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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2
(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, 1998
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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)
450 South Orange Avenue
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 650-1000
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 __________
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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 50,000 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
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The Form 10-K of CNL Income Fund III, Ltd. for the year ended December 31,
1998 is being amended to revise the disclosure under Item 1. Business.
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.
During 1997, the Partnership sold its Properties in Chicago, Illinois;
Bradenton, Florida; Kissimmee, Florida; Roswell, Georgia and Mason City Iowa.
The Partnership reinvested a portion of these net sales proceeds in a Property
in Fayetteville, North Carolina. In addition, the Partnership reinvested a
portion of these net sales proceeds in three Properties, one each in Englewood,
Colorado, Miami, Florida, and Overland Park, Kansas, as tenants-in-common, with
affiliates of the General Partners during 1997 and 1998. During 1998, the
Partnership sold its Properties in Daytona Beach, Fernandina Beach, and Punta
Gorda, Florida; Hagerstown, Maryland, and Hazard Kentucky. The Partnership
reinvested a portion of the net sales proceeds in a joint venture arrangement,
RTO Joint Venture, with an affiliate of the General Partners to purchase,
construct and hold one property. In January 1999, the Partnership reinvested a
portion of the remaining net sales proceeds from the 1998 sales in a Property in
Montgomery, Alabama. The Partnership intends to use the remaining net sales
proceeds to invest in an additional Property, to pay liabilities of the
Partnership, and to make a special distribution to the Limited Partners. As a
result of the above transactions, as of December 31, 1998, the Partnership owned
27 Properties. This number excludes the Property purchased in January 1999.
The 27 Properties include interests in three Properties owned by joint ventures
in which the Partnership is a co-venturer and three Properties owned with
affiliates as tenants-in-common. Generally, the Properties are leased on a
triple-net basis with the lessees responsible for all repairs and maintenance,
property taxes, insurance and utilities.
On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. APF has agreed to issue shares of its
common stock, par value $0.01 per share (the "APF Shares"), as consideration for
the Merger. At a special meeting of the partners that is expected to be held in
the fourth quarter of 1999, Limited Partners holding in excess of 50% of the
Partnership's outstanding limited partnership interests must approve the Merger
prior to consummation of the transaction. If the Limited Partners at the
special meeting approve the Merger, APF will own the Properties and other assets
of the Partnership.
In the event that the Limited Partners vote against the Merger, 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 the
Property's then fair market value after a specified portion of the lease term
has elapsed. 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.
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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 15 to 20 years (the average being 18 years), and expire
between 2002 and 2018. Generally, leases are on a triple-net basis, with the
lessees 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 $191,900. The majority 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. Lessees
of 17 of the Partnership's 27 Properties also have been granted options to
purchase Properties at each 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. Fair market value will be determined through an
appraisal by an independent firm. 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 that described above, multiplied by the percentage interest in the
Property with respect to which the 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 January 1998, the Partnership reinvested a portion of the net sales
proceeds from the sale of the Properties in Kissimmee, Florida, and Mason City,
Iowa, in an IHOP Property located in Overland Park, Kansas, with an affiliate of
the General Partners, as tenants-in-common, as described below in "Joint Venture
Arrangements." In addition, in May 1998, the Partnership contributed the net
sales proceeds from the sale of the Property in Punta Gorda, Florida, in a joint
venture arrangement, RTO Joint Venture, with an affiliate of the General
Partners, as described below in "Joint Venture Arrangements." The lease terms
for these Properties are substantially the same as the Partnership's other
leases, as described above in the first three paragraphs of this section.
In September 1998, the Partnership entered into a new lease agreement with
a new tenant, for the Golden Corral Property located in Stockbridge, Georgia.
The lease terms for this Property are substantially the same as the
Partnership's other leases, as described above in the first three paragraphs of
this section.
In January 1999, the Partnership reinvested a portion of the net sales
proceeds from the sales of the Properties in Hagerstown, Maryland and Hazard,
Kentucky, in a Property located in Montgomery, Alabama. The lease terms for
this Property are substantially the same as the Partnership's other leases, as
described above in the first three paragraphs of this section.
Major Tenants
During 1998, 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 rental
income from one Property owned by two unconsolidated joint ventures and three
Properties owned with affiliates as tenants-in-common). As of December 31,
1998, Golden Corral Corporation was the lessee under leases relating to five
restaurants. It is anticipated that, based on the minimum rental payments
required by the leases, this lessee will continue to contribute more than ten
percent of the Partnership's total rental income in 1999 and subsequent years.
In addition, three Restaurant Chains, Golden Corral Family Steakhouse
Restaurants ("Golden Corral"), Pizza Hut, and KFC, each accounted for more than
ten percent of the Partnership's total rental income in 1998 (including rental
income from the Partnership's consolidated joint venture and the Partnership's
share of the rental income from two Properties owned by two unconsolidated joint
ventures and three Properties owned with affiliates as tenants-in-common). In
subsequent years, it is anticipated that these three 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
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Golden Corral Corporation or any of these Restaurant Chains could materially
affect the Partnership's income. As of December 31, 1998, no single tenant or
group of affiliated tenants lease Properties with an aggregate carrying value
in excess of 20 percent of the total assets of the Partnership.
Joint Venture and Tenancy in Common 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 two separate joint
venture arrangements: Titusville Joint Venture with CNL Income Fund IV, Ltd.,
an affiliate of the General Partners, to purchase and hold one Property; and RTO
Joint Venture with CNL Income Fund V, Ltd., an affiliate of the General
Partners, to purchase, construct and hold one Property. Construction was
completed and rent commenced in December 1998. The affiliates are limited
partnerships organized pursuant to the laws of the State of Florida.
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 has a 69.07%, a 73.4%, and a 46.88% interest in
Tuscawilla Joint Venture, Titusville Joint Venture, and RTO Joint Venture,
respectively. 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 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 affiliates of the General Partners for
Titusville Joint Venture and RTO 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 ventures may agree or, in
the event the ventures 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, Titusville Joint
Venture and RTO Joint Venture is distributed 69.07%, 73.4% and 46.88%,
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.
In addition to the above joint venture arrangements, the Partnership has
entered into an agreement to hold a Property in Englewood, Colorado, as tenants-
in-common, with CNL Income Fund IX, Ltd., an affiliate of the General Partners;
and entered into an agreement to hold a Property in Miami, Florida, as tenants-
in-common, with CNL Income Fund VII, Ltd., CNL Income Fund X, Ltd., and CNL
Income Fund XIII, Ltd., affiliates of the General Partners. The agreements
provide for the Partnership and the affiliates to share in the profits and
losses of the Properties in proportion to each co-tenant's percentage interest.
The Partnership owns a 33 percent and 9.84% interest in the Property in
Englewood, Colorado and the Property in Miami, Florida, respectively.
In addition, in January 1998, the Partnership entered into an agreement to
hold an IHOP Property, as tenants-in-common, with CNL Income Fund II, Ltd. and
CNL Income Fund VI, Ltd., affiliates of the General Partners. The agreement
provides for the Partnership and the affiliate to share in the profits and
losses of the Property in proportion to each co-tenant's percentage interest.
The Partnership owns a 25.87% interest in this Property.
Each of the affiliates is a limited Partnership organized pursuant to the
laws of the State of Florida. The tenancy in common agreement restricts each
co-tenant's ability to sell, transfer, or assign its interest in the tenancy in
common's Property without first offering it for sale to the remaining co-tenant.
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The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
Property Management
CNL Funds Advisors, Inc., an affiliate of the General Partners, acts as
manager of the Partnership's Properties pursuant to a property management
agreement with the Partnership. Under this agreement, CNL Fund Advisors, Inc. is
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 Fund Advisors, Inc. also assists
the General Partners in negotiating the leases. For these services, the
Partnership has agreed to pay CNL Fund Advisors, Inc. 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 have not received the 10% Preferred
Return, no property management fee will be paid.
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.
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.
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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 17th day of
December, 1999.
CNL INCOME FUND III, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
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ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
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ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
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JAMES M. SENEFF, JR.
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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.
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<CAPTION>
Signature Title Date
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<S> <C> <C>
/s/ Robert A. Bourne President, Treasurer and Director December 17, 1999
- ------------------------------- (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director December 17, 1999
- ------------------------------- (Principal Executive Officer)
James M. Seneff, Jr.
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