<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund III, Ltd. at June 30, 1995, and its statement of
income for the six months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Income Fund III, Ltd. for the six months
ended June 30, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 460,090
<SECURITIES> 0
<RECEIVABLES> 326,596
<ALLOWANCES> 245,903
<INVENTORY> 0
<CURRENT-ASSETS> 549,225
<PP&E> 20,852,053
<DEPRECIATION> 3,117,732
<TOTAL-ASSETS> 19,613,555
<CURRENT-LIABILITIES> 696,450
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 18,771,525
<TOTAL-LIABILITY-AND-EQUITY> 19,613,555
<SALES> 0
<TOTAL-REVENUES> 1,217,281
<CGS> 0
<TOTAL-COSTS> 306,202
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 909,396
<INCOME-TAX> 0
<INCOME-CONTINUING> 909,396
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 909,396
<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 June 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
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 6-10
Part II
Other Information 11
<TABLE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<CAPTION>
June 30, December 31,
ASSETS 1995 1994
----------- ------------
<S> <C> <C>
Land and buildings on operating
leases, less accumulated
depreciation of $3,117,732 and
$2,900,784 $17,734,321 $17,951,269
Investment in direct financing
lease 547,781 550,372
Investment in joint venture 668,569 689,326
Cash and cash equivalents 460,090 505,374
Receivables, less allowance for
doubtful accounts of $245,903
and $310,507 80,693 115,977
Prepaid expenses 8,442 3,823
Lease costs, less accumulated
amortization of $1,262 and $962 10,738 11,038
Accrued rental income, less
allowance for doubtful accounts
of $29,500 in 1995 73,567 89,232
Other assets 29,354 29,354
----------- -----------
$19,613,555 $19,945,765
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 8,572 $ 19,293
Accrued and escrowed real estate
taxes payable 40,101 94,138
Distributions payable 594,000 594,000
Due to related parties 16,615 2,337
Rents paid in advance 37,162 38,864
----------- -----------
Total liabilities 696,450 748,632
Minority interest 145,580 147,004
Partners' capital 18,771,525 19,050,129
----------- -----------
$19,613,555 $19,945,765
=========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<TABLE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $553,888 $530,613 $1,116,686 $1,091,770
Earned income from
direct financing
lease 18,074 19,036 36,190 36,511
Contingent rental income 24,119 20,431 57,892 48,761
Interest and other income 1,111 2,603 6,513 24,004
-------- -------- ---------- ----------
597,192 572,683 1,217,281 1,201,046
-------- -------- ---------- ----------
Expenses:
General operating and
administrative 29,012 37,590 54,700 63,101
Professional services 8,375 9,128 12,444 15,155
Real estate taxes 4,507 38,204 10,488 38,204
Other taxes 232 12,100 11,322 12,100
Depreciation and amorti-
zation 108,624 108,618 217,248 217,237
-------- -------- ---------- ----------
150,750 205,640 306,202 345,797
-------- -------- ---------- ----------
Income Before Minority
Interest in Income of
Consolidated Joint Venture
and Equity in Earnings of
Unconsolidated Joint
Venture 446,442 367,043 911,079 855,249
Minority Interest in Income
of Consolidated Joint
Venture (4,319) (4,244) (8,551) (8,583)
Equity in Earnings of Uncon-
solidated Joint Venture 3,527 3,825 6,868 7,297
-------- -------- ---------- ----------
Net Income $445,650 $366,624 $ 909,396 $ 853,963
======== ======== ========== ==========
Allocation of Net Income:
General partners $ 4,457 $ 3,666 $ 9,094 $ 8,540
Limited partners 441,193 362,958 900,302 845,423
-------- -------- ---------- ----------
$445,650 $366,624 $ 909,396 $ 853,963
======== ======== ========== ==========
Net Income Per Limited
Partner Unit $ 8.82 $ 7.26 $ 18.01 $ 16.91
======== ======== ========== ==========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<TABLE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1995 1994
---------------- ------------
<S> <C> <C>
General partners:
Beginning balance $ 289,252 $ 270,666
Net income 9,094 18,586
----------- -----------
298,346 289,252
----------- -----------
Limited partners:
Beginning balance 18,760,877 19,296,858
Net income 900,302 1,840,019
Distributions (1,188,000) (2,376,000)
----------- -----------
18,473,179 18,760,877
----------- -----------
Total partners' capital $18,771,525 $19,050,129
=========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<TABLE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
June 30,
1995 1994
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 1,152,691 $ 1,145,563
----------- -----------
Cash Flows from Investing
Activities:
Collections on loans - 11,601
Payment of lease costs - (4,000)
----------- -----------
Net cash provided by
investing activities - 7,601
----------- -----------
Cash Flows from Financing
Activities:
Distributions to limited
partners (1,188,000) (1,188,000)
Distributions to holders of
minority interest (9,975) (9,936)
----------- -----------
Net cash used in financing
activities (1,197,975) (1,197,936)
----------- -----------
Net Decrease in Cash and Cash
Equivalents (45,284) (44,772)
Cash and Cash Equivalents at Beginning
of Period 505,374 515,863
----------- -----------
Cash and Cash Equivalents at End of
Period $ 460,090 $ 471,091
=========== ===========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid
at end of period $ 594,000 $ 594,000
=========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 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
six months ended June 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.
Net income per limited partner unit is calculated based upon the weighted
average number of units of limited partnership interest outstanding
during each period. The weighted average number of limited partner units
outstanding for each of the quarters and six months ended June 30, 1995
and 1994 was 50,000.
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.
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 June
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 six months ended June
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 $1,152,691
and $1,145,563 for the six months ended June 30, 1995 and 1994, respectively.
The increase in cash from operations for the six months ended June 30, 1995, is
primarily a result of changes in income and expenses as discussed in "Results
of Operations" below.
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. During the six months ended June 30, 1995,
the tenant discontinued payment of the base rental income as provided in its
lease agreement. In addition, as of June 30, 1995, the Partnership had not
received any payments relating to the $250,525 of past due rental amounts and
was negotiating to sell the Property and accept a promissory note for a portion
of the sales price. In connection with the sale, the Partnership is expected
to accept a settlement of ten percent of the gross arrearages due, or approxi-
mately $25,900. The amount of arrearages included in receivables at June 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.
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 $2,588, which was
received during the six months ended June 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 June 30, 1995, the Partnership had $460,090
invested in such short-term investments as compared to $505,374 at December 31,
1994. The funds remaining at June 30, 1995, will be used towards the payment
of distributions and other liabilities.
Total liabilities of the Partnership, including distributions payable,
decreased to $696,450 at June 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.
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 June
30, 1995, to the extent they exceed cash and cash equivalents at June 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.
Based on current and anticipated future cash from operations, the
Partnership declared distributions to limited partners of $1,188,000 for each
of the six months ended June 30, 1995 and 1994 ($594,000 for each of the
quarters ended June 30, 1995 and 1994). This represents distributions for each
applicable six months of $23.76 per unit ($11.88 per unit for each applicable
quarter). No distributions were made to the general partners for the quarters
and six months ended June 30, 1995 and 1994. No amounts distributed or to be
distributed to the limited partners for the quarters and six months ended June
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 six months ended June 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 six months ended June 30, 1995 and
1994, the Partnership and Tuscawilla Joint Venture earned $1,152,876 and
$1,128,281, respectively, in rental income from operating leases and earned
income from the direct financing lease for these Properties, $571,962 and
$549,649 of which was earned during the quarters ended June 30, 1995 and 1994,
respectively.
During the quarter ended June 30, 1995, the Partnership terminated its
lease with the tenant of the Property in Page, Arizona. In connection there-
with, the Partnership received and recorded as rental income approximately
$40,000 during the quarter ended June 30, 1995, that relates to amounts that
had been reserved as uncollectible in the previous periods. During the quarter
and six months ended June 30, 1994, the Partnership earned $17,739 and $35,478,
respectively, in rental income relating to this Property; however, due to the
financial difficulties the tenant was experiencing, the Partnership reduced
such amounts by approximately $25,000 by establishing an allowance for doubtful
accounts during such period. 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 $31,400 during the quarter ended June 30, 1995. In June 1995, a
new operator began operating this Property on a month-to-month basis. 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, the increase in rental and earned income
during the quarter and six months ended June 30, 1995, as compared to the
quarter and six months ended June 30, 1994, was partially offset by a decrease
in revenues of approximately $51,700. During the quarter ended June 30, 1994,
the Partnership had increased its allowance for doubtful accounts for rental
amounts of approximately $61,000 relating to this Property. The Partnership is
currently negotiating the sale of this Property as discussed above in
"Liquidity and Capital Resources."
During the quarter and six months ended June 30, 1995, the increase in
rental and earned income was also partially offset by a decrease of $29,500 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 June 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 six months ended June 30, 1995 and 1994, the Partnership also
earned $57,892 and $48,761, respectively, in contingent rental income, $24,119
and $20,431 of which was earned during the quarters ended June 30, 1995 and
1994, respectively. The increase in contingent rental income during the
quarter and six months ended June 30, 1995, as compared to the quarter and six
months ended June 30, 1994, is partially attributable to increased gross sales
of certain restaurant Properties requiring the payment of contingent rental
income. Contingent rental income also increased as the result of a lower
percentage rent breakpoint provided for in the lease amendment for the Property
in Hazard, Kentucky.
For the six months ended June 30, 1995 and 1994, the Partnership also
owned and leased one Property indirectly through another joint venture
arrangement. In connection therewith, during the six months ended June 30,
1995 and 1994, the Partnership earned $6,868 and $7,297, respectively,
attributable to net income earned by this joint venture, $3,527 and $3,825 of
which was earned during the quarters ended June 30, 1995 and 1994, respec-
tively.
During the six months ended June 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 six months ended June 30, 1995,
decreased to $6,513, as compared to $24,004 for the six months ended June 30,
1994, primarily as the result of proceeds received by the Partnership during
the six months ended June 30, 1994, for the taking of an easement relating to
one of its Properties. No such transaction occurred during the six months
ended June 30, 1995.
Operating expenses, including depreciation and amortization expense, were
$306,202 and $345,797 for the six months ended June 30, 1995 and 1994,
respectively, of which $150,750 and $205,640 were incurred for the quarters
ended June 30, 1995 and 1994, respectively. Operating expenses decreased
during the quarter and six months ended June 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 $5,200 and
$10,500 during the quarter and six months ended June 30, 1995, respectively, as
compared to approximately $45,400 during the quarter and six months ended June
30, 1994. The amounts recorded during the quarter and six months ended June
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.
Operating expenses also decreased during the quarter ended June 30, 1995,
as compared to the quarter ended June 30, 1994, due to the Partnership's
payment of certain taxes relating to the filing of various state tax returns
during the quarter ended March 31, 1995, which in the previous year were paid
during the quarter ended June 30, 1994.
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, 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 11th day of August, 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
