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, 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
0-15666
CNL Income Fund, Ltd.
(Exact name of registrant as specified in its charter)
Florida 59-2666264
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street
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 X No
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8-11
Part II
Other Information 12
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
ASSETS 1998 1997
---------- --------
Land and buildings on operating
leases, less accumulated
depreciation of $2,176,014
and $2,172,913 $7,675,797 $8,185,465
Investment in and due from joint
ventures 904,195 919,476
Cash and cash equivalents 896,383 184,130
Restricted Cash - 129,257
Receivables, less allowance for
doubtful accounts of $1,975 and
$3,092 1,796 21,331
Prepaid expenses 6,386 4,989
Lease costs, less accumulated
amortization of $23,125 and
$21,875 26,875 28,125
Accrued rental income 30,588 27,305
---------- ----------
$9,542,020 $9,500,078
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 630 $ 2,595
Accrued and escrowed real estate
taxes payable 5,024 734
Distributions payable 853,283 316,221
Due to related parties 142,141 115,741
Rents paid in advance and deposits 31,384 35,737
---------- ----------
Total liabilities 1,032,462 471,028
Partners' capital 8,509,558 9,029,050
---------- ----------
$9,542,020 $9,500,078
========== ==========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- ------
<S> <C>
Revenues:
Rental income from
operating leases $257,223 $267,223 $530,832 $527,028
Interest and other
income 9,327 2,747 12,456 7,797
-------- -------- -------- --------
266,550 269,970 543,288 534,825
-------- -------- -------- --------
Expenses:
General operating and
administrative 23,354 23,141 45,502 44,356
Professional services 9,817 2,556 12,602 5,909
Real estate taxes 1,080 1,102 2,161 2,204
State and other taxes 43 114 4,450 3,538
Depreciation and
amortization 52,171 52,551 105,822 105,102
-------- -------- -------- --------
86,465 79,464 170,537 161,109
-------- -------- -------- --------
Income Before Equity in
Earnings of Joint Ven-
tures and Gain on Sale
of Land and Building 180,085 190,506 372,751 373,716
Equity in Earnings of
Joint Ventures 20,584 27,041 41,457 53,355
Gain on Sale of Land
and Building 235,804 - 235,804 -
-------- -------- -------- -------
Net Income $436,473 $217,547 $650,012 $427,071
======== ======== ======== ========
Allocation of Net Income:
General partners $ 3,022 $ 2,176 $ 5,157 $ 4,271
Limited partners 433,451 215,371 644,855 422,800
-------- -------- -------- --------
$436,473 $217,547 $650,012 $427,071
======== ======== ======== ========
Net Income Per Limited
Partner Unit $ 14.45 $ 7.18 $ 21.50 $ 14.09
======== ======== ======== ========
Weighted Average Number
of Limited Partner
Units Outstanding 30,000 30,000 30,000 30,000
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
1998 1997
---------------- --------
General partners:
Beginning balance $ 321,759 $ 310,182
Net income 5,157 11,577
----------- -----------
326,916 321,759
----------- -----------
Limited partners:
Beginning balance 8,707,291 8,734,995
Net income 644,855 1,237,180
Distributions ($38.98
and $42.16 per limited
partner unit, respectively) (1,169,504) (1,264,884)
----------- -----------
8,182,642 8,707,291
----------- -----------
Total partners' capital $ 8,509,558 $ 9,029,050
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1998 1997
--------- ------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 557,386 $ 740,638
--------- ---------
Cash Flows from Investing Activities:
Proceeds from sale of land and
building 661,300 -
Decrease in restricted cash 126,009 -
--------- --------
Net cash provided by investing
activities 787,309 -
--------- --------
Cash Flows from Financing Activities:
Proceeds from loan from corporate
general partner - 81,000
Repayment of loan from corporate
general partner - (81,000)
Distributions to limited partners (632,442) (632,442)
--------- ---------
Net cash used in financing
activities (632,442) (632,442)
--------- ---------
Net Increase in Cash and Cash
Equivalents 712,253 108,196
Cash and Cash Equivalents at Beginning
of Period 184,130 159,379
--------- ---------
Cash and Cash Equivalents at End of
Period $ 896,383 $ 267,575
========= =========
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Deferred real estate disposition
fee incurred and unpaid at end
of period $ 20,400 $ -
========= ========
Distributions declared and unpaid
at end of period $ 853,283 $ 316,221
========= =========
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1998 and 1997
1. Basis of Presentation:
The accompanying unaudited condensed 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 periods presented. Operating results for
the quarter and six months ended June 30, 1998, may not be indicative
of the results that may be expected for the year ending December 31,
1998. Amounts as of December 31, 1997, included in the financial
statements, have been derived from audited financial statements as of
that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund, Ltd. (the "Partnership") for the year ended December 31,
1997.
The general partners are in the process of analyzing the effects of the
consensus reached by the Financial Accounting Standards Board in EITF
98-9, entitled "Accounting for Contingent Rent in the Interim Financial
Periods," issued in May 1998. The general partners do not expect that
the conclusions reached in this consensus will have a material effect
on the Partnership's financial position or results of operations.
2. Land and Buildings on Operating Leases:
During the six months ended June 30, 1998, the Partnership sold its
property in Kissimmee, Florida, for $680,000 and received net sales
proceeds of $661,300 resulting in a gain of $235,804 for financial
reporting purposes. This property was originally acquired by the
Partnership in 1987 and had a cost of approximately $475,400, excluding
acquisition fees and miscellaneous acquisition expenses; therefore the
Partnership sold this property for approximately $185,900 in excess of
its original purchase price. In connection with the sale, the
Partnership incurred a deferred, subordinated, real estate disposition
fee of $20,400 (see Note 4).
5
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1998 and 1997
3. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of properties, are allocated 99 percent
to the limited partners and one percent to the general partners.
Distributions of net cash flow are made 99 percent to the limited
partners and one percent to the general partners; provided, however
that the one percent of net cash flow to be distributed to the general
partners is subordinated to receipt by the limited partners of an
aggregate, ten percent, noncumulative, noncompounded annual return on
their adjusted capital contributions (the "10% Preferred Return").
Generally, net sales proceeds from the sale of properties, to the
extent distributed, will be distributed first to the limited partners
in an amount sufficient to provide them with their cumulative 10%
Preferred Return, plus the return of their adjusted capital
contributions. The general partners will then receive, to the extent
previously subordinated and unpaid, a one percent interest in all prior
distributions of net cash flow and a return of their capital
contributions. Any remaining sales proceeds will be distributed 95
percent to the limited partners and five percent to the general
partners. Any gain from the sale of a property is, in general,
allocated in the same manner as net sales proceeds are distributable.
Any loss from the sale of a property is, in general, allocated first,
on a pro rata basis, to partners with positive balances in their
capital accounts; and thereafter, 95 percent to the limited partners
and five percent to the general partners.
During the six months ended June 30, 1998 and 1997, the Partnership
declared distributions to the limited partners of $1,169,504 and
$632,442, respectively ($853,283 and $316,221 for the quarters ended
June 30, 1998 and 1997, respectively). This represents distributions of
$38.98 and $21.08 per unit for the six months ended June 30, 1998 and
1997, respectively ($28.44 and $10.54 per unit for the quarters ended
June 30, 1998 and 1997, respectively). Distributions for the six months
ended June 30, 1998, included $586,300 as a result of the distribution
of net sales proceeds from the sale of the property in Kissimmee,
Florida. Of this amount, $216,361 was applied toward the limited
partners' 10% Preferred Return and the balance of $369,939 was treated
as a return of capital for purposes of calculating the limited
partners' 10% Preferred Return. As a result of this return of capital,
the amount of the limited partners' invested capital contributions
(which generally is the limited partners' capital contributions, less
distributions from the sale of a property that are considered
6
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1998 and 1997
3. Allocations and Distributions - Continued:
to be a return of capital) was decreased; therefore, the amount of the
limited partners' invested capital contributions on which the 10%
Preferred Return was calculated was lowered accordingly. No
distributions have been made to the general partners to date.
4. Related Party Transactions:
An affiliate of the Partnership is entitled to receive a deferred,
subordinated real estate disposition fee, payable upon the sale of one
or more properties based on the lesser of one-half of a competitive
real estate commission or three percent of a competitive real estate
commission or three percent of the sales price if the affiliate
provides a substantial amount of services in connection with the sale.
Payment of the real estate disposition fee is subordinated to receipt
by the limited partners of their aggregate 10% Preferred Return, plus
their adjusted capital contributions. For the six months ended June 30,
1998, the Partnership incurred $20,400 in a deferred, subordinated,
real estate disposition fee as a result of the sale of a property (see
Note 2). No deferred, subordinated, real estate disposition fees were
incurred for the six months ended June 30, 1997.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CNL Income Fund, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on November 26, 1985, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurant properties, as well as land upon which restaurants were to
be constructed, which are leased primarily to operators of national and regional
fast-food restaurant chains (collectively, the "Properties"). The leases
generally are triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance and utilities. As of June 30, 1998,
the Partnership owned 17 Properties, including interests in two Properties owned
by joint ventures in which the Partnership is a co-venturer and one Property
owned with affiliates as tenants-in-common.
Liquidity and Capital Resources
During the six months ended June 30, 1998 and 1997, the Partnership
generated cash from operations (which includes cash received from tenants,
distributions from joint ventures, and interest and other income received, less
cash paid for expenses) of $557,386 and $740,638, respectively. The decrease in
cash from operations for the six months ended June 30, 1998, is primarily a
result of changes in the Partnership's working capital.
Other sources and uses of capital included the following during the six
months ended June 30, 1998.
In April 1998, the Partnership sold its Property in Kissimmee, Florida,
to the tenant for $680,000 and received net sales proceeds of $661,300,
resulting in a gain of $235,804 for financial reporting purposes. This Property
was originally acquired by the Partnership in 1987 and had a cost of
approximately $475,400, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold this Property for approximately
$185,900 in excess of its original purchase price. In connection with the sale,
the Partnership incurred a deferred, real estate disposition fee of $20,400.
Payment of the real estate disposition fee is subordinated to receipt by the
limited partners of their aggregate, ten percent, noncumulative, noncompounded
annual return on their adjusted capital contributions (the 10% Preferred
Return), plus their adjusted capital contributions. The Partnership distributed
$586,300 of the net sales proceeds as a special distribution to the limited
partners and the balance of the funds were retained by the Partnership to meet
the Partnership's working capital and other needs.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At June 30, 1998, the Partnership had $896,383
invested in such short-term investments, as compared to $184,130 at December 31,
8
<PAGE>
Liquidity and Capital Resources - Continued
1997. The increase in cash and cash equivalents is primarily due to net sales
proceeds received from the sale of the Property in Kissimmee, Florida in April
1998. The funds remaining at June 30, 1998, will be used to pay distributions
and other liabilities.
Total liabilities of the Partnership, including distributions payable,
increased to $1,032,462 at June 30, 1998, from $471,028 at December 31, 1997,
primarily as a result of the Partnership accruing a special distribution of net
sales proceeds of $586,300 from the sale of the Property in Kissimmee, Florida,
as described above, payable to the limited partners at June 30, 1998.
Liabilities at June 30, 1998, to the extent they exceed cash and cash
equivalents at June 30, 1998, will be paid from future cash from operations and,
in the event the general partners elect to make additional capital contributions
or loans to the Partnership, from future general partner capital contributions
or loans.
Based on current and anticipated future cash from operations, and for
the six months ended June 30, 1998, a portion of the proceeds received from the
sale of the Property described above, the Partnership declared distributions to
limited partners of $1,169,504 and $632,442 for the six months ended June 30,
1998 and 1997, respectively ($853,283 and $316,221 for the quarters ended June
30, 1998 and 1997, respectively). This represents distributions of $38.98 and
$21.08 per unit for the six months ended June 30, 1998 and 1997, respectively
($28.44 and $10.54 for the quarters ended June 30, 1998 and 1997, respectively).
The distribution for the six months ended June 30, 1998, included $586,300 of
net sales proceeds from the sale of the Property in Kissimmee, Florida. This
special distribution was effectively a return of a portion of the limited
partners' investment, although, in accordance with the Partnership agreement,
$216,361 was applied towards the limited partners' ten percent preferred return
and the balance of $369,939 was treated as a return of capital for purposes of
calculating the limited partners' ten percent preferred return. As a result of
this return of capital, the amount of the limited partners' invested capital
contributions (which generally is the limited partners' capital contributions,
less distributions from the sale of a Property that are considered to be a
return of capital) was decreased; therefore, the amount of the limited partners'
invested capital contributions on which the ten percent preferred return was
calculated was lowered accordingly. As a result of the sale of the Property, the
Partnership's total revenue was reduced, while the majority of the Partnership's
operating expenses remained fixed. Therefore, distributions of net cash flow
were adjusted for the quarter ended June 30, 1998. No distributions were made to
the general partners for the quarters and six months ended June 30, 1998 and
1997. No amounts distributed to the limited partners for the six months ended
June 30, 1998 and 1997, except for $369,939 as described above, are required to
be or have been treated by the Partnership as a return
9
<PAGE>
Liquidity and Capital Resources - Continued
of capital for purposes of calculating the limited partners' return on their
adjusted capital contributions. The Partnership intends to continue to make
distributions of cash available for distribution to the limited partners on a
quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
Results of Operations
During the six months ended June 30, 1997, the Partnership owned and
leased 15 wholly owned Properties (including one Property in Casa Grande,
Arizona, which was sold in August 1997), and during the six months ended June
30, 1998, the Partnership owned and leased 15 wholly owned Properties (including
one Property in Kissimmee, Florida which was sold in April 1998), to operators
of fast-food and family-style restaurant chains. In connection therewith, during
the six months ended June 30, 1998 and 1997, the Partnership earned $530,832 and
$527,028, respectively, in rental income from these Properties, $257,223 and
$267,223 of which was earned during the quarters ended June 30, 1998 and 1997,
respectively. The decrease in rental income during the quarter ended June 30,
1998, as compared to the quarter ended June 30, 1997, is primarily attributable
to, a decrease in rental income as a result of Property sales during 1998 and
1997. The increase in rental income during the six months ended June 30, 1998,
is primarily attributable to the fact that the Partnership reinvested the
majority of the net sales proceeds from the sale of a Property in August 1997,
in a Property in Camp Hill, Pennsylvania in October 1997.
In addition, for the six months ended June 30, 1997, the Partnership
owned and leased three Properties indirectly through joint venture arrangements
(including one Property sold in August 1997) and for the six months ended June
30, 1998, the Partnership owned and leased two Properties indirectly through
joint venture arrangements and one Property with affiliates as
tenants-in-common. In connection therewith, during the six months ended June 30,
1998 and 1997, the Partnership earned $41,457 and $53,355, respectively,
attributable to net income earned by these joint ventures, $20,584 and $27,041
of which was earned during the quarters ended June 30, 1998 and 1997,
respectively. The decrease in net income earned by joint ventures is primarily
attributable to the fact that in August 1997, Seventh Avenue Joint Venture, in
which the Partnership owned a 50 percent interest, sold its Property. The
decrease is partially offset by the fact that in December 1997, the Partnership
10
<PAGE>
Results of Operations - Continued
reinvested a portion of its pro rata share of the net sales proceeds in a
Property located in Vancouver, Washington as tenants-in-common with affiliates
of the general partners.
Operating expenses, including depreciation and amortization expense,
were $170,537 and $161,109 for the six months ended June 30, 1998 and 1997,
respectively, of which $86,465 and $79,464 were incurred for the quarters ended
June 30, 1998 and 1997, respectively.
As a result of the sale of the Property, as described above in
"Liquidity and Capital Resources," the Partnership recognized a gain of $235,804
for financial reporting purposes for the quarter and six months ended June 30,
1998. No Properties were sold during the quarter and six months ended June 30,
1997.
The general partners are in the process of analyzing the effects of the
consensus reached by the Financial Accounting Standards Board in EITF 98-9,
entitled "Accounting for Contingent Rent in the Interim Financial Periods,"
issued in May 1998. The general partners do not expect that the conclusions
reached in this consensus will have a material effect on the Partnership's
financial position or results of operations.
11
<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 June 30, 1998.
12
<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 13th day of August, 1998.
CNL INCOME FUND, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund, Ltd. at June 30, 1998, and its statement o fincome for
the six months then ended and is qualified in its entirety by reference to the
Form 10Q of CNL Income Fund, Ltd. for the six months ended June 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 896,383
<SECURITIES> 0
<RECEIVABLES> 3,771
<ALLOWANCES> 1,975
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,851,811
<DEPRECIATION> 2,176,014
<TOTAL-ASSETS> 9,542,020
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,509,558
<TOTAL-LIABILITY-AND-EQUITY> 9,542,020
<SALES> 0
<TOTAL-REVENUES> 543,288
<CGS> 0
<TOTAL-COSTS> 170,537
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 650,012
<INCOME-TAX> 0
<INCOME-CONTINUING> 650,012
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 650,012
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund, Ltd. has an unclassified
balance sheet; therefore, no values are shown above for current assets and
current liabilities.
</FN>
</TABLE>
