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 June 30, 1999
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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
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CNL Income Fund V, Ltd.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-2922869
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
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</TABLE>
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
Condensed Statements of Income
Condensed Statements of Partners' Capital
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II
Other Information
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
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<S> <C>
ASSETS
Landand buildings on operating leases, less
accumulated depreciation of $1,879,306 and
$1,895,755, respectively and allowance for
loss on land and buildings of $653,851 in
1999 and 1998 $ 9,635,693 $ 10,660,128
Net investment in direct financing leases 1,690,306 1,708,966
Investment in joint ventures 2,392,506 2,282,012
Mortgage notes receivable, less deferred gain 872,380 1,748,060
Cash and cash equivalents 2,393,763 352,648
Receivables, less allowance for doubtful accounts
of $140,973 and $141,505, respectively 36,368 87,490
Prepaid expenses 7,068 1,872
Accrued rental income 270,021 239,963
Other assets 54,346 54,346
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$ 17,352,451 $ 17,135,485
================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 75,710 $ 7,546
Accrued and escrowed real estate taxes payable 20,068 10,361
Distributions payable 500,000 500,000
Due to related parties 284,333 228,448
Rents paid in advance 23,218 6,112
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Total liabilities 903,329 752,467
Commitments and Contingencies (Note 5)
Minority interest 146,744 155,916
Partners' capital 16,302,378 16,227,102
------------------ -------------------
$ 17,352,451 $ 17,135,485
================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------- ------------- ------------- ------------
<S> <C>
Revenues:
Rental income from operating leases $ 282,637 $ 285,286 $ 575,685 $ 611,506
Earned income from direct financing leases 45,717 42,802 91,600 102,343
Interest and other income 43,320 72,498 101,974 164,856
------------- ------------- ------------- ------------
371,674 400,586 769,259 878,705
------------- ------------- ------------- ------------
Expenses:
General operating and administrative 34,888 38,763 71,002 77,317
Bad debt expense -- 5,882 -- 5,882
Professional services 13,190 6,061 18,582 10,079
Real estate taxes 8,682 9,756 16,487 16,420
State and other taxes 447 1,911 6,404 9,658
Depreciation 60,067 62,771 124,179 129,977
Transaction costs 59,718 -- 91,188 --
------------- ------------- ------------- ------------
176,992 125,144 327,842 249,333
------------- ------------- ------------- ------------
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 Building 194,682 275,442 441,417 629,372
Minority Interest in Loss of Consolidated Joint
Venture 4,787 4,033 9,172 9,450
Equity in Earnings of Unconsolidated Joint 172,427 36,882 229,265 72,103
Ventures
Gain on Sale of Land and Buildings 309 992 395,422 442,605
Provision for Loss on Land and Building -- (152,633 ) -- (152,633 )
------------- ------------- ------------- ------------
Net Income $ 372,205 $ 164,716 $ 1,075,276 $ 1,000,897
============= ============= ============= ============
Allocation of Net Income:
General partners $ 3,722 $ (734 ) $ 9,157 $ 6,355
Limited partners 368,483 165,450 1,066,119 994,542
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$ 372,205 $ 164,716 $ 1,075,276 $ 1,000,897
============= ============= ============= ============
Net Income Per Limited Partner Unit $ 7.37 $ 3.31 $ 21.32 $ 19.89
============= ============= ============= ============
Weighted Average Number of Limited Partners
Units Outstanding 50,000 50,000 50,000 50,000
============= ============= ============= ============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1999 1998
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<S> <C>
General partners:
Beginning balance $ 503,730 $ 493,982
Net income 9,157 9,748
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512,887 503,730
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Limited partners:
Beginning balance 15,723,372 18,026,552
Net income 1,066,119 1,535,147
Distributions ($20.00 and $76.77 per
limited partner unit, respectively) (1,000,000 ) (3,838,327 )
----------------------- ----------------------
15,789,491 15,723,372
----------------------- ----------------------
Total partners' capital $ 16,302,378 $ 16,227,102
======================= ======================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
---------------- ---------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 879,145 $ 812,900
---------------- ---------------
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 )
Investment in joint venture -- (437,308 )
Collections on mortgage notes receivable 1,048,211 10,684
---------------- ---------------
Net cash provided by investing activities 2,161,970 1,573,596
---------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,000,000 ) (2,913,327 )
---------------- ---------------
Net cash used in financing activities (1,000,000 ) (2,913,327 )
---------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents 2,041,115 (526,831 )
Cash and Cash Equivalents at Beginning of Period 352,648 1,361,290
---------------- ---------------
Cash and Cash Equivalents at End of Period $2,393,763 $ 834,459
================ ===============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Deferred real estate disposition fees incurred
and unpaid at end of period $ -- $ 65,400
================ ===============
Distributions declared and unpaid at end
of period $ 500,000 $ 500,000
================ ===============
</TABLE>
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 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 and six months ended June 30, 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 six months ended June 30, 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. Investment in Joint Ventures:
In June 1999, Halls Joint Venture, in which the Partnership owns a
48.9% interest, sold its property to the tenant, in accordance with the
purchase option under the lease agreement, for $891,915. This resulted
in a gain to the joint venture of approximately $239,300 for financial
reporting purposes. The property was originally contributed to Halls
Joint Venture in February 1990 and had a total cost of approximately
$672,000, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the joint
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
3. Investment in Joint Ventures - Continued:
venture sold the property for approximately $219,900 in excess of its
original purchase price. The following presents the combined, condensed
financial information for all of the Partnership's investments in joint
ventures at:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
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<S> <C>
Land and buildings on
operating leases, less
accumulated depreciation $ 4,188,675 $4,812,568
Net investment in direct
financing lease 813,268 817,525
Cash 16,469 17,992
Restricted cash 887,114 --
Receivables 46 5,168
Prepaid expenses 498 458
Accrued rental income 76,713 112,279
Liabilities 44,127 46,398
Partners' capital 5,938,656 5,719,592
Revenues 326,204 555,103
Gain on sale of property 239,336 --
Net income 513,794 454,922
</TABLE>
The Partnership recognized income totaling $229,265 and $72,103 for the
six months ended June 30, 1999 and 1998, respectively, from these joint
venture, $172,427 and $36,882 of which was earned during the quarters
ended June 30, 1999 and 1998, respectively.
4. 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
six months ended June 30, 1999, the Partnership collected the
outstanding balance of $1,043,770 relating to the promissory note
accepted in connection with the sale of the property in St. Cloud,
Florida, and in connection therewith, 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 and Six Months Ended June 30, 1999 and 1998
5. Commitments and Contingencies:
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 1,024,516 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 $20.00 per APF Share, the
price paid by APF investors (after an adjustment for a one for two
reverse stock split effective June 3, 1999) 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. 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 fourth 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 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in
connection with the proposed Merger. On July 8, 1999, the plaintiffs
amended the complaint to add three additional limited partners as
plaintiffs. Additionally, on June 22, 1999, a limited partner in
certain of the CNL Income Funds served a lawsuit against the general
partners, APF and CNL Fund Advisors, Inc. and certain of its affiliates
in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend
vigorously against the claims. See Part II - Item 1. Legal Proceedings.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
6. Concentration of Credit Risk:
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 six months ended
June 30:
<TABLE>
<CAPTION>
1999 1998
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<S> <C>
Golden Corral $97,756 $97,756
Tony Roma's 92,190 92,735
Wendy's Old Fashioned Hamburger
Restaurants N/A 86,336
</TABLE>
The information denoted by N/A indicates that for the applicable period
presented, 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 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.
<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 June 30,
1999, the Partnership owned 22 Properties, which included interests in three
Properties owned by joint ventures in which the Partnership is a co-venturer and
two Properties owned with affiliates of the general partners as
tenants-in-common.
Capital Resources
During the six months ended June 30, 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) of $879,145 and $812,900, respectively. The increase in
cash from operations for the six months ended June 30, 1999, is primarily a
result of changes in income and expenses as described in "Results of Operations"
below and changes in the Partnership's working capital.
Other sources and uses of capital included the following during the six
months ended June 30, 1999.
During the six months ended June 30, 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 general partners
expect to use the proceeds received from the sale of these Properties to
reinvest in additional Properties or for other Partnership purposes.
In June 1999, Halls Joint Venture, in which the Partnership owns a
48.9% interest, sold its Property to the tenant in accordance with the option
under its lease agreement to purchase the Property, for $891,915, resulting in a
gain to the joint venture of approximately $239,300 for financial reporting
purposes. The property was originally contributed to Halls Joint Venture in
February 1990 and had a total cost of approximately $672,000, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the joint
venture sold the Property for approximately $219,900 in excess of its original
purchase price. The general partners believe that the transaction, or a portion
thereof, relating to the sale of the Property owned by Halls Joint Venture and
the reinvestment of the proceeds will qualify as a like-kind exchange
transaction for federal income tax purposes.
<PAGE>
As of December 31, 1998, the Partnership had accepted two promissory
notes in connection with the sale of two of its Properties. During the six
months ended June 30, 1999, the Partnership collected the outstanding balance of
$1,043,770 relating to the promissory note accepted in connection with the sale
of the Property in St. Cloud, Florida. The Partnership intends to reinvest the
amounts collected in additional Properties.
Currently, rental income from the Partnership's Properties, and any
amounts collected under its promissory notes, as described above, 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 such as demand deposit accounts at commercial banks,
certificates of deposit, and money market accounts with less than a 30-day
maturity date, pending the Partnership's use of such funds to pay Partnership
expenses, to make distributions to the partners and, for net sales proceeds, to
reinvest in additional Properties. At June 30, 1999, the Partnership had
$2,393,763 invested in such short-term investments, as compared to $352,648 at
December 31, 1998. The increase in cash and cash equivalents at June 30, 1999,
is primarily attributable to the receipt of net sales proceeds relating to the
sales of the Properties in Endicott and Ithaca, New York, and the receipt of the
remaining outstanding balance of the mortgage note receivable, relating to the
prior sale of a Property in St. Cloud, Florida, as described above. The funds
remaining at June 30, 1999, will be used towards the reinvestment in additional
Properties and to pay distributions and other liabilities.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who meet specified
financial standards minimizes the Partnership's operating expenses. The general
partners believe that the leases will continue to generate cash flow in excess
of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and anticipated future cash from operations, and for the six
months ended June 30, 1998, proceeds received from the sales of Properties, the
Partnership declared distributions to the limited partners of $1,000,000 and
$2,838,327 for the six months ended June 30, 1999 and 1998, respectively,
($500,000 for each of the quarters ended June 30, 1999 and 1998, respectively).
This represents distributions for the six months ended June 30, 1999 and 1998 of
$20.00 and $56.77 per unit, respectively ($10.00 per unit for each of the
quarters ended June 30, 1999 and 1998). Distributions for the six months ended
June 30, 1998, included $1,838,327 as a result of the distribution of net sales
proceeds from the sale of Properties. No distributions were made to the general
partners for the quarters and six months ended June 30, 1999 and 1998. No
amounts distributed to the limited partners for six months ended June 30, 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.
Total liabilities of the Partnership increased to $903,329 at June 30,
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 and an
increase in amounts due to related parties at June 30, 1999, as compared to
December 31, 1998. Liabilities at June 30, 1999, to the extent they exceed cash
and cash equivalents at June 30, 1999 (excluding amounts held representing net
sales proceeds from the sale of Properties and collections 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.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the six months ended June 30, 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 six months ended June 30, 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 with the Properties,
during the six months ended June 30, 1999 and 1998, the Partnership, and
CNL/Longacre Joint Venture, earned $667,285 and $713,849, respectively, in
rental income from operating leases and earned income from direct financing
leases, $328,354 and $328,088 of which was earned during the quarters ended June
30, 1999 and 1998, respectively. The decrease in rental and earned income during
the six months ended June 30, 1999, as compared to the six months ended June 30,
1998, is partially attributable to a decrease of approximately $39,600 as a
result of the sales of the Properties during 1999, as described above in
"Capital Resources," and 1998. The Partnership intends to reinvest the majority
of the net sales proceeds in additional Properties.
Rental and earned income also decreased by approximately $8,900 during
the six months ended June 30, 1999 due to the fact that in August 1998, the
tenant of the Property in Daleville, Indiana terminated the lease with the
Partnership. The Partnership is currently seeking a new tenant or purchaser for
this Property.
The decrease in rental and earned income during the six months ended
June 30, 1999, as compared to the six months ended June 30, 1998, was partially
offset by an increase of approximately $9,000 during the six months ended June
30, 1999, resulting from the Partnership entering into a new lease for the
Property in South Haven, Michigan during the six months ended June 30, 1998.
<PAGE>
Rental and earned income during the quarters and six months ended June
30, 1999 and 1998, continued to remain at reduced amounts due to the fact that
the Partnership is not receiving 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
executes new leases or until the Properties are sold and these proceeds from
such sales are reinvested in additional Properties. The Partnership is currently
seeking new tenants or purchasers for these Properties and the Property in
Daleville, Indiana, as described above.
During the six months ended June 30, 1999 and 1998, the Partnership
also owned and leased three Properties indirectly through joint venture
arrangements (which included one Property in Halls Joint Venture which was sold
in June 1999) and two Properties as tenants-in-common with affiliates of the
general partners. In connection therewith, during the six months ended June 30,
1999 and 1998, the Partnership earned $229,265 and $72,103, respectively,
$172,427 and $36,882 of which were earned during the quarters ended June 30,
1999 and 1998, respectively. The increase in net income earned by these joint
ventures during the quarter and six months ended June 30, 1999, as compared to
the quarter and six months ended June 30, 1998, is primarily attributable to the
fact that in June 1999, Halls Joint Venture, in which the Partnership owns a
48.9% interest, recognized a gain of approximately $239,300 for financial
reporting purposes as a result of the sale of its Property in June 1999, as
described above in "Capital Resources." Because the joint venture intends to
reinvest the sales proceeds in an additional Property, the Partnership does not
anticipate that the sale of the Property will have a material adverse effect on
operations. The increase during the quarter and six months ended June 30, 1999
is also 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 six months ended June 30, 1999 and 1998, the Partnership
also earned $101,974 and $164,856, respectively, in interest and other income,
$43,320 and $72,498 of which were earned during the quarters ended June 30, 1999
and 1998, respectively. The decrease during the quarter and six months ended
June 30, 1999 was 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 Partnership collected the
remaining outstanding balance of the mortgage note during the quarter and six
months ended June 30, 1999, as described above in "Capital Resources." Interest
and other income was also lower during the quarter and six months ended June 30,
1999, partially due to the fact that during the quarter and six months ended
June 30, 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.
During at least one of the six months ended June 30, 1999 and 1998,
three restaurant chains, Golden Corral Family Steakhouse Restaurants ("Golden
Corral") and Tony Roma's Famous for Ribs Restaurant ("Tony Roma's") and Wendy's
Old Fashioned Hamburger Restaurants ("Wendy'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
Golden Corral and Tony Roma's 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 for the remainder of 1999. Any failure of these 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 $327,842 and
$249,333 for the six months ended June 30, 1999 and 1998, respectively, of which
$176,992 and $125,144 were incurred for the quarters ended June 30, 1999 and
1998, respectively. The increase in operating expenses during the quarter and
six months ended June 30, 1999, as compared to the quarter and six months ended
June 30, 1998, was primarily attributable to the fact that the Partnership
incurred $59,718 and $91,188 during the quarter and six months ended June 30,
1999, respectively, 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 below. 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.
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, have incurred and expects to continue to incur operating expenses
such as repairs and maintenance, insurance, and real estate tax expenses,
relating to these 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 $181,919 and $1,783 during
the six months ended June 30, 1999 and 1998, respectively, $309 and $992 of
which were recognized during the quarters ended June 30, 1999 and 1998,
respectively. The increase in the gain recognized during the six months ended
June 30, 1999, as compared to the six months ended June 30, 1998, and the
decrease during the quarter ended June 30, 1999, is due to the fact that during
the six months ended June 30, 1999, the Partnership collected the remaining
outstanding balance relating to the promissory note collateralized by a Property
in St. Cloud, Florida, as described above in "Capital Resources," which resulted
in the recognition of the remaining deferred gain for financial reporting
purposes.
As a result of the 1999 sales of the Properties as described above in
"Capital Resources," and the 1998 sales of the Properties in Port Orange,
Florida and Tyler, Texas, the Partnership recognized total gains of $213,503 and
$440,822, for financial reporting purposes during the six months ended June 30,
1999 and 1998, respectively.
During the quarter and six months ended June 30, 1998, the Partnership
established an allowance for loss on land and building of $152,633 for financial
reporting purposes relating to the Property in Belding, Michigan, which is
vacant and which the Partnership has not successfully re-leased. The loss
represents the difference between the Property's carrying value at June 30, 1998
and the current estimate of net realizable value at June 30, 1998. No additional
allowance was deemed necessary for the quarter and six months ended June 30,
1999.
<PAGE>
Proposed Merger
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"). As consideration for the Merger, APF
has agreed to issue 1,024,516 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 $20.00 per APF Share, the price paid
by APF investors (after an adjustment for a one for two reverse stock split
effective June 3, 1999) 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. 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 fourth 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 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in connection with
the proposed Merger. On July 8, 1999, the plaintiffs amended the complaint to
add three additional limited partners as plaintiffs. Additionally, on June 22,
1999, a limited partner in certain of the CNL Income Funds served a lawsuit
against the general partners, APF and CNL Fund Advisors, Inc. and certain of its
affiliates in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend vigorously
against the claims. See Part II - Item 1. Legal Proceedings.
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. As of June 30, 1999 the
Partnership did not have any information or non-information technology systems.
The general partners and certain of the 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
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 certain of 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 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 that 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 their 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 will 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.
Based upon the progress the general partners and their 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, we 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 June 30, 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 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8,
1999, the plaintiffs filed an amended complaint which, in addition
to naming three additional plaintiffs, includes allegations of
aiding and abetting and conspiring to breach fiduciary duties,
negligence and breach of duty of good faith against certain of the
defendants and seeks additional equitable relief. As amended, the
caption of the case is Jon Hale, Mary J. Hewitt, Charles A.
Hewitt, Gretchen M. Hewitt Bernard J. Schulte, Edward M. and
Margaret Berol Trust, and Vicky Berol v. James M. Seneff, Jr.,
Robert A. Bourne, CNL Realty Corporation, and CNL American
Properties Fund, Inc., Case No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999
against the general partners and APF, Ira Gaines, individually and
on behalf of a class of persons similarly situated, v. CNL
American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc., CNL
Financial Corporation a/k/a CNL Financial Corp., CNL Financial
Services, Inc. and CNL Group, Inc., Case NO. CIO-99-3796, in the
Circuit Court of the Ninth Judicial Circuit of Orange County,
Florida, alleging that the general partners breached their
fiduciary duties and that APF aided and abetted their breach of
fiduciary duties in connection with the proposed Merger. The
plaintiff is seeking unspecified damages and equitable relief.
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.
<PAGE>
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") dated March 11, 1999 and
as amended June 4, 1999 (Filed as Appendix B
to the Prospectus Supplement for the
Registrant, constituting a part of Amendment
No. 1 to 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.)
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
No reports on Form 8-K were filed during the quarter
ended June 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 9th day of August, 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 June 30, 1999, and its statement of income
for the six months then ended and is qualified in its entirety by reference to
the Form 10-Q of CNL Income Fund V, Ltd. for the six months ended June 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,393,763
<SECURITIES> 0
<RECEIVABLES> 177,341
<ALLOWANCES> 140,973
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 11,514,999
<DEPRECIATION> 1,879,306
<TOTAL-ASSETS> 17,352,451
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,302,378
<TOTAL-LIABILITY-AND-EQUITY> 17,352,451
<SALES> 0
<TOTAL-REVENUES> 769,259
<CGS> 0
<TOTAL-COSTS> 327,842
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,075,276
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,075,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,076,276
<EPS-BASIC> 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>
