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 September 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
0-17549
CNL Income Fund IV, Ltd.
(Exact name of registrant as specified in its charter)
Florida 59-2854435
(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
Notes to Condensed Financial Statements 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 7-11
Part II
Other Information 12
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
ASSETS 1997 1996
------------- ------------
Land and buildings on operating
leases, less accumulated
depreciation of $3,728,860
and $3,391,035 $18,587,191 $18,737,516
Net investment in direct
financing leases 1,278,274 1,303,604
Investment in joint ventures 2,744,458 2,783,738
Cash and cash equivalents 463,741 554,593
Receivables, less allowance for
doubtful accounts of $208,268
and $156,933 98,924 62,561
Prepaid expenses 12,110 10,935
Lease costs, less accumulated
amortization of $17,325 and
$15,458 6,619 8,486
Accrued rental income 292,693 269,359
Other assets 200 100
----------- -----------
$23,484,210 $23,730,892
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 2,810 $ 10,831
Accrued construction costs payable 187,500 -
Accrued and escrowed real estate
taxes payable 55,395 32,729
Distributions payable 690,000 690,000
Due to related parties 69,474 67,153
Rents paid in advance and deposits 34,790 32,548
----------- -----------
Total liabilities 1,039,969 833,261
Commitment (Note 3)
Partners' capital 22,444,241 22,897,631
----------- -----------
$23,484,210 $23,730,892
=========== ===========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- ---------- ----------
<S> <C>
Revenues:
Rental income from
operating leases $508,852 $574,651 $1,558,963 $1,735,102
Earned income from direct
financing leases 32,564 33,407 98,344 100,809
Contingent rental income 20,661 19,409 65,265 61,539
Interest and other income 17,509 8,191 28,980 33,262
-------- -------- ---------- ----------
579,586 635,658 1,751,552 1,930,712
-------- -------- ---------- ----------
Expenses:
General operating and
administrative 33,940 40,537 113,606 127,530
Bad debt expense - - 12,794 -
Professional services 4,110 4,173 18,200 18,590
Real estate taxes 3,487 14,464 31,514 32,424
State and other taxes 25 - 16,476 21,694
Depreciation and amorti-
zation 113,230 111,642 339,692 335,303
-------- -------- ---------- ----------
154,792 170,816 532,282 535,541
-------- -------- ---------- ----------
Income Before Equity in
Earnings of Joint Ventures
and Gain on Sale of Land
and Building 424,794 464,842 1,219,270 1,395,171
Equity in Earnings of Joint
Ventures 52,359 69,645 172,340 201,116
Gain on Sale of Land and
Building - 221,390 - 221,390
-------- -------- ---------- ----------
Net Income $477,153 $755,877 $1,391,610 $1,817,677
======== ======== ========== ==========
Allocation of Net Income:
General partners $ 4,772 $ 6,307 $ 13,916 $ 16,925
Limited partners 472,381 749,570 1,377,694 1,800,752
-------- -------- ---------- ----------
$477,153 $755,877 $1,391,610 $1,817,677
======== ======== ========== ==========
Net Income Per Limited
Partner Unit $ 7.87 $ 12.49 $ 22.96 $ 30.01
======== ======== ========== ==========
Weighted Average Number of
Limited Partner Units
Outstanding 60,000 60,000 60,000 60,000
======== ======== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
1997 1996
----------------- --------
General partners:
Beginning balance $ 446,657 $ 402,138
Contribution 225,000 22,300
Net income 13,916 22,219
----------- -----------
685,573 446,657
----------- -----------
Limited partners:
Beginning balance 22,450,974 22,886,026
Net income 1,377,694 2,324,948
Distributions ($34.50 and
$46.00 per limited
partner unit, respectively) (2,070,000) (2,760,000)
----------- -----------
21,758,668 22,450,974
----------- -----------
Total partners' capital $22,444,241 $22,897,631
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1997 1996
----------- ----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 1,746,810 $ 2,070,821
----------- -----------
Cash Flows from Investing
Activities:
Proceeds from sale of land
and building - 1,049,550
Investment in joint venture - (520,000)
Return of capital from
joint venture - 82,511
Increase in restricted cash - (531,400)
Other 7,338 (1,338)
----------- -----------
Net cash provided by
investing activities 7,338 79,323
----------- -----------
Cash Flows from Financing
Activities:
Contributions from general
partner 225,000 22,300
Distributions to limited
partners (2,070,000) (2,070,000)
----------- -----------
Net cash used in
financing activities (1,845,000) (2,047,700)
----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents (90,852) 102,444
Cash and Cash Equivalents at
Beginning of Period 554,593 485,864
----------- -----------
Cash and Cash Equivalents at End of
Period $ 463,741 $ 588,308
=========== ===========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and
unpaid at end of period $ 690,000 $ 690,000
=========== ===========
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 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 nine months ended September 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 the Form 10-K of
CNL Income Fund IV, Ltd. (the "Partnership")for the year ended December
31, 1996.
2. Receivables:
In June 1997, the Partnership terminated the leases with the tenant of
the properties in Portland and Winchester, Indiana. In connection
therewith, the Partnership accepted a promissory note from this former
tenant for $32,343 for amounts relating to past due real estate taxes
the Partnership had accrued as a result of the former tenant's
financial difficulties. The promissory note, is uncollateralized, bears
interest at a rate of ten percent per annum, and is being collected in
36 monthly installments. Receivables at September 30, 1997, included
$15,945 of such amounts, including accrued interest of $389.
(See Note 3).
3. Commitment:
In July 1997, the Partnership entered into new leases for the
properties in Portland and Winchester, Indiana, with a new tenant to
operate the properties as Arby's restaurants. In connection therewith,
the Partnership has agreed to fund up to $250,000 in renovation costs
($125,000 for each property), of which $187,500 in costs had been
incurred and accrued as construction in process as of September 30,
1997.
5
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
3. Commitment - Continued:
In September 1997, the Partnership entered into a purchase and sale
agreement with an unrelated third party to sell the Checkers property
located in Douglasville, Georgia. The general partners believe that the
anticipated sales price for this property will exceed the carrying cost
associated with the property; however, as of October 31, 1997, the sale
of this property had not occurred.
4. Subsequent Events:
In October 1997, the Partnership received $69,000 in capital
contributions from the corporate general partner in connection with the
operations of the Partnership.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CNL Income Fund IV, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on November 18, 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 national and regional
fast-food and family-style restaurant chains (collectively, the "Properties").
The leases generally are triple- net leases, with the lessees responsible for
all repairs and maintenance, property taxes, insurance and utilities. As of
September 30, 1997, the Partnership owned 41 Properties, including interests in
five Properties owned by joint ventures in which the Partnership is a
co-venturer and one Property owned with affiliates as tenants-in-common.
Liquidity and Capital Resources
The Partnership's primary source of capital for the nine months ended
September 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). Cash from operations was
$1,746,810 and $2,070,821 for the nine months ended September 30, 1997 and 1996,
respectively. The decrease in cash from operations for the nine months ended
September 30, 1997, is primarily a result of changes in income and expenses as
discussed in "Results of Operations" below, and changes in the Partnership's
working capital.
Other sources and uses of capital included the following during the
nine months ended September 30, 1997.
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. In April and July 1997, the Partnership
received $138,000 and $87,000, respectively, in contributions from the corporate
general partner in connection with the operations of the Partnership. In
addition, in October 1997, the Partnership received $69,000 in contributions
from the corporate general partner in connection with the operations of the
Partnership.
In June 1997, the Partnership terminated the leases with the tenant of
the Properties in Portland and Winchester, Indiana. In connection therewith, the
Partnership accepted a promissory note from this former tenant for $32,343 for
amounts relating to past due real estate taxes the Partnership had accrued as a
result of the former tenant's financial difficulties. The promissory note, which
is uncollateralized, bears interest at a rate of ten percent per annum, and is
being collected in 36 monthly installments. Receivables at September 30, 1997
included $15,945 of such amounts, including accrued interest of $389.
7
<PAGE>
Liquidity and Capital Resources - Continued
In July 1997, the Partnership entered into new leases for the
Properties in Portland and Winchester, Indiana, with a new tenant to operate the
Properties as Arby's restaurants. In connection therewith, the Partnership has
agreed to fund up to $250,000 in renovation costs ($125,000 for each Property),
of which $187,500 in costs had been incurred and accrued as construction in
process as of September 30, 1997.
In September 1997, the Partnership entered into a purchase and sale
agreement with an unrelated third party to sell the Checkers Property located in
Douglasville, Georgia. The general partners believe that the anticipated sales
price for this Property will exceed the carrying cost associated with the
Property; however, as of October 31, 1997, the sale of this Property had not
occurred.
Currently, rental income from the Partnership's Properties is invested
in money market accounts and other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At September 30, 1997, the Partnership had
$463,741 invested in such short-term investments as compared to $554,593 at
December 31, 1996. The funds remaining at September 30, 1997, will be used
towards the payment of distributions and other liabilities.
Total liabilities of the Partnership, including distributions payable,
increased to $1,039,969 at September 30, 1997, from $833,261 at December 31,
1996 primarily as the result of amounts accrued during the nine months ended
September 30, 1997, for renovation costs relating to the Partnership's
Properties located in Winchester and Portland, Indiana, as discussed above.
Total liabilities at September 30, 1997, to the extent they exceed cash and cash
equivalents at September 30, 1997, will be paid from future cash from
operations, from general partner capital contributions of $69,000 received in
October 1997, and, in the event the general partners elect to make additional
contributions, from future general partner contributions.
Based on current and anticipated future cash from operations, and to a
lesser extent, additional capital contributions from the corporate general
partner received in April, July and October 1997 described above, and in April
1996, the Partnership declared distributions to limited partners of $2,070,000
for each of the nine months ended September 30, 1997 and 1996 ($690,000 for each
of the quarters ended September 30, 1997 and 1996). This represents
distributions for each applicable nine months of $34.50 per unit ($11.50 per
unit for each applicable quarter). No distributions were made to the general
partners for the quarters and nine months ended September 30, 1997 and 1996. No
amounts distributed or to be distributed to the limited partners for the nine
months ended
8
<PAGE>
Liquidity and Capital Resources - Continued
September 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 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.
Results of Operations
During the nine months ended September 30, 1997 and 1996, the
Partnership owned and leased 35 wholly owned Properties to operators generally
of fast-food and family-style restaurant chains. In connection therewith, during
the nine months ended September 30, 1997 and 1996, the Partnership earned
$1,657,307 and $1,835,911, respectively, in rental income from operating leases
and earned income from direct financing leases from these Properties, $541,416
and $608,058 of which was earned during the quarters ended September 30, 1997
and 1996, respectively. The decrease in rental and earned income during the nine
months ended September 30, 1997, as compared to the nine months ended September
30, 1996, is primarily attributable to the Partnership increasing its allowance
for doubtful accounts by approximately $83,400 during the nine months ended
September 30, 1997, for rental amounts relating to the Hardee's Properties
located in Portland and Winchester, Indiana, which are leased by the same
tenant, due to financial difficulties the tenant is experiencing. In addition,
in June 1997, the Partnership terminated the lease with the former tenant as
discussed above in "Liquidity and Capital Resources", causing a decrease in
rental income of approximately $43,100 for the quarter and nine months ended
September 30, 1997. The Partnership does not intend to continue to pursue the
collection of those rental and other amounts due from the former tenant unless
the former tenant defaults under the promissory note, described above in
"Liquidity and Capital Resources".
In addition, rental and earned income decreased during the quarter and
nine months ended September 30, 1997, as a result of the Partnership
establishing an allowance for doubtful accounts totalling approximately $32,100
and $64,000, during the quarter and nine months ended September 30, 1997,
respectively, for rental amounts relating to the Property located in Palm Bay,
Florida, due to financial difficulties the tenant is experiencing. The
Partnership intends to pursue collection of past due amounts from this tenant
and will recognize such amounts as income if collected.
9
<PAGE>
Results of Operations - Continued
In addition, rental and earned income decreased approximately $23,500
and $76,300 during the quarter and nine months ended September 30, 1997,
respectively, as a result of the sale of the Property in Tampa, Florida in
September 1996. The decrease in rental income for the quarter and nine months
ended September 30, 1997 was partially offset by an increase of approximately
$29,600 and $88,900, respectively, in rental income attributable to the
reinvestment of the net sales proceeds in a Property in Richmond, Virginia, in
December 1996.
During the nine months ended September 30, 1997 and 1996, the
Partnership also earned $65,265 and $61,539, respectively, in contingent rental
income, $20,661 and $19,409 of which was earned during the quarters ended
September 30, 1997 and 1996, respectively.
During the nine months ended September 30, 1997 and 1996, the
Partnership also owned and leased five Properties indirectly through joint
venture arrangements and one Property as tenants-in-common with affiliates of
the general partners. In connection therewith, during the nine months ended
September 30, 1997 and 1996, the Partnership earned $172,340 and $201,116,
respectively, attributable to the net income earned by these joint ventures,
$52,359 and $69,645 of which was earned during the quarters ended September 30,
1997 and 1996, respectively. The decrease is partially attributed to some joint
ventures adjusting estimated contingent rental amounts accrued at December 31,
1996, to actual amounts during the nine months ended September 30, 1997. In
addition, the decrease in the net income earned by these joint ventures is
partially attributable to the fact that, during July 1997, the operator of
Titusville Joint Venture vacated the Property and ceased operations. In
conjunction therewith, the joint venture established an allowance for doubtful
accounts of approximately $13,500 and $25,900 during the quarter and nine months
ended September 30, 1997, respectively. No such allowance was established during
the quarter and nine months ended September 30, 1996. In addition, the joint
venture recorded real estate tax expense of approximately $9,300 during the
quarter and nine months ended September 30, 1997. No such real estate taxes were
incurred during the quarter and nine months ended September 30, 1996. The joint
venture intends to pursue collection of these amounts from the former tenant and
will recognize such amounts as income if collected. The joint venture is
currently seeking either a replacement tenant or purchaser for this Property.
Operating expenses, including depreciation and amortization expense,
were $532,282 and $535,541 for the nine months ended September 30, 1997 and
1996, respectively, of which $154,792 and $170,816 were incurred for the
quarters ended September 30, 1997 and 1996, respectively. The decrease in
operating expenses for the quarter and nine months ended September 30, 1997 was
partially attributable to a decrease in accounting and administrative expenses
associated with operating the Partnership and its Properties. In addition, the
decrease in operating expenses for
10
<PAGE>
Results of Operations - Continued
the quarter and nine months ended September 30, 1997 was due to the fact that
during the quarter ended September 30, 1997, the tenant of the Property in
Maywood, Illinois, reimbursed the Partnership for past due real estate taxes
relating to the Property, which the Partnership had previously accrued. The
Partnership reversed such amounts during the quarter and nine months ended
September 30, 1997.
The decrease in operating expenses during the nine months ended
September 30, 1997 was partially offset by the fact that the Partnership
recorded bad debt expense of $12,794 during the nine months ended September 30,
1997, relating to the Properties located in Portland and Winchester, Indiana,
relating to past due rental amounts. The Partnership does not intend to continue
to pursue the collection of such amounts unless the former tenant defaults under
the promissory note, as described above in "Liquidity and Capital Resources".
As a result of the former tenant of the Property in Leesburg, Florida,
defaulting under the terms of its lease in September 1994, the Partnership
expects to continue to incur certain expenses, such as real estate taxes,
insurance and maintenance until a replacement tenant is located. The Partnership
is currently seeking a replacement tenant for this Property.
As a result of the sale of the Property in Tampa, Florida, in September
1996, the Partnership recognized a gain of $221,390 for financial reporting
purposes during the quarter and nine months ended September 30, 1996. No
Properties were sold during the quarter and nine months ended September 30,
1997.
11
<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 September 30, 1997.
12
<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 6th day of November, 1997.
CNL INCOME FUND IV, 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 IV, Ltd. at September 30, 1997, and its statement of
income for the nine months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund IV, Ltd. for the nine months ended
September 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 463,741
<SECURITIES> 0
<RECEIVABLES> 307,192
<ALLOWANCES> 208,268
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 22,316,051
<DEPRECIATION> 3,728,860
<TOTAL-ASSETS> 23,484,210
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,444,241
<TOTAL-LIABILITY-AND-EQUITY> 23,484,210
<SALES> 0
<TOTAL-REVENUES> 1,751,552
<CGS> 0
<TOTAL-COSTS> 519,488
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,794
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,391,610
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,391,610
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,391,610
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund IV, Ltd. has an unclassified
balance sheet, therefore, no values are shown above for current assets and
current liabilities.
</FN>
</TABLE>
