FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
-------------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number
0-19141
----------------------------
CNL Income Fund V, Ltd.
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2922869
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 E. South Street
Orlando, Florida 32801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4-5
Notes to Condensed Financial Statements 6-10
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 11-18
Part II
Other Information 19
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------------- ------------------
<S> <C>
ASSETS
Land and buildings on operating leases,
less accumulated depreciation and
allowance for loss on land and buildings $10,855,678 $12,421,143
Net investment in direct financing leases 1,717,763 2,277,481
Investment in joint ventures 2,231,902 1,558,709
Mortgage notes receivable, less deferred
gain of $320,536 and $323,157 1,742,233 1,758,167
Cash and cash equivalents 481,185 1,361,290
Receivables, less allowance for doubtful
accounts of $152,102 and $137,892 61,221 108,261
Prepaid expenses 8,458 9,307
Accrued rental income 221,988 169,726
Other assets 54,346 54,346
----------------- -----------------
$17,374,774 $19,718,430
================= =================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 2,315 $ 24,229
Accrued construction costs payable -- 125,000
Accrued and escrowed real estate
taxes payable 17,217 93,392
Distributions payable 500,000 575,000
Due to related parties 216,395 143,867
Rents paid in advance 35,485 13,479
----------------- -----------------
Total liabilities 771,412 974,967
Minority interest 209,524 222,929
Partners' capital 16,393,838 18,520,534
----------------- -----------------
$17,374,774 $19,718,430
================= =================
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---------- ---------- ----------- -----------
<S> <C>
Revenues:
Rental income from operating leases $287,742 $344,772 $ 875,920 $1,042,771
Earned income from direct financing leases 50,326 33,396 152,669 117,863
Contingent rental income 10,084 15,404 33,412 68,056
Interest and other income 58,791 93,169 223,647 227,320
----------- ---------- ------------ ------------
406,943 486,741 1,285,648 1,456,010
----------- ---------- ------------ ------------
Expenses:
General operating and administrative 35,693 52,181 113,010 128,730
Bad debt expense -- -- 5,882 9,007
Professional services 3,235 4,866 13,314 17,695
Real estate taxes 10,138 10,776 26,558 32,298
State and other taxes -- -- 9,658 11,897
Depreciation 71,743 82,425 201,720 249,225
----------- ---------- ------------ ------------
120,809 150,248 370,142 448,852
----------- ---------- ------------ ------------
Income Before Minority Interest in Loss of
Consolidated Joint Venture, Equity in
Earnings of Unconsolidated Joint Ventures,
Gain on Sale of Land and Buildings and
Provision for Loss on Land and Buildings 286,134 336,493 915,506 1,007,158
Minority Interest in Loss of Consolidated
Joint Venture 3,955 6,092 13,405 16,124
Equity in Earnings of Unconsolidated Joint Ventures 40,315 11,144 112,418 33,549
Gain on Sale of Land and Buildings 838 267,076 443,443 369,570
Provision for Loss on Land and Buildings (120,508 ) -- (273,141 ) (142,990 )
----------- ---------- ------------ ------------
Net Income $210,734 $620,805 $1,211,631 $1,283,411
=========== ========== ============ ============
Allocation of Net Income:
General partners $ 179 $ 6,060 $ 6,534 $ 10,548
Limited partners 210,555 614,745 1,205,097 1,272,863
----------- ---------- ------------ ------------
$210,734 $620,805 $1,211,631 $1,283,411
=========== ========== ============ ============
Net Income Per Limited Partner Unit $ 4.21 $ 12.29 $ 24.10 $ 25.46
=========== ========== ============ ============
Weighted Average Number of Limited
Partner Units Outstanding 50,000 50,000 50,000 50,000
=========== ========== ============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1998 1997
--------------------------- ----------------
<S> <C>
General partners:
Beginning balance $ 493,982 $ 376,173
Contributions -- 106,000
Net income 6,534 11,809
---------------- ---------------
500,516 493,982
---------------- ---------------
Limited partners:
Beginning balance 18,026,552 18,606,446
Net income 1,205,097 1,720,106
Distributions ($66.77 and
$46.00 per limited partner
unit, respectively) (3,338,327 ) (2,300,000 )
---------------- ---------------
15,893,322 18,026,552
---------------- ---------------
Total partners' capital $16,393,838 $18,520,534
================ ===============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
--------------- ---------------
<S> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating Activities $ 1,230,725 $ 1,297,828
---------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 2,125,220 4,082,166
Additions to land and buildings on
operating leases (125,000 ) (120,365 )
Investment in joint venture (713,480 ) --
Collections on mortgage notes receivable 15,757 5,503
Increase in restricted cash -- (2,487,115 )
---------------- ---------------
Net cash provided by investing
activities 1,302,497 1,480,189
---------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (3,413,327 ) (1,725,000 )
---------------- ---------------
Net cash used in financing
activities (3,413,327 ) (1,725,000 )
---------------- ---------------
Net Increase (Decrease) in Cash and Cash
Equivalents (880,105 ) 1,053,017
Cash and Cash Equivalents at Beginning
of Period 1,361,290 362,922
---------------- ---------------
Cash and Cash Equivalents at End of
Period $ 481,185 $ 1,415,939
================ ===============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
--------------- ---------------
<S> <C>
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Net investment in direct financing
lease reclassified to land and
building on operating lease as a
result of lease termination $ 530,498 $ --
================ ================
Deferred real estate disposition fees
incurred and unpaid at end of period $ 65,400 $ --
================ ================
Distributions declared and unpaid at
end of period $ 500,000 $ 575,000
================ ================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1998 and 1997
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and nine months ended September 30, 1998, may not be
indicative of the results that may be expected for the year ending
December 31, 1998. Amounts as of December 31, 1997, included in the
financial statements, have been derived from audited financial
statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund V, Ltd. (the "Partnership") for the year ended December 31,
1997.
The Partnership accounts for its 66.5% interest in CNL/Longacre Joint
Venture using the consolidation method. Minority interest represents
the minority joint venture partner's proportionate share of the equity
in the Partnership's consolidated joint venture. All significant
intercompany accounts and transactions have been eliminated.
In May 1998, the Financial Accounting Standards Board reached a
consensus in EITF 98-9, entitled "Accounting for Contingent Rent in the
Interim Financial Periods." Adoption of this consensus did not have a
material effect on the Partnership's financial position or results of
operations.
2. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------- -------------------
<S> <C>
Land $ 5,340,524 $ 6,069,665
Buildings 7,869,209 8,546,530
----------------- ----------------
13,209,733 14,616,195
Less accumulated depreciation (1,830,220 ) (1,944,358 )
----------------- ----------------
11,379,513 12,671,837
Less allowance for loss on land
and buildings (523,835 ) (250,694 )
----------------- ----------------
$10,855,678 $12,421,143
================= ================
</TABLE>
6
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
2. Land and Buildings on Operating Leases - Continued:
During the nine months ended September 30, 1998, the Partnership sold
its properties in Port Orange, Florida, and Tyler, Texas to the tenants
for a total of $2,180,000 and received net sales proceeds of
$2,125,220, resulting in a total gain of $440,822 for financial
reporting purposes. These properties were originally acquired by the
Partnership in 1988 and 1989 and had costs totaling approximately
$1,791,300, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold these properties for a total
of approximately $333,900 in excess of their original purchase prices.
In connection with the sale of the properties, the Partnership incurred
deferred, subordinated, real estate disposition fees of $65,400 (see
Note 6).
As of December 31, 1997, the Partnership had established an allowance
for loss on land and buildings of $250,694, for financial reporting
purposes, relating to the properties in Belding, Michigan and Lebanon,
New Hampshire. During the nine months ended September 30, 1998, the
Partnership increased the allowance by $152,633 for the property in
Belding, Michigan. In addition, during the nine months ended September
30, 1998, the Partnership established an allowance for loss on land and
building of $120,508, relating to the property located in Daleville,
Indiana. The allowances represent the difference between the net
carrying values of the properties at September 30, 1998 and current
estimates of net realizable values for these properties.
3. Net Investment in Direct Financing Leases:
During the nine months ended September 30, 1998, the Partnership
terminated its lease with the tenant of the property in Daleville,
Indiana. As a result, the Partnership reclassified these assets from
net investment in direct financing lease to land and building on
operating lease. In accordance with Statement of Financial Accounting
Standards #13, "Accounting for Leases," the Partnership recorded the
reclassified assets at the lower of original cost, present fair value,
or present carrying value. No loss on termination of direct financing
lease was recorded for financial reporting purposes.
4. Investment in Joint Ventures:
In May 1998, the Partnership entered into a joint venture arrangement,
RTO Joint Venture, with an affiliate of the general partners, to
construct and hold one restaurant property. As of September 30, 1998,
the Partnership had contributed $713,480 to purchase land and pay for
construction relating to the joint venture. As of September 30, 1998,
the Partnership has agreed to contribute approximately $40,900 in
additional construction costs to the joint venture. When construction
is completed, the Partnership
7
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
4. Investment in Joint Ventures - Continued:
will have an approximate 53 percent 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 an affiliate.
The following presents the combined, condensed financial information
for all of the Partnership's joint ventures and properties held as
tenants-in-common at:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------- -------------------
<S> <C>
Land and buildings on operating
leases, less accumulated depreciation $4,817,939 $4,277,972
Net investment in direct financing
leases 802,097 --
Cash 14,653 24,994
Receivables 527 4,417
Prepaid expenses 458 270
Accrued rental income 97,074 68,819
Liabilities 105,316 1,250
Partners' capital 5,627,432 4,375,222
Revenues 386,391 151,242
Net income 305,686 121,605
</TABLE>
The Partnership recognized income totaling $112,418 and $33,549 for the
nine months ended September 30, 1998 and 1997, respectively, from these
joint ventures, $40,315 and $11,144 of which was earned during the
quarters ended September 30, 1998 and 1997, respectively.
5. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of properties, 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, noncompounded annual return on their adjusted
capital contributions (the "10% Preferred Return") on a cumulative
basis.
8
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
5. Allocations and Distributions - Continued:
Generally, net sales proceeds from the sale of properties, to the
extent distributed, will be distributed first to the limited partners
in an amount sufficient to provide them with the 10% Preferred Return,
on a cumulative basis, plus the return of their adjusted capital
contributions. The general partners will then receive, to the extent
previously subordinated and unpaid, a one percent interest in all prior
distributions of net cash flow and a return of their capital
contributions. Any remaining sales proceeds will be distributed 95
percent to the limited partners and five percent to the general
partners.
Any gain from the sale of a property is, in general, allocated in the
same manner as net sales proceeds are distributable. Any loss from the
sale of a property is, in general, allocated first, on a pro rata
basis, to partners with positive balances in their capital accounts;
and thereafter, 95 percent to the limited partners and five percent to
the general partners.
During the nine months ended September 30, 1998 and 1997, the
Partnership declared distributions to the limited partners of
$3,338,327 and $1,725,000, respectively, ($500,000 and $575,000 for the
quarters ended September 30, 1998 and 1997, respectively). This
represents distributions for the nine months ended September 30, 1998
and 1997, of $66.77 and $34.50 per unit, respectively ($10.00 and
$11.50 per unit for the quarters ended September 30, 1998 and 1997,
respectively). Distributions for the nine months ended September 30,
1998, included $1,838,327 as a result of the distribution of net sales
proceeds from the 1997 and 1998 sales of the properties in Tampa and
Port Orange, Florida. This amount was applied toward the limited
partners' cumulative 10% Preferred Return. No distributions have been
made to the general partners to date.
6. Related Party Transactions:
An affiliate of the Partnership is 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. Payment of the real estate disposition fee is subordinated to
receipt by the limited partners of their aggregate cumulative 10%
Preferred Return, plus their adjusted capital contributions. For the
nine months ended September 30, 1998, the Partnership incurred $65,400
in deferred, subordinated, real estate disposition fees as a result of
the sale of properties (see Note 2). No deferred, subordinated, real
estate disposition fees were incurred for the nine months ended
September 30, 1997.
9
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
7. 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, earned and interest income (including the
Partnership's share of total rental and earned income from joint
ventures and the properties held as tenants-in-common), for at least
one of the nine months ended September 30:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C>
Golden Corral Corporation $146,633 $146,633
Slaymaker Group, Inc. 139,005 --
DenAmerica, Inc. 95,713 127,484
Shoney's, Inc. 83,051 180,044
Tampa Foods, L.P. 70,219 133,923
</TABLE>
In addition, the following schedule presents total rental, earned and
interest income from individual restaurant chains, each representing
more than ten percent of the Partnership's total rental, earned income
and interest income from its properties (including the Partnership's
share of total rental and earned income from joint ventures and the
properties held as tenants-in-common) and mortgage notes for at least
one of the nine months ended September 30:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C>
Golden Corral Family Steakhouse
Restaurants $146,633 $146,633
Tony Roma's Famous for Ribs 139,005 --
Wendy's Old Fashioned
Hamburger Restaurants 128,616 193,319
Denny's 103,736 228,498
Perkins 77,728 280,805
</TABLE>
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 one of these lessees
could significantly impact the results of operations of the
Partnership. However, the general partners believe that the risk of
such a default is reduced due to the essential or important nature of
these properties for the on-going operations of the lessees.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund V, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 17, 1988, 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 are generally triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of
September 30, 1998, the Partnership owned 28 Properties which included interests
in four Properties owned by joint ventures in which the Partnership is a
co-venturer and two Properties owned with affiliates as tenants-in-common.
Liquidity and Capital Resources
During the nine months ended September 30, 1998 and 1997, the
Partnership generated cash from operations (which includes cash received from
tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses) of $1,230,725 and $1,297,828,
respectively. The decrease in cash from operations for the nine months ended
September 30, 1998, is primarily a result of changes in the Partnership's
working capital and changes in income and expenses as described in "Results of
Operations" below.
Other sources and uses of capital included the following during the
nine months ended September 30, 1998.
In July 1997, the Partnership entered into a new lease for the Property
in Connersville, Indiana, with a new tenant to operate the Property as an Arby's
restaurant. In connection therewith, during the nine months ended September 30,
1998, the Partnership paid $125,000 in renovation costs, which had been incurred
and accrued as construction costs payable at December 31, 1997.
During the nine months ended September 30, 1998, the Partnership sold
its Properties in Port Orange, Florida, and Tyler, Texas to the tenants for a
total of $2,180,000 and received net sales proceeds of $2,125,220, resulting in
a total gain of $440,822 for financial reporting purposes. These Properties were
originally acquired by the Partnership in 1988 and 1989 and had costs totaling
approximately $1,791,300, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Properties for
approximately $333,900 in excess of their original purchase prices. In
connection with the sales, the Partnership incurred deferred, subordinated, real
estate disposition fees of $65,400. The Partnership distributed $1,838,327 of
the net sales proceeds from the 1997 and 1998 sales of the Properties in Tampa
and Port Orange, Florida, respectively, as a special distribution to the limited
partners in April 1998. In addition, in May 1998, the Partnership contributed
the remainder of the net sales proceeds from the sale of the Property in Tyler,
Texas in a joint venture arrangement as described below. The Partnership
anticipates that it will distribute amounts sufficient to enable the limited
partners to pay federal and state income taxes, if any (at a level reasonably
assumed by
11
<PAGE>
Liquidity and Capital Resources - Continued
the general partners), resulting from the sale of the Properties in Port Orange,
Florida and Tyler, Texas. The Partnership will use the remaining net sales
proceeds to fund additional amounts to RTO Joint Venture, as described below,
and to meet the Partnership's working capital and other Partnership's purposes.
As described above, in May 1998, the Partnership entered into a joint
venture, RTO Joint Venture, a joint venture with an affiliate of the general
partners, to construct and hold one restaurant Property. As of September 30,
1998, the Partnership had contributed $713,480 to purchase land and pay for
construction relating to the joint venture. As of September 30, 1998, the
Partnership has agreed to contribute approximately $40,900 in construction costs
to the joint venture. When construction is completed, the Partnership expects to
have an approximate 53 percent interest in the profits and losses of the joint
venture.
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 September 30, 1998, the Partnership had
$481,185 invested in such short-term investments as compared to $1,361,290 at
December 31, 1997. The decrease in cash and cash equivalents is primarily
attributable to the fact that the Partnership distributed amounts held at
December 31, 1997 relating to the net sales proceeds received from the 1997 sale
of the Property in Tampa, Florida, as a special distribution to the limited
partners during the nine months ended September 30, 1998, as described below.
The funds remaining at September 30, 1998, will be used to pay distributions and
other liabilities.
Total liabilities of the Partnership decreased to $771,412 at September
30, 1998, from $974,967 at December 31, 1997, partially due to a decrease in
construction costs payable as a result of the payment during the nine months
ended September 30, 1998, of construction costs accrued at December 31, 1997,
for renovation costs relating to the Partnership's Property located in
Connorsville, Indiana, as described above. The decrease in liabilities is also
partially attributable to a decrease in distributions payable to the limited
partners at September 30, 1998 as compared to December 31, 1997. Total
liabilities at September 30, 1998, to the extent they exceed cash and cash
equivalents at September 30, 1998, will be paid from future cash from
operations.
Based on current and anticipated future cash from operations, and for
the nine months ended September 30, 1998, proceeds received from the sales of
Properties, the Partnership declared distributions to limited partners of
$3,338,327 and $1,725,000 for the nine months ended September 30, 1998 and 1997,
respectively ($500,000 and $575,000 for the quarters ended September 30, 1998
and 1997, respectively). This represents distributions for the nine months ended
September 30, 1998 and 1997 of $66.77 and $34.50 per unit, respectively ($10.00
and $11.50 per unit for the quarters ended September 30, 1998 and 1997,
respectively). Distributions for the nine months ended September 30, 1998,
included $1,838,327 as a result of the distribution of net sales proceeds from
the sale of Properties, as described above. This special distribution was
effectively a return of a portion of the limited partners' investment, although,
in
12
<PAGE>
Liquidity and Capital Resources - Continued
accordance with the Partnership agreement, it was applied to the limited
partners' unpaid cumulative preferred return. As a result of the sale of the
Properties, the Partnership's total revenue was reduced, while the majority of
the Partnership's operating expenses remained fixed. Therefore, distributions of
net cash flow were adjusted for the quarter and nine months ended September 30,
1998. No distributions were made to the general partners for the quarters and
nine months ended September 30, 1998 and 1997. No amounts distributed to the
limited partners for the nine months ended September 30, 1998 and 1997, are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the limited partners' return on their adjusted
capital contributions. The Partnership intends to continue to make distributions
of cash available for distribution to the limited partners on a quarterly basis.
The general partners have been informed by CNL American Properties
Fund, Inc. ("APF"), an affiliate of the general partners, that it intends to
significantly increase its asset base by proposing to acquire affiliates of the
general partners which have similar restaurant property portfolios, including
the Partnership. 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. Accordingly, the
general partners anticipate that APF will make an offer to acquire the
Partnership in exchange for securities of APF. The general partners have
recently retained financial and legal advisors to assist them in evaluating and
negotiating any offer that may be proposed by APF. However, at this time, APF
has made no such offer. In the event that an offer is made, the general partners
will evaluate it and if the general partners believe that the offer is worth
pursuing, the general partners will promptly inform the limited partners. Any
agreement to sell the Partnership would be subject to the approval of the
limited partners in accordance with the terms of the partnership agreement.
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.
Results of Operations
During the nine months ended September 30, 1997, the Partnership and
its consolidated joint venture, CNL/Longacre Joint Venture, owned and leased 26
wholly owned Properties (including six Properties which were sold during 1997)
and during the nine months ended September 30, 1998, the Partnership and
CNL/Longacre Joint Venture owned and leased 25 wholly owned Properties
(including two Properties sold in 1998), to operators of fast-food and
family-style restaurant chains. In connection therewith, during the nine months
ended September 30, 1998 and 1997, the Partnership and CNL/Longacre Joint
Venture earned $1,028,589 and $1,160,634, respectively, in rental income from
operating leases and earned income from direct
13
<PAGE>
Results of Operations - Continued
financing leases, $338,068 and $378,168 of which was earned during the quarters
ended September 30, 1998 and 1997, respectively. Rental and earned income
decreased approximately $142,600 and $481,600 during the quarter and nine months
ended September 30, 1998, respectively, as compared to the quarter and nine
months ended September 30, 1997, as a result of the sales of Properties during
1997 and 1998. The decrease in rental and earned income was partially offset by
an increase of approximately $81,200 and $243,600 during the quarter and nine
months ended September 30, 1998, respectively, due to the reinvestment of a
portion of net sales proceeds from the 1997 sales, in two Properties in Houston,
Texas and Sandy, Utah, in November 1997 and December 1997, respectively.
The decrease in rental income was partially offset by the fact that
during the nine months ended September 30, 1997, the Partnership increased its
allowance for doubtful accounts for the Properties located in Connorsville and
Richmond, Indiana, due to financial difficulties the tenant was experiencing. No
such allowance was established during the nine months ended September 30, 1998,
due to the fact that the Partnership re-leased the Property located in
Connorsville, Indiana, to a new tenant for which rent commenced subsequent to
September 30, 1997 and sold the Property located in Richmond, Indiana in
November 1997.
Rental and earned income also decreased during the quarter and nine
months ended September 30, 1998, by approximately $9,000 and $26,300,
respectively, due to the fact that in August 1998, the Partnership retroactively
terminated the lease with the tenant of the Property in Daleville, Indiana. The
Partnership is currently seeking a new tenant or purchaser for this Property.
Rental and earned income are expected to remain at reduced amounts until such
time as the Partnership executes a new lease or until the Property is sold and
the proceeds from such sale is reinvested in an additional Property.
Rental and earned income during the nine months ended September 30,
1998 and 1997, continued to remain at reduced amounts due to the fact that the
Partnership is not receiving any rental income relating to the Properties in
Belding, Michigan, and Lebanon, New Hampshire. The general partners are
currently seeking purchasers or new tenants for these Properties. Rental and
earned income are expected to remain at reduced amounts until such time as the
Partnership executes new leases for these Properties or until the Properties are
sold and the proceeds from such sales are reinvested in additional Properties.
For the nine months ended September 30, 1998 and 1997, the Partnership
also earned $33,412 and $68,056, respectively, in contingent rental income,
$10,084 and $15,404 which were earned during the quarters ended September 30,
1998 and 1997, respectively. The decrease in contingent rental income during the
quarter and nine months ended September 30, 1998, as compared to the quarter and
nine months ended September 30, 1997, is primarily attributable to Property
sales during 1997 and 1998 and decreases in restaurant sales of Properties, the
leases of which require the payment of contingent rental income.
14
<PAGE>
Results of Operations - Continued
During the nine months ended September 30, 1997, the Partnership owned
and leased two Properties indirectly through other joint venture arrangements.
During the nine months ended September 30, 1998, the Partnership owned and
leased two Properties as tenants-in-common with affiliates of the general
partners and three Properties indirectly through joint venture arrangements. In
connection therewith, during the nine months ended September 30, 1998 and 1997,
the Partnership earned $112,418 and $33,549, respectively, attributable to net
income earned by unconsolidated joint ventures in which the Partnership is a
co-venturer, $40,315 and $11,144 of which were earned during the quarters ended
September 30, 1998 and 1997, respectively. The increase in net income earned by
these joint ventures during the quarter and nine months ended September 30,
1998, as compared to the quarter and nine months ended September 30, 1997, is
primarily attributable to the fact that subsequent to September 30, 1997, the
Partnership reinvested a portion of the net sales proceeds it received from the
1997 and 1998 sales of several Properties in two Properties in Mesa, Arizona and
Vancouver, Washington, with affiliates of the general partners as
tenants-in-common and acquired an interest in RTO Joint Venture with an
affiliate of the general partners, as described above in "Liquidity and Capital
Resources."
During at least one of the nine months ended September 30, 1998 and
1997, five lessees of the Partnership and its consolidated joint venture, Golden
Corral Corporation, Slaymaker Group, Inc., DenAmerica, Inc., Shoney's, Inc., and
Tampa Foods, L.P., each contributed more than ten percent of the Partnership's
total rental income (including rental income from the Partnership's consolidated
joint venture, the Partnership's share of the rental income from Properties
owned by unconsolidated joint ventures in which the Partnership is a co-venturer
and Properties owned with affiliates as tenants-in-common). As of September 30,
1998, Golden Corral Corporation was the lessee under the leases relating to two
restaurants, Slaymaker Group, Inc. was the lessee under a lease relating to one
restaurant, DenAmerica, Inc. was the lessee under leases relating to two
restaurants, Shoney's, Inc. was the lessee under the leases relating to two
restaurants, and Tampa Foods, L.P. was the lessee under the leases relating to
one restaurant. It is anticipated that based on the minimum rental payments
required by the leases, Slaymaker Group, Inc. and Golden Corral Corporation each
will continue to contribute more than ten percent of the Partnership's total
rental income during the remainder of 1998 and subsequent years. In addition,
during at least one of the nine months ended September 30, 1998 and 1997, five
restaurant chains, Golden Corral Family Steakhouse Restaurants ("Golden
Corral"), Wendy's Old Fashioned Hamburger Restaurants ("Wendy's"), Tony Roma's
Famous for Ribs Restaurant ("Tony Roma's"), Denny's, and Perkins each accounted
for more than ten percent of the Partnership's total rental income. It is
anticipated that, based on the minimum rental payments required by the leases,
Golden Corral and Tony Roma's each will continue to contribute more than ten
percent of the Partnership's total rental income during the remainder of 1998
and subsequent years. Any failure of these lessees or restaurant chains could
materially affect the Partnership's income.
Interest and other income was $223,647 and $227,320 for the nine months
ended September 30, 1998 and 1997, respectively, $58,791 and $93,169 of which
was earned during the quarters ended September 30, 1998 and 1997, respectively.
The decrease in interest and other income during the quarter ended September 30,
1998, as compared to the quarter ended
15
<PAGE>
Results of Operations - Continued
September 30, 1997, is primarily attributable to interest earned on the sales
proceeds received during the quarter ended September 30, 1997, from the 1997
sales of Properties which had not been reinvested as of September 30, 1997.
Operating expenses, including depreciation expense, were $370,142 and
$448,852 for the nine months ended September 30, 1998 and 1997, respectively, of
which $120,809 and $150,248 were incurred for the quarters ended September 30,
1998 and 1997, respectively. The decrease in operating expenses during the
quarter and nine months ended September 30, 1998, as compared to the quarter and
nine months ended September 30, 1997, was primarily attributable to a decrease
in depreciation expense due to the sales of several Properties during 1997 and
1998.
Due to the tenant defaults under the leases for the Properties in
Belding, Michigan, and Lebanon, New Hampshire, the Partnership and its
consolidated joint venture, CNL/Longacre Joint Venture, expect to continue to
incur operating expenses relating to such Properties until the Properties are
sold or re-leased to new tenants.
As a result of the sale of the Properties in Myrtle Beach, South
Carolina and St. Cloud, Florida, in August 1995 and October 1996, respectively,
and recording the gains from such sales using the installment method, the
Partnership recognized gains for financial reporting purposes of $2,621 and
$758, during the nine months ended September 30, 1998 and 1997, respectively,
$838 and $259 of which were recognized during the quarters ended September 30,
1998 and 1997, respectively.
As a result of the sales of two Properties during the nine months ended
September 30, 1998, as described above in "Liquidity and Capital Resources," the
Partnership recognized total gains of $440,822 for financial reporting purposes.
As a result of the sale of three Properties during the nine months ended
September 30, 1997, the Partnership recognized a gain of $368,812 for financial
reporting purposes, $266,817 of which was recognized during the quarter ended
September 30, 1997.
During the nine months ended September 30, 1997, the Partnership
recorded an allowance for loss on land and building of $142,990 for financial
reporting purposes, relating to the Property in Richmond, Indiana. The loss
represented the difference between the Property's net carrying value at
September 30, 1997 and the estimated net realizable value. This Property was
sold in November 1997.
In addition, during the quarter and nine months ended September 30,
1998, the Partnership established an allowance for loss on land and buildings of
$120,508 and $273,141, respectively, for financial reporting purposes relating
to the Properties in Daleville, Indiana and Belding, Michigan, respectively. The
allowances represent the aggregate difference between the net carrying value at
September 30, 1998 and the current estimated net realizable value at September
30, 1998 for each Property.
16
<PAGE>
Results of Operations - Continued
In May 1998, the Financial Accounting Standards Board reached a
consensus in EITF 98-9, entitled "Accounting for Contingent Rent in the Interim
Financial Periods." Adoption of this consensus did not have a material effect on
the Partnership's financial position or results of operations.
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 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 affiliates regarding
the Year 2000 compliance of their products that are used in the business
activities or operations of the Partnership. 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. At this time, the general partners have not yet received
sufficient certifications to be assured that the tenants, financial
institutions, and transfer agent
17
<PAGE>
Results of Operations - Continued
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 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. As 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.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
19
<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 10th day of November, 1998.
CNL INCOME FUND V, 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 V, Ltd. at September 30, 1998, and its statement of
income for the nine months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Income Fund V, Ltd. for the nine months ended
September 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 481,185
<SECURITIES> 0
<RECEIVABLES> 213,323
<ALLOWANCES> 152,102
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,685,898
<DEPRECIATION> 1,830,220
<TOTAL-ASSETS> 17,374,774
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,393,838
<TOTAL-LIABILITY-AND-EQUITY> 17,374,774
<SALES> 0
<TOTAL-REVENUES> 1,285,648
<CGS> 0
<TOTAL-COSTS> 364,260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,882
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,211,631
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,211,631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,211,631
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund V, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
