UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street, Suite 500
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 422-1574
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to section 12(g) of the Act:
Units of limited partnership interest ($500 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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
----------- -----------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is
no market for such Units. Each Unit was originally sold at $500 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
ITEM 1. BUSINESS
CNL Income Fund III, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on June 1, 1987. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on August 10, 1987, the
Partnership offered for sale up to $25,000,000 in limited partnership
interests (the "Units") (50,000 Units at $500 per Unit) pursuant to a
registration statement on Form S-11 under the Securities Act of 1933, as
amended. The offering terminated on April 29, 1988, as of which date the
maximum offering proceeds of $25,000,000 had been received from investors who
were admitted to the Partnership as limited partners (the "Limited Partners").
The Partnership was organized primarily to acquire both newly
constructed and existing restaurant properties, as well as properties upon
which restaurants were to be constructed (the "Properties"), which are leased
primarily to operators of selected national and regional fast-food restaurant
chains (the "Restaurant Chains"). Net proceeds to the Partnership from its
offering of Units, after deduction of organizational and offering expenses,
totalled $22,125,102, and were used to acquire 32 Properties, including
interests in two Properties owned by joint ventures in which the Partnership
is a co-venturer. Generally, the Properties are leased on a triple-net basis
with the lessee responsible for all repairs and maintenance, property taxes,
insurance and utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to
sell Properties, the General Partners will consider factors such as potential
capital appreciation, net cash flow and federal income tax considerations.
Certain lessees have been granted options to purchase Properties, generally at
a Property's then fair market value after a specified portion of the lease
term has elapsed. In general, the General Partners plan to seek the sale of
some of the Properties commencing seven to 15 years after their acquisition.
The Partnership has no obligation to sell all or any portion of a Property at
any particular time, except as may be required under Property or joint venture
purchase options granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership
and joint ventures in which the Partnership is a co-venturer provide for
initial terms ranging from 10 to 20 years (the average being 19 years), and
expire between 2001 and 2013. All leases are on a triple-net basis, with the
lessee generally responsible for all repairs and maintenance, property taxes,
insurance and utilities. The leases of the Properties generally provide for
minimum base annual rental payments (payable in monthly installments) ranging
from approximately $23,000 to $151,900. All of the leases provide for
percentage rent, based on sales in excess of a specified amount, to be paid
annually. In addition, some leases provide for increases in the annual base
rent during the lease term.
The leases of the Properties provide for two or four five-year renewal
options subject to the same terms and conditions as the initial lease.
Certain lessees also have been granted options to purchase Properties at the
Property's then fair market value, or pursuant to a formula based on the
original cost of the Property, after a specified portion of the lease term has
elapsed. Additionally, certain leases provide the lessee an option to
purchase up to a 49 percent interest in the Property, after a specified
portion of the lease term has elapsed, at an option purchase price similar to
those described above, multiplied by the percentage interest in the Property
with respect to which option is being exercised.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership must first
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
In May 1992, the Partnership and the tenant of the Po Folks Property in
Hagerstown, Maryland, amended their lease agreement to provide for a change,
commencing in May 1992, in monthly base rent payments and percentage rent
payments. Any percentage rent paid was to be applied against the sum of (i)
past due rents and (ii) the difference between $12,378 (the original monthly
base rent) and the base rent actually paid each month. Once the amount of
these arrearages had been collected by the Partnership, annual base rent and
percentage rent would be due as provided in the original lease agreement. As
a result of the tenant's not complying with the terms of this agreement, in
August 1994, the Partnership and the tenant of this Property entered into an
agreement whereby the tenant would resume monthly rent payments as provided in
the original lease. In addition, the tenant had agreed to pay the Partnership
past due rental amounts of $250,525 in weekly installments over a period of
approximately 60 months, commencing September 1994. In February 1995, the
tenant ceased operations of the restaurant business located on such Property
and discontinued payment of the base rental income as provided in its lease
agreement. As of December 31, 1995, the Partnership had not received any
payments relating to the past due rental amounts. The Partnership is
continuing to pursue collection of all past due amounts from the tenant and
will recognize any amounts that are collected as income. As of February 29,
1996, the Partnership was negotiating the sale of this Property to an
unrelated, third party, and if sold, intends to reinvest the sales proceeds in
another Property.
During 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 year ended
December 31, 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. 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 1996.
Major Tenants
During 1995, one lessee of the Partnership and its consolidated joint
venture, Golden Corral Corporation, contributed more than ten percent of the
Partnership's total rental income (including rental income from the
Partnership's consolidated joint venture and the Partnership's share of the
rental income from one Property owned by an unconsolidated joint venture). As
of December 31, 1995, Golden Corral Corporation was 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 in 1996 and subsequent years. In addition, six Restaurant Chains,
Golden Corral Family Steakhouse Restaurants, Denny's, Perkins, Pizza Hut, KFC
and Taco Bell, each accounted for more than ten percent of the Partnership's
total rental income in 1995 (including rental income from the Partnership's
consolidated joint venture and the Partnership's share of the rental income
from one Property owned by an unconsolidated joint venture). In subsequent
years, it is anticipated that these six Restaurant Chains each will continue
to account for more than ten percent of total rental income to which the
Partnership is entitled under the terms of the leases. Any failure of Golden
Corral Corporation or any of these Restaurant Chains could materially affect
the Partnership's income. As of December 31, 1995, no single tenant or group
of affiliated tenants lease Properties with an aggregate carrying value,
excluding acquisition fees and certain acquisition expenses, in excess of 20
percent of the total assets of the Partnership.
Joint Venture Arrangements
The Partnership has entered into a joint venture arrangement, Tuscawilla
Joint Venture, with three unaffiliated entities to purchase and hold one
Property. In addition, the Partnership has entered into a joint venture
arrangement, Titusville Joint Venture, with an affiliate of the General
Partners to purchase and hold one Property. The joint venture arrangements
provide for the Partnership and its joint venture partners to share in all
costs and benefits associated with the joint venture in accordance with their
respective percentage interests in the joint venture. The Partnership and its
joint venture partners are also jointly and severally liable for all debts,
obligations and other liabilities of the joint venture.
Each joint venture has an initial term of approximately 20 years
(generally the same term as the initial term of the lease for the Property in
which the joint venture invested) and, after the expiration of the initial
term, continues in existence from year to year unless terminated at the option
of any joint venture partner or by an event of dissolution. Events of
dissolution include the bankruptcy, insolvency or termination of any joint
venturer, sale of the Property owned by the joint venture and mutual agreement
of the Partnership and its joint venture partner to dissolve the joint
venture.
The Partnership has management control of Tuscawilla Joint Venture and
shares management control equally with an affiliate of the General Partners
for Titusville Joint Venture. The joint venture agreements restrict each
venturer's ability to sell, transfer or assign its joint venture interest
without first offering it for sale to its joint venture partners, either upon
such terms and conditions as to which the venturers may agree or, in the event
the venturers cannot agree, on the same terms and conditions as any offer from
a third party to purchase such joint venture interest.
Net cash flow from operations of Tuscawilla Joint Venture and Titusville
Joint Venture is distributed 69.07% and 73.4%, respectively, to the
Partnership and the balance is distributed to each other joint venture partner
in accordance with its respective percentage interest in the joint venture.
Any liquidation proceeds, after paying joint venture debts and liabilities and
funding reserves for contingent liabilities, will be distributed first to the
joint venture partners with positive capital account balances in proportion to
such balances until such balances equal zero, and thereafter in proportion to
each joint venture partner's percentage interest in the joint venture.
Property Management
CNL Investment Company, an affiliate of the General Partners, acted as
manager of the Partnership's Properties pursuant to a property management
agreement with the Partnership through December 31, 1994. Under this
agreement, CNL Investment Company was responsible for collecting rental
payments, inspecting the Properties and the tenants' books and records,
assisting the Partnership in responding to tenant inquiries and notices and
providing information to the Partnership about the status of the leases and
the Properties. CNL Investment Company also assisted the General Partners in
negotiating the leases. For these services, the Partnership had agreed to pay
CNL Investment Company an annual fee of one-half of one percent of Partnership
assets (valued at cost) under management, not to exceed the lesser of one
percent of gross rental revenues or competitive fees for comparable services.
Under the management agreement, the property management fee is subordinated to
receipt by the Limited Partners of an aggregate, ten percent, noncumulative,
noncompounded annual return on their adjusted capital contributions (the "10%
Preferred Return"), calculated in accordance with the Partnership's limited
partnership agreement (the "Partnership Agreement"). In any year in which the
Limited Partners do not receive a 10% Preferred Return, no property management
fee will be paid.
Effective January 1, 1995, certain officers and employees of CNL
Investment Company became officers and employees of CNL Income Fund Advisors,
Inc., an affiliate of the General Partners, and CNL Investment Company
assigned its rights in, and its obligations under, the property management
agreement with the Partnership to CNL Income Fund Advisors, Inc. In addition,
effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its rights
in, and it obligations under, the property management agreement with the
Partnership to CNL Fund Advisors, Inc. All of the terms and conditions of the
property management agreement, including the payment of fees, as described
above, remain unchanged.
The property management agreement continues until the Partnership no
longer owns an interest in any Properties unless terminated at an earlier date
upon 60 days' prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains,
including those offering different types of food and service.
At the time the Partnership elects to dispose of its Properties, other
than as a result of the exercise of tenant options to purchase Properties, the
Partnership will be in competition with other persons and entities to locate
purchasers for its Properties.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who
may also perform certain services for the Partnership.
ITEM 2. PROPERTIES
As of December 31, 1995, the Partnership owned, either directly or
through joint venture arrangements, 32 Properties located in 16 states.
Reference is made to the Schedule of Real Estate and Accumulated Depreciation
filed with this report for a listing of the Properties and their respective
costs, including acquisition fees and certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 11,800
to 94,500 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The buildings
generally are rectangular and are constructed from various combinations of
stucco, steel, wood, brick and tile. Building sizes range from approximately
1,900 to 8,900 square feet. Generally, all buildings on Properties acquired
by the Partnership are freestanding and surrounded by paved parking areas.
Buildings are suitable for conversion to various uses, although modifications
may be required prior to use for other than restaurant operations.
Generally, a lessee is required, under the terms of its lease agreement,
to make such capital expenditures as may be reasonably necessary to refurbish
buildings, premises, signs and equipment so as to comply with the lessee's
obligations, if applicable, under the franchise agreement to reflect the
current commercial image of its Restaurant Chain. These capital expenditures
are required to be paid by the lessee during the term of the lease.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 1995 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Golden Corral Corporation leases six Golden Corral restaurants with an
initial term of 15 years (expiring in 2002) and an average minimum base annual
rent of approximately $72,000 (ranging from approximately $48,000 to
$110,000).
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
ITEM 3. LEGAL PROCEEDINGS
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to,
or subject to, any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of February 29, 1996, there were 2,061 holders of record of the
Units. There is no public trading market for the Units, and it is not
anticipated that a public market for the Units will develop. Limited Partners
who wish to sell their Units may offer the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited
Partners who wish to have their distributions used to acquire additional Units
(to the extent Units are available for purchase), may do so pursuant to such
Plan. The General Partners have the right to prohibit transfers of Units.
The price paid for any Unit transferred pursuant to the Plan has been $475 per
Unit. The price to be paid for any Units transferred other than pursuant to
the Plan is subject to negotiation by the purchaser and the selling Limited
Partner. The Partnership will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 1995 and 1994 other
than pursuant to the Plan, net of commissions (which ranged from zero to
11.5%).
1995 (1) 1994 (1)
-------------------- --------------------
High Low Average High Low Average
----- ----- ------- ----- ----- -------
First Quarter $483 $425 $469 $452 $452 $452
Second Quarter 437 415 426 475 398 451
Third Quarter 461 461 461 475 375 448
Fourth Quarter 475 300 453 475 468 472
(1) A total of 866 and 373 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1995 and 1994, respectively.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For each of the years ended December 31, 1995 and 1994, the Partnership
declared cash distributions of $2,376,000 to the Limited Partners.
Distributions of $594,000 were declared at the close of each of the
Partnership's calendar quarters during 1995 and 1994 to the Limited Partners.
No amounts distributed to partners for the years ended December 31, 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. No distributions have been made to the
General Partners to date.
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although the General Partners, in their sole discretion, may elect to pay
distributions monthly.
ITEM 6. SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
Year ended
December 31:
Revenues (1) $ 2,358,235 $ 2,511,833 $ 2,477,000 $ 2,414,153 $ 2,468,908
Net income (2) 1,482,515 1,858,605 1,856,462 1,699,941 1,876,772
Cash distribu-
tions declared 2,376,000 2,376,000 2,376,000 2,376,000 2,376,000
Net income per
Unit (2) 29.37 36.80 36.76 33.66 37.16
Cash distribu-
tions declared
per Unit (2) 47.52 47.52 47.52 47.52 47.52
At December 31:
Total assets $19,065,305 $19,945,765 $20,411,131 $20,326,353 $20,792,056
Long-term
obligations - - - - -
(1) Revenues include equity in earnings of the unconsolidated joint venture
and minority interest in income of the consolidated joint venture.
(2) Net income for the year ended December 31, 1995, includes a provision
for loss on land and building of $207,844.
The above selected financial data should be read in conjunction with the
financial statements and related notes contained in Item 8 hereof.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Partnership 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 restaurant
Properties were to be constructed, which are leased primarily to operators of
selected national and regional fast-food Restaurant Chains. The leases are
triple-net leases, with the lessee generally responsible for all repairs and
maintenance, property taxes, insurance and utilities. As of December 31,
1995, the Partnership owned 32 Properties, either directly or indirectly
through joint venture arrangements.
Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended December
31, 1995, 1994 and 1993, was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest
received, less cash paid for expenses). Cash from operations was $2,203,437,
$2,363,371 and $2,292,541 for the years ended December 31, 1995, 1994 and
1993, respectively. The decrease in cash from operations during 1995, as
compared to 1994, and the increase in cash from operations in 1994, as
compared to 1993, are primarily a result of changes in income and expenses as
discussed in "Results of Operations" below and changes in the Partnership's
working capital during each of the respective years. Cash from operations was
also affected by the following transactions during the years ended December
31, 1995, 1994 and 1993.
During 1992, the Partnership entered into an agreement with the tenant
of the Property in Page, Arizona, whereby $27,733, which had been included in
accounts receivable for past due rents, was converted to a loan receivable.
The loan, which bore interest at a rate of 12.5% per annum, was to be
collected over 36 months with collections commencing July 1, 1992. During
1995, the Partnership terminated its lease with the tenant of this Property.
In connection therewith, the Partnership received and recorded as rental
income approximately $40,000 during 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 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 1996.
In May 1992, the Partnership and the tenant of the Po Folks Property in
Hagerstown, Maryland, amended their lease agreement as described above in Item
1. Business - Leases. In addition, in August 1994, the tenant resumed
payment of the base rental income as provided in the original lease agreement
and entered into an agreement with the Partnership 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. In February 1995, the tenant ceased
operations of the restaurant business located on such Property and
discontinued payment of the base rental income as provided in its lease
agreement. Due to the present uncertainty of the collectibility of past due
rental amounts, the Partnership has established an allowance for doubtful
accounts relating to the amount due from the former tenant. At December 31,
1995 and 1994, the balance in the allowance for doubtful accounts for this
Property was $259,242 and $234,443, respectively; therefore, no amounts were
included in receivables at December 31, 1995 and 1994, relating to this
Property. 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. As of February 29, 1996, the
Partnership was negotiating the sale of this Property, and if sold, intends to
reinvest the sales proceeds in another Property. No commitment to sell this
Property had been executed as of February 29, 1996.
During the year ended December 31, 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 in March 1995, negotiated with, and received from, the
former tenant a lump sum settlement of $2,587.
Other sources and uses of capital included the following during the
years ended December 31, 1995, 1994 and 1993.
During the year ended December 31, 1991, the Partnership loaned
Titusville Joint Venture $88,043. The purpose of the loan was to permit
Titusville Joint Venture to purchase the restaurant equipment in place at the
restaurant Property owned by the former tenant following the tenant's default
under the terms of an equipment note, and pay miscellaneous operating
expenses. In December 1991, Titusville Joint Venture entered into a new lease
with a new tenant and sold the restaurant equipment to the new tenant. The
tenant paid a portion of the purchase price in cash and signed a note
agreement due to Titusville Joint Venture for the balance. In May 1992,
Titusville Joint Venture paid its loan from the Partnership in full through
the assignment to the Partnership of the tenant's note. The note from the
tenant bore interest at a rate of ten percent per annum, and principal and
interest were due in 36 monthly installments. The loan was paid in full
during the year ended December 31, 1994.
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 February 29, 1996, 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
1996 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.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments
pending the Partnership's use of such funds to pay Partnership expenses or to
make distributions to the partners. At December 31, 1995, the Partnership had
$312,814 invested in such short-term investments as compared to $505,374 at
December 31, 1994. The funds remaining at December 31, 1995, will be used for
the payment of distributions and other liabilities.
None of the Properties owned by the Partnership or the joint ventures in
which the Partnership owns an interest is or may be encumbered. Subject to
certain restrictions on borrowings from the General Partners, however, the
Partnership may borrow, in the discretion of the General Partners, for the
purpose of maintaining the operations of the Partnership. The Partnership
will not encumber any of the Properties in connection with any borrowings or
advances. The Partnership will not borrow for the purpose of returning
capital to the Limited Partners. The Partnership also will not borrow under
circumstances which would make the Limited Partners liable to creditors of the
Partnership. Affiliates of the General Partners from time to time incur
certain operating expenses on behalf of the Partnership for which the
Partnership reimburses the affiliates without interest.
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 is uncollateralized, bears
interest at a rate of prime plus 0.25% per annum and is due on demand. As of
February 29, 1996, the Partnership had repaid $85,546 of the principal and in
connection therewith, paid interest of $654 to the corporate General Partner.
During 1995, 1994 and 1993, affiliates of the General Partners, incurred
on behalf of the Partnership $149,252, $115,243 and $134,173, respectively,
for certain operating expenses. At December 31, 1995, the Partnership owed
$53,915 to affiliates for such amounts and accounting and administrative
services. Amounts payable to other parties, including distributions payable,
decreased to $685,742 at December 31, 1995, from $707,431 at December 31,
1994, primarily as a result of the Partnership's accruing in 1994 and paying
in 1995, real estate taxes relating to the Property in Chicago, Illinois, due
to the tenant's default under the terms of its lease. Total liabilities at
December 31, 1995, to the extent they exceed cash and cash equivalents at
December 31, 1995, will be paid from future cash from operations, the loan
received from the corporate General Partner in January 1996 described above,
and in the event the General Partners elect to make additional contributions
or loans to the Partnership, from future General Partner contributions or
loans.
Based primarily on current and anticipated cash from operations, and to
a lesser extent the loan received from the corporate General Partner in
January 1996, described above, the Partnership declared distributions to the
Limited Partners of $2,376,000 for each of the years ended December 31, 1995,
1994 and 1993. This represents distributions of $47.52 per unit for each of
the years ended December 31, 1995, 1994 and 1993. The Partnership intends to
continue to make distributions of cash available for distribution to the
Limited Partners on a quarterly basis.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, during 1995, the General Partners obtained
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.
The Partnership's investment strategy of acquiring Properties for cash
and generally 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.
Due to low operating expenses and ongoing cash flow, the General
Partners do not believe that working capital reserves are necessary at this
time. In addition, because the leases for the Partnership's Properties are
generally on a triple-net basis, it is not anticipated that a permanent
reserve for maintenance and repairs will be established at this time. To the
extent, however, that the Partnership has insufficient funds for such
purposes, the General Partners will contribute to the Partnership an aggregate
amount of up to one percent of the offering proceeds for maintenance and
repairs.
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 years ended December 31, 1995, 1994 and 1993, the Partnership
owned and leased 30 wholly owned Properties. In addition, during the years
ended December 31, 1995, 1994 and 1993, the Partnership was a co-venturer in
two separate joint ventures that each owned and leased one Property. As of
December 31, 1995, the Partnership owned, either directly or through joint
venture arrangements, 32 Properties which are, in general, subject to long-
term, triple-net leases. The leases of the Properties provide for minimum
base annual rental amounts (payable in monthly installments) ranging from
approximately $23,000 to $151,900. All of the leases provide for percentage
rent based on sales in excess of a specified amount. In addition, some leases
provide for increases in the annual base rent during the lease term. For
further description of the Partnership's leases and Properties, see Item 1.
Business - Leases and Item 2. Properties, respectively.
During the years ended December 31, 1995, 1994 and 1993, the Partnership
and its consolidated joint venture, Tuscawilla Joint Venture, earned
$2,188,000, $2,308,470 and $2,311,341, respectively, in rental income from
operating leases and earned income from the direct financing lease. As a
result of the fact that the tenant of the Po Folks Property in Hagerstown,
Maryland, ceased operations of the restaurant business located on such
Property, as discussed in "Liquidity and Capital Resources," rental and earned
income during 1995, as compared to 1994, decreased approximately $126,000.
The decrease was partially offset by the fact that during 1995, the
Partnership increased its allowance for doubtful accounts for rental amounts
by approximately $22,500, as compared to approximately $64,100 in 1994 and
approximately $80,300 in 1993, for this Property. Rental and earned income
also decreased in 1995 as a result of the Partnership's establishing an
allowance for doubtful accounts of approximately $53,900 for rental and other
amounts relating to the Denny's Property in Hagerstown, Maryland, which is
leased by the same tenant as the Po Folks. Currently, the Partnership is
pursuing collection of the past due amounts for both Hagerstown Properties and
will recognize any such amounts as income if collected. In addition, the
Partnership is seeking a replacement tenant for the Denny's Property.
However, rental and earned income for 1996 are expected to remain at reduced
amounts until such time as the Partnership enters into a new lease for the
Denny's Property. In addition, as of February 29, 1996, the Partnership was
negotiating the sale of the Po Folks Property, and if sold, intends to
reinvest the net sales proceeds in an additional Property.
In addition, during 1995, the tenant of the Partnership's Property in
Chicago, Illinois, continued to experience financial difficulties. The lease
agreement relating to this Property provides for scheduled rent increases in
minimum base rent during the term of the lease; therefore, in prior periods,
the Partnership recognized "accrued rental income" for the variance between
(i) minimum base rental income recognized on a straight-line basis over the
term of the lease so as to produce a constant periodic rent and (ii) scheduled
rents due under the lease. As a result of the fact that the General Partners
believe collection of the amount of the increases in minimum rent during
future periods is uncertain, the Partnership established an allowance for
doubtful accounts of approximately $34,800 in 1995 relating to the "accrued
rental income" amounts previously recorded. The Partnership intends to pursue
collection of such increases at the time they become due under the lease
agreement and will recognize such amounts as income if collected.
Rental income during 1995, was also affected by the fact that during
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 year ended December 31,
1995, of which a portion related to amounts that had been reserved as
uncollectible in 1994. Due to the fact that the Partnership does not expect
to receive any additional amounts from the former tenant of this Property,
during 1995, 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 that had been recorded during 1994. In
June 1995, a new operator began operating this Property on a month-to-month
basis. The Partnership earned approximately $28,400 in rental income under
this arrangement during the period June 1, 1995 through December 31, 1995.
The Partnership is currently negotiating a lease for this Property with the
new operator and anticipates executing such lease in 1996.
Rental and earned income decreased approximately $33,600 during 1994
due to the fact that, effective January 1994, the lease relating to the
Property in Hazard, Kentucky, was amended to provide for payment of reduced
rent with no scheduled rent increases. However, the lease amendment provides
for a lower percentage rent breakpoint, as compared to the original lease
agreement, a change that is designed to result in higher annual percentage
rent payments at any time that percentage rent becomes payable. The General
Partners anticipate that total rental payments under the amended lease will be
equal to or greater than the original lease during the term of the lease.
The decrease in rental and earned income during 1994, as compared to
1993, was partially offset by an increase of approximately $71,000 as the
result of the Partnership's entering into a new lease with a new tenant for
the Property in Canton Township, Michigan, for which rent commenced September
1993, and the fact that 1994 includes a full year of rental income relating to
the new lease.
During the years ended December 31, 1995, 1994 and 1993, the Partnership
also earned $143,039, $163,506 and $104,827, respectively, in contingent
rental income. Contingent rental income increased approximately $3,300 and
$14,700 in 1995 and 1994, respectively, each as compared to the prior year, as
the result of a lower percentage rent breakpoint provided for in the lease
amendment for the Property in Hazard, Kentucky, as described above. In
addition, contingent rental income increased during 1994 due to the collection
of approximately $23,400 of contingent rental amounts previously reserved
relating to the Denny's Property in Hagerstown, Maryland, and increased gross
sales of certain restaurant Properties requiring the payment of contingent
rent. No contingent rental income was recognized during 1995 for the Denny's
Property in Hagerstown, Maryland. The increase during 1994, as compared to
1993, was partially offset as a result of the Partnership's adjusting
estimated contingent rental amounts accrued at December 31, 1993, to actual
amounts during 1994.
The Partnership also recognized income of $22,015, $20,952 and $26,521
for the years ended December 31, 1995, 1994 and 1993, respectively,
attributable to net income recorded by Titusville Joint Venture in which the
Partnership is a co-venturer. The increase in net income earned by Titusville
Joint Venture during 1995, as compared to 1994, was attributable to 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 when received, during 1995. Net income earned by this
joint venture in 1994 decreased due to the fact that no contingent rental
income was earned by Titusville Joint Venture due to a decrease in gross sales
of its restaurant Property during 1994.
During the years ended December 31, 1995, 1994 and 1993, one lessee of
the Partnership and its consolidated joint venture, Golden Corral Corporation,
contributed more than ten percent of the Partnership's total rental income
(including rental income from the Partnership's consolidated joint venture and
the Partnership's share of the rental income from one Property owned by an
unconsolidated joint venture). As of December 31, 1995, Golden Corral
Corporation was 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 1996 and subsequent years. In
addition, six Restaurant Chains, Golden Corral Family Steakhouse Restaurants,
Denny's, Perkins, Pizza Hut, KFC and Taco Bell, each accounted for more than
ten percent of the Partnership's total rental income in 1995 (including rental
income from the Partnership's consolidated joint venture and the Partnership's
share of the rental income from one Property owned by an unconsolidated joint
venture. In subsequent years, it is anticipated that these six Restaurant
Chains each will continue to account for more than ten percent of total rental
income to which the Partnership is entitled under the terms of the leases.
Any failure of Golden Corral Corporation or any of these Restaurant Chains
could materially affect the Partnership's income.
Operating expenses, including depreciation and amortization expense,
were $667,876, $653,228 and $620,538 for the years ended December 31, 1995,
1994 and 1993, respectively. The increase in operating expenses during 1995,
as compared to 1994, is partially a result of an increase in 1995 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 as discussed above in "Liquidity and Capital Resources."
In addition, the increase in operating expenses during 1995, as compared
to 1994, is partially attributable to the Partnership's accruing past due real
estate taxes and related interest of approximately $27,000 relating to the
Denny's and Po Folks Properties in Hagerstown, Maryland. Payment of these
taxes remains the responsibility of the tenant of these two Properties;
however, because of the current financial difficulties the tenant is
experiencing, 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 increase in operating expenses during 1995, as compared to 1994, is
also partially attributable to the Partnership's accruing approximately $2,700
of past due real estate taxes relating to the Property in Page, Arizona, as a
result of the Partnership's termination of its lease with the tenant as
described in Item 1. Business - Leases. In June 1995, a new operator began
operating this Property on a month-to-month basis and the General Partners
anticipate that the new operator will be responsible for real estate taxes
starting in June 1996, in accordance with the terms of the lease currently
being negotiated.
Operating expenses for the years ended December 31, 1995 and 1994,
include approximately $25,000 and $92,100, respectively, in real estate taxes
and interest relating to the Property in Chicago, Illinois. The amounts
recorded during 1994 included past due amounts relating to prior years' real
estate taxes and interest relating to 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 increase in operating expenses during 1994, as compared to 1993, was
partially offset by a decrease in operating expenses attributable to the fact
that the Partnership entered into a new lease in May 1993 for the Property in
Canton Township, Michigan, and the fact that the new tenant is responsible for
real estate taxes and insurance relating to the Property. During 1993, the
Partnership had accrued approximately $33,000 of real estate taxes, insurance
and other expenses for this Property, as a result of the former tenant's
defaulting under the terms of its lease. Depreciation expense decreased
during 1994, as compared to 1993, as a result of the fact that the new lease
relating to the Property in Canton Township, Michigan, was classified as a
direct financing lease rather than as an operating lease.
In addition, the increase in operating expenses during 1994, as compared
to 1993, was also partially offset by a decrease in administrative expenses
associated with both the processing services provided for investors and a
decrease in mailings to investors.
During 1995, the Partnership recorded an allowance for loss on land and
building of $207,844 for financial reporting purposes, relating to the Po
Folks Property in Hagerstown, Maryland. The loss represents the difference
between the Property's carrying value and the estimated net realizable value,
based on the anticipated sales price of this Property from an interested and
unrelated third party.
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 will adopt this standard in 1996. The
General Partners believe that adoption of this standard currently would not
have had a material effect on the Partnership's financial position or results
of operations.
The Partnership's leases as of December 31, 1995, are triple-net leases
and, in general, contain provisions that the General Partners believe mitigate
the adverse effect of inflation. Such provisions include clauses requiring
the payment of percentage rent based on certain restaurant sales above a
specified level and/or automatic increases in base rent at specified times
during the term of the lease. Management expects that increases in restaurant
sales volumes due to inflation and real sales growth should result in an
increase in rental income over time. Continued inflation also may cause
capital appreciation of the Partnership's Properties. Inflation and changing
prices, however, also may have an adverse impact on the operating margins of
the restaurants and on potential capital appreciation of the Properties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONTENTS
--------
Page
----
Report of Independent Accountants 13
Financial Statements:
Balance Sheets 14
Statements of Income 15
Statements of Partners' Capital 16
Statements of Cash Flows 17
Notes to Financial Statements 20
Report of Independent Accountants
---------------------------------
To the Partners
CNL Income Fund III, Ltd.
We have audited the financial statements and the financial statement
schedules of CNL Income Fund III, Ltd. (a Florida limited partnership) listed
in Item 14(a) of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CNL Income Fund III, Ltd. as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules referred to above, when considered
in relation to the basic financial statements taken as a whole, present
fairly, in all material respects, the information required to be included
herein.
/s/Coopers & Lybrand L.L.P.
Orlando, Florida
January 18, 1996
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
--------------
December 31,
ASSETS 1995 1994
------ ----------- -----------
Land and buildings on operating
leases, less accumulated
depreciation and allowance
for loss on land and
building $17,309,533 $17,951,269
Net investment in direct
financing lease 545,014 550,372
Investment in joint venture 663,842 689,326
Cash and cash equivalents 312,814 505,374
Receivables, less allowance for
doubtful accounts of $353,277
and $310,507 106,638 115,977
Prepaid expenses 5,601 3,823
Lease costs, less accumulated
amortization of $1,562 and $962 10,438 11,038
Accrued rental income, less
allowance for doubtful accounts
of $34,830 in 1995 82,071 89,232
Other assets 29,354 29,354
----------- -----------
$19,065,305 $19,945,765
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable $ 14,489 $ 19,293
Accrued and escrowed real
estate taxes payable 77,253 94,138
Distributions payable 594,000 594,000
Due to related parties 53,915 2,337
Rents paid in advance and deposits 24,792 38,864
----------- -----------
Total liabilities 764,449 748,632
Commitment (Note 11)
Minority interest 144,212 147,004
Partners' capital 18,156,644 19,050,129
----------- -----------
$19,065,305 $19,945,765
=========== ===========
See accompanying notes to financial statements.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
--------------------
Year Ended December 31,
1995 1994 1993
---------- ---------- ----------
Revenues:
Rental income from operating
leases $2,115,798 $2,235,602 $2,286,918
Earned income from direct
financing lease 72,202 72,868 24,423
Contingent rental income 143,039 163,506 104,827
Interest and other income 22,386 36,192 58,980
---------- ---------- ----------
2,353,425 2,508,168 2,475,148
---------- ---------- ----------
Expenses:
General operating and admini-
strative 131,071 99,775 116,596
Professional services 28,758 22,666 30,500
Bad debt expense 11,418 4,101 666
Real estate taxes 50,815 80,095 11,803
State and other taxes 11,322 12,100 11,853
Depreciation and amortization 434,492 434,491 449,120
---------- ---------- ----------
667,876 653,228 620,538
---------- ---------- ----------
Income Before Minority Interest
in Income of Consolidated Joint
Venture, Equity in Earnings of
Unconsolidated Joint Venture and
Provision for Loss on Land
and Building 1,685,549 1,854,940 1,854,610
Minority Interest in Income of
Consolidated Joint Venture (17,205) (17,287) (24,669)
Equity in Earnings of Unconsoli-
dated Joint Venture 22,015 20,952 26,521
Provision for Loss on Land and
Building (207,844) - -
---------- ---------- ----------
Net Income $1,482,515 $1,858,605 $1,856,462
========== ========== ==========
Allocation of Net Income:
General partners $ 13,906 $ 18,586 $ 18,565
Limited partners 1,468,609 1,840,019 1,837,897
---------- ---------- ----------
$1,482,515 $1,858,605 $1,856,462
========== ========== ==========
Net Income Per Limited Partner
Unit $ 29.37 $ 36.80 $ 36.76
========== ========== ==========
Weighted Average Number of
Limited Partner Units
Outstanding 50,000 50,000 50,000
========== ========== ==========
See accompanying notes to financial statements.
<TABLE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
-------------------------------
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
General Partners Limited Partners
------------------ ----------------------------------------------------
Accumu- Accumu-
Contri- lated Contri- Distri- lated Syndication
butions Earnings butions butions Earnings Costs Total
-------- -------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $161,500 $ 90,601 $25,000,000 $(11,269,640) $ 8,969,499 $(2,864,898) $20,087,062
Distributions to limited
partners ($47.52 per
limited partner unit) - - - (2,376,000) - - (2,376,000)
Net income - 18,565 - - 1,837,897 - 1,856,462
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1993 161,500 109,166 25,000,000 (13,645,640) 10,807,396 (2,864,898) 19,567,524
Distributions to limited
partners ($47.52 per
limited partner unit) - - - (2,376,000) - - (2,376,000)
Net income - 18,586 - - 1,840,019 - 1,858,605
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1994 161,500 127,752 25,000,000 (16,021,640) 12,647,415 (2,864,898) 19,050,129
Distributions to limited
partners ($47.52 per
limited partner unit) - - - (2,376,000) - - (2,376,000)
Net income - 13,906 - - 1,468,609 - 1,482,515
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1995 $161,500 $141,658 $25,000,000 $(18,397,640) $14,116,024 $(2,864,898) $18,156,644
======== ======== =========== ============ =========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
Year Ended December 31,
1995 1994 1993
----------- ----------- -----------
Increase (Decrease) in Cash and
Cash Equivalents:
Cash Flows From Operating
Activities:
Cash received from
tenants $ 2,340,729 $ 2,479,442 $ 2,404,016
Distributions from
unconsolidated joint
venture 47,499 42,149 49,923
Cash paid for expenses (198,797) (170,171) (176,783)
Interest received 14,006 11,951 15,385
----------- ----------- -----------
Net cash provided
by operating
activities 2,203,437 2,363,371 2,292,541
----------- ----------- -----------
Cash Flows From Investing
Activities:
Collections on loans - 26,173 27,206
Payment of lease costs - (4,000) (8,000)
----------- ----------- -----------
Net cash provided
by investing
activities - 22,173 19,206
----------- ----------- -----------
Cash Flows From Financing
Activities:
Distributions to holder
of minority interest (19,997) (20,033) (27,455)
Distributions to
limited partners (2,376,000) (2,376,000) (1,782,000)
----------- ----------- -----------
Net cash used in
financing
activities (2,395,997) (2,396,033) (1,809,455)
----------- ----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents (192,560) (10,489) 502,292
Cash and Cash Equivalents at
Beginning of Year 505,374 515,863 13,571
----------- ----------- -----------
Cash and Cash Equivalents at
End of Year $ 312,814 $ 505,374 $ 515,863
=========== =========== ===========
Reconciliation of Net Income
to Net Cash Provided by
Operating Activities:
Net income $ 1,482,515 $ 1,858,605 $ 1,856,462
----------- ----------- -----------
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 433,892 433,892 448,757
Amortization 600 599 363
Minority interest in
income of consolidated
joint venture 17,205 17,287 24,669
Equity in earnings of
unconsolidated joint
venture, net of
distributions 25,484 21,197 23,402
Provision for loss on
land and building 207,844 - -
Decrease (increase) in
receivables 9,339 (184) (31,998)
Decrease in net invest-
ment in direct
financing lease 5,358 4,692 1,432
Increase in prepaid
expenses (1,778) (3,823) -
Decrease (increase) in
accrued rental income 7,161 (27,669) (39,648)
Increase (decrease) in
accounts payable and
accrued expenses (21,689) 46,582 10,477
Increase (decrease) in
due to related parties 51,578 2,337 (4,113)
Increase (decrease) in
rents paid in advance
and deposits (14,072) 9,856 2,738
----------- ----------- -----------
Total adjustments 720,922 504,766 436,079
----------- ----------- -----------
Net Cash Provided by Operating
Activities $ 2,203,437 $ 2,363,371 $ 2,292,541
=========== =========== ===========
Supplemental Schedule of
Non-Cash Investing
and Financing Activities:
Building costs, net of
accumulated depreciation,
transferred to net
investment in direct
financing lease $ - $ - $ 556,496
=========== =========== ===========
Lease costs incurred and
unpaid at December 31 $ - $ - $ 4,000
=========== =========== ===========
Distributions declared and
unpaid at December 31 $ 594,000 $ 594,000 $ 594,000
=========== =========== ===========
See accompanying notes to financial statements.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Years Ended December 31, 1995, 1994 and 1993
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Income Fund III, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A. Bourne.
Mr. Seneff and Mr. Bourne are also 50 percent shareholders of the
Corporate General Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Land and Buildings on Operating Leases - Land and buildings on operating
leases are stated at cost. Buildings are depreciated using the
straight-line method over their estimated useful lives of 30 years.
When properties are sold, the related cost and accumulated depreciation
are removed from the accounts and gains or losses from sales are
reflected in income in accordance with Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate."
When the general partners believe that the undepreciated cost cannot be
recovered through operations, properties are written down to net
realizable value with an adjustment to increase the allowance for loss
on land and building and to decrease income for the current period. The
general partners determine whether an impairment in value has occurred
by comparing the estimated undiscounted future cash flows with the
carrying cost of the individual properties.
Lease Accounting and Rental Income - Land and buildings are leased to
others on a triple-net lease basis, whereby the tenant is generally
responsible for all operating expenses relating to the property,
including property taxes, insurance, maintenance and repairs.
The leases are accounted for using either the direct financing or the
operating method. Such methods are described below:
Direct financing method - The lease accounted for using the
direct financing method is recorded at its net investment
(Note 4). Unearned income is deferred and amortized to
income over the lease term so as to produce a constant
periodic rate of return on the Partnership's net investment
in the lease.
Operating method - Land and buildings are recorded at cost,
revenue is recognized as rentals are earned and depreciation
is charged to operations as incurred. When scheduled
rentals vary during the lease term, income is recognized on
a straight-line basis over the lease term so as to produce
a constant periodic rent. Accrued rental income is the
aggregate difference between the scheduled rents which vary
during the lease term and the income recognized on a
straight-line basis.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
and to decrease rental or other income or increase bad debt expense for
the current period, although the Partnership continues to pursue
collection of such amounts. If amounts are subsequently determined to
be uncollectible, the corresponding receivable and allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership accounts for its 69.07%
interest in Tuscawilla Joint Venture, a Florida general partnership,
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.
The Partnership's investment in Titusville Joint Venture is accounted
for using the equity method since the Partnership shares control with an
affiliate which has the same general partners.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents. Cash and cash equivalents consist of demand deposits
at commercial banks, money market funds and overnight repurchase
agreements backed by government securities. Cash equivalents are stated
at cost plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand deposits
at commercial banks and money market funds may exceed federally insured
levels; however, the Partnership has not experienced any losses in such
accounts. The Partnership limits investment of temporary cash
investments to financial institutions with high credit standing;
therefore, the Partnership believes it is not exposed to any significant
credit risk on cash and cash equivalents.
Lease Costs - Brokerage fees associated with negotiating a new lease are
amortized over the term of the new lease using the straight-line method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 1995 presentation.
These reclassifications had no effect on partners' capital or net
income.
New Accounting Standard - 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 will adopt this standard in 1996. The
general partners believe that adoption of this standard currently would
not have had a material effect on the Partnership's financial position
or results of operations.
2. Leases:
------
The Partnership leases its land and buildings primarily to operators of
national and regional fast-food restaurants. The leases are accounted
for under the provisions of Statement of Financial Accounting Standards
No. 13, "Accounting for Leases." The leases generally are classified as
operating leases, however, one lease has been classified as a direct
financing lease. The building portion of this property lease is
accounted for as a direct financing lease while the land portion of this
lease is an operating lease. Substantially all leases are for 15 to 20
years and provide for minimum and contingent rentals. In addition, the
tenant generally pays all property taxes and assessments, fully
maintains the interior and exterior of the building and carries
insurance coverage for public liability, property damage, fire and
extended coverage. The lease options generally allow tenants to renew
the leases for two or four successive five-year periods subject to the
same terms and conditions as the initial lease. Most leases also allow
the tenant to purchase the property at fair market value after a
specified portion of the lease has elapsed.
3. Land and Buildings on Operating Leases:
--------------------------------------
Land and buildings on operating leases consisted of the following at
December 31:
1995 1994
----------- -----------
Land $ 7,835,279 $ 7,835,279
Buildings 13,016,774 13,016,774
----------- -----------
20,852,053 20,852,053
Less accumulated
depreciation (3,334,676) (2,900,784)
----------- -----------
17,517,377 17,951,269
Less allowance for loss
on land and building (207,844) -
----------- -----------
$17,309,533 $17,951,269
=========== ===========
At December 31, 1995, the Partnership established an allowance for loss
on land and building in the amount of $207,844 for financial reporting
purposes for the Po Folks property in Hagerstown, Maryland. The
allowance represents the difference between the (i) property's carrying
value at December 31, 1995, and (ii) the general partners' estimate of
the net realizable value of the property based on the anticipated sales
price of this property to an interested and unrelated third party.
Some leases provide for escalating guaranteed minimum rents throughout
the lease terms. Income from these scheduled rent increases is
recognized on a straight-line basis over the terms of the leases. For
the year ended December 31, 1995, 1994 and 1993, the Partnership
recognized $27,669, $27,669 and $39,648 of such rental income. Income
recognized during 1995 was reduced by $34,830 as a result of the
Partnership's establishing an allowance for doubtful accounts for
accrued rental income amounts previously recorded relating to the lease
of the property in Chicago, Illinois.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 1995:
1996 $ 2,120,422
1997 2,123,793
1998 2,129,193
1999 2,135,593
2000 2,135,593
Thereafter 13,241,961
-----------
$23,886,555
===========
4. Net Investment in Direct Financing Lease:
----------------------------------------
The following lists the components of the net investment in direct
financing lease at December 31:
1995 1994
----------- -----------
Minimum lease payments
receivable $ 1,370,228 $ 1,447,788
Estimated residual value 139,124 139,124
Less unearned income (964,338) (1,036,540)
----------- -----------
Net investment in direct
financing lease $ 545,014 $ 550,372
=========== ===========
The following is a schedule of future minimum lease payments to be
received on the direct financing lease at December 31, 1995:
1996 $ 77,560
1997 77,560
1998 77,560
1999 77,560
2000 77,560
Thereafter 982,428
----------
$1,370,228
==========
5. Investment in Joint Venture:
---------------------------
The Partnership has a 73.4% interest in the profits and losses of
Titusville Joint Venture which is accounted for using the equity method.
The remaining interest in the Titusville Joint Venture is held by an
affiliate of the Partnership which has the same general partners.
Titusville Joint Venture owns and leases one property to an operator of
national family-style restaurants. The following presents the joint
venture's condensed financial information at December 31:
1995 1994
-------- --------
Land and building on operating
lease, less accumulated
depreciation $847,105 $872,138
Cash 6,995 8,955
Receivables 12,000 18,070
Accrued rental income 14,700 11,100
Other assets 35,540 41,501
Liabilities 8,539 9,246
Partners' capital 907,801 942,518
Revenues 65,105 61,111
Net income 29,996 28,545
The Partnership recognized income of $22,015, $20,952 and $26,521 for
the years ended December 31, 1995, 1994 and 1993, respectively, from
this joint venture.
6. Receivables:
-----------
During 1992, the Partnership entered into an agreement with the tenant
of its property in Page, Arizona, whereby $27,733, which had been
included in accounts receivable for past due rents, was converted to a
loan receivable. The loan, which bears interest at a rate of 12.5% per
annum, was to be collected over 36 months with collections commencing
July 1, 1992. During 1995, the Partnership terminated its lease with
the tenant of this Property. Due to the fact that the Partnership does
not expect to receive any additional amounts from the former tenant, the
Partnership wrote off the balance of rent and other receivables,
including the loan receivable described above, relating to this
property, and the related allowance for doubtful accounts, of
approximately $51,300 during 1995.
In August 1994, the Partnership and the tenant of the Po Folks property
in Hagerstown, Maryland, entered into an agreement whereby the tenant
had agreed to pay the Partnership past due rental amounts of $250,525 in
weekly installments over a period of approximately 60 months, commencing
September 1994. In February 1995, the tenant ceased operations of the
restaurant business located on the property. Due to the present
uncertainty of the collectibility of the past due rental amounts, the
Partnership has established an allowance for doubtful accounts relating
to these amounts due from the former tenant. At December 31, 1995 and
1994, the allowance for doubtful accounts was $259,242 and $234,443,
respectively; therefore, no amounts were included in receivables at
December 31, 1995 and 1994, relating to this tenant. The Partnership is
pursuing collection of the past due amounts and will recognize any such
amounts as income if collected. As of January 18, 1996, the Partnership
was negotiating the sale of this Property to an unrelated, third party,
and if sold, intends to reinvest the sales proceeds in another property.
During the year ended December 31, 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 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 in March 1995,
negotiated with the former tenant a lump sum settlement of $2,587.
7. Allocations and Distributions:
-----------------------------
All net income and net losses of the Partnership, excluding gains and
losses from the sale of properties, are allocated 99 percent to the
limited partners and one percent to the general partners. Distributions
of net cash flow are made 99 percent to the limited partners and one
percent to the general partners; provided, however, that the one percent
of net cash flow to be distributed to the general partners is
subordinated to receipt by the limited partners of an aggregate, ten
percent, noncumulative, noncompounded annual return on their adjusted
capital contributions (the "10% Preferred Return").
Generally, net sales proceeds from the sale of properties, to the extent
distributed, will be distributed first to the limited partners in an
amount sufficient to provide them with their cumulative 10% Preferred
Return, plus the return of their adjusted capital contributions. The
general partners will then receive, to the extent previously
subordinated and unpaid, a one percent interest in all prior
distributions of net cash flow and a return of their capital
contributions. Any remaining sales proceeds will be distributed 95
percent to the limited partners and five percent to the general
partners. Any gain from the sale of a property is, in general,
allocated in the same manner as net sales proceeds are distributable.
Any loss from the sale of a property is, in general, allocated first, on
a pro rata basis, to partners with positive balances in their capital
accounts; and thereafter, 95 percent to the limited partners and five
percent to the general partners.
During each of the years ended December 31, 1995, 1994 and 1993, the
Partnership declared distributions to the limited partners of
$2,376,000. No distributions have been made to the general partners to
date.
8. Income Taxes:
------------
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
1995 1994 1993
---------- ---------- ----------
Net income for
financial reporting
purposes $1,482,515 $1,858,605 $1,856,462
Depreciation for tax
reporting purposes
less than(in
excess of) depreci-
ation for financial
reporting purposes (628) (628) 14,236
Allowance for loss on
land and building 207,844 - -
Direct financing
lease recorded as
operating lease for
tax reporting
purposes 5,358 4,692 1,432
Equity in earnings
of joint venture
for tax reporting
purposes less than
equity in earnings
of joint venture
for financial
reporting purposes (1,769) (1,769) (1,774)
Allowance for
doubtful accounts 42,770 82,915 88,755
Accrued rental income 7,161 (27,669) (39,648)
Rents paid in advance (14,572) 9,856 2,738
Minority interest in
timing differences
of consolidated
joint venture (106) (132) (132)
---------- ---------- ----------
Net income for
federal income
tax purposes $1,728,573 $1,925,870 $1,922,069
========== ========== ==========
9. Related Party Transactions:
--------------------------
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the parent company of CNL
Investment Company and CNL Fund Advisors, Inc. The other individual
general partner, Robert A. Bourne, is the president of CNL Investment
Company and CNL Fund Advisors, Inc. CNL Income Fund Advisors, Inc. was
a wholly owned subsidiary of CNL Group, Inc. until its merger, effective
January 1, 1996, with CNL Fund Advisors, Inc. During the years ended
December 31, 1995, 1994 and 1993, CNL Investment Company, CNL Income
Fund Advisors, Inc. and CNL Fund Advisors, Inc. (hereinafter referred to
collectively as the "Affiliates") each performed certain services for
the Partnership, as described below.
During the years ended December 31, 1995, 1994 and 1993, certain
Affiliates acted as manager of the Partnership's properties pursuant to
a property management agreement with the Partnership. In connection
therewith, the Partnership agreed to pay the Affiliates a management fee
of one-half of one percent of the Partnership assets under management
(valued at cost) annually. The property management fee is limited to
one percent of the sum of gross operating revenues from properties
wholly owned by the Partnership and the Partnership's allocable share of
gross operating revenues from joint ventures or competitive fees for
comparable services. In addition, these fees are payable only after the
limited partners receive their aggregate, noncumulative 10% Preferred
Return. Due to the subordinated nature of these fees, no property
management fees have been incurred since inception.
Certain Affiliates are also entitled to receive a deferred, subordinated
real estate disposition fee, payable upon the sale of one or more
properties based on the lesser of one-half of a competitive real estate
commission or three percent of the sales price if the Affiliates provide
a substantial amount of services in connection with the sale. In
addition, the real estate disposition fee is subordinated to receipt by
the limited partners of their aggregate, cumulative 10% Preferred
Return, plus their adjusted capital contributions. No deferred,
subordinated real estate disposition fees have been incurred since
inception.
During the years ended December 31, 1995, 1994 and 1993, the Affiliates
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $78,597, $47,633 and $39,619
for the years ended December 31, 1995, 1994 and 1993, respectively, for
such services.
The due to related parties consisted of the following at December 31:
1995 1994
------- -------
Due to Affiliates:
Expenditures incurred on
behalf of the Partnership $27,557 $ 2,337
Accounting and administrative
services 26,358 -
------- -------
$53,915 $ 2,337
======= =======
10. Concentration of Credit Risk:
----------------------------
For the years ended December 31, 1995, 1994 and 1993, rental income from
Golden Corral Corporation was $470,952, $472,443 and $465,000,
respectively, each representing more than ten percent of the
Partnership's total rental and earned income (including the
Partnership's share of rental and earned income from the joint venture).
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than
ten percent of the Partnership's total rental and earned income
(including the Partnership's share of rental and earned income from the
joint venture) for at least one of the years ended December 31:
1995 1994 1993
-------- -------- --------
Golden Corral
Family Steakhouse
Restaurants $470,952 $472,443 $465,000
Pizza Hut 289,161 290,438 274,353
KFC 279,075 227,493 282,428
Perkins 276,114 276,114 277,305
Taco Bell 260,119 262,282 258,808
Denny's 254,043 330,659 323,996
Although the Partnership's properties are geographically diverse and the
Partnership's lessees operate a variety of restaurant concepts, failure
of any one of these lessees or restaurant chains could significantly
impact the results of operations of the Partnership. However, the
general partners believe that the risk of such a default is reduced due
to the essential or important nature of these properties for the on-
going operations of the lessees.
11. 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 January 18, 1996, the Partnership and the tenant had
not yet entered into a purchase and sale agreement.
12. Subsequent Event:
----------------
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 is
uncollateralized, bears interest at a rate of prime plus 0.25% per annum
and is due on demand.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Investment Company, CNL Fund Advisors, Inc.
and CNL Group, Inc. and its affiliates, all of which are affiliates of the
General Partners. In addition, during 1995, the Partnership had available to
it the services, personnel and experience of CNL Income Fund Advisors, Inc.,
prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996.
James M. Seneff, Jr., age 49, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors and Chief Executive Officer since its formation in 1973.
CNL Group, Inc. is the parent company of CNL Securities Corp., CNL Investment
Company, CNL Fund Advisors, Inc., and prior to its merger with CNL Fund
Advisors, Inc., effective January 1, 1996, CNL Income Fund Advisors, Inc. Mr.
Seneff has been a director and registered principal of CNL Securities Corp.,
which served as the managing dealer in the Partnership's offering of Units,
since its formation in 1979. Mr. Seneff also has held the position of
President and a director of CNL Management Company, a registered investment
advisor, since its formation in 1976, has served as Chairman of the Board and
Chief Executive Officer of CNL Investment Company and Chief Executive Officer
and Chairman of the Board of Commercial Net Lease Realty, Inc. since 1992, has
served as Chairman of the Board and Chief Executive Officer of CNL Realty
Advisors, Inc. since its inception in 1991, served as Chairman of the Board
and Chief Executive Officer of CNL Income Fund Advisors, Inc. since its
inception in 1994 through December 31, 1995, has served as Chairman of the
Board and Chief Executive Officer of CNL Fund Advisors, Inc. since its
inception in 1994, and has held the position of Chief Executive Officer and a
director of CNL Institutional Advisors, Inc., a registered investment advisor,
since its inception in 1990. Mr. Seneff previously served on the Florida
State Commission on Ethics and is a former member and past Chairman of the
Florida Investment Advisory Council, which recommends to the Florida Board of
Administration investments for various Florida employee retirement funds. The
Florida Board of Administration, Florida's principal investment advisory and
money management agency, oversees the investment of more than $40 billion of
retirement funds. Since 1971, Mr. Seneff has been active in the acquisition,
development and management of real estate projects and, directly or through an
affiliated entity, has served as a general partner or joint venturer in
approximately 100 real estate ventures involved in the financing, acquisition,
construction and rental of office buildings, apartment complexes, restaurants,
hotels and other real estate. Included in these 100 real estate ventures are
approximately 57 privately offered real estate limited partnerships in which
Mr. Seneff, directly or through an affiliated entity, serves or has served as
a general partner. Also included are CNL Income Fund, Ltd., CNL Income Fund
II, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund
VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income
Fund IX, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income
Fund XII, Ltd., CNL Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL
Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd.
and CNL Income Fund XVIII, Ltd. (the "CNL Income Fund Partnerships"), public
real estate limited partnerships with investment objectives similar to those
of the Partnership, in which Mr. Seneff serves as a general partner. Mr.
Seneff received his degree in Business Administration from Florida State
University in 1968.
Robert A. Bourne, age 48, is President and Treasurer of CNL Group, Inc.,
President, a director and a registered principal of CNL Securities Corp.,
President and a director of CNL Investment Company, CNL Fund Advisors, Inc.,
and prior to its merger with CNL Fund Advisors, Inc., effective January 1,
1996, CNL Income Fund Advisors, Inc., and President, Chief Investment Officer
and a director of CNL Institutional Advisors, Inc., a registered investment
advisor. Mr. Bourne also has served as a director since 1992, as President
from July 1992 to February 1996, and as Vice Chairman of the Board of
Directors, Secretary and Treasurer since February 1996, of Commercial Net
Lease Realty, Inc. In addition, Mr. Bourne has served as a director since its
inception in 1991, as President from 1991 to February 1996, and as Secretary
and Treasurer since February 1996, of CNL Realty Advisors, Inc. Upon
graduation from Florida State University in 1970, where he received a B.A. in
Accounting, with honors, Mr. Bourne worked as a certified public accountant
and, from September 1971 through December 1978, was employed by Coopers &
Lybrand, Certified Public Accountants, where he held the position of tax
manager beginning in 1975. From January 1979 until June 1982, Mr. Bourne was
a partner in the accounting firm of Cross & Bourne and from July 1982 through
January 1987, he was a partner in the accounting firm of Bourne & Rose, P. A.,
Certified Public Accountants. Mr. Bourne, who joined CNL Securities Corp. in
1979, has participated as a general partner or joint venturer in
approximately 100 real estate ventures involved in the financing, acquisition,
construction and rental of office buildings, apartment complexes, restaurants,
hotels and other real estate. Included in these 100 real estate ventures are
approximately 57 privately offered real estate limited partnerships in which
Mr. Bourne, directly or through an affiliated entity, serves or has served as
a general partner. Also included are the CNL Income Fund Partnerships, public
real estate limited partnerships with investment objectives similar to those
of the Partnership, in which Mr. Bourne serves as a general partner.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders
are James M. Seneff, Jr. and Robert A. Bourne, the individual General
Partners. CNL Realty Corporation was organized to serve as the corporate
general partner of real estate limited partnerships, such as the Partnership,
organized by one or both of the individual General Partners. CNL Realty
Corporation currently serves as the corporate general partner of the CNL
Income Fund Partnerships.
CNL Investment Company, which through December 31, 1994, provided
certain management services in connection with the Partnership and its
Properties, is a corporation organized in 1990 under the laws of the State of
Florida. Its principal office is located at 400 East South Street, Suite 500,
Orlando, Florida 32801. CNL Investment Company is a wholly owned subsidiary
of CNL Group, Inc., a diversified real estate company, and was organized to
perform property acquisition, property management and other services.
CNL Income Fund Advisors, Inc., for the period January 1, 1995 through
September 30, 1995, provided certain management services in connection with
the Partnership and its Properties following the assignment by CNL Investment
Company of its rights and obligations under the property management agreement.
CNL Income Fund Advisors, Inc. was a corporation organized in 1994 under the
laws of the State of Florida, and its principal office was located at 400 East
South Street, Suite 500, Orlando, Florida 32801. CNL Income Fund Advisors,
Inc. was a wholly owned subsidiary of CNL Group, Inc., a diversified real
estate company, and was organized to perform property acquisition, property
management and other services. CNL Income Fund Advisors, Inc. merged with CNL
Fund Advisors, Inc. effective January 1, 1996.
CNL Fund Advisors, Inc., effective October 1, 1995, began providing
certain management services in connection with the Partnership and its
Properties following the assignment by CNL Income Fund Advisors, Inc. of its
rights and obligations under the property management agreement. CNL Fund
Advisors, Inc. is a corporation organized in 1994 under the laws of the State
of Florida, and its principal office is located at 400 East South Street,
Suite 500, Orlando, Florida 32801. CNL Fund Advisors, Inc. is a wholly owned
subsidiary of CNL Group, Inc., a diversified real estate company, and was
organized to perform property acquisition, property management and other
services.
CNL Group, Inc., which is the parent company of CNL Investment Company
and CNL Fund Advisors, Inc., is a diversified real estate corporation
organized in 1980 under the laws of the State of Florida. Other subsidiaries
and affiliates of CNL Group, Inc. include a property development and
management company, two investment advisory companies, and six corporations
organized as strategic business units. James M. Seneff, Jr., an individual
General Partner of the Partnership, is the Chairman of the Board, Chief
Executive Officer, and a director of CNL Group, Inc. Mr. Seneff and his wife
own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as
members of the Boards of Directors of those entities. The Boards of Directors
have the responsibility for creating and implementing the policies of
CNL Group, Inc. and its affiliated companies.
John T. Walker, age 37, joined CNL Group, Inc. in September 1994, as
Senior Vice President, responsible for Research and Development. He currently
serves as the Chief Operating Officer and Executive Vice President of CNL Fund
Advisors, Inc. and CNL American Properties Fund, Inc. From May 1992 to May
1994, he was Executive Vice President for Finance and Administration and Chief
Financial Officer of Z Music, Inc., a television network which was
subsequently acquired by Gaylord Entertainment, where he was responsible for
overall financial and administrative management and planning. From January
1990 through April 1992, Mr. Walker was Chief Financial Officer of the First
Baptist Church in Orlando, Florida. From April 1984 through December 1989, he
was a partner in the accounting firm of Chastang, Ferrell & Walker, P.A.,
where he was the partner in charge of audit and consulting services, and from
1981 to 1984, Mr. Walker was a Senior Consultant/Audit Senior at Price
Waterhouse. Mr. Walker is a Cum Laude graduate of Wake Forest University with
a B.S. in Accountancy and is a Certified Public Accountant.
Lynn E. Rose, age 47, a certified public accountant, has served as Chief
Financial Officer and Secretary of CNL Group, Inc. since December 1993, and
served as Controller and Secretary of CNL Group, Inc. from 1987 until December
1993. She has served as Chief Operating Officer of CNL Corporate Services,
Inc. since November 1994. Ms. Rose also has served as Chief Financial Officer
of CNL Institutional Advisors, Inc. since its inception in 1990, a director of
CNL Realty Advisors, Inc. since its inception in 1991, Secretary and Treasurer
of CNL Realty Advisors, Inc. from 1991 to February 1996, Secretary and
Treasurer of Commercial Net Lease Realty, Inc. from 1992 to February 1996,
Secretary of CNL Income Fund Advisors, Inc. since its inception in 1994 to
December 1995, and Secretary and Treasurer of CNL Fund Advisors, Inc. since
its inception in 1994. Ms. Rose also has served as Chief Financial Officer,
Secretary and Treasurer of CNL American Properties Fund, Inc. since its
inception in 1994. In addition, Ms. Rose oversees the management information
services, administration, legal compliance, accounting, tenant compliance, and
reporting for over 200 corporations, partnerships, and joint ventures. Prior
to joining CNL, Ms. Rose was a partner with Robert A. Bourne in the accounting
firm of Bourne & Rose, P.A., Certified Public Accountants. Ms. Rose holds a
B.A. in Sociology from the University of Central Florida and is a registered
financial and operations principal of CNL Securities Corp. She was licensed as
a Certified Public Accountant in 1979.
Jeanne A. Wall, age 37, has served as Chief Operating Officer of
CNL Investment Company and of CNL Securities Corp. since November 1994 and
previously served as Executive Vice President of CNL Investment Company since
January 1991. In 1984, Ms. Wall joined CNL Securities Corp. as its Partnership
Administrator. In 1985, Ms. Wall became Vice President of CNL Securities
Corp. and, in 1987, she became a Senior Vice President of CNL Securities Corp.
In this capacity, Ms. Wall serves as national marketing director and oversees
the national marketing plan for the CNL investment programs. In addition, Ms.
Wall oversees the partnership administration and investor services for
programs offered through participating brokers. Ms. Wall also has served as
Senior Vice President of CNL Institutional Advisors, Inc., a registered
investment advisor, from 1990 to 1993, as Vice President of CNL Realty
Advisors, Inc. since its inception in 1991, as Vice President of Commercial
Net Lease Realty, Inc. since 1992, as Executive Vice President of CNL Income
Fund Advisors, Inc. from its inception in 1994 to December 1995, as Executive
Vice President of CNL Fund Advisors, Inc. since its inception in 1994, and as
Executive Vice President of CNL American Properties, Inc. since its inception
in 1994. Ms. Wall holds a B.A. in Business Administration from Linfield
College and is a registered principal of CNL Securities Corp. Ms. Wall
currently serves as a trustee on the board of the Investment Program
Association and on the Direct Participation Program committee for the National
Association of Securities Dealers (NASD).
ITEM 11. EXECUTIVE COMPENSATION
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or
any of their affiliates. There are no compensatory plans or arrangements
regarding termination of employment or change of control.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 29, 1996, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of February 29, 1996, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
-------------- --------------- ----------------
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
----
100%
====
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above. There are no arrangements
which at a subsequent date may result in a change in control of the
Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The table below summarizes the types, recipients, methods of computation
and amounts of compensation, fees and distributions paid or payable by the
Partnership to the General Partners and their affiliates for the year ended
December 31, 1995, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Type of Amount Incurred
Compensation Method of For the Year
and Recipient Computation Ended December 31, 1995
------------- ----------- -----------------------
Reimbursement to Operating expenses are Operating expenses
affiliates for reimbursed at the incurred on behalf of
operating expenses lower of cost or 90 the Partnership:
percent of the $149,252
prevailing rate at
which comparable Accounting and
services could have administrative
been obtained in the services: $78,597
same geographic area.
If the General
Partners or their
affiliates loan funds
to the Partnership,
the General Partners
or their affiliates
will be reimbursed for
the interest and fees
charged to them by
unaffiliated lenders
for such loans.
Affiliates of the
General Partners from
time to time incur
certain operating
expenses on behalf of
the Partnership for
which the Partnership
reimburses the
affiliates without
interest.
Annual, subordinated One-half of one $ - 0 -
property management percent per year of
fee to affiliates Partnership assets
under management
(valued at cost),
subordinated to
certain minimum
returns to the Limited
Partners. The
property management
fee will not exceed
the lesser of one
percent of gross
operating revenues or
competitive fees for
comparable services.
Deferred, subordinated A deferred, $ - 0 -
real estate subordinated real
disposition fee estate disposition
payable to affiliates fee, payable upon sale
of one or more
Properties, in an
amount equal to the
lesser of (i) one-half
of a competitive real
estate commission, or
(ii) three percent of
the sales price of
such Property or
Properties. Payment
of such fee shall be
made only if
affiliates of the
General Partners
provide a substantial
amount of services in
connection with the
sale of a Property or
Properties and shall
be subordinated to
certain minimum
returns to the Limited
Partners.
General Partners' A deferred, $ - 0 -
deferred, sub- subordinated share
ordinated share of equal to one percent
Partnership net cash of Partnership
flow distributions of net
cash flow,
subordinated to
certain minimum
returns to the Limited
Partners.
General Partners' A deferred, $ - 0 -
deferred, sub- subordinated share
ordinated share of equal to five percent
Partnership net sales of Partnership
proceeds from a sale distributions of such
or sales net sales proceeds,
subordinated to
certain minimum
returns to the Limited
Partners.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1995 and 1994
Statements of Income for the years ended December 31, 1995, 1994
and 1993
Statements of Partners' Capital for the years ended December 31,
1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1995, 1994 and 1993
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1995
Notes to Schedule III - Real Estate and Accumulated Depreciation
at December 31, 1995
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or notes
thereto.
3. Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund III, Ltd.
(Included as Exhibit 3.1 to Amendment No. 1 to Registration
Statement No. 33-15374 on Form S-11 and incorporated herein by
reference.)
3.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund III, Ltd. (Included as Exhibit 3.2
to Form 10-K filed with the Securities and Exchange Commission on
April 5, 1993, and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund III, Ltd.
(Included as Exhibit 4.1 to Amendment No. 1 to Registration
Statement No. 33-15374 on Form S-11 and incorporated herein by
reference.)
4.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund III, Ltd. (Included as Exhibit 3.2
to Form 10-K filed with the Securities and Exchange Commission on
April 5, 1993, 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 April 5,
1993, 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. (Filed herewith.)
10.4 Promissory Note, dated January 16, 1996, among the Registrant and
CNL Realty Corporation relating to a $86,200 loan. (Filed
herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from
October 1, 1995 through December 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 25th day
of March, 1996.
CNL INCOME FUND III, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
---------------------------
JAMES M. SENEFF, JR.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert A. Bourne President, Treasurer and March 25, 1996
- ------------------------ Director (Principal
Robert A. Bourne Financial and
Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer March 25, 1996
- ------------------------ and Director (Principal
James M. Seneff, Jr. Executive Officer)
<TABLE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
Additions Deductions
---------------------- --------------------
Balance at Charged to Charged to Deemed Balance
Beginning Costs and Other Uncollec- at End
Year Description of Year Expenses Accounts tible Collected of Year
- ---- ----------- ---------- ---------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 Allowance for
doubtful
accounts (a) $138,837 $ - $ 88,755(b) $ - $ - $227,592
======== ======= ======== ======= ======= ========
1994 Allowance for
doubtful
accounts (a) $227,592 $ 4,101 $136,069(b) $41,599 $15,656 $310,507
======== ======= ======== ======= ======= ========
1995 Allowance for
doubtful
accounts (a) $310,507 $10,681 $138,933(b) $53,946 $18,068 $388,107
======== ======= ======== ======= ======= ========
(a) Deducted from receivables and accrued rental income on the balance
sheet.
(b) Reduction of rental and other income.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1995
(A) (B) (C) (D) (E)
Costs Capitalized
Subsequent
Initial Cost To Acquisition
------------------------ --------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- ---------- ------------ ---------- --------
Properties the
Partnership has
Invested in Under
Operating Leases:
Burger King
Restaurants:
Kansas City, MO - $ 236,055 $ 573,739 $ - $ -
Roswell, GA - 437,528 - 379,809 -
Denny's Restaurants:
Hagerstown, MD - 332,665 - 549,754 -
Hazard, KY - 196,801 - 489,749 -
Daytona Beach, FL - 153,159 369,125 446,200 -
Golden Corral Family
Steakhouse
Restaurants:
Altus, OK - 149,756 449,269 - -
Hastings, NE - 110,800 332,400 23,636 -
Wichita, KS (f) - 147,349 442,045 - -
Stockbridge, GA - 384,644 685,511 - -
Washington, IL - 221,680 517,833 - -
Schererville,
IN (f) - 211,690 531,801 - -
KFC Restaurants:
Calallen, TX - 219,432 - 332,043 -
Katy, TX - 266,768 - 279,486 -
Burnsville, MN - 196,159 - 437,895 -
Page, AZ - 328,729 - 270,755 -
Mountain Jack's
Restaurant:
Canton Township,
MI (g) - 296,945 - - -
Perkins Restaurants:
Flagstaff, AZ - 372,546 - 669,471 -
Bradenton, FL - 438,302 720,093 - -
Pizza Hut Restaurants:
Jacksboro, TX - 54,274 147,337 - -
Seminole, TX - 183,284 134,531 - -
Winter Springs, FL - 268,128 270,372 - -
Austin, TX - 301,778 372,137 - -
Kissimmee, FL - 141,282 371,166 - -
Po Folks Restaurant:
Hagerstown, MD (h) - 579,990 - 638,320 -
Popeyes Famous Fried
Chicken Restaurant:
Plant City, FL - 275,129 - 360,342 -
Taco Bell Restaurants:
Fernandina Beach, FL - 190,348 - 395,955 -
Bishop, CA - 363,965 - 272,151 -
Longwood, FL - 346,831 - 394,086 -
Wendy's Old Fashioned
Hamburger Restau-
rants:
Punta Gorda, FL - 279,061 471,431 - -
Chicago, IL - 90,487 542,731 - -
Mason City, IA - 59,714 121,384 24,217 -
---------- ---------- ---------- --------
$7,835,279 $7,052,905 $5,963,869 $ -
========== ========== ========== ========
Property of Joint Venture
in Which the Partnership
has a 73.4% Interest and
has Invested in Under an
Operating Lease:
Po Folks Restaurant:
Titusville, FL - $ 271,350 $ - $ 750,985 $ -
========== ========== ========== ========
Property the Partnership
has Invested in Under
a Direct Financing
Lease:
Mountain Jack's
Restaurant:
Canton Township,
MI - $ - $ - $ 668,909 $ -
========== ========== ========== ========
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1995
(F) (G) (H) (I)
Gross Amount at Which Carried
at Close of Period (c)
-------------------------------------
Buildings
and Accumulated
Land Improvements Total Depreciation
---------- ------------ ----------- ------------
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurants:
Kansas City, MO $ 236,055 $ 573,739 $ 809,794 $154,591
Roswell, GA 437,528 379,809 817,337 93,370
Denny's Restaurants:
Hagerstown, MD 332,665 549,754 882,419 135,148
Hazard, KY 196,801 489,749 686,550 106,792
Daytona Beach, FL 153,159 815,325 968,484 202,699
Golden Corral Family
Steakhouse
Restaurants:
Altus, OK 149,756 449,269 599,025 123,549
Hastings, NE 110,800 356,036 466,836 97,319
Wichita, KS (f) 147,349 442,045 589,394 120,335
Stockbridge, GA 384,644 685,511 1,070,155 184,707
Washington, IL 221,680 517,833 739,513 140,966
Schererville,
IN (f) 211,690 531,801 743,491 144,768
KFC Restaurants:
Calallen, TX 219,432 332,043 551,475 83,011
Katy, TX 266,768 279,486 546,254 71,812
Burnsville, MN 196,159 437,895 634,054 107,041
Page, AZ 328,729 270,755 599,484 68,817
Mountain Jack's
Restaurant:
Canton Township,
MI (g) 296,945 (e) 296,945 -
Perkins Restaurants:
Flagstaff, AZ 372,546 669,471 1,042,017 161,789
Bradenton, FL 438,302 720,093 1,158,395 181,023
Pizza Hut Restaurants:
Jacksboro, TX 54,274 147,337 201,611 39,699
Seminole, TX 183,284 134,531 317,815 36,249
Winter Springs, FL 268,128 270,372 538,500 72,474
Austin, TX 301,778 372,137 673,915 97,686
Kissimmee, FL 141,282 371,166 512,448 97,431
Po Folks Restaurant:
Hagerstown, MD (h) 579,990 638,320 1,218,310 160,466
Popeyes Famous Fried
Chicken Restaurant:
Plant City, FL 275,129 360,342 635,471 92,588
Taco Bell Restaurants:
Fernandina Beach, FL 190,348 395,955 586,303 101,738
Bishop, CA 363,965 272,151 636,116 65,392
Longwood, FL 346,831 394,086 740,917 93,603
Wendy's Old Fashioned
Hamburger Restaurants:
Punta Gorda, FL 279,061 471,431 750,492 124,405
Chicago, IL 90,487 542,731 633,218 137,190
Mason City, IA 59,714 145,601 205,315 38,018
---------- ----------- ----------- ----------
$7,835,279 $13,016,774 $20,852,053 $3,334,676
========== =========== =========== ==========
Property of Joint Venture
in Which the Partnership
has a 73.4% Interest and
has Invested in Under an
Operating Lease:
Po Folks Restaurant:
Titusville, FL $ 271,350 $ 750,985 $ 1,022,335 $ 175,230
========== =========== =========== ==========
Property the Partnership
has Invested in Under
a Direct Financing
Lease:
Mountain Jack's
Restaurant:
Canton Township, MI (e) (e) (e) (d)
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1995
(J) (K) (L)
Life
on Which
Depreciation
in Latest
Date Income
of Con- Date Statement is
struction Acquired Computed
--------- -------- ------------
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurants:
Kansas City, MO 1984 12/87 (b)
Roswell, GA 1988 06/88 (b)
Denny's Restaurants:
Hagerstown, MD 1988 12/87 (b)
Hazard, KY 1988 02/88 (b)
Daytona Beach, FL 1988 06/88 (b)
Golden Corral Family
Steakhouse Restaurants:
Altus, OK 1987 10/87 (b)
Hastings, NE 1987 10/87 (b)
Wichita, KS (f) 1987 11/87 (b)
Stockbridge, GA 1987 11/87 (b)
Washington, IL 1987 12/87 (b)
Schererville, IN (f) 1987 12/87 (b)
KFC Restaurants:
Calallen, TX 1988 12/87 (b)
Katy, TX 1988 02/88 (b)
Burnsville, MN 1988 02/88 (b)
Page, AZ 1988 02/88 (b)
Mountain Jack's Restaurant:
Canton Township, MI (g) 1988 02/88 (d)
Perkins Restaurants:
Flagstaff, AZ 1988 06/88 (b)
Bradenton, FL 1985 06/88 (b)
Pizza Hut Restaurants:
Jacksboro, TX 1983 12/87 (b)
Seminole, TX 1977 12/87 (b)
Winter Springs, FL 1987 01/88 (b)
Austin, TX 1987 02/88 (b)
Kissimmee, FL 1987 02/88 (b)
Po Folks Restaurant:
Hagerstown, MD (h) 1988 12/87 (b)
Popeyes Famous Fried
Chicken Restaurant:
Plant City, FL 1988 11/87 (b)
Taco Bell Restaurants:
Fernandina Beach, FL 1988 12/87 (b)
Bishop, CA 1988 05/88 (b)
Longwood, FL 1988 06/88 (b)
Wendy's Old Fashioned
Hamburger Restaurants:
Punta Gorda, FL 1987 02/88 (b)
Chicago, IL 1984 02/88 (b)
Mason City, IA 1988 03/88 (b)
Property of Joint Venture
in Which the Partnership
has a 73.4% Interest and has
Invested in Under an Operating
Lease:
Po Folks Restaurant:
Titusville, FL 1988 12/88 (b)
Property the Partnership has
Invested in Under a Direct
Financing Lease:
Mountain Jack's Restaurant:
Canton Township, MI 1988 02/88 (d)
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------------------
December 31, 1995
(a) Transactions in real estate and accumulated depreciation during 1995,
1994 and 1993, are summarized as follows:
Accumulated
Cost Depreciation
----------- ------------
Properties the Partnership
has Invested in Under
Operating Leases:
Balance, December 31, 1992 $21,520,962 $ 2,130,548
Reclassified to net
investment in direct
financing lease (668,909) (112,413)
Depreciation expense - 448,757
----------- -----------
Balance, December 31, 1993 20,852,053 2,466,892
Depreciation expense - 433,892
----------- -----------
Balance, December 31, 1994 20,852,053 2,900,784
Depreciation expense - 433,892
----------- -----------
Balance, December 31, 1995 $20,852,053 $ 3,334,676
=========== ===========
Property of Joint Venture
in Which the Partnership
has a 73.4% Interest:
Balance, December 31, 1992 $ 1,022,335 $ 100,132
Depreciation expense - 25,032
----------- -----------
Balance, December 31, 1993 1,022,335 125,164
Depreciation expense - 25,033
----------- -----------
Balance, December 31, 1994 1,022,335 150,197
Depreciation expense - 25,033
----------- -----------
Balance, December 31, 1995 $ 1,022,335 $ 175,230
=========== ===========
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 1995, the aggregate cost of the Properties owned by
the Partnership and its consolidated joint venture, and the
unconsolidated joint venture for federal income tax purposes was
$21,520,962 and $1,022,335, respectively. All of the leases are
treated as operating leases for federal income tax purposes.
(d) For financial reporting purposes, the portion of the lease relating to
the building has been recorded as a direct financing lease. The cost
of the building has been included in net investment in direct
financing lease; therefore, depreciation is not applicable.
(e) For financial reporting purposes, certain components of the lease
relating to land and building have been recorded as a direct financing
lease. Accordingly, costs relating to these components of this lease
are not shown.
(f) The tenant of this property, Golden Corral Corporation, has subleased
this property to a local, independent restaurant. Golden Corral
Corporation continues to be responsible for complying with all the terms
of the lease agreement and is continuing to pay rent on this property to
the Partnership.
(g) The restaurant in Canton Township, Michigan, was converted from a
Ponderosa Steakhouse restaurant to a Mountain Jack's restaurant in
September 1993.
(h) For financial reporting purposes, the undepreciated cost of the Po Folks
Property in Hagerstown, Maryland, was written down to net realizable
value due to an anticipated impairment in value. The Partnership
recognized the impairment by recording an allowance for loss on land and
building in the amount of $207,844 at December 31, 1995. The impairment
at December 31, 1995, was based on the anticipated sales price of this
Property to an interested and unrelated third party. The cost of the
Property presented on this schedule is the gross amount at which the
Property was carried at December 31, 1995, excluding the allowance for
loss on land and building.
EXHIBITS
EXHIBIT INDEX
Exhibit Number
- --------------
3.1 Certificate of Limited Partnership of CNL Income Fund III, Ltd.
(Included as Exhibit 3.1 to Amendment No. 1 to Registration
Statement No. 33-15374 on Form S-11 and incorporated herein by
reference.)
3.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund III, Ltd. (Included as Exhibit 3.2
to Form 10-K filed with the Securities and Exchange Commission on
April 5, 1993, and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund III, Ltd.
(Included as Exhibit 4.1 to Amendment No. 1 to Registration
Statement No. 33-15374 on Form S-11 and incorporated herein by
reference.)
4.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund III, Ltd. (Included as Exhibit 3.2
to Form 10-K filed with the Securities and Exchange Commission on
April 5, 1993, 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 April 5,
1993, 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. (Filed herewith.)
10.4 Promissory Note, dated January 16, 1996, among the Registrant and
CNL Realty Corporation relating to a $86,200 loan. (Filed
herewith.)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund III, Ltd. at December 31, 1995, and its statement of
income for the year then ended and is qualified in its entirety by reference to
the Form 10-K of CNL Income Fund III, Ltd. for the year ended December 31, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 312,814
<SECURITIES> 0
<RECEIVABLES> 459,915
<ALLOWANCES> 353,277
<INVENTORY> 0
<CURRENT-ASSETS> 425,053
<PP&E> 20,644,209
<DEPRECIATION> 3,334,676
<TOTAL-ASSETS> 19,065,305
<CURRENT-LIABILITIES> 764,449
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,156,644
<TOTAL-LIABILITY-AND-EQUITY> 19,065,305
<SALES> 0
<TOTAL-REVENUES> 2,353,425
<CGS> 0
<TOTAL-COSTS> 656,458
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11,418
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,482,515
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,482,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,482,515
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 10.3
Assignment of Property Management Agreement
from CNL Income Fund Advisors, Inc. to
CNL Fund Advisors, Inc.
ASSIGNMENT
THIS ASSIGNMENT made this 1st day of October, 1995 by and between CNL
INCOME FUND ADVISORS, INC., a Florida corporation ("Assignor") and CNL FUND
ADVISORS, INC., a Florida corporation ("Assignee").
WITNESSETH:
WHEREAS, the CNL Investment Company entered into that certain Property
Management Agreement, dated August 10, 1987 with CNL Income Fund III, Ltd.
("Agreement"); and
WHEREAS, CNL Investment Company assigned its rights, duties and
obligations under the Agreement to Assignor by Assignment dated January 1,
1995; and
WHEREAS, the Assignor desires to assign its rights, duties and
obligations under the Agreement to Assignee, and Assignee desires to accept
such assignment and assume Assignors duties and obligations under the
Agreement, as assigned.
NOW, THEREFORE, the parties agree as follows:
1. ASSIGNMENT. Assignor hereby assigns and transfers to Assignee, all
of Assignor's rights, title and interest in, to, and under the Agreement as
assigned. Any funds or property of CNL Income Fund III, Ltd. in Assignor's
possession shall be, or have been, delivered to Assignee upon the full
execution of this Assignment.
2. ACCEPTANCE AND ASSUMPTION. Assignee hereby accepts the
foregoing assignment and further hereby assumes and agrees to perform, from
and after October 1, 1995, all duties, obligations and responsibilities of the
property manager arising under the Agreement.
3. REPRESENTATIONS.
(a) Assignor hereby represents and warrants to Assignee:
(i) that the Agreement is in full force and effect;
(ii) that Assignor has fully performed all of its
duties under the Agreement through the date of
this Assignment;
(iii) that Assignor has no notice or knowledge of any claim,
cost, or liability (other than as specifically
contemplated under the Agreement, all of which have
been satisfied or discharged) which arose under the
Agreement or which may arise after the date hereof;
and
(iv) that this Assignment has been duly authorized by
all requisite corporate action and has been
properly executed by duly authorized officers of
Assignor.
(b) CNL Income Fund III, Ltd. hereby represents and warrants to
Assignee that the Agreement is in full force and effect, and that
no defaults or violations of such Agreement exist as of the date
of this Assignment.
IN WITNESS WHEREOF, this Assignment is executed the date above first
written.
ASSIGNOR:
CNL INCOME FUND ADVISORS, INC.,
a Florida corporation
By: /s/Robert A. Bourne
-----------------------------
Robert A. Bourne, President
ASSIGNEE:
CNL FUND ADVISORS, INC.,
a Florida corporation
By: /s/Robert A. Bourne
-----------------------------
Robert A. Bourne, President
CONSENT AND JOINDER
CNL Income Fund III, Ltd. hereby consents to the foregoing Assignment
and joins in such agreement for the purpose of making the representations set
forth in subparagraph 3(b) thereof.
CNL INCOME FUND III, LTD.,
a Florida limited partnership
By: /s/Robert A. Bourne
-----------------------------
Robert A. Bourne, General Partner
EXHIBIT 10.4
Promissory Note
dated January 16, 1996
between CNL Income Fund III, Ltd. and CNL Realty Corporation
relating to a $86,200 loan
PROMISSORY NOTE
---------------
$86,200.00 Orlando, Florida
January 16, 1996
FOR VALUE RECEIVED, the undersigned ("Maker") CNL INCOME FUND III, LTD.,
A FLORIDA LIMITED PARTNERSHIP, hereby promises and agrees to pay on Demand to
the order of CNL REALTY CORPORATION ("Payee") at 400 E. South Street, Suite
500, Orlando, Florida 32801, or at such other location designed in writing by
Payee, the principal sum of EIGHTY-SIX THOUSAND TWO HUNDRED AND NO/100 DOLLARS
($86,200.00) together with interest thereon from the date hereof at the rate
of Prime plus one quarter (P + 1/4%) percent per annum in legal tender of the
United States of America, as follows:
This Note may be prepaid, in whole or in part, at any time without
premium or penalty. All prepayments shall be applied first to unpaid interest
and then to the unpaid principal balance.
This Note shall be governed by and construed in accordance with the laws
of the State of Florida.
IN WITNESS WHEREOF, the undersigned has executed this Note this
Sixteenth day of January, 1996.
By: CNL INCOME FUND III, LTD.,
a Florida limited partnership
By: /s/Robert A. Bourne
-----------------------------
Robert A. Bourne
General Partner
