be
exercisable until one year from the date of issuance. As of December 31, 1999,
in connection with this offering, CNL Securities Corp. was entitled to
approximately 479,000 Soliciting Dealer Warrants; however, no such warrants had
been issued as of that date.
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 February 23, 2000, the Company incurred $7,455,602 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 years ended December 31,
1999 and 1998, the Company incurred $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
<PAGE>
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 years
ended December 31, 1999, 1998 and 1997, the Company incurred a total of
$4,206,709, $644,189 and $192,224, respectively, for these services, $3,854,739,
$494,729 and $185,335, respectively, of such costs representing stock issuance
costs, $124, $9,084 and $0, respectively, representing acquisition related costs
and $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.
All amounts paid by the Company to Affiliates are believed by the
Company to be fair and comparable to amounts that would be paid for similar
services provided by unaffiliated third parties.
PRIOR PERFORMANCE INFORMATION
The information presented in this section represents the historical
experience of certain real estate programs organized by certain officers and
directors of the Advisor. PRIOR PUBLIC PROGRAMS HAVE INVESTED ONLY IN RESTAURANT
PROPERTIES AND HAVE NOT INVESTED IN HOTEL PROPERTIES. INVESTORS IN THE COMPANY
SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE
EXPERIENCED BY INVESTORS IN SUCH PRIOR PUBLIC REAL ESTATE PROGRAMS. INVESTORS
WHO PURCHASE SHARES IN THE COMPANY WILL NOT THEREBY ACQUIRE ANY OWNERSHIP
INTEREST IN ANY PARTNERSHIPS OR CORPORATIONS TO WHICH THE FOLLOWING INFORMATION
RELATES.
Two Directors of the Company, Robert A. Bourne and James M. Seneff,
Jr., individually or with others have served as general partners of 88 and 89
real estate limited partnerships, respectively, including 18 publicly offered
CNL Income Fund partnerships, and as directors and/or officers of two unlisted
public REITs. None of these limited partnerships or the unlisted REITs have been
audited by the IRS. Of course, there is no guarantee that the Company will not
be audited. Based on an analysis of the operating results of the prior programs,
Messrs. Bourne and Seneff believe that each of such programs has met or is
meeting its principal investment objectives in a timely manner.
CNL Realty Corporation, which was organized as a Florida corporation in
November 1985 and whose sole stockholders are Messrs. Bourne and Seneff,
currently serves as the corporate general partner with Messrs. Bourne and Seneff
as individual general partners of 18 CNL Income Fund limited partnerships, all
of which were organized to invest in fast-food, family-style and in the case of
two of the partnerships, casual-dining restaurant properties. In addition,
Messrs. Bourne and Seneff currently serve as directors of CNL American
Properties Fund, Inc., an unlisted public REIT organized to invest in fast-food,
family-style and casual-dining restaurant properties, mortgage loans and secured
equipment leases; and as directors and officers of CNL Health Care Properties,
Inc., an unlisted public REIT organized to invest in health care and seniors'
housing facilities. Both of the unlisted public REITs have investment objectives
similar to those of the Company. As of December 31, 1999, the 18 partnerships
and the two unlisted REITs had raised a total of approximately $1.5 billion from
a total of approximately 81,000 investors, and owned approximately 1,400
fast-food, family-style and casual-dining restaurant properties. Certain
additional information relating to the offerings and investment history of the
18 public partnerships and the two unlisted public REITs is set forth below.
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF DATE 90% OF NET
LIMITED PROCEEDS FULLY
MAXIMUM PARTNERSHIP INVESTED OR
NAME OF OFFERING UNITS OR COMMITTED TO
ENTITY AMOUNT (1) DATE CLOSED SHARES SOLD INVESTMENT (2)
- ------ ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
CNL Income $15,000,000 December 31, 1986 30,000 December 1986
Fund, Ltd. (30,000 units)
CNL Income $25,000,000 August 21, 1987 50,000 November 1987
Fund II, Ltd. (50,000 units)
CNL Income $25,000,000 April 29, 1988 50,000 June 1988
Fund III, Ltd. (50,000 units)
CNL Income $30,000,000 December 6, 1988 60,000 February 1989
Fund IV, Ltd. (60,000 units)
CNL Income $25,000,000 June 7, 1989 50,000 December 1989
Fund V, Ltd. (50,000 units)
CNL Income $35,000,000 January 19, 1990 70,000 May 1990
Fund VI, Ltd. (70,000 units)
CNL Income $30,000,000 August 1, 1990 30,000,000 January 1991
Fund VII, Ltd. (30,000,000 units)
CNL Income $35,000,000 March 7, 1991 35,000,000 September 1991
Fund VIII, Ltd. (35,000,000 units)
CNL Income $35,000,000 September 6, 1991 3,500,000 November 1991
Fund IX, Ltd. (3,500,000 units)
CNL Income $40,000,000 April 22, 1992 4,000,000 June 1992
Fund X, Ltd. (4,000,000 units)
CNL Income $40,000,000 October 8, 1992 4,000,000 September 1992
Fund XI, Ltd. (4,000,000 units)
CNL Income $45,000,000 April 15, 1993 4,500,000 July 1993
Fund XII, Ltd. (4,500,000 units)
CNL Income $40,000,000 September 13, 1993 4,000,000 August 1993
Fund XIII, Ltd. (4,000,000 units)
CNL Income $45,000,000 March 23, 1994 4,500,000 May 1994
Fund XIV, Ltd. (4,500,000 units)
CNL Income $40,000,000 September 22, 1994 4,000,000 December 1994
Fund XV, Ltd. (4,000,000 units)
CNL Income $45,000,000 July 18, 1995 4,500,000 August 1995
Fund XVI, Ltd. (4,500,000 units)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF DATE 90% OF NET
LIMITED PROCEEDS FULLY
MAXIMUM PARTNERSHIP INVESTED OR
NAME OF OFFERING UNITS OR COMMITTED TO
ENTITY AMOUNT (1) DATE CLOSED SHARES SOLD INVESTMENT (2)
- ------ ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
CNL Income $30,000,000 October 10, 1996 3,000,000 December 1996
Fund XVII, Ltd. (3,000,000 units)
CNL Income $35,000,000 February 6, 1998 3,500,000 December 1997
Fund XVIII, Ltd. (3,500,000 units)
CNL American $747,464,413 January 20, 1999 (3) 37,373,221 (3) February 1999 (3)
Properties Fund, (37,373,221 shares)
Inc.
CNL Health Care $155,000,000 (4) (4) (4)
Properties, Inc. (15,500,000 shares)
</TABLE>
- -----------------
(1) The amount stated includes the exercise by the general partners of each
partnership of their option to increase by $5,000,000 the maximum size of
the offering of CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL
Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund VI,
Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund X, Ltd., CNL Income
Fund XII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XVI, Ltd. and
CNL Income Fund XVIII, Ltd. The number of shares of common stock for CNL
American Properties Fund, Inc. ("APF") reflects a one-for-two reverse
stock split, which was effective on June 3, 1999.
(2) For a description of the property acquisitions by these programs, see the
table set forth on the following page.
(3) In April 1995, APF commenced an offering of a maximum of 16,500,000
shares of common stock ($165,000,000). On February 6, 1997, the initial
offering closed upon receipt of subscriptions totalling $150,591,765
(15,059,177 shares), including $591,765 (59,177 shares) through the
reinvestment plan. Following completion of the initial offering on
February 6, 1997, APF commenced a subsequent offering (the "1997
Offering") of up to 27,500,000 shares ($275,000,000) of common stock. On
March 2, 1998, the 1997 Offering closed upon receipt of subscriptions
totalling $251,872,648 (25,187,265 shares), including $1,872,648 (187,265
shares) through the reinvestment plan. Following completion of the 1997
Offering on March 2, 1998, APF commenced a subsequent offering (the "1998
Offering") of up to 34,500,000 shares ($345,000,000) of common stock. As
of December 31, 1998, APF had received subscriptions totalling
$345,000,000 (34,500,000 shares), including $3,107,848 (310,785 shares)
through the reinvestment plan, from the 1998 Offering. The 1998 Offering
closed in January 1999, upon receipt of the proceeds from the last
subscriptions. As of March 31, 1999, net proceeds to APF from its three
offerings totalled $670,151,200 and all of such amount had been invested
or committed for investment in properties and mortgage loans.
(4) Effective September 18, 1998, CNL Health Care Properties, Inc. commenced
an offering of up to 15,500,000 shares ($155,000,000) of common stock. As
of December 31, 1999, CNL Health Care Properties, Inc. had not yet
acquired any properties.
As of December 31, 1999, Mr. Seneff and Mr. Bourne, directly or through
affiliated entities, also had served as joint general partners of 69 nonpublic
real estate limited partnerships. The offerings of all of these 69 nonpublic
limited partnerships had terminated as of December 31, 1999. These 69
partnerships raised a total of $185,927,353 from approximately 4,600 investors,
and purchased, directly or through participation in a joint venture or limited
partnership, interests in a total of 216 projects as of December 31, 1999. These
216 projects consist of 19 apartment projects (comprising 10% of the total
amount raised by all 69 partnerships), 11 office buildings (comprising 4% of the
total amount raised by all 69 partnerships), 169 fast-food, family-style, or
casual-dining restaurant property and business investments (comprising 69% of
the total amount raised by all 69 partnerships), one condominium development
(comprising 0.5% of the total amount raised by all 69 partnerships), four
hotels/motels (comprising 5% of the total amount raised by all 69 partnerships),
ten commercial/retail properties (comprising 11% of the total amount raised by
all 69 partnerships), and two tracts of undeveloped land (comprising 0.5% of the
total amount raised by all 69 partnerships).
<PAGE>
Mr. Bourne also has served, without Mr. Seneff, as a general partner of
one additional nonpublic real estate limited partnership program which raised a
total of $600,000 from 37 investors and purchased, through participation in a
limited partnership, one apartment building located in Georgia with a purchase
price of $1,712,000.
Mr. Seneff also has served, without Mr. Bourne, as a general partner of
two additional nonpublic real estate limited partnerships which raised a total
of $240,000 from 12 investors and purchased two office buildings with an
aggregate purchase price of $928,390. Both of the office buildings are located
in Florida.
Of the 90 real estate limited partnerships whose offerings had closed
as of December 31, 1999 (including 18 CNL Income Fund limited partnerships) in
which Mr. Seneff and/or Mr. Bourne serve or have served as general partners in
the past, 39 invested in restaurant properties leased on a "triple-net" basis,
including eight which also invested in franchised restaurant businesses
(accounting for approximately 93% of the total amount raised by all 90 real
estate limited partnerships).
The following table sets forth summary information, as of December 31,
1999, regarding property acquisitions by the 18 limited partnerships and the two
unlisted REITs.
<TABLE>
<CAPTION>
NAME OF TYPE OF METHOD OF TYPE OF
ENTITY PROPERTY LOCATION FINANCING PROGRAM
- ------ -------- -------- ----------- --------
<S> <C> <C> <C> <C>
CNL Income 22 fast-food or AL, AZ, CA, FL, GA, All cash Public
Fund, Ltd. family-style LA, MD, OK, PA, TX,
restaurants VA, WA
CNL Income 50 fast-food or AL, AZ, CO, FL, GA, All cash Public
Fund II, Ltd. family-style IL, IN, KS, LA, MI,
restaurants MN, MO, NC, NM, OH,
TN, TX, WA, WY
CNL Income 40 fast-food or AL, AZ, CA, CO, FL, All cash Public
Fund III, Ltd. family-style GA, IA, IL, IN, KS,
restaurants KY, MD, MI, MN, MO,
NC, NE, OK, TX
CNL Income 47 fast-food or AL, DC, FL, GA, IL, All cash Public
Fund IV, Ltd. family-style IN, KS, MA, MD, MI,
restaurants MS, NC, OH, PA, TN,
TX, VA
CNL Income 36 fast-food or AZ, FL, GA, IL, IN, All cash Public
Fund V, Ltd. family-style MI, NH, NY, OH, SC,
restaurants TN, TX, UT, WA
CNL Income 59 fast-food or AR, AZ, CA, FL, GA, All cash Public
Fund VI, Ltd. family-style IL, IN, KS, MA, MI,
restaurants MN, NC, NE, NM, NY,
OH, OK, PA, TN, TX,
VA, WA, WY
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME OF TYPE OF METHOD OF TYPE OF
ENTITY PROPERTY LOCATION FINANCING PROGRAM
- ------ --------- ---------- --------- -------
<S> <C> <C> <C> <C>
CNL Income 51 fast-food or AL, AZ, CO, FL, GA, All cash Public
Fund VII, Ltd. family-style IN, LA, MI, MN, NC,
restaurants OH, SC, TN, TX, UT,
WA
CNL Income 43 fast-food or AZ, FL, IN, LA, MI, All cash Public
Fund VIII, Ltd. family-style MN, NC, NY, OH, TN,
restaurants TX, VA
CNL Income 46 fast-food or AL, CA, CO, FL, GA, All cash Public
Fund IX, Ltd. family-style IL, IN, LA, MI, MN,
restaurants MS, NC, NH, NY, OH,
SC, TN, TX
CNL Income 55 fast-food or AL, AZ, CA, CO, FL, All cash Public
Fund X, Ltd. family-style ID, IL, LA, MI, MO,
restaurants MT, NC, NE, NH, NM,
NY, OH, PA, SC, TN,
TX, WA
CNL Income 44 fast-food or AL, AZ, CA, CO, CT, All cash Public
Fund XI, Ltd. family-style FL, KS, LA, MA, MI,
restaurants MS, NC, NH, NM, OH,
OK, PA, SC, TX, VA,
WA
CNL Income 51 fast-food or AL, AZ, CA, FL, GA, All cash Public
Fund XII, Ltd. family-style LA, MO, MS, NC, NM,
restaurants OH, SC, TN, TX, WA
CNL Income 50 fast-food or AL, AR, AZ, CA, CO, All cash Public
Fund XIII, Ltd. family-style FL, GA, IN, KS, LA,
restaurants MD, NC, OH, PA, SC,
TN, TX, VA
CNL Income 65 fast-food or AL, AZ, CO, FL, GA, All cash Public
Fund XIV, Ltd. family-style KS, LA, MN, MO, MS,
restaurants NC, NJ, NV, OH, SC,
TN, TX, VA
CNL Income 56 fast-food or AL, CA, FL, GA, KS, All cash Public
Fund XV, Ltd. family-style KY, MN, MO, MS, NC,
restaurants NJ, NM, OH, OK, PA,
SC, TN, TX, VA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME OF TYPE OF METHOD OF TYPE OF
ENTITY PROPERTY LOCATION FINANCING PROGRAM
- ------ --------- ---------- --------- -------
<S> <C> <C> <C> <C>
CNL Income 49 fast-food or AZ, CA, CO, DC, FL, All cash Public
Fund XVI, Ltd. family-style GA, ID, IN, KS, MN,
restaurants MO, NC, NM, NV, OH,
TN, TX, UT, WI
CNL Income 31 fast-food, CA, FL, GA, IL, IN, All cash Public
Fund XVII, Ltd. family-style or MI, NC, NV, OH, SC,
casual-dining TN, TX, WA
restaurants
CNL Income 25 fast-food, AZ, CA, FL, GA, IL, All cash Public
Fund XVIII, Ltd. family-style or KY, MD, MN, NC, NV,
casual-dining NY, OH, TN, TX, VA
restaurants
CNL American 679 fast-food, AL, AZ, CA, CO, CT, (1) Public REIT
Properties Fund, family-style or DE, FL, GA, IA, ID,
Inc. casual-dining IL, IN, KS, KY, LA,
restaurants MD, MI, MN, MO, MS,
NC, NE, NH, NJ, NM,
NV, NY, OH, OK, OR,
PA, RI, SC, TN, TX,
UT, VA, WA, WI, WV
CNL Health Care (2) (2) (2) Public REIT
Properties, Inc.
</TABLE>
(1) As of March 31, 1999, all of APF's net offering proceeds had been
invested or committed for investment in properties and mortgage loans.
Since April 1, 1999, APF has used proceeds from its line of credit to
acquire and develop properties and to fund mortgage loans and secured
equipment leases.
(2) As of December 31, 1999, CNL Health Care Properties, Inc. had not
acquired any properties
A more detailed description of the acquisitions by real estate limited
partnerships and the two unlisted REITs sponsored by Messrs. Bourne and Seneff
is set forth in prior performance Table VI, included in Part II of the
registration statement filed with the Securities and Exchange Commission for
this offering. A copy of Table VI is available to stockholders from the Company
upon request, free of charge. In addition, upon request to the Company, the
Company will provide, without charge, a copy of the most recent Annual Report on
Form 10-K filed with the Securities and Exchange Commission for CNL Income Fund,
Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV,
Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund VII,
Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund X,
Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIII,
Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund XVI,
Ltd., CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd., CNL American
Properties Fund, Inc. and CNL Health Care Properties, Inc. as well as a copy,
for a reasonable fee, of the exhibits filed with such reports.
In order to provide potential purchasers of Shares in the Company with
information to enable them to evaluate the prior experience of the Messrs.
Seneff and Bourne as general partners of real estate limited partnerships
<PAGE>
and as directors and officers of the two unlisted REITs, including those set
forth in the foregoing table, certain financial and other information concerning
those limited partnerships and the two unlisted REITs, with investment
objectives similar to one or more of the Company's investment objectives, is
provided in the Prior Performance Tables included as Appendix C. Information
about the previous public partnerships, the offerings of which became fully
subscribed between January 1995 and December 1999, is included therein.
Potential stockholders are encouraged to examine the Prior Performance Tables
attached as Appendix C (in Table III), which include information as to the
operating results of these prior partnerships, for more detailed information
concerning the experience of Messrs. Seneff and Bourne.
DISTRIBUTION POLICY
GENERAL
In order to qualify as a REIT for federal income tax purposes, among
other things, the Company must make distributions each taxable year (not
including any return of capital for federal income tax purposes) equal to at
least 95% of its real estate investment trust taxable income (90% in 2001 and
thereafter), although the Board of Directors, in its discretion, may increase
that percentage as it deems appropriate. See "Federal Income Tax Considerations
- -- Taxation of the Company -- Distribution Requirements." The declaration of
Distributions is within the discretion of the Board of Directors and depends
upon the Company's distributable funds, current and projected cash requirements,
tax considerations and other factors.
DISTRIBUTIONS
The following table reflects total Distributions and Distributions per
Share declared and paid by the Company for each month since the Company
commenced operations.
<TABLE>
<CAPTION>
Total Distributions
Month Distributions Per Share
- ------ ------------- -------------
<S> <C> <C>
November 1997 $ 10,757 $0.025000
December 1997 19,019 0.025000
January 1998 28,814 0.025000
February 1998 32,915 0.025000
March 1998 39,627 0.025000
April 1998 46,677 0.025000
May 1998 52,688 0.025000
June 1998 56,365 0.025000
July 1998 99,589 0.041700
August 1998 105,708 0.041700
September 1998 156,747 0.058300
October 1998 167,848 0.058300
November 1998 183,302 0.058300
December 1998 197,865 0.058300
January 1999 251,967 0.058300
February 1999 314,928 0.058300
March 1999 431,757 0.058300
April 1999 554,807 0.060400
May 1999 687,916 0.060400
June 1999 811,246 0.060400
July 1999 964,253 0.060400
August 1999 1,086,760 0.060400
September 1999 1,227,438 0.060400
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Total Distributions
Month Distributions Per Share
- ------ ------------- -------------
<S> <C> <C>
October 1999 1,351,427 0.060400
November 1999 1,467,967 0.060400
December 1999 1,615,415 0.060400
</TABLE>
In addition, in January and February 2000, the Company declared
Distributions totalling $1,745,931 and $1,835,433, respectively (each
representing $0.0604 per Share), payable in March 2000. 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. Distributions will be declared monthly during the offering period,
declared monthly during any subsequent offering, paid on a quarterly basis
during an offering period, and declared and paid quarterly thereafter. The
Company is required to distribute annually at least 95% of its real estate
investment trust taxable income to maintain its objective of qualifying as a
REIT (90% in 2001 and thereafter). 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 reducing
revenues or 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.
For 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 75%, 76% and 100%, respectively, of the Distributions
declared and paid were considered to be ordinary income and for the years ended
December 31, 1999 and 1998, approximately 25% and 24%, respectively, were
considered a return of capital for federal income tax purposes. Due to the fact
that the Company had not yet acquired all of its Properties and was still in the
offering stage as of December 31, 1999, 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.
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.
SUMMARY OF THE
ARTICLES OF INCORPORATION AND BYLAWS
DESCRIPTION OF CAPITAL STOCK
The Company has authorized a total of 126,000,000 shares of capital
stock, consisting of 60,000,000 shares of Common Stock, $0.01 par value per
share, 3,000,000 shares of Preferred Stock ("Preferred Stock"), and 63,000,000
additional shares of excess stock ("Excess Shares"), $0.01 par value per share.
Of the 63,000,000 Excess Shares, 60,000,000 are issuable in exchange for Common
Stock and 3,000,000 are issuable in exchange for Preferred Stock as described
below at "-- Restriction of Ownership." As of February 23, 2000, the Company had
31,595,269 Shares of Common Stock outstanding (including 20,000 Shares issued to
the Advisor prior to the commencement of the Initial Offering and 50,382 Shares
issued pursuant to the Reinvestment Plan) and no Preferred Stock or Excess
Shares outstanding. The Board of Directors may determine to engage in future
offerings of Common Stock of up to the number of unissued authorized shares of
Common Stock available.
The Board of Directors has approved a resolution to amend the Articles
of Incorporation to increase the number of authorized Shares of Common Stock
from 60,000,000 to 150,000,000. Pursuant to the Articles of Incorporation, this
amendment must be approved by the affirmative vote of the holders of not less
than a majority of the Shares of Common Stock outstanding and entitled to vote
thereon. The Board of Directors expects to submit this matter to a vote of the
stockholders at its annual meeting in May 2000. The Board of Directors has also
approved the 2000 Offering of up to 45,000,000 Shares which is expected to
commence immediately following the completion of this offering. Until such time,
if any, as the stockholders approve an increase in the number of authorized
Shares of Common Stock of the Company, the 2000 Offering will be limited to
approximately 20,000,000 Shares. If the increase in the number of authorized
Shares is approved by the stockholders, the Board of Directors may determine to
engage in future offerings of Common Stock of up to the number of unissued
authorized Shares of Common Stock available following the termination of this
offering.
FEDERAL INCOME TAX CONSIDERATIONS
TAXATION OF THE COMPANY
REQUIREMENTS FOR QUALIFICATION AS A REIT. As discussed more fully
below, the Code defines a REIT as a corporation, trust or association (i) which
is managed by one or more trustees or directors; (ii) the beneficial ownership
of which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) which, but for Sections 856 through 860 of the Code,
would be taxable as a domestic corporation; (iv) which is neither a financial
institution nor an insurance company; (v) the beneficial ownership of which is
held (without reference to any rules of attribution) by 100 or more persons;
(vi) which is not closely held as defined in section 856(h) of the Code; and
(vii) which meets certain other tests regarding the nature of its assets and
income and the amount of its distributions.
<PAGE>
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the assets and gross
income (as defined in the Code) of the partnership attributed to the REIT shall
retain the same character as in the hands of the partnership for purposes of
Section 856 of the Code, including satisfying the gross income tests and the
asset tests described below. Thus, the Company's proportionate share of the
assets, liabilities and items of income of Hospitality Partners and of any Joint
Venture, as described in "Business -- Joint Venture Arrangements," will be
treated as assets, liabilities and items of income of the Company for purposes
of applying the asset and gross income tests described herein.
ASSET TESTS. At the end of each quarter of a REIT's taxable year, at
least 75% of the value of its total assets must consist of "real estate assets,"
cash and cash items (including receivables) and certain government securities.
The balance of a REIT's assets generally may be invested without restriction,
except that holdings of securities not within the 75% class of assets generally
must not, with respect to any issuer, exceed 5% of the value of the REIT's
assets or 10% of the issuer's outstanding voting securities. The term "real
estate assets" includes real property, interests in real property, leaseholds of
land or improvements thereon, and mortgages on the foregoing as well as stock of
another REIT and any property attributable to the temporary investment of new
capital (but only if such property is stock or a debt instrument and only for
the one-year period beginning on the date the REIT receives such capital). When
a mortgage is secured by both real property and other property, it is considered
to constitute a mortgage on real property to the extent of the fair market value
of the real property when the REIT is committed to make the loan (or, in the
case of a construction loan, the reasonably estimated cost of construction).
Initially, the bulk of the Company's assets will be real property.
However, the Company will also hold the Secured Equipment Leases. Counsel is of
the opinion, based on certain assumptions, that the Secured Equipment Leases
will be treated as loans secured by personal property for federal income tax
purposes. See "Federal Income Tax Considerations -- Characterization of Secured
Equipment Leases." Therefore, the Secured Equipment Leases will not qualify as
"real estate assets." However, the Company has represented that at the end of
each quarter the value of the Secured Equipment Leases, together with any
personal property owned by the Company, will in the aggregate represent less
than 25% of the Company's total assets and that the value of the Secured
Equipment Leases entered into with any particular tenant will represent less
than 5% of the Company's total assets. No independent appraisals will be
acquired to support this representation, and Counsel, in rendering its opinion
as to the qualification of the Company as a REIT, is relying on the conclusions
of the Company and its senior management as to the relative values of its
assets. There can be no assurance, however, that the IRS may not contend that
either (i) the value of the Secured Equipment Leases entered into with any
particular tenant represents more than 5% of the
<PAGE>
Company's total assets, or (ii) the value of the Secured Equipment Leases,
together with any personal property owned by the Company, exceeds 25% of the
Company's total assets.
The common and preferred stock of Hotel Investors owned by Hospitality
Partners represents a significant portion of the Company's assets. As mentioned
above, stock of a REIT is considered a "real estate asset" for purposes of the
75% asset test and, therefore, the asset tests prohibiting a REIT from owning
securities of an issuer that exceed 5% of the value of the REIT's assets or 10%
of the issuer's outstanding voting securities. Based on representations made by
officers of Hotel Investors with respect to relevant factual matters, and
assuming that Hotel Investors will operate in the manner described in this
Prospectus, Counsel has advised the Company that, in its opinion, Hotel
Investors is organized in conformity with the requirements for qualification as
a REIT, and Hotel Investors' proposed method of operations will enable it to
continue to meet the requirements for qualification as a REIT. It must be
emphasized, however, that Hotel Investors' ability to qualify and remain
qualified as a REIT is dependent upon actual operating results and future
actions by and events involving Hotel Investors and others, and no assurance can
be given that the actual results of Hotel Investors' operating and future
actions and events will enable Hotel Investors to satisfy in any given year the
requirements for qualification and taxation as a REIT. If Hotel Investors fails
to qualify as a REIT, then the Company would own (through Hospitality Partners)
securities of an issuer that exceed 5% of the value of the Company's assets and
that represent more than 10% of the outstanding voting securities of an issuer
in violation of the asset tests discussed above.
INCOME TESTS. A REIT also must meet two separate tests with respect to
its sources of gross income for each taxable year.
(a) THE 75 PERCENT AND 95 PERCENT TESTS. In general, at least 75% of a
REIT's gross income for each taxable year must be from "rents from real
property," interest on obligations secured by mortgages on real property,
dividends and other distributions on, and gain from the disposition of stock of
other REITs, gains from the sale or other disposition of real property and
certain other sources, including "qualified temporary investment income." For
these purposes, "qualified temporary investment income" means any income (i)
attributable to a stock or debt instrument purchased with the proceeds received
by the REIT in exchange for stock (or certificates of beneficial interest) in
such REIT (other than amounts received pursuant to a distribution reinvestment
plan) or in a public offering of debt obligations with a maturity of at least
five years and (ii) received or accrued during the one-year period beginning on
the date the REIT receives such capital. In addition, a REIT must derive at
least 95% of its gross income for each taxable year from any combination of the
items of income which qualify under the 75% test, from dividends and interest,
and from gains from the sale, exchange or other disposition of certain stock and
securities.
Initially, the bulk of the Company's income will be derived from rents
with respect to the Properties and dividends from Hotel Investors. Dividends
from Hotel Investors will be qualifying income under both the 75% and the 95%
test, provided that Hotel Investors qualifies as a REIT. Rents from Properties
received by the Company qualify as "rents from real property" in satisfying
these two tests only if several conditions are met. First, the rent must not be
based in whole or in part, directly or indirectly, on the income or profits of
any person. However, an amount received or accrued generally will not be
excluded from the term "rents from real property" solely by reason of being
based on a fixed percentage or percentages of receipts or sales. Second, the
Code provides that rents received from a tenant will not qualify as "rents from
real property" if the REIT, or a direct or indirect owner of 10% or more of the
REIT owns, directly or constructively, 10% or more of such tenant (a "Related
Party Tenant"). Third, if rent attributable to personal property leased in
connection with a lease of real property is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." Finally, for rents to
qualify as "rents from real property," a REIT generally must not operate or
manage the property or furnish or render services to the tenants of such
property, other than through an independent contractor from whom the REIT
derives no revenue, except that a REIT may directly perform services
<PAGE>
which are "usually or customarily rendered" in connection with the rental of
space for occupancy, other than services which are considered to be rendered to
the occupant of the property. However, a REIT is currently permitted to earn up
to one percent of its gross income from tenants, determined on a
property-by-property basis, by furnishing services that are noncustomary or
provided directly to the tenants, without causing the rental income to fail to
qualify as rents from real property.
DISTRIBUTION REQUIREMENTS. A REIT must distribute to its stockholders
for each taxable year ordinary income dividends in an amount equal to at least
(a) 95% (90% in 2001 and thereafter) of the sum of (i) its "real estate
investment trust taxable income" (before deduction of dividends paid and
excluding any net capital gains) and (ii) the excess of net income from
foreclosure property over the tax on such income, minus (b) certain excess
non-cash income. Real estate investment trust taxable income generally is the
taxable income of a REIT computed as if it were an ordinary corporation, with
certain adjustments. Distributions must be made in the taxable year to which
they relate or, if declared before the timely filing of the REIT's tax return
for such year and paid not later than the first regular dividend payment after
such declaration, in the following taxable year.
The Company has represented that it intends to make Distributions to
stockholders that will be sufficient to meet the 95% distribution requirement
(90% in 2001 and thereafter). Under some circumstances, however, it is possible
that the Company may not have sufficient funds from its operations to make cash
Distributions to satisfy the 95% distribution requirement. For example, in the
event of the default or financial failure of one or more tenants or lessees, the
Company might be required to continue to accrue rent for some period of time
under federal income tax principles even though the Company would not currently
be receiving the corresponding amounts of cash. Similarly, under federal income
tax principles, the Company might not be entitled to deduct certain expenses at
the time those expenses are incurred. In either case, the Company's cash
available for making Distributions might not be sufficient to satisfy the 95%
distribution requirement. If the cash available to the Company is insufficient,
the Company might raise cash in order to make the Distributions by borrowing
funds, issuing new securities or selling assets. If the Company ultimately were
unable to satisfy the 95% distribution requirement, it would fail to qualify as
a REIT and, as a result, would be subject to federal income tax as an ordinary
corporation without any deduction or adjustment for dividends paid to holders of
the Shares. If the Company fails to satisfy the 95% distribution requirement, as
a result of an adjustment to its tax returns by the Service, under certain
circumstances, it may be able to rectify its failure by paying a "deficiency
dividend" (plus a penalty and interest) within 90 days after such adjustment.
This deficiency dividend will be included in the Company's deductions for
Distributions paid for the taxable year affected by such adjustment. However,
the deduction for a deficiency dividend will be denied, if any part of the
adjustment resulting in the deficiency is attributable to fraud with intent to
evade tax or to willful failure to timely file an income tax return.
NEW TAX LEGISLATION. On December 17, 1999, President Clinton signed the
Work Incentives Improvement Act of 1999. This law includes several provisions
that pertain to REITs, two of which will affect the Company. First, the
distribution requirement, discussed in "-- Distribution Requirements" above,
will be reduced so that the Company will be required to distribute dividends
equal to 90% (rather than 95%) of its net taxable income. Second, another
provision will change the method for measuring whether a lease violates the
restriction that rent attributable to personal property leased in connection
with a lease of real property is no more than 15 percent of the total rent
received under the lease. Under current law, the percentage is determined by
reference to the adjusted tax bases of the real property and the personal
property; under the recently passed law, the percentage will be determined by
reference to their respective fair market values. These provisions will be
effective beginning in 2001.
THE OFFERING
PLAN OF DISTRIBUTION
Prior to a subscriber's admission to the Company as a stockholder,
funds paid by such subscriber will be deposited in an interest-bearing escrow
account with SouthTrust Bank, N.A. The Company, within 30 days after the date a
subscriber is admitted to the Company, will pay to such subscriber the interest
(generally calculated on a daily basis) actually earned on the funds of those
subscribers whose funds have been held in escrow by such bank for at
<PAGE>
least 20 days. Stockholders otherwise are not entitled to interest earned on
Company funds or to receive interest on their Invested Capital. See "Escrow
Arrangements" below.
SUBSCRIPTION PROCEDURES
PROCEDURES APPLICABLE TO ALL SUBSCRIPTIONS. In order to purchase
Shares, the subscriber must complete and execute the Subscription Agreement. Any
subscription for Shares must be accompanied by cash or check payable to
"SouthTrust Bank, N.A., Escrow Agent" or to the Company, in the amount of $10.00
per Share. See "Escrow Arrangements" below. Certain Soliciting Dealers who have
"net capital," as defined in the applicable federal securities regulations, of
$250,000 or more may instruct their customers to make their checks for Shares
for which they have subscribed payable directly to the Soliciting Dealer. In
such case, the Soliciting Dealer will issue a check made payable to the order of
the Escrow Agent for the aggregate amount of the subscription proceeds.
EXPERTS
The audited consolidated balance sheets of the Company as of December
31, 1999 and 1998, the related consolidated statements of earnings,
stockholders' equity and cash flows for the years ended December 31, 1999, 1998
and 1997 and the financial statement schedule, included in this Prospectus, have
been included herein in reliance on the report of PricewaterhouseCoopers LLP,
independent certified public accountants, given on the authority of that firm as
experts in accounting and auditing.
DEFINITIONS
"ADVISOR" means CNL Hospitality Corp. (formerly CNL Hospitality
Advisors, Inc.), a Florida corporation, any successor advisor to the Company, or
any person or entity to which CNL Hospitality Corp. or any successor advisors
subcontracts substantially all of its functions.
"BANK" means SouthTrust Bank, N.A., escrow agent for the offering.
"CNL" means CNL Financial Group, Inc. (formerly CNL Group, Inc.), the
parent company either directly or indirectly of CNL Real Estate Services, Inc.,
CNL Capital Markets, Inc., the Advisor and the Managing Dealer.
"INITIAL OFFERING" means the initial offering of the Company which
commenced on July 9, 1997 and terminated on June 17, 1999, at which time this
offering commenced.
<PAGE>
APPENDIX B
FINANCIAL INFORMATION
-------------------------------------------
| THE FINANCIAL STATEMENTS INCLUDED IN |
| THIS APPENDIX B UPDATE AND REPLACE |
| APPENDIX B TO THE ATTACHED |
| PROSPECTUS, DATED JUNE 4, 1999. |
-------------------------------------------
<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 December 31, 1999 B-2
Pro Forma Consolidated Statement of Earnings for the year ended December 31, 1999 B-3
Notes to Pro Forma Consolidated Financial Statements for the year ended December
31, 1999 B-4
Audited Consolidated Financial Statements:
Report of Independent Certified Public Accountants B-7
Consolidated Balance Sheets as of December 31, 1999 and 1998 B-8
Consolidated Statements of Earnings for the years ended December 31, 1999, 1998 and 1997 B-9
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998
and 1997 B-10
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 B-11
Notes to Consolidated Financial Statements for the years ended December 31, 1999, 1998 and 1997 B-13
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1999 B-26
Notes to Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1999 B-28
</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 $288,957,987 in gross offering proceeds from the sale of
28,895,799 shares of common stock for the period from inception through December
31, 1999, 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 December 31, 1999, to place deposits on six additional properties, to
redeem 12,885 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 $26,794,707 in gross offering proceeds from the
sale of 2,679,471 additional shares for the period January 1, 2000 through
February 23, 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 December 31, 1999, includes the transactions
described in (i) above, from its historical balance sheet, adjusted to give
effect to the transactions in (ii) and (iii) above as if they had occurred on
December 31, 1999.
The Unaudited Pro Forma Consolidated Statements of Earnings for the
year ended December 31, 1999, 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
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma
ASSETS Historical Adjustments Pro Forma
-------------- --------------- --------------
<S> <C> <C> <C>
Land, buildings and equipment on operating leases $ 112,227,771 $ -- $112,227,771
Investment in unconsolidated subsidiary 38,364,157 (1,320,000) 37,044,157
Cash and cash equivalents 101,972,441 23,400,747 (a) 125,373,188
Restricted cash 275,630 -- 275,630
Certificate of deposit 5,000,000 -- 5,000,000
Dividends receivable 1,215,993 -- 1,215,993
Receivables 112,184 -- 112,184
Prepaid expenses 41,165 -- 41,165
Loan costs 51,969 -- 51,969
Accrued rental income 79,399 -- 79,399
Other assets 7,627,565 1,205,762 (a) 8,833,327
-------------- -------------- ---------------
$ 266,968,274 $23,286,509 $290,254,783
================ ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 405,855 $ (309,182) (a) $ 96,673
Due to related parties 1,085,343 (1,055,440) (a) 29,903
Security deposits 5,042,054 -- 5,042,054
Rents paid in advance 255,568 -- 255,568
---------------- -------------- --------------
Total liabilities 6,788,820 (1,364,622) 5,424,198
---------------- -------------- --------------
Commitments and contingencies
Minority interest 7,124,615 -- 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 28,902,914 shares; issued and
outstanding 31,582,385 shares, as adjusted 289,029 26,795 (a) 315,824
Capital in excess of par value 256,231,833 24,624,336 (a) 280,856,169
Accumulated distributions in excess of
net earnings (3,466,023) -- (3,466,023)
---------------- -------------- --------------
Total stockholders' equity 253,054,839 24,651,131 277,705,970
---------------- -------------- --------------
$290,254,783
$266,968,274 $ 23,286,509
================ ============== ==============
</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
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------ -------------- --------------
<S> <C> <C> <C>
Revenues:
Rental income from
operating leases $ 3,910,639 $ 47,126 (1) $ 3,957,765
FF&E reserve income 320,356 3,953 (2) 324,309
Dividend income 2,753,506 461,106 (3) 3,214,612
Interest income 3,693,004 (219,052) (4) 3,473,952
------------- ---------------- ----------------
10,677,505 293,133 10,970,638
------------- ---------------- ----------------
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 24,392 (5) 131,180
Depreciation and amortization 1,267,868 15,826 (6) 1,283,694
------------- ---------------- ----------------
2,318,717 40,218 2,358,935
------------- ---------------- ----------------
Earnings Before Equity in Loss
of Unconsolidated Subsidiary
After Deduction of Preferred
Stock Dividends and Minority Interest 8,358,788 252,915 8,611,703
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 $ 108,280 $ 7,624,268
============= ================ ================
Earnings Per Share of Common Stock (8):
Basic $ 0.47 $ 0.48
============= ================
Diluted $ 0.45 $ 0.47
============= ================
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-3
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999
Unaudited Pro Forma Consolidated Balance Sheet:
(a) Represents gross proceeds of $26,794,707 from the sale of 2,679,471
shares during the period January 1, 2000 through February 23, 2000 and
a refund of a deposit totaling $1,320,000 relating to the
unconsolidated subsidiary exercising its option to terminate its
obligation to purchase one property under its purchase and sale
agreement, used (i) to pay acquisition fees and costs of $1,552,684
($346,923 of which was accrued at December 31, 1999) which had been
capitalized as other assets and (ii) to pay selling commissions and
offering expenses of $3,161,276 which have been netted against
stockholders' equity (a total of $1,017,699 of which was accrued as of
December 31, 1999), leaving $23,400,747 for future investment.
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 February 23, 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 Buckhead (Lenox
Park) in Atlanta, GA July 31, 1998 January 1, 1999
Residence Inn Gwinnett Place
in Duluth, GA July 31, 1998 January 1, 1999
Residence Inn Mira Mesa
in Mira Mesa, CA December 10, 1999 September 20, 1999
Courtyard Philadelphia Downtown
in Philadelphia, PA November 20, 1999 November 20, 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 that the Company held the properties, no pro forma
adjustment was made for percentage rental income for the year ended
December 31, 1999.
(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 $10,000 per
month, per Pro Forma Property.
B-4
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1999
(3) Represents adjustment to dividend income earned on the Company's
$37,978,272 investment at 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. 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.
(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 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.
B-5
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1999
Unaudited Pro Forma Consolidated Statements of Earnings - Continued:
(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:
December 31,
1999
-----------------
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)
==========
(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.
As a result of the investment in the unconsolidated subsidiary being
treated in the Pro Forma Consolidated Statements of Earnings as
invested pro rata 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.
B-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
CNL Hospitality Properties, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of CNL
Hospitality Properties, Inc. (a Maryland corporation) and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits. We conducted our audits of these consolidated
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Orlando, Florida
January 21, 2000
B-7
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------- -------------
<S> <C> <C>
ASSETS
Land, buildings and equipment on operating leases, net $112,227,771 $28,368,383
Investment in unconsolidated subsidiary 38,364,157 --
Cash and cash equivalents 101,972,441 13,228,923
Restricted cash 275,630 82,407
Certificate of deposit 5,000,000 5,000,000
Dividends receivable 1,215,993 --
Receivables 112,184 44,832
Prepaid expenses 41,165 9,391
Organization costs, less accumulated amortization of
$5,221 -- 19,752
Loan costs, less accumulated amortization of $86,627 and
$12,980, respectively 51,969 78,282
Accrued rental income 79,399 44,160
Other assets 7,627,565 1,980,560
---------------
--------------
$266,968,274 $48,856,690
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ -- $ 9,600,000
Interest payable -- 66,547
Accounts payable and accrued expenses 405,855 333,726
Due to related parties 1,085,343 318,937
Security deposits 5,042,054 1,417,500
Rents paid in advance 255,568 3,489
--------------- --------------
Total liabilities 6,788,820 11,740,199
--------------- --------------
Commitments and contingencies
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 28,902,914
and 4,321,908 shares, respectively 289,029 43,219
Capital in excess of par value 256,231,833 37,289,402
Accumulated distributions in excess of net earnings (3,466,023) (216,130)
--------------- --------------
Total stockholders' equity 253,054,839 37,116,491
--------------- --------------
$266,968,274 $48,856,690
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
B-8
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Rental income from
operating leases $3,910,639 $1,218,500 $ --
FF&E reserve income 320,356 98,099 --
Dividend income 2,753,506 -- --
Interest and other income 3,693,004 638,862 46,071
------------- ------------- -------------
10,677,505 1,955,461 46,071
------------- ------------- -------------
Expenses:
Interest and loan cost amortization 248,094 350,322 --
General operating and administrative 626,649 167,951 22,386
Professional services 69,318 21,581 --
Asset management fees to
related party 106,788 68,114 --
Depreciation and amortization 1,267,868 388,554 833
------------- ------------- -------------
2,318,717 996,522 23,219
------------- ------------- -------------
Earnings Before Equity in Loss of
Unconsolidated Subsidiary
After Deduction of Preferred
Stock Dividends and Minority
Interest 8,358,788 958,939 22,852
Equity in Loss of Unconsolidated
Subsidiary After Deduction of
Preferred Stock Dividends (778,466) -- --
Minority Interest (64,334) -- --
------------- ------------- -------------
Net Earnings $7,515,988 $ 958,939 $ 22,852
============= ============= =============
Earnings Per Share of Common Stock:
Basic $ 0.47 $ 0.40 $ 0.03
============= ============= =============
Diluted $ 0.45 $ 0.40 $ 0.03
============= ============= =============
Weighted Average Number of Shares of
Common Stock Outstanding:
Basic 15,890,212 2,402,344 686,063
============= ============= =============
Diluted 21,437,859 2,402,344 686,063
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
B-9
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Common stock distributions
------------------------ Capital in in excess
Number Par excess of of net
of Shares value par value earnings Total
----------- ---------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 20,000 $ 200 $ 199,800 $ -- $ 200,000
Subscriptions received for
common stock through public
offering and distribution
reinvestment plan 1,132,540 11,325 11,314,077 -- 11,325,402
Stock issuance costs -- -- (2,284,561) -- (2,284,561)
Net earnings -- -- -- 22,852 22,852
Distributions declared and paid
($.05 per share) -- -- -- (29,776) (29,776)
------------ ---------- --------------- -------------- --------------
Balance at December 31, 1997 1,152,540 11,525 9,229,316 (6,924) 9,233,917
Subscriptions received for
common stock through public
offering and distribution
reinvestment plan 3,169,368 31,694 31,661,984 -- 31,693,678
Stock issuance costs -- -- (3,601,898) -- (3,601,898)
Net earnings -- -- -- 958,939 958,939
Distributions declared and paid
($.47 per share) -- -- -- (1,168,145) (1,168,145)
------------ ---------- --------------- -------------- --------------
Balance at December 31, 1998 4,321,908 43,219 37,289,402 (216,130) 37,116,491
Subscriptions received for
common stock through public
offerings and distribution
reinvestment plan 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
============ ========== =============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
B-10
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
--------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 7,515,988 $ 958,939 $ 22,852
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 1,230,499 384,166 --
Amortization 130,769 17,368 833
Distribution from investment in
unconsolidated subsidiary, net
of equity in loss 1,478,111 -- --
Minority interest 64,334 -- --
Changes in operating assets and
liabilities:
Dividends receivable (1,215,993) -- --
Receivables (67,352) (44,832) --
Prepaid expenses (31,774) 1,788 (11,179)
Accrued rental income (35,239) (44,160) --
Interest payable (66,547) 66,547 --
Accounts payable and accrued
expenses (2,191) 5,322 3,822
Due to related parties -
operating expenses 12,923 10,838 6,141
Security deposits 3,624,554 1,417,500 --
Rents paid in advance 252,079 3,489 --
--------------- ------------- -------------
Net cash provided by
operating activities 12,890,161 2,776,965 22,469
--------------- ------------- -------------
Cash flows from investing activities:
Additions to land, buildings and
equipment on operating leases (85,089,887) (28,752,549) --
Investment in unconsolidated subsidiary (39,879,638) -- --
Investment in certificate of deposit -- (5,000,000) --
Increase in restricted cash (193,223) (82,407) --
Additions to other assets (5,068,727) (676,026) (463,470)
--------------- ------------- -------------
Net cash used in investing
activities (130,231,475) (34,510,982) (463,470)
--------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
B-11
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from borrowings on line of
credit -- 9,600,000 --
Repayment of borrowings on line of
credit (9,600,000) -- --
Payment of loan costs (47,334) (91,262) --
Contributions from minority interest
of consolidated subsidiary 7,150,000 -- --
Subscriptions received from
stockholders 245,938,907 31,693,678 11,325,402
Distributions to stockholders (10,765,881) (1,168,145) (29,776)
Retirement of common stock (118,542) -- --
Payment of stock issuance costs (26,472,318) (3,948,669) (1,979,371)
Other -- 7,500 (7,500)
--------------- -------------- ---------------
Net cash provided by financing
activities 206,084,832 36,093,102 9,308,755
--------------- -------------- ---------------
Net increase in cash and cash equivalents 88,743,518 4,359,085 8,867,754
Cash and cash equivalents at beginning of
year 13,228,923 8,869,838 2,084
--------------- -------------- ---------------
Cash and cash equivalents at end of year $ 101,972,441 $13,228,923 $ 8,869,838
=============== ============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 240,994 $ 270,795 $ --
=============== ============== ===============
Supplemental schedule of non-cash financing activities:
Distributions declared not paid to
minority interest $ 89,719 $ -- $ --
=============== ============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
B-12
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999, 1998 and 1997
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 (see note 4).
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 Company was a development stage enterprise from June 12, 1996
through October 15, 1997. Since operations had not begun, activities
through October 15, 1997 were devoted to organization of the Company.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of 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.
Real Estate and Lease Accounting - The Company records the acquisition
of land, buildings and equipment at cost, including acquisition and
closing costs. Land, buildings and equipment are leased to unrelated
third parties on a triple-net basis, whereby the tenant is generally
responsible for all operating expenses relating to the Property,
including property taxes, insurance, maintenance and repairs.
The Property leases are accounted for using the operating method. Under
the operating method, land, building and equipment are recorded at
cost, revenue is recognized as rentals are earned and depreciation is
charged to operations as incurred. Buildings and equipment are
depreciated on the straight-line method over their estimated useful
lives of 40 and seven years, respectively. When scheduled rentals vary
during the lease term, income is recognized on a straight-line basis so
as to produce a constant periodic rent over the lease term commencing
on the date the Property is placed in service. Accrued rental income
represents the aggregate amount of income recognized on a straight-line
basis in excess of scheduled rental payments to date.
When the Properties or equipment are sold, the related cost and
accumulated depreciation, plus any accrued rental income, will be
removed from the accounts and any gain or loss from sale will be
reflected in income. Management reviews its Properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations.
Management determines whether impairment in value has occurred by
comparing the estimated future undiscounted cash flows, including the
residual value of the Property, with the carrying cost of the
individual Property. If an impairment is indicated, the assets are
adjusted to their fair value.
B-13
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999, 1998 and 1997
1. Significant Accounting Policies - Continued:
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less to be cash
equivalents. Cash and cash equivalents consist of demand deposits at
commercial banks and money market funds (some of which are backed by
government securities). Cash equivalents are stated at cost plus
accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Company in demand deposits at
commercial banks and money market funds may exceed federally insured
levels; however, the Company has not experienced any losses in such
accounts. The Company limits investment of temporary cash investments
to financial institutions with high credit standing; therefore,
management believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Loan Costs - Loan costs incurred in connection with the Company's line
of credit and a $5,000,000 letter of credit have been capitalized and
are being amortized over the term of the loan and the term of the
letter of credit commitment, respectively, using the straight-line
method which approximates the effective interest method.
Income Taxes - The Company has made an election to be taxed as a real
estate investment trust ("REIT") under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, and related regulations. The
Company generally will not be subject to federal corporate income taxes
on amounts distributed to stockholders, providing it distributes at
least 95 percent of its REIT taxable income and meets certain other
requirements for qualifying as a REIT. Accordingly, no provision for
federal income taxes has been made in the accompanying consolidated
financial statements. Notwithstanding the Company's qualification for
taxation as a REIT, the Company is subject to certain state taxes on
its income and Properties.
Earnings Per Share - Basic earnings per share ("EPS") is calculated
based upon the weighted average number of shares of common stock
outstanding during each year and diluted earnings per share is
calculated based upon weighted average number of common shares
outstanding plus potentially dilutive common shares (see Note 12).
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform with the 1999
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.
Use of Estimates - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to
prepare these consolidated financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
B-14
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999, 1998 and 1997
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"). Of the 27,500,000 shares of
common stock to be offered, 2,500,000 will be available only to
stockholders purchasing shares through the reinvestment plan. The price
per share and other terms of the 1999 Offering, including the
percentage of gross proceeds payable (i) to the managing dealer for
selling commissions and expenses in connection with the offering and
(ii) to CNL Hospitality Corp. (formerly known as CNL Hospitality
Advisors, Inc.) (the "Advisor") for acquisition fees, are substantially
the same for the Company's Initial Offering. As of December 31, 1999,
the Company received total subscription proceeds from the Initial
Offering and the 1999 Offering of $289,157,987 (28,915,799 shares),
including $503,819 (50,382 shares) through the reinvestment plan.
On October 26, 1999, the Company filed a registration statement on Form
S-11 with the Securities and Exchange Commission in connection with the
proposed sale by the Company of up to 45,000,000 additional shares of
common stock ($450,000,000) (the "2000 Offering") in an offering
expected to commence immediately following the completion of the
Company's 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:
In February 1999, the Company executed a series of agreements with Five
Arrows Realty Securities II L.L.C. ("Five Arrows") pursuant to which
the Company and Five Arrows formed a jointly owned real estate
investment trust, CNL Hotel Investors, Inc. ("Hotel Investors"), for
the purpose of acquiring up to eight hotel Properties from various
sellers affiliated with Western International. At the time the
agreement was entered into, the eight Properties (four as Courtyard(R)
by Marriott(R) hotels, three as Residence Inn(R) by Marriott(R) hotels,
and one as a Marriott Suites(R)) were either newly constructed or in
various stages of completion.
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.
The Properties acquired were a Courtyard by Marriott located in Plano,
Texas, a Marriott Suites located in Dallas, Texas, a Residence Inn by
Marriott located in Las Vegas, Nevada, a Residence Inn by Marriott
located in Plano, Texas, a Courtyard by Marriott located in Scottsdale,
Arizona, a Courtyard by Marriott located in Seattle, Washington and a
Residence Inn by Marriott located in Phoenix, Arizona. 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. As of December 31, 1999, Hotel
Investors owned seven of the newly constructed hotels.
B-15
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999, 1998 and 1997
3. Investment in Unconsolidated Subsidiary - Continued:
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 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.
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, on a per share basis, adjusted for
any dividends 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 the 1999 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 387,868 shares of
common stock. For the year ended December 31, 1999, the Company
incurred approximately $54,000 in interest expense on this convertible
loan.
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, Hotel Investors, and certain affiliates have
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.
B-16
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999, 1998 and 1997
3. Investment in Unconsolidated Subsidiary - Continued:
The following presents condensed financial information for Hotel
Investors as of and for the period from February 10, 1999 (inception)
to December 31, 1999:
Land, buildings and equipment on operating leases, net $165,088,059
Cash and cash equivalents 4,884,014
Loan costs, net 708,006
Accrued rental income 283,914
Prepaid expenses, receivables and other assets 3,283,306
Liabilities 92,229,193
Redeemable preferred stock - Class A and Class B 85,361,864
Stockholders' deficit (2,915,614)
Revenues 13,025,978
Net earnings 4,104,936
Preferred stock dividends 5,693,642
Loss applicable to common stockholders (1,588,706)
During the year ended December 31, 1999, the Company recorded
$2,753,506 in dividend income and $778,466 in equity in loss after
deduction of preferred stock dividends, resulting in net earnings of
$1,975,040 attributable to this investment.
4. Land, Buildings and Equipment on Operating Leases:
During the year ended December 31, 1999, the Company acquired an 89%
interest in CNL Philadelphia Annex, LLC (formerly known as Courtyard
Annex, L.L.C.) (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. The LLC is included with the accounts
of the Company except for the remaining 11% interest which is reflected
as minority interest in the accompanying consolidated financial
statements.
In addition, during the year ended December 31, 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.
The Company leases its land, buildings and equipment to hotel
operators. The leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for
Leases," and have been classified as operating leases. The lease terms
range from 15 to 19 years and provide for minimum and contingent
rentals. In addition, the tenant pays all property taxes and
assessments and carries insurance coverage for public liability,
property damage, fire and extended coverage. The lease options allow
the tenants to renew each of the leases for two to three successive
five-year to ten-year periods subject to the same terms and
B-17
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999, 1998 and 1997
4. Land, Buildings and Equipment on Operating Leases - Continued:
conditions of the initial leases. The leases also require the
establishment of capital expenditure reserve funds which will be used
for the replacement and renewal of furniture, fixtures and equipment
relating to the hotel Properties (the "FF&E Reserve"). Funds in the
FF&E Reserve have been earned, granted and assigned to the Company as
additional rent. For the years ended December 31, 1999 and 1998,
revenues from the FF&E Reserve totaled $320,356 and $98,099,
respectively, of which $275,630 and $82,407, respectively, is
classified as restricted cash. No such amounts were earned or
outstanding during 1997.
Land, buildings and equipment on operating leases consisted of the
following at December 31:
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Land $12,337,950 $2,926,976
Buildings 92,220,370 23,476,442
Equipment 9,272,785 2,349,131
--------------- --------------
113,831,105 28,752,549
Less accumulated depreciation (1,603,334) (384,166)
--------------- --------------
$112,227,771 $28,368,383
=============== ==============
</TABLE>
Certain leases provide an increase in the minimum annual rent at a
predetermined interval during the terms of the leases. Such amount is
recognized on a straight-line basis over the terms of the leases
commencing on the date the Property is placed in service. For the years
ended December 31, 1999 and 1998, the Company recognized $35,238 and
$44,160, respectively, of such rental income. This amount is included
in rental income from operating leases in the accompanying consolidated
statements of earnings. No such amounts were earned during 1997.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at December 31, 1999:
2000 $ 10,971,195
2001 10,971,195
2002 10,971,195
2003 10,971,195
2004 10,971,195
Thereafter 118,283,694
----------------
$173,139,669
================
Since leases are renewable at the option of the tenant, the above table
only presents future minimum lease payments due during the initial
lease terms. In addition, this table does not include any amounts for
future contingent rents which may be received on the leases based on a
percentage of the tenant's gross sales.
B-18
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999, 1998 and 1997
5. Other Assets:
Other assets as of December 31, 1999 and 1998 were $7,627,565 and
$1,980,560, respectively, which consisted of acquisition fees and
miscellaneous acquisition expenses that will be allocated to future
Properties.
6. 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 year ended December 31, 1999, 12,885 shares of common stock were
redeemed and retired. No shares were redeemed in 1998 or 1997.
7. Line of Credit:
On July 31, 1998, the Company entered into a revolving line of credit
and security agreement with a bank to be used by the Company to acquire
hotel Properties. The line of credit provides that the Company may
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, in the bank's 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 .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. 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 attorneys
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.
As of December 31, 1999, the Company has no amounts outstanding under
the line of credit.
8. Stock Issuance Costs:
The Company has incurred certain expenses of 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.
B-19
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999, 1998 and 1997
8. Stock Issuance Costs - Continued:
During the years ended December 31, 1999, 1998 and 1997, the Company
incurred $26,632,124, $3,606,871 and $2,304,561, respectively, in
organizational and offering costs, including $18,475,145, $2,535,494
and $906,032, respectively, in commissions and marketing support and
due diligence expense reimbursement fees (see Note 10). Of these
amounts $26,632,124, $3,601,898 and $2,284,561, respectively, have been
treated as stock issuance costs and $4,973 and $20,000, have been
treated as start-up and organization costs in 1998 and 1997,
respectively. The stock issuance costs have been charged to
stockholders' equity subject to the three percent cap described above.
The organization costs have been expensed.
9. Distributions:
For the years ended December 31, 1999, 1998 and 1997, approximately 75
percent, 76 percent and 100 percent, respectively, of the distributions
paid to stockholders were considered ordinary income, and for the years
ended December 31, 1999 and 1998, approximately 25 percent and 24
percent, respectively, were considered a return of capital to
stockholders for federal income tax purposes. No amounts distributed to
the stockholders for 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' return on their
invested capital.
10. 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. On June 12, 1996 (date of inception), CNL Fund
Advisors, Inc. contributed $200,000 in cash to the Company and became
its sole stockholder. In February 1997, the Advisor purchased the
Company's outstanding common stock from CNL Fund Advisors, Inc. and
became the sole stockholder of the Company.
During the years ended December 31, 1999, 1998 and 1997, the Company
incurred $17,320,448, $2,377,026 and $849,405 respectively, in selling
commissions due to CNL Securities Corp. for services in connection with
its offerings. A substantial portion of these amounts ($16,164,488,
$2,200,516 and $792,832, respectively) were 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 years ended December
31, 1999, 1998 and 1997, the Company incurred $1,154,697, $158,468 and
$56,627, 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 and the 2000 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 December 31,
1999, no such fees had been incurred.
B-20
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999, 1998 and 1997
10. Related Party Transactions - Continued:
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. As of December
31, 1999, in connection with the 1999 Offering, CNL Securities Corp.
was entitled to approximately 479,000 Soliciting Dealer Warrants;
however, no such warrants had been issued as of that date.
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 years ended December 31, 1999,
1998 and 1997, the Company incurred $10,956,455, $1,426,216 and
$509,643, respectively, of such fees. Such fees are included in land,
buildings and equipment on operating leases and other assets.
The Company incurs operating expenses which, in general, are those
expenses relating to administration of the Company on an ongoing basis.
Pursuant to the advisory agreement described below, the Advisor is
required to reimburse the Company the amount by which the total
operating expenses paid or incurred by the Company exceed in any four
consecutive fiscal quarters, the greater of two percent of average
invested assets or 25 percent of net income (the "Expense Cap"). For
the year ended December 31, 1999, the Company's operating expenses did
not exceed the Expense Cap. As of 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.
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 years ended December 31, 1999 and
1998, the Company incurred $106,788 and $68,114, respectively, of such
fees. No such fees were incurred by the Company for 1997.
B-21
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999, 1998 and 1997
10. Related Party Transactions - Continued:
The Advisor and its affiliates provide various administrative services
to the Company, including services related to accounting; financial,
tax and regulatory compliance reporting; stockholder distributions and
reporting; due diligence and marketing; and investor relations
(including administrative services in connection with the offerings),
on a day-to-day basis. The expenses incurred for these services were
classified as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Stock issuance costs $3,854,739 $494,729 $185,335
General operating and
administrative expenses 351,846 140,376 6,889
Land, buildings and equipment
on operating leases and
other assets 9,084 --
124
-------------- ------------- -------------
$4,206,709 $644,189 $192,224
============== ============= =============
</TABLE>
The amounts due to related parties consisted of the following
at December 31:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Due to the Advisor:
Expenditures incurred on behalf
of the Company for accounting
and administrative services $ 477,533 $110,496
Acquisition fees 337,797 137,974
Management fees 19,642 --
------------ -------------
834,972 248,470
------------ -------------
Due to CNL Securities Corp.:
Commissions 229,834 66,063
Marketing support and due diligence
expense reimbursement fee 16,764 4,404
------------ -------------
246,598 70,467
------------ -------------
Due to other related party 3,773 --
------------ -------------
$1,085,343 $318,937
============ =============
</TABLE>
During 1999, the Company opened three bank accounts in a bank in which
certain officers and directors of the Company serve as directors, and
in which an affiliate of the Advisor is a stockholder. The amount
deposited with this affiliate was $15,275,629 at December 31, 1999.
B-22
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999, 1998 and 1997
11. Concentration of Credit Risk:
STC Leasing Associates, LLC ("STC") (which operates and leases two
Properties) contributed more than ten percent of the Company's total
rental income for the years ended December 31, 1999 and 1998. In
addition, WI Hotel Leasing LLC (which leases seven Properties)
contributed more than ten percent of Hotel Investor's total rental
income. In addition, all of the Company's rental income (including the
Company's share of rental income from Hotel Investors) was earned from
Properties operating as Marriott(R) brand chains. Although the Company
intends to acquire Properties located in various states and regions and
to carefully screen its tenants in order to reduce risks of default,
failure of these lessees or the Marriott brand chains could
significantly impact the results of operations of the Company. However,
management believes that the risk of such a default is reduced due to
the essential or important nature of these Properties for the ongoing
operations of the lessees.
It is expected that the percentage of total rental income contributed
by STC will decrease as additional Properties are acquired and leased
during 2000 and subsequent years.
12. 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
year ended December 31, 1999, approximately 5.5 million shares, related
to the conversion of Hotel Investors' Class A Preferred Stock to the
Company's common stock, were considered dilutive after the application
of the "if converted method" and were included in the denominator of
the diluted EPS calculation. The numerator in the diluted EPS
calculation includes an adjustment for the net earnings of Hotel
Investors for the applicable period. The Company had no potentially
dilutive common shares in 1998 or 1997.
B-23
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999, 1998 and 1997
12. 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 years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Basic Earnings Per Share:
Net earnings $ 7,515,988 $ 958,939 $ 22,852
============== ============== ==============
Weighted average number of shares outstanding 15,890,212 2,402,344 686,063
============== ============== ==============
Basic earnings per share 0.47 0.40 0.03
============== ============== ==============
Diluted Earnings Per Share:
Net earnings $ 7,515,988 $ 958,939 $ 22,852
Additional income attributable to investment in
unconsolidated subsidiary assuming all Class A
Preferred Shares were converted 2,129,899 -- --
-------------- -------------- --------------
Adjusted net earnings assuming dilution $ 9,645,887 $ 958,939 $ 22,852
============== ============== ==============
Weighted average number of shares outstanding 15,890,212 2,402,344 686,063
Assumed conversion of Class A Preferred Stock 5,547,647 -- --
-------------- -------------- --------------
Adjusted weighted average number of
shares outstanding 21,437,859 2,402,344 686,063
============== ============== ==============
Diluted earnings per share $ 0.45 $ 0.40 $ 0.03
============== ============== ==============
</TABLE>
13. Commitments and Contingencies:
During 1998, the Company entered into agreements to acquire three hotel
Properties for an anticipated aggregate purchase price of approximately
$100 million. In connection with these agreements, the Company has a
deposit in the form of a letter of credit, which is collateralized by a
certificate of deposit, amounting to $5 million. Additionally, as of
December 31, 1999, the Company had a commitment to acquire an
additional three hotel Properties for an anticipated aggregate purchase
price of approximately $48 million. In connection with this agreement,
the Company has a deposit of approximately $1.6 million held in escrow.
B-24
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999, 1998 and 1997
13. Commitments and Contingencies - Continued:
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. No Earnout Amounts under this agreement have been payable as of
December 31, 1999.
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.
14. Subsequent Events:
During the period January 1, 2000 through January 21, 2000, the Company
received subscription proceeds for an additional 901,779 shares
($9,017,790) of common stock.
On January 1, 2000, the Company declared distributions totaling
$1,745,931, or $0.0604 per share of common stock, payable in March
2000, to stockholders of record on January 1, 2000.
B-25
<PAGE>
CNL HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
------------------------------------------------- ---------------------------
Encum- Improve- Carrying
brances Land Buildings Equipment ments Costs
--------- -------------- -------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Properties the Company has
Invested in Under
Operating Leases:
Residence Inn(R)by Marriott(R):
Atlanta, Georgia $1,907,479 $13,459,040 $1,234,689 $35,485 $ --
Duluth, Georgia 1,019,497 10,017,402 1,114,442 26,500 --
Mira Mesa, California 2,002,314 12,924,317 1,701,280 -- --
-------------- -------------- ------------- ------------ -----------
4,929,290 36,400,759 4,050,411 61,985 --
Courtyard(R)by Marriott(R):
Philadelphia, Pennsylvania 7,408,660 55,819,611 5,160,389 -- --
-------------- -------------- ------------- ------------ -----------
$12,337,950 $92,220,370 $9,210,800 $61,985 --
============== ============== ============= ============ ===========
</TABLE>
B-26
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (d) in Latest
Date Income
- -------------------------------------------------- Accumulated of Con- Date Statement is
Land Buildings Equipment Total Depreciation struction Acquired Computed
- ---------------- -------------- ------------- --------------- -------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,907,479 $13,459,040 $1,270,174 $16,636,693 $ 731,622 1997 07/98 (c)
1,019,497 10,017,402 1,140,942 12,177,841 584,111 1997 07/98 (c)
2,002,314 12,924,317 1,701,280 16,627,911 34,124 1999 12/99 (c)
- ---------------- -------------- ------------- --------------- --------------
4,929,290 36,400,759 4,112,396 45,442,445 1,349,857 1999 11/99 (c)
7,408,660 55,819,611 5,160,389 68,388,660 253,477
- ---------------- -------------- ------------- --------------- --------------
$12,337,950 $92,220,370 $9,272,785 $113,831,105 $1,603,334
================ ============== ============= =============== ==============
</TABLE>
B-27
<PAGE>
CNL HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(a) Transactions in real estate and accumulated depreciation during 1999,
1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost (b) (d) Depreciation
---------------- ----------------
<S> <C> <C>
Properties the Company has
Invested in Under Operating
Leases:
Balance, December 31, 1998 $ -- $ --
Acquisitions 28,752,549 --
Depreciation expense (c) -- 384,166
---------------- ----------------
Balance, December 31, 1998 $ 28,752,549 $ 384,166
Acquisitions 85,078,556 --
Depreciation expense (c) -- 1,219,168
---------------- ----------------
Balance, December 31, 1999 $113,831,105 $1,603,334
================ ================
</TABLE>
(b) As of December 31, 1999 and 1998, the aggregate cost of the Properties
owned directly and indirectly by the Company and its subsidiaries for
federal income tax purposes was $113,831,105 and $28,752,549,
respectively. All of the leases are treated as operating leases for
federal income tax purposes.
(c) Depreciation expense is computed for buildings and equipment based upon
estimated lives of 40 and seven years, respectively.
(d) During the years ended December 31, 1999, 1998 and 1997, the Company
incurred acquisition fees totalling $4,470,836, $1,507,010 and $0,
respectively, paid to the Advisor. Acquisition fees are included in
land and buildings on operating leases at December 31, 1999 and 1998.
B-28
<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
December 31, 1999. The summarized financial information presented for
Marriott as of December 31, 1999 and 1998, and for each of the years
ended December 31, 1999, 1998, and 1997, was obtained from the Form
10-K filed by Marriott with the Securities and Exchange Commission for
the year ended December 31, 1999.
Page
----
Marriott International, Inc. and Subsidiaries:
Selected Financial Data for the year ended December 31, 1999 B-30
B-29
<PAGE>
OTHER FINANCIAL INFORMATION
Marriott International, Inc. and Subsidiaries
Selected Financial Data
(in Millions, except per share data)
Consolidated Balance Sheet Data:
- --------------------------------
December 31,
1999 1998
---- ----
Current assets $1,600 $1,333
Noncurrent assets 5,724 4,900
Current liabilities 1,743 1,412
Noncurrent liabilities 2,673 2,251
Consolidated Statement of Income Data:
- -------------------------------------
Year Ended December 31,
1999 1998 1997
---- ---- -----
Gross revenues $8,771 $8,004 $7,268
Costs and expenses 8,371 7,614 6,944
Net income 400 390 324
Basic earnings per share 1.62 1.56 1.27
Diluted earnings per share 1.51 1.46 1.19
B-30
<PAGE>
APPENDIX C
PRIOR PERFORMANCE TABLES
---------------------------------------
| THE FOLLOWING INFORMATION UPDATES |
| AND REPLACES THE CORRESPONDING |
| INFORMATION IN APPENDIX C TO |
| THE ATTACHED PROSPECTUS, DATED |
| JUNE 4, 1999. |
---------------------------------------
<PAGE>
APPENDIX C
PRIOR PERFORMANCE TABLES
The information in this Appendix C contains certain relevant summary
information concerning certain prior public programs sponsored by two of the
Company's principals (who also serve as the Chairman of the Board and President
of the Company) and their Affiliates (the "Prior Public Programs") which were
formed to invest in restaurant properties leased on a triple-net basis to
operators of national and regional fast-food and family-style restaurant chains,
or in the case of CNL Health Care Properties, Inc., to invest in health care
properties. No Prior Public Programs sponsored by the Company's Affiliates have
invested in hotel properties leased on a triple-net basis to operators of
national and regional limited-service, extended-stay and full-service hotel
chains.
A more detailed description of the acquisitions by the Prior Public
Programs is set forth in Part II of the registration statement filed with the
Securities and Exchange Commission for this Offering and is available from the
Company upon request, without charge. In addition, upon request to the Company,
the Company will provide, without charge, a copy of the most recent Annual
Report on Form 10-K filed with the Securities and Exchange Commission for CNL
Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL
Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL
Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL
Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL
Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL
Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd.,
CNL American Properties Fund, Inc., and CNL Health Care Properties, Inc. as well
as a copy, for a reasonable fee, of the exhibits filed with such reports.
The investment objectives of the Prior Public Programs generally
include preservation and protection of capital, the potential for increased
income and protection against inflation, and potential for capital appreciation,
all through investment in properties. In addition, the investment objectives of
the Prior Public Programs included making partially tax-sheltered distributions.
STOCKHOLDERS SHOULD NOT CONSTRUE INCLUSION OF THE FOLLOWING TABLES AS
IMPLYING THAT THE COMPANY WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED IN
SUCH TABLES. DISTRIBUTABLE CASH FLOW, FEDERAL INCOME TAX DEDUCTIONS, OR OTHER
FACTORS COULD BE SUBSTANTIALLY DIFFERENT. STOCKHOLDERS SHOULD NOTE THAT, BY
ACQUIRING SHARES IN THE COMPANY, THEY WILL NOT BE ACQUIRING ANY INTEREST IN ANY
PRIOR PUBLIC PROGRAMS.
DESCRIPTION OF TABLES
The following Tables are included herein:
Table I - Experience in Raising and Investing Funds
Table II - Compensation to Sponsor
Table III - Operating Results of Prior Programs
Table V - Sales or Disposal of Properties
Unless otherwise indicated in the Tables, all information contained in
the Tables is as of December 31, 1999. The following is a brief description of
the Tables:
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS
Table I presents information on a percentage basis showing the
experience of two of the principals of the Company and their Affiliates in
raising and investing funds for the Prior Public Programs, the offerings of
which became fully subscribed between January 1995 and December 1999.
The Table sets forth information on the offering expenses incurred and
amounts available for investment expressed as a percentage of total dollars
raised. The Table also shows the percentage of property acquisition cost
leveraged, the date the offering commenced, and the time required to raise funds
for investment.
C-1
<PAGE>
TABLE II - COMPENSATION TO SPONSOR
Table II provides information, on a total dollar basis, regarding
amounts and types of compensation paid to two of the Company's principals and
their Affiliates which sponsored the Prior Public Programs.
The Table indicates the total offering proceeds and the portion of such
offering proceeds paid or to be paid to two of the principals of the Company and
their Affiliates in connection with the Prior Public Programs, the offerings of
which became fully subscribed between January 1995 and December 1999. The Table
also shows the amounts paid to two of the principals of the Company and their
Affiliates from cash generated from operations and from cash generated from
sales or refinancing by each of the Prior Public Programs on a cumulative basis
commencing with inception and ending December 31, 1999.
TABLE III - OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents a summary of operating results for the period from
inception through December 31, 1999, of the Prior Public Programs, the offerings
of which became fully subscribed between January 1995 and December 1999.
The Table includes a summary of income or loss of the Prior Public
Programs, which are presented on the basis of generally accepted accounting
principles ("GAAP"). The Table also shows cash generated from operations, which
represents the cash generated from operations of the properties of the Prior
Public Programs, as distinguished from cash generated from other sources
(special items). The section of the Table entitled "Special Items" provides
information relating to cash generated from or used by items which are not
directly related to the operations of the properties of the Prior Public
Programs, but rather are related to items of an investing or financing nature.
These items include proceeds from capital contributions of investors and
disbursements made from these sources of funds, such as syndication (or stock
issuance) and organizational costs, acquisition of the properties and other
costs which are related more to the organization of the entity and the
acquisition of properties than to the actual operations of the entities.
The Table also presents information pertaining to investment income,
returns of capital on a GAAP basis, cash distributions from operations, sales
and refinancing proceeds expressed in total dollar amounts as well as
distributions and tax results on a per $1,000 investment basis.
TABLE IV - RESULTS OF COMPLETED PROGRAMS
Table IV is omitted from this Appendix C because none of the Prior
Public Programs have completed operations (meaning they no longer hold
properties).
TABLE V - SALES OR DISPOSAL OF PROPERTIES
Table V provides information regarding the sale or disposal of
properties owned by the Prior Public Programs between January 1995 and December
1999.
The Table includes the selling price of the property, the cost of the
property, the date acquired and the date of sale.
C-2
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
<TABLE>
<CAPTION>
CNL Income CNL American CNL Income
Fund XVI, Properties Fund, Fund XVII,
Ltd. Inc. Ltd.
------------- ----------------- -------------
(Note 1)
<S> <C> <C> <C>
Dollar amount offered $45,000,000 $747,464,420 $30,000,000
============= ================= =============
Dollar amount raised 100.0% 100.0% 100.0%
------------- ----------------- -------------
Less offering expenses:
Selling commissions and discounts (8.5) (7.5) (8.5)
Organizational expenses (3.0) (2.2) (3.0)
Marketing support and due diligence
expense reimbursement fees
(includes amounts reallowed to
unaffiliated entities) (0.5) (0.5) (0.5)
------------- ----------------- -------------
(12.0) (10.2) (12.0)
------------- ----------------- -------------
Reserve for operations -- -- --
------------- ----------------- -------------
Percent available for investment 88.0% 89.8% 88.0%
============= ================= =============
Acquisition costs:
Cash down payment 82.5% 85.3% 83.5%
Acquisition fees paid to affiliates 5.5 4.5 4.5
Loan costs -- -- --
------------- ----------------- -------------
Total acquisition costs 88.0% 89.8% 88.0%
============= ================= =============
Percent leveraged (mortgage financing
divided by total acquisition costs) -- -- --
Date offering began 9/02/94 4/19/95, 2/06/97 9/02/95
and 3/02/98
Length of offering (in months) 9 22, 13 and 9, 12
respectively
Months to invest 90% of amount
available for investment measured
from date of offering 11 23, 16 and 11, 15
respectively
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective March 29, 1995, CNL
American Properties Fund, Inc. ("APF") registered for sale
$165,000,000 of shares of common stock (the "Initial Offering"),
including $15,000,000 available only to stockholders participating in
the company's reinvestment plan. The Initial Offering of APF
commenced April 19, 1995, and upon completion of the Initial Offering
on February 6, 1997, had received subscription proceeds of
$150,591,765 (7,529,588 shares), including $591,765 (29,588 shares)
issued pursuant to the reinvestment plan. Pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933, as amended,
effective January 31, 1997, APF registered for sale $275,000,000 of
shares of common stock (the "1997 Offering"), including $25,000,000
available only to stockholders participating in the company's
reinvestment plan. The 1997 Offering of APF commenced following the
completion of the Initial Offering on February 6, 1997, and upon
completion of the 1997 Offering on March 2, 1998, had received
subscription proceeds of $251,872,648 (12,593,633 shares), including
$1,872,648 (93,632 shares) issued pursuant to the reinvestment plan.
Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective May 12, 1998, APF
registered for sale $345,000,000 of shares of common stock (the "1998
Offering"). The 1998 Offering of APF commenced following the
completion of the 1997 Offering on March 2, 1998. As of January 31,
1999, APF had received subscriptions totalling approximately
$345,000,000 (17,250,000 shares), from the 1998 Offering, including
$3,107,848 (155,393 shares) issued pursuant to the company's
reinvestment plan. The 1998 Offering became fully subscribed in
December 1998 and proceeds from the last subscriptions were received
in January 1999.
C-3
<PAGE>
CNL Income CNL Health Care
Fund XVIII, Properties,
Ltd. Inc.
---------------- ------------------
(Note 2)
$35,000,000
================
100.0%
----------------
(8.5)
(3.0)
(0.5)
----------------
(12.0)
----------------
--
----------------
88.0%
================
83.5%
4.5
--
----------------
88.0%
================
--
9/20/96
17
17
Note 2: Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective September 18, 1998, CNL
Health Care Properties, Inc. registered for sale $155,000,000 of
shares of common stock, including $5,000,000 available only to
stockholders participating in the company's reinvestment plan. The
offering of shares of CNL Health Care Properties, Inc. commenced
September 18, 1998.
C-4
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
<TABLE>
<CAPTION>
CNL Income CNL American CNL Income
Fund XVI, Properties Fund, Fund XVII,
Ltd. Inc. Ltd.
------------- ----------------- --------------
(Note 1)
<S> <C> <C> <C>
Date offering commenced 9/02/94 4/19/95, 2/06/97 9/02/95
and 3/02/98
Dollar amount raised $45,000,000 $747,464,420 $30,000,000
============= ================= ==============
Amount paid to sponsor from proceeds
of offering:
Selling commissions and discounts 3,825,000 56,059,832 2,550,000
Real estate commissions -- -- --
Acquisition fees (Notes 5 and 6) 2,475,000 33,604,618 1,350,000
Marketing support and due diligence
expense reimbursement fees
(includes amounts reallowed to
unaffiliated entities) 225,000 3,737,322 150,000
------------- ----------------- --------------
Total amount paid to sponsor 6,525,000 93,401,772 4,050,000
============= ================= ==============
Dollar amount of cash generated from
operations before deducting payments to
sponsor:
1999 (Note 7) 3,327,199 311,630,414 2,567,164
1998 3,765,104 42,216,874 2,638,733
1997 3,909,781 18,514,122 2,611,191
1996 3,911,609 6,096,045 1,340,159
1995 2,619,840 594,425 11,671
1994 212,171 -- --
1993 -- -- --
Amount paid to sponsor from operations
(administrative, accounting and
management fees) (Note 6):
1999 175,968 4,369,200 117,146
1998 141,410 3,100,599 117,814
1997 129,357 1,437,908 116,077
1996 157,883 613,505 107,211
1995 138,445 95,966 2,659
1994 7,023 -- --
1993 -- -- --
Dollar amount of property sales
and refinancing before deducting
payments to sponsor:
Cash (Note 3) 2,052,695 14,349,067 1,675,385
Notes -- -- --
Amount paid to sponsors from property
sales and refinancing:
Real estate commissions -- -- --
Incentive fees -- -- --
Other (Notes 2 and 6) -- -- --
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective March 29, 1995, CNL
American Properties Fund, Inc. ("APF") registered for sale
$165,000,000 of shares of common stock (the "Initial Offering"),
including $15,000,000 available only to stockholders participating in
the company's reinvestment plan. The Initial Offering of APF
commenced April 19, 1995, and upon completion of the Initial Offering
on February 6, 1997, had received subscription proceeds of
$150,591,765 (7,529,588 shares), including $591,765 (29,588 shares)
issued pursuant to the reinvestment plan. Pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933, as amended,
effective January 31, 1997, APF registered for sale $275,000,000 of
shares of common stock (the "1997 Offering"), including $25,000,000
available only to stockholders participating in the company's
reinvestment plan. The 1997 Offering of APF commenced following the
completion of the Initial Offering on February 6, 1997, and upon
completion of the 1997 Offering on March 2, 1998, had received
subscription proceeds of $251,872,648 (12,593,633 shares), including
$1,872,648 (93,632 shares) issued pursuant to the reinvestment plan.
Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective May 12, 1998, APF
registered for sale $345,000,000 of shares of common stock (the "1998
Offering"). The 1998 Offering of APF commenced following the
completion of the 1997 Offering on March 2, 1998. As of January 31,
1999, APF had received subscriptions totalling approximately
$345,000,000 (17,250,000 shares), from the 1998 Offering, including
$3,107,848 (155,393 shares) issued pursuant to the company's
reinvestment plan. The 1998 Offering became fully subscribed in
December 1998 and proceeds from the last subscriptions were received
in January 1999. The amounts shown represent the combined results of
the Initial Offering, the 1997 Offering and the 1998 Offering as of
January 31, 1999, including shares issued pursuant to the company's
reinvestment plans.
C-5
<PAGE>
CNL Income CNL Health Care
Fund XVIII, Properties,
Ltd. Inc.
- ---------------- ------------------
(Note 4)
9/20/96
$35,000,000
================
2,975,000
--
1,575,000
175,000
- ----------------
4,725,000
================
2,921,071
2,964,628
1,459,963
30,126
--
--
--
124,031
132,890
98,207
2,980
--
--
--
688,997
--
--
--
--
Note 2: For negotiating secured equipment leases and supervising the secured
equipment lease program, APF was required to pay its external advisor
a one-time secured equipment lease servicing fee of two percent of
the purchase price of the equipment that is the subject of a secured
equipment lease (see Note 6). During the years ended December 31,
1999, 1998, 1997 and 1996, APF incurred $77,317, $54,998, $87,665 and
$70,070, respectively, in secured equipment lease servicing fees.
Note 3: Excludes properties sold and substituted with replacement properties,
as permitted under the terms of the lease agreements.
Note 4: Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective September 18, 1998, CNL
Health Care Properties, Inc. registered for sale $155,000,000 of
shares of common stock, including $5,000,000 available only to
stockholders participating in the company's reinvestment plan. The
offering of shares of CNL Health Care Properties, Inc. commenced
September 18, 1998. As of December 31, 1999, CNL Health Care
Properties, Inc. had received subscription proceeds of $5,435,283
(543,528 shares) from the offering, including 1,254 shares ($12,540)
through the reinvestment plan and 23,500 shares ($235,000) from
Pennsylvania investors which will be held in escrow until the Company
receives aggregate subscriptions of at least $7,775,000. From the
commencement of the offering through December 31, 1999, total selling
commissions and discounts were $390,021, marketing support and due
diligence expense reimbursement fees were $26,002, and acquisition
fees were $234,013, for a total due to the sponsor
C-6
<PAGE>
TABLE II - COMPENSATION TO SPONSOR - CONTINUED
Note 4
(Continued):
of $650,035. CNL Health Care Properties, Inc. had cash generated from
operations for the period July 13, 1999 (the date funds were
originally released from escrow) through December 31, 1999 of
$12,851. CNL Health Care Properties, Inc. made payments of $37,591 to
the sponsor from operations for this period.
Note 5: In addition to acquisition fees paid on gross proceeds from the
offerings, prior to becoming self advised on September 1, 1999 APF
also incurred acquisition fees relating to proceeds from its line of
credit to the extent the proceeds were used to acquire properties.
Such fees were paid using proceeds from the line of credit, and as of
December 31, 1999, APF had incurred $6,175,521 of such fees (see note
6).
Note 6: On September 1, 1999, APF issued 6,150,000 shares of common stock
(with an exchange value of $20 per share) to affiliates of APF to
acquire its external advisor and two companies which make and service
mortgage loans and securitize portions of such loans. As a result of
the acquisition, APF ceased payment of acquisition fees,
administrative, accounting, management and equipment lease servicing
fees.
Note 7: In September 1999, APF acquired two companies which make and service
mortgage loans and securitize portions of loans. Effective with these
acquisitions, APF classifies its investments in mortgage loans,
proceeds from sale of mortgage loans, collections of mortgage loans,
proceeds from securitization transactions and purchases of other
investments as operating activities in its financial statements.
Prior to these acquisitions, these types of transactions were
classified as investing activities in its financial statements.
C-7
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XVI, LTD.
<TABLE>
<CAPTION>
1993
(Note 1) 1994 1995 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 186,257 $ 2,702,504 $ 4,343,390
Equity in earnings from joint venture 0 0 0 19,668
Gain/(loss) from sale of properties
(Notes 4, 5 and 10) 0 0 0 124,305
Provision for loss on building (Note 8) 0 0 0 0
Interest income 0 21,478 321,137 75,160
Less: Operating expenses 0 (10,700) (274,595) (261,878)
Transaction costs 0 0 0 0
Interest expense 0 0 0 0
Depreciation and amortization 0 (9,458) (318,205) (552,447)
-------------- -------------- -------------- -------------
Net income - GAAP basis 0 187,577 2,430,841 3,748,198
============== ============== ============== =============
Taxable income
- from operations 0 189,864 2,139,382 3,239,830
============== ============== ============== =============
- from gain (loss) on sale
(Notes 4, 5 and 10) 0 0 0 0
============== ============== ============== =============
Cash generated from operations
(Notes 2 and 3) 0 205,148 2,481,395 3,753,726
Cash generated from sales (Notes 4, 5 and 10) 0 0 0 775,000
Cash generated from refinancing 0 0 0 0
-------------- -------------- -------------- -------------
Cash generated from operations, sales and
refinancing 0 205,148 2,481,395 4,528,726
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (2,845) (1,798,921) (3,431,251)
- from cash flow from prior period 0 0 0 0
-------------- -------------- -------------- -------------
Cash generated (deficiency) after cash
distributions 0 202,303 682,474 1,097,475
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 20,174,172 24,825,828 0
General partners' capital
contributions 1,000 0 0 0
Syndication costs 0 (1,929,465) (2,452,743) 0
Acquisition of land and buildings 0 (13,170,132) (16,012,458) (2,355,627)
Investment in direct financing leases 0 (975,853) (5,595,236) (405,937)
Investment in joint ventures 0 0 0 (775,000)
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income
Fund XVI, Ltd. by related parties 0 (854,154) (405,569) (2,494)
Increase in other assets 0 (443,625) (58,720) 0
Increase (decrease) in restricted cash 0 0 0 0
Reimbursement from developer of
construction costs 0 0 0 0
Other (36) (20,714) 20,714 0
-------------- -------------- -------------- -------------
Cash generated (deficiency) after cash
distributions and special items 964 2,982,532 1,004,290 (2,441,583)
============== ============== ============== =============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 17 53 71
============== ============== ============== =============
- from recapture 0 0 0 0
============== ============== ============== =============
Capital gain (loss) (Notes 4, 5 and 10) 0 0 0 0
============== ============== ============== =============
</TABLE>
C-8
<PAGE>
1997 1998 1999
- ---------------- -------------- -------------
$ 4,308,853 $ 3,901,555 $ 3,852,222
73,507 132,002 158,580
41,148 0 (84,478)
0 (266,257) 0
73,634 60,199 49,008
(272,932) (270,489) (359,311)
0 (24,652) (212,093)
0 0 0
(563,883) (555,360) (588,920)
- ---------------- -------------- -------------
3,660,327 2,976,998 2,815,008
================ ============== =============
3,178,911 3,153,618 2,835,955
================ ============== =============
64,912 0 (102,397)
================ ============== =============
3,780,424 3,623,694 3,151,231
610,384 0 667,311
0 0 0
- ---------------- -------------- -------------
4,390,808 3,623,694 3,818,542
(3,600,000) (3,623,694) (3,151,231)
0 (66,306) (448,769)
- ---------------- -------------- -------------
790,808 (66,306) 218,542
0 0 0
0 0 0
0 0 0
(23,501) (3,545) 0
(29,257) (28,403) 0
0 (744,058) (158,512)
0 0 0
0 0 0
(610,384) 610,384 0
0 161,648 0
0 0 (25,866)
- ---------------- -------------- -------------
127,666 (70,280) 34,164
================ ============== =============
70 69 62
================ ============== =============
0 0 0
================ ============== =============
1 0 (2)
================ ============== =============
C-9
<PAGE>
TABLE III - CNL INCOME FUND XVI, LTD. (continued)
<TABLE>
<CAPTION>
1993
(Note 1) 1994 1995 1996
-------- ----- ----- -----
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 1 45 76
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 0
-------- ----- ----- -----
Total distributions on GAAP basis (Note 6) 0 1 45 76
======== ===== ===== =====
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 1 45 76
- from prior period 0 0 0 0
-------- ----- ----- -----
Total distributions on cash basis (Note 6) 0 1 45 76
======== ===== ===== =====
Total cash distributions as a percentage
of original $1,000 investment
(Notes 7 and 9) 0.00% 4.50% 6.00% 7.88%
Total cumulative cash distributions per
$1,000 investment from inception 0 1 46 122
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties in
program) (Notes 4, 5 and 10) N/A 100% 100% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the
Securities Act of 1933, as amended, CNL Income Fund XVI, Ltd. ("CNL
XVI") and CNL Income Fund XV, Ltd. each registered for sale
$40,000,000 units of limited partnership interests ("Units"). The
offering of Units of CNL Income Fund XV, Ltd. commenced February 23,
1994. Pursuant to the registration statement, CNL XVI could not
commence until the offering of Units of CNL Income Fund XV, Ltd. was
terminated. CNL Income Fund XV, Ltd. terminated its offering of Units
on September 1, 1994, at which time the maximum offering proceeds of
$40,000,000 had been received. Upon the termination of the offering
of Units of CNL Income Fund XV, Ltd., CNL XVI commenced its offering
of Units. Activities through September 22, 1994, were devoted to
organization of the partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
less cash paid for expenses, plus interest received.
Note 3: Cash generated from operations per this table agrees to cash
generated from operations per the statement of cash flows included in
the financial statements of CNL XVI.
Note 4: In April 1996, CNL XVI sold one of its properties and received net
sales proceeds of $775,000, resulting in a gain of $124,305 for
financial reporting purposes. In October 1996, CNL XVI reinvested the
net sales proceeds in an additional property as tenants-in-common
with an affiliate of the general partners.
Note 5: In March 1997, CNL XVI sold one of its properties and received net
sales proceeds of $610,384, resulting in a gain of $41,148 for
financial reporting purposes. In January 1998, CNL XVI reinvested the
net sales proceeds in an additional property as tenants-in-common
with affiliates of the general partners.
Note 6: Distributions declared for the quarters ended December 31, 1994,
1995, 1996, 1997 and 1998 are reflected in the 1995, 1996, 1997, 1998
and 1999 columns, respectively, due to the payment of such
distributions in January 1995, 1996, 1997, 1998 and 1999,
respectively. As a result of distributions being presented on a cash
basis, distributions declared and unpaid as of December 31, 1994,
1995, 1996, 1997, 1998 and 1999 are not included in the 1994, 1995,
1996, 1997, 1998 and 1999 totals, respectively.
Note 7: Cash distributions for 1998 include an additional amount equal to
0.20% of invested capital which was earned in 1997 but declared
payable in the first quarter of 1998.
Note 8: During the year ended December 31, 1998, CNL XVI recorded a provision
for loss on building of $266,257 for financial reporting purposes
relating to a Long John Silver's property in Celina, Ohio. The tenant
of this property filed for bankruptcy and ceased payment of rents
under the terms of its lease agreement. The allowance represents the
difference between the Property's carrying value at December 31, 1998
and the estimated net realizable value for this Property.
C-10
<PAGE>
1997 1998 1999
- ----- ----- -----
80 65 62
0 0 0
0 17 18
- ----- ----- -----
80 82 80
===== ===== =====
0 0 0
0 0 0
80 81 70
0 1 10
- ----- ----- -----
80 82 80
===== ===== =====
8.00% 8.20% 8.00%
202 284 364
100% 100% 99%
Note 9: Total cash distributions as a percentage of original $1,000
investment are calculated based on actual distributions declared for
the period. (See Note 6 above)
Note 10: In November 1999, CNL XVI sold one of its properties and received net
sales proceeds of $667,311, resulting in a loss of $84,478 for
financial reporting purposes. CNL XVI intends to reinvest the net
sales proceeds from the sale of this property in an additional
property.
C-11
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL AMERICAN PROPERTIES FUND, INC.
<TABLE>
<CAPTION>
1994 1997
(Note 1) 1995 1996 (Note 2)
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 539,776 $4,363,456 $ 15,516,102
Equity in earnings of joint venture 0 0 0 0
Loss on sale of assets (Notes 7 and 15) 0 0 0 0
Provision for losses on assets (Notes 12 and 14) 0 0 0 0
Interest income 0 119,355 1,843,228 3,941,831
Less: Operating expenses 0 (186,145) (908,924) (2,066,962)
Transaction costs 0 0 0 0
Interest expense 0 0 0 0
Depreciation and amortization 0 (104,131) (521,871) (1,795,062)
Advisor acquisition expense (Note 16) 0 0 0 0
Minority interest in income of consolidated
joint venture 0 (76) (29,927) (31,453)
------------ ------------ ------------- -------------
Net income (loss) - GAAP basis 0 368,779 4,745,962 15,564,456
============ ============ ============= =============
Taxable income
- from operations (Note 8) 0 379,935 4,894,262 15,727,311
============ ============ ============= =============
- from gain (loss) on sale (Notes 7 and 15) 0 0 0 (41,115)
============ ============ ============= =============
Cash generated from operations (Notes 4 and 5) 0 498,459 5,482,540 17,076,214
Cash generated from sales (Notes 7 and 15) 0 0 0 6,289,236
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------- -------------
Cash generated from operations, sales and 0 498,459 5,482,540 23,365,450
refinancing
Less: Cash distributions to investors (Note 9)
- from operating cash flow (Note 4) 0 (498,459) (5,439,404) (16,854,297)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
- from return of capital (Note 10) 0 (136,827) 0 0
------------ ------------ ------------- -------------
Cash generated (deficiency) after cash distributions 0 (136,827) 43,136 6,511,153
Special items (not including sales of real estate
and refinancing):
Subscriptions received from stockholders 0 38,454,158 100,792,991 222,482,560
Sale of common stock to CNL Fund
Advisors, Inc. 200,000 0 0 0
Retirement of shares of common stock
(Note 13) 0 0 0 0
Contributions from minority interest 0 200,000 97,419 0
Distributions to holder of minority interest 0 0 (39,121) (34,020)
Stock issuance costs (19) (3,680,704) (8,486,188) (19,542,862)
Acquisition of land and buildings 0 (18,835,969) (36,104,148) (143,542,667)
Investment in direct financing leases 0 (1,364,960) (13,372,621) (39,155,974)
Proceeds from sales of equipment direct
financing leases 0 0 0 962,274
Investment in joint venture 0 0 0 0
Purchase of other investments 0 0 0 0
Investment in mortgage notes receivable 0 0 (13,547,264) (4,401,982)
Collections on mortgage notes receivable 0 0 133,850 250,732
Investment in equipment and other notes
receivable 0 0 0 (12,521,401)
Collections on equipment and other notes
receivable 0 0 0 0
Investment in (redemption of) certificates of
deposit 0 0 0 (2,000,000)
Proceeds of borrowing on line of credit and
note payable 0 0 3,666,896 19,721,804
Payment on line of credit 0 0 (145,080) (20,784,577)
Reimbursement of organization, acquisition,
and deferred offering and stock issuance costs
paid on behalf of CNL American Properties Fund,
Inc. by related parties (199,036) (2,500,056) (939,798) (2,857,352)
Increase in intangibles and other assets 0 (628,142) (1,103,896) 0
Proceeds from borrowings on mortgage
warehouse facility 0 0 0 0
Payments on mortgage warehouse facility 0 0 0 0
Payments of loan costs 0 0 0 0
Other 0 0 (54,533) 49,001
------------ ------------ ------------- -------------
Cash generated (deficiency) after cash
distributions and special items 945 11,507,500 30,941,643 5,136,689
============ ============ ============= =============
</TABLE>
C-12
<PAGE>
1998 1999
(Note 3) (Note 3)
- --------------- ---------------
$33,202,491 $ 62,165,451
16,018 97,307
0 (1,851,838)
(611,534) (7,779,195)
8,984,546 13,335,146
(5,354,859) (12,833,224)
0 (6,798,803)
0 (10,205,197)
(4,054,098) (9,591,787)
0 (76,333,516)
(30,156) (41,678)
- --------------- ---------------
32,152,408 (49,837,334)
=============== ===============
33,553,390 58,152,473
=============== ===============
(149,948) (789,861)
=============== ===============
39,116,275 307,261,214
2,385,941 5,302,433
0 0
- --------------- ---------------
41,502,216 312,563,647
(39,116,275) (60,078,825)
0 0
(265,053) 0
(67,821) 0
- --------------- ---------------
2,053,067 252,484,822
385,523,966 210,736
0 0
(639,528) (50,891)
0 740,621
(34,073) (66,763
(34,579,650) (737,190)
(200,101,667) (286,411,210)
(47,115,435) (63,663,720)
0 2,252,766
(974,696) (187,452)
(16,083,055) 0
(2,886,648) (4,041,427)
291,990 393,468
(7,837,750) (26,963,918)
1,263,633 3,500,599
0 2,000,000
7,692,040 439,941,245
(8,039) (61,580,289)
(4,574,925) (1,492,310)
(6,281,069) (1,862,036)
0 27,101,067
0 (352,808,966)
0 (5,947,397)
(95,101) 0
- --------------- ---------------
75,613,060 (77,188,245)
=============== ===============
C-13
<PAGE>
TABLE III - CNL AMERICAN PROPERTIES FUND, INC. (continued)
<TABLE>
<CAPTION>
1994 1997
(Note 1) 1995 1996 (Note 2)
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED (Note 6)
Federal income tax results:
Ordinary income (loss) (Notes 9 and 11)
- from operations (Note 8) 0 20 61 67
============== ============= ============== =============
- from recapture 0 0 0 0
============== ============= ============== =============
Capital gain (loss) (Note 7) 0 0 0 0
============== ============= ============== =============
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 19 59 66
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 0
- from return of capital (Note 10) 0 14 8 6
-------------- ------------- -------------- -------------
Total distributions on GAAP basis (Note 11) 0 33 67 72
============== ============= ============== =============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations (Note 4) 0 26 67 72
- from cash flow from prior period 0 0 0 0
- from return of capital (Note 10) 0 7 0 0
-------------- ------------- -------------- -------------
Total distributions on cash basis (Note 11) 0 33 67 72
============== ============= ============== =============
Total cash distributions as a percentage of
original $1,000 investment (Note 6) 0.00% 5.34% 7.06% 7.45%
Total cumulative cash distributions per
$1,000 investment from inception 0 33 100 172
Amount (in percentage terms) remaining
invested in program properties at the end
of each year (period) presented (original
total acquisition cost of properties
retained, divided by original total
acquisition cost of all properties in
program) (Note 7) N/A 100% 100% 100%
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective March 29, 1995, CNL
American Properties Fund, Inc. ("APF") registered for sale
$165,000,000 of shares of common stock (the "Initial Offering"),
including $15,000,000 available only to stockholders participating in
the company's reinvestment plan. The Initial Offering of APF
commenced April 19, 1995, and upon completion of the Initial Offering
on February 6, 1997, had received subscription proceeds of
$150,591,765 (7,529,588 shares), including $591,765 (29,588 shares)
issued pursuant to the reinvestment plan. Pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933, as amended,
effective January 31, 1997, APF registered for sale $275,000,000 of
shares of common stock (the "1997 Offering"), including $25,000,000
available only to stockholders participating in the company's
reinvestment plan. The 1997 Offering of APF commenced following the
completion of the Initial Offering on February 6, 1997, and upon
completion of the 1997 Offering on March 2, 1998, had received
subscription proceeds of $251,872,648 (12,593,633 shares), including
$1,872,648 (93,632 shares) issued pursuant to the reinvestment plan.
Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective May 12, 1998, APF
registered for sale $345,000,000 of shares of common stock (the "1998
Offering"). The 1998 Offering of APF commenced following the
completion of the 1997 Offering on March 2, 1998. As of January 31,
1999, APF had received subscriptions totalling approximately
$345,000,000 (17,250,000 shares), from the 1998 Offering, including
$3,107,848 (155,393 shares) issued pursuant to the company's
reinvestment plan. The 1998 Offering became fully subscribed in
December 1998 and proceeds from the last subscriptions were received
in January 1999. Activities through June 1, 1995, were devoted to
organization of APF and operations had not begun.
Note 2: The amounts shown represent the combined results of the Initial
Offering and the 1997 Offering.
Note 3: The amounts shown represent the combined results of the Initial
Offering, 1997 Offering and 1998 Offering.
Note 4: Cash generated from operations from inception through September 1999
included cash received from tenants, less cash paid for expenses,
plus interest received. In September 1999, APF acquired two companies
which make and service mortgage loans and securitize portions of
loans. Effective with these acquisitions, APF classifies its
investments in mortgage loans, proceeds from sale of mortgage loans,
collections of mortgage loans, proceeds from securitization
transactions and
C-14
<PAGE>
1998 1999
(Note 3) (Note 3)
- ------------------ ---------------
63 74
================== ===============
0 0
================== ===============
0 (1)
================== ===============
60 0
0 0
0 0
14 76
- ------------------ ---------------
74 76
================== ===============
0 0
0 0
73 76
1 0
0 0
- ------------------ ---------------
74 76
================== ===============
7.625% 7.62%
246 322
100% 100%
Note 4
(Continued):
purchases of other investments as operating activities in its
financial statements. Prior to these acquisitions, these types of
transactions were classified as investing activities in its financial
statements.
Note 5: Cash generated from operations per this table agrees to cash
generated from operations per the statement of cash flows included in
the financial statements of APF.
Note 6: Total cash distributions as a percentage of original $1,000
investment are calculated based on actual distributions declared for
the period.
Note 7: In May 1997 and July 1997, APF sold four properties and one property,
respectively, to a tenant for $5,254,083 and $1,035,153,
respectively, which was equal to the carrying value of the properties
at the time of sale. In May and July 1998, APF sold two and one
properties, respectively, to third parties for $1,605,154 and
$1,152,262, respectively (and received net sales proceeds of
approximately $1,233,700 and $629,435, respectively, after deduction
of construction costs incurred but not paid by APF as of the date of
the sale), which approximated the carrying value of the properties at
the time of sale. As a result, no gain or loss was recognized for
financial reporting purposes.
Note 8: Taxable income presented is before the dividends paid deduction.
Note 9: For the years ended December 31, 1999, 1998, 1997, 1996 and 1995,
97%, 84.87%, 93.33%, 90.25% and 59.82%, respectively, of the
distributions received by stockholders were considered to be ordinary
income and 15%, 15.13%, 6.67%, 9.75% and 40.18%, respectively, were
considered a return of capital for federal income tax purposes. No
amounts distributed to stockholders for the years ended December 31,
1999, 1998, 1997, 1996 and 1995 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.
C-15
<PAGE>
TABLE III - CNL AMERICAN PROPERTIES FUND, INC. (continued)
Note 10: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income (loss)
includes deductions for depreciation and amortization expense and
income from certain non-cash items. This amount is not required to be
presented as a return of capital except for purposes of this table,
and APF has not treated this amount as a return of capital for any
other purpose. During the year ended December 31, 1999, accumulated
net loss included a non-cash deduction for the advisor acquisition
expense of $76,333,516 (see Note 16).
Note 11: Tax and distribution data and total distributions on GAAP basis were
computed based on the weighted average dollars outstanding during
each period presented.
Note 12: During the year ended December 31, 1998, APF recorded provisions for
losses on land and buildings in the amount of $611,534 for financial
reporting purposes relating to two Shoney's properties and two Boston
Market properties. The tenants of these properties experienced
financial difficulties and ceased payment of rents under the terms of
their lease agreements. The allowances represent the difference
between the carrying value of the properties at December 31, 1998 and
the estimated net realizable value for these properties.
Note 13: In October 1998, the Board of Directors of APF elected to implement
APF's redemption plan. Under the redemption plan, APF elected to
redeem shares, subject to certain conditions and limitations. During
the year ended December 31, 1998, 69,514 shares were redeemed at
$9.20 per share ($639,528) and retired from shares outstanding of
common stock. During 1999, as a result of the stockholders approving
a one-for-two reverse stock split of common stock, the Company agreed
to redeem fractional shares (2,545 shares).
Note 14: During the year ended December 31, 1999, APF recorded provisions for
losses on buildings in the amount of $7,779,495 for financial
reporting purposes relating to several properties. The tenants of
these properties experienced financial difficulties and ceased
payment of rents under the terms of their lease agreements. The
allowances represent the difference between the carrying value of the
properties at December 31, 1999 and the estimated net realizable
value for these properties.
Note 15: During the year ended December 31, 1999, APF sold six properties and
received aggregate net sales proceeds of $5,302,433, which resulted
in a total aggregate loss of $781,192 for financial reporting
purposes. APF reinvested the proceeds from the sale of properties in
additional properties. In addition, APF recorded a loss on
securitization of $1,070,646 for financial reporting purposes.
Note 16: On September 1, 1999, APF issued 6,150,000 shares of common stock to
affiliates of APF to acquire its external advisor and two companies
which make and service mortgage loans and securitize portions of
loans. APF recorded an advisor acquisition expense of $76,333,516
relating to the acquisition of the external advisor, which
represented the excess purchase price over the net assets acquired.
C-16
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XVII, LTD.
<TABLE>
<CAPTION>
1995
(Note 1) 1996 1997 1998
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 1,195,263 $ 2,643,871 $ 2,816,845
Equity in earnings of unconsolidated joint 0 4,834 100,918 140,595
ventures
Loss on dissolution of consolidated joint
venture (Note 7) 0 0 0 0
Interest income 12,153 244,406 69,779 51,240
Less: Operating expenses (3,493) (169,536) (181,865) (168,542)
Transaction costs 0 0 0 (14,139)
Interest expense 0 0 0 0
Depreciation and amortization (309) (179,208) (387,292) (369,209)
Minority interest in income of
consolidated joint venture 0 0 (41,854) (62,632)
-------------- -------------- ------------- --------------
Net income - GAAP basis 8,351 1,095,759 2,203,557 2,394,158
============== ============== ============= ==============
Taxable income
- from operations 12,153 1,114,964 2,058,601 2,114,039
============== ============== ============= ==============
- from gain (loss) on sale (Note 7) 0 0 0 0
============== ============== ============= ==============
Cash generated from operations (Notes
2 and 3) 9,012 1,232,948 2,495,114 2,520,919
Cash generated from sales (Note7) 0 0 0 0
Cash generated from refinancing 0 0 0 0
-------------- -------------- ------------- --------------
Cash generated from operations, sales and
refinancing 9,012 1,232,948 2,495,114 2,520,919
Less: Cash distributions to investors (Note 4)
- from operating cash flow (1,199) (703,681) (2,177,584) (2,400,000)
- from sale of properties 0 0 0 0
-------------- -------------- ------------- --------------
Cash generated (deficiency) after cash
distributions 7,813 529,267 317,530 120,919
Special items (not including sales and refinancing):
Limited partners' capital contributions 5,696,921 24,303,079 0 0
General partners' capital contributions 1,000 0 0 0
Contributions from minority interest 0 140,676 278,170 0
Distribution to holder of minority interest 0 0 (41,507) (49,023)
Distribution to holder of minority interest
from dissolution of consolidated joint
venture 0 0 0 0
Syndication costs (604,348) (2,407,317) 0 0
Acquisition of land and buildings (332,928) (19,735,346) (1,740,491) 0
Investment in direct financing leases 0 (1,784,925) (1,130,497) 0
Investment in joint ventures 0 (201,501) (1,135,681) (124,452)
Reimbursement of organization, syndication
and acquisition costs paid on behalf of
CNL Income Fund XVII, Ltd. by related
parties (347,907 ) (326,483 ) (25,444 ) 0
Increase in other assets (221,282 ) 0 0 0
Reimbursement from developer of
construction costs 0 0 0 306,100
Other (410 ) 410 0 0
-------------- -------------- ------------- --------------
Cash generated (deficiency) after cash
distributions and special items 4,198,859 517,860 (3,477,920 ) 253,544
============== ============== ============= ==============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 36 37 69 70
============== ============== ============= ==============
- from recapture 0 0 0 0
============== ============== ============= ==============
Capital gain (loss) (Note 7) 0 0 0 0
============== ============== ============= ==============
</TABLE>
C-17
<PAGE>
1999
- -----------------
$ 2,403,040
182,132
(82,914)
44,184
(219,361)
(71,366)
0
(384,985)
(31,461)
- -----------------
1,839,269
=================
2,003,243
=================
(23,150)
=================
2,450,018
2,094,231
0
- -----------------
4,544,249
(2,400,000)
0
- -----------------
2,144,249
0
0
0
(46,567)
(417,696)
0
0
0
(527,864)
0
0
0
0
- -----------------
1,152,122
=================
66
=================
0
=================
(1)
=================
C-18
<PAGE>
TABLE III - CNL INCOME FUND XVII, LTD. (continued)
<TABLE>
<CAPTION>
<S> <C>
1995
(Note 1) 1996 1997 1998
-------------- ------------- -------------- -------------
Cash distributions to investors
Source (on GAAP basis)
- from investment income 4 23 73 79
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 1
-------------- ------------- -------------- -------------
Total distributions on GAAP basis (Note 4) 4 23 73 80
============== ============= ============== =============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 4 23 73 80
-------------- ------------- -------------- -------------
Total distributions on cash basis (Note 4) 4 23 73 80
============== ============= ============== =============
Total cash distributions as a percentage of
original $1,000 investment (Note 5) 5.00% 5.50% 7.625% 8.00%
Total cumulative cash distributions per
$1,000 investment from inception 4 27 100 180
Amount (in percentage terms) remaining
invested in program properties at the end
of each year (period) presented (original
total acquisition cost of properties
retained, divided by original total
acquisition cost of all properties in
program) (Notes 6 and 7) N/A 100% 100% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the
Securities Act of 1933, as amended, effective August 11, 1995, CNL
Income Fund XVII, Ltd. ("CNL XVII") and CNL Income Fund XVIII, Ltd.
each registered for sale $30,000,000 units of limited partnership
interests ("Units"). The offering of Units of CNL Income Fund XVII,
Ltd. commenced September 2, 1995. Pursuant to the registration
statement, CNL XVIII could not commence until the offering of Units
of CNL Income Fund XVII, Ltd. was terminated. CNL Income Fund XVII,
Ltd. terminated its offering of Units on September 19, 1996, at which
time subscriptions for the maximum offering proceeds of $30,000,000
had been received. Upon the termination of the offering of Units of
CNL Income Fund XVII, Ltd., CNL XVIII commenced its offering of
Units. Activities through November 3, 1995, were devoted to
organization of the partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash
generated from operations per the statement of cash flows included in
the financial statements of CNL XVII.
Note 4: Distributions declared for the quarters ended December 31, 1995,
1996, 1997 and 1998 are reflected in the 1996, 1997, 1998 and 1999
columns, respectively, due to the payment of such distributions in
January 1996, 1997, 1998 and 1999, respectively. As a result of
distributions being presented on a cash basis, distributions declared
and unpaid as of December 31, 1995, 1996, 1997, 1998 and 1999 are not
included in the 1995, 1996, 1997, 1998 and 1999 totals, respectively.
Note 5: Total cash distributions as a percentage of original $1,000
investment are calculated based on actual distributions declared for
the period. (See Note 4 above)
Note 6: During 1998, CNL XVII received approximately $306,100 in
reimbursements from the developer upon final reconciliation of total
construction costs relating to the properties in Aiken, South
Carolina and Weatherford, Texas, in accordance with the related
development agreements. During 1999, CNL XVII had reinvested these
amounts, plus additional funds, in a property as tenants-in-common
with an affiliate of the general partners and in Ocean Shores Joint
Venture, with an affiliate of CNL XVII which has the same general
partners.
Note 7: During 1999, CNL/El Cajon Joint Venture, CNL XVII's consolidated
joint venture in which CNL XVII owned an 80% interest, sold its
property to the 20% joint venture partner and dissolved the joint
venture. CNL XVII did not recognize any gain or loss from the sale of
the property for financial reporting purposes. CNL XVII intends to
reinvest the proceeds from the dissolution in an additional property.
As a result of the dissolution, CNL XVII recognized a loss on
dissolution of $82,914 for financial reporting purposes.
C-19
<PAGE>
1999
- ------------------
61
0
19
- ------------------
80
==================
0
0
80
- ------------------
80
==================
8.00%
260
94%
C-20
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XVIII, LTD.
<TABLE>
<CAPTION>
1995
(Note 1) 1996 1997 1998
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 1,373 $ 1,291,416 $ 2,956,349
Equity in earnings of joint venture 0 0 0 0
Gain on sale of properties (Note 7) 0 0 0 0
Provision for loss on land (Note 5) 0 0 0 (197,466)
Interest income 0 30,241 161,826 141,408
Less: Operating expenses 0 (3,992) (156,403) (207,974)
Transaction costs 0 0 0 (15,522)
Interest expense 0 0 0 0
Depreciation and amortization 0 (712) (142,079) (374,473)
-------------- -------------- ------------- --------------
Net income - GAAP basis 0 26,910 1,154,760 2,302,322
============== ============== ============= ==============
Taxable income
- from operations 0 30,223 1,318,750 2,324,746
============== ============== ============= ==============
- from gain on sale (Note 7) 0 0 0 0
============== ============== ============= ==============
Cash generated from operations (Notes
2 and 3) 0 27,146 1,361,756 2,831,738
Cash generated from sales (Note 7) 0 0 0 0
Cash generated from refinancing 0 0 0 0
-------------- -------------- ------------- --------------
Cash generated from operations, sales and
refinancing 0 27,146 1,361,756 2,831,738
Less: Cash distributions to investors (Note 4)
- from operating cash flow 0 (2,138) (855,957) (2,468,400)
- from cash flow from prior period 0 0 0 0
-------------- -------------- ------------- --------------
Cash generated (deficiency) after cash
distributions 0 25,008 505,799 363,338
Special items (not including sales and refinancing):
Limited partners' capital contributions 0 8,498,815 25,723,944 854,241
General partners' capital contributions 1,000 0 0 0
Contributions from minority interest 0 0 0 0
Syndication costs 0 (845,657) (2,450,214) (161,142 )
Acquisition of land and buildings 0 (1,533,446) (18,581,999) (3,134,046 )
Investment in direct financing leases 0 0 (5,962,087) (12,945 )
Investment in joint venture 0 0 0 (166,025 )
Increase in restricted cash 0 0 0 0
Reimbursement of organization, syndication
and acquisition costs paid on behalf of CNL
Income Fund XVIII, Ltd. by related parties 0 (497,420) (396,548) (37,135 )
Increase in other assets 0 (276,848) 0 0
Other (20 ) (107) (66,893) (10,000 )
-------------- -------------- ------------- --------------
Cash generated (deficiency) after cash
distributions and special items 980 5,370,345 (1,227,998) (2,303,714 )
============== ============== ============= ==============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 6 57 66
============== ============== ============= ==============
- from recapture 0 0 0 0
============== ============== ============= ==============
Capital gain (loss) (Note 7) 0 0 0 0
============== ============== ============= ==============
</TABLE>
C-21
<PAGE>
1999
- ---------------
$ 3,075,379
61,656
46,300
0
55,336
(256,060)
(74,734)
0
(392,521)
- ---------------
2,515,356
===============
2,341,350
===============
80,170
===============
2,797,040
688,997
0
- ---------------
3,486,037
(2,797,040)
(2,958)
- ---------------
686,039
0
0
0
0
(25,792)
0
(526,138)
(688,997)
(2,495)
0
(117)
- ---------------
(557,500)
===============
66
===============
0
===============
2
===============
C-22
<PAGE>
TABLE III - CNL INCOME FUND XVIII, LTD. (continued)
<TABLE>
<CAPTION>
1995
(Note 1) 1996 1997 1998
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 0 38 65
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 6
-------------- ------------- -------------- -------------
Total distributions on GAAP basis (Note 4) 0 0 38 71
============== ============= ============== =============
Source (on cash basis)
- from sales (Note 7) 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 0 38 71
-------------- ------------- -------------- -------------
Total distributions on cash basis (Note 4) 0 0 38 71
============== ============= ============== =============
Total cash distributions as a percentage of
original $1,000 investment from
inception 0.00% 5.00% 5.75% 7.63%
Total cumulative cash distributions per
$1,000 investment (Note 6) 0 0 38 109
Amount (in percentage terms) remaining
invested in program properties at the end
of each year (period) presented (original
total acquisition cost of properties
retained, divided by original total N/A 100% 100% 100%
acquisition cost of all properties in
program) (Note 7)
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the
Securities Act of 1933, as amended, effective August 11, 1995,
CNL Income Fund XVIII, Ltd ("CNL XVIII") and CNL Income Fund
XVII, Ltd. each registered for sale $30,000,000 units of
limited partnership interest ("Units"). The offering of Units
of CNL Income Fund XVII, Ltd. commenced September 2, 1995.
Pursuant to the registration statement, CNL XVIII could not
commence until the offering of Units of CNL Income Fund XVII,
Ltd. was terminated. CNL Income Fund XVII, Ltd. terminated its
offering of Units on September 19, 1996, at which time the
maximum offering proceeds of $30,000,000 had been received.
Upon the termination of the offering of Units of CNL Income
Fund XVII, Ltd., CNL XVIII commenced its offering of Units.
Activities through October 11, 1996, were devoted to
organization of the partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from
tenants, less cash paid for expenses, plus interest received.
Note 3: Cash generated from operations per this table agrees to
cash generated from operations per the statement of cash flows
included in the financial statements of CNL XVIII.
Note 4: Distributions declared for the quarters ended December
1996, 1997 and 1998 are reflected in the 1997, 1998 and 1999
columns, respectively, due to the payment of such
distributions in January 1997, 1998 and 1999, respectively. As
a result of distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1996,
1997, 1998 and 1999 are not included in the 1996, 1997, 1998
and 1999 totals, respectively.
Note 5: During the year ended December 31, 1998, CNL XVIII
established an allowance for loss on land of $197,466 for
financial reporting purposes relating to the property in
Minnetonka, Minnesota. The tenant of this Boston Market
property declared bankruptcy and rejected the lease relating
to this property. The loss represents the difference between
the Property's carrying value at December 31, 1998 and the
current estimate of net realizable value.
Note 6: Total cash distributions as a percentage of original $1,000
investment are calculated based on actual distributions
declared for the period. (See Note 4 above)
Note 7: In December 1999, CNL XVIII sold one of its properties and
received net sales proceeds of $688,997, resulting in a gain
of $46,300 for financial reporting purposes. CNL XVIII intends
to reinvest the net sales proceeds from the sale of this
property in an additional property.
C-23
<PAGE>
1999
- ----------------
71
1
8
- ----------------
80
================
0
0
80
- ----------------
80
================
8.00%
189
98%
C-24
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
Selling Price, Net of
Closing Costs and GAAP Adjustments
---------------------------------------------------------------
Purchase
money Adjustments
Cash Mortgage mortgage resulting
received net balance taken from
Date Date of of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
============================== ============= ============ ============== ========== ========== ============ =============
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund, Ltd.:
Burger King -
San Dimas, CA (14) 02/05/87 06/12/92 $1,169,021 0 0 0 $1,169,021
Wendy's -
Fairfield, CA (14) 07/01/87 10/03/94 1,018,490 0 0 0 1,018,490
Wendy's -
Casa Grande, AZ 12/10/86 08/19/97 795,700 0 0 0 795,700
Wendy's -
North Miami, FL (9) 02/18/86 08/21/97 473,713 0 0 0 473,713
Popeye's -
Kissimmee, FL (14) 12/31/86 04/30/98 661,300 0 0 0 661,300
Golden Corral -
Kent Island, MD (21) 11/20/86 10/15/99 870,457 0 0 0 870,457
CNL Income Fund II, Ltd.:
Golden Corral -
Salisbury, NC 05/29/87 07/21/93 746,800 0 0 0 746,800
Pizza Hut -
Graham, TX 08/24/87 07/28/94 261,628 0 0 0 261,628
Golden Corral -
Medina, OH (11) 11/18/87 11/30/94 825,000 0 0 0 825,000
Denny's -
Show Low, AZ (8) 05/22/87 01/31/97 620,800 0 0 0 620,800
KFC -
Eagan, MN 06/01/87 06/02/97 623,882 0 42,000 0 665,882
KFC -
Jacksonville, FL 09/01/87 09/09/97 639,363 0 0 0 639,363
Wendy's -
Farmington Hills, MI 05/18/87 10/09/97 833,031 0 0 0 833,031
(12)
Wendy's -
Farmington Hills, MI 05/18/87 10/09/97 1,085,259 0 0 0 1,085,259
(13) (14)
Denny's -
Plant City, FL 11/23/87 10/24/97 910,061 0 0 0 910,061
Pizza Hut -
Mathis, TX 12/17/87 12/04/97 297,938 0 0 0 297,938
KFC -
Avon Park, FL (14) 09/02/87 12/10/97 501,975 0 0 0 501,975
Golden Corral -
Columbia, MO 11/17/87 03/23/99 678,888 0 0 0 678,888
Little House -
Littleton, CO 10/07/87 11/05/99 150,000 0 0 0 150,000
CNL Income Fund III, Ltd.:
Wendy's -
Chicago, IL (14) 06/02/88 01/10/97 496,418 0 0 0 496,418
Perkins -
Bradenton, FL 06/30/88 03/14/97 1,310,001 0 0 0 1,310,001
Cost of Properties
Including Closing and
Soft Costs
-------------------------------------
Excess
Total (deficiency)
acquisition of property
cost, operating
capital cash
Original improvements receipts
mortgage closing and over cash
Property financing soft costs(1) Total expenditures
============================== ============= ============= ============ =============
CNL Income Fund, Ltd.:
Burger King -
San Dimas, CA (14) 0 $955,000 $955,000 $214,021
Wendy's -
Fairfield, CA (14) 0 861,500 861,500 156,990
Wendy's -
Casa Grande, AZ 0 667,255 667,255 128,445
Wendy's -
North Miami, FL (9) 0 385,000 385,000 88,713
Popeye's -
Kissimmee, FL (14) 0 475,360 475,360 185,940
Golden Corral -
Kent Island, MD (21) 0 726,600 726,600 143,857
CNL Income Fund II, Ltd.:
Golden Corral -
Salisbury, NC 0 642,800 642,800 104,000
Pizza Hut -
Graham, TX 0 205,500 205,500 56,128
Golden Corral -
Medina, OH (11) 0 743,000 743,000 82,000
Denny's -
Show Low, AZ (8) 0 484,185 484,185 136,615
KFC -
Eagan, MN 0 601,100 601,100 64,782
KFC -
Jacksonville, FL 0 405,000 405,000 234,363
Wendy's -
Farmington Hills, MI 0 679,000 679,000 154,031
(12)
Wendy's -
Farmington Hills, MI 0 887,000 887,000 198,259
(13) (14)
Denny's -
Plant City, FL 0 820,717 820,717 89,344
Pizza Hut -
Mathis, TX 0 202,100 202,100 95,838
KFC -
Avon Park, FL (14) 0 345,000 345,000 156,975
Golden Corral -
Columbia, MO 0 511,200 511,200 167,688
Little House -
Littleton, CO 0 330,456 330,456 (180,456)
CNL Income Fund III, Ltd.:
Wendy's -
Chicago, IL (14) 0 591,362 591,362 (94,944)
Perkins -
Bradenton, FL 0 1,080,500 1,080,500 229,501
</TABLE>
C-25
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
Selling Price, Net of
Closing Costs and GAAP Adjustments
------------------------------------------------------------------
Purchase Adjustments
Cash Mortgage money resulting
received net balance mortgage from
Date Date of of closing at time taken back application
Property Acquired Sale costs of sale by program of GAAP Total
============================== ============= ============ ============== ========== ============= ============ =============
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund III, Ltd.
(Continued):
Pizza Hut -
Kissimmee, FL 02/23/88 04/08/97 673,159 0 0 0 673,159
Burger King -
Roswell, GA 06/08/88 06/20/97 257,981 0 685,000 0 942,981
Wendy's -
Mason City, IA 02/29/88 10/24/97 217,040 0 0 0 217,040
Taco Bell -
Fernandina Beach, FL 04/09/88 01/15/98 721,655 0 0 0 721,655
(14)
Denny's -
Daytona Beach, FL (14) 07/12/88 01/23/98 1,008,976 0 0 0 1,008,976
Wendy's -
Punta Gorda, FL 02/03/88 02/20/98 665,973 0 0 0 665,973
Po Folks -
Hagerstown, MD 06/21/88 06/10/98 788,884 0 0 0 788,884
Denny's-
Hazard, KY 02/01/88 12/23/98 432,625 0 0 0 432,625
Perkins -
Flagstaff, AZ 09/30/88 04/30/99 1,091,193 0 0 0 1,091,193
Denny's -
Hagerstown, MD 08/14/88 06/09/99 700,977 0 0 0 700,977
CNL Income Fund IV, Ltd.:
Taco Bell -
York, PA 03/22/89 04/27/94 712,000 0 0 0 712,000
Burger King -
Hastings, MI 08/12/88 12/15/95 518,650 0 0 0 518,650
Wendy's -
Tampa, FL 12/30/88 09/20/96 1,049,550 0 0 0 1,049,550
Checkers -
Douglasville, GA 12/08/94 11/07/97 380,695 0 0 0 380,695
Taco Bell -
Fort Myers, FL (14) 12/22/88 03/02/98 794,690 0 0 0 794,690
Denny's -
Union Township, OH (14) 11/01/88 03/31/98 674,135 0 0 0 674,135
Perkins -
Leesburg, FL 01/11/89 07/09/98 529,288 0 0 0 529,288
Taco Bell -
Naples, FL 12/22/88 09/03/98 533,127 0 0 0 533,127
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 02/28/90 08/25/95 0 0 1,040,000 0 1,040,000
Ponderosa -
St. Cloud, FL (14) (24) 06/01/89 10/24/96 73,713 0 1,057,299 0 1,131,012
Franklin National Bank -
Franklin, TN 06/26/89 01/07/97 960,741 0 0 0 960,741
Cost of Properties
Including Closing and
Soft Costs
-------------------------------------
Excess
Total (deficiency)
acquisition of property
cost, operating
capital cash
Original improvements receipts
mortgage closing and over cash
Property financing soft costs(1) Total expenditures
============================== ============= ============= ============ =============
CNL Income Fund III, Ltd.
(Continued):
Pizza Hut -
Kissimmee, FL 0 474,755 474,755 198,404
Burger King -
Roswell, GA 0 775,226 775,226 167,755
Wendy's -
Mason City, IA 0 190,252 190,252 26,788
Taco Bell -
Fernandina Beach, FL 0 559,570 559,570 162,085
(14)
Denny's -
Daytona Beach, FL (14) 0 918,777 918,777 90,799
Wendy's -
Punta Gorda, FL 0 684,342 684,342 (18,369)
Po Folks -
Hagerstown, MD 0 1,188,315 1,188,315 (399,431)
Denny's-
Hazard, KY 0 647,622 647,622 (214,997)
Perkins -
Flagstaff, AZ 0 993,508 993,508 97,685
Denny's -
Hagerstown, MD 0 861,454 861,454 (160,477)
CNL Income Fund IV, Ltd.:
Taco Bell -
York, PA 0 616,501 616,501 95,499
Burger King -
Hastings, MI 0 419,936 419,936 98,714
Wendy's -
Tampa, FL 0 828,350 828,350 221,200
Checkers -
Douglasville, GA 0 363,768 363,768 16,927
Taco Bell -
Fort Myers, FL (14) 0 597,998 597,998 196,692
Denny's -
Union Township, OH (14) 0 872,850 872,850 (198,715)
Perkins -
Leesburg, FL 0 737,260 737,260 (207,972)
Taco Bell -
Naples, FL 0 410,546 410,546 122,581
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 0 986,418 986,418 53,582
Ponderosa -
St. Cloud, FL (14) (24) 0 996,769 996,769 134,243
Franklin National Bank -
Franklin, TN 0 1,138,164 1,138,164 (177,423)
</TABLE>
C-26
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
Selling Price, Net of
Closing Costs and GAAP Adjustments
------------------------------------------------------------------
Purchase Adjustments
Cash Mortgage money resulting
received net balance mortgage from
Date Date of of closing at time taken back application
Property Acquired Sale costs of sale by program of GAAP Total
============================== ============= ============ ============== ========== ============= ============ =============
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund V, Ltd.
(Continued):
Shoney's -
Smyrna, TN 03/22/89 05/13/97 636,788 0 0 0 636,788
KFC -
Salem, NH 05/31/89 09/22/97 1,272,137 0 0 0 1,272,137
Perkins -
Port St. Lucie, FL 11/14/89 09/23/97 1,216,750 0 0 0 1,216,750
Hardee's -
Richmond, IN 02/17/89 11/07/97 397,785 0 0 0 397,785
Wendy's -
Tampa, FL (14) 02/16/89 12/29/97 805,175 0 0 0 805,175
Denny's -
Port Orange, FL (14) 07/10/89 01/23/98 1,283,096 0 0 0 1,283,096
Shoney's
Tyler, TX 03/20/89 02/17/98 844,229 0 0 0 894,229
Wendy's -
Ithaca, NY 12/07/89 03/29/99 471,248 0 0 0 471,248
Wendy's -
Endicott, NY 12/07/89 03/29/99 642,511 0 0 0 642,511
Burger King -
Halls, TN (20) 01/05/90 06/03/99 433,366 0 0 0 433,366
CNL Income Fund VI, Ltd.:
Hardee's -
Batesville, AR 11/02/89 05/24/94 791,211 0 0 0 791,211
Hardee's -
Heber Springs, AR 02/13/90 05/24/94 638,270 0 0 0 638,270
Hardee's -
Little Canada, MN 11/28/89 06/29/95 899,503 0 0 0 899,503
Jack in the Box -
Dallas, TX 06/28/94 12/09/96 982,980 0 0 0 982,980
Denny's -
Show Low, AZ (8) 05/22/87 01/31/97 349,200 0 0 0 349,200
KFC -
Whitehall Township, MI 02/26/90 07/09/97 629,888 0 0 0 629,888
Perkins -
Naples, FL 12/26/89 07/09/97 1,487,725 0 0 0 1,487,725
Burger King -
Plattsmouth, NE 01/19/90 07/18/97 699,400 0 0 0 699,400
Shoney's -
Venice, FL 08/03/89 09/17/97 1,206,696 0 0 0 1,206,696
Jack in the Box -
Yuma, AZ (10) 07/14/94 10/31/97 510,653 0 0 0 510,653
Denny's
Deland, FL 03/22/90 01/23/98 1,236,971 0 0 0 1,236,971
Wendy's -
Liverpool, NY 12/08/89 02/09/98 145,221 0 0 0 145,221
Cost of Properties
Including Closing and
Soft Costs
---------------------------------------
Excess
Total (deficiency)
acquisition of property
cost, operating
capital cash
Original improvements receipts
mortgage closing and over cash
Property financing soft costs(1) Total expenditures
============================== ============= ============= ============ =============
CNL Income Fund V, Ltd.
(Continued):
Shoney's -
Smyrna, TN 0 554,200 554,200 82,588
KFC -
Salem, NH 0 1,079,310 1,079,310 192,827
Perkins -
Port St. Lucie, FL 0 1,203,207 1,203,207 13,543
Hardee's -
Richmond, IN 0 695,464 695,464 (297,679)
Wendy's -
Tampa, FL (14) 0 657,800 657,800 147,375
Denny's -
Port Orange, FL (14) 0 1,021,000 1,021,000 262,096
Shoney's
Tyler, TX 0 770,300 770,300 73,929
Wendy's -
Ithaca, NY 0 471,297 471,297 (49)
Wendy's -
Endicott, NY 0 471,255 471,255 171,256
Burger King -
Halls, TN (20) 0 329,231 329,231 104,135
CNL Income Fund VI, Ltd.:
Hardee's -
Batesville, AR 0 605,500 605,500 185,711
Hardee's -
Heber Springs, AR 0 532,893 532,893 105,377
Hardee's -
Little Canada, MN 0 821,692 821,692 77,811
Jack in the Box -
Dallas, TX 0 964,437 964,437 18,543
Denny's -
Show Low, AZ (8) 0 272,354 272,354 76,846
KFC -
Whitehall Township, MI 0 725,604 725,604 (95,716)
Perkins -
Naples, FL 0 1,083,869 1,083,869 403,856
Burger King -
Plattsmouth, NE 0 561,000 561,000 138,400
Shoney's -
Venice, FL 0 1,032,435 1,032,435 174,261
Jack in the Box -
Yuma, AZ (10) 0 448,082 448,082 62,571
Denny's
Deland, FL 0 1,000,000 1,000,000 236,971
Wendy's -
Liverpool, NY 0 341,440 341,440 (196,219)
</TABLE>
C-27
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
<S> <C>
Selling Price, Net of
Closing Costs and GAAP Adjustments
-----------------------------------------------------------------
Purchase Adjustments
Cash Mortgage money resulting
received net balance mortgage from
Date Date of of closing at time taken back application
Property Acquired Sale costs of sale by program of GAAP Total
============================== ============= ============ ============== ========== ============= ============ =============
CNL Income Fund VI, Ltd.
(Continued):
Perkin's -
Melbourne, FL 02/03/90 02/12/98 552,910 0 0 0 552,910
Hardee's -
Bellevue, NE 05/03/90 06/05/98 900,000 0 0 0 900,000
Burger King -
Greeneville, TN 01/05/90 06/03/99 1,059,373 0 0 0 1,059,373
Burger King -
Broadway, TN 01/05/90 06/03/99 1,059,200 0 0 0 1,059,200
Burger King -
Sevierville, TN 01/05/90 06/03/99 1,168,298 0 0 0 1,168,298
Burger King -
Walker Springs, TN 01/10/90 06/03/99 1,031,274 0 0 0 1,031,274
CNL Income Fund VII, Ltd.:
Taco Bell -
Kearns, UT 06/14/90 05/19/92 700,000 0 0 0 700,000
Hardee's -
St. Paul, MN 08/09/90 05/24/94 869,036 0 0 0 869,036
Perkins -
Florence, SC (3) 08/28/90 08/25/95 0 0 1,160,000 0 1,160,000
Church's Fried Chicken -
Jacksonville, FL (14)(25) 04/30/90 12/01/95 0 0 240,000 0 240,000
Shoney's -
Colorado Springs, CO 07/03/90 07/24/96 1,044,909 0 0 0 1,044,909
Hardee's -
Hartland, MI 07/10/90 10/23/96 617,035 0 0 0 617,035
Hardee's -
Columbus, IN 09/04/90 05/30/97 223,590 0 0 0 223,590
KFC -
Dunnellon, FL 08/02/90 10/07/97 757,800 0 0 0 757,800
Jack in the Box -
Yuma, AZ (10) 07/14/94 10/31/97 471,372 0 0 0 471,372
Burger King -
Maryville, TN 05/04/90 06/03/99 1,059,954 0 0 0 1,059,954
Burger King -
Halls, TN (20) 01/05/90 06/03/99 451,054 0 0 0 451,054
CNL Income Fund VIII, Ltd.:
Denny's -
Ocoee, FL 03/16/91 07/31/95 1,184,865 0 0 0 1,184,865
Church's Fried Chicken -
Jacksonville, FL (4) (14) 09/28/90 12/01/95 0 0 240,000 0 240,000
Church's Fried Chicken -
Jacksonville, FL (5) (14) 09/28/90 12/01/95 0 0 220,000 0 220,000
Ponderosa -
Orlando, FL (6) (14) 12/17/90 10/24/96 0 0 1,353,775 0 1,353,775
Cost of Properties
Including Closing and
Soft Costs
------------------------------------------
Excess
Total (deficiency)
acquisition of property
cost, operating
capital cash
Original improvements receipts
mortgage closing and over cash
Property financing soft costs(1) Total expenditures
============================== ============== ============== ============ =============
CNL Income Fund VI, Ltd.
(Continued):
Perkin's -
Melbourne, FL 0 692,850 692,850 (139,940)
Hardee's -
Bellevue, NE 0 899,512 899,512 488
Burger King -
Greeneville, TN 0 890,240 890,240 169,133
Burger King -
Broadway, TN 0 890,036 890,036 169,164
Burger King -
Sevierville, TN 0 890,696 890,696 277,602
Burger King -
Walker Springs, TN 0 864,777 864,777 166,497
CNL Income Fund VII, Ltd.:
Taco Bell -
Kearns, UT 0 560,202 560,202 139,798
Hardee's -
St. Paul, MN 0 742,333 742,333 126,703
Perkins -
Florence, SC (3) 0 1,084,905 1,084,905 75,095
Church's Fried Chicken -
Jacksonville, FL (14)(25) 0 233,728 233,728 6,272
Shoney's -
Colorado Springs, CO 0 893,739 893,739 151,170
Hardee's -
Hartland, MI 0 841,642 841,642 (224,607)
Hardee's -
Columbus, IN 0 219,676 219,676 3,914
KFC -
Dunnellon, FL 0 546,333 546,333 211,467
Jack in the Box -
Yuma, AZ (10) 0 413,614 413,614 57,758
Burger King -
Maryville, TN 0 890,668 890,668 169,286
Burger King -
Halls, TN (20) 0 342,669 342,669 108,385
CNL Income Fund VIII, Ltd.:
Denny's -
Ocoee, FL 0 949,199 949,199 235,666
Church's Fried Chicken -
Jacksonville, FL (4) (14) 0 238,153 238,153 1,847
Church's Fried Chicken -
Jacksonville, FL (5) (14) 0 215,845 215,845 4,155
Ponderosa -
Orlando, FL (6) (14) 0 1,179,210 1,179,210 174,565
</TABLE>
C-28
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Selling Price, Net of
Closing Costs and GAAP Adjustments
-----------------------------------------------------------------
Purchase Adjustments
Cash Mortgage money resulting
received net balance mortgage from
Date Date of of closing at time taken back application
Property Acquired Sale costs of sale by program of GAAP Total
============================== ============= ============ ============== ========== ============= ============ ============
CNL Income Fund IX, Ltd.:
Burger King -
Woodmere, OH (15) 05/31/91 12/12/96 918,445 0 0 0 918,445
Burger King -
Alpharetta, GA 09/20/91 06/30/97 1,053,571 0 0 0 1,053,571
Shoney's -
Corpus Christi, TX 10/28/91 02/12/99 1,350,000 0 0 0 1,350,000
Perkins -
Rochester, NY 12/20/91 03/03/99 1,050,000 0 0 0 1,050,000
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 03/04/92 08/11/95 1,050,186 0 0 0 1,050,186
Jack in the Box -
Freemont, CA 03/26/92 09/23/97 1,366,550 0 0 0 1,366,550
Jack in the Box -
Sacramento, CA 12/19/91 01/20/98 1,234,175 0 0 0 1,234,175
Pizza Hut -
Billings, MT 04/16/92 10/07/98 359,990 0 0 0 359,990
Perkins -
Amherst, NY 02/26/92 03/03/99 1,150,000 0 0 0 1,150,000
Shoney's -
Fort Myers Beach, FL 09/08/95 08/26/99 931,725 0 0 0 931,725
CNL Income Fund XI, Ltd.:
Burger King -
Philadelphia, PA 09/29/92 11/07/96 1,044,750 0 0 0 1,044,750
Burger King -
Columbus, OH (19) 06/29/92 09/30/98 795,264 0 0 0 795,264
Burger King -
Nashua, NH 06/29/92 10/07/98 1,630,296 0 0 0 1,630,296
CNL Income Fund XII, Ltd.:
Golden Corral -
Houston, TX 12/28/92 04/10/96 1,640,000 0 0 0 1,640,000
Long John Silver's -
Monroe, NC 06/30/93 12/31/98 483,550 0 0 0 483,550
Long John Silver's -
Morganton, NC (23) 07/02/93 05/17/99 467,300 0 55,000 0 522,300
CNL Income Fund XIII, Ltd.:
Checkers -
Houston, TX 03/31/94 04/24/95 286,411 0 0 0 286,411
Checkers -
Richmond, VA 03/31/94 11/21/96 550,000 0 0 0 550,000
Cost of Properties
Including Closing and
Soft Costs
-------------------------------------
Excess
(deficiency)
Total of property
acquisition operating
cost, cash
capital receipts
Original improvements over
mortgage closing and cash
Property financing soft costs(1) Total expenditures
============================== ============= ============= =========== =============
CNL Income Fund IX, Ltd.:
Burger King -
Woodmere, OH (15) 0 918,445 918,445 0
Burger King -
Alpharetta, GA 0 713,866 713,866 339,705
Shoney's -
Corpus Christi, TX 0 1,224,020 1,224,020 125,980
Perkins -
Rochester, NY 0 1,064,815 1,064,815 (14,815)
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 0 987,679 987,679 62,507
Jack in the Box -
Freemont, CA 0 1,102,766 1,102,766 263,784
Jack in the Box -
Sacramento, CA 0 969,423 969,423 264,752
Pizza Hut -
Billings, MT 0 302,000 302,000 57,990
Perkins -
Amherst, NY 0 1,141,444 1,141,444 8,556
Shoney's -
Fort Myers Beach, FL 0 931,725 931,725 0
CNL Income Fund XI, Ltd.:
Burger King -
Philadelphia, PA 0 818,850 818,850 225,900
Burger King -
Columbus, OH (19) 0 795,264 795,264 0
Burger King -
Nashua, NH 0 1,217,015 1,217,015 413,281
CNL Income Fund XII, Ltd.:
Golden Corral -
Houston, TX 0 1,636,643 1,636,643 3,357
Long John Silver's -
Monroe, NC 0 239,788 239,788 243,762
Long John Silver's -
Morganton, NC (23) 0 304,002 304,002 218,298
CNL Income Fund XIII, Ltd.:
Checkers -
Houston, TX 0 286,411 286,411 0
Checkers -
Richmond, VA 0 413,288 413,288 136,712
</TABLE>
C-29
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
<S> <C>
Selling Price, Net of
Closing Costs and GAAP Adjustments
-------------------------------------------------------------
Purchase Adjustments
Cash Mortgage Money resulting
received net balance mortgage from
Date Date of of closing at time taken back application
Property Acquired Sale costs of sale by program of GAAP Total
================================== ============= ============ ============== ========== ============= ============ ==========
CNL Income Fund XIII, Ltd.
(Continued):
Denny's -
Orlando, FL 09/01/93 10/24/97 932,849 0 0 0 932,849
Jack in the Box -
Houston, TX 07/27/93 07/16/99 1,063,318 0 0 0 1,063,318
CNL Income Fund XIV, Ltd.:
Checkers -
Knoxville, TN 03/31/94 03/01/95 339,031 0 0 0 339,031
Checkers -
Dallas, TX 03/31/94 03/01/95 356,981 0 0 0 356,981
TGI Friday's -
Woodridge, NJ (7) 01/01/95 09/27/96 1,753,533 0 0 0 1,753,533
Wendy's -
Woodridge, NJ (7) 11/28/94 09/27/96 747,058 0 0 0 747,058
Hardee's -
Madison, AL 12/14/93 01/08/98 700,950 0 0 0 700,950
Checkers -
Richmond, VA (#548) 03/31/94 01/29/98 512,462 0 0 0 512,462
Checkers -
Riviera Beach, FL 03/31/94 04/14/98 360,000 0 0 0 360,000
Checkers -
Richmond, VA (#486) 03/31/94 07/27/98 397,985 0 0 0 397,985
Long John Silver's -
Stockbridge, GA 03/31/94 05/25/99 696,300 0 0 0 696,300
Long John Silver's -
Shelby, NC 06/22/94 11/12/99 494,178 0 0 0 494,178
Checker's -
Kansas City, MO 03/31/94 12/10/99 268,450 0 0 0 268,450
Checker's -
Houston, TX 03/31/94 12/15/99 385,673 0 0 0 385,673
CNL Income Fund XV, Ltd.:
Checkers -
Knoxville, TN 05/27/94 03/01/95 263,221 0 0 0 263,221
Checkers -
Leavenworth, KS 06/22/94 03/01/95 259,600 0 0 0 259,600
Checkers -
Knoxville, TN 07/08/94 03/01/95 288,885 0 0 0 288,885
TGI Friday's -
Woodridge, NJ (7) 01/01/95 09/27/96 1,753,533 0 0 0 1,753,533
Wendy's -
Woodridge, NJ (7) 11/28/94 09/27/96 747,058 0 0 0 747,058
Long John Silver's -
Gastonia, NC 07/15/94 11/12/99 631,304 0 0 0 631,304
Cost of Properties
Including Closing and
Soft Costs
-----------------------------------
Excess
(deficiency)
Total of property
acquisition operating
cost, cash
capital receipts
Original improvements over
mortgage closing and cash
Property financing soft costs(1) Total expenditures
==================================== =========== ============= =========== =============
CNL Income Fund XIII, Ltd.
(Continued):
Denny's -
Orlando, FL 0 934,120 934,120 (1,271)
Jack in the Box -
Houston, TX 0 861,321 861,321 201,997
CNL Income Fund XIV, Ltd.:
Checkers -
Knoxville, TN 0 339,031 339,031 0
Checkers -
Dallas, TX 0 356,981 356,981 0
TGI Friday's -
Woodridge, NJ (7) 0 1,510,245 1,510,245 243,288
Wendy's -
Woodridge, NJ (7) 0 672,746 672,746 74,312
Hardee's -
Madison, AL 0 658,977 658,977 41,973
Checkers -
Richmond, VA (#548) 0 382,435 382,435 130,027
Checkers -
Riviera Beach, FL 0 276,409 276,409 83,591
Checkers -
Richmond, VA (#486) 0 352,034 352,034 45,951
Long John Silver's -
Stockbridge, GA 0 738,340 738,340 (42,040)
Long John Silver's -
Shelby, NC 0 608,611 608,611 (114,433)
Checker's -
Kansas City, MO 0 209,329 209,329 59,121
Checker's -
Houston, TX 0 311,823 311,823 73,850
CNL Income Fund XV, Ltd.:
Checkers -
Knoxville, TN 0 263,221 263,221 0
Checkers -
Leavenworth, KS 0 259,600 259,600 0
Checkers -
Knoxville, TN 0 288,885 288,885 0
TGI Friday's -
Woodridge, NJ (7) 0 1,510,245 1,510,245 243,288
Wendy's -
Woodridge, NJ (7) 0 672,746 672,746 74,312
Long John Silver's -
Gastonia, NC 0 776,248 776,248 (144,944)
</TABLE>
C-30
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
<S> <C>
Selling Price, Net of
Closing Costs and GAAP Adjustments
-----------------------------------------------------------------
Purchase Adjustments
Cash Mortgage money resulting
received net balance mortgage from
Date Date of of closing at time taken back application
Property Acquired Sale costs of sale by program of GAAP Total
============================== ============= ============ ============== ========== ============= ============ ============
CNL Income Fund XVI, Ltd.:
Long John Silver's -
Appleton, WI 06/24/95 04/24/96 775,000 0 0 0 775,000
Checker's -
Oviedo, FL 11/14/94 02/28/97 610,384 0 0 0 610,384
Boston Market -
Madison, TN (16) 05/05/95 05/08/98 774,851 0 0 0 774,851
Boston Market -
Chattanooga, TN (17) 05/05/95 06/16/98 713,386 0 0 0 713,386
Boston Market -
Lawrence, KS 05/08/98 11/23/99 667,311 0 0 0 667,311
CNL Income Fund XVII, Ltd.:
Boston Market -
Troy, OH (18) 07/24/96 06/16/98 857,487 0 0 0 857,487
Golden Corral -
El Cajon, CA (22) 04/29/97 12/02/99 1,675,385 0 0 0 1,675,385
CNL Income Fund XVIII, Ltd.:
Black Eyed Pea -
Atlanta, GA 03/26/97 12/06/99 688,997 0 0 0 688,997
CNL American Properties
Fund, Inc.:
TGI Friday's -
Orange, CT 10/30/95 05/08/97 1,312,799 0 0 0 1,312,799
TGI Friday's -
Hazlet, NJ 07/15/96 05/08/97 1,324,109 0 0 0 1,324,109
TGI Friday's -
Marlboro, NJ 08/01/96 05/08/97 1,372,075 0 0 0 1,372,075
TGI Friday's -
Hamden, CT 08/26/96 05/08/97 1,245,100 0 0 0 1,245,100
Boston Market -
Southlake, TX 07/02/97 07/21/97 1,035,153 0 0 0 1,035,135
Boston Market -
Franklin, TN (26) 08/18/95 04/14/98 950,361 0 0 0 950,361
Boston Market -
Grand Island, NE (27) 09/19/95 04/14/98 837,656 0 0 0 837,656
Burger King -
Indian Head Park, IL 04/03/96 05/05/98 674,320 0 0 0 674,320
Boston Market -
Dubuque, IA (28) 10/04/95 05/08/98 969,159 0 0 0 969,159
Boston Market -
Merced, CA (29) 10/06/96 05/08/98 930,834 0 0 0 930,834
Boston Market -
Arvada, CO (30) 07/21/97 07/28/98 1,152,262 0 0 0 1,152,262
Boston Market -
Ellisville, MO 09/03/96 04/28/99 822,824 0 0 0 822,824
Cost of Properties
Including Closing and
Soft Costs
-------------------------------------
Excess
Total (deficiency)
acquisition of property
cost, operating
capital cash
Original improvements receipts
mortgage closing and over cash
Property financing soft costs(1) Total expenditures
============================== ============= ============= ============ =============
CNL Income Fund XVI, Ltd.:
Long John Silver's -
Appleton, WI 0 613,838 613,838 161,162
Checker's -
Oviedo, FL 0 506,311 506,311 104,073
Boston Market -
Madison, TN (16) 0 774,851 774,851 0
Boston Market -
Chattanooga, TN (17) 0 713,386 713,386 0
Boston Market -
Lawrence, KS 0 774,851 774,851 (107,540)
CNL Income Fund XVII, Ltd.:
Boston Market -
Troy, OH (18) 0 857,487 857,487 0
Golden Corral -
El Cajon, CA (22) 0 1,692,994 1,692,994 (17,609)
CNL Income Fund XVIII, Ltd.:
Black Eyed Pea -
Atlanta, GA 0 617,610 617,610 71,387
CNL American Properties
Fund, Inc.:
TGI Friday's -
Orange, CT 0 1,310,980 1,310,980 1,819
TGI Friday's -
Hazlet, NJ 0 1,294,237 1,294,237 29,872
TGI Friday's -
Marlboro, NJ 0 1,324,288 1,324,288 47,787
TGI Friday's -
Hamden, CT 0 1,203,136 1,203,136 41,964
Boston Market -
Southlake, TX 0 1,035,135 1,035,135 0
Boston Market -
Franklin, TN (26) 0 950,361 950,361 0
Boston Market -
Grand Island, NE (27) 0 837,656 837,656 0
Burger King -
Indian Head Park, IL 0 670,867 670,867 3,453
Boston Market -
Dubuque, IA (28) 0 969,159 969,159 0
Boston Market -
Merced, CA (29) 0 930,834 930,834 0
Boston Market -
Arvada, CO (30) 0 1,152,262 1,152,262 0
Boston Market -
Ellisville, MO 0 1,026,746 1,026,746 (203,922)
</TABLE>
C-31
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
<S> <C>
Selling Price, Net of
Closing Costs and GAAP Adjustments
-----------------------------------------------------------------
Purchase Adjustments
Cash Mortgage money resulting
received net balance mortgage from
Date Date of of closing at time taken back application
Property Acquired Sale costs of sale by program of GAAP Total
============================== ============= ============ ============== ========== ============= ============ ============
CNL American Properties
Fund, Inc.
(Continued):
Golden Corral -
Brooklyn, OH 08/23/96 05/18/99 974,560 0 0 0 974,560
Boston Market -
Edgewater, CO 08/19/97 08/11/99 634,122 0 0 0 634,122
Black Eyed Pea -
Houston, TX (31) 10/01/97 08/24/99 648,598 0 0 0 648,598
Big Boy -
Topeka, KS (32) 02/26/99 09/22/99 939,445 0 0 0 939,445
Boston Market -
LaQuinta, CA 12/16/96 10/13/99 833,140 0 0 0 833,140
Sonny's -
Jonesboro, GA 06/02/98 12/22/99 1,098,342 0 0 0 1,098,342
Cost of Properties
Including Closing and
Soft Costs
-------------------------------------
Excess
Total (deficiency)
acquisition of property
cost, operating
capital cash
Original improvements receipts
mortgage closing and over cash
Property financing soft costs(1) Total expenditures
============================== ============ ============= ============ ==============
CNL American Properties
Fund, Inc.
(Continued):
Golden Corral -
Brooklyn, OH 0 997,296 997,296 (22,736)
Boston Market -
Edgewater, CO 0 904,691 904,691 (270,569)
Black Eyed Pea -
Houston, TX (31) 0 648,598 648,598 0
Big Boy -
Topeka, KS (32) 0 1,062,633 1,062,633 (123,188)
Boston Market -
LaQuinta, CA 0 987,034 987,034 (153,894)
Sonny's -
Jonesboro, GA 0 1,098,342 1,098,342 0
</TABLE>
(1) Amounts shown do not include pro rata share of original offering costs or
acquisition fees.
(2) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.25% per annum and provides
for a balloon payment of $991,331 in July 2000.
(3) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.25% per annum and provides
for a balloon payment of $1,105,715 in July 2000.
(4) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.00% per annum and provides
for a balloon payment of $218,252 in December 2005.
(5) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.00% per annum and provides
for a balloon payment of $200,063 in December 2005.
(6) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.75% per annum and provides
for 12 monthly payments of interest only and thereafter, 24 equal monthly
payments of principal and interest until November 1999, when the remaining
144 equal monthly payments of principal and interest will be reduced due to
a lump sum payment received in March 1999 in advance from the borrower.
(7) CNL Income Fund XIV, Ltd. and CNL Income Fund XV, Ltd. each owned a 50
percent interest in Wood-Ridge Real Estate Joint Venture, which owned two
properties. The amounts presented for CNL Income Fund XIV, Ltd. and CNL
Income Fund XV, Ltd. represent each partnership's 50 percent interest in
the properties owned by Wood-Ridge Real Estate Joint Venture.
(8) CNL Income Fund II, Ltd. owns a 64 percent interest and CNL Income Fund VI,
Ltd. owns a 36 percent interest in this joint venture. The amounts
presented for CNL Income Fund II, Ltd. and CNL Income Fund VI, Ltd.
represent each partnership's percent interest in the property owned by Show
Low Joint Venture.
(9) CNL Income Fund, Ltd. owned a 50 percent interest in this joint venture.
The amounts presented represent the partnerships percent interest in the
property owned by Seventh Avenue Joint Venture. A third party owns the
remaining 50 percent interest in this joint venture.
(10) CNL Income Fund VI, Ltd. and CNL Income Fund VII, Ltd. own a 52 percent and
48 percent interest, respectively, in the property in Yuma, Arizona. The
amounts presented for CNL Income Fund VI, Ltd. and CNL Income Fund VII,
Ltd. represent each partnership's respective interest in the property.
(11) Cash received net of closing costs includes $198,000 received as a lease
termination fee.
(12) Cash received net of closing costs includes $93,885 received as a lease
termination fee.
(13) Cash received net of closing costs includes $120,115 received as a lease
termination fee.
(14) Closing costs deducted from net sales proceeds do not include deferred,
subordinated real estate disposition fees payable to CNL Fund Advisors,
Inc. or its affiliates.
(15) The Burger King property in Woodmere, Ohio was exchanged on December 12,
1996 for a Burger King property in Carrboro, NC at the option of the tenant
as permitted under the terms of the lease agreement. Due to the exchange,
the Burger King property in Carrboro, NC is being leased under the same
lease as the Burger King property in Woodmere, OH.
(16) The Boston Market property in Madison, TN was exchanged on May 8, 1998 for
a Boston Market property in Lawrence, KS at the option of the tenant as
permitted under the terms of the lease agreement. Due to the exchange, the
Boston Market property in Lawrence, KS is being leased under the same lease
as the Boston Market property in Madison, TN.
(17) The Boston Market property in Chattanooga, TN was exchanged on June 16,
1998 for a Boston Market property in Indianapolis, IN at the option of the
tenant as permitted under the terms of the lease agreement. Due to the
exchange, the Boston Market property in Indianapolis, IN is being leased
under the same lease as the Boston Market property in Chattanooga, TN.
C-32
<PAGE>
(18) The Boston Market property in Troy, OH was exchanged on June 16, 1998 for a
Boston Market property in Inglewood, CA at the option of the tenant as
permitted under the terms of the lease agreement. Due to the exchange, the
Boston Market property in Inglewood, CA is being leased under the same
lease as the Boston Market property in Troy, OH.
(19) The Burger King property in Columbus, OH was exchanged on September 30,
1998 for a Burger King property in Danbury, CT at the option of the tenant
as permitted under the terms of the lease agreement. Due to the exchange,
the Burger King property in Danbury, CT is being leased under the same
lease as the Burger King property in Columbus, OH.
(20) CNL Income Fund V, Ltd. owns a 49 percent interest and CNL Income Fund VII,
Ltd. owns a 51 percent interest in this joint venture. The amounts
presented for CNL Income Fund V, Ltd. and CNL Income Fund VII, Ltd.
represent each partnership's percent interest in the property owned by
Halls Joint Venture.
(21) Cash received net of closing costs includes $50,000 received as a lease
termination fee.
(22) CNL Income Fund XVII, Ltd. owned an 80 percent interest in this joint
venture. The amounts presented represent the partnership's percent interest
in the property owned by El Cajon Joint Venture. A third party owned the
remaining 20 percent interest in this joint venture.
(23) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.25% per annum and provides
for 60 equal monthly payments of principal and interest.
(24) Amount shown is face value and does not represent discounted current value.
The mortgage note bore an interest rate of 10.75% per annum and provided
for 12 monthly payments of interest only and thereafter, 168 equal monthly
payments of principal and interest. The borrower prepaid the mortgage note
in full in April 1999.
(25) Amount shown is face value and does not represent discounted current value.
The mortgage note bore an interest rate of 10.00% per annum and was paid in
full in July 1999.
(26) The Boston Market property in Franklin, TN was exchanged on April 14, 1998
for a Boston Market property in Glendale, AZ at the option of the tenant as
permitted under the terms of the lease agreement. Due to the exchange, the
Boston Market property in Glendale, AZ is being leased under the same lease
as the Boston Market property in Franklin, TN.
(27) The Boston Market property in Grand Island, NE was exchanged on April 14,
1998 for a Boston Market property in Warwick, RI at the option of the
tenant as permitted under the terms of the lease agreement. Due to the
exchange, the Boston Market property in Warwick, RI is being leased under
the same lease as the Boston Market property in Grand Island, NE.
(28) The Boston Market property in Dubuque, IA was exchanged on May 8, 1998 for
a Boston Market property in Columbus, OH at the option of the tenant as
permitted under the terms of the lease agreement. Due to the exchange, the
Boston Market property in Columbus, OH is being leased under the same lease
as the Boston Market property in Dubuque, IA.
(29) Cash received net of closing costs includes $362,949 in construction costs
incurred but not paid by CNL American Properties Fund, Inc. as of the
closing date, which were deducted from the actual net sales proceeds
received by CNL American Properties Fund, Inc.
(30) Cash received net of closing costs includes $522,827 in construction costs
incurred but not paid by CNL American Properties Fund, Inc. as of the
closing date, which were deducted from the actual net sales proceeds
received by CNL American Properties Fund, Inc.
(31) The Black Eyed Pea property in Houston, TX was exchanged on August 24, 1999
for a Black Eyed Pea property in Dallas, TX at the option of the tenant as
permitted under the terms of the lease agreement. Due to the exchange, the
Black Eyed Pea property in Dallas, TX is being leased under the same lease
as the Black Eyed Pea property in Houston, TX.
(32) This property was being constructed and was sold prior to completion of
construction.
C-33
<PAGE>
APPENDIX E
STATEMENT OF ESTIMATED
TAXABLE OPERATING RESULTS
BEFORE DIVIDENDS PAID DEDUCTION
---------------------------------------------
| THE FOLLOWING INFORMATION UPDATES AND |
| REPLACES THE CORRESPONDING INFORMATION |
| IN APPENDIX E TO THE ATTACHED |
| PROSPECTUS, DATED JUNE 4, 1999. |
---------------------------------------------
<PAGE>
CNL HOSPITALITY PROPERTIES, INC.
STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
BEFORE DIVIDENDS PAID DEDUCTION
PROPERTIES ACQUIRED FROM INCEPTION
THROUGH FEBRUARY 23, 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 by
the Company from inception through February 23, 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>
<S> <C>
Residence Inn by Marriott Residence Inn by Marriott Residence Inn by Marriott Mira
Buckhead (Lenox Park) (1) Gwinnett Place (1) Mesa (2)
------------------------- ------------------------- --------------------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Rental Income (5) $1,668,185 $1,220,977 $1,542,300
FF&E Reserve Income (6) 166,584 127,865 32,000
Asset Management Fees (7) (94,388 ) (69,085 ) (93,232 )
Interest Expense (8) -- -- --
General and Administrative
Expenses (9) (132,144 ) (96,719 ) (123,384 )
-------------- ---------------- ---------------
Estimated Cash Available from
Operations 1,608,237 1,183,038 1,357,684
Depreciation Expense (10) (11) (569,033 ) (425,414 ) (409,488 )
-------------- ---------------- ---------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $1,039,204 $ 757,624 $ 948,196
============== ================ ===============
See Footnotes
<PAGE>
Marriott Suites by Marriott Residence Inn by Marriott Residence Inn by Marriott
Market Center (3) Hughes Center (3) Dallas Plano (3)
--------------------------- ------------------------- -------------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Rental Income (5) $1,665,666 $1,671,913 $ 590,198
FF&E Reserve Income (6) 57,356 59,061 18,694
Asset Management Fees (7) (96,942 ) (97,305 ) (34,349 )
Interest Expense (8) (655,617 ) (647,853 ) (215,294 )
General and Administrative
Expenses (9) (133,254 ) (133,753 ) (47,216 )
-------------- ---------------- ----------------
Estimated Cash Available from
Operations 837,209 852,063 312,033
Depreciation Expense (10) (11) (525,525 ) (472,372 ) (184,169 )
-------------- ---------------- ----------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $ 311,684 $ 379,691 $ 127,864
============== ================ ================
See Footnotes
<PAGE>
Courtyard by Marriott Courtyard by Marriott Residence Inn by Marriott
Scottsdale Downtown (3) Lake Union (3) Phoenix Airport (3)
----------------------- --------------------- -------------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Rental Income (5) $ 990,821 $1,808,515 $1,078,591
FF&E Reserve Income (6) 13,884 51,932 15,347
Asset Management Fees (7) (57,666 ) (105,256 ) (62,774 )
Interest Expense (8) (403,572 ) (707,322 ) (396,454 )
General and Administrative
Expenses (9) (79,266 ) (144,681 ) (86,288 )
--------------- --------------- --------------
Estimated Cash Available from
Operations 464,201 903,188 548,422
Depreciation Expense (10) (11) (226,498 ) (542,248 ) (338,234 )
--------------- --------------- --------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $ 237,703 $ 360,940 $ 210,188
=============== =============== ==============
See Footnotes
<PAGE>
Courtyard by Marriott Courtyard by Marriott
Legacy Park (3) Philadelphia Downtown (4) Total
----------------------- ------------------------- ----------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Rental Income (5) $ 641,250 $ 5,785,000 $18,663,416
FF&E Reserve Income (6) 18,073 161,674 722,470
Asset Management Fees (7) (37,321 ) (309,060 ) (1.057,378 )
Interest Expense (8) (247,351 ) -- (3,273,463 )
General and Administrative
Expenses (9) (51,300 ) (462,800 ) (1,490,805 )
--------------- ---------------- ---------------
Estimated Cash Available from
Operations 323,351 5,174,814 13,564,240
Depreciation Expense (10) (11) (201,256 ) (1,804,256 ) (5,698,493 )
--------------- ---------------- ---------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $ 122,095 $ 3,370,558 $ 7,865,747
=============== ================ ===============
</TABLE>
See Footnotes
<PAGE>
__________________________
FOOTNOTES:
(1) The lessee of the Buckhead (Lenox Park) and Gwinett Place Properties is
the same unaffiliated lessee.
(2) The lessee of the Mira Mesa Property an unaffiliated lessee.
(3) 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.
(4) 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. The lessee of the Philadelphia Downtown
Property is an unaffiliated lessee. For purposes of this table, the
balances presented represent the 89% interest owned by the Company.
(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 1-4 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 Affiliate 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.
<PAGE>
(10) The estimated federal tax basis of the depreciable portion of the
property 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):
Furniture and
Buildings Fixtures
(39 years) (5-15 years)
------------ -------------
Buckhead (Lenox Park) Property $13,459,000 $1,235,000
Gwinett Place Property 10,017,000 1,114,000
Legacy Park Property 5,005,000 470,000
Market Center Property 13,762,000 1,177,000
Hughes Center Property 13,719,000 815,000
Dallas Plano Property 4,703,000 405,000
Scottsdale Downtown Property 7,766,000 539,000
Lake Union Property 13,499,000 846,000
Phoenix Airport Property 8,826,000 633,000
Philadelphia Downtown Property 47,237,000 4,367,000
Mira Mesa Property 12,924,000 1,701,000
(11) A loan origination fee of $758,000 from the issuance of promissory
notes, to facilitate the acquisition of the seven CHI hotel Properties,
is being amortized under the effective interest method over the term of
the loans. For purposes of this table, the amounts presented represent
the 49% interest owned by the Company.
