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, 1997
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 0-19141
CNL INCOME FUND V, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2922869
(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) 422-1574
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 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 V, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 17, 1988. 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 December 16, 1988, the
Partnership offered for sale up to $25,000,000 in limited partnership interests
(the "Units") (50,000 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 June 7, 1989, as of which date the maximum offering
proceeds of $25,000,000 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 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
$22,125,000, and were used to acquire 30 Properties, including interests in
three Properties owned by joint ventures in which the Partnership is a
co-venturer. During the year ended December 31, 1995, the Partnership sold its
Property in Myrtle Beach, South Carolina, to the tenant of the Property and
accepted a promissory note for the full sales price of the Property. During the
year ended December 31, 1996, the Partnership sold its Property in St. Cloud,
Florida, to the tenant of the Property and accepted $100,000 in cash and a
promissory note for the remaining sales price of the Property. In addition,
during the year ended December 31, 1997, the Partnership sold its Properties in
Franklin and Smyrna, Tennessee; Salem, New Hampshire; Port St. Lucie and Tampa,
Florida, and Richmond, Indiana. The Partnership reinvested a portion of these
net sales proceeds in a Property in Houston, Texas and a Property in Sandy,
Utah. In addition, the Partnership reinvested a portion of the net sales
proceeds in a Property in Mesa, Arizona and a Property in Vancouver, Washington,
as tenants-in-common, with affiliates of the General Partners. As a result of
the above transactions, the Partnership currently owns 26 Properties, including
interests in three Properties owned by joint ventures in which the Partnership
is a co-venturer. In January and February 1998, the Partnership sold its
Properties in Port Orange, Florida and Tyler, Texas, respectively. The
Partnership intends to reinvest some or all of the net sales proceeds in an
additional Property and use the remaining net sales proceeds, if any, for other
Partnership purposes. Generally, the Properties are leased on a triple-net basis
with the lessees responsible for all repairs and maintenance, property taxes,
insurance and utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. In general, the General Partners plan to seek the sale of some of
the Properties commencing seven to 12 years after their acquisition. 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
the joint ventures in which the Partnership is a co-venturer provide for initial
terms, ranging from seven to 20 years (the average being 18 years) and expire
between 2001 and 2017. All 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 $37,800 to
$222,800. Generally, the leases provide for percentage rent, based on sales in
excess of a specified amount, to be paid annually. In addition, a majority of
the leases provide that, commencing in the sixth lease year,
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the percentage rent will be an amount equal to the greater of (i) the percentage
rent calculated under the lease formula or (ii) a specified percentage (ranging
from one-fourth to five percent) of the purchase price paid by the Partnership
for the Property.
Generally, the leases of the Properties provide for two to 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.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership first must
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.
The tenant relating to the Property in Lebanon, New Hampshire, in which
the Partnership has a 66.5% interest, defaulted under the terms of its
agreement, and in February 1995, ceased operations of the restaurant on the
Property. The Partnership is currently seeking a replacement tenant or a
purchaser for this Property.
In February 1994, the tenant of the Properties in Belding and South
Haven, Michigan, defaulted under the terms of its leases and a new operator
began occupying the Properties on a month-to-month basis for reduced rental
amounts. The new operator ceased operations of the Belding and South Haven
Properties in October 1994 and October 1995, respectively. In June 1997, the
Partnership entered into an operating agreement with a new operator for the
Property in South Haven, Michigan. Under the operating agreement, the
Partnership will collect amounts contingent on net operating income generated by
the restaurant. The Partnership is currently seeking a replacement tenant or a
purchaser for the Property in Belding, Michigan.
In June 1997, the Partnership terminated the lease with the tenant of
the Property in Connorsville, Indiana. In July 1997, the Partnership entered
into a new lease for this Property with a new tenant to operate the Property as
an Arby's restaurant. The lease terms of this Property are substantially the
same as the Partnership's other leases as described above in the first three
paragraphs of this section.
In November and December 1997, the Partnership reinvested a portion of
the net sales proceeds from the sales of the Properties in Port St. Lucie,
Florida; Franklin, Tennessee and Salem, New Hampshire, in Properties located in
Houston, Texas and Sandy, Utah, respectively. In addition, in October and
December 1997, the Partnership reinvested a portion of the net sales proceeds
from the sales of the Properties in Smyrna and Franklin, Tennessee, and
Richmond, Indiana, in a Property located in Mesa, Arizona and a Property in
Vancouver, Washington, respectively, with affiliates of the General Partners as
tenants-in-common, as described below in "Joint Venture Arrangements." The lease
terms for these Properties are substantially the same as the Partnership's other
leases, as described above in the first three paragraphs of this section.
Major Tenants
During 1997, two lessees of the Partnership and its consolidated joint
venture, Shoney's, Inc. and Golden Corral Corporation, contributed more than ten
percent of the Partnership's total rental income (including rental income from
the Partnership's consolidated joint venture and the Partnership's share of the
rental income from two Properties owned by unconsolidated joint ventures and two
Properties owned with affiliates as tenants-in-common). As of December 31, 1997,
Shoney's, Inc. was the lessee under leases relating to four restaurants and
Golden Corral Corporation was the lessee under leases relating to two
restaurants. It is anticipated that, based on the minimum rental payments
required by the leases, these two lessees each will continue to contribute more
than ten percent of the Partnership's total rental income in 1997 and subsequent
years. In addition, three Restaurant Chains, Perkins, Denny's and Wendy's Old
Fashioned Hamburger Restaurants, each accounted for more than ten percent of the
Partnership's total rental and mortgage interest income in 1997 (including
rental income from the Partnership's consolidated joint venture and the
Partnership's share of the rental income from two Properties owned by
unconsolidated joint ventures and two Properties owned with affiliates as
tenants-in-common). In subsequent years, it is anticipated that these three
Restaurant Chains each will continue to account for more than ten percent of the
total rental and mortgage interest income to which the Partnership is entitled
under the terms of the leases and mortgage note. Any failure of these lessees or
these Restaurant Chains could materially affect the Partnership's
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income. 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
The Partnership has entered into three separate joint venture
arrangements, CNL/Longacre Joint Venture, Cocoa Joint Venture and Halls Joint
Venture, to purchase and hold three Properties through such joint ventures. 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
proportion to each partner's percentage interest in the joint venture. The
Partnership and its joint venture partners are jointly and severally liable for
all debts, obligations, and other liabilities of the joint ventures.
Each joint venture has an initial term of 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 unless terminated 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 has management control of the CNL/Longacre Joint
Venture and shares management control equally with affiliates of the General
Partners for Cocoa Joint Venture and Halls Joint Venture. 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 CNL/Longacre Joint Venture, Cocoa
Joint Venture and Halls Joint Venture is distributed 66.5%, 43.0% and 49.0%,
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 October and
December 1997, the Partnership entered into separate agreements to hold a
Property in Mesa, Arizona and a Property in Vancouver, Washington, respectively,
as tenants-in-common with affiliates of the General Partners. The agreements
provide for the Partnership and the affiliates to share in the profits and
losses of the Properties in proportion to each co-venturer's percentage
interest. The Partnership owns a 42.23 and 27.78 percent interest in the
Property in Mesa, Arizona and the Property in Vancouver, Washington,
respectively.
Certain Management Services
CNL Income Fund Advisors, Inc., an affiliate of the General Partners,
provided certain services relating to management of the Partnership and its
Properties pursuant to a management agreement with the Partnership through
September 30, 1995. Under this agreement, CNL Income Fund Advisors, Inc. was
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 Income Fund Advisors, Inc. also
assisted the General Partners in negotiating the leases. For these services, the
Partnership had agreed to pay CNL Income Fund Advisors, Inc. an annual fee of
one percent of the sum of gross operating 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").
3
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Effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its
rights in, and its obligations under, the management agreement with the
Partnership to CNL Fund Advisors, Inc. All of the terms and conditions of the
management agreement, including the payment of fees, as described above, remain
unchanged.
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.
At the time the Partnership elects to dispose of its Properties, other
than as a result of the exercise of tenant options to purchase Properties, the
Partnership will be in competition with other persons and entities to locate
purchasers for its Properties.
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, 1997, the Partnership owned, either directly or
through joint venture arrangements, 26 Properties located in 14 states.
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 12,300
to 135,000 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. Generally, each of the Properties owned by the Partnership
includes a building that is one of a Restaurant Chain's approved designs. The
buildings generally are rectangular and are constructed from various
combinations of stucco, steel, wood, brick and tile. Building sizes range from
approximately 1,700 to 10,100 square feet. All buildings on Properties acquired
by the Partnership 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, 1997 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
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Shoney's, Inc. leases one Shoney's restaurant and two Captain D's
restaurants pursuant to three leases, each with an initial term of 20 years
(expiring in 2008). The average minimum base annual rent for the leases is
approximately $63,600 (ranging from approximately $49,000 to $84,700).
Golden Corral Corporation leases two restaurants pursuant to two
leases, each with an initial term of 12 to 15 years (expiring 2002 and 2004),
respectively, and average minimum base annual rent of approximately $97,800
($63,400 and 132,200, respectively).
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 13, 1998, there were 2,491 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 transfers of Units. The price paid for any
Unit transferred pursuant to the Plan has been $475 per Unit. The price to be
paid for any Unit transferred other than pursuant to the Plan is 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 1997 and 1996 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
1997 (1) 1996 (1)
---------------------------------- ----------------------
<S> <C>
High Low Average High Low Average
First Quarter $500 $422 $468 $475 $402 $459
Second Quarter 430 375 403 475 333 415
Third Quarter 462 385 433 475 350 432
Fourth Quarter 500 438 457 451 396 414
</TABLE>
(1) A total of 324 and 592 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1997 and 1996, 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.
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For each of the years ended December 31, 1997 and 1996, the Partnership
declared cash distributions of $2,300,000 to the Limited Partners. Distributions
of $575,000 were declared at the close of each of the Partnership's calendar
quarters during 1997 and 1996 to the Limited Partners. These amounts include
monthly distributions made in arrears for the Limited Partners electing to
receive distributions on this basis. The General Partners expect to distribute
some or all of the net sales proceeds from the sales of the Properties in Tampa
and Port Orange, Florida, to the Limited Partners. 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 Partnership receives rental payments, as well
as ongoing operations, is expected to reduce the Partnership's revenues. The
decrease in Partnership revenues, combined with the fact that a significant
portion of the Partnership's expenses are fixed in nature, is expected to result
in a decrease in cash distributions to the Limited Partners during 1998. No
amounts distributed to partners for the years ended December 31, 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. No distributions have been made to the General
Partners to date.
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although some Limited Partners, in accordance with their election, receive
monthly distributions, for an annual fee.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ --------
<S> <C>
Year Ended December 31:
Revenues (1) $ 2,147,770 $ 2,279,880 $ 2,314,818 $ 2,354,981 $ 2,421,786
Net income (2) 1,731,915 1,428,159 1,679,820 1,743,029 1,794,894
Cash distributions declared 2,300,000 2,300,000 2,300,000 2,300,000 2,300,000
Net income per Unit (2) 34.40 28.31 33.26 34.51 35.54
Cash distributions declared
per Unit 46.00 46.00 46.00 46.00 46.00
At December 31:
Total assets $19,718,430 $20,133,002 $20,760,182 $21,299,865 $21,850,488
Partners' capital 18,520,534 18,982,619 19,694,760 20,283,440 20,840,411
</TABLE>
(1) Revenues include equity in earnings of unconsolidated joint ventures
and minority interest in income or loss of the consolidated joint
venture.
(2) Net income for the year ended December 31, 1997, includes $550,878 from
gains on the sales of land and buildings, $141,567 from a loss on the
sale of land and building and $250,694 for a provision for loss on land
and building. Net income for the year ended December 31, 1996, includes
$19,369 from the gains on sale of land and buildings and $239,525 for a
provision for loss on land and buildings. Net income for the year ended
December 31, 1995, includes $5,924 from a gain on sale of land and
building.
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 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 restaurant
Properties were to be constructed, which are leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains. The
leases are triple-net leases, with the lessee generally responsible
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for all repairs and maintenance, property taxes, insurance and utilities. As of
December 31, 1997, the Partnership owned 26 Properties, either directly or
indirectly through joint venture arrangements.
Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 1997, 1996 and 1995, was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest received,
less cash paid for expenses). Cash from operations was $1,813,231, $2,103,745
and $2,142,918 for the years ended December 31, 1997, 1996 and 1995,
respectively. The decrease in cash from operations during 1997 and 1996, each as
compared to the previous year, is primarily a result of changes in income and
expenses as discussed in "Results of Operations" below and changes in the
Partnership's working capital during each of the respective years.
Other sources and uses of capital included the following during the
years ended December 31, 1997, 1996 and 1995.
During the years ended December 31, 1997, 1996 and 1995, the
Partnership received $106,000, $159,700 and $31,500, respectively, in capital
contributions from the corporate General Partner in connection with the
operations of the Partnership. 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.
In August 1995, the Partnership sold its Property in Myrtle Beach,
South Carolina, to the tenant of the Property for $1,040,000, and in connection
therewith, accepted a promissory note in the principal sum of $1,040,000,
collateralized by a mortgage on the Property. The note bears interest at a rate
of 10.25% per annum and is being collected in 59 equal monthly installments of
$9,319, with a balloon payment of $1,006,004 due in July 2000. Collections
commenced August 1, 1995. In accordance with Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate," the Partnership
recorded the sale of the Property using the installment sales method. Therefore,
the gain on the sale of the Property was deferred and is being recognized as
income proportionately as payments of principal under the mortgage note are
collected. The Partnership recognized a gain of $1,024, $924 and $1,571 for
financial reporting purposes for the years ended December 31, 1997, 1996 and
1995, respectively. The mortgage note receivable balance relating to this
Property at December 31, 1997 and 1996, was $883,417 and $889,891, respectively,
including accrued interest of $8,665 and $8,729, respectively, and net of the
remaining deferred gain of $139,693 and $140,717, respectively. The General
Partners anticipate that payments collected under the mortgage note will be
reinvested in additional Properties or used for other Partnership purposes.
In addition, in October 1996, the Partnership sold its Property in St.
Cloud, Florida, to the tenant for $1,150,000. In connection therewith, the
Partnership received $100,000 in cash and accepted the remaining sales proceeds
in the form of a promissory note in the principal sum of $1,057,299,
representing the balance of the sales price of $1,050,000 plus tenant closing
costs in the amount of $7,299 the Partnership financed on behalf of the tenant.
The promissory note bears interest at a rate of 10.75% per annum, is
collateralized by a mortgage on the Property, and is being collected in 12
monthly installments of interest only and thereafter in 168 equal monthly
installments of principal and interest. This sale is also being accounted for
under the installment sales method for financial reporting purposes; therefore,
the gain on the sale of the Property was deferred and is being recognized as
income proportionately as payments of principal under the mortgage note are
collected. The Partnership recognized a gain of $338 and $18,445 for financial
reporting purposes for the years ended December 31, 1997 and 1996, respectively,
and had a deferred gain in the amount of $183,465 and $183,802 at December 31,
1997 and 1996. The mortgage note receivable balance relating to this Property at
December 31, 1997 and 1996, was $874,443 and $882,967, including accrued
interest of $2,747 and $9,471, and net of the remaining deferred gain of
$183,465 and $183,802. Payments collected under the mortgage note totalling
$100,000 were used to pay liabilities of the Partnership, including quarterly
distributions to the Limited Partners. The General Partners anticipate that
payments collected under the mortgage note in the future will be reinvested in
additional Properties or used for other Partnership purposes.
In January 1997, the Partnership sold its Property in Franklin,
Tennessee, to the tenant, for $980,000 and received net sales proceeds of
$960,741. Since the Partnership had previously established an allowance for loss
on land and building of $169,463 as of December 31, 1996 relating to this
Property, no loss was recognized during 1997
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as a result of this sale. The Partnership used $360,000 of the net sales
proceeds to pay liabilities of the Partnership, including quarterly
distributions to the Limited Partners. In addition, in June 1997, the
Partnership entered into an operating agreement for the Property located in
South Haven, Michigan, with an operator to operate the Property as an Arby's
restaurant. In connection therewith, the Partnership used approximately $120,400
of the net sales proceeds from the sale of the Property in Franklin, Tennessee,
to fund conversion costs associated with the Arby's Property. In December 1997,
the Partnership reinvested approximately $244,800 of the net sales proceeds in a
Property located in Sandy, Utah, and approximately $150,000 in a Property
located in Vancouver, Washington, as tenants-in-common with affiliates of the
General Partners, as described below. The Partnership intends to use the
remaining net sales proceeds from the sale of the Property in Franklin,
Tennessee to fund additional renovation costs relating to the Property in South
Haven, Michigan, described above, and to pay liabilities of the Partnership,
including quarterly distributions to the Limited Partners.
In May 1997, the Partnership sold its Property in Smyrna, Tennessee, to
a third party for $655,000 and received net sales proceeds of $634,310,
resulting in a gain of $101,995 for financial reporting purposes. This Property
was originally acquired by the Partnership in March 1989 and had a cost of
approximately $569,500, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the Property for approximately $64,800
in excess of its original purchase price. The Partnership used approximately
$82,500 of the net sales proceeds to pay liabilities of the Partnership,
including quarterly distributions to the Limited Partners. In addition, in
October 1997, the Partnership reinvested approximately $460,900 of the net sales
proceeds in a Property in Mesa, Arizona, as tenants-in-common with an affiliate
of the General Partners. In December 1997, the Partnership reinvested remaining
net sales proceeds in a Property located in Vancouver, Washington, as
tenants-in-common with affiliates of the General Partners, as described below.
The Partnership anticipates that it will distribute amounts sufficient to enable
the Limited Partners to pay federal and state taxes, if any (at a level
reasonably assumed by the General Partners), resulting from the sale.
In June 1997, the Partnership terminated the leases with the tenant of
the Properties in Connorsville and Richmond, Indiana. In connection therewith,
the Partnership accepted a promissory note from the former tenant for $35,297
for amounts relating to past due real estate taxes 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. Receivables at December 31, 1997 included $37,099 of such
amounts, including accrued interest of $1,802. In July 1997, the Partnership
entered into a new lease for the Property in Connorsville, Indiana, with a new
tenant to operate the Property as an Arby's restaurant. In connection therewith,
the Partnership incurred $125,000 in renovation costs.
In September 1997, the Partnership sold its Property in Salem, New
Hampshire, to the tenant for $1,295,172 and received net sales proceeds (net of
$1,773 which represents prorated rent returned to the tenant) of $1,270,365,
resulting in a gain of approximately $141,508 for financial reporting purposes.
This Property was originally acquired by the Partnership in May 1989 and had a
cost of approximately $1,085,100, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $187,000 in excess of its original purchase price. In December
1997, the Partnership reinvested the net sales proceeds in a Property located in
Sandy, Utah, as described below. The General Partners believe that the
transaction, or a portion thereof, relating to the sale of the Property in
Salem, New Hampshire, and the reinvestment of the proceeds will 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.
In addition, in September 1997, the Partnership sold its Property in
Port St. Lucie, Florida, to the tenant for $1,220,000 and received net sales
proceeds of $1,216,750, resulting in a gain of approximately $125,309 for
financial reporting purposes. This Property was originally acquired by the
Partnership in November 1989 and had a cost of approximately $1,176,100,
excluding acquisition fees and miscellaneous acquisition expenses; therefore,
the Partnership sold the Property for approximately $40,700 in excess of its
original purchase price. In November 1997, the Partnership reinvested the
majority of the net sales proceeds in an IHOP Property located in Houston,
Texas. The General Partners believe that the transaction, or a portion thereof,
relating to the sale of the Property in Port St. Lucie, Florida, and the
reinvestment of the proceeds will qualify as a like-kind exchange transaction
for federal income tax purposes. However, the Partnership will distribute
amounts sufficient to enable the Limited
8
<PAGE>
Partners to pay federal and state income taxes, if any (at a level reasonably
assumed by the General Partners), resulting from the sale.
During the year ended December 31, 1996, the Partnership established an
allowance for the Property in Richmond, Indiana, in the amount of $70,062 which
represented the difference between the Property's carrying value at December 31,
1996, and the property manager's estimate of net realizable value of the
Property based on an anticipated sales price of this Property. In November 1997,
the Partnership sold this Property to a third party for $400,000 and received
net sales proceeds of $385,179. As a result of this transaction, the Partnership
recognized a loss of $141,567 for financial reporting purposes. In December
1997, the Partnership reinvested the net sales proceeds in a Property located in
Vancouver, Washington, as tenants-in-common with affiliates of the General
Partners, as described below.
In addition, in December 1997, the Partnership sold its Property in
Tampa, Florida, to a third party for $850,000 and received net sales proceeds
(net of $724 which represents prorated rent returned to the tenant) of $804,451
resulting in a gain of $180,704 for financial reporting purposes. This Property
was originally acquired by the Partnership in February 1989 and had a cost of
approximately $673,200, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the Property for approximately
$132,000 in excess of its original purchase price. The Partnership intends to
use $50,000 of the net sales proceeds to pay liabilities of the Partnership,
including quarterly distributions to the Limited Partners. The Partnership
intends to distribute some or all of the remaining net sales proceeds to the
Limited Partners. 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
remaining net sales proceeds, if any, will be used for other Partnership
purposes.
As described above, in December 1997, the Partnership used the majority
of the net sales proceeds from the sale of the Properties in Franklin, Tennessee
and Salem, New Hampshire, in a Property located in Sandy, Utah. In addition, in
December 1997, the Partnership used the majority of the net sales proceeds from
the sale of the Properties in Franklin and Smyrna, Tennessee and Richmond,
Indiana, in a Property located in Vancouver, Washington, as tenants-in-common
with affiliates of the General Partners.
In January 1998, the Partnership sold its Property in Port Orange,
Florida, to the tenant, for $1,330,000 and received net sales proceeds (net of
$2,909 which represents prorated rent returned to the tenant) of $1,283,096,
resulting in a gain of approximately $350,300 for financial reporting purposes.
The Partnership intends to distribute some or all of the net sales proceeds to
the Limited Partners. The remaining net sales proceeds, if any, will be used for
other Partnership purposes. In addition, in February 1998, the Partnership sold
its Property in Tyler, Texas, to the tenant, for $850,000 and received net sales
proceeds of $844,229, resulting in a gain of approximately $155,900 for
financial reporting purposes. The Partnership intends to reinvest the sales
proceeds in an additional Property during 1998, or use the net sales proceeds
for other Partnership purposes.
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 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, 1997, the Partnership had
$1,361,290 invested in such short-term investments as compared to $362,922 at
December 31, 1996. The increase in cash and cash equivalents during 1997, is
primarily attributable to the receipt of net sales proceeds relating to the
sales of several Properties, as described above. The funds remaining at December
31, 1997, will be reinvested in additional Properties, distributed to the
Limited Partners or used for other Partnership purposes, as described above, and
will be used for the payment of distributions and other liabilities.
9
<PAGE>
During 1997, 1996 and 1995, affiliates of the General Partners incurred
on behalf of the Partnership $77,353, $113,560 and $114,204, respectively, for
certain operating expenses. As of December 31, 1997 and 1996, the Partnership
owed $109,367 and $121,464, respectively, to affiliates for such amounts and
accounting and administrative services. In addition, as of December 31, 1997,
the Partnership had incurred $34,500 in a real estate disposition fee due to an
affiliate as a result of its services in connection with the sale during 1996,
of the Property in St. Cloud, Florida. Amounts payable to other parties,
including distributions payable, increased to $817,621 at December 31, 1997,
from $705,130 at December 31, 1996, primarily as a result of incurring $125,000
in renovation costs relating to the Partnership's Property located in
Connorsville, Indiana, which were unpaid at December 31, 1997. Liabilities at
December 31, 1997, to the extent they exceed cash and cash equivalents
(excluding the net sales proceeds held at December 31, 1997 from the sale of
Properties, as described above), at December 31, 1997, will be paid from future
cash from operations, from amounts collected under the mortgage notes described
above or, in the event the General Partners elect to make additional capital
contributions, from future General Partner contributions.
Based primarily on current and anticipated future cash from operations,
a portion of the sales proceeds received from the sales of the Properties and
additional capital contributions from the General Partners, the Partnership
declared distributions to the Limited Partners of $2,300,000 for each of the
years ended December 31, 1997, 1996 and 1995. This represents distributions of
$46 per Unit for each of the years ended December 31, 1997, 1996 and 1995. The
General Partners expect to distribute some or all of the net sales proceeds from
the sales of the Properties in Tampa and Port Orange, Florida, to the Limited
Partners. 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 Partnership receives rental payments, as well as ongoing operations, is
expected to reduce the Partnership's revenues. The decrease in Partnership
revenues, combined with the fact that a significant portion of the Partnership's
expenses are fixed in nature, is expected to result in a decrease in cash
distributions to the Limited Partners during 1998. No amounts distributed or to
be distributed to the Limited Partners for the years ended December 1997, 1996
and 1995, 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 generally leasing them under triple-net leases to operators who generally
meet specified financial standards minimizes the Partnership's operating
expenses. The General Partners believe that the leases will continue to generate
cash flow in excess of operating expenses.
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 all leases of the Partnership's Properties are 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.
Results of Operations
During 1995, the Partnership owned and leased 27 wholly owned
Properties (including one Property in Myrtle Beach, South Carolina, which was
sold in August 1995), during 1996, the Partnership owned and leased 26 wholly
owned Properties (including one Property in St. Cloud, Florida, which was sold
in October 1996) and during 1997, the Partnership owned 27 wholly owned
Properties (including six Properties, one in each of Franklin and Smyrna,
Tennessee; Salem, New Hampshire; Port St. Lucie and Tampa, Florida and Richmond,
Indiana, which were sold during the year ended December 31, 1997). In addition,
during 1997, 1996 and 1995, the Partnership was a co-venturer in three separate
joint ventures that each owned and leased one Property and during 1997, the
Partnership
10
<PAGE>
owned and leased two Properties, with affiliates of the General Partners, as
tenants-in-common. As of December 31, 1997, the Partnership owned, either
directly or through joint venture arrangements, 26 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 approximately $37,800 to $222,800. Generally, the leases provide
for percentage rent based on sales in excess of a specified amount to be paid
annually. In addition, a majority of the leases provide that, commencing in the
sixth lease year, the percentage rent will be an amount equal to the greater of
(i) the percentage rent calculated under the lease formula or (ii) a specified
percentage (ranging from one-fourth to five percent) of the purchase price paid
by the Partnership for the Property. 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, 1997, 1996 and 1995, the
Partnership and its consolidated joint venture, CNL/Longacre Joint Venture,
earned $1,500,967, $1,931,573 and $2,068,342, respectively, in rental income
from operating leases and earned income from direct financing leases. The
decrease in rental and earned income during the year ended December 31, 1997, as
compared to 1996, was partially attributable to a decrease of approximately
$322,300 as a result of the sale of its Properties in St. Cloud, Florida (in
October 1996), Franklin, Tennessee (in January 1997), Smyrna, Tennessee (in May
1997), Salem, New Hampshire (in September 1997), Port St. Lucie, Florida (in
September 1997) and Tampa, Florida (in December 1997), as described above in
"Liquidity and Capital Resources." During 1997, the decrease in rental income
was partially offset by an increase of approximately $24,700 due to the
reinvestment of a portion of these net sales proceeds in a Property in Houston,
Texas and Sandy, Utah, in November 1997 and December 1997, respectively, as
described above in "Liquidity and Capital Resources". The General Partners
believe that the decrease in rental and earned income will be offset by an
increase during 1998 as the Partnership continues to reinvest a portion of the
remaining net sales proceeds from the sale of Properties as described above in
"Liquidity and Capital Resources," during 1998.
Rental and earned income also decreased in 1997 and 1996, each as
compared to the previous year, as a result of the Partnership increasing its
allowance for doubtful accounts by approximately $57,700 and $29,500,
respectively, for rental and other amounts relating to the Hardee's Properties
located in Connorsville and Richmond, Indiana, which were leased by the same
tenant, due to financial difficulties the tenant was experiencing. Rental and
earned income decreased by approximately $79,200 during 1997 due to the fact
that the Partnership terminated the lease with the former tenant of these
Properties in June 1997, as described above in "Liquidity and Capital
Resources." The General Partners have agreed that they will cease collection
efforts on past due rental amounts once the former tenant of these Properties
pays all amounts due under the promissory note for past due real estate taxes
described above in "Liquidity and Capital Resources." The decrease in rental and
earned income was slightly offset by an increase of $8,500 in rental income from
the new tenant of the Property in Connorsville, Indiana, who began operating the
Property after it was renovated into an Arby's Property. In November 1997, the
Partnership sold its Property in Richmond, Indiana, as described above in
"Liquidity and Capital Resources."
The decrease in rental and earned income during 1996, as compared to
1995, was partially attributable to a decrease of approximately $95,000 as a
result of the sale of its Properties in Myrtle Beach, South Carolina and St.
Cloud, Florida, in August 1995 and October 1996, respectively, as described
above in "Liquidity and Capital Resources." As a result of accepting promissory
notes in conjunction with each of these sales of Properties, as described above
in "Liquidity and Capital Resources," interest income increased during 1997 and
1996 as described below.
Rental and earned income also decreased by approximately $8,100 during
1996, as compared to 1995, due to the fact that in October 1995, the tenant
ceased operations of the Property in South Haven, Michigan. In June 1997, the
Partnership incurred renovation costs to convert the Property into an Arby's
restaurant and entered into an operating agreement for this Property with an
operator , as described above in "Liquidity and Capital Resources," and earned
approximately $5,100 in rental income during 1997 from the operator of the
Property.
Rental and earned income in 1997, 1996 and 1995, continued to remain at
reduced amounts due to the fact that the Partnership is not receiving any rental
income from the Properties in Belding and South Haven, Michigan and Lebanon, New
Hampshire, as a result of the tenants defaulting under the terms of their leases
and ceasing operations of the restaurants on the Properties during 1995. During
1997, the Partnership located a new tenant for the Property in South Haven,
Michigan, as described above. The General Partners are currently seeking
replacement tenants or purchasers for the Properties in Belding, Michigan and
Lebanon, New Hampshire. Rental and earned
11
<PAGE>
income for 1998 is expected to remain at reduced amounts until such time as the
Partnership executes new leases for its Properties in Belding, Michigan, and
Lebanon, New Hampshire.
For the years ended December 31, 1997, 1996 and 1995, the Partnership
earned $233,633, $130,167 and $104,455, respectively, in contingent rental
income. The increase in contingent rental income during 1997, as compared to
1996, is primarily attributable to amounts collected under the operating
agreement with the new operator of the Property located in South Haven,
Michigan. The operating agreement provides for payment to the Partnership of
reduced base rents and a percentage of the net operating income generated by the
restaurant. The Partnership expects to continue to receive such amounts until a
lease is entered into with the current operator, at which time contingent rental
income is expected to decrease, but at which time base rent is expected to
increase. The increase in contingent rental income during 1996, as compared to
1995, is partially attributable to increased gross sales of certain restaurant
Properties requiring the payment of contingent rent.
During the years ended December 31, 1997, 1996 and 1995, the
Partnership earned $288,637, $137,385 and $55,785, respectively, in interest
income. The increase in interest income during 1997 and 1996, each as compared
to the previous year, was primarily attributable to the interest earned on the
mortgage notes receivable accepted in connection with the sale of the Properties
in St. Cloud, Florida and Myrtle Beach, South Carolina in October 1996 and
August 1995, respectively. In addition, interest income increased during 1997
due to interest earned on the net sales proceeds received relating to the sales
of the Properties in Smyrna, Tennessee; Salem, New Hampshire; Port St. Lucie,
Florida; Richmond, Indiana and Tampa, Florida. Interest income is expected to
decrease during 1998 as net sales proceeds held at December 31, 1997, are
reinvested in additional Properties, distributed to the Limited Partners or used
for other Partnership purposes.
In addition, for the years ended December 31, 1997, 1996 and 1995, the
Partnership earned $56,015, $46,452 and $47,018, respectively, attributable to
net income earned by unconsolidated joint ventures in which the Partnership is a
co-venturer. The increase in net income earned by joint ventures during 1997, as
compared to 1996, is primarily attributable to the fact that in October 1997,
the Partnership acquired an interest in a Property in Mesa, Arizona, with
affiliates as tenants-in-common, as described above in "Liquidity and Capital
Resources." Net income earned by joint venture is expected to increase during
1998 as a result of the Partnership acquiring an interest in a Property in
Vancouver, Washington, in December 1997, with affiliates of the General
Partners, as described above in "Liquidity and Capital Resources."
During the years ended December 31, 1997, 1996 and 1995, two lessees of
the Partnership and its consolidated joint venture, Shoney's, Inc. and Golden
Corral Corporation, each contributed more than ten percent of the Partnership's
total rental income (including rental income from the Partnership's consolidated
joint venture and the Partnership's share of the rental income from two
Properties owned by unconsolidated joint ventures and two Properties owned with
affiliates as tenants-in-common). As of December 31, 1997, Shoney's, Inc. was
the lessee under leases relating to four restaurants and Golden Corral
Corporation was the lessee under leases relating to two restaurants. It is
anticipated that, based on the minimum rental payments required by the leases,
these two lessees will continue to contribute more than ten percent of the
Partnership's total rental income during 1998 and subsequent years. In addition,
three Restaurant Chains, Perkins, Denny's and Wendy's Old Fashioned Hamburger
Restaurants, each accounted for more than ten percent of the Partnership's total
rental and mortgage interest income during 1997, 1996 and 1995 (including rental
income from the Partnership's consolidated joint venture and the Partnership's
share of the rental income from two Properties owned by unconsolidated joint
ventures and two Properties owned with affiliates as tenants-in-common). In
subsequent years, it is anticipated that these three Restaurant Chains each will
continue to account for more than ten percent of the total rental and mortgage
interest income to which the Partnership is entitled under the terms of the
leases and mortgage note. Any failure of these lessees or Restaurant Chains
could materially affect the Partnership's income.
Operating expenses, including depreciation and amortization expense,
were $574,472, $631,565 and $640,922 for the years ended December 31, 1997, 1996
and 1995, respectively. The decrease in operating expenses during 1997 and 1996,
each as compared to the previous year, was partially attributable to a decrease
in depreciation expense as a result of the sales of Properties in 1997, 1996 and
1995, as described above in "Liquidity and Capital Resources."
12
<PAGE>
Operating expenses also decreased during 1996, as compared to 1995, due
to the fact that the Partnership and its consolidated joint venture,
CNL/Longacre Joint Venture, recorded approximately $35,100, $40,700 and $47,200
during the years ended December 31, 1997, 1996 and 1995, respectively, for real
estate taxes relating to the Properties in Lebanon, New Hampshire and Belding
and South Haven, Michigan, as a result of lease terminations. The Partnership
entered into an operating agreement with an operator for the Property in South
Haven, Michigan, as described above in "Liquidity and Capital Resources," and is
currently seeking either a replacement tenant or a purchaser for the Properties
in Lebanon, New Hampshire and Belding, Michigan, as described above in
"Liquidity and Capital Resources." The Partnership expects to continue to incur
real estate taxes, insurance and maintenance expense for its Properties in
Lebanon, New Hampshire and Belding, Michigan, until such time as a new lease is
executed for each Property or until each Property is sold.
The decrease in operating expenses during 1996, as compared to 1995, is
partially offset by an increase in accounting and administrative expenses
associated with operating the Partnership and its Properties and an increase in
insurance expense as a result of the General Partners' obtaining contingent
liability and property coverage for the Partnership beginning in May 1995.
In connection with the sale of its Properties in St. Cloud, Florida and
Myrtle Beach, South Carolina, during 1996 and 1995, respectively, as described
above in "Liquidity and Capital Resources," the Partnership recognized a gain
for financial reporting purposes of $1,362, $19,369 and $1,571 for the years
ended December 31, 1997, 1996 and 1995, respectively. In accordance with
Statement of Financial Accounting Standards No. 66, "Accounting for Sales of
Real Estate," the Partnership recorded the sales using the installment sales
method. As such, the gain on the sales was deferred and is being recognized as
income proportionately as payments under the mortgage notes are collected.
Therefore, the balance of the deferred gain of $323,157 at December 31, 1997,
will be recognized as income in future periods as payments are collected. For
federal income tax purposes, gains of approximately $194,100 and $136,900 from
the sale of the Properties in St. Cloud, Florida, and Myrtle Beach, South
Carolina, respectively, were also deferred and are being recognized as payments
under the mortgage notes are collected.
As a result of the sales of the Properties in Smyrna, Tennessee; Salem,
New Hampshire; and Port St. Lucie and Tampa, Florida, as described above in
"Liquidity and Capital Resources," the Partnership recognized gains totalling
$549,516 during 1997, for financial reporting purposes. The gains for 1997, were
partially offset by a loss of $141,567 for financial reporting purposes,
resulting from the November 1997 sale of the Property in Richmond, Indiana, as
described above in "Liquidity and Capital Resources." In October 1995, the
Partnership also sold a portion of the land relating to its Property in
Dalesville, Indiana, as the result of a right of way taking and recognized a
gain for financial reporting purposes of $4,353 during the year ended December
31, 1995.
During 1997, the Partnership established an allowance for loss on land
and building of $151,671 for financial reporting purposes relating to the
Property in Belding, Michigan. The allowance represents the difference between
the Property's carrying value at December 31, 1997 and the estimated net
realizable value for this Property. In addition, an allowance was established
for loss on land and building of $99,023 for financial reporting purposes
relating to the Property in Lebanon, New Hampshire, owned by the Partnership's
consolidated joint venture. The allowance represents the difference between the
Property's carrying value at December 31, 1997 and the estimated new realizable
value, based on an anticipated sales price for the Property.
At December 31, 1996, the Partnership established an allowance for loss
on land and building in the amount of $169,463 for financial reporting purposes.
The allowance represented the difference between (i) the Property's carrying
value at December 31, 1996, plus the additional rental income (accrued rental
income) that the Partnership had recognized since inception of the lease
relating to the straight-lining of future scheduled rent increases minus (ii)
the net realizable value of $960,741 received as net sales proceeds in
conjunction with the sale of the Property in January 1997, as described above in
"Liquidity and Capital Resources."
In addition, during 1996, the Partnership established an allowance for
loss on land and building for its Property in Richmond, Indiana. The allowance
of $70,062 represented the difference between the Property's carrying value at
December 31, 1996, and the estimated fair value of the Property based on an
anticipated sales price of this Property. This Property was sold in November
1997, as described above in "Liquidity and Capital Resources."
13
<PAGE>
The General Partners of the Partnership are in the process of assessing
and addressing the impact of the year 2000 on their computer package software.
The hardware and built-in software are believed to be year 2000 compliant.
Accordingly, the General Partners do not expect this matter to materially impact
how the Partnership conducts business nor its current or future results of
operations or financial position.
The Partnership's leases as of December 31, 1997, 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 (for certain Properties) 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.
Item 8. Financial Statements and Supplementary Data
14
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants 15
Financial Statements:
Balance Sheets 16
Statements of Income 17
Statements of Partners' Capital 18
Statements of Cash Flows 19
Notes to Financial Statements 21
15
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund V, Ltd.
We have audited the financial statements and the financial statement schedules
of CNL Income Fund V, Ltd. (a Florida limited partnership) listed in Item 14(a)
of this Form 10-K. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CNL Income Fund V, Ltd. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
/s/ Coopers & Lybrand, L.L.P.
- -------------------------------
Orlando, Florida
January 29, 1998
16
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
ASSETS 1997 1996
------ ----------- -------
Land and buildings on operating
leases, less accumulated
depreciation and allowance for
loss on land and buildings $12,421,143 $15,190,278
Net investment in direct financing
leases 2,277,481 1,941,406
Investment in joint ventures 1,558,709 465,808
Mortgage notes receivable, less
deferred gain 1,758,167 1,772,858
Cash and cash equivalents 1,361,290 362,922
Receivables, less allowance for
doubtful accounts of $137,892 and
$37,743 108,261 57,934
Prepaid expenses 9,307 10,416
Accrued rental income 169,726 277,034
Other 54,346 54,346
----------- -----------
$19,718,430 $20,133,002
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 24,229 $ 25,366
Accrued construction costs payable 125,000 -
Accrued real estate taxes
payable 93,392 104,764
Distributions payable 575,000 575,000
Due to related parties 143,867 155,964
Rents paid in advance 13,479 11,738
----------- -----------
Total liabilities 974,967 872,832
Minority interest 222,929 277,551
Partners' capital 18,520,534 18,982,619
----------- -----------
$19,718,430 $20,133,002
=========== ===========
See accompanying notes to financial statements.
17
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---------- ---------- -------
<S> <C>
Revenues:
Rental income from operating leases $1,343,833 $1,746,021 $1,878,584
Earned income from direct financing
leases 157,134 185,552 189,758
Contingent rental income 233,663 130,167 104,455
Interest income 288,637 137,385 55,785
Other income 13,866 10,419 27,395
---------- ---------- ----------
2,037,133 2,209,544 2,255,977
---------- ---------- ----------
Expenses:
General operating and administra-
tive 166,346 178,991 157,741
Professional services 23,172 22,605 20,741
Bad debt expense 9,007 - 1,541
Real estate taxes 39,619 40,711 47,182
State and other taxes 11,897 12,492 15,982
Depreciation and amortization 324,431 376,766 397,735
---------- ---------- ----------
574,472 631,565 640,922
---------- ---------- ----------
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 1,462,661 1,577,979 1,615,055
Minority Interest in Loss of
Consolidated Joint Venture 54,622 23,884 11,823
Equity in Earnings of Unconsoli-
dated Joint Ventures 56,015 46,452 47,018
Gain on Sale of Land and Buildings 409,311 19,369 5,924
Provision for Loss on Land and
Buildings (250,694) (239,525) -
---------- ---------- ---------
Net Income $1,731,915 $1,428,159 $1,679,820
========== ========== ==========
Allocation of Net Income:
General partners $ 11,809 $ 12,513 $ 16,754
Limited partners 1,720,106 1,415,646 1,663,066
---------- ---------- ----------
$1,731,915 $1,428,159 $1,679,820
========== ========== ==========
Net Income Per Limited Partner Unit $ 34.40 $ 28.31 $ 33.26
========== ========== ==========
Weighted Average Number of Limited
Partner Units Outstanding 50,000 50,000 50,000
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
General Partners Limited Partners
Accumu- Accumu-
Contri- lated Contri- Distri- lated Syndication
butions Earnings butions butions Earnings Costs Total
------- -------- ----------- ------------ ----------- ----------- --------
<S> <C>
Balance, December 31, 1994 $ 46,000 $109,706 $25,000,000 $(12,868,240) $10,860,974 $(2,865,000) $20,283,440
Contributions from general
partner 31,500 - - - - - 31,500
Distributions to limited
partners ($46 per
limited partner unit) - - - (2,300,000) - - (2,300,000)
Net income - 16,754 - - 1,663,066 - 1,679,820
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1995 77,500 126,460 25,000,000 (15,168,240) 12,524,040 (2,865,000) 19,694,760
Contributions from general
partner 159,700 - - - - - 159,700
Distributions to limited
partners ($46 per
limited partner unit) - - - (2,300,000) - - (2,300,000)
Net income - 12,513 - - 1,415,646 - 1,428,159
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1996 237,200 138,973 25,000,000 (17,468,240) 13,939,686 (2,865,000) 18,982,619
Contributions from general
partner 106,000 - - - - - 106,000
Distributions to limited
partners ($46 per
limited partner unit) - - - (2,300,000) - - (2,300,000)
Net income - 11,809 - - 1,720,106 - 1,731,915
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1997 $343,200 $150,782 $25,000,000 $(19,768,240) $15,659,792 $(2,865,000) $18,520,534
======== ======== =========== ============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------- ----------- -------
<S> <C>
Increase (Decrease) in Cash and
Cash Equivalents:
Cash Flows from Operating
Activities:
Cash received from tenants $ 1,771,467 $ 2,083,722 $ 2,216,111
Distributions from uncon-
solidated joint ventures 53,176 53,782 53,405
Cash paid for expenses (305,341) (161,730) (173,597)
Interest received 293,929 127,971 46,999
----------- ----------- -----------
Net cash provided by
operating activities 1,813,231 2,103,745 2,142,918
----------- ----------- -----------
Cash Flows from Investing
Activities:
Proceeds from sale of land
and buildings 5,271,796 100,000 -
Proceeds from sale of
portion of land for
right of way purposes - - 7,625
Collections on mortgage
note receivable 9,265 6,712 11,409
Additions to land and
buildings on operating
leases (1,900,790) - -
Investment in direct
financing lease (911,072) - -
Investment in joint
venture (1,090,062) - -
Other - (26,287) -
----------- ----------- ----------
Net cash provided by
investing activities 1,379,137 80,425 19,034
----------- ----------- -----------
Cash Flows from Financing
Activities:
Contributions from general
partner 106,000 159,700 31,500
Distributions to limited
partners (2,300,000) (2,300,000) (2,300,000)
----------- ----------- -----------
Net cash used in
financing activities (2,194,000) (2,140,300) (2,268,500)
----------- ----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents 998,368 43,870 (106,548)
Cash and Cash Equivalents at
Beginning of Year 362,922 319,052 425,600
----------- ----------- -----------
Cash and Cash Equivalents at End
of Year $ 1,361,290 $ 362,922 $ 319,052
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------- ----------- -------
<S> <C>
Reconciliation of Net Income to
Net Cash Provided by Operating
Activities:
Net income $ 1,731,915 $ 1,428,159 $ 1,679,820
----------- ----------- -----------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 324,431 376,766 397,735
Minority interest in loss
of consolidated joint
venture (54,622) (23,884) (11,823)
Equity in earnings of
unconsolidated joint
ventures, net of
distributions (2,839) 7,330 6,387
Gain on sale of land
and buildings (409,311) (19,369) (5,924)
Provisions for loss on
land and buildings 250,694 239,525 -
Decrease (increase) in
accrued interest on
mortgage note receivable 6,788 (9,414) (8,786)
Decrease (increase) in
receivables (33,999) 10,270 13,527
Decrease (increase) in
prepaid expenses 1,109 1,505 (534)
Decrease in net investment
in direct financing
leases 42,682 46,387 42,180
Increase in accrued rental
income (19,527) (27,875) (30,484)
Increase (decrease) in
accounts payable and
accrued expenses (12,509) 32,032 9,730
Increase (decrease) in due
to related parties (13,322) 59,945 41,585
Increase (decrease) in
rents paid in advance 1,741 (17,632) 9,505
----------- ----------- -----------
Total adjustments 81,316 675,586 463,098
----------- ----------- -----------
Net Cash Provided by Operating
Activities $ 1,813,231 $ 2,103,745 $ 2,142,918
=========== =========== ===========
Supplemental Schedule of Non-Cash
Investing and Financing
Activities:
Mortgage note accepted
in connection with sale
of land and buildings $ - $ 1,057,299 $ 1,040,000
=========== =========== ===========
Distributions declared and
unpaid at December 31 $ 575,000 $ 575,000 $ 575,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund V, 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.
22
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
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.
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. 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' estimate of net cash flows
expected to be generated from its properties and the need for asset
impairment write-downs. If an impairment is indicated, the assets are
adjusted to their fair value.
When the collection of amounts recorded as rental or other income are
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 accounts for its 66.5%
interest in CNL/Longacre Joint Venture, a Florida general partnership,
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.
23
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
The Partnership accounts for its interest in Cocoa Joint Venture, Halls
Joint Venture and a property in each of Mesa, Arizona and Vancouver,
Washington, held as tenants-in-common with affiliates, using the equity
method since the Partnership shares control with affiliates which have
the same general partners.
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.
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 properties.
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 estimates relate to the allowance for doubtful accounts and
future cash flows associated with long-lived assets. Actual results
could differ from those estimates.
24
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 1997 presentation.
These reclassifications had no effect on partners' capital or net
income.
2. Leases:
The Partnership leases its 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. 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 to 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:
1997 1996
----------- -------
Land $ 6,069,665 $ 7,284,070
Buildings 8,546,530 10,431,908
----------- -----------
14,616,195 17,715,978
Less accumulated
depreciation (1,944,358) (2,346,374)
----------- -----------
12,671,837 15,369,604
Less allowance for loss
on land and buildings (250,694) (179,326)
----------- -----------
$12,421,143 $15,190,278
=========== ===========
25
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
3. Land and Buildings on Operating Leases - Continued:
In August 1995, the Partnership sold its property in Myrtle Beach,
South Carolina, to the tenant for $1,040,000 and accepted the sales
proceeds in the form of a promissory note (Note 6). The total carrying
value of the property was $896,788, including acquisition fees and
miscellaneous acquisition expenses and net of accumulated depreciation.
As a result of this sale being accounted for using the installment
sales method for financial reporting purposes as required by Statement
of Financial Accounting Standards No. 66, "Accounting for Sales of Real
Estate," the Partnership recognized a gain of $1,024 and $924 for the
years ended December 31, 1997 and 1996, respectively, and had a
deferred gain in the amount of $139,693 and $140,717 at December 31,
1997 and 1996, respectively (Note 6).
In October 1996, the Partnership sold its property in St. Cloud,
Florida, to the tenant for $1,150,000. In connection therewith, the
Partnership received $100,000 in cash and accepted the remaining sales
proceeds in the form of a promissory note (Note 6). The total carrying
value of the property was $894,265, including acquisition fees and
miscellaneous acquisition expenses and net of accumulated depreciation.
As a result of this sale being accounted for under the installment
sales method for financial reporting purposes, as described above, the
Partnership recognized a gain of $338 and $18,445 for the years ended
December 31, 1997 and 1996, respectively, and had a deferred gain in
the amount of $183,464 and $183,802 at December 31, 1997 and 1996,
respectively (Note 6).
In 1996, the Partnership established an allowance for loss on land and
building in the amount of $109,264 and wrote off accrued rental income
of $60,199 for financial reporting purposes for the property in
Franklin, Tennessee. The allowance represented the difference between
(i) the property's carrying value at December 31, 1996, plus the
accrued rental income that the Partnership had recognized since the
inception of the lease relating to the straight- lining of future
scheduled rent increases minus (ii) the net realizable value based on
sales proceeds received in January 1997 from the sale of this Property.
The Partnership sold the property in January 1997, to the tenant for
$980,000 and received net sales proceeds of $960,741. Since the
Partnership had previously established an allowance for loss on land
and building as of December 31, 1996, no loss was
26
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
3. Land and Buildings on Operating Leases - Continued:
recognized during 1997 as a result of the sale. The Partnership used
$360,000 of the net sales proceeds to pay liabilities of the
Partnership, including quarterly distributions to the limited partners.
In June 1997, the Partnership entered into an operating agreement for
the property located in South Haven, Michigan, with an operator to
operate the property as an Arby's restaurant. In connection therewith,
the Partnership used approximately $120,400 of the net sales proceeds
from the sale of the property in Franklin, Tennessee, for conversion
costs associated with the Arby's property.
In December 1997, the Partnership reinvested approximately $244,800 of
the net sales proceeds from the sale of the Property in Franklin,
Tennessee, in a property located in Sandy, Utah, as described below,
and approximately $150,000 of the net sales proceeds in a property
located in Vancouver, Washington, as tenants-in-common with affiliates
of the general partners (see Note 5).
In September 1997, the Partnership sold its property in Salem, New
Hampshire, to the tenant for $1,295,172 and received net sales proceeds
(net of $1,773 which represents prorated rent returned to the tenant)
of $1,270,365, resulting in a gain of $141,508 for financial reporting
purposes. This property was originally acquired by the Partnership in
May 1989 and had a cost of approximately $1,085,100, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the property for approximately $187,000 in excess of
its original purchase price. In December 1997, the Partnership
reinvested the net sales proceeds in a property located in Sandy, Utah,
as described below.
In addition, in September 1997, the Partnership sold its property in
Port St. Lucie, Florida, to the tenant for $1,220,000 and received net
sales proceeds of $1,216,750, resulting in a gain of $125,309 for
financial reporting purposes. This property was originally acquired by
the Partnership in November 1989 and had a cost of approximately
$1,176,100, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the property for
approximately $40,700 in excess of its original purchase price. In
November 1997, the Partnership reinvested the majority of the net sales
proceeds in a property located in Houston, Texas.
27
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
3. Land and Buildings on Operating Leases - Continued:
In 1996, the Partnership established an allowance for loss on land for
the property in Richmond, Indiana, in the amount of $70,062, which
represented the difference between the property's carrying value at
December 31, 1996, and the property manager's estimate of the net
realizable value of the property based on an anticipated sales price.
In November 1997, the Partnership sold this property to a third party
for $400,000 and received net sales proceeds of $385,179. As a result
of this transaction, the Partnership recognized a loss of $141,567 for
financial reporting purposes. In December 1997, the Partnership
reinvested the net sales proceeds in a property located in Vancouver,
Washington, as tenants-in-common with affiliates of the general
partners (see Note 5).
Also, in December 1997, the Partnership sold its property in Tampa,
Florida, to a third party for $850,000 and received net sales proceeds
(net of $724 which represents prorated rent returned to the tenant) of
$804,451 resulting in a gain of $180,704 for financial reporting
purposes. This property was originally acquired by the Partnership in
February 1989 and had a cost of approximately $673,200, excluding
acquisition fees and miscellaneous acquisition expenses; therefore the
Partnership sold the property for approximately $132,000 in excess of
its original purchase price.
At December 31, 1997, the Partnership established an allowance for loss
on land and building of $151,671, for financial reporting purposes,
relating to the property in Belding, Michigan. The allowance represents
the difference between the property's carrying value at December 31,
1997 and the estimated net realizable value for this property. In
addition, at December 31, 1997, an allowance was established for loss
on land and building of $99,023, for financial reporting purposes,
relating to the property in Lebanon, New Hampshire, owned by the
Partnership's consolidated joint venture, CNL/Longacre Joint Venture.
The allowance represents the difference between the property's carrying
value at December 31, 1997 and the estimated new realizable value based
on an anticipated sales price for this property.
As described above, in December 1997, the Partnership used the majority
of the net sales proceeds from the sale of the Properties in Franklin,
Tennessee and Salem, New Hampshire, in
a Property located in Sandy, Utah.
28
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
3. Land and Buildings on Operating Leases - Continued:
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, 1997, 1996 and 1995, the Partnership
recognized $19,526, $27,875 and $30,484, 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, 1997:
1998 $ 1,049,074
1999 1,052,663
2000 1,063,699
2001 1,028,379
2002 939,819
Thereafter 8,440,061
-----------
$13,573,695
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 gross sales.
4. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at December 31:
1997 1996
----------- --------
Minimum lease payments
receivable $ 4,213,033 $ 2,811,323
Estimated residual
values 806,792 828,783
Less unearned income (2,742,344) (1,698,700)
----------- -----------
Net investment in direct
financing leases $ 2,277,481 $ 1,941,406
=========== ===========
29
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
4. Net Investment in Direct Financing Leases:
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 1997:
1998 $ 286,518
1999 286,518
2000 286,518
2001 286,518
2002 286,518
Thereafter 2,780,443
----------
$4,213,033
In May 1997, the Partnership sold its property in Smyrna, Tennessee, to
a third party for $655,000 and received net sales proceeds of $634,310,
resulting in a gain of $101,995 for financial reporting purposes. This
property was originally acquired by the Partnership in March 1989 and
had a cost of approximately $569,500, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the
property for approximately $64,800 in excess of its original purchase
price. The Partnership used approximately $82,500 of the net sales
proceeds to pay liabilities of the Partnership, including quarterly
distributions to the limited partners. In addition, in October 1997,
the Partnership reinvested approximately $460,900 of the net sales
proceeds in a property in Mesa, Arizona, as tenants-in-common with an
affiliate of the general partners. In December 1997, the Partnership
reinvested the remaining net sales proceeds in a property located in
Vancouver, Washington, as tenants-in-common with affiliates of the
general partners (Note 5).
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:
The Partnership has a 43 percent and a 49 percent interest in the
profits and losses of Cocoa Joint Venture and Halls Joint Venture,
respectively. The remaining interests in these joint ventures are held
by affiliates of the Partnership which have the same general partners.
In October 1997, the Partnership used a portion of the net sales
proceeds from the sale of the Property in Smyrna,
30
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
5. Investment in Joint Ventures - Continued:
Tennessee (see Note 4) to acquire a property in Mesa, Arizona, as
tenants-in-common with an affiliate of the general partners. The
Partnership accounts for its investment in this property using the
equity method since the Partnership shares control with an affiliate,
and amounts relating to its investment are included in investment in
joint ventures. As of December 31, 1997, the Partnership owned a 42.23%
interest in this property.
In addition, in December 1997, the Partnership used some or all of the
net sales proceeds from the sales of the Properties in Franklin,
Tennessee; and Richmond, Indiana (see Note 3), and Smyrna, Tennessee
(see Note 4) to acquire a property in Vancouver, Washington, as
tenants-in-common with affiliates of the general partners. The
Partnership accounts for its investment in this property using the
equity method since the Partnership shares control with an affiliate,
and amounts relating to its investment are included in investment in
joint ventures. As of December 31, 1997, the Partnership owned a 27.78%
interest in this property.
Cocoa Joint Venture, Halls Joint Venture, and the Partnership and
affiliates as tenants-in-common in two separate tenancy-in-common
arrangements, each own and lease one property to an operator of
national fast-food or family-style restaurants.
The following presents the combined condensed financial information for
the joint ventures and the two properties held as two separate
tenants-in-common with affiliates at December 31:
1997 1996
---------- -------
Land and buildings on
operating leases, less
accumulated depreciation $4,277,972 $ 946,406
Cash 24,994 561
Receivables 4,417 -
Prepaid expenses 270 251
Accrued rental income 68,819 63,806
Liabilities 1,250 880
Partners' capital 4,375,222 1,010,144
Revenues 151,242 123,689
Net income 121,605 98,949
The Partnership recognized income totalling $56,015, $46,452 and
$47,018 for the years ended December 31, 1997, 1996 and 1995,
respectively, from these joint ventures.
31
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
6. Mortgage Notes Receivable:
In connection with the sale in 1995 of its property in Myrtle Beach,
South Carolina, the Partnership accepted a promissory note in the
principal sum of $1,040,000, collateralized by a mortgage on the
property. The promissory note bears interest at 10.25% per annum and is
being collected in 59 equal monthly installments of $9,319, including
interest, with a balloon payment of $1,006,004 due in July 2000.
In addition, in connection with the sale in 1996 of its property in St.
Cloud, Florida, the Partnership accepted a promissory note in the
principal sum of $1,057,299, representing the balance of the sales
price of $1,050,000 plus tenant closing costs in the amount of $7,299
that the Partnership financed on behalf of the tenant. The note is
collateralized by a mortgage on the property. The promissory note bears
interest at a rate of 10.75% per annum and is being collected in 12
monthly installments of interest only, and thereafter in 168 equal
monthly installments of principal and interest.
The mortgage notes receivable consisted of the following at December
31:
1997 1996
---------- -------
Principal balance $2,069,912 $2,079,177
Accrued interest
receivable 11,412 18,200
Less deferred gains
on sale of land
and buildings (323,157) (324,519)
---------- ----------
$1,758,167 $1,772,858
========== ==========
The general partners believe that the estimated fair values of mortgage
notes receivable at December 31, 1997 and 1996, approximate the
outstanding principal amount based on estimated current rates at which
similar loans would be made to borrowers with similar credit and for
similar maturities.
7. Receivables:
In June 1997, the Partnership terminated the leases with the tenant of
the properties in Connorsville and Richmond, Indiana. In connection
therewith, the Partnership accepted a promissory note from the former
tenant for $35,297 for amounts relating to past due real estate taxes
the Partnership had
32
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
7. Receivables - Continued:
accrued as a result of the former tenant's financial difficulties. The
promissory note is uncollateralized, bears interest at a rate of ten
percent per annum, and is being collected in 36 monthly installments.
Receivables at December 31, 1997, included $37,099 of such amounts,
including accrued interest of $1,802.
8. 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, cumulative, noncompounded annual return on
their adjusted capital contributions (the "10% Preferred Return").
Generally, net sales proceeds from the sale of properties, to the
extent distributed, will be distributed first to the limited partners
in an amount sufficient to provide them with their 10% Preferred
Return, plus the return of their adjusted capital contributions. The
general partners will then receive, to the extent previously
subordinated and unpaid, a one percent interest in all prior
distributions of net cash flow and a return of their capital
contributions. Any remaining sales proceeds will be distributed 95
percent to the limited partners and five percent to the general
partners.
Any gain from the sale of a property is, in general, allocated in the
same manner as net sales proceeds are distributable. Any loss from the
sale of a property is, in general, allocated first, on a pro rata
basis, to partners with positive balances in their capital accounts;
and thereafter, 95 percent to the limited partners and five percent to
the general partners.
During each of the years ended December 31, 1997, 1996 and 1995, the
Partnership declared distributions to the limited partners of
$2,300,000. No distributions have been made to the general partners to
date.
33
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
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>
1997 1996 1995
---------- ---------- -------
<S> <C>
Net income for financial
reporting purposes $1,731,915 $1,428,159 $1,679,820
Depreciation for tax
reporting purposes in
excess of depreciation
for financial reporting
purposes (23,618) (28,058) (26,980)
Gain on disposition of
land and buildings for
financial reporting
purposes in excess of
gain for tax reporting
purposes (354,648) (1,606) (69)
Allowance for loss on
land and buildings 250,694 239,525 -
Direct financing leases
recorded as operating
leases for tax reporting
purposes 42,682 46,387 42,180
Equity in earnings of
unconsolidated joint
ventures for tax
reporting purposes less
than equity in earnings of
unconsolidated joint
ventures for financial
reporting purposes (1,914) (1,900) (2,926)
Allowance for doubtful
accounts 100,149 33,254 (150,480)
Accrued rental income (19,527) (27,875) (30,484)
Rents paid in advance 1,241 (17,632) 9,505
Minority interest in
timing differences of
consolidated joint
venture (41,515) (343) (370)
Disallowed real estate
tax deduction 36,721 - -
---------- ---------- ---------
Net income for federal
income tax purposes $1,722,180 $1,669,911 $1,520,196
========== ========== ==========
</TABLE>
34
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
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 parent company of
CNL Fund Advisors, Inc. The other individual general partner, Robert A.
Bourne, served as president of CNL Fund Advisors, Inc. through October
1997. CNL Income Fund Advisors, Inc. was a wholly owned subsidiary of
CNL Group, Inc. until its merger, effective January 1, 1996, with CNL
Fund Advisors, Inc. During the years ended December 31, 1997, 1996 and
1995, CNL Income Fund Advisors, Inc. and CNL Fund Advisors, Inc.
(hereinafter referred to collectively as the "Affiliates") each
performed certain services for the Partnership, as described below.
During the years ended December 31, 1997, 1996 and 1995, certain
Affiliates 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 Affiliates 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 do not receive 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 1997, 1996 and 1995.
Certain Affiliates are 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
Affiliates provide 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 limited partners of their
35
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
10. Related Party Transactions - Continued:
aggregate 10% Preferred Return, plus their adjusted capital
contributions. During the year ended December 31, 1996, the Partnership
incurred a deferred, subordinated real estate disposition fee of
$34,500 as the result of the sale of the Property in St. Cloud,
Florida. No deferred, subordinated real estate disposition fees were
incurred for the years ended December 31, 1997 and 1995 due to the
reinvestment of net sales proceeds in additional Properties.
During the years ended December 31, 1997, 1996 and 1995, the Affiliates
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $80,145, $83,563 and $83,882
for the years ended December 31, 1997, 1996 and 1995, respectively, for
such services.
The due to related parties consisted of the following at December 31:
1997 1996
-------- ------
Due to Affiliates:
Expenditures incurred on
behalf of the Partnership $ 67,106 $ 78,407
Accounting and administrative
services 42,261 43,057
Deferred, subordinated real
estate disposition fee 34,500 34,500
-------- --------
$143,867 $155,964
======== ========
During 1997, the Partnership and an affiliate of the general partners
acquired a property in Mesa, Arizona, as tenants-in-common for a
purchase price of $1,084,111 (of which the Partnership contributed
$460,911 or 42.23%) from CNL BB Corp., also an affiliate of the general
partners. CNL BB Corp. had purchased and temporarily held title to this
property in order to facilitate the acquisition of the property by the
Partnership. The purchase price paid by the Partnership represented the
Partnership's percent of interest in the costs incurred by CNL BB Corp.
to acquire and carry the property, including closing costs.
36
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
11. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees, or affiliated groups of lessees, each representing
more than ten percent of the Partnership's total rental and earned
income (including the Partnership share of total rental and earned
income from unconsolidated joint ventures and the properties held as
tenants-in-common with affiliates), for at least one of the years ended
December 31:
1997 1996 1995
---------- ---------- -------
Shoney's, Inc. $229,795 $241,119 $247,353
Golden Corral
Corporation 195,511 195,511 195,511
In addition, the following schedule presents total rental and earned
income (including mortgage interest income) from individual restaurant
chains, each representing more than ten percent of the Partnership's
total rental and earned income and mortgage interest income (including
the Partnership's share of total rental and earned income from joint
ventures and the properties held as tenants-in-common with affiliates)
for at least one of the years ended December 31:
1997 1996 1995
-------- -------- ------
Denny's $312,510 $310,021 $314,057
Wendy's Old Fashioned
Hamburger Restaurant 302,253 293,817 278,127
Perkins 228,492 268,939 226,898
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 or
restaurant chains, 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.
12. Subsequent Event:
In January 1998, the Partnership sold its property in Port Orange,
Florida to the tenant, for $1,330,000 and received net sales proceeds
(net of $2,909 which represents prorated rent returned to the tenant)
of $1,283,096, resulting in a gain of approximately $350,300 for
financial reporting purposes.
37
<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. In addition,
during 1995, the Partnership had available to it the services, personnel and
experience of CNL Income Fund Advisors, Inc., prior to its merger with CNL Fund
Advisors, Inc., effective January 1, 1996.
James M. Seneff, Jr., age 51, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, director and Chief Executive Officer since its formation in
1980. CNL Group, Inc. is the parent company of CNL Securities Corp., CNL
Investment Company, CNL Fund Advisors, Inc., CNL Real Estate Advisors, Inc. and
prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996, CNL
Income Fund Advisors, Inc. Mr. Seneff is Chief Executive Officer, and has been a
director and registered principal of CNL Securities Corp., which served as the
managing dealer in the Partnership's offering of Units, since its formation in
1979. Mr. Seneff also has held the position of President and a director of CNL
Management Company, a registered investment advisor, since its formation in
1976, has served as Chief Executive Officer and Chairman of the Board of CNL
Investment Company, and Chief Executive Officer and Chairman of the Board of
Commercial Net Lease Realty, Inc. since 1992, has served as the Chairman of the
Board and the Chief Executive Officer of CNL Realty Advisors, Inc. since its
inception in 1991 through December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., served as Chairman of the
Board and Chief Executive Officer of CNL Income Fund Advisors, Inc. since its
inception in 1994 through December 31, 1995, has served as a director, Chairman
of the Board and Chief Executive Officer of CNL Fund Advisors, Inc. since its
inception in 1994, and has held the position of Chief Executive Officer and a
director of CNL Institutional Advisors, Inc., a registered investment advisor,
since its inception in 1990. In addition, Mr. Seneff has served as a director,
Chairman of the Board and Chief Executive Officer of CNL American Properties
Fund, Inc. since 1994, and has served as a director, Chairman of the Board and
Chief Executive Officer of CNL American Realty Fund, Inc. since 1996 and of CNL
Real Estate Advisors, Inc. since January 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 recommends to 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
than $60 billion of retirement funds. 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 office buildings, apartment complexes,
restaurants, 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 IV, 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.
38
<PAGE>
Robert A. Bourne, age 50, is President and Treasurer of CNL Group,
Inc., President, a director and a registered principal of CNL Securities Corp.,
President and a director of CNL Investment Company, and prior to its merger with
CNL Fund Advisors, Inc., effective January 1, 1996, CNL Income Fund Advisors,
Inc., and Chief Investment Officer, Vice Chairman of the Board of Directors, a
director and Treasurer of CNL Institutional Advisors, Inc., a registered
investment advisor. Mr. Bourne served as President of CNL Institutional
Advisors, Inc. from the date of its inception through June 30, 1997 and served
as President of CNL Fund Advisors, Inc. from the date of its inception through
October 1997. Mr. Bourne currently serves as Vice Chairman of the Board of
Directors and as Treasurer of CNL Fund Advisors, Inc. Mr. Bourne also has served
as a director since 1992, as President from July 1992 to February 1996, as
Secretary and Treasurer from February 1996 through December 1997, and since
February 1996, served as Vice Chairman of the Board of Directors of Commercial
Net Lease Realty, Inc. In addition, Mr. Bourne has served as a director since
its inception in 1991, as President from 1991 to February 1996, as Secretary
from February 1996 to July 1996, and since February 1996, served as Treasurer
and Vice Chairman of CNL Realty Advisors, Inc. through December 31, 1997, at
which time CNL Realty Advisors, Inc. merged with Commercial Net Lease Realty,
Inc. In addition, Mr. Bourne has served as President and a director of CNL
American Properties Fund, Inc. since 1994, and has served as President and a
director of CNL American Realty Fund, Inc. since 1996 and of CNL Real Estate
Advisors, Inc. since January 1997. Upon graduation from Florida State University
in 1970, where he received a B.A. in Accounting, with honors, Mr. Bourne worked
as a certified public accountant and, from September 1971 through December 1978,
was employed by Coopers & Lybrand, Certified Public Accountants, where he held
the position of tax manager beginning in 1975. From January 1979 until June
1982, Mr. Bourne was a partner in the accounting firm of Cross & Bourne and from
July 1982 through January 1987, he was a partner in the accounting firm of
Bourne & Rose, P.A., Certified Public Accountants. 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 office buildings, apartment complexes,
restaurants, 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.
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 wholly 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.
39
<PAGE>
Curtis B. McWilliams, age 42, joined CNL Fund Advisors, Inc. in April
1997 and currently serves as President of CNL Fund Advisors, Inc. and as
Executive Vice President of CNL American Properties Fund, Inc. In addition, Mr.
McWilliams serves as Executive Vice President of CNL Group, Inc. and as
President of CNL Financial Services, Inc. and certain other subsidiaries of CNL
Group, Inc. From September 1983 through March 1997, Mr. McWilliams was employed
by Merrill Lynch. From January 1991 to August 1996, Mr. McWilliams was a
managing director in the corporate banking group of Merrill Lynch's investment
banking division. During this time, he was a senior relationship manager with
Merrill Lynch and as such was responsible for a number of the firm's larger
clients. From February 1990 to February 1993, he also served as co-head of one
of the Industrial Banking Groups within Merrill Lynch's investment banking
division and had administrative responsibility for a group of bankers and client
relationships, including the firm's transportation group. From September 1996 to
March 1997, Mr. McWilliams served as Chairman of Merrill Lynch's Private
Advisory Services. 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 39, is the Chief Operating Officer and Executive
Vice President of CNL Fund Advisors, Inc. and CNL American Properties Fund, Inc.
and serves as Executive Vice President of CNL American Realty Fund, Inc. and CNL
Real Estate Advisors, Inc. Mr. Walker joined CNL Fund Advisors, Inc. in
September 1994, as Senior Vice President, responsible for Research and
Development. From May 1992 to May 1994, he was Executive Vice President for
Finance and Administration and Chief Financial Officer of Z Music, Inc., a cable
television network which was 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 49, a certified public accountant, has served as
Chief Financial Officer of CNL Group, Inc. since December 1993, has served as
Secretary of CNL Group, Inc. since 1987, 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, served as a director and Secretary of CNL Realty Advisors, Inc. since its
inception in 1991 through December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., Treasurer of CNL Realty
Advisors, Inc. from 1991 to February 1996, Secretary and Treasurer of Commercial
Net Lease Realty, Inc. from 1992 to February 1996, Secretary of CNL Income Fund
Advisors, Inc. since its inception in 1994 to December 1995, and a director,
Secretary and Treasurer of CNL Fund Advisors, Inc. since 1994 and has served as
a director, Secretary and Treasurer of CNL Real Estate Advisors, Inc. since
January 1997. Ms. Rose also has served as Secretary and Treasurer of CNL
American Properties Fund, Inc. since 1994, and has served as Secretary and
Treasurer of CNL American Realty Fund, Inc. since 1996. Ms. Rose also currently
serves as Secretary for approximately 50 additional corporations. Ms. Rose
oversees the management information services, administration, legal compliance,
accounting, tenant compliance, and reporting for over 300 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. She was licensed as a certified public accountant in 1979.
40
<PAGE>
Jeanne A. Wall, age 39, 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.
In 1984, Ms. Wall joined CNL Securities Corp. 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 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 through 1997, as Vice
President of Commercial Net Lease Realty, Inc. from 1992 through 1997, as
Executive Vice President of CNL Fund Advisors, Inc. since 1994, and as Executive
Vice President of CNL American Properties Fund, Inc. since 1994. In addition,
Ms. Wall has served as Executive Vice President of CNL Real Estate Advisors,
Inc. since January 1997 and as Executive Vice President of CNL American Realty
Fund, Inc. since 1996. 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 34, has served as Chief Financial Officer of
CNL Fund Advisors, Inc. since September 1996 and as Chief Financial Officer of
CNL American Properties Fund, Inc. since January 1997. Mr. Shackelford joined
CNL Fund Advisors, Inc. in September 1996. From March 1995 to July 1996, he 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 and is a certified public
accountant.
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 13, 1998, 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 13, 1998, 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. There are no arrangements
which at a subsequent date may result in a change in control of the Registrant.
41
<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, 1997, 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>
==========================================================================================================================
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1997
------------------------ --------------------- -----------------------
<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 $77,353
comparable services could have
been obtained in the same Accounting and administrative
geographic area. Affiliates of the services: $80,145
General 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 manage- One percent of the sum of gross $ - 0 -
ment fee to affiliates operating 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, 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 noncumulative, if the Limited
Partners do not receive their 10%
Preferred Return in any particular
year, no management fees will be due or
payable for such year.
==========================================================================================================================
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1997
------------------------ --------------------- -----------------------
<S> <C>
Deferred, subordinated real estate A deferred, subordinated real $ - 0 -
disposition fee payable to estate disposition fee, payable
affiliates 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, sub- A deferred, subordinated share $ - 0 -
ordinated share of Partnership net equal to one percent of
cash flow Partnership distributions of net
cash flow, subordinated to certain
minimum returns to the Limited
Partners.
General Partners' deferred, sub- A deferred, subordinated share $ - 0 -
ordinated share of Partnership net equal to five percent of
sales proceeds from a sale or Partnership distributions of such
sales net sales proceeds, subordinated to
certain minimum returns to the
Limited Partners.
==========================================================================================================================
</TABLE>
43
<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, 1997 and 1996
Statements of Income for the years ended December 31, 1997,
1996 and 1995
Statements of Partners' Capital for the years ended December
31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1997, 1996 and 1995
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1997
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1997
Schedule IV - Mortgage Loans on Real Estate at December 31,
1997
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 Amended and Restated Affidavit and Certificate of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit
3.1 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
4.1 Amended and Restated Affidavit and Certificate of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit
3.1 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
4.2 Amended and Restated Certificate and Agreement of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit
4.2 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
10.1 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 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.)
44
<PAGE>
10.3 Assignment of 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, 1997 through December 31, 1997.
45
<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, 1998.
CNL INCOME FUND V, 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>
/s/ Robert A. Bourne President, Treasurer and Director March 27, 1998
- ----------------------------------- (Principal Financial and
Robert A. Bourne Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and March 27, 1998
- ----------------------------------- Director (Principal Executive
James M. Seneff, Jr. Officer)
==========================================================================================================================
</TABLE>
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additions Deductions
Collected
Charged or Deter-
Balance at to Costs Charged Deemed mined to Balance
Beginning and to Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ---- ----------- ---------- -------- ----------- ----------- --------- --------
<S> <C>
1995 Allowance for
doubtful
accounts (a) $430,464 $ - $ 19,561(b) $445,535(c) $ - $ 4,490
======== ======= ======== ======== ======= ========
1996 Allowance for
doubtful
accounts (a) $ 4,490 $ - $ 46,493(b) $ 5,846(c) $ 7,394 $ 37,743
======== ======= ======== ======== ======= ========
1997 Allowance for
doubtful
accounts (a) $ 37,743 $ 9,007 $ 92,395(b) $ - (c) $ 1,253 $137,892
======== ======= ======== ======== ======= ========
</TABLE>
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
F-1
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurant:
Lawrenceville, Georgia - $ 482,070 $ - $ 368,416 $ -
Captain D's Restaurant:
Belleville, Illinois - 186,050 383,781 - -
Denny's Restaurant:
New Castle, Indiana - 117,394 471,340 - -
Port Orange, Florida - 530,689 506,630 53,247 -
Golden Corral Family
Steakhouse Restaurants:
Livingston, Texas - 156,382 429,107 - -
Victoria, Texas - 504,787 742,216 - -
Hardee's Restaurants:
Belding, Michigan (j) - 113,884 564,805 - -
Connorsville, Indiana - 279,665 - 591,137 -
South Haven, Michigan - 120,847 599,339 120,363 -
IHOP:
Houston, Texas - 513,384 671,713 - -
Pizza Hut Restaurant:
Mexia, Texas - 237,944 200,501 - -
Shoney's Restaurant:
Tyler, Texas - 312,404 533,990 - -
Taco Bell Restaurants:
Bountiful, Utah - 330,164 - 319,511 -
Centralia, Washington - 215,302 - 378,836 -
Tony Romas:
Sandy, Utah - 595,330 - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) (j) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
$ 482,070 $ 368,416 $ 850,486 $ 104,385 1989 04/89 (b)
186,050 383,781 569,831 112,469 1988 03/89 (b)
117,394 471,340 588,734 75,139 1989 02/89 (h)
530,689 559,877 1,090,566 156,593 1989 07/89 (b)
156,382 429,107 585,489 119,194 1986 09/89 (b)
504,787 742,216 1,247,003 198,776 1989 12/89 (b)
113,884 564,805 678,689 88,134 1989 03/89 (i)
279,665 591,137 870,802 131,643 1989 03/89 (b)
120,847 719,702 840,549 95,844 1989 03/89 (i)
513,384 671,713 1,185,097 2,177 1997 11/97 (b)
237,944 200,501 438,445 58,479 1985 03/89 (b)
312,404 533,990 846,394 155,747 1988 03/89 (b)
330,164 319,511 649,675 89,197 1989 05/89 (b)
215,302 378,836 594,138 102,075 1989 08/89 (b)
595,330 (f) 595,330 - 1997 12/97 (d)
</TABLE>
F-2
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Wendy's Old Fashioned
Hamburger Restaurants:
Tampa, Florida - 336,218 462,400 - -
Endicott, New York - 277,965 243,839 - -
Ithaca, New York - 310,462 208,618 - -
Other:
Lebanon, New Hampshire (g) (j) - 448,724 - 696,741 -
---------- ---------- ---------- -------
$6,069,665 $6,018,279 $2,528,251 $ -
========== ========== ========== =======
Property of Joint Venture
in Which the Partnership
has a 43% 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 49% Interest and has
Invested in Under an Operating Lease:
Burger King Restaurant:
Knoxville, Tennessee - $ 283,961 $ 430,406 $ - $ -
========== ========== ========== =======
Property in Which the Partnership
has a 42.23% Interest as
Tenants-in-Common and has
Invested in under an Operating
Lease:
Boston Market Restaurant:
Mesa, Arizona - $ 440,842 $ 650,622 $ - $ -
========== ========== ========== =======
Property in Which the Partnership
has a 27.78% Interest as
Tenants-in-Common and has
Invested in Under an Operating
Lease:
Chevy's Fresh Mex Restaurant:
Vancouver, Washington - $ 875,659 $1,389,366 $ - $ -
========== ========== ========== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) (j) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
336,218 462,400 798,618 136,151 1987 02/89 (b)
277,965 243,839 521,804 65,700 1976 12/89 (b)
310,462 208,618 519,080 56,211 1977 12/89 (b)
448,724 696,741 1,145,465 196,444 1989 03/89 (b)
---------- ----------- ----------- ----------
$6,069,665 $ 8,546,530 $14,616,195 $1,944,358
========== =========== =========== ==========
$ 183,229 $ 192,857 $ 376,086 $ 51,481 1986 12/89 (b)
========== =========== =========== ==========
$ 283,961 $ 430,406 $ 714,367 $ 113,341 1985 01/90 (b)
========== =========== =========== ==========
$ 440,842 $ 650,622 $ 1,091,464 $ 4,021 1997 10/97 (b)
========== =========== =========== ==========
$ 875,659 $ 1,389,366 $ 2,265,025 $ 127 1994 12/97 (b)
========== =========== =========== ==========
</TABLE>
F-3
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Properties the Partnership
has Invested in Under
Direct Financing Leases:
Captain D's Restaurant:
Zanesville, Ohio - $ 99,651 $ 390,518 $ - $ -
Denny's Restaurants:
Dalesville, Indiana - 125,562 458,914 - -
Huron, Ohio - 27,418 456,139 - -
Tony Romas:
Sandy, Utah - - 911,072 - -
---------- ---------- ---------- -------
$ 252,631 $2,216,643 $ - $ -
========== ========== ========== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
(f) (f) (f) (e) 1988 03/89 (e)
(f) (f) (f) (e) 1974 02/89 (e)
(f) (f) (f) (e) 1971 05/89 (e)
- (f) (f) (d) 1997 12/97 (d)
</TABLE>
F-4
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(a) Transactions in real estate and accumulated depreciation during 1997,
1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost (i) Depreciation
<S> <C>
Properties the Partnership has
Invested in Under Operating
Leases:
Balance, December 31, 1994 $19,808,218 $1,873,060
Dispositions (1,039,130) (142,342)
Depreciation expense - 397,735
----------- ----------
Balance, December 31, 1995 18,769,088 2,128,453
Disposition (1,053,110) (158,845)
Depreciation expense - 376,766
----------- ----------
Balance, December 31, 1996 17,715,978 2,346,374
Disposition (3,099,783) (726,447)
Depreciation expense (j) - 324,431
----------- ----------
Balance, December 31, 1997 $14,616,195 $1,944,358
=========== ==========
Property of Joint Venture in Which the
Partnership has a 43% Interest and
has Invested in Under an Operating Lease:
Balance, December 31, 1994 $ 376,086 $ 32,195
Depreciation expense - 6,429
----------- ----------
Balance, December 31, 1995 376,086 38,624
Depreciation expense - 6,429
----------- ----------
Balance, December 31, 1996 376,086 45,053
Depreciation expense - 6,428
----------- ----------
Balance, December 31, 1997 $ 376,086 $ 51,481
=========== ==========
Property of Joint Venture in Which the
Partnership has a 49% Interest and
has Invested in Under an Operating Lease:
Balance, December 31, 1994 $ 714,367 $ 70,300
Depreciation expense - 14,347
----------- ----------
Balance, December 31, 1995 714,367 84,647
Depreciation expense - 14,347
----------- ----------
Balance, December 31, 1996 714,367 98,994
Depreciation expense - 14,347
----------- ----------
Balance, December 31, 1997 $ 714,367 $ 113,341
=========== ==========
</TABLE>
F-5
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
<TABLE>
<CAPTION>
Accumulated
Cost (i) Depreciation
<S> <C>
Property in Which the Partnership
has a 42.23% Interest as
Tenants-in-Common and has
Invested in Under an Operating
Lease:
Balance, December 31, 1996 $ - $ -
Acquisitions 1,091,464 -
Depreciation expense - 4,021
----------- ----------
Balance, December 31, 1997 $ 1,091,464 $ 4,021
=========== ==========
Property in Which the Partnership
has a 27.78% Interest as
Tenants-in-Common and has
Invested in Under an Operating
Lease:
Balance, December 31, 1996 $ - $ -
Acquisitions 2,265,025 -
Depreciation expense - 127
----------- ----------
Balance, December 31, 1997 $ 2,265,025 $ 127
=========== ==========
</TABLE>
F-6
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1997
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 1997, the aggregate cost of the Properties owned by
the Partnership and its consolidated joint venture, and the
unconsolidated joint ventures for federal income tax purposes was
$15,626,886 and $5,493,388, 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 land and building has
been recorded as a direct financing lease. The cost of the land and
building has been included in net investment in direct financing
leases; therefore, depreciation is not applicable.
(f) For financial reporting purposes, certain components of the lease
relating to the land and building have been recorded as a direct
financing lease. Accordingly, costs related to these components of this
lease are not shown.
(g) The restaurant on the Property in Lebanon, New Hampshire, was converted
from a Ponderosa Steakhouse restaurant to a local, independent
restaurant in 1992.
(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 its remaining estimated life
of approximately 25 years.
(i) Effective February 1, 1994, the lease for this Property was terminated,
resulting in the lease's reclassification as an operating lease.
(j) For financial reporting purposes, the undepreciated cost of the
Properties in Belding, Michigan, and Lebanon, New Hampshire 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 $151,671 and $99,023 for the
Properties in Belding, Michigan and Lebanon, New Hampshire,
respectively, at December 31, 1997. The impairments at December 31,
1997 are based on anticipated sales prices. The cost of the Properties
presented on this schedule is the gross amount at which the Properties
were carried at December 31, 1997, excluding the allowance for loss on
land and buildings.
(k) During the year ended December 31, 1997, the Partnership and an
affiliate, as tenants-in-common, purchased land and building from CNL
BB Corp, an affiliate of the General Partners, for an aggregate cost of
$1,091,464.
F-7
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1997
<TABLE>
<CAPTION>
Principal
Amount
of Loan
Carrying Subject to
Final Periodic Face Amount of Delinquent
Interest Maturity Payment Prior Amount of Mortgage Principal
Description Rate Date Terms Liens Mortgage (1) or Interest
- -------------------------- -------- ------------ -------- ----- ---------- ------------- -----------
<S> <C>
Perkins - Myrtle Beach, FL
First Mortgage 10.25% July 2000 (2) $ - $1,040,000 $ 883,417 $ -
Ponderosa - St. Cloud, FL
First Mortgage 10.75% October 2011 (3) - 1,057,299 874,750 -
----- ---------- ---------- ----------
Total $ - $2,097,299 $1,758,167(4) $ -
===== ========== ========== ==========
</TABLE>
(1) The tax carrying value of the notes are $1,796,264, which are net of
deferred gains of $310,442.
(2) Monthly payments of principal and interest at an annual rate of 10.25%,
with a balloon payment at maturity of $1,006,004.
(3) Twelve monthly payments of interest only and 168 equal monthly payments
of principal and interest at an annual rate of 10.75%.
(4) The changes in the carrying amounts are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -------
<S> <C>
Balance at beginning of
period $1,772,858 $ 895,736 $ -
New mortgage loan - 1,057,299 1,040,000
Interest earned 211,263 126,533 43,974
Collections of principal
and interest (227,316) (123,832) (46,597)
Deferred gain on sale
of land and building - (183,802) (141,641)
Recognition of deferred
gain on sale of land
and building 1,362 924 -
---------- ---------- ---------
Balance at end of period $1,758,167 $1,772,858 $ 895,736
========== ========== ==========
</TABLE>
F-8
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number Page
3.1 Amended and Restated Affidavit and Certificate of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit
3.1 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
4.1 Amended and Restated Affidavit and Certificate of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit
3.1 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
4.2 Amended and Restated Certificate and Agreement of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit
4.2 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
10.1 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 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 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.)
i
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund V, Ltd. at December 31, 1997, and its statement of
income for the year then ended and is qualified in its entirety by reference to
the Form 10-K of CNL Income Fund V, Ltd. for the year ended December 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,361,290
<SECURITIES> 0
<RECEIVABLES> 246,153
<ALLOWANCES> 137,892
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 14,365,501
<DEPRECIATION> 1,944,358
<TOTAL-ASSETS> 19,718,430
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,520,534
<TOTAL-LIABILITY-AND-EQUITY> 19,718,430
<SALES> 0
<TOTAL-REVENUES> 2,037,133
<CGS> 0
<TOTAL-COSTS> 565,465
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,007
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,731,915
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,731,915
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,731,915
<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>
