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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
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 of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 650-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share
(Title of class)
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 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of shares of common stock (the
"Shares") on Form S-11 under the Securities Act of 1933, as amended. Since no
established market for such Shares exists, there is no market value for such
Shares. Each Share was originally sold at $10 per Share.
The number of shares of common stock outstanding as of February 16,
1999, was 6,169,868.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrant incorporates by reference portions of the CNL Hospitality
Properties, Inc. Definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders (Items 10, 11, 12 and 13 of Part III) to be filed no later than
April 30, 1999.
PART I
Item 1. Business
CNL Hospitality Properties, Inc., formerly known as CNL American Realty
Fund, Inc., was organized pursuant to the laws of the state of Maryland on June
12, 1996. CNL Hospitality GP Corp. and CNL Hospitality LP Corp. are wholly owned
subsidiaries of CNL Hospitality Properties, Inc., each of which were organized
in Delaware in June 1998. CNL Hospitality Partners, LP is a Delaware limited
partnership (the "Partnership") formed in June 1998. CNL Hospitality GP Corp.
and CNL Hospitality LP Corp. are the general and limited partners, respectively,
of CNL Hospitality Partners, LP. Properties acquired are generally expected to
be held by the Partnership and, as a result, owned by CNL Hospitality
Properties, Inc. through the Partnership. The terms "Company" or "Registrant"
include CNL Hospitality Properties, Inc. and its subsidiaries, CNL Hospitality
GP Corp., CNL Hospitality LP Corp. and CNL Hospitality Partners, LP. The Company
operates for federal income tax purposes as a real estate investment trust (a
"REIT").
Beginning in July 1997, the Company offered for sale up to $165,000,000
of shares of common stock (the "Shares") (16,500,000 Shares at $10 per Share)
(the "Offering") pursuant to a registration statement on Form S-11 under the
Securities Act of 1933, as amended. As of December 31, 1998, the Company had
received subscription proceeds of $43,019,080 (4,301,908 Shares) from the
Offering, including $37,299 (3,730 Shares) through the distribution reinvestment
plan provided under the Company's registration statement. The Company
anticipates significant additional sales of Shares prior to the completion of
the Offering. In accordance with the Company's prospectus, the Company has
elected to extend the Offering until a date no later than July 9, 1999.
On November 23, 1998, 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 27,500,000 additional Shares
($275,000,000) (the "Secondary Offering") which is expected to commence
immediately following the completion of the Company's current Offering. Of the
27,500,000 Shares of common stock to be offered, 2,500,000 will be available
only to stockholders purchasing Shares through the reinvestment plan. The price
per Share and the other terms of the Secondary Offering, including the
percentage of gross proceeds payable (i) to the managing dealer for selling
commissions and expenses in connection with the offering, and (ii) to CNL
Hospitality Advisors, Inc. (formerly CNL Real Estate Advisors, Inc.) (the
"Advisor") for acquisition fees and acquisition expenses, will be substantially
the same as those for the Company's current Offering. The Company expects to use
net proceeds from the Secondary Offering to purchase additional Properties and,
to a lesser extent, provide mortgage financing (the "Mortgage Loans"). The
Company believes that the net proceeds received from the Secondary Offering and
any additional offerings will enable the Company to continue to grow and take
advantage of acquisition opportunities until such time, if any, that the Company
lists on a national exchange, although there is no assurance that listing
("Listing") will occur. In addition, if Listing does not occur by December 31,
2007, the Company will commence the orderly sale of its assets and the
distribution of the proceeds. Listing does not assure liquidity.
The Company was formed primarily to acquire properties (the
"Properties") located across the United States to be leased on a long-term
(generally, 10 to 20 years, plus renewal options for up to an additional 20
years), "triple-net" basis, which means that the tenant generally will be
responsible for repairs, maintenance, property taxes, utilities and insurance.
The Properties will be leased to operators of selected national and regional
limited service, extended stay and full service hotel chains (the "Hotel
Chains") and operators of national and regional fast-food, family-style and
casual dining restaurant chains (the "Restaurant Chains"). While the Company may
currently invest in both restaurant and hotel Properties, management believes
that over time the Company will focus its Property investments exclusively on
hotel Properties. The Company structures the leases of its Properties to provide
for payment of base rent with (i) automatic increases in base rent and/or (ii)
percentage rent based on a percentage of gross sales above a specified level.
The Company may also provide Mortgage Loans in the aggregate principal amount of
approximately 5% to 10% of the gross offering proceeds. The Company also may
offer furniture, fixture and equipment financing ("Secured Equipment Leases") to
operators of Hotel Chains and Restaurant Chains. Secured Equipment Leases will
be funded from the proceeds of financing that have been obtained by the Company.
The aggregate outstanding principal amount of Secured Equipment Leases will not
exceed 10% of gross proceeds from the Company's offerings of Shares of common
stock.
As of December 31, 1998, net proceeds to the Company from the Offering
and capital contributions from the Advisor after deduction of selling
commissions, marketing support and due diligence expense reimbursement fees and
organizational and offering expenses totalled approximately $37,313,000. In
addition, the Company received three advances under the line of credit (the
"Line of Credit") totalling $9,600,000. As of December 31, 1998, the Company had
used net proceeds from the Offering and borrowings to invest approximately
$27,246,000 in two hotel Properties, to pay $5,000,000 as a deposit on three
additional Properties and to pay approximately $3,487,000 in acquisition fees
and expenses. The Company will use the remaining net proceeds to invest in
additional Properties and, to a lesser extent, Mortgage Loans. The number of
Properties to be acquired and Mortgage Loans to be entered into will depend upon
the amount of net proceeds available to the Company. The Company presently is
negotiating to acquire additional Properties, but as of January 19, 1999, had
not acquired any such Properties.
The Company's primary investment objectives are to preserve, protect,
and enhance the Company's assets while (i) making quarterly distributions; (ii)
obtaining fixed income through the receipt of base rent, and increasing the
Company's income (and distributions) and providing protection against inflation
through automatic increases in base rent and/or receipt of percentage rent, and
obtaining fixed income through the receipt of payments from Mortgage Loans and
Secured Equipment Leases; (iii) continuing to qualify as a REIT for federal
income tax purposes; and (iv) providing stockholders of the Company with
liquidity of their investment within five to ten years after commencement of the
Offering, either in whole or in part, through (a) Listing or (b) the
commencement of orderly sales of the Company's assets and distribution of the
proceeds thereof (outside the ordinary course of business and consistent with
its objectives of qualifying as a REIT). There can be no assurance that these
investment objectives will be met.
For the first five to ten years after the commencement of the Offering,
the Company intends, to the extent consistent with the Company's objective of
qualifying as a REIT, to reinvest in additional Properties or Mortgage Loans any
proceeds of the sale of a Property or Mortgage Loan that are not required to be
distributed to stockholders in order to preserve the Company's REIT status for
federal income tax purposes. Similarly, and to the extent consistent with REIT
qualification, the Company plans to use the proceeds of the sale of a Secured
Equipment Lease to fund additional Secured Equipment Leases, or to reduce its
outstanding indebtedness on the Line of Credit. At or prior to the end of such
ten-year period, the Company intends to provide stockholders of the Company with
liquidity of their investment, either in whole or in part, through Listing of
the Shares of the Company (although liquidity cannot be assured thereby) or by
commencing orderly sales of the Company's assets. If Listing occurs, the Company
intends to reinvest in additional Properties, Mortgage Loans and Secured
Equipment Leases any net sales proceeds not required to be distributed to
stockholders in order to preserve the Company's status as a REIT. The Company's
Articles of Incorporation provide, however, that if Listing does not occur
within ten years after the commencement of the Offering, the Company thereafter
will undertake the orderly liquidation of the Company and the sale of the
Company's assets and will distribute any net sales proceeds to stockholders. In
addition, the Company will not sell any assets if such sale would not be
consistent with the Company's objective of qualifying as a REIT.
In deciding the precise timing and terms of Property sales, the Advisor
will consider factors such as national and local market conditions, potential
capital appreciation, cash flows, and federal income tax considerations. The
terms of certain leases, however, may require the Company to sell a Property at
an earlier time if the tenant exercises its option to purchase a Property after
a specified portion of the lease term has elapsed. The Company will have no
obligation to sell all or any portion of a Property at any particular time,
except as may be required under property or joint venture purchase options
granted to certain tenants. In connection with sales of Properties by the
Company, purchase money obligations may be taken by the Company as part payment
of the sales price. The terms of payment will be affected by custom in the area
in which the Property is located and prevailing economic conditions. When a
purchase money obligation is accepted in lieu of cash upon the sale of a
Property, the Company will continue to have a mortgage on the Property and the
proceeds of the sale will be realized over a period of years rather than at
closing of the sale.
The Company does not anticipate selling the Secured Equipment Leases
prior to expiration of the lease term, except in the event that the Company
undertakes orderly liquidation of its assets. In addition, the Company does not
anticipate selling any Mortgage Loans prior to the expiration of the loan term,
except in the event (i) the Company owns the Property (land only) underlying the
building improvements which secure the Mortgage Loan and the sale of the
Property occurs, or (ii) the Company undertakes an orderly sale of its assets.
Leases
The leases the Company has entered into to date, and the leases the
Company expects to enter into in the future are long-term, generally 10 to 20
years, triple-net leases. The following is a summarized description of the
general structure of the Company's leases.
The leases of the two Properties owned by the Company as of December
31, 1998, provide for initial terms of 19 years and expire in 2017. The leases
are on a triple-net basis, with the tenants generally required to pay all
repairs, maintenance, property taxes, utilities, and insurance. The tenants also
will be required to pay for special assessments, sales and use taxes, and the
cost of any renovations permitted under the leases. The leases of the Properties
provide for minimum base annual rental payments (payable in monthly
installments) ranging from approximately $1,209,000 to $1,651,800. In addition,
the leases provide for percentage rent based on a percentage of gross sales
above a specified amount to be paid by the tenant. The leases also provide for
the annual base rent required under the terms of the lease to increase in the
second lease year (August 1999). The leases of the Properties also provide for
the tenant to fund, in addition to its lease payment, a capital expenditures
reserve fund up to a pre-determined amount. Money in that fund may be used by
the tenant, with the approval of the Company, to pay for capital expenditures.
The Company may be responsible for capital expenditures in excess of the amounts
in the reserve fund, and the tenant generally would be responsible for
replenishing the reserve fund and to pay a specified return on the amount of
capital expenditures paid for by the Company in excess of amounts in the reserve
fund.
The leases provide for up to four, five-year renewal options. During
the initial term of each lease, the tenant will pay the Company, as lessor,
minimum annual rent equal to a specified percentage of the Company's cost of
purchasing the Property payable in monthly installments. If the Company is
acquiring a Property that is to be constructed or renovated pursuant to the
development agreement, the cost of purchasing the Property will include the
purchase price of the land, including all fees, costs, and expenses paid by the
Company in connection with its purchase of the land, and all fees, costs, and
expenses disbursed by the Company for construction of building improvements. The
minimum rental payment under the renewal option generally will be greater than
that due for the final lease year of the initial term of the lease. In addition
to the minimum annual rent, the lease will generally provide for percentage rent
based on a percentage of the gross sales above a specified amount to be paid by
the tenant.
Certain lessees may have the right to purchase the Property seven to
twenty years after commencement of the lease at a purchase price equal to the
greater of (i) the appraised value of the Property, or (ii) a specified amount,
generally equal to the Company's purchase price of the Property, plus a
pre-determined percentage of the Company's purchase price. The leases also
generally provide that, in the event the Company wishes to sell a Property
subject to that lease to a third party, it must offer the lessee first refusal
to purchase the Property on the same terms and conditions, and for the same
price, as any offer which the Company has received for the sale of the Property.
During the period January 1, 1999 through January 19, 1999, the Company
had not acquired additional Properties or invested in any Mortgage Loans.
Major Tenants
All of the Company's rental income for the year ended December 31, 1998
was earned from one lessee, STC Leasing Associates, LLC, which operates each of
the two Properties owned by the Company as Residence Inn(R) by Marriott(R). It
is anticipated that Marriott(R) Brand Chains will continue to contribute more
than ten percent of the Company's total rental income in 1999 and subsequent
years. Although the Company intends to acquire Properties located in various
states and regions and to carefully screen its tenants in order to reduce risks
of default, failure of this Hotel Chain or lessee could significantly impact the
results of operations of the Company. However, management believes that the risk
of such a default is reduced due to the essential or important nature of these
Properties for the ongoing operations of the lessee. It is expected that the
percentage of total rental income contributed by this lessee will decrease as
additional Properties are acquired and leased in subsequent years.
Certain Management Services
Pursuant to an advisory agreement (the "Advisory Agreement") with the
Company, the Advisor provides management services relating to the Company, the
Properties, the Mortgage Loans and the Secured Equipment Lease program. Under
this agreement, the Advisor is responsible for assisting the Company in
negotiating leases, Mortgage Loans, the Line of Credit and Secured Equipment
Leases; collecting rental, Mortgage Loan and Secured Equipment Lease payments;
inspecting the Properties and the tenants' books and records; and responding to
tenants inquiries and notices. The Advisor also provides information to the
Company about the status of the leases, the Properties, the Mortgage Loans, the
Line of Credit and the Secured Equipment Leases. In exchange for these services,
the Advisor is entitled to receive certain fees from the Company. For
supervision of the Properties and the Mortgage Loans, the Advisor receives the
asset management fee, which is payable monthly in an amount equal to one-twelfth
of .60% of the total amount invested in the Properties, exclusive of acquisition
fees and acquisition expenses (the "Real Estate Asset Value") plus one-twelfth
of .60% of the outstanding principal amount of any Mortgage Loans, as of the end
of the preceding month. For negotiating Secured Equipment Leases and supervising
the Secured Equipment Lease program, the Advisor will receive, upon entering
into each lease, a Secured Equipment Lease servicing fee, payable out of the
proceeds of the Line of Credit, equal to 2% of the purchase price of the
equipment subject to each Secured Equipment Lease (the "Secured Equipment Lease
Servicing Fee"). For identifying the Properties, structuring the terms of the
acquisition and leases of the Properties and structuring the terms of the
Mortgage Loans, the Advisor will receive a fee equal to 4.5% of gross proceeds,
loan proceeds from permanent financing and amounts outstanding on the Line of
Credit, if any, at the time of Listing, but excluding that portion of the
permanent financing used to finance Secured Equipment Leases.
The Advisory Agreement continues until July 9, 1999, and thereafter may
be extended annually upon mutual consent of the Advisor and the Board of
Directors of the Company unless terminated at an earlier date upon 60 days prior
written notice by each party.
Borrowing
On July 31, 1998, the Company entered into a revolving Line of Credit
and security agreement with a bank to be used by the Company to acquire hotel
Properties. The initial Line of Credit provides that the Company will be able to
receive advances of up to $30,000,000 until July 30, 2003, with an annual review
to be performed by the bank to indicate that there has been no substantial
deterioration, in the bank's reasonable discretion, of the credit quality.
Interest expense on each advance shall be payable monthly, with all unpaid
interest and principal due no later than five years from the date of the
advance. Advances under the Line of Credit will bear interest at either (i) a
rate per annum equal to 318 basis points above the London Interbank Offered Rate
(LIBOR) or (ii) a rate per annum equal to 30 basis points above the bank's base
rate, whichever the Company selects at the time advances are made. In addition,
a fee of .5% per advance will be due and payable to the bank on funds as
advanced. Each advance made under the Line of Credit will be collateralized by
the assignment of rents and leases. In addition, the Line of Credit provides
that the Company will not be able to further encumber the applicable hotel
Property during the term of the advance without the bank's consent. The Company
will be required, at each closing, to pay all costs, fees and expenses arising
in connection with the Line of Credit. The Company must also pay the bank's
attorneys fees, subject to a maximum cap, incurred in connection with the Line
of Credit and each advance. As of December 31, 1998, the Company obtained three
advances totalling $9,600,000 relating to the Line of Credit. In connection with
the Line of Credit, the Company incurred a commitment fee, legal fees, and
closing costs of $68,762. The proceeds were used in connection with the purchase
of two hotel Properties and the commitment to acquire three additional
Properties. The Company has not yet received a commitment for any permanent
financing and there is no assurance that the Company will obtain any permanent
financing on satisfactory terms.
The Company expects to use net proceeds it receives from the current
Offering, plus any net proceeds from the sale of Shares in the Secondary
Offering, to purchase additional Properties and, to a lesser extent, to invest
in Mortgage Loans. In addition, the Company intends to borrow money to acquire
additional Properties, to invest in Mortgage Loans and Secured Equipment Leases,
and to pay certain related fees. The Company intends to encumber assets in
connection with such borrowing. The Company currently plans to obtain one or
more revolving Lines of Credit in an aggregate amount initially of up to
$45,000,000 and may, in addition, also obtain permanent financing. The Line of
Credit may be repaid with offering proceeds, working capital or permanent
financing. Although the Board of Directors anticipates that the Line of Credit
will initially be in an amount up to $45,000,000 and that the aggregate amount
of any permanent financing will not exceed 30% of the Company's total assets,
the maximum amount the Company may borrow, absent a satisfactory showing that a
higher level of borrowing is appropriate as approved by a majority of the
independent directors, is 300% of the Company's net assets.
Competition
The hotel and restaurant businesses are characterized by intense
competition. The operators of the hotels and restaurants located on the
Properties do, and are expected to in the future, compete with independently
owned hotels and restaurants, hotels and restaurants which are part of local or
regional chains, and hotels and restaurants in other well-known national chains,
including those offering different types of food and accommodations.
Many successful fast-food, family-style and casual dining restaurants
are located in "eating islands," which are areas to which people tend to return
frequently and within which they can diversify their eating habits, because in
many cases local competition may enhance the restaurant's success instead of
detracting from it. Fast-food, family-style and casual dining restaurants
frequently experience better operating results when there are other restaurants
in the same area. Similarly, many successful hotel "pockets" have developed in
areas of concentrated lodging demand, such as airports, urban office parks and
resort areas where this gathering promotes credibility to the market as a
lodging destination and accords the individual Properties efficiencies such as
area transportation, visibility and the promotion of other support amenities.
The Company will be in competition with other persons and entities both
to locate suitable Properties to acquire and to locate purchasers for its
Properties. The Company also will compete with other financing sources such as
banks, mortgage lenders, and sale/leaseback companies for suitable Properties,
tenants, Mortgage Loan borrowers and equipment tenants.
Employees
Reference is made to Item 10. Directors and Executive Officers of the
Registrant for a listing of the Company's Executive Officers. The Company has no
other employees.
Item 2. Properties
As of December 31, 1998, the Company owned two hotel Properties in the
Atlanta, Georgia area. Reference is made to the Schedule of Real Estate and
Accumulated Depreciation filed with this report for a listing of the Properties
and their respective costs, including acquisition fees and certain acquisition
expenses. The Company is presently negotiating to acquire additional Properties,
but as of January 19, 1999, had not acquired any such Properties.
While the Company may currently invest in both hotel and restaurant
Properties, management believes that over time the Company will focus its
Property investments exclusively on hotel Properties. Generally, Properties to
be acquired by the Company will consist of both land and building, although in a
number of cases the Company may acquire the land underlying the building with
the building owned by the tenant or a third party, and also may acquire the
building only with the land owned by a third party. The two Properties owned by
the Company as of December 31, 1998 conform, and the Advisor expects that any
Properties purchased by the Company will conform, generally to the following
specifications of size, cost, and type of land and buildings.
Hotel Properties. The lot sizes will generally range up to 10 acres
depending on product, market and design considerations, and are available at a
broad range of pricing. It is anticipated that hotel sites purchased by the
Company will generally be in primary or secondary urban, suburban, airport,
highway or resort markets which have been evaluated for past and future expected
lodging demand trends.
The hotel buildings generally will be low to mid rise construction. The
Company may acquire limited service, extended stay or full service hotel
Properties. Limited service hotels generally minimize non-guest room space and
offer limited food service such as complimentary continental breakfasts and do
not have restaurant or lounge facilities on-site. Extended stay hotels generally
contain guest suites with a kitchen area and living area separate from the
bedroom. Extended stay hotels vary with respect to providing on-site restaurant
facilities. Full service hotels generally have conference or meeting facilities
and on-site food and beverage facilities.
Restaurant Properties. Lot sizes will generally range between 25,000 to
60,000 square feet depending upon building size and local demographic factors.
Restaurants located on land within shopping centers will be freestanding and may
be located on smaller parcels if insufficient common parking is available. Sites
purchased by the Company will be in locations zoned for commercial use which
have been reviewed for traffic patterns and volume. The restaurant buildings
generally will be rectangular and constructed from various combinations of
stucco, steel, wood, brick and tile. Building sizes generally will range from
2,500 to 6,000 square feet, with the larger restaurants having greater seating
and equipment areas.
Before or after construction or renovation, both hotel and restaurant
Properties to be acquired will be one of a Hotel Chain's or Restaurant Chain's
approved designs. In general, the Properties will be freestanding and surrounded
by paved parking areas. Buildings will be suitable for a variety of uses, and in
the case of hotel Properties, the Properties may include equipment.
Generally, a lessee is required, under the terms of its lease
agreement, to make such capital expenditures as may be reasonably necessary to
refurbish buildings, premises, signs, and equipment so as to comply with the
lessee's obligations under the franchise agreement to reflect the current
commercial image of its Hotel Chain or Restaurant Chain. These capital
expenditures generally will be paid by the lessee during the term of the lease.
Some hotel Property leases may, however, obligate the lessee to fund, in
addition to its lease payment, a capital expenditures reserve up to a
pre-determined amount. Money in that reserve may be used by the lessee, with the
approval of the Company, to pay for capital expenditures. The Company may be
responsible for capital expenditures in excess of the amounts in the reserve
fund, and the lessee would be generally responsible for replenishing the reserve
fund and to pay additional rent equal to a specified return on the amount of
capital expenditures paid for by the Company in excess of amounts in the reserve
fund.
Leases with Major Tenants. The terms of the leases with the Company's
major tenants as of December 31, 1998 (see Item 1. Business - Major Tenants),
are substantially the same as those described in Item 1. Business - Leases.
STC Leasing Associates, LLC leases two Residence Inn(R) by Marriott(R)
hotel Properties. The initial term of each lease is 19 years (expiring in 2017)
and the aggregate minimum base annual rent is approximately $2,861,000.
Management considers the Properties to be well-maintained and
sufficient for the Company's operations.
Item 3. Legal Proceedings
Neither the Company, nor its Advisor or any affiliates of the Advisor,
nor any of their respective Properties, is a party to, or subject to, any
material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of February 16, 1999, there were 2,703 stockholders of record of common
stock. There is no public trading market for the Shares, and even though the
Company intends to list the Shares on a national securities exchange or
over-the-counter market within ten years of commencement of the offering of
Shares, there is no assurance that one will develop and it is not known at this
time if a public market for the Shares will develop. Prior to such time, if any,
as Listing occurs, any stockholder (other than the Advisor) may present all or
any portion equal to at least 25% of such stockholder's Shares to the Company
for redemption at any time, in accordance with the procedures outlined in the
Company's prospectus. At such time, the Company may, at its sole option, redeem
such Shares presented for redemption for cash to the extent it has sufficient
funds available. In addition, the Company may, at its discretion, use up to
$100,000 per calendar quarter of the proceeds of any public offering of its
common stock for redemptions. Stockholders who wish to have their distributions
used to acquire additional Shares (to the extent Shares are available for
purchase), may do so pursuant to the Company's reinvestment plan (the
"Reinvestment Plan"). There is no assurance that there will be sufficient funds
available for redemption and, accordingly, a stockholder's Shares may not be
redeemed. Any Shares acquired pursuant to a redemption will be retired and no
longer available for issuance by the Company. The Board of Directors of the
Company, in their discretion, may amend or suspend the redemption plan at any
time they determine that such amendment or suspension is in the best interest of
the Company. The price to be paid for any Share transferred other than pursuant
to the redemption plan is subject to negotiation by the purchaser and the
selling stockholder. For the year ended December 31, 1998, no Shares were
transferred, or retired pursuant to the redemption plan.
As of December 31, 1998, the offering price per Share was $10.
The Company expects to distribute at least 95% of its real estate
investment trust taxable income to the stockholders pursuant to the provisions
of the Articles of Incorporation. For the years ended December 31, 1998 and
1997, the Company declared cash distributions of $1,168,145 and $29,776,
respectively, to the stockholders. No amounts distributed to stockholders for
the year ended December 31, 1998 and 1997, are required to be or have been
treated by the Company as a return of capital for purposes of calculating the
stockholders' return on their invested capital. The following table presents
total distributions and distributions per Share:
1998 Quarter First Second Third Fourth Year
- ------------ --------- ---------- --------- ---------- -----------
Total distributions declared $101,356 $155,730 $362,045 $549,014 $1,168,145
Distributions per Share 0.075 0.075 0.142 0.175 0.467
1997 Quarter First Second Third Fourth Year
- ------------ --------- ---------- --------- ---------- -----------
Total distributions declared (1) (1) (1) $29,776 $29,776
Distributions per Share (1) (1) (1) 0.050 0.050
(1) For the period June 12, 1996 (date of inception) through October 15,
1997, the Company did not make any cash distributions because
operations had not commenced.
On January 1, 1999 and February 1, 1999, the Company declared
distributions totalling $251,967 and $314,928, respectively, or $0.0583 per
Share of common stock, payable in March 1999, to stockholders of record on
January 1, 1999 and February 1, 1999, respectively.
The Company intends to continue to declare distributions of cash to
stockholders on a monthly basis during the offering period, and quarterly
thereafter.
(b) The information required by this item is set forth in Item 7. Management
Discussion and Analysis of Financial Condition and Results of Operations and is
hereby incorporated by reference.
Item 6. Selected Financial Data
1998 1997 (1) 1996 (2)
---------------- ------------ ------------
Year Ended December 31:
Revenues $1,955,461 $ 46,071 $ -
Net earnings 958,939 22,852 -
Cash distributions declared 1,168,145 29,776 -
Funds from operations (3) 1,343,105 22,852 -
Earnings per share 0.40 0.03 -
Cash distributions declared per Share 0.46 0.05 -
Weighted average number of Shares
outstanding (4) 2,402,344 686,063 -
At December 31:
Total assets $48,856,690 $9,443,476 $598,190
Total stockholders' equity (5) 37,116,491 9,233,917 200,000
(1) No operations commenced until the Company received minimum offering
proceeds and funds were released from escrow on October 15, 1997.
(2) Selected financial data for 1996 represents the period June 12, 1996
(date of inception) through December 31, 1996.
(3) Funds from operations ("FFO"), based on the revised definition adopted
by the Board of Governors of the National Association of Real Estate
Investment Trusts ("NAREIT") and as used herein, means net earnings
determined in accordance with 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 and joint
ventures. (Net earnings determined in accordance with GAAP include the
noncash effect of straight-lining rent increases throughout the lease
term. 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 lease. During the year ended December 31, 1998,
net earnings included $44,160 of these amounts.) FFO was developed by
NAREIT as a relative measure of performance and liquidity of an equity
REIT in order to recognize that income-producing real estate
historically has not depreciated on the basis determined under GAAP.
However, FFO (i) does not represent cash generated from operating
activities determined in accordance with GAAP (which, unlike FFO,
generally reflects all cash effects of transactions and other events
that enter into the determination of net earnings), (ii) is not
necessarily indicative of cash flow available to fund cash needs and
(iii) should not be considered as an alternative to net earnings
determined in accordance with GAAP as an indication of the Company's
operating performance, or to cash flow from operating activities
determined in accordance with GAAP as a measure of either liquidity or
the Company's ability to make distributions. Accordingly, the Company
believes that in order to facilitate a clear understanding of the
consolidated historical operating results of the Company, FFO should be
considered in conjunction with the Company's net earnings and cash
flows as reported in the accompanying financial statements and notes
thereto.
(4) The weighted average number of Shares outstanding is based upon the
period the Company was operational.
(5) Includes subscriptions of $31,693,678 and $11,325,402 received, net of
stock issuance costs of $3,601,898 and $2,284,561, for the years ended
December 31, 1998 and 1997, respectively. Stock issuance costs consist
of selling commissions, marketing support and due diligence expense
reimbursement fees and organizational and offering expenses. The ratio
of stock issuance costs to subscriptions received was 1:9 and 1:5
during 1998 and 1997, respectively. The Advisor has agreed to pay all
organizational and offering expenses which exceed 3% of the gross
offering proceeds received from the sale of Shares of the Company.
(6) During 1998 and for the period October 15, 1997 (the date operations
commenced) through December 31, 1997, operating expenses incurred by
the Company as a percent of net income, each term as defined in the
Company's Prospectus, was 18.90% and 94.52%, respectively. In addition,
during 1998, operating expenses incurred by the Company represented
approximately 1.6% of average invested assets, as defined in the
Company's Prospectus. In accordance with the Advisory Agreement, to the
extent that operating expenses payable or reimbursable by the Company,
in any four consecutive fiscal quarters exceed the greater of 2% of
average invested assets or 25% of net income (the "Expense Cap"), the
Advisor is required to reimburse the Company the amount by which the
total operating expenses paid or incurred by the Company exceed the
Expense Cap. During the year ended December 31, 1998, the Company's
operating expenses exceeded the Expense Cap by $92,733; therefore, the
Advisor reimbursed the Company such amount in accordance with the
Advisory Agreement. As of December 31, 1998, net offering proceeds had
been invested in short term, highly liquid investments pending
investment in Properties and Mortgage Loans. Therefore, operating
expenses as a percentage of average invested assets for the period
October 15 (the date operations commenced) through December 31, 1997,
was not applicable.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Act of 1934. 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, continued availability of proceeds from the
Company's Offering, the ability of the Company to obtain permanent financing on
satisfactory terms, the ability of the Company to identify suitable investments,
the ability of the Company to locate suitable tenants for its Properties and
borrowers for its Mortgage Loans and Secured Equipment Leases, and the ability
of such tenants and borrowers to make payments under their respective leases,
Mortgage Loans or Secured Equipment Leases.
Introduction
CNL Hospitality Properties, Inc., formerly known as CNL American Realty
Fund, Inc., is a Maryland corporation that was organized on June 12, 1996. On
June 15, 1998, CNL Hospitality Properties, Inc. formed CNL Hospitality Partners,
LP, a wholly owned Delaware limited partnership. Properties acquired are
expected to be held by the Partnership and, as a result, owned by CNL
Hospitality Properties, Inc. through the Partnership.
The Company was formed to acquire Properties located across the United
States to be leased on a long-term, "triple-net" basis to operators of selected
national and regional limited service, extended stay and full service Hotel
Chains and operators of national and regional fast-food, family-style and casual
dining Restaurant Chains. While the Company may currently invest in both
restaurant and hotel Properties, management believes that over time the Company
will focus its Property investments exclusively on hotel Properties. The Company
may also provide Mortgage Loans in the aggregate principal amount of
approximately 5% to 10% of the gross offering proceeds. The Company also may
offer Secured Equipment Leases to operators of Hotel Chains and Restaurant
Chains. Secured Equipment Leases will be funded from the proceeds of financing
to be obtained by the Company. The aggregate outstanding principal amount of
Secured Equipment Leases will not exceed 10% of gross proceeds from the
Company's offerings of Shares of common stock.
Liquidity and Capital Resources
On July 9, 1997, the Company commenced the Offering to the public of up
to 16,500,000 Shares of common stock pursuant to a registration statement on
Form S-11 under the Securities Act of 1933, as amended. As of December 31, 1998,
the Company had received aggregate subscription proceeds of $43,019,080
(4,301,908 Shares), from the Offering, including $37,299 (3,730 Shares) through
the Company's Reinvestment Plan. The Company anticipates significant additional
sales of Shares prior to the completion of the Offering. In accordance with the
Company's prospectus, the Company has elected to extend the Offering until a
date no later than July 9, 1999.
The managing dealer of the offering of Shares is CNL Securities Corp.,
an affiliate of the Company.
As of December 31, 1998, net proceeds to the Company from its Offering
and capital contributions from the Advisor, after deduction of selling
commissions, marketing support and due diligence expense reimbursement fees and
organizational and offering expenses, totalled approximately $37,313,000. In
addition, the Company had received three advances under the Line of Credit
totalling $9,600,000. As of December 31, 1998, the Company had used net proceeds
from the Offering and borrowings to invest approximately $27,246,000 in two
hotel Properties, to pay $5,000,000 as a deposit on three additional Properties
and to pay approximately $3,487,000 in acquisition fees and expenses, leaving
approximately $11,180,000 of net offering proceeds available for investment in
Properties and Mortgage Loans.
On November 23, 1998, the Company filed a registration statement on
Form S-11 with the Securities and Exchange Commission in connection with the
proposed sale by the Company of up to an additional 27,500,000 Shares of common
stock ($275,000,000) in the Secondary Offering expected to commence immediately
following the completion of the Company's current Offering. Of the 27,500,000
Shares of common stock to be offered, 2,500,000 will be available only to
stockholders purchasing Shares through the Reinvestment Plan. The price per
Share and the other terms of the Secondary Offering, including the percentage of
gross proceeds payable to the managing dealer for selling commissions and
expenses in connection with the offering, payable to the Advisor for acquisition
fees and acquisition expenses and reimbursable to the Advisor for offering
expenses, will be substantially the same as those for the Company's current
Offering. The Company expects to use net proceeds from the Secondary Offering to
purchase additional Properties and, to a lesser extent, make Mortgage Loans.
As of January 19, 1999, the Company had received subscription proceeds
of $48,634,727 (4,863,472 Shares) from its Offering. As of January 19, 1998, net
proceeds to the Company from its Offering and capital contributions from the
Advisor, after deduction of selling commissions, marketing support and due
diligence expense reimbursement fees and organizational and offering expenses
totalled approximately $42,479,000. In addition, the Company received three
advances under the Line of Credit totalling $9,600,000. The Company has used net
proceeds from the current Offering and borrowings to invest approximately
$27,246,000 in two hotel Properties, to pay $5,000,000 as a deposit on three
additional hotel Properties and to pay approximately $3,740,000 in acquisition
fees and expenses, leaving approximately $16,093,000 available for investment in
Properties and Mortgage Loans.
The Company expects to use net proceeds it receives from the current
Offering, plus any net proceeds from the sale of Shares in the Secondary
Offering, to purchase additional Properties and, to a lesser extent, make
Mortgage Loans. In addition, the Company intends to borrow money to acquire
additional Properties, to invest in Mortgage Loans and Secured Equipment Leases,
and to pay certain related fees. The Company intends to encumber assets in
connection with such borrowing. The Company currently plans to obtain one or
more revolving Lines of Credit in an aggregate amount up to $45,000,000 and may,
in addition, also obtain permanent financing. The Line of Credit may be repaid
with offering proceeds, working capital or permanent financing. Although the
Board of Directors anticipates that the Line of Credit will initially be in an
amount initially of up to $45,000,000 and that the aggregate amount of any
permanent financing will not exceed 30% of the Company's total assets, the
maximum amount the Company may borrow, absent a satisfactory showing that a
higher level of borrowing is appropriate as approved by a majority of the
independent directors, is 300% of the Company's net assets.
On July 31, 1998, the Company entered into an initial Line of Credit
and security agreement with a bank to be used by the Company to acquire hotel
Properties. The initial Line of Credit provides that the Company will be able to
receive advances of up to $30,000,000 until July 30, 2003, with an annual review
to be performed by the bank to indicate that there has been no substantial
deterioration, in the bank's reasonable discretion, of the credit quality.
Interest expense on each advance shall be payable monthly, with all unpaid
interest and principal due no later than five years from the date of the
advance. Advances under the Line of Credit will bear interest at either (i) a
rate per annum equal to 318 basis points above the London Interbank Offered Rate
(LIBOR) or (ii) a rate per annum equal to 30 basis points above the bank's base
rate, whichever the Company selects at the time advances are made. In addition,
a fee of .5% per advance will be due and payable to the bank on funds as
advanced. Each advance made under the Line of Credit will be collateralized by
the assignment of rents and leases. In addition, the Line of Credit provides
that the Company will not be able to further encumber the applicable hotel
Property during the term of the advance without the bank's consent. The Company
will be required, at each closing, to pay all costs, fees and expenses arising
in connection with the Line of Credit. The Company must also pay the bank's
attorneys fees, subject to a maximum cap, incurred in connection with the Line
of Credit and each advance. As of December 31, 1998, the Company obtained three
advances totalling $9,600,000 relating to the Line of Credit. In connection with
the Line of Credit, the Company incurred a commitment
fee, legal fees, and closing costs of $68,762. The proceeds were used in
connection with the purchase of two hotel Properties and the commitment to
acquire three additional Properties. The Company has not yet received a
commitment for any permanent financing and there is no assurance that the
Company will obtain any permanent financing on satisfactory terms.
As of January 19, 1999, the Company had initial commitments to acquire
three hotel Properties. The acquisition of each of these Properties is subject
to the fulfillment of certain conditions, including, but not limited to, a
satisfactory environmental survey and property appraisal. In order to acquire
these Properties, the Company must obtain additional funds through the receipt
of additional offering proceeds and/or debt financing. In connection with these
agreements, the Company was required by the seller to obtain a letter of credit.
The letter of credit was collateralized by a $5,000,000 certificate of deposit.
In connection with the letter of credit, the Company incurred $22,500 in closing
costs. There can be no assurance that any or all of the conditions described
above will be satisfied or, if satisfied, that one or more of these Properties
will be acquired by the Company.
As of January 19, 1999, the Company had not entered into any
arrangements creating a reasonable probability a particular Mortgage Loan or
Secured Equipment Lease would be funded. The Company is presently negotiating to
acquire additional Properties, but as of January 19, 1999, the Company had not
acquired any such Properties or entered into any Mortgage Loans.
The Properties are, and are expected to be, leased on a long-term,
triple-net basis, meaning that tenants are generally required to pay all repairs
and maintenance, property taxes, insurance and utilities. Rental payments under
the leases are expected to exceed the Company's operating expenses. For these
reasons, no short-term or long-term liquidity problems associated with operating
the Properties are currently anticipated by management.
Until Properties are acquired, or Mortgage Loans are entered into, net
offering proceeds are held in short-term, highly liquid investments which
management believes to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate the Company's use of
these funds to acquire Properties at such time as Properties suitable for
acquisition are located or to fund Mortgage Loans. At December 31, 1998, the
Company had $13,228,923 invested in such short-term investments as compared to
$8,869,838 at December 31, 1997. The increase in the amount invested in
short-term investments reflects proceeds received from the sale of shares and
advances on the line of credit during the year ended December 31, 1998, net of
the investment in Properties. The remaining funds will be used primarily to
purchase additional Properties, to make Mortgage Loans, to pay offering and
acquisition expenses, to pay distributions to stockholders, to meet other
Company expenses and, in management's discretion, to create cash reserves.
During the years ended December 31, 1998 and 1997 and the period June
12, 1996 (date of inception) through December 31, 1996, affiliates of the
Company incurred on behalf of the Company $459,250, $638,274 and $555,812,
respectively, for certain organizational and offering expenses. In addition,
during the years ended December 31, 1998 and 1997, affiliates of the Company
incurred on behalf of the Company $392,863 and $26,149, respectively, for
certain acquisition expenses and $98,212 and $11,003, respectively, for certain
operating expenses. As of December 31, 1998, the Company owed the Advisor
$318,937 for such amounts, unpaid fees and administrative expenses. The Advisor
has agreed to pay or reimburse to the Company all organizational and offering
expenses in excess of three percent of gross offering proceeds. In addition, the
Advisor is required to reimburse the Company the amount by which total operating
expenses paid or incurred by the Company exceed, in any four consecutive fiscal
quarters, the greater of two percent of average invested assets or 25 percent of
net income (the "Expense Cap"). During the year ended December 31, 1998, the
Company's operating expenses exceeded the Expense Cap by $92,733; therefore the
Advisor reimbursed the Company such amount in accordance with the Advisory
Agreement.
During the years ended December 31, 1998 and 1997, the Company
generated cash from operations (which includes cash received, from tenants and
interest and other income received less cash paid for operating expenses and
interest expense) of $2,776,965 and $22,469, respectively. Based on cash from
operations, the Company declared distributions to its stockholders of $1,168,145
and $29,776 during the year ended December 31, 1998 and the period October 15,
1997 (the date operations commenced) through December 31, 1997, respectively. In
addition, on January 1, 1999, the Company declared distributions to stockholders
of record on January 1, 1999, totalling $251,967 ($0.0583 per Share), payable in
March 1999.
For the years ended December 31, 1998 and 1997, approximately 76
percent and 100 percent, respectively, of the distributions received by
stockholders were considered to be ordinary income and for the year ended
December 31, 1998, approximately 24 percent was considered a return of capital
for federal income tax purposes. No amounts distributed or to be distributed to
the stockholders as of January 19, 1999, 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.
Management believes that the Properties are adequately covered by
insurance. In addition, the Advisor has obtained contingent liability coverage
for the Company. This insurance policy is intended to reduce the Company's
exposure in the unlikely event a tenant's insurance policy lapses or is
insufficient to cover a claim relating to a Property.
The tenant of the two Properties owned by the Company as of January 19,
1999 has established capital expenditure reserve funds which will be used for
the replacement and renewal of furniture, fixtures and equipment relating to the
hotel Properties (the "FF&E Reserve"). Funds in the FF&E Reserve have been paid,
granted and assigned to the Company as additional rent. For the year ended
December 31, 1998, revenues from the FF&E Reserve totalled $98,099, of which
$15,692 is included in receivables and $82,407 is restricted cash. Due to the
fact that the Properties are leased on a long term, triple-net basis, management
does not believe that working capital reserves are necessary at this time.
Management has the right to cause the Company to maintain additional reserves
if, in their discretion, they determine such reserves are required to meet the
Company's working capital needs.
Management expects that the cash to be generated from operations will
be adequate to pay operating expenses and to make distributions to stockholders.
Results of Operations
No operations commenced until the Company received the minimum offering
proceeds of $2,500,000 on October 15, 1997. As of December 31, 1998, the Company
had acquired two Properties, each consisting of land, building and equipment,
and had entered into a long-term, triple-net lease agreement relating to each of
the Properties.
The Property leases provide for minimum base annual rental payments
ranging from approximately $1,209,000 to $1,651,800, which are payable in
monthly installments. The leases also provide that, commencing in the second
lease year, the annual base rent required under the terms of the leases will
increase. In addition to annual base rent, the tenant pays a percentage rent
computed as a percentage of the gross sales of the Property. No such rent was
owed during 1998. The Company's leases also require the establishment of the
FF&E Reserves. The FF&E Reserves established for the Properties at December 31,
1998 are owned by the Company and are thus reported as additional rent. In
connection therewith, the Company earned $1,316,599 (including $98,099 in FF&E
Reserve income) from the two Properties during the year ended December 31, 1998.
Because the Company has not yet acquired all of its Properties and the
Properties owned as of December 31, 1998 were owned for only a portion of the
year, revenues for the year ended December 31, 1998, represent only a portion of
revenues which the Company is expected to earn in future periods.
During the years ended December 31, 1998 and 1997, the Company earned
$638,862 and $46,071, respectively, in interest income from investments in money
market accounts and other short-term highly liquid investments. Interest income
is expected to increase as the Company invests subscription proceeds received in
the future in highly liquid investments pending investment in Properties and
Mortgage Loans. However, as net offering proceeds are invested in Properties and
used to make Mortgage Loans, the percentage of the Company's total revenues from
interest income from investments in money market accounts or other short term,
highly liquid investments is expected to decrease.
Operating expenses, including interest expense and depreciation and
amortization expense, were $996,522 and $23,219 for the years ended December 31,
1998 and 1997, respectively. Operating expenses increased during the year ended
December 31, 1998 as compared to the year ended December 31, 1997, primarily as
a result of the fact that the Company did not commence operations until October
15, 1997 and due to the fact that the Company acquired Properties and received
advances under the Line of Credit during 1998. Operating expenses, including
asset management fees, interest expense and depreciation and amortization
expense, represent only a portion of operating expenses which the Company is
expected to incur during a full year in which the Company owns Properties. The
dollar
amount of operating expenses is expected to increase as the Company acquires
additional Properties and invests in Mortgage Loans. However, general and
administrative expenses as a percentage of total revenues is expected to
decrease as the Company acquires additional Properties and invests in Mortgage
Loans.
During the year ended December 31, 1998, the Company reduced operating
expenses by $92,733 as a result of operating expenses reimbursed by the Advisor
due to such expenses exceeding the Expense Cap as defined in the Advisory
Agreement as described above in "Liquidity and Capital Resources".
The Company has made an election under Section 856(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), to be taxed as a REIT under the
Code beginning with its taxable year ended December 31, 1997. As a REIT, for
federal income tax purposes, the Company generally will not be subject to
federal income tax on income that it distributes to its stockholders. If the
Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax on its taxable income at regular corporate rates and will not
be permitted to qualify for treatment as a REIT for federal income tax purposes
for four years following the year during which qualification is lost. Such an
event could materially affect the Company's net earnings. However, the Company
believes that it is organized and operates in such a manner as to qualify for
treatment as a REIT for the years ended December 31, 1998 and 1997. In addition,
the Company intends to continue to operate the Company so as to remain qualified
as a REIT for federal income tax purposes.
The Company anticipates that its leases will be triple-net leases and
will contain provisions that management believes will mitigate the effect of
inflation. Such provisions will include clauses requiring the payment of
percentage rent based on certain gross sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease. Management expects that increases in gross sales volumes due to inflation
and real sales growth should result in an increase in rental income over time.
Continued inflation also may cause capital appreciation of the Company's
Properties. Inflation and changing prices, however, also may have an adverse
impact on the sales of the Properties and on potential capital appreciation of
the Properties.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," which is effective for the Company as of January 1, 1999. This SOP
requires start-up and organization costs to be expensed as incurred and also
requires previously deferred start-up costs to be recognized as a cumulative
effect adjustment in the statement of income. Management of the Company does not
believe that adoption of this SOP will have a material effect on the Company's
financial position or results of operations.
Market Risk
The Company is subject to interest rate risk through outstanding
balances on its variable rate Line of Credit. The Company may mitigate this risk
by paying down the Line of Credit from offering proceeds should interest rates
rise substantially.
Year 2000
The Year 2000 problem is the result of information technology systems
and embedded systems (products which are made with microprocessor (computer)
chips such as HVAC systems, physical security systems and elevators) using a
two-digit format, as opposed to four digits, to indicate the year. Such
information technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.
The Company does not have any information technology systems.
Affiliates of the Advisor provide all services requiring the use of information
technology systems pursuant to a management agreement with the Company. The
maintenance of embedded systems, if any, at the Company's Properties is the
responsibility of the tenants of the Properties in accordance with the terms of
the Company's leases. The Advisor and its affiliates have established a team
dedicated to reviewing the internal information technology systems used in the
operation of the Company, and the information technology and embedded systems
and the Year 2000 compliance plans of the Company's tenants, significant
suppliers, financial institutions and transfer agent.
The information technology infrastructure of the affiliates of the
Advisor consists of a network of personal computers and servers that were
obtained from major suppliers. The affiliates utilize various administrative and
financial software applications on that infrastructure to perform the business
functions of the Company. The inability of the Advisor and its affiliates to
identify and timely correct material Year 2000 deficiencies in the software
and/or infrastructure could result in an interruption in, or failure of, certain
of the Company's business activities or operations. Accordingly, the Advisor and
its affiliates have requested and are evaluating documentation from the
suppliers of the software and infrastructure of the affiliates regarding the
Year 2000 compliance of their products that are used in the business activities
or operations of the Company. The Advisor has not yet received sufficient
certifications to be assured that the suppliers have fully considered and
mitigated any potential material impact of the Year 2000 deficiencies. The costs
expected to be incurred by the Advisor and its affiliates to become Year 2000
compliant will be incurred by the Advisor and its affiliates; therefore, these
costs will have no impact on the Company's financial position or results of
operations.
The Company has material third party relationships with its tenants,
financial institutions and transfer agent. The Company depends on its tenants
for rents and cash flows, its financial institutions for availability of cash
and its transfer agent to maintain and track investor information. If any of
these third parties are unable to meet their obligations to the Company because
of the Year 2000 deficiencies, such a failure may have a material impact on the
Company. Accordingly, the Advisor has requested and is evaluating documentation
from the Company's tenants, financial institutions, and transfer agent relating
to their Year 2000 compliance plans. The Advisor has not yet received sufficient
certifications to be assured that the tenants, financial institutions, and
transfer agent have fully considered and mitigated any potential material impact
of the Year 2000 deficiencies. Therefore, the Advisor does not, at this time,
know of the potential costs to the Company of any adverse impact or effect of
any Year 2000 deficiencies by these third parties.
The Advisor currently expects that all year 2000 compliance testing and
any necessary remedial measures on the information technology systems used in
the business activities and operations of the Company will be completed prior to
June 30, 1999. Based on the progress the Advisor and its affiliates have made in
identifying and addressing the Company's Year 2000 issues and the plan and
timeline to complete the compliance program, the Advisor does not foresee
significant risks associated with the Company's Year 2000 compliance at this
time. Because the Advisor and its affiliates are still evaluating the status of
the systems used in business activities and operations of the Company and the
systems of the third parties with which the Company conducts its business, the
Advisor has not yet developed a comprehensive contingency plan and is unable to
identify "the most reasonably likely worst case scenario" at this time. As the
Advisor identifies significant risks related to the Company's Year 2000
compliance or if the Company's Year 2000 compliance program's progress deviates
substantially from the anticipated timeline, the Advisor will develop
appropriate contingency plans.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Market Risk for information related to quantitative
and qualitative disclosure about market risk.
Item 8. Financial Statements and Supplementary Data
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONTENTS
Page
----
Report of Independent Accountants 16
Financial Statements:
Consolidated Balance Sheets 17
Consolidated Statements of Earnings 18
Consolidated Statements of Stockholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 22
Report of Independent Accountants
To the Board of Directors
CNL Hospitality Properties, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) present fairly, in all material respects,
the financial position of CNL Hospitality Properties, Inc. (a Maryland
corporation) and its subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the two years ended
December 31, 1998 and 1997 and the period June 12, 1996 (date of inception)
through December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Orlando, Florida
January 19, 1999
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
------------ ------------
ASSETS
Land, building and equipment on operating leases,
less accumulated depreciation $28,368,383 $ --
Cash and cash equivalents 13,228,923 8,869,838
Restricted cash 82,407 --
Certificate of deposit 5,016,575 --
Receivables 28,257 --
Due from related party 7,500
--
Prepaid expenses 9,391 11,179
Organization costs, less accumulated amortization of
$5,221 and $833, respectively 19,752 19,167
Loan costs, less accumulated amortization of $12,980 78,282 --
Accrued rental income 44,160 --
Other assets 1,980,560 535,792
------------- -------------
$48,856,690 $9,443,476
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $9,600,000 $ --
Accounts payable and accrued expenses 333,726 16,305
Due to related parties 318,937 193,254
Security deposits 1,417,500 --
Rents paid in advance 3,489 --
Interest payable 66,547 --
------------- -------------
Total liabilities 11,740,199 209,559
------------- -------------
Commitments (Note 10)
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000 shares -- --
Excess shares, $.01 par value per share.
Authorized and unissued 63,000,000 shares -- --
Common stock, $.01 par value per share. Authorized
60,000,000 shares, issued and outstanding
4,321,908 and 1,152,540 shares, respectively 43,219 11,525
Capital in excess of par value 37,289,402 9,229,316
Accumulated distributions in excess of net earnings (216,130 ) (6,924 )
------------- -------------
Total stockholders' equity 37,116,491 9,233,917
------------- -------------
$48,856,690 $ 9,443,476
============= =============
See accompanying notes to consolidated financial statements.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
CONSOLIDATED STATEMENTS OF EARNINGS
June 12, 1996
(Date of
Inception)
through
December 31,
Year Ended
December 31,
1998 1997 1996
------------ ------------- ------------
Revenues:
Rental income from
operating leases $1,218,500 $ -- $ --
FF&E Reserve income 98,099 -- --
Interest and other income 638,862 46,071 --
------------ ------------ ------------
1,955,461 46,071 --
------------ ------------ ------------
Expenses:
Interest and loan cost
amortization 350,322 -- --
General operating and
administrative 167,951 22,386 --
Professional services 21,581 -- --
Asset management fees to
related party 68,114 -- --
Depreciation and amortization 388,554 833 --
------------ ------------ ------------
996,522 23,219 --
------------ ------------ ------------
Net Earnings $ 958,939 $ 22,852 $ --
============ ============ ============
Earnings Per Share of Common
Stock (Basic and Diluted) $ 0.40 $ 0.03 $ --
============ ============ ============
Weighted Average Number of
Shares of Common Stock
Outstanding 2,402,344 686,063 --
============ ============ ============
See accompanying notes to consolidated financial statements.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
Accumulated
Common stock distributions
------------------------ Capital in in excess
Number Par excess of of net
of Shares value par value earnings Total
----------- --------- ------------- -------------- -------------
Balance at June 12, 1996 -- $ -- $ -- $ -- $ --
Sale of common stock to
related party 20,000 200 199,800 -- 200,000
----------- --------- ------------- ------------- ------------
Balance at December 31, 1996 20,000 200 199,800
-- 200,000
Subscriptions received for common
stock through public offering
and distribution reinvestment
plan 1,132,540 11,325 11,314,077 -- 11,325,402
Stock issuance costs -- -- (2,284,561 ) -- (2,284,561 )
Net earnings -- -- -- 22,852 22,852
Distributions declared and paid
($.05 per share) -- -- -- (29,776 ) (29,776 )
----------- --------- ------------- ------------- ------------
Balance at
December 31, 1997 1,152,540 11,525 9,229,316 (6,924 ) 9,233,917
Subscriptions received for common
stock through public offering
and distribution reinvestment
plan 3,169,368 31,694 31,661,984 -- 31,693,678
Stock issuance costs -- -- (3,601,898 ) -- (3,601,898 )
Net earnings -- -- -- 958,939 958,939
Distributions declared and paid
($.46 per share) -- -- -- (1,168,145 ) (1,168,145 )
----------- --------- ------------- ------------- ------------
Balance at
December 31, 1998 4,321,908 $43,219 $37,289,402 $ (216,130 ) $37,116,491
=========== ========= ============= ============= ============
See accompanying notes to consolidated financial statements.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
June 12, 1996
(Date of
Inception)
Year Ended through
December 31, December 31,
1998 1997 1996
----------- ------------- -------------
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $2,665,171 $ -- $ --
Interest received 622,237 46,071 --
Cash paid for expenses (239,648 ) (23,602 ) --
Cash paid for interest (270,795 ) -- --
------------ ------------ -----------
Net cash provided by operating
activities 2,776,965 22,469 --
------------ ------------ -----------
Cash Flows from Investing Activities:
Additions to land, buildings and equipment on
operating leases (28,216,757 ) -- --
Investment in certificate of deposit (5,000,000 ) -- --
Increase in restricted cash (82,407 ) -- --
Increase in other assets (1,211,818 ) (463,470 ) --
------------ ------------ -----------
Net cash used in investing activities (34,510,982 ) (463,470 ) --
------------ ------------ -----------
Cash Flows from Financing Activities:
Reimbursement of acquisition, organization,
deferred offering and stock issuance
costs paid by related parties on
behalf of the Company (862,068 ) (1,003,031 ) (197,916 )
Sale of common stock to related party -- -- 200,000
Proceeds from borrowing on line of credit 9,600,000 -- --
Payment of loan costs (91,262 ) -- --
Subscriptions received from stockholders 31,693,678 11,325,402 --
Distributions to stockholders (1,168,145 ) (29,776 ) --
Payment of stock issuance costs (3,086,630 ) (986,338 ) --
Other 7,529 2,498 --
------------ ------------ -----------
Net cash provided by financing
activities 36,093,102 9,308,755 2,084
------------ ------------ -----------
Net Increase in Cash and Cash Equivalents 4,359,085 8,867,754 2,084
Cash and Cash Equivalents at Beginning
of Period 8,869,838 2,084 --
------------ ------------ -----------
Cash and Cash Equivalents at End of
Period $13,228,923 $8,869,838 $ 2,084
============ ============ ===========
See accompanying notes to consolidated financial statements.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
STATEMENTS OF CASH FLOWS - CONTINUED
June 12, 1996
(Date of
Inception)
Year Ended through
December 31, December 31,
1998 1997 1996
------------- ----------- -----------
Reconciliation of Net Earnings to Net Cash
Provided by Operating Activities:
Net earnings $ 958,939 $ 22,852 $ --
------------ ----------- -----------
Adjustments to reconcile
net earnings to net cash
provided by operating
activities:
Depreciation 384,166 -- --
Amortization 17,368 833 --
Increase in receivables (44,832 ) -- --
Decrease (increase) in prepaid
expenses 1,788 (11,179 ) --
Increase in accrued rental income (44,160 ) -- --
Increase in accounts payable
and other accrued expenses 71,869 6,141 --
Increase in due to related
parties, excluding reimbursement
of acquisition, organization,
deferred offering and stock
issuance costs paid on
behalf of the Company 10,838 3,822 --
Increase in security deposits 1,417,500 -- --
Increase in rents paid in advance 3,489 -- --
------------ ----------- -----------
Total adjustments 1,818,026 (383 ) --
------------ ----------- -----------
Net Cash Provided by Operating Activities $2,776,965 $ 22,469 $ --
============ =========== ===========
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain
acquisition, organization, deferred
offering and stock issuance costs
on behalf of the Company as
follows:
Acquisition costs $ 392,863 $ 26,149 $ --
Organization costs 4,973 -- 20,000
Deferred offering costs -- -- 535,812
Stock issuance costs 454,277 638,274 --
============ =========== ===========
$ 852,113 $ 664,423 $ 555,812
============ =========== ===========
See accompanying notes to consolidated financial statements.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Hospitality Properties, Inc.,
formerly known as CNL American Realty Fund, Inc., was organized in
Maryland on June 12, 1996. CNL Hospitality GP Corp. and CNL Hospitality
LP Corp. are wholly owned subsidiaries of CNL Hospitality Properties,
Inc., each of which were organized in Delaware in June 1998. CNL
Hospitality Partners, LP is a Delaware limited partnership formed in
June 1998. CNL Hospitality GP Corp. and CNL Hospitality LP Corp. are
the general and limited partners, respectively, of CNL Hospitality
Partners, LP. The term "Company" includes, unless the context otherwise
requires, CNL Hospitality Properties, Inc., CNL Hospitality Partners,
LP, CNL Hospitality GP Corp. and CNL Hospitality LP Corp.
The Company was formed primarily to acquire properties (the
"Properties") located across the United States to be leased on a
long-term, triple-net basis. The Company intends to invest the proceeds
from its public offering, after deducting offering expenses, in hotel
Properties to be leased to operators of national and regional limited
service, extended stay and full service hotel chains (the "Hotel
Chains") and in restaurant properties to be leased to operators of
selected national and regional fast-food, family-style and casual
dining restaurant chains (the "Restaurant Chains"). While the Company
may currently invest in both restaurant and hotel Properties,
management believes that over time the Company will focus its Property
investments exclusively on hotel Properties. The Company may also
provide mortgage financing (the "Mortgage Loans"). The Company also
intends to offer furniture, fixture and equipment financing ("Secured
Equipment Leases") to operators of Hotel Chains and Restaurant Chains.
The Company was a development stage enterprise from June 12, 1996
through October 15, 1997. Since operations had not begun, activities
through October 15, 1997 were devoted to organization of the Company.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of CNL Hospitality Properties, Inc.,
and its wholly owned subsidiaries, CNL Hospitality GP Corp. and CNL
Hospitality LP Corp., as well as the accounts of CNL Hospitality
Partners, LP. All significant intercompany balances and transactions
have been eliminated.
Real Estate and Lease Accounting - The Company records the acquisition
of land, buildings and equipment at cost, including acquisition and
closing costs. Land, buildings and equipment are leased to unrelated
third parties on a triple-net basis, whereby the tenant is generally
responsible for all operating expenses relating to the Property,
including property taxes, insurance, maintenance and repairs.
The Property leases are accounted for using the operating method. Under
the operating method, land, building and equipment leases are recorded
at cost, revenue is recognized as rentals are earned and depreciation
is charged to operations as incurred. Buildings and equipment are
depreciated on the straight-line method over their estimated useful
lives of 40 and seven years, respectively. When scheduled rentals vary
during the lease term, income is recognized on a straight-line basis so
as to produce a constant periodic rent over the lease term commencing
on the date the Property is placed in service. Accrued rental income
represents the aggregate amount of income recognized on a straight-line
basis in excess of scheduled rental payments to date.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
1. Significant Accounting Policies - Continued:
When the Properties or equipment are sold, the related cost and
accumulated depreciation, plus any accrued rental income, will be
removed from the accounts and any gain or loss from sale will be
reflected in income. Management reviews its Properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations.
Management determines whether an impairment in value has occurred by
comparing the estimated future undiscounted cash flows, including the
residual value of the Property, with the carrying cost of the
individual Property. If an impairment is indicated, the assets are
adjusted to their fair value.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds. Cash equivalents
are stated at cost plus accrued interest, which approximates market
value.
Cash accounts maintained on behalf of the Company in demand deposits at
commercial banks and money market funds may exceed federally insured
levels; however, the Company has not experienced any losses in such
accounts. The Company limits investment of temporary cash investments
to financial institutions with high credit standing; therefore,
management believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Organization Costs - Organization costs are amortized over five years
using the straight-line method.
Loan Costs - Loan costs incurred in connection with the Company's
$9,600,000 line of credit and a $5,000,000 letter of credit have been
capitalized and are being amortized over the term of the loan and
letter of credit commitment, respectively, using the straight-line
method which approximates the effective interest method.
Income Taxes - The Company has made an election to be taxed as a real
estate investment trust ("REIT") under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, and related regulations. The
Company generally will not be subject to federal corporate income taxes
on amounts distributed to stockholders, providing it distributes at
least 95 percent of its REIT taxable income and meets certain other
requirements for qualifying as a REIT. Accordingly, no provision for
federal income taxes has been made in the accompanying consolidated
financial statements. Notwithstanding the Company's qualification for
taxation as a REIT, the Company is subject to certain state taxes on
its income and property.
Earnings Per Share - Basic earnings per share are calculated based upon
net earnings (income available to common stockholders) divided by the
weighted average number of shares of common stock outstanding during
the reporting period. The Company does not have any dilutive potential
common shares.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform with the 1998
presentation. These reclassifications had no effect on stockholders'
equity or net earnings.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
1. Significant Accounting Policies - Continued:
Use of Estimates - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
New Accounting Standards - In April 1998, the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities," which will be
effective for the Company as of January 1, 1999. This SOP requires
start-up and organization costs to be expensed as incurred and also
requires previously deferred start-up costs to be recognized as a
cumulative effect adjustment in the statement of earnings. Management
of the Company does not believe that adoption of this SOP will have a
material effect on the Company's financial position or results of
operations.
2. Public Offerings:
The Company has a currently effective registration statement on Form
S-11 with the Securities and Exchange Commission for the sale of
16,500,000 shares of common stock (the "Offering"). Of the 16,500,000
shares of common stock, the Company has registered 1,500,000 shares
($15,000,000) which are available only to stockholders who elect to
participate in the Company's reinvestment plan. The Company has adopted
a reinvestment plan pursuant to which stockholders may elect to have
the full amount of their cash distributions from the Company reinvested
in additional shares of common stock of the Company. As of December 31,
1998, the Company had received subscription proceeds of $43,019,080
(4,301,908 shares), including $37,299 (3,730 shares) through the
reinvestment plan.
On November 23, 1998, 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 27,500,000 additional
shares of common stock ($275,000,000) (the "Secondary Offering") in an
offering expected to commence immediately following the completion of
the Company's current Offering. Of the 27,500,000 shares of common
stock to be offered, 2,500,000 will be available only to stockholders
purchasing shares through the reinvestment plan. The price per share
and the other terms of the Secondary Offering, including the percentage
of gross proceeds payable to (i) the managing dealer for selling
commissions and expenses in connection with the offering and (ii) the
advisor for acquisition fees and acquisition expenses will be
substantially the same as those for the Company's current Offering. The
Company expects to use net proceeds from the Secondary Offering to
purchase additional Properties and, to a lesser extent, make Mortgage
Loans.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
3. Land, Buildings and Equipment on Operating Leases:
The Company leases its land, buildings and equipment to a hotel
operator. The leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for
Leases," and have been classified as operating leases. The leases are
for 19 years, provide for minimum and contingent rentals and require
the tenant to pay executory costs. In addition, the tenant pays all
property taxes and assessments and carries insurance coverage for
public liability, property damage, fire and extended coverage. The
lease options allow the tenant to renew each of the leases for three
successive five-year periods subject to the same terms and conditions
of the initial leases. The leases also require the establishment of
capital expenditure reserve funds which will be used for the
replacement and renewal of furniture, fixtures and equipment relating
to the hotel Properties (the "FF&E Reserve"). Funds in the FF&E Reserve
have been earned, granted and assigned to the Company as additional
rent. For the year ended December 31, 1998, revenues from the FF&E
Reserve totalled $98,099, of which $15,692 is included in receivables
and $82,407 is restricted cash.
Land, buildings and equipment on operating leases consisted of the
following at:
December 31, December 31,
1998 1997
------------- -------------
Land $2,926,976 $ --
Buildings 23,476,442 --
Equipment 2,349,131 --
-------------- -------------
28,752,549 --
Less accumulated depreciation (384,166 ) --
============== =============
$28,368,383 $ --
============== =============
The leases provide an increase in the minimum annual rent at a
predetermined interval during the terms of the leases. Such amount is
recognized on a straight-line basis over the terms of the leases
commencing on the date the Property is placed in service. For the year
ended December 31, 1998, the Company recognized $44,160 of such rental
income.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at December 31, 1998:
1999 $2,889,162
2000 2,928,895
2001 2,928,895
2002 2,928,895
2003 2,928,895
Thereafter 40,028,238
===============
$54,632,980
===============
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
3. Land, Buildings and Equipment on Operating Leases - Continued:
Since leases are renewable at the option of the tenant, the above table
only presents future minimum lease payments due during the initial
lease terms. In addition, this table does not include any amounts for
future contingent rents which may be received on the leases based on a
percentage of the tenant's gross sales.
4. Other Assets:
Other assets as of December 31, 1998 and 1997 were $1,980,560 and
$535,792, respectively, which consisted of acquisition fees and
miscellaneous acquisition expenses that will be allocated to future
Properties.
5. Line of Credit:
On July 31, 1998, the Company entered into an initial revolving line of
credit and security agreement with a bank to be used by the Company to
acquire hotel Properties. The line of credit provides that the Company
may receive advances of up to $30,000,000 until July 30, 2003, with an
annual review to be performed by the bank to indicate that there has
been no substantial deterioration, in the bank's reasonable discretion,
of the credit quality. Interest expense on each advance shall be
payable monthly, with all unpaid interest and principal due no later
than five years from the date of the advance. Advances under the line
of credit will bear interest at either (i) a rate per annum equal to
318 basis points above the London Interbank Offered Rate (LIBOR) or
(ii) a rate per annum equal to 30 basis points above the bank's base
rate, whichever the Company selects at the time advances are made. In
addition, a fee of .5% per advance will be due and payable to the bank
on funds as advanced. Each advance made under the line of credit will
be collateralized by the assignment of rents and leases. In addition,
the line of credit provides that the Company will not be able to
further encumber the applicable hotel Property during the term of the
advance without the bank's consent. The Company will be required, at
each closing, to pay all costs, fees and expenses arising in connection
with the line of credit. The Company must also pay the bank's attorneys
fees, subject to a maximum cap, incurred in connection with the line of
credit and each advance.
As of December 31, 1998, the Company had obtained three advances
totalling $9,600,000 relating to the line of credit. In connection with
the line of credit, the Company incurred a commitment fee, legal fees
and closing costs of $68,762. The proceeds were used in connection with
the purchase of two hotel Properties and the commitment to acquire
three additional Properties (see Note 10). The interest rate of the
line of credit at December 31, 1998 was 8.05% (bank's base rate plus 30
basis points).
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
6. Stock Issuance Costs:
The Company has incurred certain expenses of its Offering, including
commissions, marketing support and due diligence expense reimbursement
fees, filing fees, legal, accounting, printing and escrow fees, which
have been deducted from the gross proceeds of the Offering. Preliminary
costs incurred prior to raising capital were advanced by an affiliate
of the Company, CNL Hospitality Advisors, Inc., (formerly known as CNL
Real Estate Advisors, Inc.) (the "Advisor"). The Advisor has agreed to
pay all organizational and offering expenses (excluding commissions and
marketing support and due diligence expense reimbursement fees) which
exceed three percent of the gross Offering proceeds received from the
sale of shares of the Company in connection with the Offering.
During the years ended December 31, 1998 and 1997, the Company incurred
$3,606,871 and $2,304,561, respectively, in organizational and offering
costs, including $2,535,494 and $906,032, respectively, in commissions
and marketing support and due diligence expense reimbursement fees (see
Note 8). Of these amounts $3,601,898 and $2,284,561, respectively, have
been treated as stock issuance costs and $4,973 and $20,000,
respectively, have been treated as organization costs. The stock
issuance costs have been charged to stockholders' equity subject to the
three percent cap described above.
7. Distributions:
For the years ended December 31, 1998 and 1997, approximately 76
percent and 100 percent, respectively, of the distributions paid to
stockholders were considered ordinary income, and for the year ended
December 31, 1998, approximately 24 percent was considered a return of
capital to stockholders for federal income tax purposes. No amounts
distributed to the stockholders for the years ended December 31, 1998
and 1997 are required to be or have been treated by the Company as a
return of capital for purposes of calculating the stockholders' return
on their invested capital.
8. Related Party Transactions:
Certain affiliates of the Company received fees and compensation in
connection with the Offering, and the acquisition, management and sale
of the assets of the Company.
On June 12, 1996 (date of inception), CNL Fund Advisors, Inc.
contributed $200,000 in cash to the Company and became its sole
stockholder. In February 1997, the Advisor purchased the Company's
outstanding common stock from CNL Fund Advisors, Inc. and became the
sole stockholder of the Company.
During the years ended December 31, 1998 and 1997, the Company incurred
$2,377,026 and $849,405, respectively, in selling commissions due to
CNL Securities Corp. for services in connection with the Offering. A
substantial portion of these amounts ($2,200,516 and $792,832,
respectively) were or will be paid by CNL Securities Corp. as
commissions to other broker-dealers.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
8. Related Party Transactions - Continued:
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of
the total amount raised from the sale of shares, a portion of which may
be reallowed to other broker-dealers. During the years ended December
31, 1998 and 1997, the Company incurred $158,468 and $56,627,
respectively, of such fees, the majority of which were reallowed to
other broker-dealers and from which all bona fide due diligence
expenses were paid.
CNL Securities Corp. will also receive, in connection with the
Offering, a soliciting dealer servicing fee payable annually by the
Company beginning on December 31 of the year following the year in
which the Offering is completed in the amount of 0.20% of the invested
capital of the stockholders that invest in the Company through this
Offering. CNL Securities Corp. in turn may reallow all or a portion of
such fee to soliciting dealers whose clients held shares on such date.
As of December 31, 1998, no such fees had been incurred.
The Advisor is entitled to receive acquisition fees for services in
identifying the Properties and structuring the terms of the acquisition
and leases of the Properties and Mortgage Loans equal to 4.5% of the
gross proceeds of the Offering, loan proceeds from permanent financing
and amounts outstanding on the line of credit, if any, at the time of
listing, but excluding that portion of the permanent financing used to
finance Secured Equipment Leases. During the years ended December 31,
1998 and 1997, the Company incurred $1,426,216 and $509,643,
respectively, of such fees. Such fees are included in land, buildings
and equipment on operating leases and other assets.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor will receive a monthly asset management
fee of one-twelfth of 0.60% of the Company's real estate asset value
and the outstanding principal balance of any Mortgage Loans as of the
end of the preceding month. The management fee, which will not exceed
fees which are competitive for similar services in the same geographic
area, may or may not be taken, in whole or in part as to any year, in
the sole discretion of the Advisor. All or any portion of the
management fee not taken as to any fiscal year shall be deferred
without interest and may be taken in such other fiscal year as the
Advisor shall determine. During the year ended December 31, 1998, the
Company incurred $68,114 of such fees. No such fees were incurred by
the Company for 1997.
The Company incurs operating expenses which, in general, are those
expenses relating to administration of the Company on an ongoing basis.
Pursuant to the advisory agreement described above, the Advisor is
required to reimburse the Company the amount by which the total
operating expenses paid or incurred by the Company exceed in any four
consecutive fiscal quarters, the greater of two percent of average
invested assets or 25 percent of net income (the "Expense Cap"). During
the year ended December 31, 1998, the Company's operating expenses
exceeded the Expense Cap by $92,733; therefore the Advisor reimbursed
the Company such amount in accordance with the advisory agreement.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
8. 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 Offering), on
a day-to-day basis. The expenses incurred for these services were
classified as follows:
June 12, 1996
(Date of
Inception)
through
December 31,
Year Ended
December 31,
1998 1997 1996
--------------- ------------- --------------
Deferred offering costs $ -- $ -- $28,665
Stock issuance costs 494,729 185,335 --
Land, buildings and equipment
on operating leases and
other assets 9,084 -- --
General operating and
administrative expenses 140,376 6,889 --
============= ============ ============
$644,189 $192,224 $28,665
============= ============ ============
The amounts due to related parties consisted of the following at
December 31:
1998 1997
------------ ------------
Due to CNL Securities Corp.:
Commissions $66,063 $100,709
Marketing support and due diligence
expense reimbursement fee 4,404 7,268
------------ ------------
70,467 107,977
------------ ------------
Due to the Advisor:
Expenditures incurred on behalf
of the Company and for
accounting, administrative and
acquisition services 110,496 39,105
Acquisition fees 137,974 46,172
------------ ------------
248,470 85,277
============ ============
$318,937 $193,254
============ ============
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
(formerly known as CNL American Realty Fund, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
9. Concentration of Credit Risk:
All of the Company's rental income for the year ended December 31, 1998
was earned from one lessee, STC Leasing Associates, LLC, which operates
each of the two Properties as a Residence Inn by Marriott. Although the
Company intends to acquire Properties located in various states and
regions and to carefully screen its tenants in order to reduce risks of
default, failure of this Hotel Chain or lessee could significantly
impact the results of operations of the Company. However, management
believes that the risk of such a default is reduced due to the
essential or important nature of these Properties for the ongoing
operations of the lessee.
It is expected that the percentage of total rental income contributed
by this lessee will decrease as additional Properties are acquired and
leased in subsequent years.
10. Commitments:
In July 1998, the Company entered into agreements to acquire three
additional hotel Properties for an anticipated aggregate purchase price
of approximately $100 million. In connection with these agreements, the
Company was required by the seller to obtain a letter of credit. The
letter of credit is collateralized by a $5,000,000 certificate of
deposit.
11. Subsequent Events:
During the period January 1, 1999 through January 19, 1999, the Company
received subscription proceeds for an additional 561,565 shares
($5,615,647) of common stock.
On January 1, 1999, the Company declared distributions totalling
$251,967 or $0.0583 per share of common stock, payable in March 1999,
to stockholders of record on January 1, 1999.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement to be filed with the Commission no
later than April 30, 1999.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement to be filed with the Commission no
later than April 30, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement to be filed with the Commission no
later than April 30, 1999.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement to be filed with the Commission no
later than April 30, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Consolidated Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Earnings for the years ended
December 31, 1998 and 1997, and the period June 12, 1996 (date
of inception) through December 31, 1996
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998 and 1997, and the period June 12, 1996
(date of inception) through December 31, 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997, and the period June 12, 1996 (date
of inception) through December 31, 1996
Notes to Consolidated Financial Statements
2.
Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1998
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1998
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 CNL American Realty Fund, Inc. Amended and Restated Articles of
Incorporation (Included as Exhibit 3.4 to the 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. Bylaws (Included as Exhibit 3.3 to the
1996 Form S-11 and incorporated herein by reference.)
4.1 Reinvestment Plan (Included as Exhibit 4.4 to the 1996 Form S-11 and
incorporated herein by reference.)
10.1 Advisory Agreement, dated as of July 10, 1998, between CNL Hospitality
Properties, Inc. and CNL Hospitality Advisors, Inc. (formerly CNL Real
Estate Advisors, Inc.) (Filed herewith.)
10.2 Indemnification Agreement between CNL Hospitality Properties, Inc. and
C. Brian Strickland dated October 31, 1998. Each of the following
director and/or officer 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, John T. Walker,
Jeanne A. Wall and Lynn E. Rose dated July 9, 1997, John A. Griswold
dated January 7, 1999 and Charles E. Adams and Craig M. McAllaster
dated February 10, 1999 (Filed herewith.)
10.3 Agreement of Limited Partnership of CNL Hospitality Partners, LP
(Included 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 (Included 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 (Included 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) (Included 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) (Included 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, LLP, dated August 1, 1998, relating to the Residence Inn -
Gwinnett Place (Included 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) (Included 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 (Included as Exhibit 10.17 to the 1996 Form S-11 and
incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) No reports on Form 8-K were filed during the period October 1, 1998
through December 31, 1998.
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 19th day of
February, 1999.
CNL HOSPITALITY PROPERTIES, INC.
By: ROBERT A. BOURNE
President
/s/ Robert A. Bourne
--------------------
ROBERT A. BOURNE
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ James M. Seneff, Jr. Chairman of the Board and Chief February 19, 1999
- ---------------------------- Executive Officer (Principal
James M. Seneff, Jr. Executive Officer)
/s/ Robert A. Bourne Director and President February 19, 1999
- ---------------------------
Robert A. Bourne
/s/ C. Brian Strickland Vice President, Finance & February 19, 1999
- --------------------------- Administration (Principal Financial
C. Brian Strickland and Accounting Officer)
/s/ Charles E. Adams Independent Director February 19, 1999
- ---------------------------
Charles E. Adams
/s/ John A. Griswold Independent Director February 19, 1999
- ----------------------------
John A. Griswold
/s/ Craig M. McAllaster Independent Director February 19, 1999
- ----------------------------
Craig M. McAllaster
CNL HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
Costs Capitalized
Subsequent
To Acquisition
Initial Cost ------------------
Encum- --------------------------------- Improve- Carrying
brances Land Buildings Equipment ments Costs
------- ---- --------- --------- ----- -----
Properties the Company
has Invested in Under
Operating Leases:
Residence Inns by Marriott:
Atlanta, Georgia (b) $1,907,479 $13,459,040 $1,234,689 $ - $ -
Duluth, Georgia (c) 1,019,497 10,017,402 1,114,442 - -
---------- ----------- ---------- ------- -------
$2,926,976 $23,476,442 $2,349,131 $ - $ -
========== =========== ========== ======= =======
Life
on Which
Depreciation
Gross Amount at Which Carried in Latest
at Close of Period (d) Date Income
------------------------------------ Accumulated of Con- Date Statement is
Land Buildings Equipment Total Depreciation struction Acquired Computed
---- --------- --------- ----- ------------ --------- -------- --------
$1,907,479 $13,459,040 $1,234,689 $16,601,208 $213,483 1997 07/98 (e)
1,019,497 10,017,402 1,114,442 12,151,341 170,683 1997 07/98 (e)
- ---------- ----------- ---------- ----------- --------
$2,926,976 $23,476,442 $2,349,131 $28,752,549 $384,166
========== =========== ========== =========== ========
F-1
CNL HOSPITALITY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(a) Transactions in real estate and accumulated depreciation during 1998
and 1997 are summarized as follows:
Accumulated
Cost (d) Depreciation
-------- ------------
Properties the Company
has Invested in Under
Operating Leases:
Balance, December 31, 1997 $ - $ -
Acquisitions 28,752,549 384,166
----------- --------
Balance, December 31, 1998 $28,752,549 $384,166
=========== ========
(b) In connection with the purchase of this Property, the Company has
obtained a loan in the amount of $6,000,000 collateralized by the
assignment of the rents and leases related to the Property.
(c) In connection with the purchase of this Property, the Company has
obtained a loan in the amount of $3,600,000 collateralized by the
assignment of the rents and leases related to the Property.
(d) As of December 31, 1998, the aggregate cost of the Properties owned by
the Company and its subsidiaries for federal income tax purposes is
$28,752,549. All of the leases are treated as operating leases for
federal income tax purposes.
(e) Depreciation expense is computed for buildings and equipment based upon
estimated lives of 40 and seven years, respectively.
(f) During the years ended December 31, 1998 and 1997, the Company incurred
acquisition fees totalling $1,426,216 and $509,643, respectively, paid
to the Advisor. Acquisition fees are included in land and buildings on
operating leases and other assets at December 31, 1998 and 1997.
F-2
EXHIBITS
EXHIBIT INDEX
Exhibit Number
- --------------
3.1 CNL American Realty Fund, Inc. Amended and Restated Articles of
Incorporation (Included as Exhibit 3.4 to the 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. Bylaws (Included as Exhibit 3.3 to the
1996 Form S-11 and incorporated herein by reference.)
4.1 Reinvestment Plan (Included as Exhibit 4.4 to the 1996 Form S-11 and
incorporated herein by reference.)
10.1 Advisory Agreement, dated as of July 10, 1998, between CNL Hospitality
Properties, Inc. and CNL Hospitality Advisors, Inc. (formerly CNL Real
Estate Advisors, Inc.) (Filed herewith.)
10.2 Indemnification Agreement between CNL Hospitality Properties, Inc. and
C. Brian Strickland dated October 31, 1998. Each of the following
director and/or officer 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, John T. Walker,
Jeanne A. Wall and Lynn E. Rose dated July 9, 1997, John A. Griswold
dated January 7, 1999 and Charles E. Adams and Craig M. McAllaster
dated February 10, 1999 (Filed herewith.)
10.3 Agreement of Limited Partnership of CNL Hospitality Partners, LP
(Included 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 (Included 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 (Included 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) (Included 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) (Included 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, LLP, dated August 1, 1998, relating to the Residence Inn -
Gwinnett Place (Included 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) (Included 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 (Included as Exhibit 10.17 to the 1996 Form S-11 and
incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)