FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the three month period ended March 31, 2004 |
|
OR |
|
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
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Commission file number 0-24097
CNL Hospitality Properties, Inc.
(Exact name of registrant as specified in its charter)
| Maryland (State or other jurisdiction of incorporation or organization) |
59-3396369 (I.R.S. Employer Identification No.) |
|
450 South Orange Avenue Orlando, Florida (Address of principal executive offices) |
32801 (Zip Code) |
|
(407) 650-1000 Registrant's telephone number (including area code) |
||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o
The number of shares of common stock outstanding as of April 30, 2004 was 303,080,172.
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
INDEX
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Page |
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|---|---|---|---|---|---|---|
| Part I. | Financial Information | 1 | ||||
Item 1. |
Financial Statements |
1 |
||||
Condensed Consolidated Balance Sheets |
1 |
|||||
Condensed Consolidated Statements of Income |
2 |
|||||
Condensed Consolidated Statements of Stockholders' Equity |
3 |
|||||
Condensed Consolidated Statements of Cash Flows |
5 |
|||||
Notes to Condensed Consolidated Financial Statements |
6 |
|||||
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
12 |
||||
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
26 |
||||
Item 4. |
Controls and Procedures |
27 |
||||
Part II. |
Other Information |
29 |
||||
Item 1. |
Legal Proceedings |
29 |
||||
Item 2. |
Changes in Securities. Use of Proceeds and Issuer Purchases of Equity Securities |
29 |
||||
Item 3. |
Defaults Upon Senior Securities |
29 |
||||
Item 4. |
Submission of Matters to a Vote of Security Holders |
29 |
||||
Item 5. |
Other Information |
29 |
||||
Item 6. |
Exhibits and Reports on Form 8-K |
30 |
||||
Signatures |
41 |
|||||
Certifications |
||||||
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands except per share data)
| |
March 31, 2004 |
December 31, 2003 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||||
| Hotel and resort properties, less accumulated depreciation of $172,418 and $142,197, respectively | $ | 3,350,501 | $ | 3,357,376 | ||||||
| Investments in unconsolidated subsidiaries | 28,350 | 30,714 | ||||||||
| Real estate held for sale | 29,550 | 29,550 | ||||||||
| Cash and cash equivalents | 589,951 | 147,694 | ||||||||
| Restricted cash | 68,566 | 60,105 | ||||||||
| Receivables, net | 79,760 | 55,410 | ||||||||
| Goodwill and other intangible assets, net | 82,947 | 82,997 | ||||||||
| Prepaid expenses and other assets | 180,252 | 68,388 | ||||||||
| Loan costs, less accumulated amortization of $7,382 and $5,881, respectively | 19,271 | 18,918 | ||||||||
| Deferred income taxes, less valuation allowance of $13,796 and $10,098, respectively | 27,250 | 25,826 | ||||||||
| $ | 4,456,398 | $ | 3,876,978 | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||||
| Mortgages payable and accrued interest | $ | 1,559,456 | $ | 1,499,988 | ||||||
| Other notes payable | 143,996 | 150,289 | ||||||||
| Line of credit | 24,073 | 24,073 | ||||||||
| Accounts payable and accrued expenses | 82,176 | 68,909 | ||||||||
| Other liabilities | 15,238 | 11,847 | ||||||||
| Due to related parties | 18,536 | 11,570 | ||||||||
| Security deposits and unearned revenues | 14,543 | 12,443 | ||||||||
| Total liabilities | 1,858,018 | 1,779,119 | ||||||||
| Commitments and contingencies | ||||||||||
| Minority interests | 153,382 | 157,118 | ||||||||
| Stockholders' equity: | ||||||||||
| Preferred stock, without par value. | ||||||||||
| Authorized and unissued 3,000 shares | — | — | ||||||||
| Excess shares, $.01 par value per share. | ||||||||||
| Authorized and unissued 63,000 shares | — | — | ||||||||
| Common stock, $.01 par value per share. | ||||||||||
| Authorized 450,000 shares; issued 305,274 and 243,756 shares, respectively; outstanding 303,080 and 242,243 shares, respectively | 3,032 | 2,424 | ||||||||
| Capital in excess of par value | 2,717,221 | 2,164,275 | ||||||||
| Accumulated distributions in excess of net income | (269,995 | ) | (222,334 | ) | ||||||
| Accumulated other comprehensive loss | (5,260 | ) | (3,624 | ) | ||||||
| Total stockholders' equity | 2,444,998 | 1,940,741 | ||||||||
| $ | 4,456,398 | $ | 3,876,978 | |||||||
See accompanying notes to condensed consolidated financial statements.
1
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands)
| |
Quarter Ended March 31, |
|||||||
|---|---|---|---|---|---|---|---|---|
| |
2004 |
2003 |
||||||
| Revenues: | ||||||||
| Room | $ | 152,179 | $ | 60,232 | ||||
| Food and beverage | 49,792 | 17,751 | ||||||
| Other hotel and resort operating departments | 13,976 | 5,778 | ||||||
| Rental income from operating leases | 9,116 | 7,816 | ||||||
| Credit enhancement revenue | 6,376 | 2,745 | ||||||
| Interest and other income | 2,347 | 1,316 | ||||||
| 233,786 | 95,638 | |||||||
| Expenses: | ||||||||
| Room | 36,612 | 13,616 | ||||||
| Food and beverage | 36,824 | 12,362 | ||||||
| Other hotel and resort operating departments | 8,246 | 3,873 | ||||||
| Property operations | 45,814 | 16,204 | ||||||
| Repairs and maintenance | 10,552 | 3,883 | ||||||
| Hotel and resort management fees | 7,158 | 2,751 | ||||||
| Sales and marketing | 15,481 | 5,815 | ||||||
| Interest and loan cost amortization | 26,118 | 8,504 | ||||||
| General operating and administrative | 4,997 | 2,135 | ||||||
| Asset management fees to related party | 4,946 | 2,343 | ||||||
| Depreciation and amortization | 30,890 | 12,703 | ||||||
| 227,638 | 84,189 | |||||||
| Income before equity in losses of unconsolidated subsidiaries, minority interest and benefit from income taxes | 6,148 | 11,449 | ||||||
Equity in losses of unconsolidated subsidiaries |
(2,635 |
) |
(3,693 |
) |
||||
| Minority interest | (2,252 | ) | (1,319 | ) | ||||
Income from continuing operations before benefit from income taxes |
1,261 |
6,437 |
||||||
Benefit from income taxes |
1,120 |
— |
||||||
Income from continuing operations |
2,381 |
6,437 |
||||||
Income from discontinued operations |
589 |
— |
||||||
Net income |
$ |
2,970 |
$ |
6,437 |
||||
Income per share of common stock (basic and diluted): |
||||||||
| Continuing operations | $ | 0.009 | $ | 0.048 | ||||
| Discontinued operations | 0.002 | — | ||||||
| $ | 0.011 | $ | 0.048 | |||||
| Weighted average number of shares of common stock outstanding: | ||||||||
| Basic and diluted | 271,413 | 133,837 | ||||||
See accompanying notes to condensed consolidated financial statements.
2
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Quarter Ended March 31, 2004 and year Ended December 31, 2003
(UNAUDITED)
(in thousands, except per share data)
| |
Common Stock |
|
|
|
|
|
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
|
Accumulated distributions in excess of net income |
Accumulated other comprehensive loss |
|
|
||||||||||||||||
| |
Number of shares |
Par value |
Capital in excess of par value |
Total |
Comprehensive income |
||||||||||||||||
| Balance at December 31, 2002 | 126,009 | $ | 1,260 | $ | 1,115,745 | $ | (98,366 | ) | $ | (4,316 | ) | $ | 1,014,323 | ||||||||
Subscriptions received for common stock through public offerings and distribution reinvestment plan |
116,950 |
1,171 |
1,168,325 |
— |
— |
1,169,496 |
$ |
— |
|||||||||||||
Retirement of common stock |
(716 |
) |
(7 |
) |
(6,584 |
) |
— |
— |
(6,591 |
) |
— |
||||||||||
Stock issuance costs |
— |
— |
(113,211 |
) |
— |
— |
(113,211 |
) |
— |
||||||||||||
Net income |
— |
— |
— |
5,993 |
— |
5,993 |
5,993 |
||||||||||||||
Current period adjustment to recognize change in value of cash flow hedges |
— |
— |
— |
— |
554 |
554 |
554 |
||||||||||||||
Current period adjustment to recognize change in value of foreign operations investment hedge |
— |
— |
— |
— |
(791 |
) |
(791 |
) |
(791 |
) |
|||||||||||
Translation adjustment from foreign operations |
— |
— |
— |
— |
929 |
929 |
929 |
||||||||||||||
| Total comprehensive income | — | — | — | — | — | — | $ | 6,685 | |||||||||||||
Distributions declared and paid ($.78 per share) |
— |
— |
— |
(129,961 |
) |
— |
(129,961 |
) |
|||||||||||||
| Balance at December 31, 2003 | 242,243 | $ | 2,424 | $ | 2,164,275 | $ | (222,334 | ) | $ | (3,624 | ) | $ | 1,940,741 | ||||||||
See accompanying notes to condensed consolidated financial statements.
3
| |
Common Stock |
|
|
|
|
|
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
|
Accumulated distributions in excess of net income |
Accumulated other comprehensive loss |
|
|
||||||||||||||||
| |
Number of shares |
Par value |
Capital in excess of par value |
Total |
Comprehensive income |
||||||||||||||||
| Balance at December 31, 2003 | 242,243 | $ | 2,424 | $ | 2,164,275 | $ | (222,334 | ) | $ | (3,624 | ) | $ | 1,940,741 | ||||||||
Subscriptions received for common stock through public offerings and distribution reinvestment plan |
61,518 |
615 |
614,583 |
— |
— |
615,198 |
$ |
— |
|||||||||||||
Retirement of common stock |
(681 |
) |
(7 |
) |
(6,260 |
) |
— |
— |
(6,267 |
) |
— |
||||||||||
Stock issuance costs |
— |
— |
(55,377 |
) |
— |
— |
(55,377 |
) |
— |
||||||||||||
Net income |
— |
— |
— |
2,970 |
— |
2,970 |
2,970 |
||||||||||||||
Current period adjustment to recognize change in value of cash flow hedges |
— |
— |
— |
— |
(1,958 |
) |
(1,958 |
) |
(1,958 |
) |
|||||||||||
Current period adjustment to Recognize change in value of foreign operations investment hedge |
— |
— |
— |
— |
791 |
791 |
791 |
||||||||||||||
Translation adjustment from foreign operations |
— |
— |
— |
— |
(469 |
) |
(469 |
) |
(469 |
) |
|||||||||||
| Total comprehensive income | — | — | — | — | — | — | $ | 1,334 | |||||||||||||
Distributions declared and paid ($.19 per share) |
— |
— |
— |
(50,631 |
) |
— |
(50,631 |
) |
|||||||||||||
| Balance at March 31, 2004 | 303,080 | $ | 3,032 | $ | 2,717,221 | $ | (269,995 | ) | $ | (5,260 | ) | $ | 2,444,998 | ||||||||
See accompanying notes to condensed consolidated financial statements.
4
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
| |
Quarter Ended March 31, |
||||||||
|---|---|---|---|---|---|---|---|---|---|
| |
2004 |
2003 |
|||||||
| Net cash provided by operating activities | $ | 41,107 | $ | 23,321 | |||||
Cash flows from investing activities: |
|||||||||
| Additions to hotel properties | (23,870 | ) | (156,514 | ) | |||||
| Investment in unconsolidated subsidiaries | (1,791 | ) | — | ||||||
| Deposit on property and other investments | (81,975 | ) | (2,674 | ) | |||||
| Increase in restricted cash | (8,461 | ) | (4,135 | ) | |||||
| Increase in other assets | (33,306 | ) | (12,711 | ) | |||||
Net cash used in investing activities |
(149,403 |
) |
(176,034 |
) |
|||||
Cash flows from financing activities: |
|||||||||
| Repayments on line of credit | — | (2 | ) | ||||||
| Payment of loan costs | (1,875 | ) | (3,678 | ) | |||||
| Proceeds from mortgage loans | 61,629 | 145,000 | |||||||
| Proceeds from other notes payable net of repayments | (6,213 | ) | 525 | ||||||
| Principal payments on mortgage loans | (2,031 | ) | (510 | ) | |||||
| Subscriptions received from stockholders | 615,198 | 168,310 | |||||||
| Distributions to stockholders | (50,631 | ) | (25,396 | ) | |||||
| Distributions to minority interest net of contributions | (3,880 | ) | (34,993 | ) | |||||
| Retirement of common stock | (6,267 | ) | (1,140 | ) | |||||
| Payment of stock issuance costs | (55,377 | ) | (17,116 | ) | |||||
Net cash provided by financing activities |
550,553 |
231,000 |
|||||||
Net increase in cash and cash equivalents |
442,257 |
78,287 |
|||||||
Cash and cash equivalents at beginning of period |
147,694 |
53,741 |
|||||||
Cash and cash equivalents at end of period |
$ |
589,951 |
$ |
132,028 |
|||||
Supplemental schedule of non-cash investing activities: |
|||||||||
Amounts incurred but not paid for construction in progress |
$ |
6,601 |
$ |
109 |
|||||
Property contributed from minority interest partner in exchange for partnership interest |
$ |
— |
$ |
75,408 |
|||||
Supplemental schedule of non-cash financing activities: |
|||||||||
Distributions declared but not paid to minority interest |
$ |
1,679 |
$ |
98 |
|||||
See accompanying notes to condensed consolidated financial statements.
5
CNL HOSPITALITY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Quarters Ended March 31, 2004 and 2003
1. Organization:
CNL Hospitality Properties, Inc. is a corporation which was organized pursuant to the laws of the State of Maryland on June 12, 1996 and operates for federal income tax purposes as a real estate investment trust (a "REIT"). The term "Company" includes, unless the context otherwise requires, CNL Hospitality Properties, Inc., CNL Hospitality Partners, LP, CNL Hospitality GP Corp., CNL Hospitality LP Corp., RFS Partnership, L.P., CNL Rose Acquisition Corp., CNL Rose GP Corp., each of their subsidiaries and several consolidated partnerships and joint ventures. Various other wholly or majority owned subsidiaries are expected to be formed in the future, primarily for purposes of acquiring or developing hotel and resort properties ("Properties").
As of March 31, 2004, the Company owned 106 Properties directly and 24 Properties through equity investment interests. The Company leases most of its Properties to taxable REIT subsidiary ("TRS") entities and contracts with third-party hotel and resort management companies to operate these Properties. Hotel and resort operating revenues and expenses for these Properties are included in the consolidated results of operations. Other Properties are leased on a triple-net basis to third-party tenants who operate the Properties or contract with hotel and resort managers to operate their hotel and resort Properties. Rental income from operating leases is included in the consolidated results of operations for these Properties.
2. Summary of Significant Accounting Policies:
Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. The unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the Company's results for the interim periods presented. Operating results for the quarter ended March 31, 2004, may not be indicative of the results that may be expected for the year ending December 31, 2004. Amounts as of December 31, 2003, included in the condensed consolidated financial statements have been derived from audited consolidated financial statements as of that date. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K/A for the year ended December 31, 2003.
Principles of Consolidation—The accompanying unaudited condensed consolidated financial statements include the accounts of CNL Hospitality Properties, Inc., and each of its wholly-owned subsidiaries. In accordance with the provisions of Statement of Financial Accounting Standards Interpretation No. 46 ("FIN 46R"), "Consolidation of Variable Interest Entities", the Company also consolidates joint ventures for which the Company is the primary beneficiary. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests, which are the ownership, contractual, or other pecuniary interests in an entity that change with changes in the fair value of the entity's net assets excluding variable interests. All significant intercompany balances and transactions have been eliminated in consolidation. Interests of third parties are reflected as minority interests for these variable interest entities. FIN 46R does not require restatement of previously issued
6
financial statements, however, the Company has restated prior years' consolidated financial statements, if applicable, to reflect the consolidation of previously unconsolidated subsidiaries in order to maintain comparability between the periods presented in the consolidated financial statements and the accompanying notes. These restatements had no effect on stockholders' equity, net income or related per share amounts for all periods.
Reclassification—Certain items in the prior years' condensed consolidated financial statements have been reclassified to conform with the 2004 presentation, including restatements for the effect of FIN 46R. These reclassifications had no effect on stockholders' equity or net income.
3. Investments in Unconsolidated Subsidiaries:
The Company had the following investments in unconsolidated subsidiaries:
| Name |
Total Amount Invested |
Ownership Interest as of March 31, 2004 |
Description |
||||
|---|---|---|---|---|---|---|---|
| WB Resort Partners, L.P. | $ | 41.8 million | 49.00 | % | A partnership which owns a resort in Hawaii. | ||
| Desert Ridge Resort Partners, LLC | $ | 25.1 million | 44.00 | % | A joint venture which owns a resort in Arizona. | ||
| CY-SF Hotel Partnership, L.P. | $ | 13.0 million | 48.15 | % | A partnership which owns a | ||