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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 0-17549
CNL INCOME FUND IV, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2854435
(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 60,000 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 value 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 IV, 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 IV, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on November 18, 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 May 6, 1988, the Partnership
offered for sale up to $30,000,000 in limited partnership interests (the
"Units") (60,000 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 December 30, 1988, as of which date the maximum offering proceeds of
$30,000,000 had been received from investors who were admitted to the
Partnership as limited partners (the "Limited Partners").
The Partnership was organized 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 and family-style
restaurant chains (the "Restaurant Chains"). Net proceeds to the Partnership
from its offering of Units, after deduction of organizational and offering
expenses, totalled $26,550,000, and were used to acquire 40 Properties,
including interests in five Properties owned by joint ventures in which the
Partnership is a co-venturer. During the year ended December 31, 1994, the
Partnership sold its Property in York, Pennsylvania, and reinvested the majority
of the net sales proceeds in two Checkers Properties, consisting of only land,
located in Miami, Florida, and Douglasville, Georgia. The remaining net sales
proceeds were used to pay Partnership liabilities. The lessee of the two
Properties consisting of only land owns the buildings currently on the land and
has the right, if not in default under the lease, to remove the buildings from
the land at the end of the lease terms. During the year ended December 31, 1995,
the Partnership sold its Property in Hastings, Michigan, and during 1996,
reinvested the net sales proceeds in a Property located in Clinton, North
Carolina, with affiliates of the General Partners as tenants-in-common. Also,
during the year ended December 31, 1996, the Partnership sold its Property in
Tampa, Florida, and reinvested the majority of the net sales proceeds in a
Boston Market in Richmond, Virginia. During the year ended December 31, 1997,
the Partnership sold its Property in Douglasville, Georgia. During the year
ended December 31, 1998, the Partnership sold its Properties in Fort Myers,
Florida and Union Township, Ohio and distributed the majority of the net sales
proceeds to the limited partners as a special distribution. In addition, during
the year ended December 31, 1998, the Partnership sold a Property in Leesburg,
Florida and reinvested the majority of the net sales proceeds in a joint
venture, Warren Joint Venture, to purchase and hold one restaurant Property, and
sold a Property in Naples, Florida. As a result of the above transactions, as of
December 31, 1998, the Partnership owned 37 Properties. The 37 Properties
include interests in six Properties owned by joint ventures in which the
Partnership is a co-venturer and one Property owned with affiliates as tenants-
in-common. During January 1999, the Partnership reinvested the net sales
proceeds from the sale of the Property in Naples, Florida, in one Property in
Zephyrhills, Florida, as tenants-in-common, with an affiliate of the General
Partners. 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.
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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 also 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.
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 five to 20 years (the average being 18 years), and expire
between 2001 and 2018. Generally, the 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 provide for minimum base annual
rental payments (payable in monthly installments) ranging from approximately
$18,100 to $135,800. Generally, the leases provide for percentage rent, based on
sales in excess of a specified amount, to be paid annually. In addition, some of
the leases provide that commencing in the sixth lease year the percentage rent
will be an amount equal to the greater of the percentage rent calculated under
the lease formula or a specified percentage (ranging from one-half to two
percent) of the purchase price.
Generally, 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 26 of the Partnership's 37 Properties also have been granted options
to purchase Properties at the Property's then fair market value, or pursuant to
a formula based on the original cost of the Property, after a specified portion
of the lease term has elapsed. Fair market value will be determined through an
appraisal by an independent appraisal 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 those 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 the 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 October 1997, the tenant of the Property in Palm Bay, Florida, vacated
the Property. In February 1998, the Partnership entered into a new lease for
this Property with a new tenant on substantially the same terms as the
Partnership's other leases as described above.
During 1994, the leases relating to the Properties in Dundee, Michigan and
Marion, Ohio, were amended to provide for the payment of reduced annual base
rent with no scheduled rent increases. However, the lease amendments provided
for lower percentage rent breakpoints, as compared to the original lease
agreements, a change that was designed to result in higher percentage rent
payments at any time that percentage rent became payable. In accordance with a
provision in the amendments, as a result of the former tenant assigning the
leases to a new tenant during 1998, the rents under the assigned leases reverted
back to those required under the original lease agreements.
In January 1999, the Partnership invested in an Arby's Property in
Zephyrhills, Florida, as tenants-in-common with affiliates of the General
Partners. The lease terms for this Property are substantially the same as the
Partnership's other leases as described above.
During 1998, the tenant of the Property owned by Kingsville Real Estate
Joint Venture experienced financial difficulties and ceased payment of rents
under the terms of its lease agreement. In January 1999, Kingsville Real Estate
Joint Venture entered into a five year lease with a new tenant.
Major Tenants
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During 1998, one lessee of the Partnership, Shoney's, Inc., contributed
more than ten percent of the Partnership's total rental income (including the
Partnership's share of the rental income from six Properties owned by joint
ventures and one Property owned with affiliates as tenants-in-common). As of
December 31, 1998, Shoney's, Inc. was the lessee under leases relating to six
restaurants. It is anticipated that, based on the minimum rental payments
required by the leases, Shoney's, Inc. will continue to contribute more than ten
percent of the Partnership's total rental income in 1999. In addition, two
Restaurant Chains, Shoney's and Wendy's Old Fashioned Hamburger Restaurants
("Wendy's"), each accounted for more than ten percent of the Partnership's total
rental income in 1998 (including the Partnership's share of the rental income
from six Properties owned by joint ventures and one Property owned with
affiliates as tenants-in-common). In 1999, it is anticipated that these two
Restaurant Chains each will continue to account for more than ten percent of the
total rental income to which the Partnership is entitled under the terms of the
leases. Any failure of these lessees or Restaurant Chains could materially
affect the Partnership's income if the Partnership is unable to re-lease the
Property in a timely manner. 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 the following separate joint venture
arrangements: Holland Joint Venture with CNL Income Fund II, Ltd., an affiliate
of the General Partners, to purchase and hold one Property; Titusville Joint
Venture with CNL Income Fund III, Ltd., an affiliate of the General Partners, to
purchase and hold one Property; Cocoa Joint Venture with CNL Income Fund V,
Ltd., an affiliate of the General Partners, to purchase and hold one Property;
Auburn Join Venture with CNL Income Fund VI, Ltd., an affiliate of the General
Partners, to purchase and hold one Property; Kingsville Real Estate Joint
Venture with CNL Income Fund XII, Ltd., an affiliate of the General Partners, to
purchase and hold one Property; and Warren Joint Venture with CNL Income Fund
VI, Ltd., an affiliate of the General Partners, to purchase and hold one
Property. The affiliates are limited partnerships organized pursuant to the laws
of the State of Florida.
Each joint venture arrangement provides 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 interest in the joint
venture. The Partnership has a 51.0% interest in Holland Joint Venture, a 26.6%
interest in Titusville Joint Venture, a 57 percent interest in Cocoa Joint
Venture, a 96.1% interest in Auburn Joint Venture, a 68.87% interest in
Kingsville Real Estate Joint Venture and a 35.71% interest in Warren Joint
Venture. The Partnership and its joint venture partners are also jointly and
severally liable for all debts, obligations and other liabilities of the joint
venture.
Each joint venture has an initial term of approximately 20 to 30 years and,
after the expiration of the initial term, continues in existence from year to
year unless terminated at the option of either joint venturer 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 shares management control of each joint venture equally
with affiliates of the General Partners. 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 partner, either upon
such terms and conditions as to which the venturers may agree or, in the event
the venturers cannot agree, on the same terms and conditions as any offer from a
third party to purchase such joint venture interest.
Net cash flow from operations of Holland Joint Venture, Titusville Joint
Venture, Cocoa Joint Venture, Auburn Joint Venture, Kingsville Real Estate Joint
Venture, and Warren Joint Venture is distributed 51.0%, 26.6%, 57.0%, 96.1%,
68.87%, and 35.71%, respectively, to the Partnership and the balance is
distributed to each of the other joint venture partners. 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
equal zero, and thereafter in proportion each joint venture partner's percentage
interest in the joint venture.
In addition to the above joint venture arrangements, in January 1996, the
Partnership entered into an agreement to hold a Property in Clinton, North
Carolina, as tenants-in-common, with CNL Income Fund VI, Ltd., CNL Income Fund
X, Ltd., and CNL Income Fund XV, Ltd., affiliates of the General Partners. In
January 1999, the
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Partnership entered into an agreement to hold a Property in Zephyrhills,
Florida, as tenants-in-common, with CNL Income Fund XVII, Ltd., an affiliate 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 53.0% and a 76
percent interest in the Properties in Clinton, Tennessee and Zephyrhills,
Florida, respectively. Each of the affiliates is a limited partnership organized
pursuant to the laws of the State of Florida. The tenancy in common agreements
restrict each co-tenant's ability to sell, transfer, or assign its interest in
the tenancy in common's Properties without first offering it for sale to the
remaining co-tenants.
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.
Certain Management Services
CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a 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 equal to one percent of the sum of gross
rental revenues from Properties wholly owned by the Partnership plus the
Partnership's allocable share of gross revenues of joint ventures in which the
Partnership is a co-venturer, but not in excess of competitive fees for
comparable services. Under the management agreement, the management fee 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"), calculated in accordance with the Partnership's
limited partnership agreement (the "Partnership Agreement").
The 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 IV, 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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Signature Title Date
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/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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