UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(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
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)
400 East South Street
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
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
<PAGE>
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 meet other working capital needs of the Partnership. 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, including 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 third 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. See Item 8.
Financial Statements and Supplementary Data -- Note 12. Subsequent Events.
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
<PAGE>
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. Certain lessees 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. 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 new lease with a new tenant. The lease terms are
substantially the same as the Partnership's other leases as described above.
Major Tenants
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, excluding acquisition fees
and certain acquisition expenses, in excess of 20 percent of the total assets of
the Partnership.
Joint Venture Arrangements
As of December 31, 1997, the Partnership had entered into five separate
joint venture arrangements, Holland Joint Venture, Titusville Joint Venture,
Cocoa Joint Venture, Auburn Joint Venture and Kingsville Real Estate Joint
Venture, to purchase and hold five Properties through such joint ventures. In
addition, in September 1998, the Partnership entered into a joint venture
arrangement, Warren Joint Venture, to purchase and hold one restaurant Property.
The remaining interests in these joint ventures are held by affiliates of the
Partnership which have the same General Partners.
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 interests in the
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
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 agreements, in January 1996, the
Partnership entered into an agreement to hold a Golden Corral Property as
tenants-in-common with affiliates of the General Partners. The agreement
provides for the Partnership and the affiliates to share in the profits and
losses of the Property in proportion to each co-venturer's percentage interest.
The Partnership owns a 53 percent interest in this Property.
In addition, in January 1999, the Partnership entered into an agreement
to hold an Arby's Property in Zephyrhills, Florida, as tenants-in-common, with
affiliates of the General Partners. The agreement provides for the Partnership
and the affiliates to share in the profits and losses of the Property and net
cash flow from the Property, in proportion to each co-venturer's percentage
interest. The Partnership owns a 76 percent interest in this Property.
<PAGE>
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.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
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.
Item 2. Properties
As of December 31, 1998, the Partnership owned, either directly or
through joint venture arrangements, 37 Properties located in 14 states and the
District of Columbia. Reference is made to the Schedule of Real Estate and
Accumulated Depreciation filed with this report for a listing of the Properties
and their respective costs, including acquisition fees and certain acquisition
expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 14,100
to 98,800 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. However, the
building located on one Checkers Property is owned by the tenant, while the land
parcel is owned by the Partnership. The buildings generally are rectangular and
are constructed from various combinations of stucco, steel, wood, brick and
tile. The sizes of buildings owned by the Partnership range from approximately
1,200 to 6,800 square feet. All buildings on Properties are freestanding and
surrounded by paved parking areas. Buildings are suitable for conversion to
various uses, although modifications may be required prior to use for other than
restaurant operations.
Generally, a lessee is required, under the terms of its lease
agreement, to make such capital expenditures as may be reasonably necessary to
refurbish buildings, premises, signs and equipment so as to comply with the
lessee's obligations, if applicable, under the franchise agreement to reflect
the current commercial image of its Restaurant Chain. These capital expenditures
are required to be paid by the lessee during the term of the lease.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 1998 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Shoney's, Inc. leases four Shoney's restaurants and two Captain D's
restaurants. The initial term of each lease is 20 years (expiring in 2008) and
average minimum base rent is approximately $65,000 (ranging from approximately
$41,000 to $81,300).
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of March 11, 1999, there were 2,916 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. Limited Partners who wish to sell
their Units may offer the Units for sale pursuant to the Partnership's
distribution reinvestment plan (the "Plan"), and Limited Partners who wish to
have their distributions used to acquire additional Units (to the extent Units
are available for purchase), may do so pursuant to such Plan. The General
Partners have the right to prohibit transfer of Units. The price paid for any
Unit transferred pursuant to the Plan was $475 per Unit. The price paid for any
Unit transferred other than pursuant to the Plan was subject to negotiation by
the purchaser and the selling Limited Partner. The Partnership will not redeem
or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 1998 and 1997 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
1998 (1) 1997 (1)
-------------------------------- --------------------------------
High Low Average High Low Average
------- ------- ---------- ------- ------- ----------
<S> <C>
First Quarter $435 $411 $422 $500 $425 $467
Second Quarter 475 475 475 500 410 461
Third Quarter 500 387 463 465 420 437
Fourth Quarter 476 380 433 475 450 470
</TABLE>
(1) A total of 552 and 647 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1998 and 1997, respectively.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For the years ended December 31, 1998 and 1997, the Partnership
declared cash distributions of $3,633,748 and $2,760,000, respectively, to the
Limited Partners. Distributions for the year ended December 31, 1998 included
$1,233,748 as a result of the distribution of the net sales proceeds from the
sale of the Properties in Fort Myers, Florida and Union Township, Ohio, to the
Limited Partners. This amount was applied toward the Limited Partners'
cumulative 10% Preferred Return. 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. The reduced number of
Properties for which the Partnerhsip receives rental payments, as well as
ongoing operations, reduced the Partnership's revenues in 1998 and is expected
to reduce the Partnership's revenues in subsequent years. The decrease in
Partnership revenues, combined with the fact that a significant portion of the
Partnership's expenses are fixed in the nature, resulted in a decrease in cash
distributions to the Limited Partners during 1998. No amounts distributed to
partners for the years ended December 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. No distributions have been made to the General Partners to date.
As indicated in the chart below, these distributions were declared at the close
of each of the Partnership's calendar quarters. This amount includes monthly
distributions made in arrears for the Limited Partners electing to receive such
distributions on this basis.
Quarter Ended 1998 1997
-------------------- ------------- -------------
March 31 $1,833,748 $ 690,000
June 30 600,000 690,000
September 30 600,000 690,000
December 31 600,000 690,000
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although the General Partners, in their sole discretion, may elect to pay
distributions monthly.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- -------------- -------------- --------------- --------------
<S> <C>
Year ended December 31:
Revenues (1) $ 2,285,696 $ 2,531,385 $ 2,820,295 $ 2,871,572 $ 2,865,770
Net income (2) 1,821,449 1,720,668 2,347,167 2,210,339 2,310,524
Cash distributions
declared (3) 3,633,748 2,760,000 2,760,000 2,760,000 2,760,000
Net income per Unit (2) 30.15 28.42 38.75 36.48 38.13
Cash distributions declared
per Unit 60.56 46.00 46.00 46.00 46.00
At December 31:
Total assets $21,189,833 $23,309,888 $23,730,892 $24,057,829 $24,598,179
Partners' capital 20,340,000 22,152,299 22,897,631 23,288,164 23,837,825
</TABLE>
(1) Revenues include equity in earnings of joint ventures.
(2) Net income for the year ended December 31,1997, includes $6,652 from a
loss on the sale of land and $70,337 for a provision for loss on land
and building. Net income for the years ended December 31,1998, 1996,
1995, and 1994, includes $226,024, $221,390, $128,547, and $128,592,
respectively, from gains on the sale of land and buildings.
(3) Distributions for the year ended December 31, 1998, include a special
distribution to the Limited Partners of $1,233,748 in net sales
proceeds from the sale of two properties in 1998.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership 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
restaurant Properties were to be constructed, which are leased primarily to
operators of selected national and regional fast-food
<PAGE>
and family-style Restaurant Chains. Substantially all of the leases are
triple-net leases, with the lessees generally responsible for all repairs and
maintenance, property taxes, insurance and utilities. As of December 31, 1998,
the Partnership owned 37 Properties, either directly or indirectly through joint
venture arrangements.
Liquidity and Capital Resources
During the years ended December 31, 1998, 1997, and 1996, the
Partnership generated cash from operations (which includes cash received from
tenants, distributions from joint ventures and interest received, less cash paid
for expenses) of $2,362,320, $2,417,972, and $2,713,964. The decrease in cash
from operations for 1998 and 1997, each as compared to the previous year, is
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital.
Cash from operations during the years ended December 31, 1998, 1997,
and 1996, was also affected by the following.
In October 1992, the Partnership accepted a promissory note from the
former tenant of the Property in Maywood, Illinois, for $175,000 for amounts due
relating to past due rents and real estate taxes and other expenses the
Partnership had incurred as a result of the former tenant's having defaulted
under the terms of the lease. The note was non-interest bearing and was payable
in 36 monthly installments of $2,500 through September 1995, and thereafter in
eight monthly installments of $10,000, with the balance due and payable on
February 20, 1996. The Partnership discounted the note to a principal balance of
$138,094 using an interest rate of ten percent. During 1995, the former tenant
defaulted under the terms of the note. Because of the financial difficulties
that the former tenant was experiencing, the Partnership established an
allowance for doubtful accounts for the full amount of unpaid principal and
interest of $111,031 relating to this note; therefore, no amounts were included
in receivables at December 31, 1996. During 1997, the Partnership ceased
collection efforts for this note and wrote off the related allowance for
doubtful accounts.
Other sources and uses of capital included the following during the
years ended December 31, 1998, 1997, and 1996.
In January 1996, the Partnership reinvested the net sales proceeds it
received from the 1995 sale of the Property in Hastings, Michigan, along with
additional funds, in a Golden Corral Property located in Clinton, North
Carolina, with affiliates of the General Partners as tenants-in-common. In
connection therewith, the Partnership and its affiliates entered into an
agreement whereby each co-venturer will share in the profits and losses of the
Property in proportion to its applicable percentage interest. As of December 31,
1998, the Partnership owned a 53 percent interest in this Property.
In September 1996, the Partnership sold its Property in Tampa, Florida,
for $1,090,000 and received net sales proceeds of $1,049,550, resulting in a
gain of $221,390 for financial reporting purposes. This Property was originally
acquired by the Partnership in December 1988 and had a cost of approximately
$832,800, excluding acquisition fees and miscellaneous acquisition expenses;
therefore, the Partnership sold the Property for approximately $216,800 in
excess of its original purchase price. In December 1996, the Partnership
reinvested the majority of the net sales proceeds in a Boston Market Property,
located in Richmond, Virginia. The remaining net sales proceeds were used to
meet other working capital needs 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 the 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. As of December 31, 1998, the
Partnership had collected the full amount of the promissory note.
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
agreed to fund up to $125,000 in renovation costs for each Property. As of
December 31, 1998, such renovations had been completed.
In November 1997, the Partnership sold its Property in Douglasville,
Georgia to a third party for $402,000 and received net sales proceeds of
$378,149. This Property was originally acquired by the Partnership in December
1994 and had a cost of approximately $363,800, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the Property
for approximately $16,900 in excess of its original purchase price. Due to the
fact that the Partnership had recognized accrued rental income since the
inception of the lease relating to the straight-lining of future scheduled rent
increases in accordance with generally accepted accounting principles, the
Partnership wrote off the cumulative balance of such accrued rental income at
the time of the sale of this Property, resulting in a loss of $6,652 for
financial reporting purposes. Due to the fact that the straight-lining of future
rent increases over the term of the lease is a non-cash accounting adjustment,
the write off of these amounts is a loss for financial statement purposes only.
The net sales proceeds were used to pay liabilities of the Partnership,
including quarterly distributions to the Limited Partners, and to fund the
renovation costs described above. The Partnership distributed amounts sufficient
to enable the Limited Partners to pay federal and state income taxes, if any (at
a level reasonably assumed by the General Partners), resulting from the sale.
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. In connection
with the sale of these Properties, the Partnership incurred deferred,
subordinated, real estate disposition fees of $45,663. In April 1998, the
Partnership distributed $1,233,748 of the net sales proceeds from these
Properties as a special distribution to the Limited Partners and used the
remaining net proceeds for other Partnership purposes.
In addition, in July 1998, the Partnership sold its Property in
Leesburg, Florida for $565,000 and received net sales proceeds of $523,931,
resulting in a total loss for financial reporting purposes of $135,509. Due to
the fact that at December 31, 1997, the Partnership recorded a provision for
loss on the land and building in the amount of $70,337 for this Property, the
Partnership recognized the remaining loss of $65,172 for financial reporting
purposes at July 1998, relating to the sale. In September 1998, the Partnership
contributed the majority of the net sales proceeds from the sale of the Property
in Leesburg, Florida, to a joint venture, Warren Joint Venture, to purchase and
hold one restaurant property. The Partnership has an approximate 36 percent
interest in the profits and losses of Warren Joint Venture and the remaining
interest in this joint venture is held by an affiliate of the General Partners.
In September 1998, the Partnership sold its Property in Naples,
Florida, to a third party for $563,000 and received net sales proceeds of
$533,598, resulting in a gain of $170,281 for financial reporting purposes. This
Property was originally acquired by the Partnership in December 1988 and had a
cost of approximately $410,500 excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $123,100 in excess of its original purchase price. In January
1999, the Partnership invested a majority of the net sales proceeds in a
Property in Zephyrhills, Florida, with an affiliate of the General Partners as
tenants-in-common for a 76 percent interest in the Property. The Partnership
will account for its investment in this Property using the equity method since
the Partnership will share control with an affiliate. The General Partners
believe that the transaction, or a portion thereof, relating to the sale of the
Property in Naples, Florida and the reinvestment of the net sales proceeds will
be structured to qualify as a like-kind exchange transaction for federal income
tax purposes. However, the Partnership will distribute amounts sufficient to
enable the Limited Partners to pay federal and state income taxes, if any, (at a
level reasonably assumed by the General Partners) resulting from the sale.
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. During the years ended December 31, 1997 and
1996, the Partnership received $294,000 and $22,300, respectively, in capital
contributions from the corporate General Partner in connection with the
operations of the Partnership. No such contributions were received during the
year ended December 31, 1998.
None of the Properties owned by the Partnership or the joint ventures
in which the Partnership owns an interest is or may be encumbered. Under its
Partnership Agreement, the Partnership is prohibited from borrowing for any
purpose; provided, however, that the General Partners or their affiliates are
entitled to reimbursement, at cost, for
<PAGE>
actual expenses incurred by the General Partners or their affiliates on behalf
of the Partnership. Affiliates of the General Partners from time to time incur
certain operating expenses on behalf of the Partnership for which the
Partnership reimburses the affiliates without interest.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or 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 December 31, 1998, the Partnership had
$739,382 invested in such short-term investments, as compared to $876,452 at
December 31, 1997. The decrease in the amount invested in short-term investments
during 1998, as compared to 1997, is primarily attributable to the payment of
construction costs accrued at December 31, 1997, relating to the Partnership's
Properties in Winchester and Portland, Indiana, as described above. The decrease
was partially offset by an increase in cash due to using a portion of the net
sales proceeds from the sales of the Properties in Fort Myers, Florida, and
Union Township, Ohio, for other Partnership purposes, as described above. Total
liabilities at December 31, 1998, to the extent they exceed cash and cash
equivalents at December 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.
During 1998, 1997, and 1996, affiliates of the General Partners,
incurred on behalf of the Partnership $111,482, $85,702, and $114,409,
respectively, for certain operating expenses. As of December 31, 1998 and 1997,
the Partnership owed $103,315 and $88,854, respectively, to affiliates for such
amounts and accounting and administrative services. In addition, during the year
ended December 31, 1998, the Partnership incurred $45,663 in real estate
disposition fees due to an affiliate as a result of its services in connection
with the sale of two Properties. The payment of such fees is deferred until the
Limited Partners have received the sum of their 10% Preferred Return and their
adjusted capital contributions. Amounts payable to other parties, including
distributions payable, decreased to $700,855 at December 31, 1998, from
$1,068,735 at December 31, 1997. The decrease in liabilities at December 31,
1998, is primarily attributable to the payment during the year ended December
31, 1998 of construction costs accrued at December 31, 1997 for the Properties
in Portland and Winchester, Indiana, in connection with the new leases entered
into in July 1997. In addition, the decrease in total liabilities was
attributable to a decrease in distributions payable to the Limited Partners at
December 31, 1998, as compared to December 31, 1997. Total liabilities at
December 31, 1998, to the extent they exceed cash and cash equivalents at
December 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 (i) current and anticipated future cash from operations, (ii)
for the year ended December 31, 1998, net sales proceeds from the sale of the
Properties in Fort Myers, Florida and Union Township, Ohio and (iii) to a lesser
extent, for the year ended December 31, 1997, additional capital contributions
received from the General Partners, the Partnership declared distributions to
the Limited Partners of $3,633,748, $2,760,000, and $2,760,000 for the years
ended December 31, 1998, 1997, and 1996, respectively. This represents
distributions of $60.56, $46 and $46 per Unit for the years ended December 31,
1998, 1997, and 1996, respectively. Distributions for the year ended December
31, 1998 included $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 special distribution was effectively a 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. The reduced number of Properties for which the Partnership receives
rental payments, as well as ongoing operations, reduced the Partnerhsip's
revenues in 1998 and is expected to reduce the Partnerhsip's revenues in
subsequent years. The decrease in Partnership revenues, combined wtih the fact
that a significant portion of the Partnership's expenses are fixed in nature,
resulted in a decrease in cash distributions to the Limited Partners during
1998. No amounts distributed to the Limited Partners for the years ended
December 31, 1998, 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 General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
Due to low operating expenses and ongoing cash flow, the General
Partners do not believe that working capital reserves are necessary at this
time. In addition, because the leases for the Partnership's Properties are
generally on a triple-net basis, it is not anticipated that a permanent reserve
for maintenance and repairs will be established at this time. To the extent,
however, that the Partnership has insufficient funds for such purposes, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. As consideration for the Merger, APF has agreed to
issue 2,668,016 APF Shares which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the price paid
by APF investors in APF's most recent public offering. In order to assist the
General Partners in evaluating the proposed merger consideration, the General
Partners retained Valuation Associates, a nationally recognized real estate
appraisal firm, to appraise the Partnership's restaurant property portfolio.
Based on Valuation Associates' appraisal, the Partnership's property portfolio
and other assets were valued on a going concern basis (meaning the Partnership
continues unchanged) at $26,259,630 as of December 31, 1998. Legg Mason Wood
Walker, Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a financial point
of view. The APF Shares are expected to be listed for trading on the New York
Stock Exchange concurrently with the consummation of the Merger, and, therefore,
would be freely tradable at the option of the former Limited Partners. At a
special meeting of the partners that is expected to be held in the third 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. The General Partners intend to recommend that
the Limited Partners of the Partnership approve the Merger. In connection with
their recommendation, the General Partners will solicit the consent of the
Limited Partners at the special meeting.
Results of Operations
During 1996, the Partnership owned and leased 36 wholly owned
Properties (including one Property in Tampa, Florida, which was sold in
September 1996), during 1997, the Partnership owned and leased 35 wholly owned
Properties (including one Property in Douglasville, Georgia, which was sold in
November 1997) and during 1998, the Partnership owned and leased 34 wholly owned
Properties (including four Properties which were sold in 1998). In addition,
during 1998, 1997, and 1996, the Partnership was a co-venturer in five separate
joint ventures that each owned and leased one Property and one Property with
affiliates as tenants-in-common. In addition, during 1998, the Partnership was a
co-venturer in an additional joint venture that owned and leased one Property.
As of December 31, 1998, the Partnership owned, either directly or through joint
venture arrangements, 37 Properties, which are, in general, subject to
long-term, triple-net leases. The leases of the Properties provide for minimum
base annual rental amounts (payable in monthly installments) ranging from
$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. For further description of the Partnership's
leases and Properties, see Item 1. Business - Leases and Item 2. Properties,
respectively.
During the years ended December 31, 1998, 1997, and 1996, the
Partnership earned $2,231,513, $2,189,386, and $2,397,691, respectively, in
rental income from operating leases and earned income from direct financing
leases from its wholly owned Properties described above. The increase in rental
and earned income during 1998, as compared to 1997, was partially attributable
to the fact that during 1997, the Partnership increased its allowance for
doubtful accounts for past due rental amounts relating to the Hardee's
Properties located in Portland and Winchester, Indiana, which were leased by the
same tenant, due to financial difficulties the tenant was experiencing. No such
allowance was recorded during 1998 due to the fact that the Partnership
renovated both Properties, as described above in "Liquidity and Capital
Resources" and re-leased the Properties to a new tenant for which rents
commenced in October 1997. The decrease in rental and earned income during 1997,
as compared to 1996, is partially attributable to the Partnership increasing its
allowance for doubtful accounts by approximately $28,500, for rental income
amounts relating to the Hardee's Properties located in Portland and Winchester,
Indiana, as described above. Rental and earned income also decreased by
approximately $86,200 during 1997 due to the fact that the Partnership
terminated the lease with the former tenant of the Properties in Portland and
Winchester, Indiana, in June 1997, as described above in "Liquidity and Capital
Resources." The Partnership re-leased these Properties in October 1997, as
described above. The decrease in rental and earned income for 1997, as compared
to 1996, was slightly offset by an increase of approximately $20,200 in rental
income from the new tenant of this Property who began operating the Property in
October 1997, after it was renovated into an Arby's Property.
Rental and earned income decreased during 1997, as compared to 1996, as
a result of the Partnership establishing an allowance for doubtful accounts
totalling approximately $128,200 during 1997, for rental amounts relating to the
Property located in Palm Bay, Florida, due to financial difficulties the tenant
was experiencing. The tenant vacated the Property in October 1997. Rental and
earned income increased during 1998, as compared to 1997, due to the fact that
no such allowance was established during 1998 and the fact that the Partnership
negotiated a settlement agreement with the former tenant's guarantor to collect
some of the amounts due to the Partnership from the former tenant. During 1998,
the Partnership collected and recognized as income a portion of the past due
rental amounts from the former tenant's guarantor. In addition, in February
1998, the Partnership entered into a new lease with a new tenant for this
Property.
The increase in rental and earned income for the year ended December
31, 1998 was partially offset by a decrease in rental and earned income due to
the sale of the Property in Douglasville, Georgia in November 1997, the sale of
the Properties in Fort Myers, Florida and Union Township, Ohio in March 1998,
and the sale of the Property in Naples, Florida in September 1998. During the
year ended December 31, 1998, the Partnership used the net sales proceeds from
the sale of the Property in Douglasville, Georgia to fund renovation costs for
two Properties and for other Partnership purposes. Rental and earned income are
expected to remain at reduced amounts as a result of distributing the net sales
proceeds from the 1998 sales of the Properties in Fort Myers, Florida and Union
Township, Ohio to the Limited Partners.
In addition, rental and earned income decreased approximately $76,300
during the year ended 1997 as compared to 1996, as a result of the sale of the
Property in Tampa, Florida, in September 1996. The decrease in rental income for
1997 was offset by an increase of approximately $118,300 in rental income
attributable to the reinvestment of the net sales proceeds in a Property in
Richmond, Virginia, in December 1996.
For the years ended December 31, 1998, 1997, and 1996, the Partnership
earned $83,377, $117,031 and $97,318, respectively, in contingent rental income
from the Partnership's wholly owned Properties. The decrease in contingent
rental income during the year ended December 31, 1998, as compared to the year
ended December 31, 1997, is partially attributable to the Partnership adjusting
estimated contingent rental amounts accrued at December 31, 1997, to actual
amounts during the year ended December 31, 1998 and is partially attributable to
a decrease in gross sales for certain restaurant Properties whose leases require
the payment of contingent rental income. The increase in contingent rental
income in 1997, as compared to 1996, is primarily attributable to an increase in
gross sales for certain restaurant Properties, the leases of which require the
payment of contingent rental income.
In October 1998, the tenant of one Boston Market Property filed for
bankruptcy. As of March 11, 1999, the Partnership has continued receiving rental
payments relating to this lease. While the tenant has not rejected or affirmed
the lease, there can be no assurance that the lease will not be rejected in the
future. The lost revenue resulting from the rejection of this lease could have
an adverse effect on the results of operations of the Partnership if the
Partnership is not able to re-lease this Property in a timely manner.
In addition, for the years ended December 31, 1998, 1997, and 1996, the
Partnership recognized a loss of $90,144 and income of $189,747 and $277,431,
respectively, attributable to net income earned by joint ventures in which the
Partnership is a co-venturer. The decrease in net income in 1998, as compared to
1997, is primarily due to the fact that Kingsville Real Estate Joint Venture (in
which the Partnership owns a 68.87% interest) established an allowance for loss
on the land and net investment in the direct financing lease for its Property
for approximately $316,000 during the year ended December 31, 1998. The tenant
of this Property experienced financial difficulties and ceased payment of rents
under the terms of its lease agreement. The allowance represents the difference
between the Property's carrying value at December 31, 1998 and the estimated net
realizable value of the Property. In addition, the joint venture increased its
allowance for doubtful accounts by approximately $130,000 during the year ended
December 31, 1998, as compared to an increase in allowance for doubtful accounts
of approximately $20,600 during the year ended December 31, 1997, for amounts
due from this tenant deemed uncollectible in accordance with its collection
policy. In January 1999, Kingsville Real Estate Joint Venture entered into a new
lease for this Property with a new tenant and the General Partners ceased
collection efforts on the past due amounts. The decrease in net income for 1998,
as compared to 1997, is partially offset by an increase in net income earned by
joint ventures due to the fact that in September 1998, the Partnership
reinvested net sales proceeds from the sale of its Property in Leesburg, Florida
in Warren Joint Venture.
The decrease in net income earned by these joint ventures during 1997,
as compared to 1996, is partially attributable to the fact that, during July
1997, the operator of the Property owned by Titusville Joint Venture vacated the
Property and ceased operations. In conjunction therewith, Titusville Joint
Venture (in which the Partnership owns a 26.6% interest in the profits and
losses of the joint venture) established an allowance for doubtful accounts of
approximately $27,000 during 1997. No such allowance was established during
1996. In addition, the joint venture recorded real estate tax expense of
approximately $16,600 during 1997. No such real estate taxes were incurred
during 1996. In addition, the joint venture wrote off unamortized lease costs of
$23,500 in 1997 due to the tenant vacating the Property. Titusville Joint
Venture ceased collection efforts on past due amounts and the joint venture will
not recognize any rental income from this Property until a new tenant is located
or until the Property is sold and the proceeds from such a sale are reinvested
in an additional Property. Titusville Joint Venture is currently seeking either
a replacement tenant or purchaser for this Property. In addition, during 1998
and 1997, the joint venture established an allowance for loss on land and
building for its Property in Titusville, Florida, for approximately $125,300 and
$147,000, respectively, for financial reporting purposes. The allowance
represents the difference between the Property's carrying value at December 31,
1998, and the estimated net realizable value of the Property. Net income earned
by joint ventures also decreased during 1997, as compared to 1996, due to an
adjustment in estimated contingent rental amounts accrued at December 31, 1996,
to actual amounts during the year ended December 31, 1997 for the Property in
Clinton, North Carolina, held as tenants-in-common.
During the year ended December 31, 1998, one of the Partnership's
lessees, 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
tenant-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 during
1999. In addition, during the year ended December 31, 1998, 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 (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 Partnerhsip is not able to re-lease the Properties
in a timely manner.
Operating expenses, including depreciation and amortization expense,
were $690,271, $733,728, and $694,518 for the years ended December 31, 1998,
1997, and 1996, respectively. The decrease in operating expenses for 1998, as
compared to 1997, and the increase in operating expenses for 1997, as compared
to 1996, was partially due to the fact that during 1997, the Partnership
expensed approximately $25,400 in current and past due real estate taxes for the
Property in Palm Bay, Florida due to the tenant vacating the Property in October
1997. The Property was re-leased and the new tenant is responsible for these
expenses beginning in December 1997. In addition, the decrease in operating
expenses for 1998, as compared to 1997, is partially due to the decrease in
depreciation expense which resulted from the sale of one Property in November
1997, and the sale of four Properties in 1998.
The decrease in operating expenses for 1998, as compared to 1997, is
partially offset by an increase in operating expense for 1998 due to the fact
that the Partnership incurred $18,286 in transaction costs related to the
General Partners retaining financial and legal advisors to assist them in
evaluating and negotiating the proposed Merger with APF, as described above in
"Liquidity and Capital Resources." If the Limited Partners reject the Merger,
the
<PAGE>
Partnership will bear the portion of the transaction costs based upon the
percentage of "For" votes and the General Partners will bear the portion of such
transaction costs based upon the percentage of "Against" votes and abstentions.
The increase in operating expenses during 1997 was also partially due
to the fact that the Partnership recorded bad debt expense of $12,794 from the
former tenant during 1997, relating to the Properties located in Portland and
Winchester, Indiana, for past due rental income amounts. Due to the fact that
the Partnership re-leased these Properties to a new tenant in October 1997, as
described above, no such expense was recorded during 1998.
The Partnership is responsible for the proportionate share of real
estate taxes and insurance expense for one of the two leases for the Property in
Maywood, Illinois. In addition, during 1998, 1997, and 1996, the Partnership
paid for a portion of the real estate taxes that are the responsibility of the
other tenant of the Maywood Property, due to a shortage of amounts collected
from the tenant for the payment of their proportionate share of real estate
taxes.
In addition, as a result of the former tenant of the Property in
Leesburg, Florida, defaulting under the terms of its lease, the Partnership
incurred certain expenses, such as real estate taxes, insurance and maintenance
expense relating to this Property during 1998, 1997, and 1996. The Partnership
sold this Property in July 1998, therefore the Partnership does not anticipate
incurring such expenses in future periods.
As a result of the sales of four Properties and one Property, the
Partnership recognized a gain of $226,024 and $221,390, respectively, for
financial reporting purposes during the years ended December 31, 1998 and 1996,
respectively. In addition, as a result of the sale of the Property in
Douglasville, Georgia, in November 1997, the Partnership recognized a loss for
financial reporting purposes of $6,652 for the year ended December 31, 1997.
During 1997, the Partnership established an allowance for loss on land
and building in the amount of $70,337 for financial reporting purposes for the
Property in Leesburg, Florida. The tenant of this Property defaulted under the
terms of its lease and vacated the Property. The allowance represented the
difference between the Property's carrying value at December 31, 1997, and the
estimated net realizable value for this Property based on an anticipated sales
price. In July 1998, the Partnership sold this Property.
The Partnership's leases as of December 31, 1998, are, in general,
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Management expects that increases in restaurant
sales volumes due to inflation and real sales growth should result in an
increase in rental income over time. Continued inflation also may cause capital
appreciation of the Partnership's Properties. Inflation and changing prices,
however, also may have an adverse impact on the sales of the restaurants and on
potential capital appreciation of the Properties.
Year 2000
The Year 2000 problem is the result of information technology systems
and embedded systems (products which are made with microprocessor (computer)
chips such as HVAC systems, physical security systems and elevators) using a
two-digit format, as opposed to four digits, to indicate the year. Such
information technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.
The Partnership currently does not have any information technology
systems. Affiliates of the General Partners provide all services requiring the
use of information technology systems pursuant to a management agreement with
the Partnership. The maintenance of embedded systems, if any, at the
Partnership's Properties is the responsibility of the tenants of the Properties
in accordance with the terms of the Partnership's leases. The General Partners
and affiliates have established a team dedicated to reviewing the internal
information technology systems used in the operation of the Partnership, and the
information technology and embedded systems and the Year 2000 compliance plans
of the Partnership's tenants, significant suppliers, financial institutions and
transfer agent.
The information technology infrastructure of the affiliates of the
General Partners consists of a network of personal computers and servers that
were obtained from major suppliers. The affiliates utilize various
administrative and financial software applications on that infrastructure to
perform the business functions of the Partnership. The inability of the General
Partners and affiliates to identify and timely correct material Year 2000
deficiencies in the software and/or infrastructure could result in an
interruption in, or failure of, certain of the Partnership's business activities
or operations. Accordingly, the General Partners and affiliates have requested
and are evaluating documentation from the suppliers of the software and
infrastructure of the affiliates regarding the Year 2000 compliance of their
products that are used in the business activities or operations of the
Partnership. The General Partners and affiliates have not yet received
sufficient certifications to be assured that the suppliers have fully considered
and mitigated any potential material impact of the Year 2000 deficiencies. The
costs expected to be incurred by the General Partners and affiliates to become
Year 2000 compliant will be incurred by the General Partners and affiliates;
therefore, these costs will have no impact on the Partnership's financial
position or results of operations.
The Partnership has material third party relationships with its
tenants, financial institutions and transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. If any of these third parties are unable to meet their obligations
to the Partnership because of the Year 2000 deficiencies, such a failure may
have a material impact on the Partnership. Accordingly, the General Partners
have requested and are evaluating documentation from the Partnership's tenants,
financial institutions, and transfer agent relating to their Year 2000
compliance plans. The General Partners have not yet received sufficient
certifications to be assured that the tenants, financial institutions, and
transfer agent have fully considered and mitigated any potential material impact
of the Year 2000 deficiencies. Therefore, the General Partners do not, at this
time, know of the potential costs to the Partnership of any adverse impact or
effect of any Year 2000 deficiencies by these third parties.
The General Partners currently expect that all Year 2000 compliance
testing and any necessary remedial measures on the information technology
systems used in the business activities and operations of the Partnership will
be completed prior to June 30, 1999. Based on the progress the General Partners
and affiliates have made in identifying and addressing the Partnership's Year
2000 issues and the plan and timeline to complete the compliance program, the
General Partners do not foresee significant risks associated with the
Partnership's Year 2000 compliance at this time. Because the General Partners
and affiliates are still evaluating the status of the information technology
systems used in business activities and operations of the Partnership and the
systems of the third parties with which the Partnership conducts its business,
the General Partners have not yet developed a comprehensive contingency plan and
are unable to identify "the most reasonably likely worst case scenario" at this
time. If the General Partners identify significant risks related to the
Partnership's Year 2000 compliance or if the Partnership's Year 2000 compliance
program's progress deviates substantially from the anticipated timeline, the
General Partners will develop appropriate contingency plans.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants
Financial Statements:
Balance Sheets
Statements of Income
Statements of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund IV, Ltd.
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Income Fund IV, Ltd. (a Florida limited partnership) at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules listed in the index appearing under item 14(a)(2) present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Orlando, Florida
January 18, 1999, except for the second paragraph of Note 12 for which the date
is March 11, 1999.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
---------------- ----------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation and allowance
for loss on land and building $15,486,459 $18,097,997
Net investment in direct financing leases 1,231,482 1,269,389
Investment in joint ventures 2,862,906 2,708,012
Cash and cash equivalents 739,382 876,452
Restricted cash 537,274 --
Receivables, less allowance for doubtful
accounts of $258,641 and $295,580 24,676 37,669
Prepaid expenses 9,836 11,115
Lease costs, less accumulated amortization
of $21,450 and $17,956 18,094 21,588
Accrued rental income 279,724 287,466
Other assets -- 200
----------------- -----------------
$21,189,833 $23,309,888
================= =================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 4,503 $ 8,576
Accrued construction costs payable -- 250,000
Accrued and escrowed real estate taxes
payable 36,732 65,176
Distributions payable 600,000 690,000
Due to related parties 148,978 93,854
Rents paid in advance and deposits 59,620 49,983
----------------- -----------------
Total liabilities 849,833 1,157,589
Partners' capital 20,340,000 22,152,299
----------------- -----------------
$21,189,833 $23,309,888
================= =================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C>
Revenues:
Rental income from operating leases $2,104,520 $2,058,703 $2,263,677
Earned income from direct financing
leases 126,993 130,683 134,014
Contingent rental income 83,377 117,031 97,318
Interest and other income 60,950 35,221 47,855
-------------- -------------- --------------
2,375,840 2,341,638 2,542,864
-------------- -------------- --------------
Expenses:
General operating and administrative 151,775 149,808 161,714
Professional services 43,609 33,439 29,289
Bad debt expense -- 12,794 --
Real estate taxes 31,879 65,316 37,589
State and other taxes 15,747 16,476 21,694
Depreciation and amortization 428,975 455,895 444,232
Transaction costs 18,286 -- --
-------------- -------------- --------------
690,271 733,728 694,518
-------------- -------------- --------------
Income Before Equity in Earnings (Losses)
of Joint Ventures, Gain (Loss) on Sale of
Land and Buildings and Provision for
Loss on Land and Building 1,685,569 1,607,910 1,848,346
Equity in Earnings (Losses) of Joint Ventures (90,144 ) 189,747 277,431
Gain (Loss) on Sale of Land and Buildings 226,024 (6,652 ) 221,390
Provision for Loss on Land and Building -- (70,337 ) --
-------------- -------------- --------------
Net Income $1,821,449 $1,720,668 $2,347,167
============== ============== ==============
Allocation of Net Income:
General partners $ 12,724 $ 15,697 $ 22,219
Limited partners 1,808,725 1,704,971 2,324,948
-------------- -------------- --------------
$1,821,449 $1,720,668 $2,347,167
============== ============== ==============
Net Income Per Limited Partner Unit $ 30.15 $ 28.42 $ 38.75
============== ============== ==============
Weighted Average Number of Limited
Partner Units Outstanding 60,000 60,000 60,000
============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
General Partners Limited Partners
-------------------------- ---------------------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
------------- ------------ ------------- ------------- ------------- ------------ ------------
<S> <C>
Balance, December 31, 1995 $ 241,504 $ 160,634 $ 30,000,000 $ (19,687,963 ) $ 16,013,989 $(3,440,000) $23,288,164
Contributions from general
partners 22,300 -- -- -- -- -- 22,300
Distributions to limited
partners ($46 per limited
partner unit) -- -- -- (2,760,000 ) -- -- (2,760,000)
Net income -- 22,219 -- -- 2,324,948 -- 2,347,167
------------ ------------ ------------- -------------- ------------- ------------- -----------
Balance, December 31, 1996 263,804 182,853 30,000,000 (22,447,963 ) 18,338,937 (3,440,000) 22,897,631
Contributions from general
partners 294,000 -- -- -- -- -- 294,000
Distributions to limited
partners ($46 per limited
partner unit) -- -- -- (2,760,000 ) -- -- (2,760,000)
Net income -- 15,697 -- -- 1,704,971 -- 1,720,668
------------ ------------ ------------- -------------- ------------- ------------- ----------
Balance, December 31, 1997 557,804 198,550 30,000,000 (25,207,963 ) 20,043,908 (3,440,000) 22,152,299
Distributions to limited
partners ($61 per
limited partner unit) -- -- -- (3,633,748 ) -- -- (3,633,748)
Net income -- 12,724 -- -- 1,808,725 -- 1,821,449
------------ ------------ ------------- -------------- ------------- ------------- -----------
Balance, December 31, 1998 $ 557,804 $ 211,274 $ 30,000,000 $ (28,841,711 ) $ 21,852,633 $ (3,440,000) $20,340,000
============ ============ ============= ============== ============= ============= ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---------------- ---------------- ----------------
<S> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $2,351,732 $2,345,612 $2,588,248
Distributions from joint ventures 248,360 265,473 305,866
Cash paid for expenses (274,436 ) (211,213 ) (206,059 )
Interest received 36,664 18,100 25,909
---------------- ---------------- ----------------
Net cash provided by operating
activities 2,362,320 2,417,972 2,713,964
---------------- ---------------- ----------------
Cash Flows from Investing Activities:
Proceeds from sale of land and building 2,526,354 378,149 1,049,550
Additions to land and buildings on
operating leases (275,000 ) -- (1,035,516 )
Investment in joint ventures (493,398 ) -- (437,489 )
Decrease (increase) in restricted cash (533,598 ) -- 518,150
Payment of lease costs -- (17,384 ) (2,230 )
Other -- 9,122 --
---------------- ---------------- ----------------
Net cash provided by investing activities 1,224,358 369,887 92,465
---------------- ---------------- ----------------
Cash Flows from Financing Activities:
Contributions from general partners -- 294,000 22,300
Distributions to limited partners (3,723,748 ) (2,760,000 ) (2,760,000 )
---------------- ---------------- ----------------
Net cash used in financing activities (3,723,748 ) (2,466,000 ) (2,737,700 )
---------------- ---------------- ----------------
Net Increase (Decrease) in Cash and Cash
Equivalents (137,070 ) 321,859 68,729
Cash and Cash Equivalents at Beginning of Year 876,452 554,593 485,864
---------------- ---------------- ----------------
Cash and Cash Equivalents at End of Year $ 739,382 $ 876,452 $ 554,593
================ ================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
--------------- --------------- ----------------
<S> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $ 1,821,449 $1,720,668 $2,347,167
--------------- --------------- ----------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 425,481 453,397 442,065
Amortization 3,494 2,498 2,167
Equity in earnings of joint ventures,
net of distributions 338,504 75,726 28,435
Bad debt expense -- 12,794 --
Loss (gain) on sale of land and
buildings (226,024 ) 6,652 (221,390 )
Provision for loss on land and
building -- 70,337 --
Decrease in receivables 8,607 5,422 41,531
Decrease (increase) in
prepaid expenses 1,279 (180 ) (1,202 )
Decrease in net investment in direct
financing leases 37,907 34,215 30,885
Increase in accrued rental income (40,515 ) (39,669 ) (21,520 )
Increase (decrease) in accounts
payable and accrued expenses (26,960 ) 31,976 11,162
Increase in due to related parties 9,461 26,701 39,987
Increase in rents paid in advance
and deposits 9,637 17,435 14,677
--------------- --------------- ----------------
Total adjustments 540,871 697,304 366,797
--------------- --------------- ----------------
Net Cash Provided by Operating Activities $ 2,362,320 $2,417,972 $2,713,964
=============== =============== ================
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Deferred real estate disposition fees
incurred and unpaid at December 31 $ 45,663 $ -- $ --
unpaid at December 31 =============== =============== ================
Distributions declared and unpaid at
December 31 $ 600,000 $ 690,000 $ 690,000
=============== =============== ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund IV, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50 percent shareholders of
the Corporate General Partner. The general partners have responsibility
for managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
on a triple-net basis, whereby the tenant is generally responsible for
all operating expenses relating to the property, including property
taxes, insurance, maintenance and repairs. The leases are accounted for
using either the direct financing or the operating methods. Such
methods are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (Note 4). Unearned income is deferred and
amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Partnership's net
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date. Whenever a tenant defaults
under the terms of its lease, or events or changes in
circumstance indicate that the tenant will not lease the
property through the end of the lease term, the Partnership
either reserves or writes-off the cumulative accrued rental
income balance.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations. The
general partners determine whether an impairment in value has occurred
by comparing the estimated future undiscounted cash flows, including
the residual value of the property, with the carrying cost of the
individual property. If an impairment is indicated, the assets are
adjusted to their fair value. Although the general partners have made
their best estimate of these factors based on current conditions, it is
reasonably possible that changes could occur in the near term which
could adversely affect the general partners' best estimate of net cash
flows expected to be generated from its properties and the need for
asset impairment write-downs.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
and to decrease rental or other income or increase bad debt expense for
the current period, although the Partnership continues to pursue
collection of such amounts. If amounts are subsequently determined to
be uncollectible, the corresponding receivable and allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership's investments in Holland
Joint Venture, Titusville Joint Venture, Cocoa Joint Venture, Auburn
Joint Venture, Kingsville Real Estate Joint Venture, Warren Joint
Venture, and a property in Clinton, North Carolina, held as
tenants-in-common, are accounted for using the equity method since the
Partnership shares control with affiliates which have the same general
partners.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts. The Partnership limits investment of
temporary cash investments to financial institutions with high credit
standing; therefore, the Partnership believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Lease Costs - Brokerage fees associated with negotiating new leases are
amortized over the terms of the new leases using the straight-line
method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 1998 presentation.
These reclassifications had no effect on partners' capital or net
income.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
2. Leases:
The Partnership leases its land or land and buildings primarily to
operators of national and regional fast-food and family-style
restaurants. The leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for
Leases." The leases generally are classified as operating leases;
however, some leases have been classified as direct financing leases.
For the leases classified as direct financing leases, the building
portions of the property leases are accounted for as direct financing
leases while the land portion of one of these leases is an operating
lease. Substantially all leases are for 15 to 20 years and provide for
minimum and contingent rentals. In addition, the tenant generally pays
all property taxes and assessments, fully maintains the interior and
exterior of the building and carries insurance coverage for public
liability, property damage, fire and extended coverage. The lease
options generally allow tenants to renew the leases for two or four
successive five-year periods subject to the same terms and conditions
as the initial lease. Most leases also allow the tenant to purchase the
property at fair market value after a specified portion of the lease
has elapsed.
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C>
Land $ 7,244,512 $8,328,572
Buildings 11,986,556 13,684,194
----------------- -----------------
19,231,068 22,012,766
Less accumulated depreciation (3,744,609 ) (3,844,432 )
----------------- -----------------
15,486,459 18,168,334
Less allowance for loss on
land and building -- (70,337 )
----------------- -----------------
$15,486,459 $ 18,097,997
================= =================
</TABLE>
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - 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 incurred $125,000 in renovation costs for each
property.
In November 1997, the Partnership sold its property in Douglasville,
Georgia to an unrelated third party for $402,000 and received net sales
proceeds of $378,149 (net of $2,546 which represents amounts due to the
former tenant for prorated rent). This property was originally acquired
by the Partnership in December 1994 and had a cost of approximately
$363,800, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the property for
approximately $16,900 in excess of its original purchase price. Due to
the fact that the Partnership had recognized accrued rental income
since the inception of the lease relating to the straight-lining of
future scheduled rent increases in accordance with generally accepted
accounting principles, the Partnership wrote off the cumulative balance
of such accrued rental income at the time of the sale of this property,
resulting in a loss of $6,652 for financial reporting purposes. Due to
the fact that the straight-lining of future rent increases over the
term of the lease is a non-cash accounting adjustment, the write off of
these amounts is a loss for financial statement purposes only.
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 10).
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - Continued:
In July 1998, the Partnership sold its property in Leesburg, Florida,
for $565,000 and received net sales proceeds of $523,931, resulting in
a loss for financial reporting purposes of $135,509. Due to the fact
that at December 31, 1997, the Partnership had recorded a provision for
loss on land and building in the amount of $70,337 for this property,
the Partnership recognized the remaining loss of $65,172 for financial
reporting purposes in July 1998, relating to the sale.
In September 1998, the Partnership sold its property in Naples,
Florida, to a third party for $563,000 and received net sales proceeds
of $533,598, resulting in a gain of $170,281 for financial reporting
purposes. This property was originally acquired by the Partnership in
December 1988 and had a cost of approximately $410,500 excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the property for approximately $123,100 in excess of
its original purchase price.
Some leases provide for escalating guaranteed minimum rents throughout
the lease terms. Income from these scheduled rent increases is
recognized on a straight-line basis over the terms of the leases. For
the years ended December 31, 1998, 1997, and 1996, the Partnership
recognized $40,515, $39,669 and $21,520, respectively, of such rental
income.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 1998:
1999 $ 1,975,839
2000 1,977,929
2001 1,947,479
2002 1,951,578
2003 1,759,818
Thereafter 10,670,163
-----------------
$20,282,806
=================
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
4. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at December 31:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C>
Minimum lease payments receivable $1,660,791 $1,825,690
Estimated residual values 527,829 527,829
Less unearned income (957,138 ) (1,084,130 )
----------------- -----------------
Net investment in direct
financing leases $1,231,482 $ 1,269,389
================= =================
</TABLE>
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 1998:
1999 $ 164,899
2000 164,899
2001 164,899
2002 164,899
2003 164,899
Thereafter 836,296
----------------
$1,660,791
================
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 3).
5. Investment in Joint Ventures:
As of December 31, 1997, the Partnership had a 51 percent, a 26.6%, a
57 percent, a 96.1% and a 68.87% interest in the profits and losses of
Holland Joint Venture, Titusville Joint Venture, Cocoa Joint Venture,
Auburn Joint Venture and Kingsville Real Estate Joint Venture,
respectively, and a 53 percent interest in the profits and losses of a
property in Clinton, North Carolina, held as tenants-in-common with
affiliates of the general partners.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
5. Investment in Joint Ventures - Continued:
The remaining interests in these joint ventures are held by affiliates
of the Partnership which have the same general partners. Holland Joint
Venture, Titusville Joint Venture, Cocoa Joint Venture, Auburn Joint
Venture, Kingsville Real Estate Joint Venture and the Partnership and
affiliates, as tenants-in-common, each own and lease one property to an
operator of national fast-food or family-style restaurants.
In September 1998, the Partnership entered into a joint venture
arrangement, Warren Joint Venture, with an affiliate of the general
partners, to hold one restaurant property. As of December 31, 1998, the
Partnership had acquired a 35.71% interest in the profits and losses of
the joint venture. The Partnership accounts for its investment in this
joint venture under the equity method since the Partnership shares
control with the affiliates.
The following presents the joint ventures' combined, condensed
financial information at December 31:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation and allowance for
loss on land and building $4,406,943 $3,338,372
Net investment in direct financing
leases less allowance for loss on
building 626,594 842,633
Cash 14,025 12,331
Receivables 10,943 40,456
Accrued rental income 163,773 177,567
Other assets 2,513 2,029
Liabilities 27,211 16,283
Partners' capital 5,197,580 4,397,105
Revenues 368,058 434,177
Provision for loss on land and
buildings and net investment in
direct financing lease (441,364) (147,039)
Net income (212,388) 126,271
</TABLE>
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
5. Investment in Joint Ventures - Continued:
The Partnership recognized a loss totalling $90,144 and income
totalling $189,747 and $277,431 for the years ended December 31, 1998,
1997, and 1996, respectively, from these joint ventures.
6. Restricted Cash:
As of December 31, 1998, the net sales proceeds of $533,598 from the
sale of the property in Naples, Florida, plus accrued interest of
$3,676 were being held in an interest-bearing escrow account pending
the release of funds by the escrow agent to acquire an additional
property on behalf of the Partnership.
7. 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 the 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. As of December 31, 1998, the
Partnership had collected the full amount of the promissory note.
8. 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").
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
8. Allocations and Distributions - Continued:
Generally, net sales proceeds from the sale of properties not in
liquidation of the Partnership, 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 not in
liquidation of the Partnership is, in general, allocated in the same
manner as net sales proceeds are distributable. Any loss from the sale
of a property not in liquidation of the Partnership 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.
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: i) first to pay and discharge all
of the Partnership's liabilities to creditors, ii) second, to establish
reserves that may be deemed necessary for any anticipated or unforeseen
liabilities or obligations of the Partnership, iii) third, to pay all
of the Partnership's liabilities, if any, to the general and limited
partners, iv) fourth, after allocations of net income, gains and/or
losses, to distribute to the partners with positive capital accounts
balances, in proportion to such balances, up to amounts sufficient to
reduce such positive balances to zero, and v) thereafter, any funds
remaining shall then be distributed 95 percent to the limited partners
and five percent to the general partners.
During each of the years ended December 31, 1998, 1997, and 1996, the
Partnership declared distributions to the limited partners of
$3,633,748, $2,760,000, and $2,760,000, respectively. Distributions for
the year ended December 31, 1998 included $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.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
9. Income Taxes:
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------ ------------
<S> <C>
Net income for financial reporting
purposes $1,821,449 $1,720,668 $2,347,167
Depreciation for tax reporting
purposes in excess of depreciation
for financial reporting purposes (8,014 ) (9,203 ) (17,764 )
Allowance for loss on land
and building -- 70,337 --
Direct financing leases recorded as
operating leases for tax
reporting purposes 37,907 34,215 30,885
Gain on sale of land and buildings
for financial reporting purposes
less than (in excess of) gain for
tax reporting purposes (231,919 ) 44,918 (140,228 )
Capitalization of transaction costs
for tax reporting purposes 18,286 -- --
Equity in earnings of joint ventures
for financial reporting purposes
less than (in excess of) equity in
earnings of joint ventures for tax
reporting purposes 319,186 51,115 (25,853 )
Allowance for doubtful accounts (36,939 ) 138,647 (9,933 )
Accrued rental income (40,515 ) (39,669 ) (21,520 )
Rents paid in advance 9,137 7,435 14,677
Other 501 -- --
-------------- ------------ ------------
Net income for federal income tax
purposes $1,889,079 $2,018,463 $2,177,431
============== ============ ============
</TABLE>
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
10. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the majority stockholder
of CNL Fund Advisors, Inc. The other individual general partner, Robert
A. Bourne, serves as treasurer, director, and vice chairman of the
Board of CNL Fund Advisors, Inc. During the years ended December 31,
1998, 1997, and 1996, CNL Fund Advisors, Inc. (hereinafter referred to
collectively as the "Affiliate") performed certain services for the
Partnership, as described below.
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
acted as manager of the Partnership's properties pursuant to a
management agreement with the Partnership. In connection therewith, the
Partnership agreed to pay the Affiliate an annual, noncumulative,
subordinated management fee of one percent of the sum of gross revenues
from properties wholly owned by the Partnership and the Partnership's
allocable share of gross revenues from joint ventures, but not in
excess of competitive fees for comparable services. These fees will be
incurred and will be payable only after the limited partners receive
their 10% Preferred Return. Due to the fact that these fees are
noncumulative, if the limited partners have not received their 10%
Preferred Return in any particular year, no management fees will be due
or payable for such year. As a result of such threshold, no management
fees were incurred during the years ended December 31, 1998, 1997, and
1996.
The Affiliate is also 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 Affiliate provides a
substantial amount of services in connection with the sale. However, if
the net sales proceeds are reinvested in a replacement property, no
such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are
distributed. The payment of the real estate disposition fee is
subordinated to receipt by the
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
10. Related Party Transactions - Continued:
limited partners of their aggregate 10% Preferred Return, plus their
adjusted capital contributions. For the year ended December 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 years
ended December 31, 1997 and 1996.
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $94,365, $81,838 and $85,899
for the years ended December 31, 1998, 1997, and 1996, respectively,
for such services.
The due to related parties consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C>
Due to the Affiliate:
Expenditures incurred on
behalf of the Partnership $53,363 $48,126
Accounting and administrative
services 49,952 40,728
Deferred, subordinated real
estate disposition fee 45,663 --
Other -- 5,000
--------------- ---------------
$148,978 $93,854
=============== ===============
</TABLE>
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
11. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees, each representing more than ten percent of the
Partnership's total rental and earned income (including the
Partnership's share of total rental and earned income from joint
ventures), for each of the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C>
Shoney's, Inc. $413,755 $427,238 $425,390
Tampa Foods, L.P. N/A N/A 291,347
</TABLE>
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than
ten percent of the Partnership's total rental and earned income
(including the Partnership's share of total rental and earned income
from joint ventures) for each of the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C>
Shoney's $541,175 $557,303 $557,841
Wendy's Old Fashioned
Hamburger Restaurants 437,896 432,585 499,305
Denny's N/A 345,749 360,080
Taco Bell N/A 262,909 251,314
</TABLE>
The information denoted by N/A indicates that for each period
presented, the tenant and the chains did not represent more than ten
percent of the Partnership's total rental and earned income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership.
12. Subsequent Events:
In January 1999, the Partnership used the net sales proceeds from the
sale of the property in Naples, Florida to invest in a Property in
Zephyrhills, Florida, with an affiliate of the general partners as
tenants-in-common for a 76 percent interest in the property. The
Partnership will account for its investment in this property using the
equity method since the Partnership will share control with affiliates.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
12. Subsequent Events - Continued:
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"). As consideration for the Merger, APF has agreed to
issue 2,668,016 shares of its common stock, par value $0.01 per shares
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the
price paid by APF investors in APF's most recent public offering. In
order to assist the general partners in evaluating the proposed merger
consideration, the general partners retained Valuation Associates, a
nationally recognized real estate appraisal firm, to appraise the
Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other
assets were valued on a going concern basis (meaning the Partnership
continues unchanged) at $26,259,630 as of December 31, 1998. Legg Mason
Wood Walker, Incorporated has rendered a fairness opinion that the APF
Share consideration, payable by APF, is fair to the Partnership from a
financial point of view. The APF Shares are expected to be listed for
trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and, therefore, would be freely tradable at
the option of the former limited partners. At a special meeting of the
partners that is expected to be held in the third 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. The general partners intend to
recommend that the limited partners of the Partnership approve the
Merger. In connection with their recommendation, the general partners
will solicit the consent of the limited partners at the special
meeting. If the limited partners reject the Merger, the Partnership
will bear the portion of the transaction costs based upon the
percentage of "For" votes and the general partners will bear the
portion of such transaction costs based upon the percentage of
"Against" votes and abstentions.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 52, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, a director and Chief Executive Officer since its formation
in 1980. Mr. Seneff has been Chairman of the Board of Directors, director, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979. Mr.
Seneff also has held the position of Chairman of the Board of Directors, Chief
Executive Officer, President and director of CNL Management Company, a
registered investment advisor, since its formation in 1976, has served as Chief
Executive Officer, Chairman of the Board and a director of CNL Investment
Company, has served as Chief Executive Officer, a director and Chairman of the
Board of Directors of Commercial Net Lease Realty, Inc., a publicly-traded REIT,
listed on the NYSE, since 1992, served as Chief Executive Officer, a director
and Chairman of the Board of Directors of CNL Realty Advisors, Inc. from its
inception in May 1992 through December 1997, at which time such company merged
with Commercial Net Lease Realty, Inc., and has held the position of Chief
Executive Officer, Chairman of the Board and a director of CNL Institutional
Advisors, Inc., a registered investment advisor, since its inception in December
1990. Mr. Seneff has served as Chairman of the Board of Directors of CNL
American Properties Fund, Inc. since December 1994 and as a director and Chief
Executive Officer since May 1994. Mr. Seneff has served as Chairman of the
Board, Chief Executive Officer and a director of CNL Fund Advisors, Inc. since
March 1994. Mr. Seneff has served as Chairman of the Board, Chief Executive
Officer and a director of CNL Hospitality Properties, Inc. since June 1996 and
of CNL Hospitality Advisors, Inc. since January 1997. Mr. Seneff has also served
as Chairman of the Board, Chief Executive Officer and a director of CNL Health
Care Properties, Inc. since December 1997 and CNL Health Care Advisors, Inc.
since July 1997. Mr. Seneff previously served on the Florida State Commission on
Ethics and is a former member and past Chairman of the State of Florida
Investment Advisory Council, which advises the Florida Board of Administration
investments for various Florida employee retirement funds. The Florida Board of
Administration, Florida's principal investment advisory and money management
agency, oversees the investment of more then $60 billion of retirement funds.
Mr. Seneff has served as a member of the board of directors of First Union
National Bank of Florida since May 1998 and has served as a member of the
Orlando Advisory Board of First Union National Bank of Florida since March 1994.
Since 1971, Mr. Seneff has been active in the acquisition, development, and
management of real estate projects and, directly or through an affiliated
entity, has served as a general partner or joint venturer in over 100 real
estate ventures involved in the financing, acquisition, construction, and rental
of restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 65 privately
offered real estate limited partnerships in which Mr. Seneff, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund
III, Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund
VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund
X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund
XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund
XVI, Ltd., CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII, Ltd. (the "CNL
Income Fund Partnerships"), public real estate limited partnerships with
investment objectives similar to those of the Partnership, in which Mr. Seneff
serves as a general partner. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 51, is President and Treasurer of CNL Group,
Inc., President, Treasurer, a director, and a registered principal of CNL
Securities Corp., President, Treasurer, and a director of CNL Investment
Company, and Chief Investment Officer, a director and Treasurer of CNL
Institutional Advisors, Inc., a registered investment advisor. Mr. Bourne served
as President of CNL Institutional Advisor, Inc. from the date of its inception
through July 1997. Mr. Bourne served as President of Commercial Net Lease
Realty, Inc. from July 1992 through February 1996, served as Secretary and
Treasurer from February 1996 through December 1997, and has served as a director
since July 1992 and as Vice Chairman of the Board of Directors since February
1996. In addition, Mr. Bourne served as President of CNL Realty Advisors, Inc.
from May 1992 through February 1996, served as Treasurer from February 1996
through December 1997, served as a director from May 1992 through December 31,
1997 and served as Vice Chairman from February 1996 through December 1997, at
which time such company merged with Commercial Net Lease Realty, Inc. Mr. Bourne
has served as a Vice Chairman of the Board of Directors and Treasurer of CNL
American Properties Fund, Inc. since February 1999, has served as a director
since May 1994 and previously served as President from May 1994 through February
1999. Mr. Bourne has served as a director of CNL Fund Advisors, Inc. since March
1994, has served as Treasurer and Vice Chairman of the Board of Directors since
September 1997, and previously served as President from March 1994 through
September 1997. Mr. Bourne has served as President and a director of CNL
Hospitality Properties, Inc. since June 1996 and of CNL Hospitality Advisors,
Inc. since January 1997. Mr. Bourne has served as President and director of CNL
Health Care Properties, Inc. since December 1997 and CNL Health Care Advisors,
Inc. since July 1997. Mr. Bourne, who joined CNL Securities Corp. in 1979, has
participated as a general partner or joint venturer in over 100 real estate
ventures involved in the financing, acquisition, construction, and rental of
restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 64 privately
offered real estate limited partnerships in which Mr. Bourne, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are the CNL Income Fund Partnerships, public real estate limited
partnerships with investment objectives similar to those of the Partnership, in
which Mr. Bourne serves as a general partner. Mr. Bourne formerly was a
certified public accountant with Coopers & Lybrand and a partner in the firm of
Bourne & Rose, P.A. Mr. Bourne received a B.A. in Accounting, with honors, from
Florida State University in 1970.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL
Realty Corporation was organized to serve as the corporate general partner of
real estate limited partnerships, such as the Partnership, organized by one or
both of the individual General Partners. CNL Realty Corporation currently serves
as the corporate general partner of the CNL Income Fund Partnerships.
CNL Fund Advisors, Inc. provides certain management services in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation organized in 1994 under the laws of the State of Florida, and its
principal office is located at 400 East South Street, Orlando, Florida 32801.
CNL Fund Advisors, Inc. is a majority owned subsidiary of CNL Group, Inc., a
diversified real estate company, and was organized to perform property
acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Fund Advisors,
Inc., was organized in 1980 under the laws of the State of Florida. CNL Group,
Inc. is a diversified real estate company which provides a wide range of real
estate, development and financial services to companies in the United States
through the activities of its subsidiaries. These activities are primarily
focused on the franchised restaurant and hospitality industries. James M.
Seneff, Jr., an individual General Partner of the Partnership, is the Chairman
of the Board, Chief Executive Officer, and a director of CNL Group, Inc. Mr.
Seneff and his wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as members
of the Boards of Directors of those entities. The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.
Curtis B. McWilliams, age 43, joined CNL Group, Inc. in April 1997 and
currently serves as an Executive Vice President. In addition, Mr. McWilliams has
served as President of CNL Fund Advisors, Inc. and as President of the
Restaurant and Financial Services Groups within CNL Group, Inc. since April
1997. Mr. McWilliams has served as President of CNL American Properties Fund,
Inc. since February 1999 and previously served as Executive Vice President from
February 1998 through February 1999. From September 1983 through March 1997, Mr.
McWilliams was employed by Merrill Lynch & Co., most recently as Chairman of
Merrill Lynch's Private Advisory Services until March 1997. Mr. McWilliams
received a B.S.E. in Chemical Engineering from Princeton University in 1977 and
a Masters of Business Administration with a concentration in finance from the
University of Chicago in 1983.
John T. Walker, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since January 1996, as Chief Operating Officer
since March 1995, and previously served as Senior Vice President since December
1994. In addition, Mr. Walker has served as Executive Vice President of CNL Fund
Advisors, Inc. since January 1996, Chief Operating Officer since April 1995, and
previously served as Senior Vice President from November 1994 through January
1996. In addition, Mr. Walker previously served as Executive Vice President of
CNL Hospitality Properties, Inc. and CNL Hospitality Advisors, Inc. From May
1992 to May 1994, Mr. Walker, a certified public accountant, was Executive Vice
President for Finance and Administration and Chief Financial Officer of Z Music,
Inc., a cable television network (subsequently acquired by Gaylord
Entertainment), where he was responsible for overall financial and
administrative management and planning. From January 1990 through April 1992,
Mr. Walker was Chief Financial Officer of the First Baptist Church in Orlando,
Florida. From April 1984 through December 1989, he was a partner in the
accounting firm of Chastang, Ferrell & Walker, P.A., where he was the partner in
charge of audit and consulting services, and from 1981 to 1984, Mr. Walker was a
Senior Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a Cum Laude
graduate of Wake Forest University with a B.S. in Accountancy and is a certified
public accountant.
Lynn E. Rose, age 50, a certified public accountant, has served as
Secretary of CNL American Properties Fund, Inc. since December 1994 and served
as Treasurer from December 1994 through February 1999. Ms. Rose has served as a
director and Secretary of CNL Fund Advisors, Inc. since March 1994, and as
Treasurer from the date of its inception through June 30, 1997. Ms. Rose has
served as Secretary of CNL Group, Inc. since 1987, as Chief Financial Officer of
CNL Group, Inc. since December 1993, and served as Controller of CNL Group, Inc.
from 1987 until December 1993. In addition, Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has
served as Chief Operating Officer, Vice President and Secretary of CNL Corporate
Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial
Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in
1990, as Treasurer of CNL Realty Advisors, Inc. from 1991 to February 1996, and
as Secretary and a director of CNL Realty Advisors, Inc. since its inception in
1991 until December 31, 1997, at which time CNL Realty Advisors, Inc. merged
with Commercial Net Lease Realty, Inc. In addition, Ms. Rose served as Secretary
and Treasurer of Commercial Net Lease Realty, Inc. from 1992 to February 1996.
Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality Properties,
Inc. and CNL Health Care Properties, Inc. and as Secretary, Treasurer and a
director of CNL Hospitality Advisors, Inc. and CNL Health Care Advisors, Inc.
Ms. Rose also currently serves as Secretary for approximately 50 additional
corporations. Ms. Rose oversees the legal compliance, accounting, tenant
compliance, and reporting for over 250 corporations, partnerships and joint
ventures. Prior to joining CNL, Ms. Rose was a partner with Robert A. Bourne in
the accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Ms.
Rose holds a B.A. in Sociology from the University of Central Florida.
Jeanne A. Wall, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since December 1994. Ms. Wall has served as
Executive Vice President of CNL Fund Advisors, Inc. since November 1994, and
previously served as Vice President from March 1994 through November 1994. Ms.
Wall has served as Chief Operating Officer of CNL Investment Company and of CNL
Securities Corp. since November 1994 and has served as Executive Vice President
of CNL Investment Company since January 1991. Ms. Wall joined CNL Securities
Corp. in 1984. In 1985, Ms. Wall became Vice President of CNL Securities Corp.
In 1987, she became Senior Vice President and in July 1997 she became Executive
Vice President of CNL Securities Corp. In this capacity, Ms. Wall serves as
national marketing and sales director and oversees the national marketing plan
for the CNL investment programs. In addition, Ms. Wall oversees product
development, partnership administration and investor services for programs
offered through participating brokers and corporate communications for CNL
Group, Inc. and its affiliates. Ms. Wall also has served as Senior Vice
President of CNL Institutional Advisors, Inc., a registered investment advisor,
from 1990 to 1993, as Vice President of CNL Realty Advisors, Inc. since its
inception in 1991 until December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., and served as Vice President
of Commercial Net Lease Realty, Inc. from 1992 through December 31, 1997. In
addition, Ms. Wall serves as Executive Vice President of CNL Hospitality
Properties, Inc., CNL Hospitality Advisors, Inc., CNL Health Care Properties,
Inc. and CNL Health Care Advisors, Inc. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp. Ms. Wall currently serves as a trustee on the board of the
Investment Program Association and on the Direct Participation Program committee
for the National Association of Securities Dealers (NASD).
Steven D. Shackelford, age 35, a certified public accountant, has
served as Chief Financial Officer of CNL American Properties Fund, Inc. since
January 1997 and as Chief Financial Officer of CNL Fund Advisors, Inc. since
September 1996. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse where he was responsible for
advising foreign clients seeking to raise capital and a public listing in the
United States. From August 1992 to March 1995, he served as a manager in the
Price Waterhouse, Paris, France office serving several multinational clients.
Mr. Shackelford was an audit staff and audit senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a B.A. in
Accounting, with honors, and a Masters of Business Administration from Florida
State University.
<PAGE>
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 11, 1999, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 11, 1999, the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>
Title of Class Name of Partner Percent of Class
<S> <C>
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
-----
100%
</TABLE>
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant except as noted above. On March 11, 1999, the
Registrant entered into an Agreement and Plan of Merger with CNL American
Properties Fund, Inc. ("APF") pursuant to which the Registrant would be merged
with and into a subsidiary of APF (the "Merger"). For further discussion, see
Item 8. Financial Statements and Supplementary Data -- Note 12.
Subsequent Events.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 1998, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
<TABLE>
<CAPTION>
Type of Amount Incurred
Compensation Method of For the Year
and Recipient Computation Ended December 31, 1998
<S> <C>
Reimbursement to affiliates for Operating expenses are reimbursed Operating expenses incurred on
operating expenses at the lower of cost or 90 percent behalf of the Partnership:
of the prevailing rate at which $111,482
comparable services could have been
obtained in the same geographic Accounting and administrative
area. Affiliates of the General services: $94,365
Partners from time to time incur
certain operating expenses on
behalf of the Partnership for which
the Partnership reimburses the
affiliates without interest.
Annual, subordinated management fee to One percent of the sum of gross $ - 0 -
affiliates operating revenues from Properties
wholly owned by the Partnership
plus the Partner- ship's allocable
share of gross revenues of joint
ventures in which the Partnership
is a co-venturer, subordinated to
certain minimum returns to the
Limited Partners. The management
fee will not exceed competitive
fees for comparable services. Due
to the fact that these fees are
non-cumulative, if the Limited
Partners have not received their
10% Preferred Return in any
particular year, no management
fees will be due or payable for
such year.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Type of Amount Incurred
Compensation Method of For the Year
and Recipient Computation Ended December 31, 1998
<S> <C>
Deferred, subordinated real estate A deferred, subordinated real $45,663
disposition fee payable to affiliates estate disposition fee, payable
upon sale of one or more
Properties, in an amount equal to
the lesser of (i) one-half of a
competitive real estate
commission, or (ii) three percent
of the sales price of such
Property or Properties. Payment of
such fee shall be made only if
affiliates of the General Partners
provide a substantial amount of
services in connection with the
sale of a Property or Properties
and shall be subordinated to
certain minimum returns to the
Limited Partners. However, if the
net sales proceeds are reinvested
in a replacement property, no such
real estate disposition fee will
be incurred until such replacement
property is sold and the net sales
proceeds are distributed.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to one percent of Partnership
cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to five percent of
sales proceeds from a sale or sales not Partnership distributions of such
in liquidation of the Partnership net sales proceeds, subordinated to
certain minimum returns to the
Limited Partners.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
----------------------- --------------------- -----------------------
<S> <C>
General Partners' share of Partnership Distributions of net sales proceeds $ - 0 -
net sales proceeds from a sale or sales from a sale or sales of
in liquidation of the Partnership substantially all of the
Partnership's assets will be
distributed in the following order
or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net
loss, gain and loss, in proportion
to such balances, up to amounts
sufficient to reduce such balances
to zero; and (iii) thereafter, 95%
to the Limited Partners and 5% to
the General Partners.
</TABLE>
As discussed above in Item 8. Financial Statements and Supplementary
Data -- Note 12. Subsequent Events, the Registrant has entered into an Agreement
and Plan of Merger, dated March 11, 1999, with APF pursuant to which the
Registrant would be merged with and into a subsidiary of APF in exchange for the
issuance of APF Shares. The APF Shares are expected to be listed for trading on
the New York Stock Exchange concurrently with the consummation of the Merger. If
the Merger is approved by Limited Partners holding units greater than 50% of the
outstanding units of the Registrant, the General Partners of the Registrant
would receive certain benefits. For instance, following the Merger, James M.
Seneff, Jr. and Robert A. Bourne, the individual General Partners, will continue
to serve as directors of APF, with Mr. Seneff serving as Chairman and Mr. Bourne
serving as Vice Chairman. As APF directors, they may also be entitled to receive
stock options under any stock option plan adopted by APF.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1998 and 1997
Statements of Income for the years ended December 31, 1998,
1997, and 1996
Statements of Partners' Capital for the years ended December
31, 1998, 1997, and 1996
Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1998, 1997 and 1996
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1998
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1998
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund
IV, Ltd. (Included as Exhibit 3.1 in Amendment No. 1
to Registration Statement No. 33-20249 on Form S-11
and incorporated herein by reference.)
3.2 Amended and Restated Agreement and Certificate of
Limited Partnership of CNL Income Fund IV, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with the
Securities and Exchange Commission on March 31, 1994,
and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund
IV, Ltd. (Included as Exhibit 3.1 in Amendment No. 1
to Registration Statement No. 33-20249 on Form S-11
and incorporated herein by reference.)
4.2 Amended and Restated Agreement and Certificate of
Limited Partnership of CNL Income Fund IV, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with the
Securities and Exchange Commission on March 31, 1994,
and incorporated herein by reference.)
<PAGE>
10.1 Property Management Agreement (Included as Exhibit
10.1 to Form 10-K filed with the Securities and
Exchange Commission on March 31, 1994, and
incorporated herein by reference.)
10.2 Assignment of Property Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 30, 1995,
and incorporated herein by reference.)
10.3 Assignment of Property Management Agreement from CNL
Income Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on April 1, 1996,
and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from
October 1, 1998 through December 31, 1998.
<PAGE>
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 27th day of
March, 1999.
CNL INCOME FUND IV, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
--------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
--------------------------
JAMES M. SENEFF, JR.
<PAGE>
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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C>0
/s/ Robert A. Bourne President, Treasurer and Director March 27, 1999
- ---------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 27, 1999
- ---------------------------
James M. Seneff, Jr. (Principal Executive Officer)
</TABLE>
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Additions Deductions
------------------------------- -----------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
-------- ---------------- ------------- ------------- -------------- ------------ ------------ -----------
<S> <C>
1996 Allowance for
doubtful
accounts (a) $166,866 $ -- $ 38,389 (b) $48,322 $ -- $156,933
============= ============= ============== ============ ============ ===========
1997 Allowance for
doubtful
accounts (a) $156,933 $ -- $ 258,818 (b) $112,624 $ 7,547 $295,580
============= ============= ============== ============ ============ ===========
1998 Allowance for
doubtful
accounts (a) $295,580 $ -- $ 26,370 (b) $ 3,303 $60,006 $258,641
============= ============= ============== ============ ============ ===========
</TABLE>
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
<PAGE>
<TABLE>
<CAPTION>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<S> <C>
Costs Capitalized
Subsequent to
Initial Cost Acquisition
---------------------------- -----------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
----------- ------------- ----------- ----------- --------
Properties the Partnership
has Invested in Under
Operating Leases:
Arby's Restaurants:
Winchester, Indiana - $287,769 - $567,785 -
Portland, Indiana - 187,928 - 657,931 -
Boston Market Restaurant:
Richmond, Virginia - 504,169 522,025 - -
-
Captain D's Restaurants:
Alexander City, Alabama - 120,210 279,689 - -
Oak Ridge, Tennessee - 169,951 281,686 -
Checkers Drive-In Restaurant:
Miami, Florida - 174,336 - - -
Denny's Restaurants:
Marion, Ohio - 135,407 334,665 - -
Dundee, Michigan - 251,650 - 372,278 -
Golden Corral Family
Steakhouse Restaurants:
Franklin, Indiana - 107,560 586,375 - -
Streator, Illinois - 161,616 650,934 - -
Jack in the Box Restaurant:
San Antonio, Texas - 352,957 - 368,702 -
Pizza Hut Restaurants:
Memphis, Texas - 26,510 231,874 - -
Carthage, Texas - 40,444 232,823 - -
Crystal City, Texas - 8,826 178,570 - -
Sequin, Texas - 63,708 184,279 - -
Washington, D.C. - 191,737 - - -
Shoney's Restaurants:
Alexander City, Alabama - 202,438 428,406 - -
Topeka, Kansas - 292,407 465,321 - -
Brookhaven, Mississippi - 312,574 452,601 - -
Auburn, Alabama - 363,432 426,123 - -
Tampa, Florida - 316,697 - 894,659 -
Taco Bell Restaurant:
Edgewood, Maryland - 440,355 - 523,478 -
Wendy's Old Fashioned
Hamburger Restaurants:
Detroit, Michigan - 192,813 462,793 - -
Mechanicsville, Virginia - 346,627 502,117 - -
Tampa, Florida - 530,456 432,958 - -
Tampa, Florida - 476,755 368,405 - -
Other Restaurants:
Corpus Christi, Texas - 204,287 - 460,803 -
Maywood, Illinois (i) - 310,966 - 443,472 -
Palm Bay, Florida - 469,927 365,128 310,676 -
------------ ----------- ----------- -------- ---
$7,244,512 $7,386,772 $4,599,784 - $
============ =========== =========== ======== ===
Property of Joint Venture in Which
the Partnership has a 51% Interest
and has Invested in Under an
Operating Lease:
Denny's Restaurant:
Holland, Michigan - $295,987 - $780,451 -
============ =========== =========== ======== ===
Property of Joint Venture in Which
the Partnership has a 26.6% Interest
and has Invested in Under an Operating
Lease:
Po Folks Restaurant:
Titusville, Florida (j) - $271,350 - $750,985 -
============ =========== =========== ======== ===
Property of Joint Venture in Which
the Partnership has a 57% Interest
and has Invested in Under an
Operating Lease:
Waffle House Restaurant:
Cocoa, Florida - $183,229 $192,857 - -
============ =========== =========== ======== ===
Property of Joint Venture in Which
the Partnership has a 96.1% Interest
and has Invested in Under an
Operating Lease:
KFC Restaurant:
Auburn, Massachusetts - $484,362 - - -
============ =========== =========== ======== ===
Property of Joint Venture in Which
the Partnership has a 68.87%
Interest and has Invested in
Under an Operating Lease:
Denny's Restaurant:
Kingsville, Texas (k) - $171,061 - $99,128 -
============ =========== =========== ======== ===
Property in Which the Partner-
ship has a 53% Interest as
Tenants-in-Common and
has Invested in Under an
Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Clinton, North Carolina - $138,382 $676,588 - -
============ =========== =========== ======== ===
Property of Joint Venture in Which
the Partnership has a 35.71%
Interest and has Invested in Under
an Operating Lease:
IHOP Restaurant:
Warren, Michigan - $507,965 $889,080 - -
============ =========== =========== ======== ===
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Pizza Hut Restaurant:
Washington, D. C. - - $459,543 - -
Shoney's Restaurant:
Punta Gorda, Florida - 210,438 770,826 39,193 -
------------ ----------- ----------- --------
$210,438 $1,230,369 $39,193 -
============ =========== =========== ========
Property of Joint Venture in
Which the Partnership has a
96.1% Interest and has Invested
in Under a Direct Financing
Lease:
KFC Restaurant:
Auburn, Massachusetts - - - $434,947 -
============ =========== =========== ========
Property of Joint Venture in
Which the Partnership has a
68.87% Interest and has Invested
in Under a Direct Financing
Lease:
Denny's Restaurant:
Kingsville, Texas - - - $535,489 -
============ =========== =========== ========
Gross Amount at Which Life on Which
Carried at Close of Period (c) Depreciation in
- ---------------------------------------- Date Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
- ------------ ------------ ------------ ----------- --------- --------- ---------------
$287,769 $567,785 $855,554 $156,806 1988 07/88 (b)
187,928 657,931 845,859 171,007 1989 11/88 (b)
504,169 522,025 1,026,194 34,850 1996 12/96 (b)
120,210 279,689 399,899 93,460 1988 12/88 (b)
169,951 281,686 451,637 94,153 1988 12/88 (b)
174,336 - 174,336 (g) - 06/94 (g)
135,407 334,665 470,072 66,711 1989 10/88 (h)
251,650 372,278 623,928 126,162 1988 10/88 (b)
107,560 586,375 693,935 205,232 1988 06/88 (b)
161,616 650,934 812,550 224,211 1988 08/88 (b)
352,957 368,702 721,659 120,854 1989 11/88 (b)
26,510 231,874 258,384 79,547 1985 09/88 (b)
40,444 232,823 273,267 79,872 1981 09/88 (b)
8,826 178,570 187,396 61,259 1981 09/88 (b)
63,708 184,279 247,987 63,219 1974 09/88 (b)
191,737 (f) 191,737 - 1986 01/89 (d)
202,438 428,406 630,844 143,155 1988 12/88 (b)
292,407 465,321 757,728 155,532 1988 12/88 (b)
312,574 452,601 765,175 151,282 1988 12/88 (b)
363,432 426,123 789,555 142,431 1988 12/88 (b)
316,697 894,659 1,211,356 283,309 1989 02/89 (b)
440,355 523,478 963,833 172,312 1989 10/88 (b)
192,813 462,793 655,606 156,836 1983 10/88 (b)
346,627 502,117 848,744 168,768 1988 12/88 (b)
530,456 432,958 963,414 144,407 1984 12/88 (b)
476,755 368,405 845,160 122,877 1987 12/88 (b)
204,287 460,803 665,090 155,838 1988 10/88 (b)
310,966 443,472 754,438 146,189 1988 09/88 (b)
469,927 675,804 1,145,731 224,330 1989 12/88 (b)
- --------- ------------ ------------ -----------
$7,244,512 $11,986,556 $19,231,068 $3,744,609
========== ============ ============ ===========
$295,987 $780,451 $1,076,438 $264,486 1988 11/88 (b)
========= ============ ============ ===========
$271,350 $750,985 $1,022,335 $245,306 1988 12/88 (b)
========= ============ ============ ===========
$183,229 $192,857 $376,086 $57,911 1986 12/89 (b)
========= ============ ============ ===========
$484,362 (f) $484,362 - 1989 05/89 (d)
========= ============ ===========
$270,189 (f) $270,189 - 1988 10/88 (d)
========= ============ ===========
$138,382 $676,588 $814,970 $66,273 1996 01/96 (b)
========= ============ ============ ===========
$507,965 $889,080 $1,397,045 $8,769 1998 09/98 (b)
========= ============ ============ ===========
- (f) (f) (d) 1986 01/89 (d)
(f) (f) (f) (e) 1989 02/89 (e)
- (f) (f) (d) 1989 05/89 (d)
- (f) (f) (d) 1988 10/88 (d)
</TABLE>
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(a) Transactions in real estate and accumulated depreciation
during 1998, 1997 and 1996, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
--------------- ---------------
<S> <C>
Properties the Partnership has Invested
in Under Operating Leases:
Balance, December 31, 1995 $ 21,989,843 $ 3,045,149
Dispositions (887,486 ) (96,179 )
Additional costs capitalized 1,026,194 --
Depreciation expense -- 442,065
--------------- ---------------
Balance, December 31, 1996 22,128,551 3,391,035
Dispositions (365,785 ) --
Acquisitions 250,000 --
Depreciation expense -- 453,397
--------------- ---------------
Balance, December 31, 1997 22,012,766 3,844,432
Dispositions (2,781,698 ) (525,304 )
Depreciation expense -- 425,481
--------------- ---------------
Balance, December 31, 1998 $ 19,231,068 $ 3,744,609
=============== ===============
Property of Joint Venture in Which
the Partnership has a 51%
Interest and has Invested in
Under an Operating lease:
Balance, December 31, 1995 $ 1,076,438 $ 186,441
Depreciation expense -- 26,015
--------------- ---------------
Balance, December 31, 1996 1,076,438 212,456
Depreciation expense -- 26,015
--------------- ---------------
Balance, December 31, 1997 1,076,438 238,471
Depreciation expense -- 26,015
--------------- ---------------
Balance, December 31, 1998 $ 1,076,438 $ 264,486
=============== ===============
</TABLE>
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
--------------- --------------
<S> <C>
Property of Joint Venture in Which
the Partnership has a 26.6%
Interest and has Invested in
Under an Operating lease:
Balance, December 31, 1995 $ 1,022,335 $ 175,230
Depreciation expense 25,033
--
--------------- --------------
Balance, December 31, 1996 1,022,335 200,263
Depreciation expense -- 25,033
--------------- --------------
Balance, December 31, 1997 1,022,335 225,296
Depreciation expense --
--------------- --------------
Balance, December 31, 1998 (j) $ 1,022,335 $ 245,306
=============== ==============
Property of Joint Venture in Which
the Partnership has a 57%
Interest and has Invested in
Under an Operating lease:
Balance, December 31, 1995 $ 376,086 $ 38,624
Depreciation expense --
--------------- --------------
Balance, December 31, 1996 376,086 45,053
Depreciation expense -- 6,429
--------------- --------------
Balance, December 31, 1997 376,086 51,482
Depreciation expense --
--------------- --------------
Balance, December 31, 1998 $ 376,086 $ 57,911
=============== ==============
</TABLE>
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
-------------- ---------------
<S> <C>
Property of Joint Venture in Which
the Partnership has a 35.71%
Interest and has Invested in
Under an Operating lease:
Balance, December 31, 1997 $ -- $ --
Acquisition 1,397,045 --
Depreciation expense -- 8,769
-------------- ---------------
Balance, December 31, 1998 $ 1,397,045 $ 8,769
============== ===============
Property of Joint Venture in Which
the Partnership has a 96.1%
Interest and has Invested in
Under an Operating lease:
Balance, December 31, 1995 $ 484,362 $ --
Depreciation expense (d) -- --
-------------- ---------------
Balance, December 31, 1996 484,362 --
Depreciation expense (d) -- --
-------------- ---------------
Balance, December 31, 1997 484,362
Depreciation expense (d) -- --
-------------- ---------------
Balance, December 31, 1998 $ 484,362 $ --
============== ===============
</TABLE>
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
-------------- ---------------
<S> <C>
Property of Joint Venture in Which
the Partnership has a 68.87%
Interest and has Invested in
Under an Operating lease:
Balance, December 31, 1995 $ 270,189 $ --
Depreciation expense (d) -- --
-------------- ---------------
Balance, December 31, 1996 270,189
Depreciation expense (d) -- --
-------------- ---------------
Balance, December 31, 1997 270,189
Depreciation expense (d) -- --
-------------- ---------------
Balance, December 31, 1998 (k) $ 270,189 $ --
============== ===============
Property of Joint Venture in Which
the Partnership has a 53%
Interest and has Invested in
Under an Operating lease:
Balance, December 31, 1996 $ 814,970 $ 21,168
Depreciation expense -- 22,552
-------------- ---------------
Balance, December 31, 1997 814,970 43,720
Depreciation expense -- 22,553
-------------- ---------------
Balance, December 31, 1998 $ 814,970 $ 66,273
============== ===============
</TABLE>
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1998
(b) Depreciation expense is computed for buildings and
improvements based upon estimated lives of 30 years.
(c) As of December 31, 1998, the aggregate cost of the
Properties owned by the Partnership and joint ventures for
federal income tax purposes was $20,503,529 and $6,360,167,
respectively. All of the leases are treated as operating
leases for federal income tax purposes.
(d) For financial reporting purposes, the portion of the lease
relating to the building has been recorded as a direct
financing lease. The cost of the building has been included
in the net investment in direct financing leases, therefore,
depreciation is not applicable.
(e) For financial reporting purposes, the lease for the land and
building has been recorded as a direct financing lease. The
cost of the land and building has been included in the net
investment in direct financing leases, therefore,
depreciation is not applicable.
(f) For financial reporting purposes, certain components of the
lease relating to land and building have been recorded as a
direct financing lease. Accordingly, costs relating to these
components are not shown.
(g) The building portion of this Property is owned by the
tenant; therefore, depreciation is not applicable.
(h) Effective January 1, 1994, the lease for this Property was
amended, resulting in the reclassification of the building
portion of the lease as an operating lease. The building was
recorded at net book value as of January 1, 1994, and
depreciated over remaining estimated life of approximately
25 years.
(i) The restaurant on the Property in Maywood, Illinois, was
converted to a Dunkin Donuts restaurant and a Holsum Bread
bakery in 1993.
(j) For financial reporting purposes, the undepreciated cost of
the Property in Titusville, Florida, was written down to net
realizable value due to an anticipated impairment in value.
The Partnership recognized the impairment by recording
allowances for loss on land and building in the amount of
$125,251 and $147,039 at December 31, 1998 and December 31,
1997, respectively. During 1997, the operator of this
Property vacated the Property and ceased operations. The
impairment at December 31, 1998, represents difference
between the Property's carrying value and the estimated net
realizable value of the Property. The cost of the Property
presented on this schedule is the gross amount at which the
Property was carried at December 31, 1998, excluding the
allowance for loss on land and building.
(k) For financial reporting purposes, the undepreciated cost of
the Property in Kingsville, Texas, was written down to net
realizable value due to an anticipated impairment in value.
The Partnership recognized the impairment by recording an
allowance for loss on land and building in the amount of
$316,113 at December 31, 1998. The tenant of this Property
experienced financial difficulties and ceased payment of
rents under the terms of their lease agreement. The
impairment at December 31, 1998, represents the difference
between the Property's carrying value at December 31, 1998,
and the estimated net realizable value of the Property. The
cost of the Property presented on this schedule is the gross
amount at which the Property was carried at December 31,
1998, excluding the allowance for loss on land and building.
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number
3.1 Certificate of Limited Partnership of CNL Income Fund IV, Ltd.
(Included as Exhibit 3.1 in Amendment No. 1 to Registration
Statement No. 33-20249 on Form S-11 and incorporated herein by
reference.)
3.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund IV, Ltd. (Included as Exhibit
3.2 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund IV, Ltd.
(Included as Exhibit 3.1 in Amendment No. 1 to Registration
Statement No. 33-20249 on Form S-11 and incorporated herein by
reference.)
4.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund IV, Ltd. (Included as Exhibit
3.2 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
10.1 Property Management Agreement (Included as Exhibit 10.1 to
Form 10-K filed with the Securities and Exchange Commission on
March 31, 1994, and incorporated herein by reference.)
10.2 Assignment of Property Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc. (Included
as Exhibit 10.2 to Form 10-K filed with the Securities and
Exchange Commission on March 30, 1995, and incorporated herein
by reference.)
10.3 Assignment of Property Management Agreement from CNL Income
Fund Advisors, Inc. to CNL Fund Advisors, Inc. (Included as
Exhibit 10.3 to Form 10-K filed with the Securities and
Exchange Commission on April 1, 1996, and incorporated herein
by reference.)
27 Financial Data Schedule (Filed herewith.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund IV, Ltd. at December 31, 1998, and its statement of
income for the year then ended and is qualified in its entirety by reference to
Form 10-K of CNL Income FUnd IV, Ltd. for the year ended December 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,276,656<F2>
<SECURITIES> 0
<RECEIVABLES> 283,317
<ALLOWANCES> 258,641
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 19,231,068
<DEPRECIATION> 3,744,609
<TOTAL-ASSETS> 21,189,833
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,340,000
<TOTAL-LIABILITY-AND-EQUITY> 21,189,833
<SALES> 0
<TOTAL-REVENUES> 2,375,840
<CGS> 0
<TOTAL-COSTS> 690,271
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,821,449
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,821,449
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,821,449
<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.
<F2>Includes $537,274 in restricted cash.
</FN>
</TABLE>
