FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended March 31, 2000
--------------------------------------------------------------------------
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
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- ------------------------------------ -----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
<PAGE>
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets
Condensed Statements of Income
Condensed Statements of Partners' Capital
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II.
Other Information
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------------- -------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $4,251,468 and
$4,150,097, respectively $ 14,979,600 $ 15,080,971
Net investment in direct financing leases 1,178,299 1,189,488
Investment in joint ventures 3,303,806 3,332,012
Cash and cash equivalents 718,517 725,493
Receivables, less allowance for doubtful accounts
of $223,053 and $215,029, respectively 85,394 141,675
Prepaid expenses 3,722 15,383
Lease costs, less accumulated amortization of
$27,315 and $26,113, respectively 27,829 29,031
Accrued rental income 318,758 314,266
------------------- -------------------
$ 20,615,925 $ 20,828,319
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 38,258 $ 91,074
Accrued and escrowed real estate taxes payable 68,715 63,585
Distributions payable 600,000 600,000
Due to related parties 218,858 241,509
Rents paid in advance and deposits 92,005 64,792
------------------- -------------------
Total liabilities 1,017,836 1,060,960
Partners' capital 19,598,089 19,767,359
------------------- -------------------
$ 20,615,925 $ 20,828,319
=================== ===================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended
March 31,
2000 1999
-------------- ---------------
Revenues:
Rental income from operating leases $ 529,597 $ 496,533
Earned income from direct financing leases 30,036 31,126
Contingent rental income 9,083 8,243
Interest and other income 25,899 9,918
-------------- ---------------
594,615 545,820
-------------- ---------------
Expenses:
General operating and administrative 41,211 40,438
Bad debt expense 13,955 --
Professional services 15,607 10,000
Real estate taxes 5,079 5,279
State and other taxes 17,422 15,395
Depreciation and amortization 102,573 102,531
Transaction costs 34,917 33,018
-------------- ---------------
230,764 206,661
-------------- ---------------
Income Before Equity in Earnings of Joint Ventures 363,851 339,159
Equity in Earnings of Joint Ventures 66,879 73,674
-------------- ---------------
-------------- ---------------
Net Income $ 430,730 $ 412,833
============== ===============
Allocation of Net Income:
General partners $ 4,307 $ 4,128
Limited partners 426,423 408,705
-------------- ---------------
$ 430,730 $ 412,833
============== ===============
Net Income per Limited Partner Unit $ 7.11 $ 6.81
============== ===============
Weighted Average Number of Limited Partner
Units Outstanding 60,000 60,000
============== ===============
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Quarter Ended Year Ended
March 31, December 31,
2000 1999
------------------- ------------------
General partners:
Beginning balance $ 787,351 $ 769,078
Net income 4,307 18,273
------------------- ------------------
791,658 787,351
------------------- ------------------
Limited partners:
Beginning balance 18,980,008 19,570,922
Net income 426,423 1,809,086
Distributions ($10.00 and $40.00 per
limited partner unit, respectively) (600,000 ) (2,400,000 )
------------------- ------------------
18,806,431 18,980,008
------------------- ------------------
Total partners' capital $ 19,598,089 $ 19,767,359
=================== ==================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
2000 1999
-------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 593,024 $ 564,831
-------------- ---------------
Cash Flows from Investing Activities:
Investment in joint ventures -- (533,200 )
Decrease in restricted cash -- 533,598
Payment of lease costs -- (15,600 )
-------------- ---------------
-------------- ---------------
Net cash used in investing activities -- (15,202 )
-------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (600,000 ) (600,000 )
-------------- ---------------
Net cash used in financing activities (600,000 ) (600,000 )
-------------- ---------------
Net Decrease in Cash and Cash Equivalents (6,976 ) (50,371 )
Cash and Cash Equivalents at Beginning of Quarter 725,493 739,382
-------------- ---------------
Cash and Cash Equivalents at End of Quarter $ 718,517 $ 689,011
============== ===============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end
of quarter $ 600,000 $ 600,000
============== ===============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 2000 and 1999
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter ended March 31, 2000, may not be indicative of the results
that may be expected for the year ending December 31, 2000. Amounts as
of December 31, 1999, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund IV, Ltd. (the "Partnership") for the year ended December
31, 1999.
2. Termination of Merger
On March 1, 2000, the general partners and CNL American Properties
Fund, Inc. ("APF") mutually agreed to terminate the Agreement and Plan
of Merger entered into in March 1999. The general partners are
continuing to evaluate strategic alternatives for the Partnership,
including alternatives to provide liquidity to the limited partners.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund IV, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on November 18, 1987, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurant properties, as well as land upon which restaurants were to
be constructed, which are leased primarily to operators of national and regional
fast-food and family-style restaurant chains (collectively, the "Properties").
The leases generally are triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of March
31, 2000, the Partnership owned 38 Properties, which included interests in six
Properties owned by joint ventures in which the Partnership is a co-venturer and
two Properties owned with affiliates as tenants-in-common.
Capital Resources
During the quarters ended March 31, 2000 and 1999, the Partnership
generated cash from operations (which includes cash received from tenants,
distributions from joint ventures, and interest and other income received, less
cash paid for expenses) of $593,024 and $564,831, respectively. The increase in
cash from operations for the quarter ended March 31, 2000 was primarily a result
of changes in the Partnership's working capital and changes in income and
expenses as described in "Results of Operations" below.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments such as
demand deposit accounts at commercial banks, certificates of deposit, and money
market accounts with less than a 30-day maturity date, pending the Partnership's
use of such funds to pay Partnership expenses or to make distributions to the
partners. At March 31, 2000, the Partnership had $718,517 invested in such
short-term investments, as compared to $725,493 at December 31, 1999. The funds
remaining at March 31, 2000 will be used to pay distributions and other
liabilities.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
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.
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.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and anticipated future cash from operations, the Partnership
declared distributions to limited partners of $600,000 for each of the quarters
ended March 31, 2000 and 1999, respectively. This represents distributions for
each applicable quarter of $10.00 per unit. No distributions were made to the
general partners for the quarters ended March 31, 2000 and 1999. No amounts
distributed to the limited partners for the quarters ended March 31, 2000 and
1999 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.
Total liabilities of the Partnership, including distributions payable,
decreased to $1,017,836 at March 31, 2000 from $1,060,960 at December 31, 1999,
partially as a result of a decrease in accounts payable. The decrease was
partially offset by an increase in rents paid in advance at March 31, 2000, as
compared to December 31, 1999. Total liabilities at March 31, 2000, to the
extent they exceed cash and cash equivalents at March 31, 2000, will be paid
from future cash from operations, and in the event the general partners elect to
make additional contributions, from general partners' contributions.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the quarters ended March 31, 2000 and 1999, the Partnership
owned and leased 30 wholly owned Properties, generally to operators of fast-food
and family-style restaurant chains. In connection therewith, during the quarters
ended March 31, 2000 and 1999, the Partnership earned $559,633 and $527,659,
respectively, in rental income from operating leases and earned income from the
direct financing leases from these Properties. The increase in rental and earned
income during the quarter ended March 31, 2000, as compared to March 31, 1999,
was primarily attributable to the fact that during the quarter ended March 31,
2000, the Partnership collected and recognized as income approximately $78,500
in past due rental amounts from the guarantor of the former tenant of the
Property in Palm Bay, Florida. The former tenant vacated the Property in October
1997. In February 1998, the Partnership entered into a new lease with a new
tenant for this Property.
The increase in rental and earned income was partially offset by a
decrease of approximately $22,200 during the quarter ended March 31, 2000, as
compared to the quarter ended March 31, 1999, due to the fact that during the
quarter ended March 31, 2000, the Partnership established an allowance for
doubtful accounts for past due rental amounts relating to two Properties in
accordance with the Partnership's policy. The general partners will continue to
pursue collection of past due rental amounts relating to these Properties and
will recognize such amounts as income if collected. No such allowance was
recorded during the quarter ended March 31, 1999.
The increase in rental and earned income was also partially offset by a
decrease in rental and earned income of $19,500 due to the fact that the
Partnership established an allowance for doubtful accounts for past due rental
amounts relating to the Partnership's Property in Topeka, Kansas. The tenant of
this Property vacated the Property in December 1999 and ceased making rental
payments in accordance with the terms of the lease. The Partnership is currently
seeking either a replacement tenant of purchaser for this Property. The general
partners will continue to pursue collection of past due rental amounts relating
to this Property and will recognize such amounts as income if collected.
During the quarters ended March 31, 2000 and 1999, the Partnership
owned and leased six Properties through joint venture arrangements and two
Properties as tenants-in-common with affiliates of the general partners. In
connection therewith, during the quarters ended March 31, 2000 and 1999, the
Partnership earned $66,879 and $73,674, respectively, attributable to the net
income earned by these joint ventures. Net income earned by joint ventures
during the quarter ended March 31, 2000, was less than that earned during the
quarter ended March 31, 1999, due to the fact that Auburn Joint Venture adjusted
estimated contingent rental amounts accrued at December 31, 1999, to actual
amounts received during the quarter ended March 31, 2000.
Operating expenses, including depreciation and amortization, were
$230,764 and $206,661 for the quarters ended March 31, 2000 and 1999,
respectively. The increase in operating expenses during the quarter ended March
31, 2000, was primarily due to the fact that during the quarter ended March 31,
2000, the Partnership recorded bad debt expense relating to past due rental
amounts for the Partnership's Property in Topeka, Kansas. The tenant vacated
this Property and ceased operations in December 1999. The general partners will
continue to pursue collection of past due rental amounts relating to this
Property and will recognize such amounts as income if collected. The general
partners are currently seeking either a new tenant or purchaser for this
Property.
Termination of Merger
On March 1, 2000, the general partners and CNL American Properties
Fund, Inc. ("APF") mutually agreed to terminate the Agreement and Plan of Merger
entered into in March 1999. The general partners are continuing to evaluate
strategic alternatives for the Partnership, including alternatives to provide
liquidity to the limited partners.
Dismissal of Legal Action
As described in greater detail in Part II, Item 1 ("Legal
Proceedings"), in 1999 two groups of limited partners in several CNL Income
Funds filed purported class action suits against the general partners and APF
alleging, among other things, that the general partners had breached their
fiduciary duties in connection with the proposed Merger. These actions were
later consolidated into one action. On April 25, 2000, the judge in the
consolidated action issued a Stipulated Final Order of Dismissal of Consolidated
Action, dismissing the action without prejudice, with each party to bear its own
costs and attorneys' fees.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8,
1999, the plaintiffs filed an amended complaint which, in addition
to naming three additional plaintiffs, includes allegations of
aiding and abetting and conspiring to breach fiduciary duties,
negligence and breach of duty of good faith against certain of the
defendants and seeks additional equitable relief. As amended, the
caption of the case is Jon Hale, Mary J. Hewitt, Charles A.
Hewitt, Gretchen M. Hewitt, Bernard J. Schulte, Edward M. and
Margaret Berol Trust, and Vicky Berol v. James M. Seneff, Jr.,
Robert A. Bourne, CNL Realty Corporation, and CNL American
Properties Fund, Inc., Case No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999
against the general partners and APF, Ira Gaines, individually and
on behalf of a class of persons similarly situated, v. CNL
American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc., CNL
Financial Corporation a/k/a CNL Financial Corp., CNL Financial
Services, Inc. and CNL Group, Inc., Case NO. CIO-99-3796, in the
Circuit Court of the Ninth Judicial Circuit of Orange County,
Florida, alleging that the general partners breached their
fiduciary duties and that APF aided and abetted their breach of
fiduciary duties in connection with the proposed Merger. The
plaintiff is seeking unspecified damages and equitable relief.
On September 23, 1999, Judge Lawrence Kirkwood entered an order
consolidating the two cases under the caption In re: CNL Income
Funds Litigation, Case No. 99-3561. Pursuant to this order, the
plaintiffs in these cases filed a consolidated and amended
complaint on November 8, 1999. On December 22, 1999, the general
partners and CNL Group, Inc. filed motions to dismiss and motions
to strike. On December 28, 1999, APF and CNL Fund Advisors, Inc.
filed motions to dismiss. On March 6, 2000, all of the defendants
filed a Joint Notice of Filing Form 8-K Reports and Suggestion of
Mootness.
On April 25, 2000, Judge Kirkwood issued a Stipulated Final Order
of Dismissal of Consolidated Action, dismissing the action without
prejudice, with each party to bear its own costs and attorneys'
fees.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
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.)
<PAGE>
(b) Reports on Form 8-K
A Current Report on Form 8-K dated February 23, 2000 was filed on March 1,
2000, describing the termination of the proposed merger of the Partnership
with and into a subsidiary of CNL American Properties Fund, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 9th day of May, 2000.
CNL INCOME FUND IV, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
------------------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
------------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund IV, Ltd. at March 31, 2000, and its statement of income
for the three months then ended and is qualified in its entirety by reference to
the Form 10-Q of CNL Income Fund IV, Ltd. for the three months ended March 31,
2000.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 718,517
<SECURITIES> 0
<RECEIVABLES> 308,447
<ALLOWANCES> 223,053
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 19,231,068
<DEPRECIATION> 4,251,468
<TOTAL-ASSETS> 20,615,925
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,598,089
<TOTAL-LIABILITY-AND-EQUITY> 20,615,925
<SALES> 0
<TOTAL-REVENUES> 594,615
<CGS> 0
<TOTAL-COSTS> 216,809
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,955
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 430,730
<INCOME-TAX> 0
<INCOME-CONTINUING> 430,730
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 430,730
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> Due to the nature of its industry, CNL Income Fund IV, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
