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 September 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 organiza- Identification No.)
tion)
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.
347,610 shares of common stock, $.01 par value, outstanding as of October 21,
1997.
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Balance Sheets 1
Statements of Stockholder's
Equity 2
Notes to Financial Statements 3-6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 7-10
Part II
Other Information 11
<PAGE>
CNL AMERICAN REALTY FUND, INC.
(A Development Stage Maryland Corporation)
BALANCE SHEETS
September 30, December 31,
ASSETS 1997 1996
------------- -----------
Cash $ 2,016 $ 2,084
Deferred offering costs 1,130,571 596,106
Other assets 52,124 -
---------- ----------
$1,184,711 $ 598,190
========== ==========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Accrued offering costs:
Due to related parties $ 984,711 $ 386,561
Due to others - 11,629
---------- ----------
984,711 398,190
---------- ----------
Stockholder's equity:
Preferred stock, without par
value. Authorized and unissued
3,000,000 shares in 1997 - -
Excess shares, $.01 par value
per share. Authorized and
unissued 63,000,000 shares in
1997 - -
Common stock, $.01 par value per
share. Authorized 60,000,000
and 100,000 shares, respectively,
issued and outstanding 20,000
shares 200 200
Capital in excess of par value 199,800 199,800
---------- ----------
200,000 200,000
---------- ----------
$1,184,711 $ 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
Nine Months Ended September 30, 1997 and
June 12, 1996 (Date of Inception)
through December 31, 1996
<TABLE>
<CAPTION>
Common stock Capital in
Number Par excess of
of shares value par value Total
<S> <C>
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
Subscriptions received for
common stock through public
offering 115,830 1,158 1,157,142 1,158,300
Subscriptions held in escrow
at September 30, 1997 (115,830) (1,158) (1,157,142) (1,158,300)
-------- ------ ---------- ----------
Balance, September 30, 1997 20,000 $ 200 $ 199,800 $ 200,000
======== ====== ========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
CNL AMERICAN REALTY FUND, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS
Quarter and Nine Months Ended September 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. 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.
As of September 30, 1997 the Company was in the development stage and
had 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 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.
3
<PAGE>
CNL AMERICAN REALTY FUND, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Quarter and Nine Months Ended September 30, 1997 and
June 12, 1996 (Date of Inception)
through December 31, 1996
2. Public Offering:
The Company has filed a currently effective registration statement on
Form S-11 with the Securities and Exchange Commission.
A maximum of 16,500,000 shares ($165,000,000) may be sold, including
1,500,000 shares ($15,000,000) which is 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 September 30, 1997, the Company had received subscription
proceeds of $1,158,300 (115,830 shares), of which $1,036,050 and
$122,250 (representing funds from Pennsylvania investors) are being
held in escrow until the Company receives aggregate subscription
proceeds of at least $2,500,000 and $8,250,000, respectively, from this
offering.
3. 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 have
been and will be advanced by an affiliate of the Company. 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.
As of September 30, 1997, the Company had incurred $1,130,571 in
organizational and offering costs which has been treated as deferred
offering costs. Once the Company receives the minimum amount of
subscriptions, the deferred offering costs will be charged to the
stockholders' capital accounts subject to the three percent cap
described above.
4. Capitalization:
In July 1997, the Company amended its 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 Nine Months Ended September 30, 1997 and
June 12, 1996 (Date of Inception)
through December 31, 1996
5. Related Party Transactions:
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.
CNL Securities Corp. is entitled to receive commissions amounting to
7.5% of the total amount raised from the sale of shares for services in
connection with the offering of shares, a substantial portion of which
($81,081) will be paid as commissions to other broker-dealers. As of
September 30, 1997, $86,873 of such fees had been incurred.
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. As of September 30, 1997, $5,792
of such fees had been incurred.
CNL Securities Corp. will also receive 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 stockholders' investment in the Company. As of
September 30, 1997, no such fees had been incurred.
CNL Real Estate Advisors, Inc. is entitled to receive acquisition fees
for services in finding, negotiating the leases of and acquiring
properties on behalf of the Company equal to 4.5% of the total amount
raised from the sale of shares. As of September 30, 1997, $52,124 of
such fees had been incurred. This amount is included in other assets
at September 30, 1997.
5
<PAGE>
CNL AMERICAN REALTY FUND, INC.
(A Development Stage Maryland Corporation)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Quarter and Nine Months Ended September 30, 1997 and
June 12, 1996 (Date of Inception)
through December 31, 1996
5. Related Party Transactions - Continued:
During the quarter and nine months ended September 30, 1997, CNL Real
Estate Advisors, Inc. and its affiliates provided accounting and
administrative services to the Company, primarily in connection with
the registration of the offering, totalling $54,505 and $92,657,
respectively, which are included in deferred offering costs.
The amounts due to related parties consisted of the following at:
September 30, December 31,
1997 1996
Due to CNL Securities Corp.:
Commissions $ 86,873 $ -
Marketing support and due
diligence expense reim-
bursement fee 5,792 -
-------- --------
92,665 -
-------- --------
Due to CNL Real Estate Advisors,
Inc.:
Expenditures incurred for
organizational and offering
expenses on behalf of the
Company 718,600 357,896
Accounting and administrative
services 121,322 28,665
Acquisition fees 52,124 -
-------- --------
892,046 386,561
-------- --------
$984,711 $386,561
6. Subsequent Event:
As of October 15, 1997, the Company had received aggregate subscription
proceeds of $2,774,580, which exceeded the minimum offering amount of
$2,500,000, and $2,652,330 of the funds (which excluded all funds
received from Pennsylvania investors) were released from escrow. As of
October 21, 197, the Company had received total subscription proceeds
of $3,276,100.
6
<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 on 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 principal
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 (Commission file number
333-9943), 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 and are being offered to the public on a "best
efforts" basis (which means that no one is guaranteeing that any minimum amount
will be sold) through CNL Securities Corp., the managing dealer, and other
soliciting dealers
7
<PAGE>
who are members of the National Association of Securities Dealers, Inc. or other
persons or entities exempt from broker-dealer registration. 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 Securities
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 a line of credit or
permanent financing, as described below, 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 tenants and borrowers to make
payments under their respective leases, Mortgage Loans or Secured Equipment
Leases.
Liquidity and Capital Resources
During the period June 12, 1996 (date of inception) through December
31, 1996, the Company received initial capital contributions of $200,000 for
20,000 Shares of common stock from an affiliate.
Effective July 1997, the Company commenced an offering of its Shares of
common stock. As of September 30, 1997, the Company had received subscription
proceeds of $1,158,300 (115,830 Shares), which were being held in escrow until
the Company received aggregate subscription proceeds of at least $2,500,000 from
the offering. As of October 15, 1997, the Company had received aggregate
subscription proceeds of $2,774,580, and $2,652,330 of the funds were released
from escrow. Subscription proceeds from Pennsylvania investors which totalled
$122,250 as of October 15, 1997 will be held in escrow until the Company
receives aggregate subscription proceeds of at least $8,500,000. As of October
21, 1997, the Company had approximately $1,906,000 available to invest in
Properties and Mortgage Loans following the deduction of selling commissions,
marketing support and due diligence expense reimbursement fees, organizational
and offering expenses, and acquisition fees.
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
8
<PAGE>
Liquidity and Capital Resources - Continued
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 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 September 30, 1997 and December 31, 1996, the Company's total assets
were $1,184,711 and $598,190, respectively. The increase in total assets
reflects organizational and offering expenses incurred and recorded as deferred
offering costs during the nine months ended September 30, 1997.
As of September 30, 1997, the Company owed its advisor, CNL Real Estate
Advisors, Inc., $892,046 for certain organizational and offering expenses it has
incurred on behalf of the Company, accounting and administrative services and
acquisition fees. CNL Real Estate Advisors, Inc. has agreed to pay all
organizational and offering expenses in excess of three percent of the gross
offering proceeds. In addition, as of September 30, 1997, the Company accrued
$92,665 due to CNL Securities Corp., the managing dealer of the Company's
offering, for commissions and marketing support and due diligence expense
reimbursement fees.
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.
9
<PAGE>
Liquidity and Capital Resources - Continued
As of September 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 September 30, 1997,
because the Company was in its development stage. No operations commenced until
the Company received the minimum offering proceeds of $2,500,000 on October 15,
1997.
10
<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.
Inapplicable.
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 September 30, 1997.
11
<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 10th day of November, 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 informatino extracted from the balance
sheet of CNL American Realty Fund, Inc. at September 30, 1997, and is qualified
in its entirety by reference to the Form 10-Q of CNL American Realty Fund, Inc.
for the nine months ended September 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,016
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,184,711
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 199,800
<TOTAL-LIABILITY-AND-EQUITY> 1,184,711
<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>
