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, 2000
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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
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CNL Income Fund, Ltd.
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(Exact name of registrant as specified in its charter)
Florida 59-2666264
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801-3336
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
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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 _________
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CONTENTS
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Page
Part I.
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
Item 2. Management's Discussion and Analysis of Financial 6-8
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 9
Market Risk
Part II.
Other Information 10-12
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CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
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June 30, December 31,
2000 1999
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ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $2,293,661 and
$2,202,683, respectively $ 6,779,625 $ 6,870,603
Investment in joint ventures 813,714 822,993
Cash and cash equivalents 921,085 1,048,174
Receivables, less allowance for doubtful accounts
of $1,236 in 1999 -- 18,768
Prepaid expenses 8,677 8,322
Lease costs, less accumulated amortization of
$28,125 and $26,875, respectively 21,875 23,125
Accrued rental income 35,785 33,700
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$ 8,580,761 $ 8,825,685
================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 12,038 $ 61,890
Escrowed real estate taxes payable 6,433 11,031
Distributions payable 266,982 266,982
Due to related parties 121,157 123,477
Rents paid in advance and deposits 31,063 27,443
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Total liabilities 437,673 490,823
Partners' capital 8,143,088 8,334,862
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$ 8,580,761 $ 8,825,685
================== ===================
See accompanying notes to condensed financial statements
4
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CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
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Quarter Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
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Revenues:
Rental income from operating leases $231,808 $ 248,493 $ 457,425 $ 482,159
Interest and other income 7,351 3,605 30,562 5,203
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239,159 252,098 487,987 487,362
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Expenses:
General operating and administrative 27,940 17,404 56,334 39,080
Professional services 855 8,937 9,743 11,202
Real estate taxes -- -- -- 1,091
State and other taxes 179 -- 9,468 5,667
Depreciation and amortization 46,114 51,430 92,228 102,860
Transaction costs 9,206 26,454 25,453 57,570
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84,294 104,225 193,226 217,470
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Income Before Equity in Earnings of Joint
Ventures 154,865 147,873 294,761 269,892
Equity in Earnings of Joint Ventures 23,523 23,518 47,429 47,408
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Net Income $ 178,388 $ 171,391 $ 342,190 $ 317,300
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Allocation of Net Income:
General partners $ 1,784 $ 1,714 $ 3,422 $ 3,173
Limited partners 176,604 169,677 338,768 314,127
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$ 178,388 $ 171,391 $ 342,190 $ 317,300
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Net Income Per Limited Partner Unit $ 5.89 $ 5.66 $ 11.29 $ 10.47
=========== =========== =========== ===========
Weighted Average Number of Limited Partner
Units Outstanding 30,000 30,000 30,000 30,000
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See accompanying notes to condensed financial statements
5
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CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
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Six Months Ended Year Ended
June 30, December 31,
2000 1999
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General partners:
Beginning balance $ 340,768 $ 330,430
Net income 3,422 10,338
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344,190 340,768
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Limited partners:
Beginning balance 7,994,094 7,996,589
Net income 338,768 1,065,433
Distributions ($17.80 and $35.60 per
limited partner unit, respectively) (533,964 ) (1,067,928 )
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7,798,898 7,994,094
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Total partners' capital $ 8,143,088 $ 8,334,862
======================= ======================
See accompanying notes to condensed financial statements
6
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CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
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Six Months Ended
June 30,
2000 1999
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Increase (Decrease) in Cash and Cash Equivalents:
Net Cash Provided by Operating Activities $ 406,875 $ 484,967
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Cash Flows from Financing Activities:
Distributions to limited partners (533,964 ) (533,964 )
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Net cash used in financing activities (533,964 ) (533,964 )
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Net Decrease in Cash and Cash Equivalents (127,089 ) (48,997 )
Cash and Cash Equivalents at Beginning of Period 1,048,174 252,521
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Cash and Cash Equivalents at End of Period $ 921,085 $ 203,524
============== ==============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
quarter $ 266,982 $ 266,982
============== ==============
See accompanying notes to condensed financial statements
7
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CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
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, 2000 may not be indicative of
the results that may be expected for the year ending December 31, 2000.
Amounts as of December 31, 1999, 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,
1999.
2. Termination of Merger
On March 1, 2000, the general partners and CNL American Properties
Fund, Inc. ("APF") mutually agreed to terminate the Agreement and Plan
of Merger entered into in March 1999. The general partners are
continuing to evaluate strategic alternatives for the Partnership,
including alternatives to provide liquidity to the limited partners.
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, 2000,
the Partnership owned 16 Properties, which included 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.
Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 2000 and 1999 was cash from operations (which includes cash received
from tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). For the six months ended June 30, 2000
and 1999, the Partnership generated cash from operations of $406,875 and
$484,967, respectively. The decrease in cash from operations for the six months
ended June 30, 2000 was primarily a result of changes in the Partnership's
working capital.
Currently, rental income from the Partnership's Properties and net
sales proceeds held by the Partnership are invested in money market accounts or
other short-term, highly liquid investments such as demand deposit accounts at
commercial banks, certificates of deposit and money market accounts with less
than a 30-day maturity date, pending the Partnership's use of such funds to pay
Partnership expenses or to make distributions to the partners. At June 30, 2000,
the Partnership had $921,085 invested in such short-term investments, as
compared to $1,048,174 at December 31, 1999. The funds remaining at June 30,
2000 will be used for the payment of distributions and other liabilities.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
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.
Total liabilities of the Partnership, including distributions payable,
decreased to $437,673 at June 30, 2000, from $490,823 at December 31, 1999,
primarily as a result of a decrease in accounts payable at June 30, 2000. The
general partners believe that the Partnership has sufficient cash on hand to
meet current working capital needs.
Based on current and anticipated future cash from operations, the
Partnership declared distributions to limited partners of $533,964 for each of
the six months ended June 30, 2000 and 1999 ($266,982 for each of the quarters
ended June 30, 2000 and 1999). This represents distributions of $17.80 per unit
for each of the six months ended June 30, 2000 and 1999 ($8.90 per unit for each
of the quarters ended June 30, 2000 and 1999). No distributions were made to the
general partners for the quarters and six months ended June 30, 2000 and 1999.
No amounts distributed to the limited partners for the six months ended June 30,
2000 and 1999 are required to be or have been treated by the Partnership as a
return 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.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the six months ended June 30, 1999, the Partnership owned and
leased 14 wholly owned Properties (including one Property in Kent Island,
Maryland, which was sold in October 1999) and during the six months ended June
30, 2000, the Partnership owned and leased 13 wholly owned Properties to
operators of fast-food and family-style restaurant chains. In connection
therewith, during the six months ended June 30, 2000 and 1999, the Partnership
earned $457,425 and $482,159, respectively, in rental and contingent rental
income from these Properties, $231,808 and $248,493 of which was earned during
the quarters ended June 30, 2000 and 1999, respectively. Rental and contingent
rental income decreased during the quarter and six months ended June 30, 2000,
as compared to the quarter and six months ended June 30, 1999, by approximately
$23,200 and $46,300, respectively, as a result of the sale of the Kent Island,
Maryland Property in October 1999. The general partners anticipate distributing
the majority of the sales proceeds to the limited partners with their third
quarter distributions; therefore, revenues are expected to remain at reduced
amounts.
The decrease in rental and contingent rental income during the six
months ended June 30, 2000, as compared to the six months ended June 30, 1999,
was partially offset by an increase of approximately $17,800 due to the fact
that the Partnership collected and recognized as income past due rental amounts
relating to the Property in Mesquite, Texas, for which it had previously
established an allowance for doubtful accounts.
During the six months ended June 30, 2000 and 1999, the Partnership
earned $30,562 and $5,203, respectively, in interest and other income, $7,351
and $3,605 of which was earned during the quarters ended June 30, 2000 and 1999,
respectively. The increase in interest and other income during the quarter and
six months ended June 30, 2000, as compared to the quarter and six months ended
June 30, 1999, was primarily attributable to interest income earned on the net
sales proceeds relating to the 1999 sale of the Property in Kent Island,
Maryland, pending distribution to the limited partners or payment of liabilities
of the Partnership.
During the six months ended June 30, 2000 and 1999, 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, 2000 and 1999, the Partnership earned
$47,429 and $47,408, respectively, attributable to net income earned by these
joint ventures, $23,523 and $23,518 of which was earned during the quarters
ended June 30, 2000 and 1999, respectively.
Operating expenses, including depreciation and amortization expense,
were $193,226 and $217,470 for the six months ended June 30, 2000 and 1999,
respectively, of which $84,294 and $104,225 were incurred for the quarters ended
June 30, 2000 and 1999, respectively. The decrease in operating expenses for the
quarter and six months ended June 30, 2000 was partially attributable to the
fact that the Partnership incurred less transaction costs related to the general
partners retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed merger with CNL American Properties Fund, Inc. ("APF"),
due to the termination of the proposed merger as described below in "Termination
of Merger". In addition, the decrease during the quarter and six months ended
June 30, 2000 was partially attributable to a decrease in depreciation expense
as a result of the 1999 sale of the Property in Kent Island, Maryland.
The decrease in operating expenses during the quarter and six months
ended June 30, 2000, as compared to the quarter and six months ended June 30,
1999, was partially offset by an increase in (i) administrative expenses for
servicing the Partnership and its Properties and (ii) state tax expense.
Termination of Merger
On March 1, 2000, the general partners and APF mutually agreed to
terminate the Agreement and Plan of Merger (the "Merger") entered into in March
1999. The general partners are continuing to evaluate strategic alternatives for
the Partnership, including alternatives to provide liquidity to the limited
partners.
Dismissal of Legal Action
As described in greater detail in Part II, Item 1 "Legal Proceedings",
in 1999 two groups of limited partners in several CNL Income Funds filed
purported class action suits against the general partners and APF alleging,
among other things, that the general partners had breached their fiduciary
duties in connection with the proposed merger. These actions were later
consolidated into one action. On April 25, 2000, the judge in the consolidated
action issued an order dismissing the action without prejudice, with each party
to bear its own costs and attorneys' fees.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed merger. The plaintiffs
sought unspecified damages and equitable relief. On July 8, 1999,
the plaintiffs filed an amended complaint which, in addition to
naming three additional plaintiffs, included allegations of aiding
and abetting and conspiring to breach fiduciary duties, negligence
and breach of duty of good faith against certain of the defendants
and sought additional equitable relief. As amended, the caption of
the case was Jon Hale, Mary J. Hewitt, Charles A. Hewitt, Gretchen
M. Hewitt, Bernard J. Schulte, Edward M. and Margaret Berol Trust,
and Vicky Berol v. James M. Seneff, Jr., Robert A. Bourne, CNL
Realty Corporation, and CNL American Properties Fund, Inc., Case
No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999
against the general partners and APF, Ira Gaines, individually and
on behalf of a class of persons similarly situated, v. CNL
American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc., CNL
Financial Corporation a/k/a CNL Financial Corp., CNL Financial
Services, Inc. and CNL Group, Inc., Case No. CIO-99-3796, in the
Circuit Court of the Ninth Judicial Circuit of Orange County,
Florida, alleging that the general partners breached their
fiduciary duties and that APF aided and abetted their breach of
fiduciary duties in connection with the proposed merger. The
plaintiff sought unspecified damages and equitable relief.
On September 23, 1999, Judge Lawrence Kirkwood entered an order
consolidating the two cases under the caption In re: CNL Income
Funds Litigation, Case No. 99-3561. Pursuant to this order, the
plaintiffs in these cases filed a consolidated and amended
complaint on November 8, 1999. On December 22, 1999, the general
partners and CNL Group, Inc. filed motions to dismiss and motions
to strike. On December 28, 1999, APF and CNL Fund Advisors, Inc.
filed motions to dismiss. On March 6, 2000, all of the defendants
filed a Joint Notice of Filing Form 8-K Reports and Suggestion of
Mootness.
On April 25, 2000, Judge Kirkwood issued a Stipulated Final Order
of Dismissal of Consolidated Action, dismissing the action without
prejudice, with each party to bear its own costs and attorneys'
fees.
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
3.1 Certificate of Limited Partnership of CNL Income Fund, Ltd.,
as amended. (Included as Exhibit 3.1 to Amendment No. 1 to
Registration Statement No. 33-2850 on Form S-11 and
incorporated herein by reference.)
3.2 Amended and Restated Certificate and Agreement of Limited
Partnership of CNL Income Fund, Ltd. (Included as Exhibit
3.2 to Form 10-K filed with the Securities and Exchange
Commission on March 27, 1998, and incorporated herein by
reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund, Ltd.,
as amended. (Included as Exhibit 4.1 to Amendment No. 1 to
Registration Statement No. 33-2850 on Form S-11 and
incorporated herein by reference.)
4.2 Form of Amended and Restated Certificate and Agreement of
Limited Partnership of CNL Income Fund, Ltd. (Included as
Exhibit 3.2 to Form 10-K filed with the Securities and
Exchange Commission on March 27, 1998, and incorporated
herein by reference.)
10.1 Property Management Agreement. (Included as Exhibit 10.1 to
Form 10-K filed with the Securities and Exchange Commission
on March 27, 1998, and incorporated herein by reference.)
10.2 Assignment of Property Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 30, 1995, and
incorporated herein by reference.)
10.3 Assignment of Property Management Agreement from CNL Income
Fund Advisors, Inc. to CNL Fund Advisors, Inc. (Included as
Exhibit 10.3 to Form 10-K filed with the Securities and
Exchange Commission on March 29, 1996, and incorporated
herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June
30, 2000.
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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 8th day of August, 2000.
CNL INCOME FUND, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
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JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
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ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
