FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
------------------------
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 jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street
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 5-7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8-11
Part II
Other Information 12
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
March 31, December 31,
ASSETS 1998 1997
----------- --------
Land and buildings on operating
leases, less accumulated depreciation
of $3,642,008 and $3,844,432 and
allowance for loss on land and building
of $70,337 for 1998 and 1997 $16,734,945 $18,097,997
Net investment in direct
financing leases 1,260,273 1,269,389
Investment in joint ventures 2,689,707 2,708,012
Cash and cash equivalents 1,966,361 876,452
Receivables, less allowance for
doubtful accounts of $304,086
and $295,580 49,011 37,669
Prepaid expenses 5,215 11,115
Lease costs, less accumulated
amortization of $18,968 and
$17,956 20,576 21,588
Accrued rental income 269,755 287,466
Other assets 200 200
----------- -----------
$22,996,043 $23,309,888
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 8,287 $ 8,576
Accrued construction costs payable - 250,000
Accrued and escrowed real estate
taxes payable 46,904 65,176
Distributions payable 1,833,748 690,000
Due to related parties 146,002 93,854
Rents paid in advance and deposits 65,491 49,983
----------- -----------
Total liabilities 2,100,432 1,157,589
Partners' capital 20,895,611 22,152,299
----------- -----------
$22,996,043 $23,309,888
=========== ===========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended
March 31,
1998 1997
-------- ---------
Revenues:
Rental income from operating leases $539,776 $548,252
Earned income from direct financing
leases 32,109 32,996
Contingent rental income 21,661 23,943
Interest and other income 12,845 6,607
-------- --------
606,391 611,798
-------- --------
Expenses:
General operating and administrative 34,625 42,915
Professional services 6,248 5,226
Real estate taxes 20,755 23,670
State and other taxes 15,641 16,317
Depreciation and amortization 115,151 113,231
-------- --------
192,420 201,359
-------- --------
Income Before Equity in Earnings of
Joint Ventures and Gain on Sale of
Land and Buildings 413,971 410,439
Equity in Earnings of Joint Ventures 42,174 55,209
Gain on Sale of Land and Buildings 120,915 -
-------- -------
Net Income $577,060 $465,648
======== ========
Allocation of Net Income:
General partners $ 2,483 $ 4,656
Limited partners 574,577 460,992
-------- --------
$577,060 $465,648
======== ========
Net Income Per Limited Partner Unit $ 9.58 $ 7.68
======== ========
Weighted Average Number of Limited
Partner Units Outstanding 60,000 60,000
======== ========
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Quarter Ended Year Ended
March 31, December 31,
1998 1997
------------- ------------
General partners:
Beginning balance $ 756,354 $ 446,657
Contribution - 294,000
Net income 2,483 15,697
----------- -----------
758,837 756,354
----------- -----------
Limited partners:
Beginning balance 21,395,945 22,450,974
Net income 574,577 1,704,971
Distributions ($30.56 and
$46.00 per limited
partner unit, respectively) (1,833,748) (2,760,000)
----------- -----------
20,136,774 21,395,945
----------- -----------
Total partners' capital $20,895,611 $22,152,299
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1998 1997
---------- -----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 586,084 $ 590,230
---------- ----------
Cash Flows from Investing
Activities:
Additions to land and
buildings on operating
leases (275,000) -
Proceeds from sale of land
and buildings 1,468,825 -
Other - 8,676
---------- ----------
Net cash provided by
investing activities 1,193,825 8,676
---------- ----------
Cash Flows from Financing
Activities:
Distributions to limited
partners (690,000) (690,000)
---------- ----------
Net cash used in
financing activities (690,000) (690,000)
---------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents 1,089,909 (91,094)
Cash and Cash Equivalents at
Beginning of Quarter 876,452 554,593
---------- ----------
Cash and Cash Equivalents at End
of Quarter $1,966,361 $ 463,499
========== ==========
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Deferred real estate disposition
fee incurred and unpaid at
end of quarter $ 45,663 $ -
========== =========
Distributions declared and
unpaid at end of quarter $1,833,748 $ 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 Ended March 31, 1998 and 1997
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter ended March 31, 1998, may not be indicative of the results
that may be expected for the year ending December 31, 1998. Amounts as
of December 31, 1997, 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, 1997.
2. Land and Building on Operating Leases:
In March 1998, the Partnership sold its property in Fort Myers,
Florida, to a third party, for $842,100 and received net sales proceeds
of $794,690, resulting in a gain of $225,902 for financial reporting
purposes. This property was originally acquired by the Partnership in
December 1988 and had a cost of approximately $598,000 excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the property for approximately $196,700 in excess of
its original purchase price.
In March 1998, the Partnership sold its property in Union Township,
Ohio, to a third party, for $680,000 and received net sales proceeds of
$674,135, resulting in a loss of $104,987 for financial reporting
purposes.
In connection with the sale of the properties described above, the
Partnership incurred deferred, subordinated, real estate disposition
fees of $45,663 (see Note 4).
5
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1998 and 1997
3. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of property, 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, cumulative, 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 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 the quarters ended March 31, 1998 and 1997, the Partnership
declared distributions to the limited partners of $1,833,748 and
$690,000, respectively. This represents distributions for the quarters
ended March 31, 1998 and 1997 of $30.56 and $11.50 per unit,
respectively. The distribution for the quarter ended March 31, 1998,
includes $1,233,748 as a result of the distribution of net sales
proceeds from the sale of the Properties in Fort Myers, Florida and
Union Township, Ohio. This amount was applied toward the limited
partners' 10% Preferred Return. No distributions have been made to the
general partners to date.
6
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1998 and 1997
4. Related Party Transactions:
Certain affiliates are 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.
Payment of the real estate disposition fee is subordinated to receipt
by the limited partners of their aggregate 10% Preferred Return, plus
their adjusted capital contributions. For the quarter ended March 31,
1998, the Partnership incurred $45,663 in deferred, subordinated, real
estate disposition fees as a result of the sales of properties. No
deferred, subordinated, real estate disposition fees were incurred for
the quarter ended March 31, 1997.
7
<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 March
31, 1998, the Partnership owned 38 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
During the quarters ended March 31, 1998 and 1997, the Partnership
generated cash from operations (which includes cash received from tenants,
distributions from joint ventures, and interest and other income received, less
cash paid for expenses) of $586,084 and $590,230, respectively. The decrease in
cash from operations for the quarter ended March 31, 1998, is primarily a result
of changes in income and expenses as described in "Results of Operations" below.
Other sources and uses of capital included the following during the
quarter ended March 31, 1998.
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 paid
a total of $250,000 in renovation costs during the quarter ended March 31, 1998,
which had been incurred and accrued as construction costs payable at December
31, 1997.
In March 1998, the Partnership sold its Property in Fort Myers,
Florida, to a third party, for $842,100 and received net sales proceeds of
$794,690, resulting in a gain of $225,902 for financial reporting purposes. This
Property was originally acquired by the Partnership in December 1988 and had a
cost of approximately $598,000, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $196,700 in excess of its original purchase price. In addition, in
March 1998, the Partnership sold its Property in Union Township, Ohio, to an
unrelated third party, for $680,000 and received net sales proceeds of $674,135,
resulting in a loss of $104,987 for financial reporting purposes.
8
<PAGE>
Liquidity and Capital Resources - Continued
In connection with the sale of these Properties, the Partnership incurred
deferred, subordinated, real estate disposition fees of $45,663. The Partnership
distributed $1,233,748 of the net sales proceeds as a special distribution of
net sales proceeds from the sale of Properties to the limited partners.
Currently, rental income from the Partnership's Properties and net
sales proceeds are invested in money market accounts and other short-term,
highly liquid investments pending the Partnership's use of such funds to pay
Partnership expenses or to make distributions to the partners. At March 31,
1998, the Partnership had $1,966,361 invested in such short-term investments as
compared to $876,452 at December 31, 1997. The increase in cash and cash
equivalents during the quarter ended March 31, 1998, is primarily attributable
to the receipt of net sales proceeds relating to the sales of the Properties in
Fort Myers, Florida and Union Township, Ohio, as described above. The funds
remaining at March 31, 1998, will be used toward the payment of distributions
and other liabilities.
Total liabilities of the Partnership, including distributions payable,
increased to $2,100,432 at March 31, 1998, from $1,157,589 at December 31, 1997,
primarily as a result of the Partnership's accruing a special distribution of
net sales proceeds totalling $1,233,748 from the sale of Properties described
above, payable to the limited partners at March 31, 1998. The increase in
liabilities was partially offset by a decrease in construction costs payable as
a result of the payment during the quarter ended March 31, 1998, of construction
costs accrued at December 31, 1997 relating to the Partnership's Properties
located in Winchester and Portland, Indiana, as described above. Total
liabilities at March 31, 1998, to the extent they exceed cash and cash
equivalents at March 31, 1998, will be paid from future cash from operations,
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 for
the quarter ended March 31, 1998, net sales proceeds from the sale of the
Properties in Fort Myers, Florida, and Union Township, Ohio, and for the quarter
ended March 31, 1997, additional capital contributions from the corporate
general partner received in April 1997, the Partnership declared distributions
to limited partners of $1,833,748 and $690,000 for the quarters ended March 31,
1998 and 1997, respectively. This represents distributions for the quarters
ended March 31, 1998 and 1997 of $30.56 and $11.50 per unit, respectively.
Distributions for the quarter ended March 31, 1998, include $1,233,748 as a
result of the distribution of net sales proceeds from the sale of the Properties
in Fort Myers, Florida and Union Township, Ohio. As a result of the sale of the
Properties, the Partnership's total revenue was reduced, while the majority of
the Partnership's operating expenses remained fixed. Therefore, distributions of
net cash flow were adjusted for the quarter ended March 31, 1998 and are
expected to remain at this level. This special distribution was effectively a
9
<PAGE>
Liquidity and Capital Resources - Continued
return of a portion of the limited partners' investment, although, in accordance
with the Partnership agreement, it was applied to the limited partners' unpaid
preferred return. No distributions were made to the general partners for the
quarters ended March 31, 1998 and 1997. No amounts distributed to the limited
partners for the quarters ended March 31, 1998 and 1997, 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.
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 quarter ended March 31, 1997, the Partnership owned and
leased 35 wholly owned Properties (including one Property in Douglasville,
Georgia, which was sold in November 1997), and during the quarter ended March
31, 1998, the Partnership owned and leased 34 wholly owned Properties (including
two Properties, one in each of Union Township, Ohio and Fort Myers, Florida,
which were sold in March 1998), generally to operators of fast-food and
family-style restaurant chains. In connection therewith, during the quarters
ended March 31, 1998 and 1997, the Partnership earned $571,885 and $581,248,
respectively, in rental income from operating leases and earned income from
direct financing leases from these Properties. Rental and earned income
decreased during the quarter ended March 31, 1998, as a result of the sales of
the Properties in Douglasville, Georgia and Fort Myers, Florida in November 1997
and March 1998, respectively. Rental and earned income are expected to remain at
reduced amounts as a result of distributing the net sales proceeds from the sale
of the Properties in Fort Myers, Florida, and Union Township, Ohio, to the
limited partners, as described above in "Liquidity and Capital Resources."
During the quarters ended March 31, 1998 and 1997, 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 quarters ended March 31, 1998 and 1997, the
Partnership earned $42,174 and $55,209, respectively, attributable to the net
income earned by these joint ventures.
10
<PAGE>
Results of Operations - Continued
Operating expenses, including depreciation and amortization expense,
were $192,420 and $201,359 for the quarters ended March 31, 1998 and 1997,
respectively.
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 sales of the Properties in Fort Myers, Florida, and
Union Township, Ohio, the Partnership recognized a gain of $120,915 for
financial reporting purposes during the quarter ended March 31, 1998. No
Properties were sold during the quarter ended March 31, 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 March 31, 1998.
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 13th day of May, 1998.
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 informatino extracted from the balance
sheet of CNL Income FUnd IV, Ltd. at March 31, 1998, and its statement of income
for the three months then ended and is qualified in its entirety by reference to
the Form 10Q of CNL Income Fund IV, Ltd. for the three months ended March 31,
1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,966,361
<SECURITIES> 0
<RECEIVABLES> 353,097
<ALLOWANCES> 304,086
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 20,376,953
<DEPRECIATION> 3,642,008
<TOTAL-ASSETS> 22,996,043
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,895,611
<TOTAL-LIABILITY-AND-EQUITY> 22,996,043
<SALES> 0
<TOTAL-REVENUES> 606,391
<CGS> 0
<TOTAL-COSTS> 192,420
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 577,060
<INCOME-TAX> 0
<INCOME-CONTINUING> 577,060
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 577,060
<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>
