<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund III, Ltd. at March 31, 1996, and its statement of
income for the three months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Income Fund III, Ltd. for the three months
ended March 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 258,323
<SECURITIES> 0
<RECEIVABLES> 431,536
<ALLOWANCES> 361,875
<INVENTORY> 0
<CURRENT-ASSETS> 332,379
<PP&E> 20,644,209
<DEPRECIATION> 3,442,366
<TOTAL-ASSETS> 18,863,311
<CURRENT-LIABILITIES> 753,815
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,966,134
<TOTAL-LIABILITY-AND-EQUITY> 18,863,311
<SALES> 0
<TOTAL-REVENUES> 588,182
<CGS> 0
<TOTAL-COSTS> 183,217
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 403,490
<INCOME-TAX> 0
<INCOME-CONTINUING> 403,490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403,490
<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 March 31, 1996
-----------------------------------
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 7-10
Part II
Other Information 11
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
March 31, December 31,
ASSETS 1996 1995
----------- ------------
Land and buildings on operating
leases, less accumulated
depreciation of $3,442,366 and
$3,334,676 and allowance for
loss on land and building of
$207,844 in 1996 and 1995 $17,201,843 $17,309,533
Investment in direct financing
lease 543,560 545,014
Investment in joint venture 659,565 663,842
Cash and cash equivalents 258,323 312,814
Receivables, less allowance for
doubtful accounts of $361,875
and $353,277 69,661 106,638
Prepaid expenses 4,395 5,601
Lease costs, less accumulated
amortization of $1,712 and
$1,562 10,288 10,438
Accrued rental income, less
allowance for doubtful accounts
of $36,361 and $34,830 86,322 82,071
Other assets 29,354 29,354
----------- -----------
$18,863,311 $19,065,305
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 10,989 $ 14,489
Accrued and escrowed real estate
taxes payable 66,675 77,253
Distributions payable 594,000 594,000
Due to related parties 73,576 53,915
Rents paid in advance and deposits 8,575 24,792
----------- -----------
Total liabilities 753,815 764,449
Commitments (Note 2)
Minority interest 143,362 144,212
Partners' capital 17,966,134 18,156,644
----------- -----------
$18,863,311 $19,065,305
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended
March 31,
1996 1995
-------- --------
Revenues:
Rental income from operating leases $529,484 $562,798
Earned income from direct financing
lease 17,936 18,116
Contingent rental income 30,825 33,773
Interest and other income 9,937 5,402
-------- --------
588,182 620,089
-------- --------
Expenses:
General operating and administrative 40,390 25,688
Professional services 10,836 4,069
Real estate taxes 12,268 5,981
State and other taxes 11,883 11,090
Depreciation and amortization 107,840 108,624
-------- --------
183,217 155,452
-------- --------
Income Before Minority Interest in
Income of Consolidated Joint
Venture and Equity in Earnings of
Unconsolidated Joint Venture 404,965 464,637
Minority Interest in Income of
Consolidated Joint Venture (4,200) (4,232)
Equity in Earnings of Unconsolidated
Joint Venture 2,725 3,341
-------- --------
Net Income $403,490 $463,746
======== ========
Allocation of Net Income:
General partners $ 4,035 $ 4,637
Limited partners 399,455 459,109
-------- --------
$403,490 $463,746
======== ========
Net Income Per Limited Partner Unit $ 7.99 $ 9.18
======== ========
Weighted Average Number of Limited
Partner Units Outstanding 50,000 50,000
======== ========
See accompanying notes to financial statements.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Quarter Ended Year Ended
March 31, December 31,
1996 1995
------------- ------------
General partners:
Beginning balance $ 303,158 $ 289,252
Net income 4,035 13,906
----------- -----------
307,193 303,158
----------- -----------
Limited partners:
Beginning balance 17,853,486 18,760,877
Net income 399,455 1,468,609
Distributions ($11.88 and
$47.52 per limited partner
unit, respectively) (594,000) (2,376,000)
----------- -----------
17,658,941 17,853,486
----------- -----------
Total partners' capital $17,966,134 $18,156,644
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1996 1995
--------- ---------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 544,559 $ 572,033
--------- ---------
Cash Flows from Financing
Activities:
Proceeds from loan from
corporate general partner 86,200 -
Repayment of loan from
corporate general partner (86,200) -
Distributions to limited
partners (594,000) (594,000)
Distributions to holders of
minority interest (5,050) (5,050)
--------- ---------
Net cash used in financing
activities (599,050) (599,050)
--------- ---------
Net Decrease in Cash and Cash
Equivalents (54,491) (27,017)
Cash and Cash Equivalents at Beginning
of Quarter 312,814 505,374
--------- ---------
Cash and Cash Equivalents at End of
Quarter $ 258,323 $ 478,357
========= =========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid
at end of quarter $ 594,000 $ 594,000
========= =========
See accompanying notes to condensed financial statements.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1996 and 1995
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 ended March 31, 1996, may not be indicative of the results
that may be expected for the year ending December 31, 1996. Amounts as
of December 31, 1995, 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, 1995.
The Partnership accounts for its 69.07% interest in Tuscawilla Joint
Venture using the consolidation method. Minority interest represents
the minority joint venture partners' proportionate share of the equity
in the Partnership's consolidated joint venture. All significant
intercompany accounts and transactions have been eliminated.
Effective January 1, 1996, the Partnership adopted 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 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. Adoption of this standard had no
material effect on the Partnership's financial position or results of
operations.
2. Commitments:
-----------
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 March 31, 1996, the Partnership and the tenant had not
yet entered into a purchase and sale agreement relating to this
property.
In March 1996, the Partnership entered into a purchase and sale
agreement with an unrelated third party to sell the Partnership's Po
Folks Property located in Hagerstown, Maryland. The closing is
scheduled to occur no later than July 1996.
3. Subsequent Event:
----------------
In April 1996, the Partnership entered into a promissory note with the
corporate general partner for a loan in the amount of $124,200 in
connection with the operations of the Partnership. The note is
uncollateralized, non-interest bearing and due on demand.
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 restaurant properties, 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. The leases generally are triple-net
leases, with the lessees responsible for all repairs and maintenance, property
taxes, insurance and utilities. As of March 31, 1996, 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 quarters ended March
31, 1996 and 1995, 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 $544,559 and
$572,033 for the quarters ended March 31, 1996 and 1995, respectively. The
decrease in cash from operations for the quarter ended March 31, 1996, 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.
Other sources and uses of capital included the following during the
quarters ended March 31, 1996 and 1995.
In January 1996, the Partnership entered into a promissory note with the
corporate general partner for a loan in the amount of $86,200 in connection
with the operations of the Partnership. The loan was uncollateralized, bore
interest at a rate of prime plus 0.25% per annum and was due on demand. As of
March 31, 1996, the Partnership had repaid the loan in full along with
approximately $660 in interest, to the corporate general partner.
In addition, in April 1996, the Partnership entered into a promissory
note with the corporate general partner for a loan in the amount of $124,200
in connection with the operations of the Partnership. The note is
uncollateralized, non-interest bearing and due on demand.
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 April 30, 1996, the Partnership and the tenant had not yet entered into a
purchase and sale agreement relating to this Property. In addition, in March
1996, the Partnership entered into a purchase and sale agreement with an
unrelated third party to sell the Partnership's Po Folks Property located in
Hagerstown, Maryland. The closing is scheduled to occur no later than July
1996. These transactions, if they occur, are not expected to adversely affect
the Partnership's operations in 1996 and future years. Any proceeds received
from the sale of these Properties will be reinvested in additional Properties,
distributed to the limited partners or used for other Partnership purposes.
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 March 31, 1996, the Partnership had
$258,323 invested in such short-term investments as compared to $312,814 at
December 31, 1995. The funds remaining at March 31, 1996, will be used
towards the payment of distributions and other liabilities.
Total liabilities of the Partnership, including distributions payable,
decreased to $753,815 at March 31, 1996, from $764,449 at December 31, 1995.
Liabilities at March 31, 1996, to the extent they exceed cash and cash
equivalents at March 31, 1996, will be paid from future cash from operations,
from the loan received from the corporate general partner in April 1996
described above, 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 to a
lesser extent, the loan received from the corporate general partner in April
1996 described above, the Partnership declared distributions to limited
partners of $594,000 for each of the quarters ended March 31, 1996 and 1995.
This represents distributions for each applicable quarter of $11.88 per unit.
No distributions were made to the general partners for the quarters ended
March 31, 1996 and 1995. No amounts distributed or to be distributed to the
limited partners for the quarters ended March 31, 1996 and 1995, 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.
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 Partner-ship'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 quarters ended March 31, 1996 and 1995, 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 quarters ended March 31, 1996 and
1995, the Partnership and Tuscawilla Joint Venture earned $547,420 and
$580,914, respectively, in rental income from operating leases and earned
income from the direct financing lease. For the quarters ended March 31, 1996
and 1995, the Partnership also earned $30,825 and $33,773, respectively, in
contingent rental income.
The decrease in rental and earned income is primarily a result of the
fact that in February 1995, the tenant of the Po Folks Property in Hagerstown,
Maryland, ceased operations of the restaurant business located on such
Property. As a result of the Partnership discontinuing the recognition of
rental income relating to this Property, the Partnership recorded no rental
income relating to this Property for the quarter ended March 31, 1996, as
compared to approximately $27,500 for the quarter ended March 31, 1995.
Currently, the Partnership is pursuing collection of the past due amounts and
will recognize any such amounts as income if collected. In addition, during
March 1996, the Partnership entered into a purchase and sale agreement with an
unrelated third party to sell this Property as discussed in "Liquidity and
Capital Resources" above.
During the quarter ended March 31, 1996, rental and earned income also
decreased by approximately $15,000 as the result of the fact that the
Partnership increased its allowance for doubtful accounts 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 is doubtful due to the continued financial difficulties the tenant
is experiencing. The Partnership intends to pursue collection of amounts due
in accordance with the lease and will record such amounts as income if
collected.
The decrease in rental and earned income during the quarter ended March
31, 1996, as compared to the quarter ended March 31, 1995, was partially
offset by an increase of approximately $9,200 as a result of the fact that in
June 1995, a new operator began operating the Property in Page, Arizona, 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 1996.
For the quarters ended March 31, 1996 and 1995, the Partnership also
owned and leased one Property indirectly through another joint venture
arrangement. In connection therewith, during the quarters ended March 31,
1996 and 1995, the Partnership earned $2,725 and $3,341, respectively,
attributable to net income earned by this joint venture.
Operating expenses, including depreciation and amortization expense,
were $183,217 and $155,452 for the quarters ended March 31, 1996 and 1995,
respectively. The increase in operating expenses during the quarter ended
March 31, 1996, as compared to the quarter ended March 31, 1995, is primarily
the result of an increase in (i) accounting and administrative expenses
associated with operating the Partnership and its Properties and
(ii) insurance expense as a result of the general partners' obtaining
contingent liability and property coverage for the Partnership, effective May
1995. 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. Operating expenses also increased due
to the fact that during the quarter ended March 31, 1996, the Partnership
incurred professional services as a result of appraisal updates obtained to
prepare an annual statement of unit valuation to qualified plans in accordance
with the Partnership's partnership agreement. During 1995, these professional
services were incurred during the quarter ended June 30, 1995.
In addition, the increase in operating expenses during the quarter ended
March 31, 1996, as compared to the quarter ended March 31, 1995, is partially
attributable to the Partnership's accruing 1996 real estate taxes of
approximately $7,200 relating to the Denny's and Po Folks Properties in
Hagerstown, Maryland. The Partnership also continued to accrue real estate
taxes during the quarters ended March 31, 1996 and 1995, for the Property in
Chicago, Illinois. Payment of these taxes remains the responsibility of the
tenants of these Properties; however, because of the current financial
difficulties the tenants are experiencing, the general partners believe the
tenants' ability to pay these expenses is doubtful. The Partnership expects
to continue to incur real estate tax expense relating to the Property in
Chicago, Illinois, due to the continued financial difficulties of the tenant.
The Partnership also expects to continue to incur real estate tax expense for
the Denny's Property in Hagerstown, Maryland, until such time as a replacement
tenant is located, and for the Po Folks Property in Hagerstown, Maryland,
until the Property is sold under the agreement discussed in "Liquidity and
Capital Resources" above. The Partnership intends to pursue collection from
the tenants and any such amounts paid by the Partnership and will recognize
such amounts as income if collected.
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
March 31, 1996.
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 14th day of May, 1996.
CNL INCOME FUND III, 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)
