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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the three month period ended March 31, 2003
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number
0-24097
--------------
CNL Hospitality Properties, Inc.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 59-3396369
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No ___
The number of Shares of common stock outstanding as of May 9, 2003, was
151,476,939.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Earnings 2
Condensed Consolidated Statements of Stockholders' Equity 3
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Item 3. Quantitative and Qualitative Disclosures about Market
Risk 40
Item 4. Controls and Procedures 41
Part II. Other Information and Signatures 42
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except per share data)
March 31, December 31,
2003 2002
-------------- -------------
ASSETS
Hotel properties, less accumulated depreciation of
$64,745 and $56,408, respectively $ 950,930 $ 988,646
Investments in unconsolidated subsidiaries 301,740 202,554
Cash and cash equivalents 118,686 48,993
Restricted cash 19,440 18,822
Receivables 10,325 11,382
Due from related parties 2,716 3,164
Prepaid expenses and other assets 28,790 25,177
Loan costs, less accumulated amortization of $2,607
and $2,180, respectively 6,441 5,122
-------------- -------------
$ 1,439,068 $ 1,303,860
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages payable and accrued interest $ 206,820 $ 207,206
Other notes payable 30,264 29,739
Line of credit 24,077 24,079
Other liabilities 6,869 5,632
Accounts payable and accrued expenses 11,586 9,256
Distribution payable 98 106
Due to related parties 1,202 2,460
Security deposits 12,886 12,883
Rents paid in advance 1,609 -
-------------- -------------
Total liabilities 295,411 291,361
-------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock without par value.
Authorized and unissued 3,000 shares - -
Excess shares, $.01 par value per share.
Authorized and unissued 63,000 shares - -
Common stock, $.01 par value per share.
Authorized 450,000 shares; issued 143,633
and 126,802 shares, respectively; outstanding
142,747 and 126,030 shares, respectively 1,427 1,260
Capital in excess of par 1,265,632 1,115,745
Accumulated distributions in excess of net earnings (117,325) (98,366)
Accumulated other comprehensive loss (4,287) (4,316)
Minority interest distributions in excess of
contributions and accumulated earnings (1,790) (1,824)
-------------- -------------
Total stockholders' equity 1,143,657 1,012,499
-------------- -------------
$ 1,439,068 $ 1,303,860
============== =============
See accompanying notes to condensed consolidated financial statements.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(in thousands, except per share data)
Quarter Ended March 31,
2003 2002
------------ ------------
Revenues:
Room $ 32,499 $ 13,249
Food and beverage 4,624 778
Other hotel operating departments 1,158 634
Rental income from operating leases 7,816 10,894
FF&E reserve income 861 1,141
Interest and other income 3,193 450
------------ ------------
50,151 27,146
------------ ------------
Expenses:
Room 7,303 3,797
Food and beverage 3,561 544
Other hotel operating departments 1,223 265
Property operations 8,007 2,496
Repairs and maintenance 1,848 285
Management fees 1,453 655
Sales and marketing 2,762 637
Interest and loan cost amortization 4,953 4,275
General operating and administrative 1,778 1,869
Asset management fees to related party 2,343 1,381
Depreciation and amortization 8,337 6,052
------------ ------------
43,568 22,256
------------ ------------
Earnings before equity in loss of
unconsolidated subsidiaries and
minority interest 6,583 4,890
Equity in loss of unconsolidated
subsidiaries (89) (1,170)
Minority interest (57) (69)
------------ ------------
Net earnings $ 6,437 $ 3,651
============ ============
Earnings per share of common stock:
Basic and diluted $ 0.05 $ 0.05
============ ============
Weighted average number of shares of
common stock outstanding:
Basic and diluted 133,837 80,748
============ ============
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Quarter Ended March 31, 2003 and Year Ended December 31, 2002
(UNAUDITED) (in thousands, except per share data)
Minority
interest
distribu-
Accumulated tions in
Common Stock distribu- Accumulated excess of
----------------------- Capital tions in other contr. Comprehen-
Number of excess of excess of comprehen- and accum. sive
shares Par Value par value net earnings sive loss earnings Total income
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2001 77,358 $ 773 $ 681,152 (39,959) (1,190) (2,900) 637,876 $ -
Subscriptions received for
common stock through
public offerings and
distribution reinvestment
plan 48,911 489 488,622 - - - 489,111 -
Retirement of common stock (239) (2) (2,389) - - - (2,391) -
Stock issuance costs - - (51,640) - - - (51,640) -
Net earnings - - - 15,810 - - 15,810 15,810
Minority interest distribu-
tions in excess of contri-
butions and accumulated
earnings - - - - - 1,076 1,076 -
Current period adjustments
to recognize change in
value of cash flow hedges
of equity investees
- - - - (3,126) - (3,126) (3,126)
-----------
Total comprehensive income - - - - - - - $ 12,684
===========
Distributions declared and paid
($.78 per share) - - - (74,217) - - (74,217)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2002 126,030 $ 1,260 $1,115,745 $ (98,366) $ (4,316) $ (1,824) $1,012,499
=========== =========== =========== =========== =========== =========== ===========
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
Quarter Ended March 31, 2003 and Year Ended December 31, 2002
(UNAUDITED) (in thousands, except per share data)
Minority
interest
distribu-
Accumulated tions in
Common Stock distribu- Accumulated excess of
------------------------ Capital tions in other contr. Comprehen-
Number of excess of excess of comprehen- and accum. sive
shares Par Value par value net earnings sive loss earnings Total income
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2002 126,030 $ 1,260 $1,115,745 (98,366) (4,316) (1,824) $1,012,499 $ -
Subscriptions received for
common stock through
public offerings and
distribution reinvestment
plan 16,831 168 168,142 - - - 168,310 -
Retirement of common stock (114) (1) (1,139) - - - (1,140) -
Stock issuance costs - - (17,116) - - - (17,116) -
Net earnings - - - 6,437 - - 6,437 6,437
Minority interest distribu-
tions in excess of contri-
butions and accumulated
earnings - - - - - 34 34 -
Current period adjustments
to recognize change in
value of cash flow hedges
of equity investees - - - - 29 - 29 29
-----------
Total comprehensive income
- - - - - - - $ 6,466
===========
Distributions declared and
paid ($.19 per share) - - - (25,396) - - (25,396)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 2003 142,747 $ 1,427 $1,265,632 (117,325) (4,287) (1,790) $1,143,657
=========== =========== =========== =========== =========== =========== ===========
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Quarter Ended March 31,
2003 2002
------------------ ------------------
Net cash provided by operating activities $ 22,241 $ 14,683
------------------ ------------------
Cash flows from investing activities:
Additions to hotel properties (38,593) (110,190)
Investment in unconsolidated subsidiaries (20,978) (7,937)
Deposit on property and other investments (2,674) -
Increase in restricted cash (618) (1,203)
Increase in other assets (12,711) (3,400)
------------------ ------------------
Net cash used in investing activities (75,574) (122,730)
------------------ ------------------
Cash flows from financing activities:
Draws (repayments) on line of credit (2) 42,203
Proceeds from borrowings on construction loan 525 -
Payment of loan costs (1,746) (792)
Proceeds from mortgage loans and other notes payable - 11,478
Principal payments on mortgage loans (386) (500)
Subscriptions received from stockholders 168,310 74,171
Distributions to stockholders (25,396) (15,432)
Distributions to minority interest (23) (108)
Retirement of common stock (1,140) (706)
Payment of stock issuance costs (17,116) (7,870)
------------------ ------------------
Net cash provided by financing activities 123,026 102,444
------------------ ------------------
Net increase (decrease) in cash and cash equivalents 69,693 (5,603)
Cash and cash equivalents at beginning of period 48,993 44,825
------------------ ------------------
Cash and cash equivalents at end of period $ 118,686 $ 39,222
================== ==================
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
(in thousands)
Quarter Ended March 31,
2003 2002
------------------ ------------------
Supplemental schedule of non-cash investing activities:
Amounts incurred but not paid for construction in
progress $ 109 $ 3,526
================== ==================
Contribution of one hotel property to an unconsolidated
joint venture $ 74,093 $ -
================== =================
Supplemental schedule of non-cash financing activities:
Non-cash reduction in tax incremental financing note $ - $ 74
================== =================
Distributions declared but not paid to minority interest $ 98 $ 108
================== =================
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 2003 and 2002
1. Organization:
-------------
CNL Hospitality Properties, Inc. (the "Company") was organized pursuant to
the laws of the State of Maryland on June 12, 1996. The terms "Company" or
"Registrant" include, unless the context otherwise requires, CNL
Hospitality Properties, Inc., CNL Hospitality Partners, LP, CNL Hospitality
GP Corp., CNL Hospitality LP Corp., CNL Philadelphia Annex, LLC, CNL Hotel
Investors, Inc., CNL LLB SHS Management, LP, CNL LLB F-Inn Management, LP,
CNL LLB C-Hotel Management, LP, CNL Bridgewater Hotel Partnership, LP, CNL
MI-4 Hotel, LP, CNL Foothill Hotel Partnership, LP and each of their wholly
owned subsidiaries. Various other wholly owned subsidiaries are utilized to
hold or develop hotel properties. The Company operates for federal income
tax purposes as a real estate investment trust (a "REIT") and is engaged in
the acquisition, development and ownership of hotel properties
("Properties"). The Company has contracted with CNL Hospitality Corp. (its
"Advisor") to conduct the day-to-day operations of its business.
The Company leases most of its Properties to wholly owned taxable REIT
subsidiary ("TRS") entities and contracts with third-party managers to
operate the Properties. Hotel operating revenues and expenses for these
Properties are included in the consolidated results of operations. Other
Properties are leased on a triple-net basis to unrelated third-party
tenants who operate the Properties or contract with hotel managers to run
their hotel operations. Rental income from operating leases is included in
the consolidated results of operations for these Properties. With respect
to certain of its Properties, the Company has received various credit
enhancement guarantees from third-party managers who, subject to certain
limitations, have guaranteed a certain level of performance for Properties
they manage. See Note 11, "Credit Enhancements," for additional information
on credit enhancements.
2. Summary of Significant Accounting Policies:
-------------------------------------------
Basis of Presentation - The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with the instructions
to Form 10-Q and do not include all of the information and note disclosures
required by generally accepted accounting principles. The unaudited
condensed consolidated financial statements reflect all adjustments,
consisting of normal recurring adjustments, which are, in the opinion of
management, necessary for the fair presentation of the results for the
interim period presented. Operating results for the quarter ended March 31,
2003, may not be indicative of the results that may be expected for the
year ending December 31, 2003. Amounts as of December 31, 2002, included in
the condensed consolidated financial statements have been derived from
audited consolidated financial statements as of that date. These unaudited
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's Form 10-K for the year ended December 31, 2002.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of CNL Hospitality Properties, Inc. and
each of its wholly owned and majority controlled subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Interests of unaffiliated third parties are reflected as
minority interest for less than 100 percent owned and majority controlled
entities.
Reclassification - Certain items in the prior year's consolidated financial
statements have been reclassified to conform to the 2003 presentation.
These reclassifications had no effect on stockholders' equity or net
earnings.
Income Taxes - Under the provisions of the Internal Revenue Code and
applicable state laws, each TRS entity of the Company is subject to
taxation of income on the profits and losses from its tenant operations.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
Quarters Ended March 31, 2003 and 2002
2. Summary of Significant Accounting Policies - Continued:
-------------------------------------------------------
The Company accounts for federal and state income taxes with respect to its
TRS subsidiaries using the asset and liability method. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable
to differences between the consolidated financial statements carrying
amounts of existing assets and liabilities and respective tax bases and
operating losses and tax-credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
Segment Information - The Company derives all significant revenues from a
single line of business, hotel real estate ownership.
Recent Accounting Pronouncements - In January 2003, the Financial
Accounting Standards Board ("FASB") issued FASB Interpretation No. 46 ("FIN
46"), "Consolidation of Variable Interest Entities," to expand upon and
strengthen existing accounting guidance that addresses when a company
should include the assets, liabilities and activities of another entity in
its financial statements. To improve financial reporting by companies
involved with variable interest entities (more commonly referred to as
special-purpose entities or off-balance sheet structures), FIN 46 requires
that a variable interest entity be consolidated by a company if that
company is subject to a majority risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's
residual returns or both. Prior to FIN 46, a company generally included
another entity in its consolidated financial statements only if it
controlled the entity through voting interests. The purpose of
consolidating variable interest entities is to provide more complete
information about the resources, obligations, risks and opportunities of
the consolidated company. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31, 2003,
and to older entities in the first fiscal year or interim period beginning
after June 15, 2003. As of March 31, 2003, the Company is evaluating the
effect of FIN 46. Under the terms of some or all of the Company's
unconsolidated subsidiaries' formation agreements, the Company is required
to fund its pro rata share of losses of these entities in order to maintain
its current ownership share. The Company has also guaranteed a portion of
the debt on CNL Plaza, Ltd. (see Note 10, "Commitments and Contingencies").
These or other variable interests could result in the consolidation of one
or more unconsolidated subsidiaries discussed in Note 3, "Investments in
Unconsolidated Subsidiaries" upon implementation of FIN 46.
3. Investments in Unconsolidated Subsidiaries:
-------------------------------------------
Hilton 2 Partnership - On February 20, 2003, the Company conveyed a
Doubletree hotel located in Arlington, Virginia ("the Doubletree Crystal
City Property"), which was originally acquired in December 2002, and Hilton
Hotels Corporation ("Hilton") conveyed a Hilton hotel located in Rye, New
York (the "Hilton Rye Town Property"), to an existing partnership in which
the Company owns 75 percent and Hilton owns 25 percent (the "Hilton 2
Partnership"). Simultaneously, the Hilton 2 Partnership acquired three
Embassy Suites Properties - one each located in Orlando, Florida,
Arlington, Virginia, and Santa Clara, California - for a purchase price of
$104.5 million. At the time of acquisition/contribution, the Hilton 2
Partnership obtained term financing of $145 million, which was allocated
between these five Properties. The loan bears interest at 5.95 percent per
annum and matures on March 1, 2010. Payments of interest only are due
monthly through maturity.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
Quarters Ended March 31, 2003 and 2002
3. Investments in Unconsolidated Subsidiaries - Continued:
-------------------------------------------------------
The Company has investments in several other joint ventures and
partnerships with third parties who share the decision-making and control
for these entities. The borrowers on the loans are legally separate
entities, having separate assets and liabilities from the Company and,
therefore, the assets and credit of the respective entities may not be
available to satisfy the debts and other obligations of the Company.
Likewise, the assets and credit of the Company may not be available to
satisfy the debts and other obligations of the borrowers on the loans of
these other entities. The following presents unaudited condensed financial
information for these investments as of and for the quarter ended March 31,
2003 (in thousands):
Desert Ridge
Resort WB Resort CNL HHC CNL IHC CTM
Partners, Partners, Partners, Partners, CY-SH Hotel Partners CNL Plaza CNL HHC
LLC LLC LLP LP Parent, LP LLC Ltd. II, LP Total
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Hotel Properties $ 273,526 $ 196,312 $ 220,170 $ 34,855 $ 79,988 $ - $ - $ 368,560 $1,173,411
Other assets 35,079 20,255 12,750 2,847 3,744 12,514 63,787 28,980 179,956
Mortgages and
other notes
payable 251,238 163,347 100,053 15,838 59,121 2,448 63,794 224,741 880,580
Other liabili-
ties 41,428 13,878 5,610 722 3,311 1,000 594 10,672 77,215
Partners'
capital 15,939 39,342 127,257 21,142 21,300 9,066 (601) 162,127 395,572
Revenues 28,688 13,489 17,204 2,359 3,359 1,682 2,702 25,923 95,406
Cost of sales 12,180 5,364 6,671 597 1,208 2,369 829 10,497 39,715
Expenses 17,260 12,972 9,234 1,559 3,423 473 1,750 12,063 58,734
Net income
(loss) (752) (4,847) 1,299 203 (1,272) (1,160) 123 3,363 (3,043)
Income
(loss) alloca-
ble to the
Company (331) (2,375) 909 173 (636) (363) 12 2,522 (89)
Other comprehen-
sive income
(loss) alloca-
ble to the
Company 30 - (1) - - - - - 29
Difference be-
tween carrying
amount of
investment and
Company's share
of partners'
capital 4,711 4,482 7,783 1,508 1,780 - - 13,847 34,111
Company's owner-
ship interest
at end of
period 44.0% 49.0% 70.0% 85.0% 50.0% 31.25% 10.0% 75.0%
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
Quarters Ended March 31, 2003 and 2002
3. Investments in Unconsolidated Subsidiaries - Continued:
The following presents condensed financial information for these joint
ventures and partnerships as of and for the year ended December 31, 2002
(in thousands):
Desert Ridge
Resort WB Resort CNL HHC CNL IHC CTM
Partners, Partners, Partners, Partners, CY-SH Hotel Partners CNL Plaza CNL HHC
LLC LLC LLP LP Parent, LP LLC Ltd. II, LP Total
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Hotel Properties $ 269,925 $ 198,140 $ 218,268 $ 35,073 $ 80,374 $ - $ - $ 122,493 $ 924,273
Other assets 20,543 22,091 9,439 2,995 3,733 12,623 63,735 5,291 140,450
Mortgages and
other notes
payable 230,176 157,798 100,000 15,909 57,160 2,247 64,061 78,650 706,001
Other liabil-
ities 41,065 15,834 7,075 814 3,725 220 398 5,673 74,804
Partners'
capital 19,227 46,599 120,632 21,345 23,222 10,156 (724) 43,461 283,918
Revenues 7,344 46,667 61,598 6,825 8,564 1,400 6,088 694 139,180
Cost of sales 7,016 20,407 25,809 1,800 2,899 3,941 1,946 386 64,204
Expenses 15,680 44,639 34,990 4,114 7,011 1,604 4,086 549 112,673
Net income
(loss) (15,352) (18,379) 799 911 (1,346) (4,145) 56 (241) (37,697)
Income (loss)
allocable to
the Company (6,547) (9,006) 560 713 (673) (1,036) 6 (181) (16,164)
Other comprehen-
sive income
(loss)
allocable to
the Company (2,572) - (554) - - - - - (3,126)
Difference
between
carrying amount
of investment
and Company's
share of
partners'
capital 3,642 3,503 7,302 2,050 1,831 - - 4,501 22,829
Company's owner-
ship interest
at end of
period 44.0% 49.0% 70.0% 85.0% 50.0% 31.25% 10.0% 75.0%
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
Quarters Ended March 31, 2003 and 2002
3. Investments in Unconsolidated Subsidiaries - Continued:
-------------------------------------------------------
The difference between the carrying amount of the investments in the above
entities and the Company's share of partners' capital results from various
acquisition costs and fees which are not shared by the co-venturers. These
amounts are amortized over 36 years, the estimated weighted average
depreciable lives of the Company's hotel Properties.
The Company earned distributions from the following partnerships during the
quarters ended March 31, 2003 and 2002, which reduce the carrying value of
the investment (in thousands):
March 31,
2003 2002
----------- -----------
Desert Ridge Resort Partners, LLC $ 713 $ 239
WB Resort Partners, LP 1,181 818
CNL HHC Partners, LP - 1,491
CY-SF Hotel Parent, LP 320 -
----------- -----------
$ 2,214 $ 2,548
=========== ===========
As of March 31, 2003 and December 31, 2002, the Company had approximately
$2.2 million and $2.5 million, respectively, in distributions receivable
from the above partnerships, which are included in due from related parties
in the accompanying consolidated balance sheets.
4. Hotel Properties:
-----------------
During the quarter ended March 31, 2003, the Company acquired the Hyatt
Regency Coral Gables, located in Miami, Florida for a purchase price of $36
million (the "Hyatt Coral Gables Property"). The Hyatt Coral Gables
Property is leased by a TRS entity of the Company and is managed by an
affiliate of Hyatt Corporation.
The following presents unaudited pro forma results of operations of the
Company as if the Hyatt Coral Gables Property was owned during the entire
period for the quarters ended March 31, 2003 and 2002 (in thousands): March
31, 2003 2002
March 31,
2003 2002
----------- -----------
Revenues $ 54,535 $ 31,530
Expenses 48,362 27,050
Net Earnings 6,027 3,241
Basic and diluted earnings per share $ 0.05 $ 0.04
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
Quarters Ended March 31, 2003 and 2002
5. Indebtedness:
-------------
Indebtedness consists of the following at (in thousands):
March 31, December 31,
2003 2002
----------- -----------
Mortgages payable and accrued interest $ 206,820 $ 207,206
Construction loan facilities 21,806 21,280
Tax incremental financing note 8,458 8,459
Line of credit 24,077 24,079
----------- -----------
$ 261,161 $ 261,024
=========== ===========
6. Distributions:
--------------
For the quarters ended March 31, 2003 and 2002, approximately 42 percent
and 41 percent, respectively, of the distributions paid to stockholders
were considered ordinary income and approximately 58 percent and 59
percent, respectively, were considered a return of capital to stockholders
for federal income tax purposes. No amounts distributed to the stockholders
for the quarters ended March 31, 2003 or 2002 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.
Intentionally Left Blank
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
Quarters Ended March 31, 2003 and 2002
7. Related Party Transactions:
---------------------------
Certain directors and officers of the Company hold similar positions with
the Advisor and its affiliates, including the managing dealer for the
Company's equity offerings, CNL Securities Corp. These affiliates are by
contract entitled to receive fees and compensation for services provided in
connection with common stock offerings, and the acquisition, development,
management and sale of the Company's assets.
Amounts incurred relating to these transactions with affiliates were as
follows for the quarters ended March 31 (in thousands):
2003 2002
----------- -----------
CNL Securities Corp.:
Selling commissions* $ 12,662 $ 5,559
Marketing support fee and
due diligence expense
reimbursements* 842 371
----------- -----------
13,504 5,930
----------- -----------
Advisor and its affiliates:
Acquisition fees 12,466 4,435
Development fees 673 339
Asset management fees 2,343 1,381
----------- -----------
15,482 6,155
----------- -----------
$ 28,986 $ 12,085
=========== ===========
* The majority of these commissions, fees and reimbursements were reallowed
to unaffiliated broker-dealer firms.
Of these amounts, approximately $1.2 million and $2.5 million is included
in due to related parties in the accompanying consolidated balance sheets
as of March 31, 2003 and December 31, 2002, respectively.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
Quarters Ended March 31, 2003 and 2002
7. 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
for the quarters ended March 31 (in thousands): 2003 2002
2003 2002
----------- -----------
Stock issuance costs $ 1,084 $ 693
General operating and administrative expenses 307 412
----------- -----------
$ 1,391 $ 1,105
=========== ===========
The Company maintains bank accounts in a bank in which certain officers and
directors of the Company serve as directors and are stockholders. The
amounts deposited with this bank were approximately $16.2 million and $14.9
million at March 31, 2003 and December 31, 2002, respectively.
EMTG, LLC, a partnership in which the Company has a 31.25 percent interest,
engaged Dustin/Massagli LLC, a company in which one of the Company's
directors is president, a director and a principal stockholder, to manage
its business.
In May 2002, the Company acquired a 10 percent interest in CNL Plaza, Ltd.,
a limited partnership that owns an office building located in Orlando,
Florida, in which the Advisor and its affiliates lease office space, for
$0.3 million. The remaining interest in the limited partnership is owned by
several affiliates of the Advisor. In connection with this acquisition, the
Company has severally guaranteed a 16.67 percent share, or approximately
$2.6 million, of a $15.5 million unsecured promissory note of the limited
partnership.
8. Concentration of Credit Risk:
-----------------------------
A significant portion of the Company's rental income and hotel revenues
were earned from Properties operating as various Marriott International,
Inc. ("Marriott") and Hilton brands. Additionally, the Company relies on
Marriott to provide credit enhancements for certain of its Properties.
Although the Company carefully screens its managers and tenants and has
obtained interests in non-Marriott and non-Hilton branded Properties,
failure of the Marriott or Hilton brands could significantly impact the
results of operations of the Company. Management believes that the risk of
such a default will be reduced through future acquisitions and
diversification, and through the initial and continuing due diligence
procedures performed by the Company.
9. Stockholders' Equity:
---------------------
On August 13, 2002, the Company filed a registration statement on Form S-11
with the Commission in connection with the proposed sale by the Company of
up to 175 million shares of common stock at $10 per share ($1.75 billion)
(the "2003 Offering"). The 2003 Offering commenced immediately following
the completion of the Company's fourth public offering (the "2002
Offering") on February 4, 2003. Of the 175 million shares of common stock
to be offered, up to 25 million are available to stockholders purchasing
shares through the reinvestment plan. The price per share and the other
terms of the 2003 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 Company's 2002 Offering. CNL
Securities Corp., an affiliate of the Advisor, is the managing dealer for
the Company's equity offerings.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
Quarters Ended March 31, 2003 and 2002
10. Commitments and Contingencies:
------------------------------
From time to time the Company may be exposed to litigation arising from the
operation of its business. At this time, management does not believe that
resolution of these matters will have a material adverse effect on the
Company's financial condition or results of operations.
As of March 31, 2003, the Company had commitments to (i) acquire or develop
three hotel Properties for an anticipated aggregate purchase price of
approximately $227 million, (ii) construct or complete construction on one
Property, with an estimated cost of approximately $18.3 million and (iii)
fund the remaining total of approximately $2.9 million for property
improvements in two existing partnerships. The Company also has committed
to fund its pro rata share of working capital shortfalls and construction
commitments for its partnerships, if shortfalls arise, and has guaranteed
the debt service for several of its subsidiaries and partnerships. The
acquisition of additional 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 these transactions will
be entered into by the Company. In order to enter into these and other
transactions, the Company must obtain additional funds through the receipt
of additional offering proceeds and/or advances on its revolving line of
credit (the "Revolving LOC") and permanent financing.
The Company has entered into an agreement whereby if certain conditions are
met, the leases with respect to nine Properties currently leased to
third-party tenants on a triple-net basis must be assumed by the Company on
or before March 31, 2004. In order for this to occur, the Properties must
have operating results above a certain minimum threshold. If these
conditions are met and the Company does not assume these leases by the
deadline, the Company has agreed to return approximately $3 million in
security deposits it holds on three of the Properties. If these conditions
are met and the Company does assume these leases, the Company will not be
obligated to pay any additional consideration for the leasehold position
and the manager will be allowed to participate, through incentive fees, in
any additional earnings above what would otherwise be the minimum rent.
Additionally, if the conditions are met and the Company assumes these
leases, it would be released from its current obligation to return the
security deposits it holds on these three Properties.
In addition to its commitments to lenders under its loan agreements and
obligations to fund Property acquisitions and development, the Company is a
party to certain contracts which may result in future obligations to third
parties. See description of obligations below.
Earnout Provisions on Property Acquisitions - The Company is currently
subject to earnout provisions on two of its Properties, whereby if the
operating performance of the two Properties exceeds a certain pre-defined
threshold, additional consideration will be due from the Company to the
prior owner of such Properties. The earnout provision period terminates on
May 31, 2004, at which time the Company will have no further liability
under this provision. The maximum amount of consideration that the Company
may be obligated to pay is approximately $2.5 million.
Guarantee of Debt on Behalf of Unconsolidated Subsidiaries - The Company
has guaranteed 16.67% of a $15.5 million note payable on behalf of a
subsidiary of CNL Plaza, Ltd. The total liability of the Company under this
arrangement is capped at approximately $2.6 million, plus interest on such
amount. Interest accrues at a rate of LIBOR plus 200 basis point per annum
on the unpaid principal amount. This guarantee shall continue through the
loan maturity in November 2004.
Guarantee of Other Obligations on Behalf of Unconsolidated Subsidiaries -
The Company has generally guaranteed, in connection with loans to certain
unconsolidated subsidiaries, the payment of certain obligations that may
arise out of fraud or misconduct of the subsidiary borrower. This guarantee
will be in effect until the loans have been paid in full.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
Quarters Ended March 31, 2003 and 2002
10. Commitments and Contingencies - Continued:
------------------------------------------
Irrevocable Letter of Credit - The Company has obtained an irrevocable
letter of credit for the benefit of a lender in the amount of $0.8 million.
The letter of credit is automatically extended each fiscal year until
November 10, 2007. The Company could be liable to the extent that drawings
under the letter of credit occur.
Refundable Tenant Security Deposits - The Company is obligated to return
security deposits to unrelated third-party tenants at the end of the lease
terms in accordance with the lease agreements. The Company has recorded a
liability for such security deposits totaling approximately $12.9 million
as of March 31, 2003.
Marriott Put Option - Marriott has the right on certain partnerships with
the Company to require the Company to buy-out a portion of Marriott's
ownership. These rights are available if certain predefined operating
results are obtained. Should such conditions be met, the Company may be
obligated to buy interests valued at approximately $11.1 million.
Pending Investments - As of March 31, 2003, the Company had commitments to
acquire and develop three hotel Properties for an anticipated aggregate
purchase price of approximately $227 million.
11. Credit Enhancements
-------------------
The Company benefits from various types of credit enhancements that have
been provided by the managers of many of its hotel Properties. These credit
enhancements may be provided to the Company directly or indirectly through
unconsolidated subsidiaries. All of the credit enhancements are subject to
expiration, or "burn-off" provisions over time. There is no guarantee that
the Company will continue to be able to obtain credit enhancements in the
future. As a result of the events of September 11, 2001 and a general
downturn in the overall economy, the Company's net earnings and cash flows
were substantially enhanced by these credit features. To the extent that
this trend continues and current credit enhancements are fully utilized or
expire, the Company's results of operations and its ability to pay
distributions to stockholders may be adversely affected. The following are
summaries of the various types of credit enhancements that the Company
benefits from:
Limited Rent Guarantees - Limited rent guarantees ("LRG") are provided by
hotel managers to the Company for Properties which the Company leases on a
triple-net basis to unrelated third-party tenants. These credit
enhancements guarantee the full, complete and timely payment of rental
payments to the Company. The expiration of LRGs may result in the inability
of the Company to collect rent from its third party tenants. The following
table summarizes the amounts and utilization of the LRGs which benefit the
Company (in thousands):
Unconsolidated
Company Subsidiaries
----------- -----------
Amount of LRG available as of
December 31, 2002 $ 1,327 $ -
Utilization during quarter ended
March 31, 2003 (224) -
----------- -----------
Amount of LRG available as of
March 31, 2003 $ 1,103 $ -
=========== ===========
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
Quarters Ended March 31, 2003 and 2002
11. Credit Enhancements - Continued:
--------------------------------
Threshold Guarantees - Threshold guarantees ("TG") are provided by
third-party hotel managers to the Company in order to guarantee a certain
minimum return for each of the Properties covered by the TG. Funding under
these guarantees is either recognized as other income, as a reduction in
base management fees or as liabilities by the Company, depending upon
whether the funded amounts maybe required to be repaid by the Company in
the future. The expiration of TGs may result in a reduction of other income
and cash flows derived from these Properties in future operating periods.
The following table summarizes the amounts and utilization of the Company's
TGs (in thousands):
Unconsolidated
Company Subsidiaries
----------- -----------
Amount of TG available as of $ 37,515 $ -
December 31, 2002
Utilization during quarter ended
March 31, 2003 (5,083) -
----------- -----------
Amount of TG available as of
March 31, 2003 $ 32,432 $ -
=========== ===========
During the quarters ended March 31, 2003 and 2002, the Company has
recognized approximately $2.7 million and $0, respectively, in other
income, approximately $0.5 million and $0, respectively, as a reduction in
base management fees and has not recorded any liabilities related to
funding under its TG's. On ten of the Company's Properties, the guarantee
funding is treated like LRG funding until the leases for these Properties
are assumed by the Company. Until that time, TG funding for these
Properties is funded directly to third party tenants of these Properties,
which in turn allows them to make periodic rental payments as discussed
above. There is no guarantee that the Company will assume the leases for
these ten Properties. The amount of rental income from operating leases
related to TG funding for these Properties was approximately $2.2 million
during the quarter ended March 31, 2003.
Liquidity Facility Loans - Liquidity Facility Loans ("LFL") are provided by
hotel managers to the Company in order to guarantee a certain minimum
return for each of the Properties covered by the LFL. Funding under LFLs is
recognized as a liability by the Company and its unconsolidated
subsidiaries because in the future the Company may be required to repay
amounts funded. The expiration of LFLs for the Company's Properties may
result in a reduction in cash flows derived from these Properties. The
following table summarizes the amounts and utilization of the Company's
LFLs (in thousands):
Unconsolidated
Company Subsidiaries
----------- -----------
Amount of LFL available as of
December 31, 2002 $ 4,538 $ 40,645
Utilization during quarter ended
March 31, 2003 (976) (12,098)
----------- -----------
Amount of LFL available as of
March 31, 2003 $ 3,562 $ 28,547
=========== ===========
As of March 31, 2003 and December 31, 2002, the Company had liabilities of
approximately $6.9 million and $5.6 million, respectively, and the
Company's unconsolidated subsidiaries had liabilities of approximately
$36.0 million and $23.9 million, respectively, from LFL fundings. The
repayment of these liabilities is out of operating cash flow in excess of
minimum returns to the Company.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
Quarters Ended March 31, 2003 and 2002
11. Credit Enhancements - Continued:
--------------------------------
Senior Loan Guarantees - Senior loan guarantees ("SLG") are provided by
hotel managers to the Company in order to guarantee the payment of senior
debt service for each of the Properties covered by the SLG. Funding under
SLGs is recognized as a liability by the Company and its unconsolidated
subsidiaries because in the future the Company may be required to repay the
amounts funded. The expiration of SLGs from Properties owned directly by
the Company or through unconsolidated subsidiaries may result in a decrease
in the cash distributions that the Company receives from such subsidiaries
and may affect the Company's ability to pay debt service. The following
table summarizes the amounts and utilization of the Company's SLGs (in
thousands):
Unconsolidated
Company Subsidiaries
----------- -----------
Amount of SLG available as
of December 31, 2002 $ - $ 26,480
Utilization during quarter ended
March 31, 2003 - (1,971)
----------- -----------
Amount of SLG available as of
March 31, 2003 $ - $ 24,509
=========== ===========
As of March 31, 2003 and December 31, 2002, the Company's unconsolidated
subsidiaries had liabilities of approximately $10.5 and $8.5 million,
respectively, from SLG funding.
12. Subsequent Events:
------------------
During the period April 1, 2003 through May 9, 2003, the Company received
subscription proceeds of approximately $89.3 million for approximately 8.9
million shares of common stock.
On April 1, 2003 and May 1, 2003, the Company declared distributions to
stockholders of record on April 1, 2003 and May 1, 2003, totaling
approximately $9.2 million and $9.7 million respectively, or $0.064583 per
share, payable by June 30, 2003.
On April 9, 2003, the Company entered into a land lease relating to a
parcel of land on which a Renaissance Hotel will be developed. The
estimated total cost of the construction is approximately $45.7 million. In
connection with the development of this Property, the Company renegotiated
its current construction loan facility, which increased the amount
available under the facility to $64 million. This facility will be used to
fund the construction of this and other hotel Properties.
On April 21, 2003, the Company invested $10 million in convertible
preferred partnership units of Hersha Hospitality Limited Partnership
("HLP"). The Company has committed to invest up to an additional $15
million in HLP and may invest up to $40 million in joint ventures with HLP.
The investment in HLP is structured to provide the Company with a 10.5
percent cumulative preferred distribution, paid quarterly, and the proposed
investment in joint ventures with HLP is structured to provide the Company
with a 10.5 percent cumulative preferred distribution on its unreturned
capital contributions. There is no assurance, however, that such
distributions or returns will be paid.
On April 21, 2003, the Company purchased the New Orleans Grande Hotel for a
purchase price of $92.5 million. In connection with the acquisition of this
Property, the Company assumed permanent financing of approximately $46.7
million. The Company expects to spend approximately $10 million over the
first two years following the acquisition for property improvements
relating to this Property. The New Orleans Grande Hotel was converted to a
JW Marriott Hotel upon acquisition.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
Quarters Ended March 31, 2003 and 2002
12. Subsequent Events - Continued:
------------------------------
On May 8, 2003, the Company and RFS Hotel Investors, Inc., a Tennessee REIT
("RFS"), entered into an agreement under which the Company, through its
subsidiaries, will acquire RFS for approximately $383 million in cash
($12.35 per share). Upon consummation of the transactions contemplated by
such agreement, RFS, which is currently publicly traded on the New York
Stock Exchange under the symbol "RFS", will cease to exist as a separate
corporate entity and its assets will be held by indirect wholly owned
subsidiaries of the Company. Upon closing such transaction, the Company
will assume the outstanding debt of RFS and its subsidiaries (approximately
$304.6 million as of March 31, 2003). The Company has received a commitment
to initially finance the transaction with a bridge loan of approximately
$320 million from an affiliate of Bank of America, which is expected to be
repaid with proceeds from the issuance of debt securities and proceeds that
the Company receives from the sale of its common stock through the 2003
Offering. In a separate transaction on May 9, 2003, the Company purchased
from RFS one million newly issued shares of RFS' common stock at a price
per share of $12.35 in cash.
The Company currently is seeking additional Properties or other permitted
real estate related investment opportunities, such as investments into
other real estate companies or joint ventures.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is based on the condensed consolidated
financial statements of the Company as of March 31, 2003 and December 31,
2002 and for the quarters ended March 31, 2003 and 2002. This information
should be read in conjunction with the accompanying unaudited consolidated
financial statements and the notes thereto. Certain amounts for the
quarters ended March 31, 2002 have been reclassified to conform to the
current presentation.
The following information contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. 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, terrorism, extended U.S. Military participation in war or other
combat operations, availability of capital from borrowings under the
Company's line of credit and security agreement, continued availability of
proceeds from the Company's offerings, the ability of the Company to obtain
additional permanent financing on satisfactory terms, the ability of the
Company to continue to identify suitable investments, the ability of the
Company to continue to locate suitable managers and tenants for its
properties and borrowers for its mortgage loans ("Mortgage Loans"), and the
ability of such tenants and borrowers to make payments under their
respective leases or Mortgage Loans. Given these uncertainties, readers are
cautioned not to place undue reliance on such statements.
Introduction
CNL Hospitality Properties, Inc. (the "Company") was organized
pursuant to the laws of the State of Maryland on June 12, 1996. The terms
"Company" or "Registrant" include, unless the context otherwise requires,
CNL Hospitality Properties, Inc., CNL Hospitality Partners, LP, CNL
Hospitality GP Corp., CNL Hospitality LP Corp., CNL Philadelphia Annex,
LLC, CNL Hotel Investors, Inc., CNL LLB SHS Management, LP, CNL LLB F-Inn
Management, LP, CNL LLB C-Hotel Management, LP, CNL Bridgewater Hotel
Partnership, LP, CNL MI-4 Hotel, LP, CNL Foothill Hotel Partnership, LP and
each of their wholly owned subsidiaries. Various other wholly owned
subsidiaries are utilized to hold or develop hotel properties. The Company
operates for federal income tax purposes as a real estate investment trust
(a "REIT") and is engaged in the acquisition, development and ownership of
hotel properties ("Properties"). The Company has contracted with CNL
Hospitality Corp. (its "Advisor") to conduct the day-to-day operations of
its business.
The Company leases most of its Properties to wholly owned taxable REIT
subsidiary ("TRS") entities and contracts with third-party managers to
operate the Properties. Hotel operating revenues and expenses for these
Properties are included in the consolidated results of operations. Other
Properties are leased on a triple-net basis to unrelated third-party
tenants who operate the Properties or contract with hotel managers to run
their hotel operations. Rental income from operating leases is included in
the consolidated results of operations for these Properties. With respect
to certain of its Properties, the Company has received various credit
enhancement guarantees from third-party managers who, subject to certain
limitations, have guaranteed a certain level of performance for Properties
they manage.
As of March 31, 2003, the Company acquired, directly or indirectly
through its subsidiaries, interests in 60 Properties, with the following
brand affiliations:
Brand Affiliation Hotel Properties Rooms/Suites
--------------------------------------- ---------------- --------------
Full Service Hotels:
DoubleTree Hotels 2 1,131
Marriott Hotels, Resorts and Suites 2 1,657
Marriott Suites 1 266
JW Marriott 1 950
Hilton Hotels 4 1,851
Hilton Suites 1 224
Wyndham Hotels and Resorts 2 390
Embassy Suites Hotels 4 974
Hyatt Hotels and Resorts 1 242
---------------- --------------
18 7,685
---------------- --------------
Extended Stay Hotels:
Residence Inn by Marriott 12 2,051
TownePlace Suites by Marriott 5 556
SpringHill Suites by Marrriott 8 1,455
---------------- --------------
25 4,062
---------------- --------------
Limited Service Hotels:
Hampton Inn 1 176
Courtyard by Marriott 15 3,253
Fairfield Inn 1 388
---------------- --------------
17 3,817
---------------- --------------
Total 60 15,564
================ ==============
Results of Operations
Hotel Operating Statistics
As of March 31, 2003, the Company had acquired interests, directly or
indirectly through its unconsolidated subsidiaries, in 60 Properties,
located in 22 states, consisting of land, buildings and equipment,
including 18 Properties through interests in four partnerships with
Marriott, two partnerships with Hilton, and one partnership with Interstate
Hotels and Resorts. As of March 31, 2003, the Company also owned a parcel
of land on which a hotel is being developed. Of the 60 Properties currently
operating, the Company currently leases 48 to TRS entities, with management
performed by third-party operators, and it leases 12 Properties on a
triple-net basis to third-party operators. Management regularly reviews
operating statistics such as revenue per available room ("REVPAR"), average
daily rate ("ADR"), net operating income ("NOI") and occupancy at the
Company's Properties in order to gauge how well they are performing as
compared with the industry and past results. The following tables present
information related to the Company's 60 operating properties as well as
unaudited REVPAR, ADR and occupancy data for the various hotel brands that
the Company owned as of March 31, 2003 for the quarter ended March 31,
2003.
Intentionally Left Blank
Properties Owned Directly or Indirectly by the Number of
Company Date Acquired Rooms
---------------------------------------------------- ------------------ ------------
Full Service Hotels:
DoubleTree
DoubleTree Hotel Crystal City December 19, 2002 631
DoubleTree Lincoln Centre December 24, 2002 500
Marriott
Waikiki Beach Marriott Resort July 27, 2001 1,310
Bridgewater Marriott Hotel June 14, 2002 347
Marriott Suites
Dallas Marriott Suite Market Center February 24, 1999 266
JW Marriott
JW Marriott Desert Ridge Resort & Spa November 30, 2002 950
Hilton
Hilton Miami Airport & Towers September 6, 2001 500
Hilton Costa Mesa September 17, 2001 486
Hilton Tucson El Conquistador December 24, 2002 428
Hilton Rye Town February 20, 2003 437
Hilton Suites
Hilton Suites Auburn Hills September 27, 2001 224
Wyndham
Wyndham Denver Tech Center May 31, 2000 180
Wyndham Billerica May 31, 2000 210
Embassy Suites
Embassy Suites Hotel Portland-Downtown September 27, 2001 276
Embassy Suites Hotel Orlando Airport February 20, 2003 174
Embassy Suites Hotel Crystal City-National Airport February 20, 2003 267
Embassy Suites Hotel Santa Clara-Silicon Valley February 20, 2003 257
Hyatt
Hyatt Regency Coral Gables February 20, 2003 242
Extended Stay Hotels:
Residence Inn by Marriott
Residence Inn Atlanta-Gwinnett Place July 31, 1998 132
Residence Inn Atlanta-Buckhead July 31, 1998 150
Residence Inn Las Vegas Hughes Center February 24, 1999 256
Residence Inn Dallas Plano February 24, 1999 126
Residence Inn Phoenix Airport June 19, 1999 200
Residence Inn San Diego-Sorento Mesa December 10, 1999 150
Residence Inn Palm Desert June 16, 2000 130
Residence Inn Fairfax/Merrifield July 28, 2000 149
Residence Inn Salt Lake City Cottonwood August 18, 2000 144
Residence Inn Hartford/Manchester November 19, 2001 96
Residence Inn Orlando/Sea World International February 14, 2002 350
Residence Inn San Jose-Newark November 16, 2002 168
Properties Owned Directly or Indirectly by the Number of
Company Date Acquired Rooms
---------------------------------------------------- ------------------ ------------
TownePlace Suites by Marriott
TownePlace Suites Portland/Scarborough August 18, 2000 95
TownePlace Suites Philadelphia/Mt. Laurel August 18, 2000 95
TownePlace Suites Boston Tewksbury August 18, 2000 95
TownePlace Suites Newark/Silicon Valley November 3, 2000 127
TownePlace Suites Los Angeles/Manhattan Beach January 18, 2002 144
SpringHill Suites by Marriott
SpringHill Suites Gaithersburg July 28, 2000 162
SpringHill Suites @ Lake Buena Vista December 15, 2000 400
SpringHill Suites Durham/RTP February 2, 2001 120
SpringHill Suites Centreville/Manassas March 23, 2001 136
SpringHill Suites Charlotte University March 23, 2001 136
SpringHill Suites Richmond/Virginia Center December 28, 2001 136
SpringHill Suites Manhattan Beach-Hawthorne January 18, 2002 164
SpringHill Suites Philadelphia/Plymouth Meeting January 18, 2002 201
Limited Service Hotels:
Hampton Inn
Hampton Inn Houston Galleria September 3, 2002 176
Courtyard by Marriott
Courtyard Dallas Plano in Legacy Park February 24, 1999 153
Courtyard Scottsdale Downtown June 16, 1999 180
Courtyard Seattle Downtown/Lake Union June 16, 1999 250
Courtyard Philadelphia Downtown November 15, 1999 498
Courtyard Palm Desert June 16, 2000 151
Courtyard Alpharetta Atlanta August 18, 2000 154
Courtyard Marriott Village @ Lake Buena Vista November 21, 2000 312
Courtyard Overland Park Convention Center February 2, 2001 168
Courtyard Hartford Manchester November 19, 2001 90
Courtyard Oakland Airport December 28, 2001 156
Courtyard Ft. Lauderdale Weston February 15, 2002 174
Courtyard Basking Ridge March 1, 2002 235
Courtyard San Francisco June 14, 2002 405
Courtyard Newark/Silicon Valley October 25, 2002 181
Courtyard Edison-Raritan Center November 4, 2002 146
Fairfield Inn
Fairfield Inn @ Lake Buena Vista November 21, 2000 388
------------
Total Rooms 15,564
============
Hotel operating statistics (Unaudited):
Quarter Ended March 31, 2003
--------------------------------------
Hotel Brand RevPAR ADR Occupancy
- ---------------------------------------- ----------- ----------- -------------
DoubleTree $ 73.12 $ 111.32 65.7%
Marriott, Marriott Suites, JW Marriott 112.89 153.31 73.6%
Hilton and Hilton Suites 88.03 125.14 70.3%
Wyndham 41.66 87.01 47.9%
Embassy Suites 94.78 130.59 72.6%
Hyatt 179.04 221.13 81.0%
Residence Inn by Marriott 71.94 98.14 73.3%
TownePlace Suites by Marriott 43.33 61.59 70.4%
SpringHill Suites by Marriott 50.62 78.32 64.7%
Hampton Inn 69.16 96.07 72.0%
Courtyard by Marriott 67.54 104.38 65.0%
Fairfield Inn 38.92 60.10 64.7%
The Company has year over year operating data for 45 of its hotel
Properties for the quarters ended March 31, 2003 and 2002. The following table
summarizes REVPAR, ADR, NOI and occupancy for these Properties during these
periods:
Quarter Ended
March 31, March 31,
2003 2002 Variance
------------ ------------ ------------
North America (45 hotels)
REVPAR $ 68.34 64.73 6%
ADR 96.26 98.59 -2%
Occupany 71% 65% 9%
Same Store NOI 16,394 17,201 -5%
Comparison of quarter ended March 31, 2003 to quarter ended March 31, 2002
Revenues
During the quarters ended March 31, 2003 and 2002, the Company earned hotel
operating revenues of approximately $38.3 million and $14.7 million,
respectively. In addition, the Company earned rental income from operating
leases and FF&E Reserve income of approximately $8.7 million and $12.0 million
for the quarters ended March 31, 2003 and 2002, respectively. The increase in
hotel revenues and the decrease in rental income and FF&E Reserve income was due
to the Company investing in new Properties and leasing to TRS entities, as well
as taking assignment of leases on 11 existing Properties and engaging
third-party managers to operate these Properties during the year ended December
31, 2002. For these Properties, rental income from operating leases that was
recorded in the past has been replaced with hotel operating revenues and
expenses as of the time that the lease assumption occurred. Additionally, all of
the new Properties acquired in 2002 and 2003 are leased to TRS entities of the
Company or of its partnerships and operated using third-party managers. Because
of the additional acquisitions in 2002 and in the first quarter of 2003 and the
additional Property acquisitions that are expected to occur, results of
operations are not expected to be indicative of future periods.
Interest and Other Income
During the quarters ended March 31, 2003 and 2002, the Company earned
approximately $3.2 million and $0.5 million, respectively, in interest income
from investments in money market accounts and other short-term, highly liquid
investments and from other income. Other income of $2.7 million and $0 was
earned as a result of credit enhancement funding during the quarters ended March
31, 2003 and 2002, respectively. Interest income remained consistent during the
quarters ended March 31, 2003 and 2002. As net offering proceeds are invested in
Properties or other permitted investments, the percentage of the Company's total
revenues from interest income will vary depending on the amount of offering
proceeds, the timing of investments and interest rates in effect.
Operating Expenses
Operating expenses, including amortization and depreciation, interest
expenses, asset management fees and hotel expenses of consolidated subsidiaries,
were approximately $43.6 million and $22.3 million for the quarters ended March
31, 2003 and 2002, respectively (87% and 82%, respectively, of total revenues).
The increase in operating expenses during the quarter ended March 31, 2003, as
compared to 2002, was the result of the Company owning interests in 60 operating
Properties during 2003 compared to 47 Properties during 2002. Additionally,
during the quarters ended March 31, 2003 and 2002, the Company incurred hotel
expenses of approximately $26.2 million and $8.7 million, respectively,
primarily due to the increase in the number of Properties leased to TRS
entities, as described above in "Revenues." Further, interest expense increased
from approximately $4.3 million for the quarter ended March 31, 2002 to
approximately $5.0 million for the quarter ended March 31, 2003, primarily due
to additional proceeds from permanent financing. General and administrative
expenses for the quarter ended March 31, 2003 decreased approximately $0.1
million from March 31, 2002 due to a write off of bad debt of approximately $0.4
million during the quarter ended March 31, 2002 in connection with the Company
taking assignment of certain leases from third parties, offset by increases due
to growth in the Company. Total operating expenses are expected to increase as
the Company acquires interests in additional Properties and invests in Mortgage
Loans or other permitted investments. However, general operating and
administrative expenses, exclusive of interest expense, as a percentage of total
revenues is expected to decrease as the Company makes additional investments.
Asset management fees increased from approximately $1.4 million to approximately
$2.3 million for the quarters ended March 31, 2002 and 2003, respectively, due
to the additional fees on newly acquired Properties.
Losses from Unconsolidated Subsidiaries
Equity in losses of unconsolidated subsidiaries was approximately $89,000
and $1.2 million for the quarters ended March 31, 2003 and 2002, respectively.
The losses during 2002 were primarily due to (i) marketing expenses incurred
during the construction of the JW Marriott Desert Ridge Resort and Spa owned
through a partnership, which opened in November 2002, (ii) losses at the Waikiki
Beach Resort owned through a partnership which was open, but undergoing
renovations during a significant portion of 2002, and (iii) losses at a startup
partnership which owns the licensing rights to the Mobil Travel Guide. The
improvement in 2003 was a result of the opening of the JW Marriott Desert Ridge
Resort and Spa in November 2002. In addition, a new partnership in which the
Company invested with Hilton experienced net income during 2003. Losses from the
Desert Ridge Resort and Spa and the Waikiki Beach Resort may continue in 2003
until such time as these Properties establish market presence and capture market
share, and could get worse if the economy fails to recover or becomes worse.
Net Earnings
The increase in earnings from the comparable period in 2002 was primarily
due to better performance of some of the Company's unconsolidated subsidiaries
and the other income recognized from the funding of credit enhancements during
2003. This was offset by the decrease in revenues from the Properties held
throughout the period due to the continued economic downturn on the U.S.
economy, particularly the travel and lodging industry, and the military activity
in the Middle East. The Company's net operating income for 45 "same store"
hotels decreased approximately $0.8 million, from approximately $17.2 million to
$16.4 million, from the quarter ended March 31, 2002 to the quarter ended March
31, 2003, respectively. Since late 2001, the Company's net earnings and cash
flow have been significantly supported by credit enhancements. Because revenues
have been supported by credit enhancements, net income may further decrease
after credit enhancements expire if the economy and the Company's hotel
operations do not stabilize prior to that time.
Concentration of Risk
A significant portion of the Company's rental income and hotel revenues
were earned from Properties operating as various Marriott and Hilton brands.
Additionally, the Company relies on Marriott to provide credit enhancements for
certain of its Properties. Although the Company carefully screens its managers
and tenants and has obtained interests in non-Marriott and non-Hilton branded
Properties, failure of the Marriott or Hilton brands could significantly impact
the results of operations of the Company. Management believes that the risk of
such a default will be reduced through future acquisitions and diversification,
and through the initial and continuing due diligence procedures performed by the
Company.
Current Economic Conditions
The U.S. economy has continued to be negatively impacted by a general
slowdown in business activity. Management currently expects the economic
slowdown to continue throughout the remainder of 2003. In addition, the military
activity in the Middle East will likely slow down the recovery in the lodging
industry. As a result of these conditions, most of our hotel operators and
managers have reported slower than expected recovery in the operating
performance of our hotels. Many of our leases and operating agreements contain
credit enhancement features such as guarantees, which are intended to cover
payment of minimum returns to the Company. However, there is no assurance that
the existence of credit enhancements will provide the Company with uninterrupted
cash flows to the extent that the recovery is prolonged. Additionally, if our
tenants, hotel managers or guarantors default in their obligations to us, the
Company's revenues and cash flows may decline or remain at reduced levels for
extended periods.
An uninsured loss or a loss in excess of insured limits could have a
material adverse impact on the operating results of the Company. Management
feels that the Company has obtained reasonably adequate insurance coverage on
its Properties. However, certain types of losses, such as from terrorist
attacks, may be either uninsurable, too difficult to obtain or too expensive to
justify insuring against.
From time to time the Company may be exposed to litigation arising from the
operation of its business. Management does not believe that resolutions of these
matters will have a material adverse effect on the Company's financial condition
or results of operations.
Management of the Company currently knows of no other trends that would
have a material adverse effect on liquidity, capital resources or results of
operations.
Funds from Operations
Management considers funds from operations ("FFO") to be an indicative
measure of operating performance due to the significant effect of depreciation
of real estate assets on net earnings. FFO, based on the revised definition
adopted by the Board of Governors of the National Association of Real Estate
Investment Trusts ("NAREIT") in October 1999 and as used herein, means net
earnings determined in accordance with generally accepted accounting principles
("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. (Net earnings determined in
accordance with GAAP includes the noncash effect of straight-lining rent
increases throughout the lease terms. This straight-lining is a GAAP convention
requiring real estate companies to report rental revenue based on the average
rent per year over the life of the leases). 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. FFO, as presented, may
not be comparable to similarly titled measures reported by other companies.
Accordingly, the Company believes that in order to facilitate a clear
understanding of the consolidated historical operating results of the Company,
FFO should be considered in conjunction with the Company's net earnings and cash
flows as reported in the accompanying consolidated financial statements and
notes thereto.
The following is a reconciliation of net earnings to FFO for the quarters
ended March 31 (in thousands):
2003 2002
----------------- -----------------
Net Earnings $ 6,437 $ 3,651
Adjustments:
Effect of unconsolidated subsidiaries 6,401 2,771
Effect of minority interest (59) (60)
Depreciation and amortization of
real estate assets 8,337 6,052
----------------- -----------------
Funds from operations $ 21,116 $ 12,414
================== =================
Weighted average shares:
Basic and Diluted 133,837 80,748
================== =================
Liquidity and Capital Resources
-------------------------------
The Company uses capital primarily to acquire or develop hotel Properties
and invest in joint ventures, which acquire and own hotel Properties. Other
smaller investments may be made in businesses which are ancillary to the lodging
industry ("Ancillary Businesses"). Approximately 0.3% and 0.4% of the Company's
total assets reflect investments in Ancillary Businesses as of March 31, 2003
and December 31, 2002, respectively. Additionally, the Company is required to
distribute at least 90 percent of its taxable income to stockholders. The
Company generally raised funds through the sales of common stock, the
acquisition of permanent financing and through draws on its revolving line of
credit (the "Revolving LOC").
Uses of Liquidity and Capital Resources
Property Acquisitions
During the quarter ended March 31, 2003, the Company acquired the Hyatt
Regency Coral Gables, located in Miami, Florida for a purchase price of $36
million (the "Hyatt Coral Gables Property"). The Hyatt Coral Gables Property is
leased by a TRS entity of the Company and is managed by an affiliate of Hyatt
Corporation.
Investments in Unconsolidated Subsidiaries
On February 20, 2003, the Company conveyed a Doubletree hotel located in
Arlington, Virginia ("the Doubletree Crystal City Property"), which was
originally acquired in December 2002, and Hilton Hotels Corporation ("Hilton")
conveyed a Hilton hotel located in Rye, New York (the "Hilton Rye Town
Property") to an existing partnership in which the Company owns 75 percent and
Hilton owns 25 percent (the "Hilton 2 Partnership"). Simultaneously, the Hilton
2 Partnership acquired three Embassy Suites Properties - one each located in
Orlando, Florida, Arlington, Virginia, and Santa Clara, California - for a
purchase price of $104.5 million. At the time of acquisition/contribution, the
Hilton 2 Partnership obtained term financing of $145 million, which was
allocated between these five Properties. The loan bears interest at 5.95 percent
per annum and matures on March 1, 2010. Payments of interest only are due
monthly through maturity.
Distributions
During the quarters ended March 31, 2003 and 2002, the Company declared and
paid distributions to its stockholders of approximately $25.4 million and $15.4
million, respectively. In addition, on April 1, 2003 and May 1, 2003, the
Company declared distributions to stockholders of record on April 1, 2003 and
May 1, 2003, totaling approximately $9.2 million and $9.7 million, respectively,
or $0.064583 per share, payable by June 30, 2003.
The Company has set its distribution policy based on a balanced analysis of
both current and long-term stabilized cash flows of its Properties and value
creation. During the quarter ended March 31, 2003 distributions paid to
stockholders were greater than cash flows generated from operations. This
occurred predominantly because the Company's acquisition strategy has focuses on
opportunistically investing in larger portfolios, which allows the Company to
obtain increased efficiencies as it invests the proceeds received from the 2003
Offering. As a result, larger cash outlays are required at the time of purchase
which causes equity proceeds to accumulate for longer periods of time in cash
and short-term investments prior to making such purchases. In addition, because
many of the larger Properties that the Company is currently operating through
joint ventures are undergoing or have recently been renovated, the cash
distributions that the Company has received from these joint ventures are less
that what is ultimately expected to be received once these Properties stabilize
and obtain their projected market share. This trend is expected by management to
continue at least through the remainder of 2003 as cash is invested and the
renovated Properties stabilize. The reversal of this condition may be delayed if
economic recovery is further delayed. During the current quarter the Company
used borrowings on its Revolving LOC to cover the distribution shortfall.
For the quarters ended March 31, 2003 and 2002, approximately 42 percent
and 41 percent, respectively, of the distributions received by stockholders were
considered to be ordinary income and approximately 58 percent and 59 percent,
respectively, were considered a return of capital to stockholders for federal
income tax purposes. No amounts distributed to the stockholders for the quarters
ended March 31, 2003 and 2002 were 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.
Redemptions
In October 1998, the Board of Directors elected to implement the Company's
redemption plan. Under the redemption plan, prior to such time, if any, as
listing of the Company's common stock on a national securities exchange or
over-the-counter market ("Listing") occurs, any stockholder who has held shares
for at least one year may present all or any portion equal to at least 25
percent of their shares to the Company for redemption in accordance with the
procedures outlined in the redemption plan. Upon presentation, the Company may
elect, at its discretion, to redeem the shares, subject to certain conditions
and limitations. However, at no time during a 12-month period may the number of
shares redeemed by the Company exceed 5 percent of the number of shares of the
Company's outstanding common stock at the beginning of the 12-month period.
During the quarters ended March 31, 2003 and 2002, approximately 114,000 shares
and 77,000 shares, respectively, were redeemed at $9.20 per share (approximately
$1.1 million and $0.7 million, respectively), and retired from shares
outstanding of common stock.
Sources of Liquidity and Capital Resources
Equity Sales
On August 13, 2002, 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 175 million shares of common stock at $10 per share
($1.75 billion) (the "2003 Offering"). The 2003 Offering commenced immediately
following the completion of the Company's fourth prior public offering (the
"2002 Offering") on February 4, 2003. Of the 175 million shares of common stock
to be offered, up to 25 million are available to stockholders purchasing shares
through the reinvestment plan. The price per share and the other terms of the
2003 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 Company's 2002 Offering. CNL Securities Corp., an
affiliate of the Advisor, is the managing dealer for the Company's equity
offerings.
As of March 31, 2003, net proceeds to the Company from its four prior
public offerings and the 2003 Offering, loan proceeds and capital contributions
from the Advisor, after deduction of selling commissions, marketing support
fees, due diligence expense reimbursements and organizational and offering
expenses, totaled approximately $1,684.4 million. As of such date, the Company
has used approximately $777.5 million of net offering proceeds and approximately
$276.9 million of loan proceeds to invest in 42 hotel Properties and a parcel of
land on which a hotel Property was being constructed, approximately $231.6
million to invest in seven unconsolidated subsidiaries which own 18 Properties,
including three Properties on which hotels were being constructed or renovated,
approximately $10.0 million to redeem 1,080 shares of common stock,
approximately $160.4 million to pay down the two construction lines of credit
and approximately $101.4 million to pay acquisition fees and expenses, leaving
approximately $126.6 million available for future investments.
During the period April 1, 2003 through May 9, 2003, the Company received
additional net offering proceeds of approximately $89.3 million from its 2003
Offering, used approximately $55.9 million to acquire one additional Property,
invested $9.0 million in convertible preferred partnership units, invested
approximately $12.4 million in common shares of RFS Hotel Investors, Inc. and
had approximately $133.9 million available for investment in Properties and
Mortgage Loans or other permitted investments. The Company expects to use the
uninvested net proceeds from its offering to purchase interests in additional
Properties and, to a lesser extent, invest in Mortgage Loans or other permitted
investments such as investments in other real estate companies and partnerships.
Additionally, the Company intends to borrow money to acquire interests in
additional Properties, to invest in Mortgage Loans and to pay certain related
fees. The Company intends to encumber assets in connection with such borrowings.
The Company currently has a Revolving LOC of approximately $96.7 million as
described below. A total of approximately $72.7 million was available under the
Revolving LOC as of March 31, 2003.
Debt Financing
The Company's objectives and strategies with respect to long-term debt are
to (i) minimize the amount of interest incurred on permanent financing while
limiting the risk related to interest rate fluctuations through hedging
activities and (ii) maintain the ability to refinance existing debt. Because
some of the Company's mortgage notes bear interest at fixed rates, changes in
market interest rates during the term of such debt will not affect the Company's
operating results. The majority of the Company's fixed rate debt arrangements
allow for repayment earlier than the stated maturity date. These prepayment
rights may afford the Company the opportunity to mitigate the risk of
refinancing at maturity at higher rates by refinancing prior to maturity. The
weighted average effective interest rate on mortgages and other notes payable
was approximately 7 percent as of March 31, 2003.
The Company's Revolving LOC is used to temporarily fund acquisition and
development of Properties and investments in Mortgage Loans and other permitted
investments. The Company is able to receive cash advances of up to approximately
$96.7 million until September 2006. Interest payments are due monthly with
principal payments of $1,000 due at the end of each loan year. Advances under
the line of credit bear interest at an annual rate of 225 basis points above
30-day LIBOR (3.6 percent as of March 31, 2003) and are collateralized by
certain hotel Properties. As of March 31, 2003, the Company had approximately
$24.1 million, including accrued interest of approximately $0.1 million,
outstanding under the Revolving LOC.
In December 2002, the Company renegotiated its current construction loan
facility, which resulted in an increased total borrowing capacity under the
facility of $64 million. This construction loan facility expires in December
2005, and bears interest at a floating rate with a floor of 6.75 percent. This
facility is being used to fund the construction of one hotel Property in
California and another hotel Property in Florida. Another Property in Florida
was constructed and opened in 2002. The outstanding construction cost of this
Property remains outstanding under this loan. This facility may be used to fund
the construction of other hotel Properties in the future. Approximately $21.8
million, including accrued interest of approximately $0.1 million, was
outstanding under the construction loan facility as of March 31, 2003. The
Company believes that the estimated fair value of the amounts outstanding on its
fixed rate mortgages and notes payable under permanent financing arrangements as
of March 31, 2003, approximated the outstanding principal amount.
Intentionally Left Blank
As of March 31, 2003, the Company's fixed and variable rate debt
instruments, excluding debt of unconsolidated partnerships, were as follows (in
thousands):
Principal and
Accrued Interest Interest
Balance (in Fixed Rate Per Payments
Loan Description thousands) Maturity Year Variable Rate Due
- ------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Three Properties
in Lake Buena Vista, FL $ 50,348 December 2007 8.335% - Monthly
Seven Properties located
throughout the Western
United States 84,241 July 2009 7.67%* - Monthly
Property in
Philadelphia, PA 31,961 December 2007 8.29% - Monthly
Tax Incremental
Financing Note ("TIF
Note") on Property in
Philadelphia, PA 8,458 June 2018 12.85%**** - Monthly
Portfolio of eight
Marriott Properties
located throughout the
United States***** 9,119 November 2007 6.53% - Monthly
One Property located in
New Jersey 31,151 December 2007 5.84% - Monthly
Three development
Properties, one in
California and two in
Florida 21,806 December 2005 - LIBOR + 275 Monthly
bps***
Line of credit** 24,077 September 2006 - LIBOR + 225 Monthly
bps
* Average interest rate as the loans bear interest ranging from 7.50
percent to 7.75 percent.
** Revolving LOC.
*** The Construction LOC has an interest rate floor of 6.75 percent.
**** Tax Incremental Financing which is paid down with incremental real
estate taxes resulting in an interest rate of 12.85%.
***** The Company has $81 million in additional funds available for
drawing under the terms of this loan agreement. This amountmust be
drawn by June 25, 2003.
Historical Cash Flows
During the quarters ended March 31, 2003 and 2002, the Company generated
cash from operating activities of approximately $22.2 million and $14.7 million,
respectively, and cash used in investing activities was approximately $75.6
million and $122.7 million for the quarters ended March 31, 2003 and 2002,
respectively. Cash used in investing activities consists primarily of additions
to hotel Properties of approximately $38.6 million and $110.2 million during the
quarters ended March 31, 2003 and 2002, respectively, and investments in
unconsolidated subsidiaries of approximately $21.0 million and $7.9 million
during the quarters ended March 31, 2003 and 2002, respectively.
Cash provided by financing activities was approximately $123.0 million and
$102.4 million for the quarters ended March 31, 2003, and 2002, respectively.
Cash provided by financing activities for the quarters ended March 31, 2003 and
2002, includes the receipt of approximately $168.3 million and $74.2 million,
respectively, in subscriptions from stockholders. In addition, distributions to
stockholders for the quarters ended March 31, 2003 and 2002, were approximately
$25.4 million and $15.4 million, respectively (or $0.19 and $0.19 per share,
respectively).
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 interests in Properties. At March 31,
2003, the Company had approximately $118.7 million invested in short-term
investments as compared to approximately $49.0 million at December 31, 2002. The
increase in the amount invested in short-term investments was primarily
attributable to proceeds received from the sale of common stock offset by
Property acquisitions during the first quarter of 2003 and additional
investments in joint ventures to acquire Properties and to fund renovation
costs. These funds will be used to purchase interests in additional Properties,
to make Mortgage Loans or invest in other permitted investments, to pay offering
expenses and acquisition fees and expenses, to pay distributions to stockholders
and other Company expenses and, at management's discretion, to create cash
reserves.
Liquidity Requirements
The Company expects to meet its liquidity requirements, including payment
of offering expenses, Property acquisitions and development, investments in
Mortgage Loans and repayment of debt with proceeds from its equity offerings,
advances under its Revolving LOC, cash flows from operations and refinancing of
debt.
Management believes that the Company has obtained reasonably adequate
insurance coverage. However, certain types of losses, such as from terrorist
attacks, may be either uninsurable, too difficult to obtain or too expensive to
justify insuring against.
Other Information
Related Parties
Certain directors and officers of the Company hold similar positions with
the Advisor and its affiliates, including the managing dealer for the Company's
equity offerings, CNL Securities Corp. These affiliates are by contract entitled
to receive fees and compensation for services provided in connection with common
stock offerings, and the acquisition, development, management and sale of the
Company's assets.
Amounts incurred relating to these transactions with affiliates were as
follows for the quarters ended March 31 (in thousands):
2003 2002
---------------- ----------------
CNL Securities Corp.:
Selling commissions* $ 12,662 $ 5,559
Marketing support fee and
due diligence expense
reimbursements* 842 371
---------------- ----------------
13,504 5,930
---------------- ----------------
Advisor and its affiliates:
Acquisition fees 12,466 4,435
Development fees 673 339
Asset management fees 2,343 1,381
---------------- ----------------
15,482 6,155
---------------- ----------------
$ 28,986 $ 12,085
================ ================
* The majority of these commissions, fees and reimbursements were reallowed
to unaffiliated broker-dealer firms.
Of these amounts, approximately $1.2 million and $2.5 million is included
in due to related parties in the accompanying consolidated balance sheets as of
March 31, 2003 and December 31, 2002, respectively.
The Advisor and its affiliates provide various administrative services to
the Company, including services related to accounting; financial, tax and
regulatory compliance reporting; stockholder distributions and reporting; due
diligence and marketing; and investor relations (including administrative
services in connection with the offerings), on a day-to-day basis. The expenses
incurred for these services were classified as follows for the quarters ended
March 31 (in thousands):
2003 2002
----------------- -----------------
Stock issuance costs $ 1,084 $ 693
General operating and
administrative expenses 307 412
----------------- -----------------
$ 1,391 $ 1,105
================= =================
The Company maintains bank accounts in a bank in which certain officers and
directors of the Company serve as directors and are stockholders. The amounts
deposited with this bank were approximately $16.2 million and $14.9 million at
March 31, 2003 and December 31, 2002, respectively.
EMTG, LLC, a partnership in which the Company has a 31.25 percent interest,
engaged Dustin/Massagli LLC, a company in which one of the Company's directors
is president, a director and a principal stockholder, to manage its business.
In May 2002, the Company acquired a 10 percent interest in CNL Plaza, Ltd.,
a limited partnership that owns an office building located in Orlando, Florida,
in which the Advisor and its affiliates lease office space, for $0.3 million.
The remaining interest in the limited partnership is owned by several affiliates
of the Advisor. In connection with this acquisition, the Company has severally
guaranteed a 16.67 percent share, or approximately $2.6 million, of a $15.5
million unsecured promissory note of the limited partnership.
Commitments and Contingencies
From time to time the Company may be exposed to litigation arising from the
operation of its business. At this time, management does not believe that
resolution of these matters will have a material adverse effect on the Company's
financial condition or results of operations.
As of March 31, 2003, the Company had commitments to (i) acquire or develop
three hotel Properties for an anticipated aggregate purchase price of
approximately $227 million, (ii) construct or complete construction on one
Property, with an estimated cost of approximately $18.3 million and (iii) fund
the remaining total of approximately $2.9 million for property improvements in
two existing partnerships. The Company also has committed to fund its pro rata
share of working capital shortfalls and construction commitments for its
partnerships, if shortfalls arise, and has guaranteed the debt service for
several of its subsidiaries and partnerships. The acquisition of additional
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 these transactions will be entered into by the Company. In order to enter
into these and other transactions, the Company must obtain additional funds
through the receipt of additional offering proceeds and/or advances on the
Revolving LOC and permanent financing.
The Company has entered into an agreement whereby if certain conditions are
met, the leases with respect to nine Properties currently leased to third-party
tenants on a triple-net basis, must be assumed by the Company on or before March
31, 2004. In order for this to occur, the Properties must have operating results
above a certain minimum threshold. If these conditions are met and the Company
does not assume these leases by the deadline, the Company has agreed to return
approximately $3 million in security deposits it holds on three of the
Properties. If these conditions are met and the Company does assume these
leases, the Company is will not be obligated to pay any additional consideration
for the leasehold position and the manager will be allowed to participate,
through incentive fees, in any additional earnings above what would otherwise be
the minimum rent. Additionally, if the conditions are met and the Company
assumes these leases, it would be released from its current obligation to return
the security deposits it holds on these three Properties.
In addition to its commitments to lenders under its loan agreements and
obligations to fund Property acquisitions and development, the Company is a
party to certain contracts which may result in future obligations to third
parties. See description of obligations below.
The following table represents the Company's contractual cash obligations and
related payment periods as of March 31, 2003:
Contractual Cash Less than 1
Obligations Year 2-3 Years 4-5 Years Thereafter Total
- ----------------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Mortgages and other
notes payable (including
Revolving LOC and
other liabilities) $ 3,383 $ 27,843 $ 81,654 $ 155,150 $ 268,030
Refundable tenant security
deposits - - - 12,883 12,883
------------------- ------------------- ------------------- ------------------- -------------------
Total $ 3,383 $ 27,843 $ 81,654 $ 168,033 $ 280,913
=================== =================== =================== =================== ===================
Refundable Tenant Security Deposits - The Company is obligated to return
security deposits to unrelated third-party tenants at the end of the lease terms
in accordance with the lease agreements. The Company has recorded a liability
for such security deposits totaling approximately $12.9 million as of March 31,
2003.
The following table represents the Company's future potential commitments,
contingencies and guarantees, which can be assigned a monetary value, and the
related estimated expiration periods as of March 31, 2003:
Commitments and
Contingencies and Less than 1
Guarantees Year 2-3 Years 4-5 Years Thereafter Total
- ----------------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Guarantee of unsecured
promissory note of
unconsolidated subsidiary $ - $ 2,583 $ - $ - $ 2,583
Earnout provision - 2,472 - - 2,472
Marriott put option - - - 11,050 11,050
Irrevocable letter of credit - - - 775 775
Pending investments 227,100 - - - 227,100
------------------ ------------------- ------------------ ------------------- -------------------
Total $ 227,100 $ $5,055 $ - $ 11,825 $ 243,980
================== ================== ================== =================== ===================
The Company does not anticipate being required to fund any of the potential
commitments in the above table, with the exception of the pending investments,
which are subject to the completion of due diligence procedures and other
factors. The following paragraphs briefly describe the nature of some of the
above commitments and contractual cash obligations.
Guarantee of Debt on Behalf of Unconsolidated Subsidiaries - The Company
has severally guaranteed 16.67% of a $15.5 million note payable on behalf of a
subsidiary of CNL Plaza, Ltd. The maximum obligation to the Company is
approximately $2.6 million, plus interest. Interest accrues at a rate of LIBOR
plus 200 basis point per annum on the unpaid principal amount. This guarantee
shall continue through the loan maturity in November 2004.
Guarantee of Other Obligations on Behalf of Unconsolidated Subsidiaries -
The Company has generally guaranteed, in connection with loans to certain
unconsolidated subsidiaries, the payment of certain obligations that may arise
out of fraud or misconduct of the subsidiary borrower. This guarantee will be in
effect until the loans have been paid in full.
Earnout Provisions on Property Acquisitions - The Company is currently
subject to earnout provisions on two of its Properties, whereby if the operating
performance of the two Properties exceeds a certain pre-defined threshold,
additional consideration will be due to the prior owner. The earnout provision
will terminate on May 31, 2004, at which time the Company will have no further
liability. The maximum amount of consideration that the Company may be obligated
to pay is approximately $2.5 million.
Marriott Put Option - Marriott has the right on certain partnerships with
the Company to require the Company to buy-out a portion of Marriott's ownership.
These rights are available if certain predefined operating results are obtained.
Should such conditions be met, the Company may be obligated to buy interests
valued at approximately $11.1 million.
Irrevocable Letter of Credit - The Company has obtained an irrevocable
letter of credit for the benefit of a lender in the amount of $0.8 million. The
letter of credit is automatically extended each fiscal year until November 10,
2007.
Pending Investments - As of March 31, 2003, the Company had commitments to
acquire and develop three hotel Properties for an anticipated aggregate purchase
price of approximately $227 million.
Credit Enhancements
The Company benefits from various types of credit enhancements that have
been provided by the managers of many of its hotel Properties. These credit
enhancements may be provided to the Company directly or indirectly through
unconsolidated subsidiaries. All of the credit enhancements are subject to
expiration, or "burn-off" provisions over time. There is no guarantee that the
Company will continue to be able to obtain credit enhancements in the future. As
a result of the events of September 11, 2001 and a general downturn in the
overall economy, the Company's net earnings and cash flows were substantially
enhanced by these credit features. To the extent that this trend continues and
current credit enhancements are fully utilized or expire, the Company's results
of operations and its ability to pay distributions to stockholders may be
adversely affected. The following are summaries of the various types of credit
enhancements that the Company benefits from:
Limited Rent Guarantees - Limited rent guarantees ("LRG") are provided by
hotel managers to the Company for Properties which the Company leases on a
triple-net basis to unrelated third-party tenants. These credit enhancements
guarantee the full, complete and timely payment of rental payments to the
Company. The expiration of LRGs may result in the inability of the Company to
collect rent from its third party tenants. The following table summarizes the
amounts and utilization of the LRGs which benefit the Company (in thousands):
Unconsolidated
Company Subsidiaries
----------- -----------
Amount of LRG available as of
December 31, 2002 $ 1,327 $ -
Utilization during quarter ended
March 31, 2003 (224) -
----------- -----------
Amount of LRG available as of
March 31, 2003 $ 1,103 $ -
=========== ===========
Threshold Guarantees - Threshold guarantees ("TG") are provided by
third-party hotel managers to the Company in order to guarantee a certain
minimum return for each of the Properties covered by the TG. Funding under these
guarantees is either recognized as other income, as a reduction in base
management fees or as liabilities by the Company, depending whether the funded
amounts maybe required to be repaid by the Company in the future. The expiration
of TGs may result in a reduction of other income and cash flows derived from
these Properties in future operating periods. The following table summarizes the
amounts and utilization of the Company's TGs (in thousands):
Unconsolidated
Company Subsidiaries
----------- -----------
Amount of TG available as of $ 37,515 $ -
December 31, 2002
Utilization during quarter ended
March 31, 2003 (5,083) -
----------- -----------
Amount of TG available as of
March 31, 2003 $ 32,432 $ -
=========== ===========
During the quarters ended March 31, 2003 and 2002, the Company has
recognized approximately $2.7 million and $0, respectively, in other income,
approximately $0.5 million and $0, respectively, as a reduction in base
management fees and has not recorded any liabilities related to funding under
its TG's. On ten of the Company's Properties, the guarantee funding is treated
like LRG funding until the leases for these Properties are assumed by the
Company. Until that time, TG funding for these Properties is funded directly to
third party tenants of these Properties, which in turn allows them to make
periodic rental payments as discussed above. There is no guarantee that the
Company will assume the leases for these ten Properties. The amount of rental
income from operating leases related to TG funding for these Properties was
approximately $2.2 million during the quarter ended March 31, 2003.
Liquidity Facility Loans - Liquidity Facility Loans ("LFL") are provided by
hotel managers to the Company in order to guarantee a certain minimum return for
each of the Properties covered by the LFL. Funding under LFLs is recognized as a
liability by the Company and its unconsolidated subsidiaries because in the
future the Company may be required to repay amounts funded. The expiration of
LFLs for the Company's Properties may result in a reduction in cash flows
derived from these Properties. The following table summarizes the amounts and
utilization of the Company's LFLs (in thousands):
Unconsolidated
Company Subsidiaries
----------- -----------
Amount of LFL available as of
December 31, 2002 $ 4,538 $ 40,645
Utilization during quarter ended
March 31, 2003 (976) (12,098)
----------- -----------
Amount of LFL available as of
March 31, 2003 $ 3,562 $ 28,547
=========== ===========
As of March 31, 2003 and December 31, 2002, the Company had liabilities of
approximately $6.9 million and $5.6 million, respectively, and the Company's
unconsolidated subsidiaries had liabilities of approximately $36.0 million and
$23.9 million, respectively, from LFL fundings. The repayment of these
liabilities is out of operating cash flow in excess of minimum returns to the
Company.
Senior Loan Guarantees - Senior loan guarantees ("SLG") are provided by
hotel managers to the Company in order to guarantee the payment of senior debt
service for each of the Properties covered by the SLG. Funding under SLGs is
recognized as a liability by the Company and its unconsolidated subsidiaries
because in the future the Company may be required to repay the amounts funded.
The expiration of SLGs from Properties owned directly by the Company or through
unconsolidated subsidiaries may result in a decrease in the cash distributions
that the Company receives from such subsidiaries and may affect the Company's
ability to pay debt service. The following table summarizes the amounts and
utilization of the Company's SLGs (in thousands):
Unconsolidated
Company Subsidiaries
----------- -----------
Amount of SLG available as
of December 31, 2002 $ - $ 26,480
Utilization during quarter ended
March 31, 2003 - (1,971)
----------- -----------
Amount of SLG available as of
March 31, 2003 $ - 24,509
=========== ===========
As of March 31, 2003 and December 31, 2002, the Company's unconsolidated
subsidiaries had liabilities of approximately $10.5 and $8.5 million,
respectively, from SLG funding.
Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest
Entities" to expand upon and strengthen existing accounting guidance that
addresses when a company should include the assets, liabilities and activities
of another entity in its financial statements. To improve financial reporting by
companies involved with variable interest entities (more commonly referred to as
special-purpose entities or off-balance sheet structures), FIN 46 requires that
a variable interest entity be consolidated by a company if that company is
subject to a majority risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns or
both. Prior to FIN 46, a company generally included another entity in its
consolidated financial statements only if it controlled the entity through
voting interests. The purpose of consolidating variable interest entities is to
provide more complete information about the resources, obligations, risks and
opportunities of the consolidated company. The consolidation requirements of FIN
46 apply immediately to variable interest entities created after January 31,
2003, and to older entities in the first fiscal year or interim period beginning
after June 15, 2003. As of March 31, 2003, the Company is evaluating the effect
of FIN 46. Under the terms of some or all of the Company's unconsolidated
subsidiaries' formation agreements, the Company is required to fund its pro rata
share of losses of these entities in order to maintain its current ownership
share. The Company has also guaranteed a portion of the debt on CNL Plaza, Ltd.
(see Note 10, "Commitments and Contingencies"). These or other variable
interests could result in the consolidation of one or more unconsolidated
subsidiaries discussed in Note 3, "Investments in Unconsolidated Subsidiaries"
upon implementation of FIN 46.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Exposure to Interest Rate Risk
The Company may be subject to interest rate risk through outstanding
balances on its variable rate debt. The Company may mitigate this risk by paying
down additional outstanding balances on its variable rate loans from offering
proceeds, refinancing with fixed rate permanent debt or obtaining cash flow
hedges should interest rates rise substantially. At March 31, 2003,
approximately $45.9 million in variable rate debt was outstanding.
Management estimates that a one-percentage point increase in interest rates
for the quarter ended March 31, 2003, would have resulted in additional interest
costs of approximately $114,000. This sensitivity analysis contains certain
simplifying assumptions (for example, it does not consider the impact of changes
in prepayment risk or credit spread risk). Therefore, although it gives an
indication of the Company's exposure to interest rate change, it is not intended
to predict future results and the Company's actual results will likely vary.
The following is a schedule of the Company's fixed and variable rate debt
maturities for the remainder of 2003, each of the next four years, and
thereafter (in thousands):
Fixed Rate Mortages
Payable and Accrued Variable Rate Other Total Mortgages and
Interest Notes Payable Other Notes Payable
---------------------- ---------------------- ----------------------
2003 $ 3,210 $ 173 $ 3,383
2004 2,676 - 2,676
2005 3,456 21,711 25,167
2006 3,701 23,999 27,700
2007 53,954 - 53,954
Thereafter 155,150 - 155,150
---------------------- ---------------------- ----------------------
$ 222,147 $ 45,883 $ 268,030
====================== ====================== ======================
Item 4. Controls and Procedures
As required by Rule 13a-15 promulgated under the Securities Exchange Act of
1934, as amended, (the "Exchange Act") within the 90 days prior to the filing
date of this report, the Company carried out an evaluation of the effectiveness
of the design and operation of the Company's disclosure controls and procedures.
This evaluation was carried out under the supervision and with the participation
of the Company's management, including the Company's Chief Executive Officer,
principal financial officer and certain other executives and financial officers.
Based upon that evaluation, the Company's executives and financial officers
concluded that the Company's disclosure controls and procedures are effective.
There have been no significant changes in the Company's internal controls or in
other factors, which could significantly affect these internal controls
subsequent to the date the Company carried out its evaluation.
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in Company reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in
Company reports filed under the Exchange Act is accumulated and communicated to
management, including the Company's Chief Executive Officer, principal financial
officer and certain other executives and financial officers, as appropriate, to
allow timely decisions regarding required disclosure.
PART II Other Information
Item 1. Legal Proceedings. Inapplicable.
-----------------
Item 2. Changes in Securities and Use of Proceeds. Inapplicable.
-----------------------------------------
Item 3. Defaults upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable
---------------------------------------------------
Item 5. Other Information. Inapplicable.
-----------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
The following documents are filed as part of this report.
(a) Exhibits
2.1 Agreement by and among CNL Hospitality Properties, Inc., CNL Rose
Acquisition Corp., RFS Hotel Investors, Inc., CNL Rose Acquisition
OP, LP and RFS Partnership, L.P. (Previously filed as Exhibit 2.1 to
the Form 8-K filed on May 9, 2003, and incorporated herein by
reference).
3.1 CNL American Realty Fund, Inc. Articles of Incorporation (Previously
filed as Exhibit 3.1 to the Registrant's Registration Statement on
Form S-11 (Registration No. 333-9943) (the "1996 Form S-11") and
incorporated herein by reference.)
3.2 CNL American Realty Fund, Inc. Amended and Restated Articles of
Incorporation (Previously filed as Exhibit 3.2 to the 1996 Form S-11
and incorporated herein by reference.)
3.3 CNL American Realty Fund, Inc. Bylaws (Previously filed as Exhibit
3.3 to the 1996 Form S-11 and incorporated herein by reference.)
3.4 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL American Realty Fund, Inc. dated June 3, 1998
(to change the name of the Company from CNL American Realty Fund,
Inc. to CNL Hospitality Properties, Inc.) (Previously filed as
Exhibit 3.4 to the 1996 Form S-11 and incorporated herein by
reference.)
3.5 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated May 26, 1999
(Previously filed as Exhibit 3.5 to the Registrant's Registration
Statement on Form S-11 (Registration No. 333-67787) (the "1998 Form
S-11") and incorporated herein by reference.)
3.6 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated June 27, 2000
(Previously filed as Exhibit 3.6 to the Registrant's Registration
Statement on Form S-11 (Registration No. 333-89691) (the "1999 Form
S-11") and incorporated by reference).
3.7 Amendment No. 1 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.7 to the 1999 Form S-11 and
incorporated herein by reference.)
3.8 Amendment No. 2 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.8 to the 1999 Form S-11 and
incorporated herein by reference.)
3.9 Amendment No. 3 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.9 to the Registrant's Registration
Statement on Form S-11 (Registration No. 333-67124) (the "2001 Form
S-11") and incorporated herein by reference.)
3.10 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated November 15,
2002 (Previously filed as Exhibit 3.10 to the 2001 Form S-11 and
incorporated herein by reference).
4.1 CNL American Realty Fund, Inc. Articles of Incorporation (Previously
filed as Exhibit 3.1 to the 1996 Form S-11 and incorporated herein by
reference).
4.2 CNL American Realty Fund, Inc. Amended and Restated Articles of
Incorporation (Previously filed as Exhibit 3.2 to the 1996 Form S-11
and incorporated herein by reference.)
4.3 CNL American Realty Fund, Inc. Bylaws (Previously filed as Exhibit
3.3 to the 1996 Form S-11 and incorporated herein by reference.)
4.4 Form of Reinvestment Plan (Included as Appendix A to the Registrant's
Prospectus filed as part of the Registrant's Registration Statement
on Form S-11 (Registration No. 333-98047) (the "2003 Form S-11") and
incorporated herein by reference).
4.5 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL American Realty Fund, Inc. dated June 3, 1998
(Previously filed as Exhibit 3.4 to the 1996 Form S-11 and
incorporated herein by reference.)
4.6 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated May 26, 1999
(Previously filed as Exhibit 3.5 to the 1998 Form S-11 and
incorporated herein by reference.)
4.7 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated June 27, 2000
(Previously filed as Exhibit 3.6 to the 1999 Form S-11 and
incorporated herein by reference.)
4.8 Amendment No. 1 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.7 to the 1999 Form S-11 and
incorporated herein by reference.)
4.9 Amendment No. 2 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.8 to the 1999 Form S-11 and
incorporated herein by reference.)
4.10 Amendment No. 3 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed an Exhibit 3.9 to the 2001 Form S-11 and
incorporated herein by reference.)
4.11 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated November 15,
2002 (Previously filed as Exhibit 3.10 to the 2001 Form S-11 and
incorporated herein by reference).
10.1 Advisory Agreement dated as of April 1, 2003, between CNL Hospitality
Properties, Inc. and CNL Hospitality Corp. (Filed herewith).
10.2 Indemnification Agreement between CNL Hospitality Properties, Inc.
and Lawrence A. Dustin dated February 24, 1999. Each of the following
directors and/or officers has signed a substantially similar
agreement as follows: James M. Seneff, Jr., Robert A. Bourne, G.
Richard Hostetter, J. Joseph Kruse, Richard C. Huseman, Charles A.
Muller, Jeanne A. Wall and Lynn E. Rose, dated July 9, 1997; C. Brian
Strickland dated October 31, 1998; John A. Griswold, dated January 7,
1999; Charles E. Adams and Craig M. McAllaster, dated February 10,
1999; Matthew W. Kaplan dated February 24, 1999; and Thomas J.
Hutchison III dated May 16, 2000 (Previously filed as Exhibit 10.2 to
the Form 10-Q filed on May 17, 1999 and incorporated herein by
reference.)
10.3 Agreement of Limited Partnership of CNL Hospitality Partners, LP
(Previously filed as Exhibit 10.10 to the 1996 Form S-11 and
incorporated herein by reference.)
10.4 Hotel Purchase and Sale Contract between CNL Real Estate Advisors,
Inc. and Gwinnett Residence Associates, LLC, relating to the
Residence Inn - Gwinnett Place (Previously filed as Exhibit 10.11 to
the 1996 Form S-11 and incorporated herein by reference.)
10.5 Assignment and Assumption Agreement between CNL Real Estate Advisors,
Inc. and CNL Hospitality Partners, LP, relating to the Residence Inn
- Gwinnett Place (Previously filed as Exhibit 10.12 to the 1996 Form
S-11 and incorporated herein by reference.)
10.6 Hotel Purchase and Sale Contract between CNL Real Estate Advisors,
Inc. and Buckhead Residence Associates, LLC, relating to the
Residence Inn - Buckhead (Lenox Park) (Previously filed as Exhibit
10.13 to the 1996 Form S-11 and incorporated herein by reference.)
10.7 Assignment and Assumption Agreement between CNL Real Estate Advisors,
Inc. and CNL Hospitality Partners, LP, relating to the Residence Inn
- Buckhead (Lenox Park) (Previously filed as Exhibit 10.14 to the
1996 Form S-11 and incorporated herein by reference.)
10.8 Lease Agreement between CNL Hospitality Partners, LP and STC Leasing
Associates, LLC, dated August 1, 1998, relating to the Residence Inn
- Gwinnett Place (Previously filed as Exhibit 10.15 to the 1996 Form
S-11 and incorporated herein by reference.)
10.9 Lease Agreement between CNL Hospitality Partners, LP and STC Leasing
Associates, LLC, dated August 1, 1998, relating to the Residence Inn
- Buckhead (Lenox Park) (Previously filed as Exhibit 10.16 to the
1996 Form S-11 and incorporated herein by reference.)
10.10 Master Revolving Line of Credit Loan Agreement with CNL Hospitality
Properties, Inc., CNL Hospitality Partners, LP and Colonial Bank,
dated July 31, 1998 (Previously filed as Exhibit 10.17 to the 1996
Form S-11 and incorporated herein by reference.)
10.11 Master Loan Agreement by and between CNL Hotel Investors, Inc. and
Jefferson-Pilot Life Insurance Company, dated February 24, 1999
(Previously filed as Exhibit 10.18 to the 1996 Form S-11 and
incorporated herein by reference.)
10.12 Securities Purchase Agreement between CNL Hospitality Properties,
Inc. and Five Arrows Realty Securities II L.L.C., dated February 24,
1999 (Previously filed as Exhibit 10.19 to the 1996 Form S-11 and
incorporated herein by reference.)
10.13 Subscription and Stockholders' Agreement among CNL Hotel Investors,
Inc., Five Arrows Realty Securities II L.L.C., CNL Hospitality
Partners, LP and CNL Hospitality Properties, Inc., dated February 24,
1999 (Previously filed as Exhibit 10.20 to the 1996 Form S-11 and
incorporated herein by reference.)
10.14 Registration Rights Agreement by and between CNL Hospitality
Properties, Inc. and Five Arrows Realty Securities II L.L.C., dated
February 24, 1999 (Previously filed as Exhibit 10.21 to the 1996 Form
S-11 and incorporated herein by reference.)
10.15 First Amendment to Lease Agreement between CNL Hospitality Partners,
LP and STC Leasing Associates, LLC, dated August 1, 1998, related to
the Residence Inn - Gwinnett Place, (amends Exhibit 10.8 above) and
the First Amendment to Agreement of Guaranty, dated August 1, 1998
(amends Agreement of Guaranty attached as Exhibit I to 10.8 above)
(Previously filed as Exhibit 10.8 to the Form 10-Q filed on November
10, 1999 and incorporated herein by reference.)
10.16 First Amendment to Lease Agreement between CNL Hospitality Partners,
LP and STC Leasing Associates, LLC, dated August 1, 1998, related to
the Residence Inn - Buckhead (Lenox Park) (amends Exhibit 10.9 above)
and the First Amendment to Agreement of Guaranty, dated August 1,
1998 (amends Agreement of Guaranty attached as Exhibit I to 10.9
above) (Previously filed as Exhibit 10.9 to the Form 10-Q filed on
November 10, 1999 and incorporated herein by reference.)
10.17 Lease Agreement between Courtyard Annex, L.L.C. and City Center Annex
Tenant Corporation, dated November 15, 1999, relating to the
Courtyard - Philadelphia (Previously filed as Exhibit 10.22 to the
1998 Form S-11 and incorporated herein by reference.)
10.18 First Amended and Restated Limited Liability Company Agreement of
Courtyard Annex, L.L.C., relating to the Courtyard - Philadelphia
(Previously filed as Exhibit 10.23 to the 1998 Form S-11 and
incorporated herein by reference.)
10.19 Purchase and Sale Agreement between Marriott International, Inc., CBM
Annex, Inc., Courtyard Annex, Inc., as Sellers, and CNL Hospitality
Partners, LP, as Purchaser, dated November 15, 1999, relating to the
Courtyard - Philadelphia (Previously filed as Exhibit 10.24 to the
1998 Form S-11 and incorporated herein by reference.)
10.20 Lease Agreement between CNL Hospitality Partners, LP, and RST4 Tenant
LLC, dated December 10, 1999, relating to the Residence Inn - Mira
Mesa (Previously filed as Exhibit 10.25 to the 1998 Form S-11 and
incorporated herein by reference.)
10.21 Purchase and Sale Agreement between Marriott International, Inc.,
TownePlace Management Corporation and Residence Inn by Marriott,
Inc., as Sellers, and CNL Hospitality Partners, LP, as Purchaser,
dated November 24, 1999, relating to the Residence Inn - Mira Mesa
and the TownePlace Suites - Newark (Previously filed as Exhibit 10.26
to the 1998 Form S-11 and incorporated herein by reference.)
10.22 Lease Agreement between CNL Hospitality Partners, LP and WYN Orlando
Lessee, LLC, dated May 31, 2000, relating to the Wyndham Denver Tech
Center (Previously filed as Exhibit 10.29 to the 1998 Form S-11 and
incorporated herein by reference.)
10.23 Lease Agreement between CNL Hospitality Partners, LP and WYN Orlando
Lessee, LLC, dated May 31, 2000, relating to the Wyndham Billerica
(Previously filed as Exhibit 10.30 to the 1998 Form S-11 and
incorporated herein by reference.)
10.24 Purchase and Sale Agreement between CNL Hospitality Corp., as Buyer,
and WII Denver Tech, LLC and PAH Billerica Realty Company, LLC, as
Sellers, and Wyndham International, Inc., relating to the Wyndham
Denver Tech Center and the Wyndham Billerica (Previously filed as
Exhibit 10.31 to the 1998 Form S-11 and incorporated herein by
reference.)
10.25 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated June 17, 2000, relating to the Courtyard - Palm Desert and
the Residence Inn - Palm Desert (Previously filed as Exhibit 10.32 to
the 1999 Form S-11 and incorporated by reference).
10.26 Purchase and Sale Agreement between PDH Associates LLC, as Seller,
and CNL Hospitality Corp., as Buyer, dated January 19, 2000, relating
to the Courtyard - Palm Desert and the Residence Inn - Palm Desert
(Previously filed as Exhibit 10.33 to the 1999 Form S-11 and
incorporated by reference).
10.27 Amendment to Purchase and Sale Agreement between PDH Associates LLC
and CNL Hospitality Corp., dated January 19, 2000, relating to
Courtyard - Palm Desert and the Residence Inn - Palm Desert (amends
Exhibit 10.26 above) (Previously filed as Exhibit 10.34 to the 1999
Form S-11 and incorporated by reference).
10.28 Assignment Agreement between CNL Hospitality Corp. and CNL
Hospitality Partners, LP, relating to the Courtyard - Palm Desert and
the Residence Inn - Palm Desert (Previously filed as Exhibit 10.35 to
the 1999 Form S-11 and incorporated by reference).
10.29 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated July 28, 2000, relating to the SpringHill Suites -
Gaithersburg (Previously filed as Exhibit 10.36 to the 1999 Form S-11
and incorporated by reference).
10.30 Purchase and Sale Agreement between SpringHill SMC Corporation, as
Seller, and CNL Hospitality Partners, LP, as Purchaser, and joined in
by Marriott International, Inc., dated June 30, 2000, relating to the
SpringHill Suites - Gaithersburg (Previously filed as Exhibit 10.37
to the 1999 Form S-11 and incorporated by reference).
10.31 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated July 28, 2000, relating to the Residence Inn - Merrifield
(Previously filed as Exhibit 10.38 to the 1999 Form S-11 and
incorporated by reference).
10.32 Purchase and Sale Agreement between TownePlace Management Corporation
and Residence Inn by Marriott, Inc., as Sellers, and CNL Hospitality
Partners, LP, as Purchaser, and joined in by Marriott International,
Inc., dated November 24, 1999, relating to the Residence Inn -
Merrifield (Previously filed as Exhibit 10.39 to the 1999 Form S-11
and incorporated by reference).
10.33 First Amendment to Purchase and Sale Agreement between TownePlace
Management Corporation and Residence Inn by Marriott, as Sellers, and
CNL Hospitality Partners, LP, as Purchaser, and joined in by Marriott
International, Inc., dated November 24, 1999, relating to the
Residence Inn - Mira Mesa, SpringHill Suites - Gaithersburg,
Residence Inn - Merrifield, and TownePlace Suites - Newark (amends
Exhibits 10.21, 10.30, and 10.32 above) (Previously filed as Exhibit
10.40 to the 1999 Form S-11 and incorporated by reference).
10.34 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the Courtyard - Alpharetta
(Previously filed as Exhibit 10.41 to the 1999 Form S-11 and
incorporated by reference).
10.35 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the Residence Inn -
Cottonwood (Previously filed as Exhibit 10.42 to the 1999 Form S-11
and incorporated by reference).
10.36 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the TownePlace Suites - Mt.
Laurel (Previously filed as Exhibit 10.43 to the 1999 Form S-11 and
incorporated by reference).
10.37 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the TownePlace Suites -
Scarborough (Previously filed as Exhibit 10.44 to the 1999 Form S-11
and incorporated by reference).
10.38 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the TownePlace Suites -
Tewksbury (Previously filed as Exhibit 10.45 to the 1999 Form S-11
and incorporated by reference).
10.39 Purchase and Sale Agreement between Residence Inn by Marriott, Inc.,
Courtyard Management Corporation, SpringHill SMC Corporation and
TownePlace Management Corporation, as Sellers, CNL Hospitality
Partners, LP, as Purchaser, CCCL Leasing LLC, as Tenant, Crestline
Capital Corporation, Marriott International, Inc., and joined in by
CNL Hospitality Properties, Inc., dated August 18, 2000, relating to
the Residence Inn - Cottonwood, Courtyard - Alpharetta and Overland
Park SpringHill Suites - Raleigh, and TownePlace Suites - Mt. Laurel,
Scarborough and Tewksbury (Previously filed as Exhibit 10.46 to the
1999 Form S-11 and incorporated by reference).
10.40 First Amendment to Purchase and Sale Agreement between Residence Inn
by Marriott, Inc., Courtyard Management Corporation, SpringHill SMC
Corporation and TownePlace Management Corporation, as Sellers, CNL
Hospitality Partners, LP, as Purchaser, CCCL Leasing LLC, as tenant,
Crestline Capital Corporation, and Marriott International, Inc.,
dated August 18, 2000, relating to the Residence Inn - Cottonwood,
Courtyard - Alpharetta, and Overland Park SpringHill Suites - Raleigh
and TownePlace Suites - Mt. Laurel, Scarborough and Tewksbury
(Previously filed as Exhibit 10.47 to the 1999 Form S-11 and
incorporated by reference).
10.41 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated November 4, 2000, relating to the TownePlace Suites -
Newark (Previously filed as Exhibit 10.48 to the 1999 Form S-11 and
incorporated herein by reference.)
10.42 Lease Agreement between LLB C-Hotel, L.L.C. and LLB Tenant
Corporation, dated October 12, 2000, relating to the Courtyard -
Little Lake Bryan (Previously filed as Exhibit 10.49 to the 1999 Form
S-11 and incorporated herein by reference.)
10.43 Lease Agreement between LLB F-Inn, L.L.C. and LLB Tenant Corporation,
dated October 12, 2000, relating to the Fairfield Inn - Little Lake
Bryan (Previously filed as Exhibit 10.50 to the 1999 Form S-11 and
incorporated herein by reference.)
10.44 First Amendment to Lease Agreement between LLB C-Hotel, L.L.C. and
LLB Tenant Corporation, dated November 17, 2000, relating to the
Courtyard - Little Lake Bryan (amends Exhibit 10.42 above)
(Previously filed as Exhibit 10.51 to the 1999 Form S-11 and
incorporated herein by reference.)
10.45 First Amendment to Lease Agreement between LLB F-Inn, L.L.C. and LLB
Tenant Corporation, dated November 17, 2000, relating to the
Fairfield Inn - Little Lake Bryan (amends Exhibit 10.43 above)
(Previously filed as Exhibit 10.52 to the 1999 Form S-11 and
incorporated herein by reference.)
10.46 Purchase and Sale Agreement between Marriott International, Inc., as
Seller, and CNL Hospitality Partners, LP, as Purchaser, dated
September 17, 1998, relating to the Courtyard - Little Lake Bryan,
the Fairfield Inn - Little Lake Bryan and the SpringHill Suites -
Little Lake Bryan (Previously filed as Exhibit 10.53 to the 1999 Form
S-11 and incorporated herein by reference.)
10.47 Second Amendment to Lease Agreement between CNL LLB C-Hotel
Management, LP (formerly LLB C-Hotel, L.L.C.) and LLB Tenant
Corporation, dated December 15, 2000, relating to the Courtyard -
Little Lake Bryan (amends Exhibits 10.42 and 10.44 above) (Previously
filed as Exhibit 10.54 to the 1999 Form S-11 and incorporated herein
by reference.)
10.48 Second Amendment to Lease Agreement between CNL LLB F-Inn Management,
LP (formerly LLB F-Inn L.L.C.) and LLB Tenant Corporation, dated
December 15, 2000, relating to the Fairfield Inn - Little Lake Bryan
(amends Exhibits 10.43 and 10.45 above) (Previously filed as Exhibit
10.55 to the 1999 Form S-11 and incorporated herein by reference.)
10.49 Indenture Agreement among Desert Ridge Resort, LLC, as Issuer; Bank
One, National Association, as Trustee; and Financial Structures
Limited, as Insurer, dated December 15, 2000, relating to the Desert
Ridge Property (Previously filed as Exhibit 10.56 to the 1999 Form
S-11 and incorporated herein by reference.)
10.50 Form of Lease Agreement including Memorandum of Lease (Previously
filed as Exhibit 10.7 to the 2003 Form S-11 and incorporated herein
by reference).
10.51 Form of Escrow Agreement between CNL Hospitality Properties, Inc. and
SouthTrust Bank (Previously filed as Exhibit 10.1 to the 2003 Form
S-11 and incorporated herein by reference).
10.52 Form of Joint Venture Agreement (Previously filed as Exhibit 10.3 to
the 1998 Form S-11 and incorporated herein by reference).
10.53 Form of Indemnification and Put Agreement (Previously filed as
Exhibit 10.4 to the 1996 Form S-11 and incorporated herein by
reference).
10.54 Form of Unconditional Guaranty of Payment and Performance (Previously
filed as Exhibit 10.5 to the 1996 Form S-11 and incorporated herein
by reference).
10.55 Form of Purchase Agreement (Previously filed as Exhibit 10.6 to the
1996 Form S-11 and incorporated herein by reference).
10.56 Promissory Note with CNL Hospitality Partners, LP, as Maker, and
Security Life of Denver Insurance Company, as Payee, dated September
7, 2001. (Filed herewith.)
99.1 Certification of the Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002 (Filed herewith).
99.2 Certification of the Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002 (Filed herewith).
(b) The Company filed the following reports during the quarter
ended March 31, 2003 on Form 8-K:
On January 8, 2003, the Company filed a report on Form 8-K to
disclose the acquisition of three Properties, one directly, and two
through a joint venture.
On February 20, 2003, the Company filed a report on Form 8-K to
disclose the Company's commitments to acquire interests in or develop
eight additional Properties.
On February 26, 2003, the Company filed a report on Form 8-K to
disclose a press release, dated February 26, 2003, describing the
acquisition of interests in five additional Properties.
On March 7, 2003, the Company filed a report on Form-8-K to disclose
the acquisition of five additional Properties, one directly, and four
through a joint venture.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 15th day of
May, 2003.
CNL HOSPITALITY PROPERTIES, INC.
By: /s/ Thomas J. Hutchison, III
----------------------------
THOMAS J. HUTCHISON, III
Chief Executive Officer
(Principal Executive Officer)
By: /s/ C. Brian Strickland
----------------------------
C. BRIAN STRICKLAND
Executive Vice President
(Principal Financial and Accounting Officer)
CNL Hospitality Properties, Inc.
CERTIFICATIONS
I, Thomas J. Hutchison, III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CNL Hospitality
Properties, Inc. (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of the Registrant's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Thomas J. Hutchison, III
- ----------------------------
Thomas J. Hutchison, III
Chief Executive Officer (Principal Executive Officer)
CNL Hospitality Properties, Inc.
CERTIFICATIONS
I, C. Brian Strickland, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CNL Hospitality
Properties, Inc. (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of the Registrant's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ C. Brian Strickland
- -----------------------
C. Brian Strickland
Executive Vice President (Principal Financial and Accounting Officer)
Exhibit Index
-------------
2.1 Agreement by and among CNL Hospitality Properties, Inc., CNL Rose
Acquisition Corp., RFS Hotel Investors, Inc., CNL Rose Acquisition
OP, LP and RFS Partnership, L.P. (Previously filed as Exhibit 2.1 to
the Form 8-K filed on May 9, 2003, and incorporated herein by
reference).
3.1 CNL American Realty Fund, Inc. Articles of Incorporation (Previously
filed as Exhibit 3.1 to the Registrant's Registration Statement on
Form S-11 (Registration No. 333-9943) (the "1996 Form S-11") and
incorporated herein by reference.)
3.2 CNL American Realty Fund, Inc. Amended and Restated Articles of
Incorporation (Previously filed as Exhibit 3.2 to the 1996 Form S-11
and incorporated herein by reference.)
3.3 CNL American Realty Fund, Inc. Bylaws (Previously filed as Exhibit
3.3 to the 1996 Form S-11 and incorporated herein by reference.)
3.4 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL American Realty Fund, Inc. dated June 3, 1998
(to change the name of the Company from CNL American Realty Fund,
Inc. to CNL Hospitality Properties, Inc.) (Previously filed as
Exhibit 3.4 to the 1996 Form S-11 and incorporated herein by
reference.)
3.5 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated May 26, 1999
(Previously filed as Exhibit 3.5 to the Registrant's Registration
Statement on Form S-11 (Registration No. 333-67787) (the "1998 Form
S-11") and incorporated herein by reference.)
3.6 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated June 27, 2000
(Previously filed as Exhibit 3.6 to the Registrant's Registration
Statement on Form S-11 (Registration No. 333-89691) (the "1999 Form
S-11") and incorporated by reference).
3.7 Amendment No. 1 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.7 to the 1999 Form S-11 and
incorporated herein by reference.)
3.8 Amendment No. 2 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.8 to the 1999 Form S-11 and
incorporated herein by reference.)
3.9 Amendment No. 3 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.9 to the Registrant's Registration
Statement on Form S-11 (Registration No. 333-67124) (the "2001 Form
S-11") and incorporated herein by reference.)
3.10 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated November 15,
2002 (Previously filed as Exhibit 3.10 to the 2001 Form S-11 and
incorporated herein by reference).
4.1 CNL American Realty Fund, Inc. Articles of Incorporation (Previously
filed as Exhibit 3.1 to the 1996 Form S-11 and incorporated herein by
reference).
4.2 CNL American Realty Fund, Inc. Amended and Restated Articles of
Incorporation (Previously filed as Exhibit 3.2 to the 1996 Form S-11
and incorporated herein by reference.)
4.3 CNL American Realty Fund, Inc. Bylaws (Previously filed as Exhibit
3.3 to the 1996 Form S-11 and incorporated herein by reference.)
4.4 Form of Reinvestment Plan (Included as Appendix A to the Registrant's
Prospectus filed as part of the Registrant's Registration Statement
on Form S-11 (Registration No. 333-98047) (the "2003 Form S-11") and
incorporated herein by reference).
4.5 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL American Realty Fund, Inc. dated June 3, 1998
(Previously filed as Exhibit 3.4 to the 1996 Form S-11 and
incorporated herein by reference.)
4.6 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated May 26, 1999
(Previously filed as Exhibit 3.5 to the 1998 Form S-11 and
incorporated herein by reference.)
4.7 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated June 27, 2000
(Previously filed as Exhibit 3.6 to the 1999 Form S-11 and
incorporated herein by reference.)
4.8 Amendment No. 1 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.7 to the 1999 Form S-11 and
incorporated herein by reference.)
4.9 Amendment No. 2 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed as Exhibit 3.8 to the 1999 Form S-11 and
incorporated herein by reference.)
4.10 Amendment No. 3 to the Bylaws of CNL Hospitality Properties, Inc.
(Previously filed an Exhibit 3.9 to the 2001 Form S-11 and
incorporated herein by reference.)
4.11 Articles of Amendment to the Amended and Restated Articles of
Incorporation of CNL Hospitality Properties, Inc. dated November 15,
2002 (Previously filed as Exhibit 3.10 to the 2001 Form S-11 and
incorporated herein by reference).
10.1 Advisory Agreement dated as of April 1, 2003, between CNL Hospitality
Properties, Inc. and CNL Hospitality Corp. (Filed herewith).
10.2 Indemnification Agreement between CNL Hospitality Properties, Inc.
and Lawrence A. Dustin dated February 24, 1999. Each of the following
directors and/or officers has signed a substantially similar
agreement as follows: James M. Seneff, Jr., Robert A. Bourne, G.
Richard Hostetter, J. Joseph Kruse, Richard C. Huseman, Charles A.
Muller, Jeanne A. Wall and Lynn E. Rose, dated July 9, 1997; C. Brian
Strickland dated October 31, 1998; John A. Griswold, dated January 7,
1999; Charles E. Adams and Craig M. McAllaster, dated February 10,
1999; Matthew W. Kaplan dated February 24, 1999; and Thomas J.
Hutchison III dated May 16, 2000 (Previously filed as Exhibit 10.2 to
the Form 10-Q filed on May 17, 1999 and incorporated herein by
reference.)
10.3 Agreement of Limited Partnership of CNL Hospitality Partners, LP
(Previously filed as Exhibit 10.10 to the 1996 Form S-11 and
incorporated herein by reference.)
10.4 Hotel Purchase and Sale Contract between CNL Real Estate Advisors,
Inc. and Gwinnett Residence Associates, LLC, relating to the
Residence Inn - Gwinnett Place (Previously filed as Exhibit 10.11 to
the 1996 Form S-11 and incorporated herein by reference.)
10.5 Assignment and Assumption Agreement between CNL Real Estate Advisors,
Inc. and CNL Hospitality Partners, LP, relating to the Residence Inn
- Gwinnett Place (Previously filed as Exhibit 10.12 to the 1996 Form
S-11 and incorporated herein by reference.)
10.6 Hotel Purchase and Sale Contract between CNL Real Estate Advisors,
Inc. and Buckhead Residence Associates, LLC, relating to the
Residence Inn - Buckhead (Lenox Park) (Previously filed as Exhibit
10.13 to the 1996 Form S-11 and incorporated herein by reference.)
10.7 Assignment and Assumption Agreement between CNL Real Estate Advisors,
Inc. and CNL Hospitality Partners, LP, relating to the Residence Inn
- Buckhead (Lenox Park) (Previously filed as Exhibit 10.14 to the
1996 Form S-11 and incorporated herein by reference.)
10.8 Lease Agreement between CNL Hospitality Partners, LP and STC Leasing
Associates, LLC, dated August 1, 1998, relating to the Residence Inn
- Gwinnett Place (Previously filed as Exhibit 10.15 to the 1996 Form
S-11 and incorporated herein by reference.)
10.9 Lease Agreement between CNL Hospitality Partners, LP and STC Leasing
Associates, LLC, dated August 1, 1998, relating to the Residence Inn
- Buckhead (Lenox Park) (Previously filed as Exhibit 10.16 to the
1996 Form S-11 and incorporated herein by reference.)
10.10 Master Revolving Line of Credit Loan Agreement with CNL Hospitality
Properties, Inc., CNL Hospitality Partners, LP and Colonial Bank,
dated July 31, 1998 (Previously filed as Exhibit 10.17 to the 1996
Form S-11 and incorporated herein by reference.)
10.11 Master Loan Agreement by and between CNL Hotel Investors, Inc. and
Jefferson-Pilot Life Insurance Company, dated February 24, 1999
(Previously filed as Exhibit 10.18 to the 1996 Form S-11 and
incorporated herein by reference.)
10.12 Securities Purchase Agreement between CNL Hospitality Properties,
Inc. and Five Arrows Realty Securities II L.L.C., dated February 24,
1999 (Previously filed as Exhibit 10.19 to the 1996 Form S-11 and
incorporated herein by reference.)
10.13 Subscription and Stockholders' Agreement among CNL Hotel Investors,
Inc., Five Arrows Realty Securities II L.L.C., CNL Hospitality
Partners, LP and CNL Hospitality Properties, Inc., dated February 24,
1999 (Previously filed as Exhibit 10.20 to the 1996 Form S-11 and
incorporated herein by reference.)
10.14 Registration Rights Agreement by and between CNL Hospitality
Properties, Inc. and Five Arrows Realty Securities II L.L.C., dated
February 24, 1999 (Previously filed as Exhibit 10.21 to the 1996 Form
S-11 and incorporated herein by reference.)
10.15 First Amendment to Lease Agreement between CNL Hospitality Partners,
LP and STC Leasing Associates, LLC, dated August 1, 1998, related to
the Residence Inn - Gwinnett Place, (amends Exhibit 10.8 above) and
the First Amendment to Agreement of Guaranty, dated August 1, 1998
(amends Agreement of Guaranty attached as Exhibit I to 10.8 above)
(Previously filed as Exhibit 10.8 to the Form 10-Q filed on November
10, 1999 and incorporated herein by reference.)
10.16 First Amendment to Lease Agreement between CNL Hospitality Partners,
LP and STC Leasing Associates, LLC, dated August 1, 1998, related to
the Residence Inn - Buckhead (Lenox Park) (amends Exhibit 10.9 above)
and the First Amendment to Agreement of Guaranty, dated August 1,
1998 (amends Agreement of Guaranty attached as Exhibit I to 10.9
above) (Previously filed as Exhibit 10.9 to the Form 10-Q filed on
November 10, 1999 and incorporated herein by reference.)
10.17 Lease Agreement between Courtyard Annex, L.L.C. and City Center Annex
Tenant Corporation, dated November 15, 1999, relating to the
Courtyard - Philadelphia (Previously filed as Exhibit 10.22 to the
1998 Form S-11 and incorporated herein by reference.)
10.18 First Amended and Restated Limited Liability Company Agreement of
Courtyard Annex, L.L.C., relating to the Courtyard - Philadelphia
(Previously filed as Exhibit 10.23 to the 1998 Form S-11 and
incorporated herein by reference.)
10.19 Purchase and Sale Agreement between Marriott International, Inc., CBM
Annex, Inc., Courtyard Annex, Inc., as Sellers, and CNL Hospitality
Partners, LP, as Purchaser, dated November 15, 1999, relating to the
Courtyard - Philadelphia (Previously filed as Exhibit 10.24 to the
1998 Form S-11 and incorporated herein by reference.)
10.20 Lease Agreement between CNL Hospitality Partners, LP, and RST4 Tenant
LLC, dated December 10, 1999, relating to the Residence Inn - Mira
Mesa (Previously filed as Exhibit 10.25 to the 1998 Form S-11 and
incorporated herein by reference.)
10.21 Purchase and Sale Agreement between Marriott International, Inc.,
TownePlace Management Corporation and Residence Inn by Marriott,
Inc., as Sellers, and CNL Hospitality Partners, LP, as Purchaser,
dated November 24, 1999, relating to the Residence Inn - Mira Mesa
and the TownePlace Suites - Newark (Previously filed as Exhibit 10.26
to the 1998 Form S-11 and incorporated herein by reference.)
10.22 Lease Agreement between CNL Hospitality Partners, LP and WYN Orlando
Lessee, LLC, dated May 31, 2000, relating to the Wyndham Denver Tech
Center (Previously filed as Exhibit 10.29 to the 1998 Form S-11 and
incorporated herein by reference.)
10.23 Lease Agreement between CNL Hospitality Partners, LP and WYN Orlando
Lessee, LLC, dated May 31, 2000, relating to the Wyndham Billerica
(Previously filed as Exhibit 10.30 to the 1998 Form S-11 and
incorporated herein by reference.)
10.24 Purchase and Sale Agreement between CNL Hospitality Corp., as Buyer,
and WII Denver Tech, LLC and PAH Billerica Realty Company, LLC, as
Sellers, and Wyndham International, Inc., relating to the Wyndham
Denver Tech Center and the Wyndham Billerica (Previously filed as
Exhibit 10.31 to the 1998 Form S-11 and incorporated herein by
reference.)
10.25 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated June 17, 2000, relating to the Courtyard - Palm Desert and
the Residence Inn - Palm Desert (Previously filed as Exhibit 10.32 to
the 1999 Form S-11 and incorporated by reference).
10.26 Purchase and Sale Agreement between PDH Associates LLC, as Seller,
and CNL Hospitality Corp., as Buyer, dated January 19, 2000, relating
to the Courtyard - Palm Desert and the Residence Inn - Palm Desert
(Previously filed as Exhibit 10.33 to the 1999 Form S-11 and
incorporated by reference).
10.27 Amendment to Purchase and Sale Agreement between PDH Associates LLC
and CNL Hospitality Corp., dated January 19, 2000, relating to
Courtyard - Palm Desert and the Residence Inn - Palm Desert (amends
Exhibit 10.26 above) (Previously filed as Exhibit 10.34 to the 1999
Form S-11 and incorporated by reference).
10.28 Assignment Agreement between CNL Hospitality Corp. and CNL
Hospitality Partners, LP, relating to the Courtyard - Palm Desert and
the Residence Inn - Palm Desert (Previously filed as Exhibit 10.35 to
the 1999 Form S-11 and incorporated by reference).
10.29 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated July 28, 2000, relating to the SpringHill Suites -
Gaithersburg (Previously filed as Exhibit 10.36 to the 1999 Form S-11
and incorporated by reference).
10.30 Purchase and Sale Agreement between SpringHill SMC Corporation, as
Seller, and CNL Hospitality Partners, LP, as Purchaser, and joined in
by Marriott International, Inc., dated June 30, 2000, relating to the
SpringHill Suites - Gaithersburg (Previously filed as Exhibit 10.37
to the 1999 Form S-11 and incorporated by reference).
10.31 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated July 28, 2000, relating to the Residence Inn - Merrifield
(Previously filed as Exhibit 10.38 to the 1999 Form S-11 and
incorporated by reference).
10.32 Purchase and Sale Agreement between TownePlace Management Corporation
and Residence Inn by Marriott, Inc., as Sellers, and CNL Hospitality
Partners, LP, as Purchaser, and joined in by Marriott International,
Inc., dated November 24, 1999, relating to the Residence Inn -
Merrifield (Previously filed as Exhibit 10.39 to the 1999 Form S-11
and incorporated by reference).
10.33 First Amendment to Purchase and Sale Agreement between TownePlace
Management Corporation and Residence Inn by Marriott, as Sellers, and
CNL Hospitality Partners, LP, as Purchaser, and joined in by Marriott
International, Inc., dated November 24, 1999, relating to the
Residence Inn - Mira Mesa, SpringHill Suites - Gaithersburg,
Residence Inn - Merrifield, and TownePlace Suites - Newark (amends
Exhibits 10.21, 10.30, and 10.32 above) (Previously filed as Exhibit
10.40 to the 1999 Form S-11 and incorporated by reference).
10.34 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the Courtyard - Alpharetta
(Previously filed as Exhibit 10.41 to the 1999 Form S-11 and
incorporated by reference).
10.35 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the Residence Inn -
Cottonwood (Previously filed as Exhibit 10.42 to the 1999 Form S-11
and incorporated by reference).
10.36 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the TownePlace Suites - Mt.
Laurel (Previously filed as Exhibit 10.43 to the 1999 Form S-11 and
incorporated by reference).
10.37 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the TownePlace Suites -
Scarborough (Previously filed as Exhibit 10.44 to the 1999 Form S-11
and incorporated by reference).
10.38 Lease Agreement between CNL Hospitality Partners, LP and CCCL Leasing
LLC, dated August 18, 2000, relating to the TownePlace Suites -
Tewksbury (Previously filed as Exhibit 10.45 to the 1999 Form S-11
and incorporated by reference).
10.39 Purchase and Sale Agreement between Residence Inn by Marriott, Inc.,
Courtyard Management Corporation, SpringHill SMC Corporation and
TownePlace Management Corporation, as Sellers, CNL Hospitality
Partners, LP, as Purchaser, CCCL Leasing LLC, as Tenant, Crestline
Capital Corporation, Marriott International, Inc., and joined in by
CNL Hospitality Properties, Inc., dated August 18, 2000, relating to
the Residence Inn - Cottonwood, Courtyard - Alpharetta and Overland
Park SpringHill Suites - Raleigh, and TownePlace Suites - Mt. Laurel,
Scarborough and Tewksbury (Previously filed as Exhibit 10.46 to the
1999 Form S-11 and incorporated by reference).
10.40 First Amendment to Purchase and Sale Agreement between Residence Inn
by Marriott, Inc., Courtyard Management Corporation, SpringHill SMC
Corporation and TownePlace Management Corporation, as Sellers, CNL
Hospitality Partners, LP, as Purchaser, CCCL Leasing LLC, as tenant,
Crestline Capital Corporation, and Marriott International, Inc.,
dated August 18, 2000, relating to the Residence Inn - Cottonwood,
Courtyard - Alpharetta, and Overland Park SpringHill Suites - Raleigh
and TownePlace Suites - Mt. Laurel, Scarborough and Tewksbury
(Previously filed as Exhibit 10.47 to the 1999 Form S-11 and
incorporated by reference).
10.41 Lease Agreement between CNL Hospitality Partners, LP and RST4 Tenant
LLC, dated November 4, 2000, relating to the TownePlace Suites -
Newark (Previously filed as Exhibit 10.48 to the 1999 Form S-11 and
incorporated herein by reference.)
10.42 Lease Agreement between LLB C-Hotel, L.L.C. and LLB Tenant
Corporation, dated October 12, 2000, relating to the Courtyard -
Little Lake Bryan (Previously filed as Exhibit 10.49 to the 1999 Form
S-11 and incorporated herein by reference.)
10.43 Lease Agreement between LLB F-Inn, L.L.C. and LLB Tenant Corporation,
dated October 12, 2000, relating to the Fairfield Inn - Little Lake
Bryan (Previously filed as Exhibit 10.50 to the 1999 Form S-11 and
incorporated herein by reference.)
10.44 First Amendment to Lease Agreement between LLB C-Hotel, L.L.C. and
LLB Tenant Corporation, dated November 17, 2000, relating to the
Courtyard - Little Lake Bryan (amends Exhibit 10.42 above)
(Previously filed as Exhibit 10.51 to the 1999 Form S-11 and
incorporated herein by reference.)
10.45 First Amendment to Lease Agreement between LLB F-Inn, L.L.C. and LLB
Tenant Corporation, dated November 17, 2000, relating to the
Fairfield Inn - Little Lake Bryan (amends Exhibit 10.43 above)
(Previously filed as Exhibit 10.52 to the 1999 Form S-11 and
incorporated herein by reference.)
10.46 Purchase and Sale Agreement between Marriott International, Inc., as
Seller, and CNL Hospitality Partners, LP, as Purchaser, dated
September 17, 1998, relating to the Courtyard - Little Lake Bryan,
the Fairfield Inn - Little Lake Bryan and the SpringHill Suites -
Little Lake Bryan (Previously filed as Exhibit 10.53 to the 1999 Form
S-11 and incorporated herein by reference.)
10.47 Second Amendment to Lease Agreement between CNL LLB C-Hotel
Management, LP (formerly LLB C-Hotel, L.L.C.) and LLB Tenant
Corporation, dated December 15, 2000, relating to the Courtyard -
Little Lake Bryan (amends Exhibits 10.42 and 10.44 above) (Previously
filed as Exhibit 10.54 to the 1999 Form S-11 and incorporated herein
by reference.)
10.48 Second Amendment to Lease Agreement between CNL LLB F-Inn Management,
LP (formerly LLB F-Inn L.L.C.) and LLB Tenant Corporation, dated
December 15, 2000, relating to the Fairfield Inn - Little Lake Bryan
(amends Exhibits 10.43 and 10.45 above) (Previously filed as Exhibit
10.55 to the 1999 Form S-11 and incorporated herein by reference.)
10.49 Indenture Agreement among Desert Ridge Resort, LLC, as Issuer; Bank
One, National Association, as Trustee; and Financial Structures
Limited, as Insurer, dated December 15, 2000, relating to the Desert
Ridge Property (Previously filed as Exhibit 10.56 to the 1999 Form
S-11 and incorporated herein by reference.)
10.50 Form of Lease Agreement including Memorandum of Lease (Previously
filed as Exhibit 10.7 to the 2003 Form S-11 and incorporated herein
by reference).
10.51 Form of Escrow Agreement between CNL Hospitality Properties, Inc. and
SouthTrust Bank (Previously filed as Exhibit 10.1 to the 2003 Form
S-11 and incorporated herein by reference).
10.52 Form of Joint Venture Agreement (Previously filed as Exhibit 10.3 to
the 1998 Form S-11 and incorporated herein by reference).
10.53 Form of Indemnification and Put Agreement (Previously filed as
Exhibit 10.4 to the 1996 Form S-11 and incorporated herein by
reference).
10.54 Form of Unconditional Guaranty of Payment and Performance (Previously
filed as Exhibit 10.5 to the 1996 Form S-11 and incorporated herein
by reference).
10.55 Form of Purchase Agreement (Previously filed as Exhibit 10.6 to the
1996 Form S-11 and incorporated herein by reference).
10.56 Promissory Note with CNL Hospitality Partners, LP, as Maker, and
Security Life of Denver Insurance Company, as Payee, dated September
7, 2001. (Filed herewith.)
99.1 Certification of the Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002 (Filed herewith).
99.2 Certification of the Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002 (Filed herewith).