424(b)(3)
No. 333-47411
CNL HEALTH CARE PROPERTIES, INC.
This Supplement is part of, and should be read in conjunction with, the
Prospectus dated May 24, 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 in this Supplement is provided as of August 5, 1999. As of
August 5, 1999, the Company had not entered into any initial commitments to
acquire properties. Proposed properties for which the Company receives initial
commitments, as well as property acquisitions that occur after August 5, 1999,
will be reported in a subsequent Supplement.
THE OFFERING
As of July 13, 1999, the Company had received aggregate subscription
proceeds of $2,751,052 from 121 investors, which exceeded the minimum offering
amount of $2,500,000, and $2,526,052 of the funds were released from escrow. The
remaining subscription proceeds of $225,000 (representing funds received from
Pennsylvania investors) will be held in escrow until aggregate subscription
proceeds total at least $7,775,000. As of August 5, 1999, the Company had
received total subscription proceeds of $3,089,217 (308,922 Shares), from 138
investors in connection with this offering. As of August 5, 1999, the Company
had approximately $2,406,000 available to invest in Properties, following
deduction of Selling Commissions, marketing support and due diligence expense
reimbursement fees, Organizational and Offering Expenses of approximately three
percent and Acquisition Fees.
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
Relationships and Related Transactions."
BUSINESS
GENERAL
The following information updates and replaces information provided in
the last two paragraphs on page 44 of the Prospectus.
In addition to an aging population, according to 1997 data from the
U.S. Department of Commerce, a significant segment of the elderly population has
the financial resources to afford seniors' housing facilities, with people age
55 to 64 making a mean household income of $57,400 per year. The mean household
income for those age 65 and over is more than $32,000 per year. Management
believes that other changes and trends in the health care industry will create
opportunities for growth of seniors' housing facilities, including (i) the
growth of operators serving specific health care niches, (ii) the consolidation
of providers and facilities through mergers, integration of physician practices,
and elimination of duplicative services, (iii) the pressures to reduce the cost
of providing quality health care, (iv) more dual-income and single-parent
households leaving fewer family members available for in-home care of aging
parents and necessitating more senior care facilities, and (v) an anticipated
increase in the number of insurance companies and health care networks offering
privately funded long-term care insurance.
August 18, 1999 Prospectus Dated May 24, 1999
<PAGE>
According to the Health Care Financing Administration and the National
Health Statistics Group, the health care industry represents over 13.5% of the
United States' gross domestic product ("GDP") with at least $1.092 trillion in
annual expenditures. The U.S. Department of Health and Human Services expects
this figure to rise to over 16.2% of the GDP by 2008. According to the U.S.
Census Bureau, U.S. health care construction expenditures are estimated to be
$17.4 billion per year and growing. With regard to housing for seniors, there
are three major contributors to growth and the attraction of capital, according
to the National Investment Conference for the Senior Living and Long Term Care
Industries in 1996. They are (i) demographics, (ii) the limited supply of new
product, and (iii) the investment community's increased understanding of the
industry. Although the Company believes the growth will continue for a long
while, overbuilding is unlikely due to the favorable demographics, the increase
in public awareness of the industry, the preference of seniors for obtaining
care in non-institutional settings and the cost savings realized in a
non-institutional environment.
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 this Prospectus Supplement and in Appendix B to the
Prospectus.
<TABLE>
<CAPTION>
<S><C>
Six Months Ended Year Ended
June 30, 1999 (1) June 30, 1998 (1) December 31,
(Unaudited) (Unaudited) 1998 (1) 1997 (1) (2)
------------------- ------------------ ----------- --------------
Revenues $ -- $ -- $ -- $ --
Net earnings -- -- -- --
Cash distributions declared -- -- -- --
June 30, 1999 June 30, 1998 December 31, December 31,
(Unaudited) (Unaudited) 1998 1997
----------------- ---------------- --------------- --------------
Total assets $1,592,442 $468,816 $976,579 $280,330
Total stockholder's equity 200,000 200,000 200,000 200,000
</TABLE>
(1) As of June 30, 1999, no significant operations had commenced and the
Company was in its development stage. No operations commenced until the
Company received minimum offering proceeds and funds were released from
escrow on July 13, 1999.
(2) Selected financial data for 1997 represents the period December 22,
1997 (date of inception) through December 31, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a Maryland corporation that was organized on December
22, 1997, to acquire Properties related to health care and seniors' housing
facilities located across the United States. The Health Care Facilities may
include congregate living, assisted living and skilled nursing facilities,
continuing care retirement communities and life care communities, and medical
office buildings and walk-in clinics. The Properties will be leased on a
long-term, "triple-net" basis to operators of the Health Care Facilities. The
Company may also provide Mortgage Loans to operators of Health Care Facilities
in
<PAGE>
the aggregate principal amount of approximately 5% to 10% of the Company's total
assets. The Company also may offer Secured Equipment Leases to operators of
Health Care Facilities. The aggregate principal amount of Secured Equipment
Leases is not expected to exceed 10% of the Company's total assets.
The Company's primary investment objectives are to preserve, protect,
and enhance the Company's Assets while (i) making Distributions commencing in
the initial year of Company operations; (ii) obtaining fixed income through the
receipt of base rent, and increasing the Company's income (and distributions)
and providing protection against inflation through automatic fixed increases in
base rent or increases in the base rent based on increases in consumer price
indices, over the terms of the leases, and obtaining fixed income through the
receipt of payments from Mortgage Loans and Secured Equipment Leases; (iii)
qualifying and remaining qualified as a REIT for federal income tax purposes;
and (iv) providing stockholders of the Company with liquidity of their
investment within five to ten years after commencement of the offering, either
in whole or in part, through (a) Listing, or (b) the commencement of the orderly
Sale of the Company's Assets, and distribution of the proceeds thereof (outside
the ordinary course of business and consistent with its objective of qualifying
as a REIT).
In connection with this offering, the Company registered for sale an
aggregate of $155,000,000 of Shares (15,500,000 Shares at $10 per Share),
500,000 of such Shares available only to stockholders who elect to participate
in the Company's Reinvestment Plan. The offering of Shares commenced on
September 18, 1998 and will terminate no later than September 18, 1999, unless
the Company elects to extend the offering to a date no later than September 18,
2000, in states that permit such extension. The Board of Directors may determine
to engage in future offerings of Common Stock up to the number of unissued
authorized shares of Common Stock available.
This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933. 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 real estate conditions, availability of proceeds
from the Company's offering, the ability of the Company to obtain a Line of
Credit or Permanent Financing on satisfactory terms, 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 tenants and borrowers to
make payments under their respective leases, Mortgage Loans or Secured Equipment
Leases. Other factors that might cause such a difference are set forth in the
"Risk Factors" section of the Prospectus beginning on page 11.
LIQUIDITY AND CAPITAL RESOURCES
During the period December 22, 1997 (date of inception) to June 30, 1999,
a capital contribution of $200,000 from the Advisor was the Company's sole
source of capital.
As of June 30, 1999, the Company had received subscription proceeds of
$2,490,300 (249,030 Shares), which were being held in escrow until the Company
received aggregate subscription proceeds of at least $2,500,000 from the
offering. As of July 13, 1999, the Company had received aggregate subscription
proceeds of $2,751,052, and $2,526,052 of the funds were released from escrow.
Subscription proceeds from Pennsylvania investors, which totalled $225,000 as of
July 13, 1999, will be held in escrow until the Company receives aggregate
subscription proceeds of at least $7,775,000. As of August 5, 1999, the Company
had received total subscription proceeds of $3,089,217 and had approximately
$2,406,000 available to invest in Properties and Mortgage Loans, following the
deduction of Selling Commissions, marketing support and due diligence expense
reimbursement fees, Organizational and Offering Expenses of approximately three
percent, and Acquisition Fees.
<PAGE>
The Company will use Net Offering Proceeds (Gross Proceeds less fees
and expenses of the offering) from this offering to purchase Properties and to
invest in Mortgage Loans. See the section of the Prospectus entitled "Investment
Objectives and Policies." In addition, the Company intends to borrow money to
acquire Assets and to pay certain related fees. The Company intends to encumber
Assets in connection with such borrowing. The Company plans to obtain a
revolving Line of Credit initially in an amount up to $45,000,000, and may, in
addition, 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. Although the Board of
Directors anticipates that the Line of Credit initially may be in the amount of
$45,000,000 and the aggregate amount of any Permanent Financing shall not exceed
30% of the Company's total Assets, the maximum amount the Company may borrow is
300% of the Company's Net Assets. The Company has engaged in preliminary
discussions with potential lenders but has not yet received a commitment for the
Line of Credit or any Permanent Financing and there is no assurance that the
Company will obtain the Line of Credit or any Permanent Financing on
satisfactory terms.
The Company's funds are invested in short-term, highly liquid U.S.
Government securities or in other short-term, highly liquid investments with
appropriate safety of principal, pending investment in suitable Properties and
Mortgage Loans. Management anticipates that after the Company has invested in
Assets, lease and mortgage payments paid to the Company by the tenants and
borrowers will be sufficient to pay operating expenses, provide cash
Distributions to the stockholders and service debt.
At June 30, 1999 and December 31, 1998, the Company's total assets were
$1,592,442 and $976,579, respectively. The increase in total assets reflects
deferred offering costs and acquisition fees incurred during the six months
ended June 30, 1999.
During the six months ended June 30, 1999 and 1998, Affiliates of the
Company incurred $230,831 and $162,854, respectively, for certain Organizational
and Offering Expenses. As of June 30, 1999 and December 31, 1998, the Company
owed Affiliates $1,388,203 and $685,372, respectively, for such amounts, unpaid
Selling Commissions, marketing support and due diligence expense reimbursement
fees, and Acquisition Fees and administrative expenses. The Advisor of the
Company has agreed to pay all Organizational and Offering Expenses (excluding
Selling Commissions and marketing support and due diligence expense
reimbursement fees) in excess of three percent of Gross Proceeds.
Due to anticipated low Operating Expenses, rental income expected to be
obtained from Properties after they are acquired, the fact that the Line of
Credit and Permanent Financing have not been obtained and that the Company has
not entered into Mortgage Loans or Secured Equipment Leases, management does not
believe that working capital reserves will be necessary at this time. Management
has the right to cause the Company to maintain reserves if, in their discretion,
they determine such reserves are required to meet the Company's working capital
needs.
As of August 5, 1999, the Company had not entered into any arrangements
creating a reasonable probability that a Property would be acquired by the
Company or that a particular Mortgage Loan or Secured Equipment Lease would be
funded. The number of Properties to be acquired and the number of Mortgage Loans
to be invested in by the Company will depend upon the amount of Net Offering
Proceeds available and the amount of funds borrowed to acquire Properties and
make Mortgage Loans. The number of Secured Equipment Leases to be offered is
currently undetermined, but the Company will fund the Secured Equipment Leases
with the proceeds from the Line of Credit or Permanent Financing, and the
Company has undertaken, consistent with its objective of qualifying as a REIT
for federal income tax purposes, to ensure that the value of the Secured
Equipment Leases, in the aggregate, will not exceed 25% of the Company's total
assets and that the value of the Secured Equipment Leases to a single lessee, in
the aggregate, will not exceed 5% of the Company's total assets.
<PAGE>
Management is not aware of any material trends, favorable or
unfavorable, in either capital resources or the outlook for long-term cash
generation, nor does management expect any material changes in the availability
and relative cost of such capital resources, other than as referred to in the
Prospectus.
Management expects that the cash to be generated from operations will
be adequate to pay operating expenses and to make Distributions to stockholders.
RESULTS OF OPERATIONS
As of June 30, 1999, no significant operations had commenced because
the Company was in its development stage. No operations commenced until the
Company received the minimum offering proceeds of $2,500,000 on July 13, 1999.
Management is not aware of any known trends or uncertainties, other
than national economic conditions, which may reasonably be expected to have a
material impact, favorable or unfavorable, on revenues or income from the
acquisition and operations of real properties, other than those Properties
referred to in the Prospectus.
There currently are no material changes being considered in the
objectives and policies of the Company as set forth in the Prospectus.
Year 2000 Compliance. The Year 2000 problem concerns the inability of
information and non-information technology systems to properly recognize and
process date-sensitive information beyond January 1, 2000. The Company does not
have any information or non-information technology systems. The Advisor and
affiliates of the Advisor provide all services requiring the use of information
and non-information technology systems pursuant to an advisory agreement with
the Company. The information technology system of the Affiliates of the Advisor
consists of a network of personal computers and servers built using hardware and
software from mainstream suppliers. The non-information technology systems of
the Affiliates of the Advisor are primarily facility related and include
building security systems, elevators, fire suppressions, HVAC, electrical
systems and other utilities. The Affiliates of the Advisor have no internally
generated programmed software coding to correct, as substantially all of the
software utilized by the Advisor and Affiliates is purchased or licensed from
external providers.
In early 1998, the Advisor and Affiliates formed a Year 2000 committee
(the "Y2K Team") for the purpose of identifying, understanding and addressing
the various issues associated with Year 2000 compliance. The Y2K Team consists
of members from the Advisor and its Affiliates, including representatives from
senior management, information systems, telecommunications, legal, office
management, accounting and property management. The Y2K Team's initial step in
assessing the Company's Year 2000 ("Y2K") readiness consists of identifying any
systems that are date sensitive and, accordingly, could have potential Y2K
problems. The Y2K Team is in the process of conducting inspections, interviews
and tests to identify which of the systems of the Advisor and Affiliates could
have a potential Y2K problem.
The information system of the Advisor and its Affiliates is comprised
of hardware and software applications from mainstream suppliers; accordingly,
the Y2K Team is in the process of contacting the respective vendors and
manufacturers to verify the Y2K compliance of their products. In addition, the
Y2K Team has also requested and is evaluating documentation from other companies
with which the Company has a material third party relationship, including the
Company's major vendors, financial institutions and transfer agent. The Company
depends on its financial institutions for availability of cash and financing and
its transfer agent to maintain and track investor information. The Y2K Team has
also requested and is evaluating documentation from the non-information
technology systems providers of the Advisor and Affiliates. Although the Advisor
continues to receive positive responses from its third party
<PAGE>
relationships regarding their Y2K compliance, the Advisor cannot be assured that
the financial institutions, transfer agent, other vendors and non-information
technology system providers have adequately considered the impact of the Year
2000. The Advisor is not able to measure the effect on the operations of the
Advisor and its Affiliates of any third party's failure to adequately address
the impact of the Year 2000.
The Advisor and its Affiliates have identified and have implemented
upgrades for certain hardware equipment. In addition, the Advisor and its
Affiliates have identified certain software applications which will require
upgrades to become Year 2000 compliant. The Advisor expects all of these
upgrades as well as any other necessary remedial measures on the information
technology systems used in the business activities and operations of the Company
to be completed by September 30, 1999, although, the Advisor cannot be assured
that the upgrade solutions provided by the vendors have addressed all possible
Year 2000 issues. The Advisor does not expect the aggregate cost of the Year
2000 remedial measures to be material to the results of operations of the
Company.
The Advisor and Affiliates have received certification from the
Company's transfer agent of its Y2K compliance. Due to the material relationship
of the Company with its transfer agent, the Y2K Team is evaluating the Year 2000
compliance of the systems of the transfer agent and expects to have the
evaluation completed by September 30, 1999. Despite the positive response from
the transfer agent and the evaluation of the transfer agent's system by the Y2K
Team, the Advisor cannot be assured that the transfer agent has addressed all
possible Year 2000 issues. In the event that the systems of the transfer agent
are not Y2K compliant, the worst case scenario of the Advisor would be that the
Advisor would have to allocate resources to internally perform the functions of
the transfer agent. The Advisor does not anticipate that the additional cost of
these resources would have a material impact on the Company.
Based upon the progress the Advisor and Affiliates have made in
addressing the Year 2000 issues and their plan and timeline to complete the
compliance program, the Advisor does not foresee significant risks associated
with its Year 2000 compliance at this time. The Advisor plans to address its
significant Y2K issues prior to being affected by them; therefore, it has not
developed a comprehensive contingency plan. However, if the Advisor identifies
significant risks related to its Year 2000 compliance or if its progress
deviates from the anticipated timeline, the Advisor will develop contingency
plans as deemed necessary at that time.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Seneff is Chairman of the Board of Directors and Chief Executive
Officer, and Mr. Bourne is a director, President and Treasurer, of the Managing
Dealer. In addition, Mr. Seneff is Chairman of the Board of Directors and Chief
Executive Officer, and Mr. Bourne is a director and President, of the Advisor.
The Managing Dealer is entitled to receive Selling Commissions
amounting to 7.5% of the total amount raised from the sale of Shares for
services in connection with the offering of Shares, a substantial portion of
which will be paid as commissions to other broker-dealers. For the period
January 1, 1999 through August 5, 1999, and the year ended December 31, 1998,
the Company had incurred $229,779 and $1,912, respectively of such fees, of
which $207,305 and $1,785, respectively, has been or will be paid by CNL
Securities Corp. as commissions to other broker-dealers.
In addition, the Managing Dealer is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of the total
amount raised from the sale of Shares, all or a portion of which may be
reallowed to other broker-dealers. For the period January 1, 1999 through
<PAGE>
August 5, 1999, and the year ended December 31, 1998, the Company had incurred
$15,318 and $128, respectively, of such fees, the majority of which has been or
will be reallowed to other broker-dealers and from which all bona fide due
diligence expenses will be paid.
In addition, the Company has agreed to issue and sell Soliciting Dealer
Warrants to the Managing Dealer. 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 from the Company at a price of $12.00 during the five-year period
commencing with the date the offering begins. No Soliciting Dealer Warrant,
however, will be exercisable until one year from the date of issuance. The
Company had not issued any Soliciting Dealer Warrants to the Managing Dealer as
of June 30, 1999.
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 Total Proceeds. During the period January 1, 1999 through August 5,
1999, and the year ended December 31, 1998, the Company incurred $137,867 and
$1,148, respectively, of such fees. Such fees are included in other assets.
The Advisor and its Affiliates provide various administrative services
to the Company, including services related to accounting; financial, tax and
regulatory compliance reporting; stockholder distributions and reporting; due
diligence and marketing; and investor relations (including administrative
services in connection with the offering of Shares) on a day-to-day basis. For
the six months ended June 30, 1999, the year ended December 31, 1998 and the
period December 22, 1997 (date of inception) through December 31, 1997, the
Company incurred $167,392, $196,184 and $15,202, respectively, for these
services. Such amounts are included in deferred offering costs.
The Company believes that all amounts paid or payable by the Company to
Affiliates are fair and comparable to amounts that would be paid for similar
services provided by unaffiliated third parties.
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 hotel properties and have not invested in Health Care Facilities.
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 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 officers of two unlisted
public REITs. None of these limited partnerships or unlisted REITs has 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
<PAGE>
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.
Messrs. Bourne and Seneff also currently serve as directors and officers 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 CNL Hospitality Properties Inc., an unlisted
public REIT organized to invest in hotel properties, mortgage loans and secured
equipment leases. Both REITs have investment objectives similar to those of the
Company. As of June 30, 1999, the 18 partnerships and the two unlisted public
REITs had raised a total of $1,519,899,665 from a total of 86,777 investors, and
had invested in 1,324 fast-food, family-style and casual-dining restaurant
properties, and nine hotels. None of the 18 public partnerships or the two
unlisted public REITs has invested in Health Care Facilities. 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.
<TABLE>
<CAPTION>
<S> <C>
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)
- ------ ---------- ----------- ----------- --------------
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)
<PAGE>
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)
- ------ ---------- ----------- ----------- --------------
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)
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) 74,746,441 (3) February 1999 (3)
Properties Fund, Inc. (74,746,441 shares)
CNL Hospitality $425,072,637 (4) (4) (4)
Properties, Inc. (42,507,264 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") represents the number of shares
prior to 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 July 9, 1997, CNL Hospitality Properties, Inc. (formerly CNL
American Realty Fund, Inc.) ("CHP") commenced an offering of up to
16,500,000 shares of common stock ($165,000,000). On June 17, 1999, the
initial offering closed upon receipt of subscriptions totalling
$150,072,637 (15,007,264 shares), including $72,637 (7,264 shares)
through the reinvestment plan. Following completion of the initial
offering on June 17, 1999, CHP commenced a subsequent offering (the "1999
Offering") of up to 27,500,000 shares ($275,000,000) of common stock. As
of June 30, 1999, CHP had received subscriptions totalling $7,657,757
(765,776 shares), including $88,403 (8,840 shares) through the
reinvestment plan, from the 1999 Offering. As of such date, CHP had
purchased, directly or indirectly, nine properties.
As of June 30, 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 June 30, 1999. These 69 partnerships
raised
<PAGE>
a total of $185,927,353 from approximately 4,519 investors, and purchased,
directly or through participation in a joint venture or limited partnership,
interests in a total of 216 projects as of June 30, 1999. These 216 projects
consist of 19 apartment projects (comprising 10% of the total amount raised by
all 69 partnerships), 13 office buildings (comprising 5% 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), eight commercial/retail
properties (comprising 10% 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).
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 13 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 June 30, 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 June 30,
1999, regarding property acquisitions by the 18 limited partnerships and the two
unlisted REITs.
<TABLE>
<CAPTION>
<S> <C>
Name of Type of Method of Type of
Entity Property Location Financing Program
------ -------- -------- --------- -------
CNL Income Fund, 22 fast-food or AL, AZ, CA, FL, GA, All cash Public
Ltd. family-style LA, MD, OK, PA, TX,
restaurants VA, WA
CNL Income Fund II, 49 fast-food or AL, AZ, CO, FL, GA, All cash Public
Ltd. family-style IL, IN, KS, LA, MI,
restaurants MN, MO, NC, NM, OH,
TN, TX, WA, WY
CNL Income Fund 38 fast-food or AL, AZ, CA, CO, FL, All cash Public
III, Ltd. family-style GA, IA, IL, IN, KS,
restaurants KY, MD, MI, MN, MO,
NC, NE, OK, TX
CNL Income Fund IV, 47 fast-food or AL, DC, FL, GA, IL, All cash Public
Ltd. family-style IN, KS, MA, MD, MI,
restaurants MS, NC, OH, PA, TN,
TX, VA
<PAGE>
Name of Type of Method of Type of
Entity Property Location Financing Program
------ -------- -------- --------- -------
CNL Income Fund V, 35 fast-food or AZ, FL, GA, IL, IN, All cash Public
Ltd. family-style MI, NH, NY, OH, SC,
restaurants TN, TX, UT, WA
CNL Income Fund VI, 56 fast-food or AR, AZ, FL, GA, IL, All cash Public
Ltd. family-style IN, KS, MA, MI, MN,
restaurants NC, NE, NM, NY, OH,
OK, PA, TN, TX, VA,
WA, WY
CNL Income Fund 49 fast-food or AZ, CO, FL, GA, IN, All cash Public
VII, Ltd. family-style LA, MI, MN, NC, OH,
restaurants SC, TN, TX, UT, WA
CNL Income Fund 42 fast-food or AZ, FL, IN, LA, MI, All cash Public
VIII, Ltd. family-style MN, NC, NY, OH, TN,
restaurants TX, VA
CNL Income Fund IX, 44 fast-food or AL, CO, FL, GA, IL, All cash Public
Ltd. family-style IN, LA, MI, MN, MS,
restaurants NC, NH, NY, OH, SC,
TN, TX
CNL Income Fund X, 54 fast-food or AL, CA, CO, FL, ID, All cash Public
Ltd. family-style IL, LA, MI, MO, MT,
restaurants NC, NE, NH, NM, NY,
OH, PA, SC, TN, TX, WA
CNL Income Fund XI, 43 fast-food or AL, AZ, CA, CO, CT, All cash Public
Ltd. family-style FL, KS, LA, MA, MI,
restaurants MS, NC, NH, NM, OH,
OK, PA, SC, TX, VA, WA
CNL Income Fund 50 fast-food or AL, AZ, CA, FL, GA, All cash Public
XII, Ltd. family-style LA, MO, MS, NC, NM,
restaurants OH, SC, TN, TX, WA
CNL Income Fund 50 fast-food or AL, AR, AZ, CA, CO, All cash Public
XIII, Ltd. family-style FL, GA, IN, KS, LA,
restaurants MD, NC, OH, PA, SC,
TN, TX, VA
CNL Income Fund 65 fast-food or AL, AZ, CO, FL, GA, All cash Public
XIV, Ltd. family-style KS, LA, MN, MO, MS,
restaurants NC, NJ, NV, OH, SC,
TN, TX, VA
<PAGE>
Name of Type of Method of Type of
Entity Property Location Financing Program
------ -------- -------- --------- -------
CNL Income Fund XV, 55 fast-food or AL, CA, FL, GA, KS, All cash Public
Ltd. family-style KY, MN, MO, MS, NC,
restaurants NJ, NM, OH, OK, PA,
SC, TN, TX, VA
CNL Income Fund 48 fast-food or AZ, CA, CO, DC, FL, All cash Public
XVI, Ltd. family-style GA, ID, IN, KS, MN,
restaurants MO, NC, NM, NV, OH,
TN, TX, UT, WI
CNL Income Fund 31 fast-food, CA, FL, GA, IL, IN, All cash Public
XVII, Ltd. family-style or MI, NC, NV, OH, SC,
casual-dining TN, TX, WA
restaurants
CNL Income Fund 25 fast-food, AZ, CA, FL, GA, IL, All cash Public
XVIII, Ltd. family-style or KY, MD, MN, NC, NV,
casual-dining NY, OH, TN, TX, VA
restaurants
CNL American 578 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 Hospitality 9 limited service, AZ, GA, NV, TX, WA (2) Public REIT
Properties, Inc. extended stay or
full service hotels
</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) In 1998, CHP used proceeds from its line of credit and net offering
proceeds to fund the acquisition of two of its properties. As of June 30,
1999, CHP had repaid amounts borrowed on its line of credit using
additional net offering proceeds. In 1999, CHP acquired an interest in
seven additional properties through CNL Hotel Investors, Inc. ("CHI"), a
real estate investment trust jointly owned by CHP and Five Arrow Realty
Securities II L.L.C. ("Five Arrows"). In connection with the acquisition
of these seven properties, CHI used proceeds from permanent financing, in
addition to net offering proceeds from CHP and cash contributions from
Five Arrows.
A more detailed description of the acquisitions by real estate limited
partnerships and the 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 Hospitality 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 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 1994 and December 1998, 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
DISTRIBUTIONS
In August 1999, the Company declared distributions totalling $7,422
(representing $0.02500 per Share), payable in September 1999. The Company
intends to continue to make regular Distributions to stockholders. 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. Generally, income distributed will not be taxable to the
Company under federal income tax laws if the Company complies with the
provisions relating to qualification as a REIT. If the cash available to the
Company is insufficient to pay such Distributions, the Company may obtain the
necessary funds by borrowing, issuing new securities, or selling Assets. These
methods of obtaining funds could affect future Distributions by increasing
operating costs. To the extent that Distributions to stockholders exceed
earnings and profits, such amounts constitute a return capital for federal
income tax purposes, although such Distributions will 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.
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.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
Page
----
Updated Unaudited Financial Statements:
Balance Sheets as of June 30, 1999 and December 31, 1998 15
Statements of Stockholder's Equity for the six months ended
June 30, 1999 and the year ended December 31, 1998 16
Notes to Financial Statements for the quarters and six months ended
June 30, 1999 and 1998 17
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
June 30, December 31,
1999 1998
-------------- ----------------
ASSETS
Cash $ 92 $ 92
Deferred offering costs 1,480,287 975,339
Other 112,063 1,148
--------------- -----------------
$1,592,442 $976,579
=============== =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Due to related parties $1,388,203 $685,372
Accounts payable and accrued expenses 4,239 91,207
--------------- -----------------
Total liabilities 1,392,442 776,579
--------------- -----------------
Stockholder's equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000 shares -- --
Excess shares, $.01 par value per share.
Authorized and unissued 103,000,000 shares -- --
Common stock, $.01 par value per share.
Authorized 100,000,000 shares, issued and
outstanding 20,000 shares 200 200
Capital in excess of par value 199,800 199,800
--------------- -----------------
200,000 200,000
--------------- -----------------
$1,592,442 $976,579
=============== =================
See accompanying notes to financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
STATEMENTS OF STOCKHOLDER'S EQUITY
Six Months Ended June 30, 1999 and
Year Ended December 31, 1998
Common stock
--------------------------- Capital in
Number Par excess of
of Shares value par value Total
------------ ---------- ------------- --------------
Balance at December 31, 1997 20,000 $ 200 $ 199,800 $ 200,000
Subscriptions received for common
stock through public offering 2,550 26 25,474 25,500
Subscriptions held in escrow (2,550 ) (26 ) (25,474 ) (25,500 )
------------- ----------- -------------- --------------
Balance at December 31, 1998 20,000 200 199,800 200,000
Subscriptions received for common
stock through public offering 246,480 2,465 2,462,335 2,464,800
Subscriptions held in escrow (246,480 ) (2,465 ) (2,462,335 ) (2,464,800 )
------------- ----------- -------------- --------------
Balance at June 30, 1999 20,000 $ 200 $ 199,800 $ 200,000
============= =========== ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
1. Significant Accounting Policies:
Basis of Presentation - The accompanying unaudited financial statements
have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of the management, necessary to a fair
statement of the results for the interim period presented. Amounts as
of December 31, 1998, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Health Care Properties, Inc. (the "Company") for the year ended
December 31, 1998.
As of June 30, 1999, the Company was in the development stage and had
not begun operations.
2. Deferred Offering Costs:
The Company has and will continue to incur certain costs in connection
with the offering, including filing fees, legal, accounting, marketing
and printing costs and escrow fees, which will be deducted from the
gross proceeds of the offering. Certain preliminary costs incurred
prior to raising capital have been and will be advanced by affiliates
of the Company. CNL Health Care Advisors, Inc. (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 offering
proceeds received from the sale of shares of the Company.
3. Related Party Arrangements:
Certain affiliates of the Company will receive fees and compensation in
connection with the offering, and the acquisition, management and sale
of the assets of the Company.
CNL Securities Corp. is entitled to receive commissions amounting to
7.5% of the total amount raised from the sale of shares for services in
connection with the offering of the shares, a substantial portion of
which will be paid as commissions to other broker-dealers. During the
six months ended June 30, 1999, the Company incurred $184,860 of such
fees, of which $165,381 will be paid by CNL Securities Corp. as
commissions to other broker-dealers. The Company will not pay these
fees until subscriptions for at least 250,000 shares ($2,500,000) have
been obtained from the offering.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
3. Related Party Arrangements - Continued:
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of
the total amount raised from the sale of shares, a portion of which may
be reallowed to other broker-dealers. During the six months ended June
30, 1999, the Company incurred $12,324 of such fees, the majority of
which will be reallowed to other broker-dealers and from which all bona
fide due diligence expenses will be paid. The Company will not pay
these fees until subscriptions for at least 250,000 shares ($2,500,000)
have been obtained from the offering.
In addition, 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 with the date
the offering begins. No Soliciting Dealer Warrant, however, will be
exercisable until one year from the date of issuance.
CNL Health Care Advisors, Inc. is entitled to receive acquisition fees
for services in finding, negotiating the leases of and acquiring
properties on behalf of the Company equal to 4.5% of gross proceeds,
loan proceeds from permanent financing and amounts outstanding on the
line of credit, if any, at the time of listing of the shares on a
national securities exchange or over-the-counter market, but excluding
that portion of the permanent financing used to finance secured
equipment leases. During the six months ended June 30, 1999, the
Company incurred $110,915 of such fees. Such fees are included in other
assets at June 30, 1999. These fees will not be paid until
subscriptions for at least 250,000 shares ($2,500,000) have been
obtained from the offering.
CNL Health Care Advisors, Inc. and its affiliates provide various
administrative services to the Company, including services related to
accounting; financial, tax and regulatory compliance reporting;
stockholder distributions and reporting; due diligence and marketing;
and investor relations (including administrative services in connection
with the offering), on a day-to-day basis. For the six months ended
June 30, 1999 and 1998, $167,392 and $61,619, respectively, were
classified as deferred offering costs for these services.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
3. Related Party Arrangements - Continued:
Amounts due to related parties consisted of the following at:
<TABLE>
<CAPTION>
<S> <C>
June 30, December 31,
1999 1998
------------ -------------
CNL Health Care Advisors, Inc.:
Expenditures incurred on behalf of
the Company $ 701,629 $ 470,798
Accounting and administrative services 378,778 211,386
Acquisition fees 112,063 1,148
------------ -------------
1,192,470 683,332
------------ -------------
CNL Securities Corp.:
Commissions 183,282 1,912
Marketing support and due diligence
expense reimbursement fee 12,451 128
------------ -------------
195,733 2,040
------------ -------------
$1,388,203 $ 685,372
============ =============
</TABLE>
4. Subsequent Event:
As of July 13, 1999, the Company had received aggregate subscription
proceeds of $2,751,052, which exceeded the minimum offering amount of
$2,500,000, and $2,526,052 of the funds were released from escrow. The
remaining subscription proceeds of $225,000 (representing funds
received from Pennsylvania investors) will be held in escrow until
aggregate subscription proceeds total at least $7,775,000. As of July
22, 1999 the Company had received total subscription proceeds of
$2,891,340, including $225,000 from Pennsylvania investors whose funds
remained in escrow as of such date.
