<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund III, Ltd. at September 30, 1995, and its statement of
income for the nine months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Income Fund III, Ltd. for the nine months
ended September 30, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 396,678
<SECURITIES> 0
<RECEIVABLES> 356,854
<ALLOWANCES> 247,697
<INVENTORY> 0
<CURRENT-ASSETS> 512,699
<PP&E> 20,852,053
<DEPRECIATION> 3,226,204
<TOTAL-ASSETS> 19,478,852
<CURRENT-LIABILITIES> 719,260
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 18,614,735
<TOTAL-LIABILITY-AND-EQUITY> 19,478,852
<SALES> 0
<TOTAL-REVENUES> 1,801,193
<CGS> 0
<TOTAL-COSTS> 460,942
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 737
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,346,606
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,346,606
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,346,606
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
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, 1995
-----------------------------------
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
0-16850
-----------------------
CNL Income Fund III, Ltd.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2809460
---------------------------- -----------------------------
(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 X No
--------- ---------
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 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 7-11
Part II
Other Information 12
<TABLE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<CAPTION>
September 30, December 31,
ASSETS 1995 1994
------------- ------------
<S> <C> <C>
Land and buildings on operating
leases, less accumulated
depreciation of $3,226,204 and
$2,900,784 $17,625,849 $17,951,269
Investment in direct financing
lease 546,421 550,372
Investment in joint venture 676,122 689,326
Cash and cash equivalents 396,678 505,374
Receivables, less allowance for
doubtful accounts of $247,697
and $310,507 109,157 115,977
Prepaid expenses 6,864 3,823
Lease costs, less accumulated
amortization of $1,412 and $962 10,588 11,038
Accrued rental income, less
allowance for doubtful accounts
of $32,165 in 1995 77,819 89,232
Other assets 29,354 29,354
----------- -----------
$19,478,852 $19,945,765
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 8,406 $ 19,293
Accrued and escrowed real estate
taxes payable 41,146 94,138
Distributions payable 594,000 594,000
Due to related parties 38,756 2,337
Rents paid in advance 36,952 38,864
----------- -----------
Total liabilities 719,260 748,632
Commitment (Note 2)
Minority interest 144,857 147,004
Partners' capital 18,614,735 19,050,129
----------- -----------
$19,478,852 $19,945,765
=========== ===========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $537,074 $566,515 $1,653,760 $1,658,285
Earned income from
direct financing
lease 18,029 18,199 54,219 54,710
Contingent rental income 15,567 40,064 73,459 88,825
Interest and other income 13,242 6,102 19,755 30,106
-------- -------- ---------- ----------
583,912 630,880 1,801,193 1,831,926
-------- -------- ---------- ----------
Expenses:
General operating and
administrative 34,359 16,602 88,322 76,039
Professional services 6,663 4,103 19,107 19,258
Bad debt expense - 338 737 4,002
Real estate taxes 5,833 34,438 16,321 72,642
State taxes - - 11,322 12,100
Depreciation and amorti-
zation 108,622 108,618 325,870 325,855
-------- -------- ---------- ----------
155,477 164,099 461,679 509,896
-------- -------- ---------- ----------
Income Before Minority
Interest in Income of
Consolidated Joint Venture
and Equity in Earnings of
Unconsolidated Joint
Venture 428,435 466,781 1,339,514 1,322,030
Minority Interest in Income
of Consolidated Joint
Venture (4,325) (4,352) (12,876) (12,935)
Equity in Earnings of Uncon-
solidated Joint Venture 13,100 3,460 19,968 10,757
-------- -------- ---------- ----------
Net Income $437,210 $465,889 $1,346,606 $1,319,852
======== ======== ========== ==========
Allocation of Net Income:
General partners $ 4,372 $ 4,659 $ 13,466 $ 13,199
Limited partners 432,838 461,230 1,333,140 1,306,653
-------- -------- ---------- ----------
$437,210 $465,889 $1,346,606 $1,319,852
======== ======== ========== ==========
Net Income Per Limited
Partner Unit $ 8.66 $ 9.22 $ 26.66 $ 26.13
======== ======== ========== ==========
Weighted Average Number
of Limited Partner Units
Outstanding 50,000 50,000 50,000 50,000
======== ======== ========== ==========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1995 1994
----------------- ------------
<S> <C> <C>
General partners:
Beginning balance $ 289,252 $ 270,666
Net income 13,466 18,586
----------- -----------
302,718 289,252
----------- -----------
Limited partners:
Beginning balance 18,760,877 19,296,858
Net income 1,333,140 1,840,019
Distributions (1,782,000 ) (2,376,000)
----------- -----------
18,312,017 18,760,877
----------- -----------
Total partners' capital $18,614,735 $19,050,129
=========== ===========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
September 30,
1995 1994
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 1,688,327 $ 1,772,951
----------- -----------
Cash Flows from Investing
Activities:
Collections on loans - 21,235
Payment of lease costs - (4,000)
----------- -----------
Net cash provided by
investing activities - 17,235
----------- -----------
Cash Flows from Financing
Activities:
Distributions to limited
partners (1,782,000) (1,782,000)
Distributions to holders of
minority interest (15,023) (14,984)
----------- -----------
Net cash used in financing
activities (1,797,023) (1,796,984)
----------- -----------
Net Decrease in Cash and Cash
Equivalents (108,696) (6,798)
Cash and Cash Equivalents at Beginning
of Period 505,374 515,863
----------- -----------
Cash and Cash Equivalents at End of
Period $ 396,678 $ 509,065
=========== ===========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid
at end of period $ 594,000 $ 594,000
=========== ===========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1995 and 1994
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 nine
months ended September 30, 1995, may not be indicative of the results that
may be expected for the year ending December 31, 1995. Amounts as of
December 31, 1994, 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 III, Ltd. (the "Partnership") for the year ended December 31,
1994.
The Partnership accounts for its 69.07% interest in the accounts of
Tuscawilla Joint Venture under the full consolidation method. All
significant intercompany accounts and transactions have been eliminated.
Certain items in the prior year's financial statements have been
reclassified to conform to 1995 presentation. These reclassifications had
no effect on partner's capital or net income.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
Statement, which is effective for fiscal years beginning after December
15, 1995, requires that an entity review long-lived assets and certain
identifiable intangibles to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. The Partnership plans to adopt this
standard in 1996 and does not expect compliance with such standard to have
a material effect, if any, on the Partnership's financial position or
results of operations.
2. Commitment:
----------
In May 1995, the Partnership received notice from the tenant of its
property in Bradenton, Florida, that it intends to exercise its option to
purchase the property in accordance with the terms of its lease agreement.
As of October 31, 1995, the Partnership and the tenant had not yet entered
into a purchase and sale agreement relating to this property.
3. Subsequent Event:
----------------
Effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its
rights in the management agreement with the Partnership to an affiliate of
the general partners, CNL Fund Advisors, Inc. All of the terms and
conditions of the management agreement remain unchanged.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CNL Income Fund III, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on June 1, 1987, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as land upon which restaurants were to be
constructed, which are leased primarily to operators of selected 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
September 30, 1995, the Partnership owned 32 Properties, including interests in
two Properties owned by joint ventures in which the Partnership is a co-
venturer.
Liquidity and Capital Resources
- -------------------------------
The Partnership's primary source of capital for the nine months ended
September 30, 1995 and 1994, 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). Cash from operations was
$1,688,327 and $1,772,951 for the nine months ended September 30, 1995 and 1994,
respectively. The decrease in cash from operations for the nine months ended
September 30, 1995, is primarily a result of changes in income and expenses as
discussed in "Results of Operations" below and changes in the Partnership's
working capital.
In August 1994, the Partnership entered into an agreement with the tenant
of the Po Folks Property in Hagerstown, Maryland, providing for the payment to
the Partnership of $250,525 of past due rental amounts on a weekly basis over a
period of approximately 60 months. As of September 30, 1995, the Partnership
had not received any payments relating to the $250,525 of past due rental
amounts. In addition, during the nine months ended September 30, 1995, the
tenant discontinued payment of the base rental income as provided in its lease
agreement. The amount of arrearages included in receivables at September 30,
1995 and December 31, 1994, is $25,924 and $0, respectively, which is net of an
allowance for doubtful accounts of $233,320 and $234,443, respectively. The
Partnership is continuing to pursue collection of all past due amounts from the
tenant and will recognize any amounts in excess of net receivables that are
collected as income.
During 1994, the Partnership received a judgment in bankruptcy relating to
the former tenant of the Property in Canton Township, Michigan, for an amount
equal to $3,324 as payment in full of all past due amounts owed to the
Partnership. Payment was due in 60 monthly installments of $66, including
interest at a rate of seven percent per annum, commencing on November 1, 1994.
The Partnership received no payments relating to this judgment and negotiated
with the former tenant a reduced lump sum settlement of $2,587, which was
received during the nine months ended September 30, 1995.
Currently, rental income from the Partnership's Properties is invested in
money market accounts and 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 September 30, 1995, the Partnership had
$396,678 invested in such short-term investments as compared to $505,374 at
December 31, 1994. The funds remaining at September 30, 1995, will be used
towards the payment of distributions and other liabilities.
Total liabilities of the Partnership, including distributions payable,
decreased to $719,260 at September 30, 1995, from $748,632 at December 31, 1994,
primarily as a result of the Partnership's payment of real estate taxes accrued
at December 31, 1994, relating to the Property in Chicago, Illinois, which the
Partnership paid due to the tenant's default under the terms of its lease, as
discussed in "Results of Operations" below. Liabilities also decreased as a
result of the Partnership's payment of real estate taxes that had been escrowed
at December 31, 1994. Liabilities at September 30, 1995, to the extent they
exceed cash and cash equivalents at September 30, 1995, will be paid from future
cash from operations and, in the event the general partners elect to make
additional capital contributions, from future general partner capital
contributions.
In May 1995, the Partnership received notice from the tenant of its
Property in Bradenton, Florida, that it intends to exercise its option to
purchase the Property in accordance with the terms of its lease agreement. As
of October 31, 1995, the Partnership and the tenant had not yet entered into a
purchase and sale agreement relating to this Property. This transaction, if it
occurs, is not expected to adversely affect the Partnership's operations in 1995
and future years. Any proceeds received from the sale of this Property will be
reinvested in additional Properties, distributed to the limited partners or used
for other Partnership purposes.
Based on current and anticipated future cash from operations, the
Partnership declared distributions to limited partners of $1,782,000 for each of
the nine months ended September 30, 1995 and 1994 ($594,000 for each of the
quarters ended September 30, 1995 and 1994). This represents distributions for
each applicable nine months of $35.64 per unit ($11.88 per unit for each
applicable quarter). No distributions were made to the general partners for the
quarters and nine months ended September 30, 1995 and 1994. No amounts
distributed or to be distributed to the limited partners for the nine months
ended September 30, 1995 and 1994, 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'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 nine months ended September 30, 1995 and 1994, the Partnership
and its consolidated joint venture, Tuscawilla Joint Venture, owned and leased
31 wholly owned Properties to operators of fast-food and family-style restaurant
chains. In connection therewith, during the nine months ended September 30,
1995 and 1994, the Partnership and Tuscawilla Joint Venture earned $1,707,979
and $1,712,995, respectively, in rental income from operating leases and earned
income from the direct financing lease for these Properties, $555,103 and
$584,714 of which was earned during the quarters ended September 30, 1995 and
1994, respectively.
During the nine months ended September 30, 1995, the Partnership
terminated its lease with the tenant of the Property in Page, Arizona. In
connection therewith, the Partnership received and recorded as rental income
approximately $40,000 during the nine months ended September 30, 1995, of which
a portion related to amounts that had been reserved as uncollectible in the
previous periods. Due to the fact that the Partnership does not expect to
receive any additional amounts from the former tenant of this Property, the
Partnership reversed the balance of rent and other receivables relating to this
Property, and the related allowance for doubtful accounts, of approximately
$51,300 during the nine months ended September 30, 1995. In June 1995, a new
operator began operating this Property on a month-to-month basis. The
Partnership earned approximately $14,400 in rental income under this arrangement
during the period June 1, 1995 through September 30, 1995. The Partnership is
currently negotiating a new lease for this Property with the new operator and
anticipates executing such lease in 1995.
In February 1995, the tenant of the Po Folks Property in Hagerstown,
Maryland, ceased operations of the restaurant business located on such Property
and the Partnership ceased recording rental revenue relating to such Property.
As a result of the tenant default, rental and earned income during the quarter
and nine months ended September 30, 1995, as compared to the quarter and nine
months ended September 30, 1994, decreased approximately $37,100 and $88,900,
respectively. The decrease was partially offset by the fact that during the
quarter and nine months ended September 30, 1994, the Partnership increased its
allowance for doubtful accounts for rental amounts of approximately $8,700 and
$70,100, respectively, relating to this Property. Currently, the Partnership
is pursuing collection of the past due amounts and will recognize any such
amounts as income if collected. In addition, the Partnership is seeking a
replacement tenant for this Property.
During the nine months ended September 30, 1995, rental and earned income
also decreased by approximately $32,200 as the result of the fact that the
Partnership established an allowance for doubtful accounts for accrued rental
income amounts relating to future scheduled rent increases recorded as of
September 30, 1995, for the Property in Chicago, Illinois. The tenant of this
Property remains responsible for compliance with the terms of the lease
(including the payment of scheduled rent increases as they become due); however,
the general partners believe that collection of future scheduled rent increases
is doubtful due to financial difficulties the tenant is experiencing. The
Partnership intends to pursue collection of amounts due in accordance with the
lease and will recognize scheduled rent increases as rental income as amounts
are collected for this Property.
For the nine months ended September 30, 1995 and 1994, the Partnership
also earned $73,459 and $88,825, respectively, in contingent rental income,
$15,567 and $40,064 of which was earned during the quarters ended September 30,
1995 and 1994, respectively. The decrease in contingent rental income during
the quarter and nine months ended September 30, 1995, as compared to the quarter
and nine months ended September 30, 1994, is primarily attributable to the
collection, during the nine months ended September 1994, of contingent rental
amounts previously reserved relating to the Denny's Property in Hagerstown,
Maryland.
For the nine months ended September 30, 1995 and 1994, the Partnership
also owned and leased one Property indirectly through another joint venture
arrangement. In connection therewith, during the nine months ended September
30, 1995 and 1994, the Partnership earned $19,968 and $10,757, respectively,
attributable to net income earned by this joint venture, $13,100 and $3,460 of
which was earned during the quarters ended September 30, 1995 and 1994,
respectively. The increase in net income attributable to this joint venture is
primarily a result of the receipt by the joint venture of bankruptcy proceeds
relating to the former tenant. These amounts had previously been written off;
therefore, they were recognized as income by the joint venture during the
quarter and nine months ended September 30, 1995.
During the nine months ended September 30, 1995, one of the Partnership's
lessees, Golden Corral Corporation, contributed more than ten percent of the
Partnership's total rental income (including the Partnership's share of the
rental income from two Properties owned by joint ventures in which the
Partnership is a co-venturer). Golden Corral Corporation is the lessee under
leases relating to six restaurants. It is anticipated that, based on the
minimum rental payments required by the leases, Golden Corral Corporation will
continue to contribute more than ten percent of the Partnership's total rental
income during the remainder of 1995 and subsequent years. Any failure of Golden
Corral Corporation could materially affect the Partnership's income.
Interest and other income during the nine months ended September 30, 1995,
decreased to $19,755, as compared to $30,106 for the nine months ended September
30, 1994, primarily as the result of proceeds received by the Partnership during
the nine months ended September 30, 1994, for the taking of an easement relating
to one of its Properties. No such transaction occurred during the nine months
ended September 30, 1995.
Operating expenses, including depreciation and amortization expense, were
$461,679 and $509,896 for the nine months ended September 30, 1995 and 1994,
respectively, of which $155,477 and $164,099 were incurred for the quarters
ended September 30, 1995 and 1994, respectively. Operating expenses decreased
during the quarter and nine months ended September 30, 1995, primarily as a
result of the fact that the Partnership accrued real estate taxes and related
interest relating to the Property in Chicago, Illinois, of approximately $5,800
and $16,300 during the quarter and nine months ended September 30, 1995,
respectively, as compared to approximately $37,700 and $83,100 during the
quarter and nine months ended September 30, 1994, respectively. The amounts
recorded during the quarter and nine months ended September 30, 1994, included
past due amounts relating to prior years' real estate taxes for this Property.
Payment of these taxes remains the responsibility of the tenant of this
Property; however, because of the current financial difficulties of the tenant,
the general partners believe the tenant's ability to pay these expenses is
doubtful. The Partnership intends to pursue collection from the tenant of any
such amounts paid by the Partnership and will recognize such amounts as income
if collected.
The decrease in operating expenses was partially offset by an increase in
(i) accounting and administrative expenses and (ii) insurance expense as a
result of the general partners' obtaining contingent liability and property
coverage for the Partnership. This insurance policy is intended to reduce the
Partnership's exposure in the unlikely event a tenant's insurance policy lapses
or is insufficient to cover a claim relating to the Property.
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, 1995.
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 November, 1995.
CNL INCOME FUND III, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-------------------------
JAMES M. SENEFF, JR.
President and Principal
Executive Officer
By: /s/ Robert A. Bourne
-------------------------
ROBERT A. BOURNE
Treasurer and Principal
Financial Officer
