FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended March 31, 1999
-------------------------------------------------
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
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
- ------------------------------------------ ---------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
---------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
<PAGE>
CONTENTS
Part I Page
----
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
Part II
Other Information 17-18
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
March 31, December 31,
1999 1998
------------------ -------------------
ASSETS
Landand buildings on operating leases, less
accumulated depreciation of
$1,819,239 and $1,895,755 and allowance for
loss on land and buildings of $653,851
in 1999 and 1998 $ 9,695,760 $ 10,660,128
Net investment in direct financing leases 1,699,719 1,708,966
Investment in joint ventures 2,277,228 2,282,012
Mortgage notes receivable, less deferred gain 1,649,736 1,748,060
Cash and cash equivalents 1,764,502 352,648
Receivables, less allowance for doubtful accounts
of $141,505 in 1999 and 1998 29,299 87,490
Prepaid expenses 7,626 1,872
Accrued rental income 254,992 239,963
Other assets 54,346 54,346
------------------ -------------------
$ 17,433,208 $ 17,135,485
================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 32,014 $ 7,546
Accrued and escrowed real estate taxes payable 12,903 10,361
Distributions payable 500,000 500,000
Due to related parties 268,812 228,448
Rents paid in advance 37,775 6,112
------------------ -------------------
Total liabilities 851,504 752,467
Commitment (Note 6)
Minority interest 151,531 155,916
Partners' capital 16,430,173 16,227,102
------------------ -------------------
$ 17,433,208 $ 17,135,485
================== ===================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended
March 31,
1999 1998
--------------- --------------
Revenues:
Rental income from operating leases $ 284,961 $ 300,322
Earned income from direct financing leases 45,883 59,541
Contingent rental income 8,087 25,898
Interest and other income 58,654 92,358
--------------- --------------
397,585 478,119
--------------- --------------
Expenses:
General operating and administrative 36,114 38,554
Professional services 5,392 4,018
Real estate taxes 7,805 6,664
State and other taxes 5,957 7,747
Depreciation 64,112 67,206
Transaction costs 31,470 --
--------------- --------------
150,850 124,189
--------------- --------------
Income Before Minority Interest in Loss of
Consolidated Joint Venture, Equity in Earnings
of Unconsolidated Joint Ventures and Gain on
Sale of Land and Buildings 246,735 353,930
Minority Interest in Loss of Consolidated Joint Venture 4,385 5,417
Equity in Earnings of Unconsolidated Joint Ventures 56,838 35,221
Gain on Sale of Land and Buildings 395,113 441,613
--------------- --------------
Net Income $ 703,071 $ 836,181
=============== ==============
Allocation of Net Income:
General partners $ 5,435 $ 7,089
Limited partners 697,636 829,092
--------------- --------------
$ 703,071 $ 836,181
=============== ==============
Net Income Per Limited Partner Unit $ 13.95 $ 16.58
=============== ==============
Weighted Average Number of Limited Partner
Units Outstanding 50,000 50,000
=============== ==============
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Quarter Ended Year Ended
March 31, December 31,
1999 1998
------------------ -----------------
General partners:
Beginning balance $ 503,730 $ 493,982
Net income 5,435 9,748
------------------ -----------------
509,165 503,730
------------------ -----------------
Limited partners:
Beginning balance 15,723,372 18,026,552
Net income 697,636 1,535,147
Distributions ($10.00 and $76.77 per
limited partner unit, respectively) (500,000 ) (3,838,327 )
------------------ -----------------
15,921,008 15,723,372
------------------ -----------------
Total partners' capital $ 16,430,173 $ 16,227,102
================== =================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1999 1998
-------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 520,276 $ 460,505
-------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 1,113,759 2,125,220
Additions to land and building on operating lease -- (125,000 )
Collections on mortgage note receivable 277,819 4,788
-------------- ---------------
Net cash provided by investing activities 1,391,578 2,005,008
-------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (500,000 ) (575,000 )
-------------- ---------------
Net cash used in financing activities (500,000 ) (575,000 )
-------------- ---------------
Net Increase in Cash and Cash Equivalents 1,411,854 1,890,513
Cash and Cash Equivalents at Beginning of Quarter 352,648 1,361,290
-------------- ---------------
Cash and Cash Equivalents at End of Quarter $1,764,502 $3,251,803
============== ===============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Deferred real estate disposition fees incurred
and unpaid at end of quarter $ -- $ 65,400
============== ===============
Distributions declared and unpaid at end of
quarter $ 500,000 $2,338,327
============== ===============
See accompanying notes to condensed financial statements.
</TABLE>
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter ended March 31, 1999, may not be indicative of the results
that may be expected for the year ending December 31, 1999. Amounts as
of December 31, 1998, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund V, Ltd. (the "Partnership") for the year ended December 31,
1998.
The Partnership accounts for its 66.5% interest in CNL/Longacre Joint
Venture using the consolidation method. Minority interest represents
the minority joint venture partner's proportionate share of the equity
in the Partnership's consolidated joint venture. All significant
intercompany accounts and transactions have been eliminated.
2. Land and Buildings on Operating Leases:
During the quarter ended March 31, 1999, the Partnership sold its
properties in Endicott and Ithaca, New York, to the tenant for a total
of $1,125,000 and received net sales proceeds of $1,113,759 resulting
in a total gain of $213,503 for financial reporting purposes. These
properties were originally acquired by the Partnership in December 1989
and had costs totaling approximately $942,600, excluding acquisition
fees and miscellaneous acquisition expenses; therefore, the Partnership
sold these properties for a total of approximately $171,200 in excess
of their original purchase prices.
3. Mortgage Notes Receivable:
As of December 31, 1998, the Partnership had accepted two promissory
notes in connection with the sale of two of its properties. During the
quarter ended March 31, 1999, the borrower relating to the promissory
note accepted in connection with the sale of the property in St. Cloud,
Florida, made an advance payment of principal in the amount of $272,500
which was applied to the outstanding principal balance relating to this
promissory note. As a result of the advance payment of principal, the
Partnership recognized the remaining gain of $181,610 relating to this
property, in accordance with Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate."
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
4. Merger Transaction:
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to
which the Partnership would be merged with and into a subsidiary of APF
(the "Merger"). As consideration for the Merger, APF has agreed to
issue 2,049,031 shares of its common stock, par value $0.01 per share
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the
price paid by APF investors in three previous public offerings, the
most recent of which was completed in December 1998. In order to assist
the general partners in evaluating the proposed merger consideration,
the general partners retained Valuation Associates, a nationally
recognized real estate appraisal firm, to appraise the Partnership's
restaurant property portfolio. Based on Valuation Associates'
appraisal, the Partnership's property portfolio and other assets were
valued on a going concern basis (meaning the Partnership continues
unchanged) at $20,212,956 as of December 31, 1998. Legg Mason Wood
Walker, Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a
financial point of view. The APF Shares are expected to be listed for
trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and, therefore, would be freely tradable at
the option of the former limited partners. At a special meeting of the
partners that is expected to be held in the third quarter of 1999,
limited partners holding in excess of 50% of the Partnership's
outstanding limited partnership interests must approve the Merger prior
to consummation of the transaction. If the limited partners at the
special meeting approve the Merger, APF will own the properties and
other assets of the Partnership. The general partners intend to
recommend that the limited partners of the Partnership approve the
Merger. In connection with their recommendation, the general partners
will solicit the consent of the limited partners at the special
meeting. If the limited partners reject the Merger, the Partnership
will bear the portion of the transaction costs based upon the
percentage of "For" votes and the general partners will bear the
portion of such transaction costs based upon the percentage of
"Against" votes and abstentions.
On May 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in
connection with the proposed Merger (see Part II - Item 1. Legal
Proceedings). The general partners and APF believe that the lawsuit is
without merit and intend to defend vigorously against the claims.
Because the lawsuit was so recently filed, it is premature to further
comment on the lawsuit at this time.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
5. Concentration of Credit Risk:
The following schedule presents total rental, earned, and mortgage
interest income from individual lessees and borrowers, each
representing more than ten percent of the Partnership's total rental,
earned, and mortgage interest income (including the Partnership's share
of total rental and earned income from joint ventures and properties
held as tenants-in-common with affiliates), for each of the quarters
ended March 31:
1999 1998
------------ -------------
Golden Corral Corporation $48,878 N/A
Slaymaker Group, Inc. 46,131 N/A
In addition, the following schedule presents total rental, earned, and
mortgage interest income from individual restaurant chains, each
representing more than ten percent of the Partnership's rental, earned,
and mortgage interest income (including the Partnership's share of
total rental and earned income from joint ventures and properties held
as tenants-in-common with affiliates) for each of the quarters ended
March 31:
1999 1998
-------------- -------------
Golden Corral $48,878 $ N/A
Tony Roma's 46,131 N/A
Denny's N/A 50,175
The information denoted by N/A indicates that for the applicable period
presented, the tenant and the chain did not represent more than ten
percent of the Partnership's total rental, earned, and mortgage
interest income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains, could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
6. Commitment:
During the quarter ended March 31, 1999, Halls Joint Venture (in which
the Partnership owns a 48.9% interest) entered into an agreement with
the tenant to sell the property owned by the joint venture. The general
partners believe that the anticipated sale price will exceed the net
carrying value of the property. As of May 13, 1999, the sale had not
occurred.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
7. Subsequent Event:
In April 1999, the Partnership collected the remaining outstanding
balance relating to the promissory note collateralized by the property
in St. Cloud, Florida (see Note 3).
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CNL Income Fund V, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 17, 1988, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as land upon which restaurants were to be
constructed, which are leased primarily to operators of national and regional
fast-food and family-style restaurant chains (collectively, the "Properties").
The leases generally are triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of March
31, 1999, the Partnership owned 23 Properties, which included interests in four
Properties owned by joint ventures in which the Partnership is a co-venturer and
two Properties owned with affiliates as tenants-in-common.
Liquidity and Capital Resources
- -------------------------------
During the quarters ended March 31, 1999 and 1998, the Partnership
generated cash from operations (which includes cash received from tenants,
distributions from joint ventures, and interest and other income received, less
cash paid for expenses). Cash from operations was $520,276 and $460,505 for the
quarters ended March 31, 1999 and 1998, respectively. The increase in cash from
operations for the quarter ended March 31, 1999, is primarily a result of
changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
quarter ended March 31, 1999.
During the quarter ended March 31, 1999, the Partnership sold its
Properties in Endicott and Ithaca, New York to the tenant for a total of
$1,125,000 and received net sales proceeds of $1,113,759 resulting in a total
gain of $213,503 for financial reporting purposes. These Properties were
originally acquired by the Partnership in December 1989 and had costs totalling
approximately $942,600, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the Properties for approximately
$171,200 in excess of their original purchase prices. The proceeds received from
the sale of these Properties will be used to reinvest in additional Properties
or use for other Partnership purposes.
As of December 31, 1998, the Partnership had accepted two promissory
notes in connection with the sale of two of its Properties. During the three
months ended March 31, 1999, the borrower relating to the promissory note
accepted in connection with the sale of the Property in St. Cloud, Florida, made
an advance payment of $272,500 which was applied to the outstanding principal
balance relating to this promissory note. The Partnership intends to reinvest
the $272,500 payment in an additional Property. In April 1999, the Partnership
collected the remaining outstanding balance relating to the promissory note
collateralized by the Property in St. Cloud, Florida. The Partnership intends to
reinvest the amounts collected in additional Properties or use for other
Partnership purposes.
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Currently, rental income from the Partnership's Properties and any net
sales proceeds held by the Partnership pending reinvestment in additional
Properties, are invested in money market accounts or other short-term, highly
liquid investments pending the Partnership's use of such funds to pay
Partnership expenses, to make distributions to the partners and, for net sales
proceeds, to reinvest in additional Properties. At March 31, 1999, the
Partnership had $1,764,502 invested in such short-term investments, as compared
to $352,648 at December 31, 1998. The increase in cash and cash equivalents for
the quarter ended March 31, 1999, is primarily attributable to the receipt of
net sales proceeds relating to the sales of the Properties in Endicott and
Ithaca, New York, as described above. The funds remaining at March 31, 1999,
will be used towards the reinvestment of net sales proceeds in a replacement
Property, payment of distributions and other liabilities.
Total liabilities of the Partnership increased to $851,504 at March 31,
1999, from $752,467 at December 31, 1998, partially due to the Partnership
accruing transaction costs relating to the proposed Merger with CNL American
Properties Fund, Inc. ("APF"), as described below. The increase in liabilities
is also partially a result of an increase in rents paid in advance at March 31,
1999, as compared to December 31, 1998 and an increase in amounts due to related
parties. Liabilities at March 31, 1999, to the extent they exceed cash and cash
equivalents at March 31, 1999 (excluding amounts held representing net sales
proceeds from the sale of Properties and collections from the advanced payment
under the promissory note, as described above), will be paid from future cash
from operations, or in the event the general partners elect to make capital
contributions, from future general partner contributions.
During the quarter ended March 31, 1999, Halls Joint Venture (in which
the Partnership owns a 48.9% interest) entered into an agreement with the tenant
to sell the Property owned by the joint venture. The general partners believe
that the anticipated sale price will exceed the net carrying value of the
Property. As of May 13, 1999, the sale had not occurred.
Based on current and anticipated future cash from operations, and for
the quarter ended March 31, 1998, proceeds received from the sales of
Properties, the Partnership declared distributions to the limited partners of
$500,000 and $2,338,327 for the quarters ended March 31, 1999 and 1998,
respectively. This represents distributions for the quarters ended March 31,
1999 and 1998 of $10.00 and $46.77 per unit, respectively. Distributions for the
quarter ended March 31, 1998, included $1,838,327 as a result of the
distribution of net sales proceeds from the sale of Properties, as described
above. The reduced number of Properties for which the Partnership receives
rental payments, as well as ongoing operations, reduced the Partnership's
revenues in 1998 and is expected to reduce the Partnership's revenues in
subsequent years. The decrease in Partnership revenues, combined with the fact
that a significant portion of the Partnership's expenses are fixed in nature,
resulted in a decrease in cash distributions to the limited partners. No
distributions were made to the general partners for the quarters ended March 31,
1999 and 1998. No amounts distributed to the limited partners for the quarters
ended March 31, 1999 and 1998, 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.
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who meet specified
financial standards minimizes the Partnership's operating expenses. The general
partners believe that the leases will continue to generate cash flow in excess
of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF (the "Merger"). APF is a real estate investment trust
whose primary business is the ownership of restaurant properties leased on a
long-term, "triple-net" basis to operators of national and regional restaurant
chains. APF has agreed to issue shares of its common stock, par value $0.01 per
share (the "APF Shares"), as consideration for the Merger. APF has agreed to
issue 2,049,031 APF Shares which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the price paid
by APF investors in three previous public offerings, the most recent of which
was completed in December 1998. In order to assist the general partners in
evaluating the proposed merger consideration, the general partners retained
Valuation Associates, a nationally recognized real estate appraisal firm, to
appraise the Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other assets
were valued on a going concern basis (meaning the Partnership continues
unchanged) at $20,212,956 as of December 31, 1998. Legg Mason Wood Walker,
Incorporated has rendered a fairness opinion that the APF Share consideration,
payable by APF, is fair to the Partnership from a financial point of view. The
APF Shares are expected to be listed for trading on the New York Stock Exchange
concurrently with the consummation of the Merger, and therefore, would be freely
tradable at the option of the former limited partners. At a special meeting of
the partners that is expected to be held in the third quarter of 1999, limited
partners holding in excess of 50% of the Partnership's outstanding limited
partnership interests must approve the Merger prior to consummation of the
transaction. If the limited partners at the special meeting approve the Merger,
APF will own the Properties and other assets of the Partnership. The general
partners intend to recommend that the limited partners of the Partnership
approve the Merger. In connection with their recommendation, the general
partners will solicit the consent of the limited partners at the special
meeting. If the limited partners reject the Merger, the Partnership will bear
the portion of transaction costs based upon the percentage of "For" votes and
the general partners will bear the portion of such transaction costs based upon
the percentage of "Against" votes and abstentions.
On May 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in connection with
the proposed Merger (see Part II - Item 1. Legal Proceedings). The general
partners and APF believe that the lawsuit is without merit and intend to defend
vigorously against the claims. Because the lawsuit was so recently filed, it is
premature to further comment on the lawsuit at this time.
<PAGE>
Results of Operations
- ---------------------
During the quarter ended March 31, 1998, the Partnership and its
consolidated joint venture, CNL/Longacre Joint Venture, owned and leased 22
wholly owned Properties (which included two Properties which were sold during
1998), and during the quarter ended March 31, 1999, the Partnership and
CNL/Longacre Joint Venture owned and leased 20 wholly owned Properties (which
included two Properties which were sold in March 1999), to operators of
fast-food and family-style restaurant chains. In connection therewith, during
the quarters ended March 31, 1999 and 1998, the Partnership and CNL/Longacre
Joint Venture earned $330,844 and $359,863, respectively, in rental income from
operating leases and earned income from direct financing leases. Rental and
earned income decreased by approximately $20,000 during the quarter ended March
31, 1999, as compared to the quarter ended March 31, 1998, as a result of the
sales of the Properties in Port Orange, Florida and Tyler, Texas during 1998.
Rental and earned income also decreased during the quarter ended March
31, 1999 as compared to the quarter ended March 31, 1998, by approximately
$13,000 due to the fact that, in August 1998, the Partnership terminated the
lease with the tenant of the Property in Daleville, Indiana due to financial
difficulties the tenant is experiencing. The Partnership is currently seeking a
new tenant or purchaser for this Property. The Partnership will not recognize
any rental income relating to this Property until such time as the Partnership
executes a new lease or until the Property is sold and the proceeds from such
sale are reinvested in an additional Property.
The decrease in rental and earned income was partially offset by an
increase of approximately $9,000 during the quarter ended March 31, 1999
resulting from the Partnership entering into a new lease for the Property in
South Haven, Michigan as of March 31, 1998.
Rental and earned income during the quarters ended March 31, 1999 and
1998, continued to remain at reduced amounts due to the fact that the
Partnership is not receiving any rental income relating to the Properties in
Belding, Michigan and Lebanon, New Hampshire. Rental and earned income are
expected to remain at reduced amounts until such time as the Partnership
executed new leases or until the Properties are sold and the proceeds from such
sales are reinvested in additional Properties.
For the quarters ended March 31, 1999 and 1998, the Partnership also
earned $8,087 and $25,898, respectively, in contingent rental income. The
decrease in contingent rental income during the quarter ended March 31, 1999, as
compared to the quarter ended March 31, 1998, is partially attributable to a
decrease in gross sales of certain restaurant Properties, the leases of which
require the payment of contingent rental income. The decrease in contingent
rental income is also attributable to the sale of a Property, the lease of which
required the payment of contingent rental income.
For the quarters ended March 31, 1999 and 1998, the Partnership owned
and leased two Properties indirectly through joint venture arrangements and two
Properties as tenants-in-common with affiliates of the general partners. In
addition, during the quarter ended March 31, 1999, the Partnership owned and
leased an additional Property indirectly through a joint venture arrangement. In
connection therewith, the Partnership earned $56,838 and $35,221, respectively,
attributable to net income earned by unconsolidated joint ventures in which the
Partnership is a
<PAGE>
Results of Operations - Continued
- ---------------------------------
co-venturer. The increase in net income earned by these joint ventures during
the quarter ended March 31, 1999, as compared March 31, 1998, is primarily
attributable to the fact that in May 1998 the Partnership reinvested net sales
proceeds from the sale of the Property in Tyler, Texas, in RTO Joint Venture
with an affiliate of the general partners.
During the quarters ended March 31, 1999 and 1998, the Partnership also
earned $58,654 and $92,358, respectively, in interest and other income. Interest
and other income was higher during the quarter ended March 31, 1998, partially
due to the fact that during the quarter ended March 31, 1998, the Partnership
earned interest on the net sales proceeds relating to the sale of the Properties
in Tyler, Texas, and Port Orange, Florida, pending the reinvestment of the net
sales proceeds in additional Properties. The decrease was also partially
attributable to a reduction in the interest earned on the mortgage note accepted
in connection with the sale of the Property located in St. Cloud, Florida due to
the fact that the tenant made an advance payment of principal in the amount of
$272,500 during the quarter ended March 31, 1999, as described above in
"Liquidity and Capital Resources."
During the quarter ended March 31, 1999, Slaymaker Group, Inc. and
Golden Corral Corporation, two lessees of the Partnership and its consolidated
joint venture, each contributed more than ten percent of the Partnership's total
rental, earned, and mortgage interest income (including rental and earned income
from the Partnership's consolidated joint venture, the Partnership's share of
the rental and earned income from Properties owned by unconsolidated joint
ventures and Properties owned with affiliates of the general partners as
tenants-in-common). As of March 31, 1999, Slaymaker Group, Inc. was the lessee
under a lease relating to one restaurant and Golden Corral Corporation was the
lessee under the leases relating to two restaurants. It is anticipated that,
based on the minimum rental payments required by the leases, these lessees will
continue to contribute more than ten percent of the Partnership's total rental
income during the remainder of 1999. In addition, during the quarter ended March
31, 1999, two restaurant chains, Golden Corral and Tony Roma's, each accounted
for more than ten percent of the Partnership's total rental, earned, and
mortgage interest income (including rental and earned income from the
Partnership's consolidated joint venture, the Partnership's share of the rental
and earned income from Properties owned by unconsolidated joint ventures and
Properties owned with affiliates of the general partners as tenants-in-common).
It is anticipated that each of these restaurant chains will continue to account
for more than ten percent of the total rental income to which the Partnership is
entitled under the terms of its leases. Any failure of these lessees or
restaurant chains could materially affect the Partnership's income if the
Partnership is not able to re-lease the Properties in a timely manner.
Operating expenses, including depreciation expense, were $150,850 and
$124,189 for the quarters ended March 31, 1999 and 1998, respectively. The
increase in operating expenses during the quarter ended March 31, 1999 as
compared to the quarter ended March 31, 1998, was primarily attributable to the
fact that the Partnership incurred $31,470 in transaction costs relating to the
general partners retaining financial and legal advisors to assist them in
evaluating and negotiating the proposed Merger with APF, as described above in
"Liquidity and Capital Resources." If the limited partners reject the Merger,
the Partnership will bear the portion of the transaction costs based on the
percentage of "For" votes and the general partners will bear the portion of the
transaction costs based on the percentage of "Against" votes and abstentions.
<PAGE>
Results of Operations - Continued
- ---------------------------------
Due to tenant defaults under the terms of the lease arrangements for
the Properties in Belding, Michigan, Daleville, Indiana, and Lebanon, New
Hampshire, the Partnership and its consolidated joint venture, CNL/Longacre
Joint Venture, incurred and expects to continue to incur operating expenses
relating to such Properties until the Properties are sold or re-leased to new
tenants.
As a result of the sale of the Properties in Myrtle Beach, South
Carolina and St. Cloud, Florida in 1995 and 1996, respectively, and recording
the gains from such sales using the installment method, the Partnership
recognized gains for financial reporting purposes of $181,610 and $791 during
the quarters ended March 31, 1999 and 1998, respectively. The increase in the
gain recognized is due to the fact that during the quarter ended March 31, 1999,
the Partnership collected advance payments of principal relating to the
promissory note collateralized by a Property in St. Cloud, Florida, as described
above in "Liquidity and Capital Resources," which accelerated the recognition of
the gain for financial reporting purposes.
As a result of the sales of the Properties in Endicott and Ithaca, New
York, and the sales of the Properties in Port Orange, Florida and Tyler, Texas,
the Partnership recognized total gains of $213,503 and $440,822, respectively,
for financial reporting purposes during the quarters ended March 31, 1999 and
1998, respectively.
Year 2000 Readiness Disclosure
- ------------------------------
The Year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. The Partnership does not have any
information or non-information technology systems. The general partners and
affiliates of the general partners provide all services requiring the use of
information and non-information technology systems pursuant to a management
agreement with the Partnership. The information technology system of the
affiliates of the general partners consists of a network of personal computers
and servers built using hardware and software from mainstream suppliers. The
non-information technology systems of the affiliates of the general partners are
primarily facility related and include building security systems, elevators,
fire suppressions, HVAC, electrical systems and other utilities. The affiliates
of the general partners have no internally generated programmed software coding
to correct, because substantially all of the software utilized by the general
partners and affiliates is purchased or licensed from external providers. The
maintenance of non-information technology systems at the Partnership's
Properties is the responsibility of the tenants of the Properties in accordance
with the terms of the Partnership's leases.
In early 1998, the general partners and affiliates formed a Year 2000
committee (the "Y2K Team") for the purpose of identifying, understanding and
addressing the various issues associated with the Year 2000 problem. The Y2K
Team consists of the general partners and members from the affiliates of the
general partners, including representatives from senior management, information
systems, telecommunications, legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have
<PAGE>
Year 2000 Readiness Disclosure - Continued
- ------------------------------------------
potential Year 2000 problems. The Y2K Team is in the process of conducting
inspections, interviews and tests to identify which of the Partnership's systems
could have a potential Year 2000 problem.
The information system of the affiliates of the general partners is
comprised of hardware and software applications from mainstream suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and manufacturers to verify the Year 2000 compliance of their products. In
addition, the Y2K Team has also requested and is evaluating documentation from
other companies with which the Partnership has a material third party
relationship, including the Partnership's tenants, vendors, financial
institutions and the Partnership's transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. The Y2K Team has also requested and is evaluating documentation
from the non-information technology systems providers of the affiliates of the
general partners. Although the general partners continue to receive positive
responses from the Companies with which the Partnership has third party
relationships regarding their Year 2000 compliance, the general partners cannot
be assured that the tenants, financial institutions, transfer agent, other
vendors and system providers have adequately considered the impact of the Year
2000. The general partners are not able to measure the effect on the operations
of the Partnership of any third party's failure to adequately address the impact
of the Year 2000.
The general partners and their affiliates have identified and have
implemented upgrades for certain hardware equipment. In addition, the general
partners and their affiliates have identified certain software applications
which will require upgrades to become Year 2000 compliant. The general partners
expect all of these upgrades, as well as any other necessary remedial measures
on the information technology systems used in the business activities and
operations of the Partnership, to be completed by September 30, 1999, although,
the general partners cannot be assured that the upgrade solutions provided by
the vendors have addressed all possible Year 2000 issues. The general partners
do not expect the aggregate cost of the Year 2000 remedial measures to be
material to the results of operations of the Partnership.
The general partners and affiliates have received certification from
the Partnership's transfer agent of its Year 2000 compliance. Due to the
material relationship of the Partnership with its transfer agent, the Y2K Team
is evaluating the Year 2000 compliance of the systems of the transfer agent and
expects to have the evaluation completed by September 30, 1999. Despite the
positive response from the transfer agent and the evaluation of the transfer
agent's system by the Y2K Team, the general partners cannot be assured that the
transfer agent has addressed all possible Year 2000 issues. In the event that
the systems of the transfer agent are not Year 2000 compliant, the general
partners and their affiliates would have to allocate resources to internally
perform the functions of the transfer agent. The general partners do not
anticipate that the additional cost of these resources would have a material
impact on the Partnership.
<PAGE>
Year 2000 Readiness Disclosure - Continued
- ------------------------------------------
Based upon the progress the general partners and affiliates have made
in addressing the Year 2000 issues and their plan and timeline to complete the
compliance program, the general partners do not foresee significant risks
associated with Year 2000 compliance at this time. The general partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership being affected by them; therefore, they have not developed a
comprehensive contingency plan. However, if the general partners and their
affiliates identify significant risks related to their Year 2000 compliance, or
if their progress deviates from the anticipated timeline, the general partners
and their affiliates will develop contingency plans as deemed necessary at that
time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes in the Partnership's market risk occurred from
December 31, 1998 through March 31, 1999. Information regarding the
Partnership's market risk at December 31, 1998 is included in its Annual Report
on Form 10-K for the year ended December 31, 1998.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 5, 1999, four limited partners in several of the CNL
Income Funds filed a lawsuit, Jon Hale, Mary J. Hewitt,
Charles A. Hewitt, and Gretchen M. Hewitt v. James M. Seneff,
Jr., Robert A. Bourne, CNL Realty Corporation, and CNL
American Properties Fund, Inc., Case No. CIO-99-0003561, in
the Circuit Court of the Ninth Judicial Circuit of Orange
County, Florida, alleging that the Messrs. Seneff and Bourne
and CNL Realty Corporation, as general partners of the CNL
Income Funds, breached their fiduciary duties and violated the
provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed acquisition of the
CNL Income Funds by APF. The plaintiffs are seeking
unspecified damages and equitable relief. The general partners
and APF believe that the lawsuit is without merit and intend
to defend vigorously against such claims. Because the lawsuit
was so recently filed, it is premature to further comment on
the lawsuit at this time.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger by and between
the Registrant and CNL American Properties
Fund, Inc. ("APF") to the Prospectus
Supplement for the Registrant, constituting
a part of the Registration Statement of APF
on Form S-4, File No. 74329.)
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 be reference.)
<PAGE>
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.)
(b) Reports on Form 8-K
Current Report on Form 8-K dated March 11, 1999 and
filed March 12, 1999, describing the proposed merger
of the Partnership with and into a subsidiary of CNL
American Properties Fund, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 17th day of May, 1999
CNL INCOME FUND V, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
---------------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
---------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund V, Ltd. at March 31, 1999, and its statement of income
for the three months then ended and is qualified in its entirety by reference to
the Form 10-Q of CNL Income Fund V, Ltd. for the three months ended March 31,
1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,764,502
<SECURITIES> 0
<RECEIVABLES> 170,804
<ALLOWANCES> 141,505
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 11,514,999
<DEPRECIATION> 1,819,239
<TOTAL-ASSETS> 17,433,208
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,430,173
<TOTAL-LIABILITY-AND-EQUITY> 17,433,208
<SALES> 0
<TOTAL-REVENUES> 397,585
<CGS> 0
<TOTAL-COSTS> 150,850
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 703,071
<INCOME-TAX> 0
<INCOME-CONTINUING> 703,071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 703,071
<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>
