FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 juris- (I.R.S. Employer
diction of incorporation Identification No.)
or organization)
400 E. South Street, #500
Orlando, Florida 32801
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4-5
Notes to Condensed Financial Statements 6-9
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 10-15
Part II
Other Information 16
<PAGE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
ASSETS 1997 1996
----------- ------------
Land and buildings on operating
leases, less accumulated
depreciation and allowance for
loss on land and building $14,974,705 $16,483,532
Investment in direct financing
leases 933,112 938,918
Investment in joint venture 635,573 643,912
Mortgage note receivable 686,689 -
Cash and cash equivalents 707,836 57,751
Restricted cash 677,484 -
Receivables, less allowance for
doubtful accounts of $10,345
and $70,142 245,247 321,831
Prepaid expenses 8,915 6,898
Lease costs, less accumulated
amortization of $2,462 and
$2,162 9,538 9,838
Accrued rental income 139,163 114,738
Other assets 29,355 31,489
----------- -----------
$19,047,617 $18,608,907
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 12,351 $ 14,183
Accrued and escrowed real estate
taxes payable 25,013 72,827
Distributions payable 594,000 594,000
Due to related parties 71,259 102,859
Rents paid in advance and deposits 23,834 88,325
----------- -----------
Total liabilities 726,457 872,194
Minority interest 140,011 141,412
Partners' capital 18,181,149 17,595,301
----------- -----------
$19,047,617 $18,608,907
=========== ===========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- ---------- ----------
<S> <C>
Revenues:
Rental income from operating
leases $454,599 $523,323 $ 953,326 $1,052,807
Earned income from direct
financing lease 34,212 17,886 68,530 35,822
Contingent rental income 24,725 25,371 76,516 56,196
Interest and other income 33,754 6,769 44,909 16,706
-------- -------- ---------- ----------
547,290 573,349 1,143,281 1,161,531
-------- -------- ---------- ----------
Expenses:
General operating and
administrative 37,223 37,190 73,338 77,580
Professional services 7,346 12,943 15,400 23,779
Real estate taxes 4,532 12,670 7,560 24,938
State and other taxes 644 90 9,924 11,973
Depreciation and amortization 90,155 107,840 187,861 215,680
-------- -------- ---------- ----------
139,900 170,733 294,083 353,950
-------- -------- ---------- ----------
Income Before Minority Interest
in Income of Consolidated
Joint Venture, Equity in
Earnings (Loss) of Unconsoli-
dated Joint Venture, Gain on
Sale of Land and Buildings
and Provision for Loss on
Land and Building 407,390 402,616 849,198 807,581
Minority Interest in Income of
Consolidated Joint Venture (4,352) (4,378) (8,581) (8,578)
Equity in Earnings (Loss) of
Unconsolidated Joint Venture (1,488) 2,317 (3,002) 5,042
Gain on Sale of Land and
Buildings 603,857 - 969,052 -
Provision for Loss on Land and
Building - - (32,819) -
---------- -------- ---------- ---------
Net Income $1,005,407 $400,555 $1,773,848 $ 804,045
========== ======== ========== ==========
Allocation of Net Income:
General partners $ 6,253 $ 4,005 $ 12,243 $ 8,040
Limited partners 999,154 396,550 1,761,605 796,005
---------- -------- ---------- ----------
$1,005,407 $400,555 $1,773,848 $ 804,045
========== ======== ========== ==========
Net Income Per Limited
Partner Unit $ 19.98 $ 7.93 $ 35.23 $ 15.92
========== ======== ========== ==========
Weighted Average Number of
Limited Partner Units
Outstanding 50,000 50,000 50,000 50,000
======== ======== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
1997 1996
---------------- ------------
General partners:
Beginning balance $ 321,305 $ 303,158
Net income 12,243 18,147
----------- -----------
333,548 321,305
----------- -----------
Limited partners:
Beginning balance 17,273,996 17,853,486
Net income 1,761,605 1,796,510
Distributions ($23.76 and
$47.52 per limited partner
unit, respectively) (1,188,000) (2,376,000)
----------- -----------
17,847,601 17,273,996
----------- -----------
Total partners' capital $18,181,149 $17,595,301
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1997 1996
----------- -----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 976,409 $ 1,101,363
----------- -----------
Cash Flows from Investing
Activities:
Addition to land and building
on operating lease (1,272,960) -
Proceeds from sale of land and
buildings 2,811,159 -
Increase in restricted cash (666,541) -
Deposit received on sale of
land parcel - 51,400
----------- -----------
Net cash provided by
investing activities 871,658 51,400
----------- -----------
Cash Flows from Financing
Activities:
Proceeds from loans from
corporate general partner 37,000 210,400
Repayment of loans from
corporate general partner (37,000) (210,400)
Distributions to limited
partners (1,188,000) (1,188,000)
Distributions to holders of
minority interest (9,982) (9,984)
----------- -----------
Net cash used in
financing activities (1,197,982) (1,197,984)
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 650,085 (45,221)
Cash and Cash Equivalents at Beginning
of Period 57,751 312,814
----------- -----------
Cash and Cash Equivalents at End of
Period $ 707,836 $ 267,593
=========== ===========
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
Six Months Ended
June 30,
1997 1996
---------- -----------
Supplemental Schedule of Non-Cash Investing
and Financing Activities:
Mortgage note accepted in exchange
for sale of land and building $ 685,000 -
=========== ===========
Distributions declared and unpaid
at end of period $ 594,000 $ 594,000
=========== ===========
See accompanying notes to condensed financial statements.
5
<PAGE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1997 and 1996
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 1997, may not be indicative
of the results that may be expected for the year ending December 31,
1997. Amounts as of December 31, 1996, included in the financial
statements, have been derived from audited financial statements as of
that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund III, Ltd. (the "Partnership") for the year ended December
31, 1996.
The Partnership accounts for its 69.07% interest in Tuscawilla Joint
Venture using the consolidation method. Minority interest represents
the minority joint venture partners' proportionate share of the equity
in the Partnership's consolidated joint venture. All significant
intercompany accounts and transactions have been eliminated.
2. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at:
June 30, December 31,
1997 1996
----------- ------------
Land $ 7,385,673 $ 7,835,279
Buildings 11,037,510 12,467,020
----------- -----------
18,423,183 20,302,299
Less accumulated
depreciation (3,207,815) (3,610,923)
----------- -----------
15,215,368 16,691,376
Less allowance for loss
on land and building (240,663) (207,844)
----------- -----------
$14,974,705 $16,483,532
=========== ===========
6
<PAGE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
2. Land and Buildings on Operating Leases - Continued:
As of December 31, 1996, the Partnership continued to record 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. In addition, as of June 30, 1997, the Partnership had
increased the allowance for loss on land and building by an additional
$32,819 for such property. The allowance represents the difference
between the (i) property's carrying value and (ii) the general
partners' estimate of the net realizable value of the property based on
the general partners' anticipated sales price relating to this
property.
In January 1997, the Partnership sold its property in Chicago,
Illinois, to an unrelated third party, for $505,000 and received net
sales proceeds of $481,268, resulting in a gain of $3,827 for financial
reporting purposes.
In March 1997, the Partnership sold its property in Bradenton, Florida,
to the tenant, for $1,332,154 and received net sales proceeds (net of
$4,330 which represents real estate tax amounts due from the tenant) of
$1,305,671, resulting in a gain of $361,368 for financial reporting
purposes. This property was originally acquired by the Partnership in
June 1988 and had a cost of approximately $1,080,500, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the property for approximately $225,200 in excess of
its original purchase price. In June 1997, the Partnership reinvested
approximately $1,276,000 of the net sales proceeds received in a
Darryl's property in Fayetteville, North Carolina.
In April 1997, the Partnership sold its property in Kissimmee, Florida,
for $692,400 and received net sales proceeds of $671,209, resulting in
a gain of $271,929 for financial reporting purposes. This property was
originally acquired by the Partnership in February 1988 and had a cost
of approximately $474,800, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the property for
approximately $196,400 in excess of its original purchase price (see
Note 5).
7
<PAGE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
2. Land and Buildings on Operating Leases - Continued:
In addition, in April 1996, the Partnership received $51,400 as partial
settlement in a right of way taking relating to a parcel of land of the
property in Plant City, Florida. In April 1997, the Partnership
received the remaining proceeds of $73,600 finalizing the sale of the
land parcel. In connection therewith, the Partnership recognized a gain
of $94,320 for financial reporting purposes.
In addition, in June 1997, the Partnership sold its property in
Roswell, Georgia, to an unrelated third party for $985,000 and received
net sales proceeds of $942,981, resulting in a gain of $237,608 for
financial reporting purposes. This property was originally acquired by
the Partnership in June 1988 and had a cost of approximately $775,200,
excluding acquisition fees and miscellaneous acquisition expenses;
therefore, the Partnership sold the property for approximately $167,800
in excess of its original purchase price. In connection therewith, the
Partnership received $257,981 in cash and accepted the remaining sales
proceeds in the form of a promissory note (Note 4).
3. Restricted Cash:
As of June 30, 1997, net sales proceeds of $673,159 from the sale of
the property in Kissimmee, Florida, plus accrued interest of $4,325,
were being held in an interest-bearing escrow account pending the
release of funds by the escrow agent to acquire an additional property
on behalf of the Partnership.
4. Mortgage Note Receivable:
In connection with the sale of the property in Roswell, Georgia, in
June 1997, the Partnership accepted a promissory note in the principal
sum of $685,000 collateralized by a mortgage on the property. The
promissory note bears interest at a rate of nine percent per annum and
is being collected in 36 monthly installments of $6,163, including
interest, with a balloon payment of $642,798 due in July 2000.
8
<PAGE>
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
4. Mortgage Note Receivable - Continued:
The mortgage note receivable consisted of the following at June 30:
1997 1996
------------ ----------
Principal balance $ 685,000 $ -
Accrued interest
receivable 1,689 -
------------ ----------
$ 686,689 $ -
============ ==========
The general partners believe that the estimated fair value of the
mortgage note receivable at June 30, 1997 approximates the outstanding
principal amount based on estimated current rates at which similar
loans would be made to borrowers with similar credit and for similar
maturities.
5. Subsequent Event:
In July 1997, the Partnership reinvested approximately $513,200 of the
net sales proceeds from the sale in April 1997, of the property in
Kissimmee, Florida, in an IHOP property in Englewood, Colorado, as
tenants-in-common with an affiliate of the general partners. In
connection therewith, the Partnership and its affiliate entered into an
agreement whereby each co-venturer will share in the profits and losses
of the property in proportion to each co-venturer's interest. The
Partnership owns an approximate 33 percent interest in the property.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CNL Income Fund III, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on June 1, 1987, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurant properties, as well as land upon which restaurants were to
be constructed, which are leased primarily to operators of selected national and
regional fast-food restaurant chains. The leases generally are triple-net
leases, with the lessees responsible for all repairs and maintenance, property
taxes, insurance and utilities. As of June 30, 1997, the Partnership owned 29
Properties, including interests in two Properties owned by joint ventures in
which the Partnership is a co-venturer.
Liquidity and Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 1997 and 1996, was cash from operations (which includes cash received
from tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). In addition, another source of capital
for the six months ended June 30, 1997, included proceeds from the sales of
Properties, as discussed below. Cash from operations was $976,409 and $1,101,363
for the six months ended June 30, 1997 and 1996, respectively. The decrease in
cash from operations for the six months ended June 30, 1997, is primarily a
result of changes in the Partnership's working capital.
Other sources and uses of capital included the following during the six
months ended June 30, 1997.
In January 1997, the Partnership sold its Property in Chicago,
Illinois, to an unrelated third party, for $505,000 and received net sales
proceeds of $481,268, resulting in a gain of $3,827 for financial reporting
purposes. The Partnership used $452,000 of the net sales proceeds to pay
liabilities of the Partnership, including quarterly distributions to the limited
partners. The balance of the funds were used to pay delinquent prior year real
estate taxes on this Property accrued by the Partnership as a result of the
former tenant declaring bankruptcy.
In March 1997, the Partnership sold its Property in Bradenton, Florida,
to the tenant, for $1,332,154 and received net sales proceeds (net of $4,330
which represents real estate tax amounts due from tenant) of $1,305,671,
resulting in a gain of $361,368 for financial reporting purposes. This Property
was originally acquired by the Partnership in June 1988 and had a cost of
approximately $1,080,500, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $225,200 in excess of its original purchase price. In June 1997,
the Partnership reinvested approximately $1,276,000 of the net sales proceeds
received in a Darryl's Property in Fayetteville, North Carolina.
10
<PAGE>
Liquidity and Capital Resources - Continued
The Partnership intends to reinvest the remaining net sales proceeds or use them
for other Partnership purposes. The general partners believe that the
transaction, or a portion thereof, relating to the sale of the Property in
Bradenton, Florida, and the reinvestment of the proceeds in a Darryl's Property
in Fayetteville, North Carolina, will be structured to qualify as a
like-kind-exchange transaction for federal income tax purposes.
In April 1997, the Partnership sold its Property in Kissimmee, Florida,
to an unrelated third party, for $692,400 and received net sales proceeds of
$671,209, resulting in a gain of $271,929 for financial reporting purposes. This
Property was originally acquired by the Partnership in March 1988 and had a cost
of approximately $474,800, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $196,400 in excess of its original purchase price. As of June 30,
1997, the net sales proceeds of $673,159 plus accrued interest of $4,325, were
being held in an interest-bearing escrow account pending the release of funds by
the escrow agent to acquire an additional Property. In July 1997, the
Partnership reinvested approximately $513,200 of these net sales proceeds in an
IHOP Property in Englewood, Colorado, as tenants-in-common with an affiliate of
the general partners. In connection therewith, the Partnership and its affiliate
entered into an agreement whereby each co-venturer will share in the profits and
losses of the Property in proportion to each co-venturer's interest. The
Partnership owns an approximate 33 percent interest in the Property. The
Partnership intends to reinvest the remaining net sale proceeds or use them for
other Partnership purposes. The general partners believe that the transaction,
or a portion thereof, relating to the sale of the Property in Kissimmee,
Florida, and the reinvestment of the proceeds in an IHOP Property in Englewood,
Colorado, will be structured to qualify as a like-kind exchange transaction for
federal income tax purposes.
In addition, in April 1996, the Partnership received $51,400 as partial
settlement in a right of way taking relating to a parcel of land of the Property
in Plant City, Florida. In April 1997, the Partnership received the remaining
proceeds of $73,600 finalizing the sale of the land parcel. In connection
therewith, the Partnership recognized a gain of $94,320 for financial reporting
purposes.
In addition, in June 1997, the Partnership sold its Property in
Roswell, Georgia, to an unrelated third party for $985,000 and received net
sales proceeds of $942,981, resulting in a gain of $237,608 for financial
reporting purposes. This Property was originally acquired by the Partnership in
June 1988 and had a cost of approximately $775,200, excluding acquisition fees
and miscellaneous acquisition expenses; therefore the Partnership sold the
Property for approximately $167,800 in excess of its original purchase price. In
connection therewith, the Partnership received $257,981 in cash and accepted the
remaining sales proceeds in the form of a promissory note in the principal sum
of $685,000, collateralized by a mortgage on the Property. The promissory note
bears interest at a rate of nine percent per annum and is being collected in 36
monthly installments of $6,163, including interest, with a balloon payment of
$642,798 due in July 2000. Net sales proceeds of $257,981 received in cash
and proceeds received from the collection of this
11
<PAGE>
Liquidity and Capital Resources - Continued
promissory note will be used to pay liabilities of the Partnership, including
quarterly distributions to the limited partners, reinvested in an additional
Property, or used for other Partnership purposes.
In April 1997, the Partnership entered into a promissory note with the
in mocorporate general partner for a loan in the amount of $37,000 in connection
with the Pthe operations of the Partnership. The note was uncollateralized,
non-interest distrbearing and due on demand. As of June 30, 1997, the
Partnership had repaid the invesloan in full to the corporate general partner.
Currently, rental income from the Partnership's Properties is invested
ney market accounts and other short-term, highly liquid investments pending
artnership's use of such funds to pay Partnership expenses or to make ibutions
to the partners. At June 30, 1997, the Partnership had $707,836 ted in such
short-term investments, as compared to $57,751 at December 31, 1996. The
increase in cash and cash equivalents for the six months ended June 30, 1997, is
primarily attributable to the receipt of a portion of the net sales proceeds
relating to the sale of the Properties in Roswell, Georgia, Bradenton, Florida,
and a land parcel sale in Plant City, Florida, as described above. The funds
remaining at June 30, 1997, will be used towards the payment of distributions
and other liabilities.
Total liabilities of the Partnership, including distributions payable,
decreased to $726,457 at June 30, 1997, from $872,194 at December 31, 1996,
partially as a result of a decrease in amounts due to related parties and rents
paid in advance during the six months ended June 30, 1997. In addition, total
liabilities decreased during the six months ended June 30, 1997, due to the fact
that the Partnership paid amounts previously accrued for real estate taxes
relating to the Denny's and Po Folks Properties in Hagerstown, Maryland, and the
Wendy's Property in Chicago, Illinois. Liabilities at June 30, 1997, to the
extent they exceed cash and cash equivalents at June 30, 1997, will be paid from
future cash from operations and net sales proceeds from the sales of Properties,
as described above, and, in the event the general partners elect to make
additional capital contributions or loans to the Partnership, from future
general partner capital contributions or loans.
Based on current and anticipated future cash from operations, and, for
the six months ended June 30, 1997, proceeds received from the sales of the
Properties in Chicago, Illinois, and Roswell, Florida, the Partnership declared
distributions to limited partners of $1,188,000 for each of the six months ended
June 30, 1997 and 1996 ($594,000 for each of the quarters ended June 30, 1997
and 1996). This represents distributions for each applicable six months of
$23.76 per unit ($11.88 per unit for each applicable quarter). No distributions
were made to the general partners for the quarters and six months ended June 30,
1997 and 1996. No
12
<PAGE>
Liquidity and Capital Resources - Continued
amounts distributed or to be distributed to the limited partners for the six
months ended June 30, 1997 and 1996, are required to be or have been treated by
the Partnership as a return of capital for purposes of calculating the limited
partners' return on their adjusted capital contributions. The Partnership
intends to continue to make distributions of cash available for distribution to
the limited partners on a quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
Results of Operations
During the six months ended June 30, 1996, the Partnership and its
consolidated joint venture, Tuscawilla Joint Venture, owned and leased 31 wholly
owned Properties and during the six months ended June 30, 1997, the Partnership
and its consolidated joint venture owned and leased 32 wholly owned Properties
(including four Properties in Chicago, Illinois, Bradenton, Florida, Kissimmee,
Florida, and Roswell, Georgia, which were sold in January, March, April and June
1997, respectively) to operators of fast-food and family-style restaurant
chains. In connection therewith, during the six months ended June 30, 1997 and
1996, the Partnership and Tuscawilla Joint Venture earned $1,021,856 and
$1,088,629, respectively, in rental income from operating leases and earned
income from the direct financing lease for these Properties, $488,811 and
$541,209 of which was earned during the quarters ended June 30, 1997 and 1996,
respectively. The decrease in rental and earned income during the quarter and
six months ended June 30, 1997, as compared to the quarter and six months ended
June 30, 1996, is primarily attributable to a decrease of approximately $54,400
and $67,900, respectively, as a result of the sales of the Properties in
Chicago, Illinois, Bradenton, Florida, Kissimmee, Florida, and Roswell, Georgia,
in January, March, April and June 1997, respectively.
Rental and earned income during the quarters ended June 30, 1997 and
1996, continued to remain at reduced amounts due to the fact that the
Partnership is not receiving any rental income relating to the Po Folks Property
in Hagerstown, Maryland. The Partnership is currently seeking a buyer or a
replacement tenant for this Property.
During the six months ended June 30, 1997 and 1996, the Partnership
also earned $76,516 and $56,196, respectively, in contingent rental income,
$24,725 and $25,371 of which was earned
13
<PAGE>
Results of Operations - Continued
during the quarters ended June 30, 1997 and 1996, respectively. The increase in
contingent rental income during the six months ended June 30, 1997, is primarily
attributable to increases in gross sales relating to certain restaurant
Properties required to pay contingent rent.
In addition, during the six months ended June 30, 1997 and 1996, the
Partnership earned $44,909 and $16,706, respectively, in interest and other
income, $33,754 and $6,769 of which was earned during the quarters ended June
30, 1997 and 1996, respectively. The increase in interest and other income
during the quarter and six months ended June 30, 1997, was partially
attributable to an increase of approximately $13,100 relating to interest earned
on the sales proceeds held in escrow relating to the Properties in Bradenton and
Kissimmee, Florida. In addition, the increase in interest and other income
during the six months ended June 30, 1997, was attributable to the Partnership
recognizing $15,000 in other income due to the fact that the purchase and sale
agreement between the Partnership and an unrelated third party for the Po Folks
Property located in Hagerstown, Maryland, was terminated. Based on the
agreement, all deposits received in conjunction with the purchase and sale
agreement were to be recognized as other income by the Partnership at such time
as the agreement was terminated.
Operating expenses, including depreciation and amortization expense,
were $294,083 and $353,950 for the six months ended June 30, 1997 and 1996,
respectively, of which $139,900 and $170,733 were incurred for the quarters
ended June 30, 1997 and 1996, respectively. The decrease in operating expenses
during the quarter and six months ended June 30, 1997, as compared to the
quarter and six months ended June 30, 1996, is partially attributable to a
decrease in depreciation expense of approximately $17,700 and $27,800,
respectively, due to the sales of the Properties in Chicago, Illinois,
Bradenton, Florida, Kissimmee, Florida, and Roswell, Georgia, as discussed above
in "Liquidity and Capital Resources."
Operating expenses also decreased during the quarter and six months
ended June 30, 1997, due to the fact that during the quarter and six months
ended June 30, 1996, the Partnership recorded approximately $5,500 and $10,600,
respectively, for real estate taxes relating to the Partnership's Property in
Chicago, Illinois, due to continued financial difficulties of the tenant. The
Partnership sold this Property in January 1997, as discussed above in "Liquidity
and Capital Resources." Operating expenses also decreased due to the fact that
during the quarter and six months ended June 30, 1996, the Partnership recorded
approximately $2,700 and $5,300, respectively, in real estate tax expense for
the Denny's Property in Hagerstown, Maryland, due to continued financial
difficulties of the former tenant. The current tenant is responsible for real
estate taxes; therefore, no such expense was recorded during the six months
ended June 30, 1997.
14
<PAGE>
Results of Operations - Continued
As a result of the former tenant of the Po Folks Property in
Hagerstown, Maryland, defaulting under the terms of its lease in February 1995,
the Partnership incurred real estate tax expense and insurance expense during
the six months ended June 30, 1997, relating to this Property. The Partnership
expects to continue to incur these expenses until the Property is sold or leased
to a new tenant.
As a result of the sales of the Properties in Chicago, Illinois,
Bradenton, Florida, Kissimmee, Florida, Roswell, Georgia, and the sale of a
parcel of land in Plant City, Florida, as discussed above in "Liquidity and
Capital Resources," the Partnership recognized a gain of $603,857 and $969,052
for financial reporting purposes during the quarter and six months ended June
30, 1997, respectively. No Properties were sold during the quarter and six
months ended June 30, 1996.
In addition, during the six months ended June 30, 1997, the Partnership
recorded an allowance for loss on land and building of $32,819, 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.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the
quarter ended June 30, 1997.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 8th day of August, 1997.
CNL INCOME FUND III, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
--------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet of CNL Income Fund III, Ltd. at June 30, 1997, and its
statement of income for the six months then ended and is qualified
in its entirety by reference to the Form 10Q of CNL Income Fund III, Ltd.
for the six months ended June 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,385,320
<SECURITIES> 0
<RECEIVABLES> 255,592
<ALLOWANCES> 10,345
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 18,182,520
<DEPRECIATION> 3,207,815
<TOTAL-ASSETS> 19,047,617
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,181,149
<TOTAL-LIABILITY-AND-EQUITY> 19,047,617
<SALES> 0
<TOTAL-REVENUES> 1,143,281
<CGS> 0
<TOTAL-COSTS> 294,083
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,773,848
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,773,848
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,773,848
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund III, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for
current assets and current liabilities.
</FN>
</TABLE>
