FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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
333-9943
CNL American Realty Fund, Inc.
(Exact name of registrant as specified in its charter)
Maryland 59-3396369
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 E. South Street, #500
Orlando, Florida 32801
- ---------------------------- -----------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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 [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
20,000 shares of common stock, $.01 par value, outstanding as of August 19,
1997.
<PAGE>
CONTENTS
Page
----
Part I
Item 1. Financial Statements:
Balance Sheets 1
Statements of Stockholder's
Equity 2
Notes to Financial Statements 3-5
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 6-8
Part II
Other Information 9
<PAGE>
CNL AMERICAN REALTY FUND, INC.
(A Development Stage Maryland Corporation)
BALANCE SHEETS
June 30, December 31,
ASSETS 1997 1996
-------- --------
Cash $ 2,017 $ 2,084
Deferred offering costs 710,470 596,106
-------- --------
$712,487 $598,190
======== ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Accrued offering costs:
Due to related parties $512,487 $386,561
Due to others - 11,629
-------- --------
512,487 398,190
-------- --------
Stockholder's equity:
Common stock, $.01 par value;
100,000 shares authorized,
20,000 shares issued and
outstanding 200 200
Capital in excess of par value 199,800 199,800
-------- --------
200,000 200,000
-------- --------
$712,487 $598,190
======== ========
See accompanying notes to financial statements.
1
<PAGE>
CNL AMERICAN REALTY FUND, INC.
(A Development Stage Maryland Corporation)
STATEMENTS OF STOCKHOLDER'S EQUITY
Six Months Ended June 30, 1997 and
June 12, 1996 (Date of Inception)
through December 31, 1996
Common stock
------------ Capital in
Number Par excess of
of shares value par value Total
--------- ------ --------- --------
Balance, June 12, 1996
(Date of Inception) - $ - $ - $ -
Cash received from sale of
common stock to related
party 20,000 200 199,800 200,000
------ ---- -------- --------
Balance, December 31, 1996 20,000 200 199,800 200,000
Cash received from sale of
common stock - - - -
------ ---- -------- -------
Balance, June 30, 1997 20,000 $200 $199,800 $200,000
====== ==== ======== ========
See accompanying notes to financial statements.
2
<PAGE>
CNL AMERICAN REALTY FUND, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS
Quarter and Six Months Ended June 30, 1997 and
June 12, 1996 (Date of Inception)
through December 31, 1996
1. Significant Accounting Policies:
Organization and Nature of Business - CNL American Realty Fund, Inc.
(the "Company") was organized in Maryland on June 12, 1996. Beginning
on July 9, 1997, the Company offered for sale up to $165,000,000 of
shares of common stock (16,500,000 shares at $10 per share), 1,500,000
shares of which will be available only to stockholders who elect to
participate in the Company's reinvestment plan, pursuant to a
registration statement on Form S-11 under the Securities Act of 1933,
as amended, effective July 9, 1997.
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"). 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 is in the development stage and has not begun operations.
Income Taxes - The Company intends to make 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, commencing with its
taxable year ending December 31, 1997. If the Company qualifies for
taxation as a REIT, the Company generally will not be subject to
federal corporate income tax to the extent it distributes its REIT
taxable income to its stockholders, so long as it distributes at least
95 percent of its REIT taxable income. REITs are subject to a number of
other organizational and operational requirements. Even if the Company
qualifies for taxation as a REIT, it may be subject to certain state
and local taxes on
3
<PAGE>
CNL AMERICAN REALTY FUND, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Quarter and Six Months Ended June 30, 1997 and
June 12, 1996 (Date of Inception)
through December 31, 1996
1. Significant Accounting Policies - Continued:
its income and property, and federal income and excise taxes
on its undistributed income.
Basis of Presentation - The accompanying unaudited financial statements
have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim period presented.
2. Deferred Offering Costs:
The Company has and will continue to incur certain costs in connection
with the offering, including filing fees, legal, accounting, marketing
and printing costs and escrow fees, which will be deducted from the
gross proceeds of the offering. Certain preliminary costs incurred
prior to raising capital have been and will be advanced by an affiliate
of the Company. If the offering is not successful, the Company will not
be required to repay these amounts. CNL Real Estate Advisors, Inc., the
advisor to the Company, has agreed to pay all organizational and
offering expenses which exceed three percent of the gross offering
proceeds received from the sale of shares of the Company.
3. Capitalization:
At June 30, 1997 and December 31, 1996, the Company was authorized to
issue 100,000 shares of common stock, all of one class, with a par
value of $.01 per share. In July 1997, the Company amended the Articles
of Incorporation to increase the number of authorized shares of capital
stock from 100,000 shares to 126,000,000 shares (consisting of
60,000,000 common shares, 3,000,000 preferred shares and 63,000,000
excess shares).
4
<PAGE>
CNL AMERICAN REALTY FUND, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Quarter and Six Months Ended June 30, 1997 and
June 12, 1996 (Date of Inception)
through December 31, 1996
4. Related Party Arrangements:
Certain affiliates of the Company will receive fees and compensation in
connection with the offering, and the acquisition, management, and sale
of the assets of the Company.
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, CNL Real Estate Advisors,
Inc. purchased the Company's outstanding common stock from CNL
Fund Advisors, Inc. and became the sole stockholder of the
Company.
Amounts due to CNL Real Estate Advisors, Inc., CNL Fund
Advisors, Inc. and their affiliates consisted of the following
at:
June 30, December 31,
1997 1996
------- ---------
Expenditures incurred
on behalf of the
Company $452,981 $357,896
Accounting and admini-
strative services 59,506 28,665
-------- --------
$512,487 $386,561
======== ========
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CNL American Realty Fund, Inc. (the "Company") is a Maryland
corporation that was organized June 12, 1996, to acquire properties (the
"Properties") located across the United States to be leased on a long-term,
"triple-net" basis to operators of selected national and regional limited
service, extended stay and full service hotel chains (the "Hotel Chains") and
operators of national and regional fast-food, family-style and casual dining
restaurant chains (the "Restaurant Chains"). The Company is not obligated to
invest in both hotel Properties and restaurant Properties. The Company may also
provide mortgage financing (the "Mortgage Loans") in the aggregate principle
amount of approximately 5% to 10% of the gross offering proceeds. The Company
also intends to 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 to be obtained by
the Company. The aggregate outstanding principal amount of Secured Equipment
Leases will not exceed 10% of gross proceeds from the offering.
The Company's primary investment objectives are to preserve, protect,
and enhance the Company's assets while (i) making distributions commencing in
the initial year of Company operations; (ii) obtaining fixed income through the
receipt of base rent, and increasing the Company's income (and distributions)
and providing protection against inflation through automatic increases in base
rent and receipt of percentage rent, and obtaining fixed income through the
receipt of payments from Mortgage Loans and Secured Equipment Leases; (iii)
qualifying 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 of the shares on a national securities exchange or
over-the-counter market ("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 objective of qualifying as a
REIT).
Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, effective July 9, 1997, the Company registered for sale
an aggregate of $165,000,000 of shares of common stock (the "Shares")
(16,500,000 Shares at $10 per Share), with 1,500,000 of such shares available
only to stockholders who elect to participate in the Company's reinvestment
plan. The offering of Shares of the Company commenced on July 9, 1997. The
offering of Shares of the Company will terminate no later than July 9, 1998,
unless the Company elects to extend it to a date no later than July 9, 1999, in
states that permit such extension.
This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Secuities
Exchange 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 real estate conditions, availability of proceeds from the
Company's offering, the ability of the Company to obtain the Line of Credit or
Permanent Financing on satisfactory terms, the ability of the Company to locate
suitable tenants for its Properties and borrowers for its Mortgage Loans and
Secured Equipment Leases, and the ability of tenants and borrowers to make
payments under their respective leases, Mortgage Loans or Secured Equipment
Leases.
6
<PAGE>
Liquidity and Capital Resources
As of June 30, 1997, the Company had not commenced its offering of
Shares, and no subscriptions had been received as of such date. Aggregate
capital contributions of $200,000, from an affiliate of the Company, are the
Company's sole source of capital until the Company sells the minimum number of
250,000 Shares ($2,500,000). As of August 19, 1997, no subscription funds had
been deposited with the escrow agent for the offering.
The Company expects to use net offering proceeds from the sale of
Shares to purchase Properties and to invest in Mortgage Loans. In addition, the
Company intends to borrow money to acquire 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. Pending the
receipt of offering proceeds or permanent financing, the Company plans to obtain
a revolving line of credit in an amount up to $45,000,000 (the "Line of
Credit"). The Company also plans to obtain permanent financing ("Permanent
Financing"). Although the Board of Directors anticipates that the aggregate
amount of any Permanent Financing shall 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, defined for this
purpose as the Company's total assets (other than intangibles), calculated at
cost, less total liabilities. The Line of Credit is expected to be used to
facilitate the acquisition of assets and will be repaid with proceeds of the
offering or from the Permanent Financing. The Company has engaged in preliminary
discussions with potential lenders but has not yet received a commitment for the
Line of Credit or any Permanent Financing and there is no assurance that the
Company will obtain the Line of Credit or any Permanent Financing on
satisfactory terms.
At June 30, 1997 and December 31, 1996, the Company's total assets were
$712,487 and $598,190, respectively. The increase in total assets reflects
organizational and offering expenses incurred and recorded as deferred offering
costs during the six months ended June 30, 1997.
As of June 30, 1997, the Company owed an affiliate of the Company
$512,487 for certain organizational and offering expenses it has incurred on
behalf of the Company. In the event the minimum offering proceeds are not
received by the Company, the Company will have no obligation to repay such
amounts. Further, CNL Real Estate Advisors, Inc., the advisor of the Company,
has agreed to pay all organizational and offering expenses in excess of three
percent of the gross offering proceeds.
7
<PAGE>
Liquidity and Capital Resources - Continued
Due to anticipated low operating expenses, rental income expected to be
obtained from Properties after they are acquired, the fact that the Line of
Credit and Permanent Financing have not been obtained and that the Company has
not entered into Mortgage Loans or Secured Equipment Leases and the fact that
the Company will not purchase a Property until sufficient cash is available for
such purchase, management does not believe that working capital reserves will be
necessary at this time. Management has the right to cause the Company to
maintain reserves if, in their discretion, they determine such reserves are
required to meet the Company's working capital needs.
As of June 30, 1997, the Company had not entered into any arrangements
creating a reasonable probability that a Property would be acquired by the
Company or that a particular Mortgage Loan or Secured Equipment Lease would be
funded. The number of Properties to be acquired and Mortgage Loans to be
invested in will depend upon the amount of net offering proceeds and loan
proceeds available to the Company. The amount invested in Secured Equipment
Leases will not exceed 10% of the gross offering proceeds.
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 significant operations had commenced as of August 19, 1997, because
the Company was in its development stage. No operations will commence until such
time as the Company has sold at least 250,000 Shares ($2,500,000).
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
On June 26, 1997, the sole stockholder of the Registrant
consented to the amendment and restatement of the Articles of
Incorporation of the Registrant (which amendment and
restatement did not differ from the form included in the
Registrant's Registration Statement on Form S-11, No.
333-9943).
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the
quarter ended June 30, 1997.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 20th day of August, 1997.
CNL AMERICAN REALTY FUND, INC.
By: /s/ James M. Seneff, Jr.
--------------------------
JAMES M. SENEFF, JR.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
--------------------------
ROBERT A. BOURNE
Director and President
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL American Realty Fund, Inc. at June 30, 1997, and is qualified in
its entirety by reference to the Form 10-Q of CNL American Realty Fund, Inc. for
the six months ended June 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,017
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 712,487
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
200
0
<COMMON> 0
<OTHER-SE> 199,800
<TOTAL-LIABILITY-AND-EQUITY> 712,487
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL American Realty Fund, Inc. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
