UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 0-19141
CNL INCOME FUND V, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2922869
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 650-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of limited partnership interest ($500 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $500 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
PART I
Item 1. Business
CNL Income Fund V, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 17, 1988. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on December 16, 1988, the
Partnership offered for sale up to $25,000,000 in limited partnership interests
(the "Units") (50,000 Units at $500 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended. The
offering terminated on June 7, 1989, as of which date the maximum offering
proceeds of $25,000,000 had been received from investors who were admitted to
the Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of national and regional fast-food and family-style restaurant chains
(the "Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totalled
$22,125,000, and were used to acquire 30 Properties, including interests in
three Properties owned by joint ventures in which the Partnership is a
co-venturer. During the year ended December 31, 1996, the Partnership sold its
Property in St. Cloud, Florida, to the tenant of the Property and accepted
$100,000 in cash and a promissory note for the remaining sales price of the
Property. During the year ended December 31, 1997, the Partnership sold its
Properties in Franklin and Smyrna, Tennessee; Salem, New Hampshire; Port St.
Lucie and Tampa, Florida, and Richmond, Indiana. The Partnership reinvested a
portion of these net sales proceeds in a Property in Houston, Texas and a
Property in Sandy, Utah. In addition, the Partnership reinvested a portion of
the net sales proceeds in a Property in Mesa, Arizona and a Property in
Vancouver, Washington, as tenants-in-common, with affiliates of the General
Partners. During the year ended December 31 1998, the Partnership also sold its
Properties in Port Orange, Florida, and Tyler, Texas. The Partnership used a
portion of the sales proceeds to enter into a joint venture arrangement, RTO
Joint Venture, with an affiliate of the Partnership which has the same General
Partners. As a result of the above transactions, the Partnership currently owns
25 Properties, including 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. Generally, the Properties are leased on a triple-net basis
with the lessees responsible for all repairs and maintenance, property taxes,
insurance and utilities.
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").
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. 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. See Item 8. Financial Statements and Supplementary Data -- Note 12.
Subsequent Event.
In the event that the Limited Partners vote against the Merger, the
Partnership will hold its Properties until the General Partners determine that
the sale or other disposition of the Properties is advantageous in view of the
Partnership's investment objectives. In deciding whether to sell Properties, the
General Partners will consider factors such as potential capital appreciation,
net cash flow and federal income tax considerations. Certain lessees also have
been granted options to purchase Properties, generally at the Property's then
fair market value after a specified portion of the lease term has elapsed. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property or joint venture
purchase options granted to certain lessees.
<PAGE>
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
the joint ventures in which the Partnership is a co-venturer provide for initial
terms, ranging from seven to 20 years (the average being 18 years) and expire
between 2001 and 2018. All leases are on a triple-net basis, with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities. The leases of the Properties provide for minimum base annual rental
payments (payable in monthly installments) ranging from approximately $38,500 to
$222,800. Generally, the leases provide for percentage rent, based on sales in
excess of a specified amount, to be paid annually. In addition, a majority of
the leases provide that, commencing in the sixth lease year, the percentage rent
will be an amount equal to the greater of (i) the percentage rent calculated
under the lease formula or (ii) a specified percentage (ranging from one-fourth
to five percent) of the purchase price paid by the Partnership for the Property.
Generally, the leases of the Properties provide for two to four
five-year renewal options subject to the same terms and conditions as the
initial lease. Certain lessees also have been granted options to purchase
Properties at the Property's then fair market value, or pursuant to a formula
based on the original cost of the Property, after a specified portion of the
lease term has elapsed.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership first must
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
The tenant relating to the Property in Lebanon, New Hampshire, in which
the Partnership has a 66.5% interest, defaulted under the terms of its
agreement, and in February 1995, ceased operations of the restaurant on the
Property. The Partnership is currently seeking a replacement tenant or a
purchaser for this Property.
In February 1994, the tenant of the Properties in Belding and South
Haven, Michigan, defaulted under the terms of its leases and a new operator
began occupying the Properties on a month-to-month basis for reduced rental
amounts. The new operator ceased operations of the Belding and South Haven
Properties in October 1994 and October 1995, respectively. In June 1997, the
Partnership entered into an operating agreement with a new operator for the
Property in South Haven, Michigan. In March 1998, the Partnership entered into a
new lease for the South Haven Property with the former operator as tenant, to
operate the Property. The lease terms of this Property are substantially the
same as the Partnership's other leases as described above in the first three
paragraphs of this section. The Partnership is currently seeking a replacement
tenant or a purchaser for the Property in Belding, Michigan.
In May 1998, the Partnership contributed a portion of the net sales
proceeds from the sale of the Property in Tyler, Texas in a joint venture
arrangement, RTO Joint Venture, with an affiliate of the Partnership which has
the same General Partners as described below in "Joint Venture Arrangements."
The lease terms for this Property are substantially the same as the
Partnership's other leases as described above in the first three paragraphs of
this section.
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.
During 1994, the lease relating to the Property in New Castle, Indiana
was amended to provide for the payment of reduced annual base rent with no
scheduled rent increases. However, the lease amendment provided for lower
percentage rent breakpoints, as compared to the original lease agreement, a
change that was designed to result in higher percentage rent payments at any
time that percentage rent became payable. This created rental payments under the
amended lease that were equal to or greater than the original lease during the
term of the lease. In accordance with a provision in the amendment, as a result
of the former tenant assigning the lease to a new tenant during 1998, the rent
under the assigned lease reverted back to those that were required under the
original lease agreement.
<PAGE>
Major Tenants
During 1998, Golden Corral Corporation contributed more than ten
percent of the Partnership's total rental and mortgage interest income
(including rental income from the Partnership's consolidated joint venture and
the Partnership's share of the rental income from three Properties owned by
unconsolidated joint ventures and two Properties owned with affiliates as
tenants-in-common). As of December 31, 1998, Golden Corral Corporation was the
lessee under leases relating to two restaurants. It is anticipated that, based
on the minimum rental payments required by the leases, this lessee will continue
to contribute more than ten percent of the Partnership's total rental and
mortgage interest income in 1999. In addition, two Restaurant Chains, Golden
Corral and Wendy's Old Fashioned Hamburger Restaurants, each accounted for more
than ten percent of the Partnership's total rental and mortgage interest income
in 1998 (including rental income from the Partnership's consolidated joint
venture and the Partnership's share of the rental income from three Properties
owned by unconsolidated joint ventures and two Properties owned with affiliates
as tenants-in-common). It is anticipated that these two Restaurant Chains each
will continue to account for more than ten percent of the total rental and
mortgage interest income to which the Partnership is entitled under the terms of
the leases and mortgage note. Any failure of these lessees or these Restaurant
Chains could materially affect the Partnership's income if the Partnership is
not able to re-lease the Properties in a timely manner. No single tenant or
group of affiliated tenants lease Properties with an aggregate carrying value,
excluding acquisition fees and certain acquisition expenses, in excess of 20
percent of the total assets of the Partnership.
Joint Venture Arrangements
The Partnership has entered into three separate joint venture
arrangements, CNL/Longacre Joint Venture, Cocoa Joint Venture and Halls Joint
Venture, to purchase and hold three Properties through such joint ventures. In
May 1998, the Partnership entered into a joint venture arrangement, RTO Joint
Venture, with affiliates of the General Partners, to construct and hold one
Property. Each joint venture arrangement provides for the Partnership and its
joint venture partners to share in all costs and benefits associated with the
joint venture in proportion to each partner's percentage interest in the joint
venture. The Partnership and its joint venture partners are jointly and
severally liable for all debts, obligations, and other liabilities of the joint
ventures.
Each joint venture has an initial term of 20 to 30 years and, after the
expiration of the initial term, continues in existence from year to year unless
terminated at the option of either joint venturer or unless terminated by an
event of dissolution. Events of dissolution include the bankruptcy, insolvency
or termination of any joint venturer, sale of the Property owned by the joint
venture and mutual agreement of the Partnership and its joint venture partner to
dissolve the joint venture.
The Partnership has management control of the CNL/Longacre Joint
Venture and shares management control equally with affiliates of the General
Partners for Cocoa Joint Venture and Halls Joint Venture. The joint venture
agreements restrict each venturer's ability to sell, transfer or assign its
joint venture interest without first offering it for sale to its joint venture
partner, either upon such terms and conditions as to which the venturers may
agree or, in the event the venturers cannot agree, on the same terms and
conditions as any offer from a third party to purchase such joint venture
interest.
In addition to the above joint venture agreements, in October and
December 1997, the Partnership entered into separate agreements to hold a
Property in Mesa, Arizona and a Property in Vancouver, Washington, respectively,
as tenants-in-common with affiliates of the General Partners. The agreements
provide for the Partnership and the affiliates to share in the profits and
losses of the Properties in proportion to each co-venturer's percentage
interest. The Partnership owns a 42.09% and 27.78% interest in the Property in
Mesa, Arizona and the Property in Vancouver, Washington, respectively.
Net cash flow from operations of CNL/Longacre Joint Venture, Cocoa
Joint Venture, Halls Joint Venture and RTO Joint Venture is distributed 66.5%,
43.0%, 48.9%, and 53.12%, respectively, to the Partnership and the balance is
distributed to each of the other joint venture partners. Any liquidation
proceeds, after paying joint venture debts and liabilities and funding reserves
for contingent liabilities, will be distributed first to the joint venture
partners with positive capital account balances in proportion to such balances
until such balances equal zero, and thereafter in proportion to each joint
venture partner's percentage interest in the joint venture.
Certain Management Services
CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement. Under this agreement, CNL Fund Advisors,
Inc. is responsible for collecting rental payments, inspecting the Properties
and the tenants' books and records, assisting the Partnership in responding to
tenant inquiries and notices and providing information to the Partnership about
the status of the leases and the Properties. CNL Fund Advisors, Inc. also
assists the General Partners in negotiating the leases. For these services, the
Partnership has agreed to pay CNL Fund Advisors, Inc. an annual fee of one
percent of the sum of gross operating revenues from Properties wholly owned by
the Partnership plus the Partnership's allocable share of gross revenues of
joint ventures in which the Partnership is a co-venturer, but not in excess of
competitive fees for comparable services. Under the management agreement, the
management fee is subordinated to receipt by the Limited Partners of an
aggregate, ten percent, cumulative, noncompounded annual return on their
adjusted capital contributions (the "10% Preferred Return"), calculated in
accordance with the Partnership's limited partnership agreement (the
"Partnership Agreement").
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who may
also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 1998, the Partnership owned, either directly or
through joint venture arrangements, 25 Properties located in 13 states.
Reference is made to the Schedule of Real Estate and Accumulated Depreciation
filed with this report for a listing of the Properties and their respective
costs, including acquisition fees and certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 12,300
to 135,000 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
Buildings. Generally, each of the Properties owned by the Partnership
includes a building that is one of a Restaurant Chain's approved designs. The
buildings generally are rectangular and are constructed from various
combinations of stucco, steel, wood, brick and tile. Building sizes range from
approximately 1,700 to 10,100 square feet. All buildings on Properties acquired
by the Partnership are freestanding and surrounded by paved parking areas.
Buildings are suitable for conversion to various uses, although modifications
may be required prior to use for other than restaurant operations.
Generally, a lessee is required, under the terms of its lease
agreement, to make such capital expenditures as may be reasonably necessary to
refurbish buildings, premises, signs and equipment so as to comply with the
lessee's obligations, if applicable, under the franchise agreement to reflect
the current commercial image of its Restaurant Chain. These capital expenditures
are required to be paid by the lessee during the term of the lease.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 1998 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Slaymaker Group, Inc., leases one Tony Roma's restaurant pursuant to
one lease, with an initial term of 20 years (expiring in 2017). The average
minimum base annual rent for the lease is $167,500.
Golden Corral Corporation leases two restaurants pursuant to two
leases, each with an initial term of 12 to 15 years (expiring 2002 and 2004),
and average minimum base annual rent of approximately $97,800 ($63,400 and
$132,200, respectively).
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of March 11, 1999 there were 2,478 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. Limited Partners who wish to sell
their Units may offer the Units for sale pursuant to the Partnership's
distribution reinvestment plan (the "Plan"), and Limited Partners who wish to
have their distributions used to acquire additional Units (to the extent Units
are available for purchase), may do so pursuant to such Plan. The General
Partners have the right to prohibit transfers of Units. From inception through
December 31, 1998, the price paid for any Unit transferred pursuant to the Plan
was $475 per Unit. The price paid for any Unit transferred other than pursuant
to the Plan was subject to negotiation by the purchaser and the selling Limited
Partner. The Partnership will not redeem or repurchase Units.
<PAGE>
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 1998 and 1997 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
<S> <C>
1998 (1) 1997 (1)
-------------------------------------- --------------------------------------
High Low Average High Low Average
--------- ---------- ---------- --------- ---------- ----------
First Quarter $475 $475 $475 $500 $422 $468
Second Quarter (2) (2) (2) 430 375 403
Third Quarter 500 390 447 462 385 433
Fourth Quarter 450 380 414 500 438 457
</TABLE>
(1) A total of 168 and 324 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1998 and 1997, respectively.
(2) No transfer of Units took place during the quarter other than pursuant to
the Plan.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For the years ended December 31, 1998 and 1997, the Partnership
declared cash distributions of $3,838,327 and $2,300,000, respectively, to the
Limited Partners. Distributions during 1998 included a special distribution of
$1,838,327, as a result of the distribution of net sales proceeds from the 1997
and 1998 sales of Properties in Tampa and Port Orange, Florida. This amount was
applied toward the Limited Partners' cumulative 10% Preferred Return. 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 during 1998. No amounts distributed to
partners for the years ended December 31, 1998 and 1997, are required to be or
have been treated by the Partnership as a return of capital for purposes of
calculating the Limited Partners' return on their adjusted capital
contributions. No distributions have been made to the General Partners to date.
As indicated in the chart below, these distributions were declared at the close
of each of the Partnership's calendar quarters. These amounts include monthly
distributions made in arrears for the Limited Partners electing to receive such
distributions on this basis.
Quarter Ended 1998 1997
---------------------- -------------- -------------
March 31 $2,338,327 $575,000
June 30 500,000 575,000
September 30 500,000 575,000
December 31 500,000 575,000
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although some Limited Partners, in accordance with their election, receive
monthly distributions, for an annual fee.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- -------------- -------------- --------------- --------------
<S> <C>
Year ended December 31:
Revenues (1) $2,024,231 $2,147,770 $ 2,279,880 $2,314,818 $2,354,981
Net income (2) 1,544,895 1,731,915 1,428,159 1,679,820 1,743,029
Cash distributions
declared (3) 3,838,327 2,300,000 2,300,000 2,300,000 2,300,000
Net income per Unit (2) 30.70 34.40 28.31 33.26 34.51
Cash distributions declared
Per Unit (3) 76.77 46.00 46.00 46.00 46.00
At December 31:
Total assets $17,135,485 $19,718,430 $ 20,133,002 $ 20,760,182 $21,299,865
Partners' capital 16,227,102 18,520,534 18,982,619 19,694,760 20,283,440
</TABLE>
(1) Revenues include equity in earnings of unconsolidated joint ventures
and minority interest in income or loss of the consolidated joint
venture.
(2) Net income for the year ended December 31, 1998 includes $469,613 from
gains on the sales of land and buildings, $25,500 from a loss on sale
of land and building and $403,157 for a provision for loss on land and
building. Net income for the year ended December 31, 1997, includes
$550,878 from gains on the sales of land and buildings, $141,567 from a
loss on the sale of land and building and $250,694 for a provision for
loss on land and building. Net income for the year ended December 31,
1996, includes $19,369 from the gains on sale of land and buildings and
$239,525 for a provision for loss on land and buildings. Net income for
the year ended December 31, 1995, includes $5,924 from a gain on sale
of land and building.
(3) Distributions for the year ended December 31, 1998 include a special
distribution to the Limited Partners of $1,838,327 as a result of the
distribution of net sales proceeds from the sales of Properties during
1997 and 1998.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on August 17, 1988, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurant
Properties were to be constructed, which are leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains. The
leases are generally triple-net leases, with the lessee generally responsible
for all repairs and maintenance, property taxes, insurance and utilities. As of
December 31, 1998, the Partnership owned 25 Properties, either directly or
indirectly through joint venture arrangements.
Liquidity and Capital Resources
During the years ended December 31, 1998, 1997, and 1996, the
Partnership generated cash from operations (which includes cash received from
tenants, distributions from joint ventures and interest received, less cash paid
for expenses) of $1,649,735, $1,813,231, and $2,103,745. The decrease in cash
from operations during 1998 and 1997, each as compared to the previous year, is
primarily a result of changes in income and expenses as discussed in "Results of
Operations" below and changes in the Partnership's working capital during each
of the respective years.
Other sources and uses of capital included the following during the
years ended December 31, 1998, 1997, and 1996.
During the years ended December 31, 1997 and 1996, the Partnership
received $106,000 and $159,700, respectively, in capital contributions from the
corporate General Partner in connection with the operations of the Partnership.
The General Partners have the right, but not the obligation, to make additional
capital contributions, if they deem it appropriate, in connection with the
operations of the Partnership.
In October 1996, the Partnership sold its Property in St. Cloud,
Florida, to the tenant for $1,150,000. In connection therewith, the Partnership
received $100,000 in cash and accepted the remaining sales proceeds in the form
of a promissory note in the principal sum of $1,057,299, representing the
balance of the sales price of $1,050,000 plus tenant closing costs in the amount
of $7,299 the Partnership financed on behalf of the tenant. The promissory note
bears interest at a rate of 10.75% per annum, is collateralized by a mortgage on
the Property, and is being collected in 12 monthly installments of interest only
and thereafter in 168 equal monthly installments of principal and interest. This
sale is also being accounted for under the installment sales method for
financial reporting purposes; therefore, the gain on the sale of the Property
was deferred and is being recognized as income proportionately as payments of
principal under the mortgage note are collected. The Partnership recognized a
gain of $2,157, $338, and $18,445 for financial reporting purposes for the years
ended December 31, 1998, 1997, and 1996, respectively, and had a deferred gain
in the amount of $181,308 and $183,465 at December 31, 1998 and 1997. The
mortgage note receivable balance relating to this Property at December 31, 1998
and 1997, was $871,812 and $874,443, including accrued interest of $9,350 and
$2,747, and net of the remaining deferred gain of $181,308 and $183,465.
Payments collected under the mortgage note totalling $100,000 were used to pay
liabilities of the Partnership, including quarterly distributions to the Limited
Partners. The General Partners anticipate that payments collected under the
mortgage note in the future will be reinvested in additional Properties or used
for other Partnership purposes.
In January 1997, the Partnership sold its Property in Franklin,
Tennessee, to the tenant, for $980,000 and received net sales proceeds of
$960,741. Since the Partnership had previously established an allowance for loss
on land and building of $169,463 as of December 31, 1996 relating to this
Property, no loss was recognized during 1997 as a result of this sale. The
Partnership used $360,000 of the net sales proceeds to pay liabilities of the
Partnership, including quarterly distributions to the Limited Partners. In
addition, in June 1997, the Partnership entered into an operating agreement for
the Property located in South Haven, Michigan, with an operator to operate the
Property as an Arby's restaurant. In connection therewith, the Partnership used
approximately $120,400 of the net sales proceeds from the sale of the Property
in Franklin, Tennessee, to fund conversion costs associated with the Arby's
Property. In March 1998, the Partnership entered into a new lease for this
Property with the former operator as tenant, to operate the Property as an
Arby's. In December 1997, the Partnership reinvested approximately $244,800 of
the net sales proceeds in a Property located in Sandy, Utah, and approximately
$150,000 in a Property located in Vancouver, Washington, as tenants-in-common
with affiliates of the General Partners, as described below. The Partnership
intends to use the remaining net sales proceeds from the sale of the Property in
Franklin, Tennessee to pay liabilities of the Partnership, including quarterly
distributions to the Limited Partners.
In June 1997, the Partnership terminated the leases with the tenant of
the Properties in Connorsville and Richmond, Indiana. In connection therewith,
the Partnership accepted a promissory note from the former tenant for $35,297
for amounts relating to past due real estate taxes as a result of the former
tenant's financial difficulties. The promissory note, which is uncollateralized,
bears interest at a rate of ten percent per annum and is being collected in 36
monthly installments. Receivables at December 31, 1998 and 1997 included $25,783
and $37,099, respectively, of such amounts, including accrued interest of $1,802
in 1997. In July 1997, the Partnership entered into a new lease for the Property
in Connorsville, Indiana, with a new tenant to operate the Property as an Arby's
restaurant. In connection therewith, the Partnership incurred $125,000 in
renovation costs and paid these amounts during the year ended December 31, 1998.
During 1997, the Partnership sold its Properties in Smyrna, Tennessee;
Salem, New Hampshire; and Port St. Lucie and Tampa, Florida, for a total of
$4,020,172 and received net sales proceeds totalling $3,925,876, resulting in a
total gain of $549,516 for financial reporting purposes. These Properties were
originally acquired by the Partnership in 1989 and had a total cost of
approximately $3,503,900, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold these Properties for
approximately $422,100 in excess of their original purchase prices. The
Partnership used approximately $132,500 of the net sales proceeds to pay
liabilities of the Partnership, including quarterly distributions to the Limited
Partners, and used the remaining net sales proceeds to acquire additional
Properties and acquire Properties with affiliates of the General Partners. The
Partnership distributed amounts sufficient to enable the Limited Partners to pay
federal and state income taxes, if any (at a level reasonably assumed by the
General Partners), resulting from the sale.
During the year ended December 31, 1996, the Partnership established an
allowance for the Property in Richmond, Indiana, in the amount of $70,062 which
represented the difference between the Property's carrying value at December 31,
1996, and the estimate of net realizable value of the Property based on an
anticipated sales price of this Property. In November 1997, the Partnership sold
this Property to a third party for $400,000 and received net sales proceeds of
$385,179. As a result of this transaction, the Partnership recognized a loss of
$141,567 for financial reporting purposes. In December 1997, the Partnership
reinvested the net sales proceeds in a Property as tenants-in-common with
affiliates of the General Partners, as described below.
During 1998, the Partnership sold its Properties in Port Orange,
Florida, and Tyler, Texas to the tenants for a total of $2,180,000 and received
net sales proceeds totalling $2,125,220, resulting in a total gain of $466,322
for financial reporting purposes. These Properties were originally acquired by
the Partnership in 1988 and 1989 and had costs totaling approximately
$1,791,300, excluding acquisition fees and miscellaneous acquisition expenses;
therefore, the Partnership sold the Properties for approximately $333,900 in
excess of their original purchase prices. In addition, the Partnership incurred
deferred, subordinated, real estate disposition fees of $65,400 relating to the
sales of the Properties for which net sales proceeds were not reinvested in
additional Properties. The Partnership distributed $1,838,327 of the net sales
proceeds from the 1997 and 1998 sales of the properties in Tampa, Florida, as
described above, and Port Orange, Florida, as a special distribution to the
limited partners in April 1998. In addition, in May 1998, the Partnership
contributed the net sales proceeds from the sale of the Property in Tyler, Texas
in a joint venture arrangement as described below. The Partnership will
distribute amounts sufficient to enable the limited partners to pay federal and
state income taxes, if any (at a level reasonably assumed by the general
partners).
As described above, in May 1998, the Partnership entered into a joint
venture, RTO Joint Venture, a joint venture with an affiliate of the general
partners, to construct and hold one restaurant Property. As of December 31,
1998, the Partnership had contributed $766,746 to purchase land and pay for
construction relating to the joint venture. Construction was completed and rent
commenced in December 1998. The Partnership holds a 53.12% interest in the
profits and losses of the joint venture.
In January 1999, the Partnership received notice from the tenant of its
Properties in Endicott and Ithaca, New York, that it intends to exercise its
option to purchase the Properties in accordance with the terms of its lease
agreements; however, as of March 11, 1999, the sales had not occurred.
None of the Properties owned by the Partnership or the joint ventures
in which the Partnership owns an interest is or may be encumbered. Under its
Partnership Agreement, the Partnership is prohibited from borrowing for any
purpose; provided, however, that the General Partners or their affiliates are
entitled to reimbursement, at cost, for actual expenses incurred by the General
Partners or their affiliates on behalf of the Partnership. Affiliates of the
General Partners from time to time incur certain operating expenses on behalf of
the Partnership for which the Partnership reimburses the affiliates without
interest.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At December 31, 1998, the Partnership had
$352,648 invested in such short-term investments as compared to $1,361,290 at
December 31, 1997. The decrease in cash and cash equivalents during 1998, is
primarily attributable to the fact that the Partnership distributed amounts held
at December 31, 1997 relating to the net sales proceeds received from the 1997
sale of the Property in Tampa, Florida, as a special distribution to the Limited
Partners during 1998, as described below. The funds remaining at December 31,
1998, will be reinvested in additional Properties, distributed to the Limited
Partners or used for other Partnership purposes, as described above.
During 1998, 1997, and 1996, affiliates of the General Partners
incurred on behalf of the Partnership $79,438, $77,353, and $113,560,
respectively, for certain operating expenses. As of December 31, 1998 and 1997,
the Partnership owed $128,548 and $109,367, respectively, to affiliates for such
amounts and accounting and administrative services. In addition, during 1998 and
1997, the Partnership had incurred $65,400 and $34,500, respectively, in real
estate disposition fees due to an affiliate as a result of its services in
connection with the sale of the Properties in St. Cloud, Port Orange, and Tampa,
Florida. The payment of such fees is deferred until the Limited Partners have
received the sum of their 10% Preferred Return and their adjusted capital
contributions. Other liabilities, including distributions payable, decreased to
$524,019 at December 31, 1998, from $831,100 at December 31, 1997, partially due
to a decrease in construction costs payable as a result of the payment during
1998, of construction costs accrued at December 31, 1997 for renovation costs
relating to the Partnership's Property located in Connorsville, Indiana, as
described above. The decrease in liabilities is also partially attributable to a
decrease in distributions payable to the Limited Partners at December 31, 1998
and a decrease in accrued real estate tax expense relating to the Properties in
Belding and South Haven, Michigan at December 31, 1998. Liabilities at December
31, 1998, to the extent they exceed cash and cash equivalents, at December 31,
1998, will be paid from future cash from operations, from amounts collected
under the mortgage notes described above or, in the event the General Partners
elect to make additional capital contributions, from future General Partner
contributions.
Based on current and anticipated future cash from operations, and for
the years ended December 31, 1998 and 1997, a portion of the sales proceeds
received from the sales of the Properties, and for the years ended December 31,
1997 and 1996, additional capital contributions from the General Partners, the
Partnership declared distributions to the Limited Partners of $3,838,327,
$2,300,000, and $2,300,000 for the years ended December 31, 1998, 1997, and
1996, respectively. This represents distributions of $77, $46, and $46 per Unit
for the years ended December 31, 1998, 1997, and 1996, respectively.
Distributions for 1998 included $1,838,327 as a result of the distribution of
net sales proceeds from the 1997 and 1998 sales of Properties in Tampa and Port
Orange, Florida. This special distribution was effectively a return of a portion
of the Limited Partners' investment, although, in accordance with the
Partnership agreement, it was applied to the Limited Partners' unpaid cumulative
preferred return. In deciding whether to sell Properties, the General Partners
considered factors such as potential capital appreciation, net cash flow, and
federal income tax considerations. The reduced number of Properties for which
the Partnership receives rental payments, as well as ongoing operations, 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
during 1998. No amounts distributed or to be distributed to the Limited Partners
for the years ended December 1998, 1997, and 1996, are required to be or have
been treated by the Partnership as a return of capital for purposes of
calculating the Limited Partners' return on their adjusted capital
contributions. The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
The Partnership's investment strategy of acquiring Properties for cash
and generally leasing them under triple-net leases to operators who generally
meet specified financial standards minimizes the Partnership's operating
expenses. The General Partners believe that the leases will continue to generate
cash flow in excess of operating expenses.
Due to low operating expenses and ongoing cash flow, the General
Partners do not believe that working capital reserves are necessary at this
time. In addition, because the leases of the Partnership's Properties are
generally on a triple-net basis, it is not anticipated that a permanent reserve
for maintenance and repairs will be established at this time. To the extent,
however, that the Partnership has insufficient funds for such purposes, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
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. 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 APF's most recent public offering. 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. 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.
Results of Operations
During 1996, the Partnership and its consolidated joint venture,
CNL/Long Acre Joint Venture, owned and leased 26 wholly owned Properties
(including one Property in St. Cloud, Florida, which was sold in October 1996),
during 1997, the Partnership owned 27 wholly owned Properties (including six
Properties, which were sold during the year ended December 31, 1997) and during
1998, the Partnership owned 21 wholly owned Properties (including two
Properties, which were sold during 1998). In addition, during 1998, 1997, and
1996, the Partnership and its consolidated joint venture, CNL/Long Acre Joint
Venture, was a co-venturer in three separate joint ventures that each owned and
leased one Property. During 1997, the Partnership and its consolidated joint
venture, CNL/Long Acre Joint Venture, owned and leased two Properties, with
affiliates of the General Partners, as tenants-in-common. In addition, during
1998, the Partnership and its consolidated joint venture, CNL/Long Acre Joint
Venture, was also a co-venturer in a joint venture that owns one Property. As of
December 31, 1998, the Partnership owned, either directly or through joint
venture arrangements, 22 Properties which are, in general, subject to long-term,
triple-net leases. The leases of the Properties provide for minimum base annual
rental amounts (payable in monthly installments) ranging from approximately
$38,500 to $222,800. Generally, the leases provide for percentage rent based on
sales in excess of a specified amount to be paid annually. In addition, a
majority of the leases provide that, commencing in the sixth lease year, the
percentage rent will be an amount equal to the greater of (i) the percentage
rent calculated under the lease formula or (ii) a specified percentage (ranging
from one-fourth to five percent) of the purchase price paid by the Partnership
for the Property. For further description of the Partnership's leases and
Properties, see Item 1. Business - Leases and Item 2.
Properties, respectively.
During the years ended December 31, 1998, 1997, and 1996, the
Partnership and its consolidated joint venture, CNL/Longacre Joint Venture,
earned $1,367,303, $1,500,967, and $1,931,573, respectively, in rental income
from operating leases and earned income from direct financing leases. The
decrease in rental and earned income during the year ended December 31, 1998 and
1997, each as compared to the previous year, was partially attributable to a
decrease of approximately $506,900 and $322,300, respectively, as a result of
the sale of several Properties, as described above in "Liquidity and Capital
Resources." During 1998 and 1997, the decrease in rental income was partially
offset by increases of approximately $299,900 and $24,700 due to the
reinvestment of net sales proceeds in various Properties during 1998 and 1997,
as described above in "Liquidity and Capital Resources".
Rental and earned income also decreased during 1998, as compared to
1997 and 1996, by approximately $39,100, 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 is reinvested in an additional Property.
The decrease in rental and earned income during 1998, as compared to
1997, was partially offset by, and the decrease in 1997, as compared to 1996,
was partially attributable to the Partnership increasing its allowance for
doubtful accounts during 1997, by approximately $57,700 for rental and other
amounts relating to the Hardee's Properties located in Connorsville and
Richmond, Indiana, which were leased by the same tenant, due to financial
difficulties the tenant was experiencing. Rental and earned income decreased by
approximately $79,200 during 1997 due to the fact that the Partnership
terminated the lease with the former tenant of these Properties in June 1997 and
the General Partners agreed that they will cease collection efforts on past due
rental amounts once the former tenant of these Properties pays all amounts due
under the promissory note for past due real estate taxes described above in
"Liquidity and Capital Resources." No such allowance was established during 1998
due to the fact that the Partnership (i) re-leased the Property located in
Connorsville, Indiana, to a new tenant who began operating the Property after it
was renovated into an Arby's Property and (ii) sold the Property located in
Richmond, Indiana, in November 1997, as described above in "Liquidity and
Capital Resources."
In October 1995, the tenant ceased operations of the Property in South
Haven, Michigan. In connection therewith, in June 1997, the Partnership incurred
renovation costs to convert the Property into an Arby's restaurant and entered
into an operating agreement. In March 1998, the Partnership entered into a new
lease for this Property, as described above in "Liquidity and Capital
Resources," and earned approximately $40,200 and $5,100 in rental income during
1998 and 1997, respectively.
Rental and earned income in 1998, 1997, and 1996, continued to remain
at reduced amounts due to the fact that the Partnership is not receiving any
rental income from the Properties in Belding, Michigan and Lebanon, New
Hampshire, as a result of the tenants defaulting under the terms of their leases
and ceasing operations of the restaurants on the Properties during 1995. The
General Partners are currently seeking either new tenants or purchasers for
these Properties. Rental and earned income for 1999 is expected to remain at
reduced amounts until such time as the Partnership executes new leases for these
Properties or until the Properties are sold and the proceeds from such sales are
reinvested in additional Properties.
For the years ended December 31, 1998, 1997, and 1996, the Partnership
earned $133,179, $233,663, and $130,167, respectively, in contingent rental
income. The decrease in contingent rental income during 1998, as compared to
1997, is partially attributable to, and the increase in contingent rental income
during 1997, as compared to 1996, is primarily due to, amounts collected which
represented a percentage of the net operating income generated by the restaurant
under the operating agreement with the new operator of the Property located in
South Haven, Michigan. In March 1998, the Partnership entered into a new lease
for the Property in South Haven, Michigan, with this operator. The decrease
during 1998, as compared to 1997, is also partially attributable to sales of
Properties, whose leases required the payment of contingent rents.
During the years ended December 31, 1998, 1997, and 1996, the
Partnership earned $282,795, $302,503, and $147,804, respectively, in interest
and other income. The increase in interest income during 1997, as compared to
1996, was primarily attributable to the interest earned on the mortgage note
receivable accepted in connection with the sale of the Property in St. Cloud,
Florida in October 1996. In addition, interest income increased during 1997 due
to interest earned on the net sales proceeds received relating to the sales of
several Properties.
In addition, for the years ended December 31, 1998, 1997, and 1996, the
Partnership earned $173,941, $56,015, and $46,452, respectively, attributable to
net income earned by unconsolidated joint ventures in which the Partnership is a
co-venturer. The increase in net income earned by joint ventures during 1998, as
compared to 1997, is primarily attributable to the fact that during 1998, the
Partnership reinvested a portion of the net sales proceeds it received from the
1997 and 1998 sales of several Properties in a Property with affiliates of the
General Partners, as tenants-in-common and acquired an interest in RTO Joint
Venture with an affiliate of the General Partners, as described above in
"Liquidity and Capital Resources." The increase in net income earned by joint
ventures during 1997, as compared to 1996, is primarily attributable to the fact
that in October 1997, the Partnership acquired an interest in a Property with
affiliates as tenants-in-common, as described above in "Liquidity and Capital
Resources."
During the year ended December 31, 1998, one lessee of the Partnership
and its consolidated joint venture, Golden Corral Corporation contributed more
than ten percent of the Partnership's total rental and mortgage interest income
(including rental income from the Partnership's consolidated joint venture and
the Partnership's share of the rental income from three Properties owned by
unconsolidated joint ventures and two Properties owned with affiliates as
tenants-in-common). As of December 31, 1998 Golden Corral Corporation was the
lessee under leases relating to two restaurants. It is anticipated that, based
on the minimum rental payments required by the leases, this lessee will continue
to contribute more than ten percent of the Partnership's total rental and
mortgage interest income during 1999. In addition, two Restaurant Chains, Golden
Corral and Wendy's Old Fashioned Hamburger Restaurants, each accounted for more
than ten percent of the Partnership's total rental and mortgage interest income
during 1998, (including rental income from the Partnership's consolidated joint
venture and the Partnership's share of the rental income from three Properties
owned by unconsolidated joint ventures and two Properties owned with affiliates
as tenants-in-common). It is anticipated that these two Restaurant Chains each
will continue to account for more than ten percent of the total rental and
mortgage interest income to which the Partnership is entitled under the terms of
the leases and mortgage note. Any failure of these lessees or Restaurant Chains
could materially affect the Partnership's income if the Partnership is not able
to re-lease the Properties in a timely manner.
Operating expenses, including depreciation and amortization expense,
were $520,292, $574,472, and $631,565 for the years ended December 31, 1998,
1997, and 1996, respectively. The decrease in operating expenses during 1998 and
1997, each as compared to the previous year, was partially attributable to a
decrease in depreciation expense as a result of the sales of Properties in 1998,
1997, and 1996, as described above in "Liquidity and Capital Resources." The
decrease in operating expenses during 1998, as compared to 1997, is partially
offset by the fact that the Partnership incurred $14,644 in transaction costs
related to the General Partner's 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 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.
Due to the tenant defaults under the leases for the Properties in
Belding, Michigan; Daleville, Indiana, and Lebanon, New Hampshire, the
Partnership and its consolidated joint venture, CNL/Longacre Joint Venture,
expect to continue to incur operating expenses relating to such Properties until
the Properties are sold or re-leased to new tenants.
In connection with the sale of its Properties in St. Cloud, Florida and
Myrtle Beach, South Carolina, during 1997 and 1996, respectively, as described
above in "Liquidity and Capital Resources," the Partnership recognized a gain
for financial reporting purposes of $3,291, $1,362, and $19,369 for the years
ended December 31, 1998, 1997, and 1996, respectively. In accordance with
Statement of Financial Accounting Standards No. 66, "Accounting for Sales of
Real Estate," the Partnership recorded the sales using the installment sales
method. As such, the gain on the sales was deferred and is being recognized as
income proportionately as payments under the mortgage notes are collected.
Therefore, the balance of the deferred gain of $319,866 at December 31, 1998,
will be recognized as income in future periods as payments are collected. For
federal income tax purposes, gains of approximately $194,100 and $136,900 from
the sale of the Properties in St. Cloud, Florida, and Myrtle Beach, South
Carolina, respectively, were also deferred and are being recognized as payments
under the mortgage notes are collected.
As a result of the sales of several Properties as described above in
"Liquidity and Capital Resources," the Partnership recognized gains totalling
$440,822 and $549,516 during 1998 and 1997, respectively, for financial
reporting purposes. The gains for 1997, were partially offset by a loss of
$141,567 for financial reporting purposes, resulting from the November 1997 sale
of the Property in Richmond, Indiana, as described above in "Liquidity and
Capital Resources."
During 1998 and 1997, the Partnership established allowances for loss
on land and buildings of $403,157 and $250,694, respectively, for financial
reporting purposes, relating to Properties which became vacant and for which the
Partnership has not successfully re-leased. The allowances represent the
difference between the net carrying value at December 31, 1998 and 1997, and
their current estimated net realizable values.
At December 31, 1996, the Partnership established an allowance for loss
on land and building in the amount of $169,463 for its Property in Franklin,
Tennessee, for financial reporting purposes. The allowance represented the
difference between (i) the Property's carrying value at December 31, 1996, plus
the additional rental income (accrued rental income) that the Partnership had
recognized since inception of the lease relating to the straight-lining of
future scheduled rent increases minus (ii) $960,741 received as net sales
proceeds in conjunction with the sale of the Property in January 1997, as
described above in "Liquidity and Capital Resources."
In addition, during 1996, the Partnership established an allowance for
loss on land and building for its Property in Richmond, Indiana. The allowance
of $70,062 represented the difference between the Property's carrying value at
December 31, 1996, and the estimated fair value of the Property based on an
anticipated sales price of this Property. This Property was sold in November
1997, as described above in "Liquidity and Capital Resources."
The Partnership's leases as of December 31, 1998, are, in general,
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Management expects that increases in restaurant
sales volumes due to inflation and real sales growth should result in an
increase in rental income (for certain Properties) over time. Continued
inflation also may cause capital appreciation of the Partnership's Properties.
Inflation and changing prices, however, also may have an adverse impact on the
sales of the restaurants and on potential capital appreciation of the
Properties.
Year 2000
The Year 2000 problem is the result of information technology systems
and embedded systems (products which are made with microprocessor (computer)
chips such as HVAC systems, physical security systems and elevators) using a
two-digit format, as opposed to four digits, to indicate the year. Such
information technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.
The Partnership currently does not have any information technology
systems. Affiliates of the General Partners provide all services requiring the
use of information technology systems pursuant to a management agreement with
the Partnership. The maintenance of embedded systems, if any, at the
Partnership's Properties is the responsibility of the tenants of the Properties
in accordance with the terms of the Partnership's leases. The General Partners
and affiliates have established a team dedicated to reviewing the internal
information technology systems used in the operation of the Partnership, and the
information technology and embedded systems and the Year 2000 compliance plans
of the Partnership's tenants, significant suppliers, financial institutions and
transfer agent.
The information technology infrastructure of the affiliates of the
General Partners consists of a network of personal computers and servers that
were obtained from major suppliers. The affiliates utilize various
administrative and financial software applications on that infrastructure to
perform the business functions of the Partnership. The inability of the General
Partners and affiliates to identify and timely correct material Year 2000
deficiencies in the software and/or infrastructure could result in an
interruption in, or failure of, certain of the Partnership's business activities
or operations. Accordingly, the General Partners and affiliates have requested
and are evaluating documentation from the suppliers of the software and
infrastructure of the affiliates regarding the Year 2000 compliance of their
products that are used in the business activities or operations of the
Partnership. The General Partners and affiliates have not yet received
sufficient certifications to be assured that the suppliers have fully considered
and mitigated any potential material impact of the Year 2000 deficiencies. The
costs expected to be incurred by the General Partners and affiliates to become
Year 2000 compliant will be incurred by the General Partners and affiliates;
therefore, these costs will have no impact on the Partnership's financial
position or results of operations.
The Partnership has material third party relationships with its
tenants, financial institutions and transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. If any of these third parties are unable to meet their obligations
to the Partnership because of the Year 2000 deficiencies, such a failure may
have a material impact on the Partnership. Accordingly, the General Partners
have requested and are evaluating documentation from the Partnership's tenants,
financial institutions, and transfer agent relating to their Year 2000
compliance plans. The General Partners have not yet received sufficient
certifications to be assured that the tenants, financial institutions, and
transfer agent have fully considered and mitigated any potential material impact
of the Year 2000 deficiencies. Therefore, the General Partners do not, at this
time, know of the potential costs to the Partnership of any adverse impact or
effect of any Year 2000 deficiencies by these third parties.
The General Partners currently expect that all year 2000 compliance
testing and any necessary remedial measures on the information technology
systems used in the business activities and operations of the Partnership will
be completed prior to June 30, 1999. Based on the progress the General Partners
and affiliates have made in identifying and addressing the Partnership's Year
2000 issues and the plan and timeline to complete the compliance program, the
General Partners do not foresee significant risks associated with the
Partnership's Year 2000 compliance at this time. Because the General Partners
and affiliates are still evaluating the status of the information technology
systems used in business activities and operations of the Partnership and the
systems of the third parties with which the Partnership conducts its business,
the General Partners have not yet developed a comprehensive contingency plan and
are unable to identify "the most reasonably likely worst case scenario" at this
time. If the General Partners identify significant risks related to the
Partnership's Year 2000 compliance or if the Partnership's Year 2000 compliance
program's progress deviates substantially from the anticipated timeline, the
General Partners will develop appropriate contingency plans.
Interest Rate Risk
The Partnership has provided fixed rate mortgage notes to borrowers.
The General Partners believe that the estimated fair value of the mortgage notes
at December 31, 1998 approximated the outstanding principal amounts. The
Partnership is exposed to equity loss in the event of changes in interest rates.
The following table presents the expected cash flows of principal that are
sensitive to these changes.
Mortgage notes
Fixed Rates
------------------
1999 $ 26,987
2000 1,042,574
2001 50,615
2002 56,332
2003 62,696
Thereafter 810,777
------------------
$ 2,049,981
==================
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
This information is described above in Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Interest Rate
Risk.
Item 8. Financial Statements and Supplementary Data
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
----
Report of Independent Accountants 17
Financial Statements:
Balance Sheets 18
Statements of Income 19
Statements of Partners' Capital 20
Statements of Cash Flows 21
Notes to Financial Statements 23
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund V, Ltd.
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Income Fund V, Ltd. (a Florida limited partnership) at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules listed in the index appearing under item 14(a)(2) present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Orlando, Florida
January 18, 1999, except for Note 12 for which the date is March 11, 1999.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------ ----------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation and allowance
for loss on land and buildings $10,660,128 $12,421,143
Net investment in direct financing leases 1,708,966 2,277,481
Investment in joint ventures 2,282,012 1,558,709
Mortgage notes receivable, less deferred gain 1,748,060 1,758,167
Cash and cash equivalents 352,648 1,361,290
Receivables, less allowance for doubtful
accounts of $141,505 and $137,892 87,490 108,261
Prepaid expenses 1,872 9,307
Accrued rental income 239,963 169,726
Other assets 54,346 54,346
------------------ -----------------
$17,135,485 $19,718,430
================== =================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 7,546 $ 24,229
Accrued construction costs payable -- 125,000
Accrued and escrowed real estate
taxes payable 10,361 93,392
Distributions payable 500,000 575,000
Due to related parties 228,448 143,867
Rents paid in advance and deposits 6,112 13,479
------------------ -----------------
Total liabilities 752,467 974,967
Minority interest 155,916 222,929
Partners' capital 16,227,102 18,520,534
------------------ -----------------
$17,135,485 $19,718,430
================== =================
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
1998 1997 1996
-------------- --------------- ---------------
Revenues:
Rental income from operating leases $ 1,168,301 $ 1,343,833 $ 1,746,021
Earned income from direct financing leases 199,002 157,134 185,552
Contingent rental income 133,179 233,663 130,167
Interest and other income 282,795 302,503 147,804
-------------- --------------- ---------------
1,783,277 2,037,133 2,209,544
-------------- --------------- ---------------
Expenses:
General operating and administrative 166,878 166,346 178,991
Professional services 20,542 23,172 22,605
Bad debt expense 5,882 9,007 --
Real estate taxes 35,434 39,619 40,711
State and other taxes 9,658 11,897 12,492
Depreciation and amortization 267,254 324,431 376,766
Transaction costs 14,644 -- --
-------------- --------------- ---------------
520,292 574,472 631,565
-------------- --------------- ---------------
Income Before Minority Interest in Loss of Consolidated
Joint Venture, Equity in Earnings Of Unconsolidated
Joint Ventures, Gain on Sale of Land and Buildings and
Provision for Loss on Land and Buildings 1,262,985 1,462,661 1,577,979
Minority interest in Loss of Consolidated Joint Venture 67,013 54,622 23,884
Equity in Earnings of Unconsolidated Joint Ventures 173,941 56,015 46,452
Gain on Sale of Land and Buildings 444,113 409,311 19,369
Provision for Loss on Land and Buildings (403,157 ) (250,694) (239,525)
-------------- --------------- ---------------
Net Income $ 1,544,895 $ 1,731,915 $ 1,428,159
============== =============== ===============
Allocation of Net Income:
General partners $ 9,748 $ 11,809 $ 12,513
Limited partners 1,535,147 1,720,106 1,415,646
-------------- --------------- ---------------
$ 1,544,895 $ 1,731,915 $ 1,428,159
============== =============== ===============
Net Income Per Limited Partner Unit $ 30.70 $ 34.40 $ 28.31
============== =============== ===============
Weighted Average Number of Limited Partner
Units Outstanding 50,000 50,000 50,000
============== =============== ===============
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1998, 1997 and 1996
General Partners Limited Partners
------------------------- ------------------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
------------- ----------- ------------- ------------- ----------- ------------ ------------
Balance, December 31, 1995 $ 77,500 $ 126,460 $ 25,000,000 $(15,168,240) $12,524,040 $(2,865,000) $19,694,760
Contributions from general partner 159,700 -- -- -- -- -- 159,700
Distributions to limited partners
($46 per limited partner unit) -- -- -- (2,300,000) -- -- (2,300,000)
Net income -- 12,513 -- -- 1,415,646 -- 1,428,159
--------- ------------ ------------- ------------ ----------- ----------- -----------
Balance, December 31, 1996 237,200 138,973 25,000,000 (17,468,240) 13,939,686 (2,865,000) 18,982,619
Contributions from general partner 106,000 -- -- -- -- -- 106,000
Distributions to limited partners
($46 per limited partner unit) -- -- -- (2,300,000) -- -- (2,300,000)
Net income -- 11,809 -- -- 1,720,106 -- 1,731,915
--------- ------------ ------------- ------------ ----------- ----------- ----------
Balance, December 31, 1997 343,200 150,782 25,000,000 (19,768,240) 15,659,792 (2,865,000) 18,520,534
Distributions to limited partners
($77 per limited partner unit) -- -- -- (3,838,327) -- -- (3,838,327)
Net income -- 9,748 -- -- 1,535,147 -- 1,544,895
--------- ------------ ------------- ------------ ----------- ------------ -----------
Balance, December 31, 1998 $ 343,200 $ 160,530 $ 25,000,000 $(23,606,567) $17,194,939 $(2,865,000)$16,227,102
========= ============ ============= ============ =========== ============ ===========
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1998 1997 1996
---------------- ---------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 1,490,412 $ 1,771,467 $ 2,083,722
Distributions from unconsolidated joint
ventures 215,839 53,176 53,782
Cash paid for expenses (331,363 ) (305,341 ) (161,730 )
Interest received 274,847 293,929 127,971
---------------- ---------------- ---------------
Net cash provided by operating activities 1,649,735 1,813,231 2,103,745
---------------- ---------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 2,125,220 5,271,796 100,000
Additions to land and buildings on operating
leases (125,000 ) (1,900,790 ) --
Investment in direct financing leases -- (911,072 ) --
Investment in joint ventures (765,201 ) (1,090,062 ) --
Collections on mortgage notes receivable 19,931 9,265 6,712
Other -- -- (26,287 )
---------------- ---------------- ---------------
Net cash provided by investing activities 1,254,950 1,379,137 80,425
---------------- ---------------- ---------------
Cash Flows from Financing Activities:
Contributions from general partner -- 106,000 159,700
Distributions to limited partners (3,913,327 ) (2,300,000 ) (2,300,000 )
---------------- ---------------- ---------------
Net cash used in financing activities (3,913,327 ) (2,194,000 ) (2,140,300 )
---------------- ---------------- ---------------
Net Increase (Decrease) in Cash and Cash
Equivalents (1,008,642 ) 998,368 43,870
Cash and Cash Equivalents at Beginning of Year 1,361,290 362,922 319,052
---------------- ---------------- ---------------
Cash and Cash Equivalents at End of Year $ 352,648 $ 1,361,290 $ 362,922
================ ================ ===============
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
1998 1997 1996
------------- ------------- --------------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $1,544,895 $1,731,915 $1,428,159
------------- ------------- --------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Bad debt expense 5,882 9,007 --
Depreciation 267,254 324,431 376,766
Minority interest in loss of consolidated
joint venture (67,013 ) (54,622 ) (23,884 )
Equity in earnings of unconsolidated
joint ventures, net of distributions 41,898 (2,839 ) 7,330
Gain on sale of land and buildings (444,113 ) (409,311 ) (19,369 )
Provisions for loss on land and buildings 403,157 250,694 239,525
Decrease in net investment in direct
financing leases 38,017 42,682 46,387
Decrease (increase) in accrued interest
on mortgage note receivable (6,533 ) 6,788 (9,414 )
Decrease (increase) in receivables 17,333 (43,006 ) 10,270
Decrease in prepaid expenses 7,435 1,109 1,505
Increase in accrued rental income (70,237 ) (19,527 ) (27,875 )
Increase (decrease) in accounts
payable and accrued expenses (100,554 ) (12,509 ) 32,032
Increase (decrease) in due to related 19,181 (13,322 ) 59,945
parties
Increase (decrease) in rents paid in
advance (6,867 ) 1,741 (17,632 )
and deposits
------------- ------------- --------------
Total adjustments 104,840 81,316 675,586
------------- ------------- --------------
Net Cash Provided by Operating Activities $1,649,735 $1,813,231 $ 2,103,745
============= ============= ==============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Mortgage note accepted in connection with
sale of land and buildings $ -- $ -- $ 1,057,299
============= ============= ==============
Deferred real estate disposition fees incurred and
unpaid at end of year $ 65,400 $ -- $ 34,500
============= ============= ==============
Distributions declared and unpaid at December 31 $ 500,000 $ 575,000 $ 575,000
============= ============= ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund V, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50 percent shareholders of
the Corporate General Partner. The general partners have responsibility
for managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
on a triple-net basis, whereby the tenant is generally responsible for
all operating expenses relating to the property, including property
taxes, insurance, maintenance and repairs. The leases are accounted for
using either the direct financing or the operating methods. Such
methods are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (Note 4). Unearned income is deferred and
amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Partnership's net
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date. Whenever a tenant defaults
under the terms of its lease, or events or changes in
circumstance indicate that the tenant will not lease the
property through the end of the lease term, the Partnership
either reserves or writes-off the cumulative accrued rental
income balance.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations. The
general partners determine whether an impairment in value has occurred
by comparing the estimated future undiscounted cash flows, including
the residual value of the property, with the carrying cost of the
individual property. If an impairment is indicated, the assets are
adjusted to their fair value. Although the general partners have made
their best estimate of these factors based on current conditions, it is
reasonably possible that changes could occur in the near term which
could adversely affect the general partners' estimate of net cash flows
expected to be generated from its properties and the need for asset
impairment write-downs.
When the collection of amounts recorded as rental or other income are
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
and to decrease rental or other income or increase bad debt expense for
the current period, although the Partnership continues to pursue
collection of such amounts. If amounts are subsequently determined to
be uncollectible, the corresponding receivable and allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership accounts for its 66.5%
interest in CNL/Longacre Joint Venture, a Florida general partnership,
using the consolidation method. Minority interest represents the
minority joint venture partner's proportionate share of the equity in
the Partnership's consolidated joint venture. All significant
intercompany accounts and transactions have been eliminated.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
The Partnership accounts for its interest in Cocoa Joint Venture, Halls
Joint Venture, RTO Joint Venture and a property in each of Mesa,
Arizona and Vancouver, Washington, held as tenants-in-common with
affiliates, using the equity method since the Partnership shares
control with affiliates which have the same general partners.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts. The Partnership limits investment of
temporary cash investments to financial institutions with high credit
standing; therefore, the Partnership believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and properties.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of estimates relate to the allowance for doubtful accounts and
future cash flows associated with long-lived assets. Actual results
could differ from those estimates.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 1998 presentation.
These reclassifications had no effect on partners' capital or net
income.
2. Leases:
The Partnership leases its land and buildings primarily to operators of
national and regional fast-food and family-style restaurants. The
leases are accounted for under the provisions of Statement of Financial
Accounting Standards No. 13, "Accounting for Leases." The leases
generally are classified as operating leases; however, some leases have
been classified as direct financing leases. Substantially all leases
are for 15 to 20 years and provide for minimum and contingent rentals.
In addition, the tenant generally pays all property taxes and
assessments, fully maintains the interior and exterior of the building
and carries insurance coverage for public liability, property damage,
fire and extended coverage. The lease options generally allow tenants
to renew the leases for two to five successive five-year periods
subject to the same terms and conditions as the initial lease. Most
leases also allow the tenant to purchase the property at fair market
value after a specified portion of the lease has elapsed.
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
1998 1997
-------------- -----------------
Land $ 5,352,136 $ 6,069,665
Buildings 7,857,598 8,546,530
-------------- -----------------
13,209,734 14,616,195
Less accumulated depreciation (1,895,755 ) (1,944,358 )
-------------- -----------------
11,313,979 12,671,837
Less allowance for loss on
land and buildings (653,851 ) (250,694 )
-------------- -----------------
$10,660,128 $12,421,143
============== =================
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - Continued:
In January 1997, the Partnership sold its property in Franklin,
Tennessee, to the tenant for $980,000 and received net sales proceeds
of $960,741. Since the Partnership had established an allowance for
loss on land and building as of December 31, 1996, no loss was
recognized during 1997 as a result of the sale. The Partnership used
$360,000 of the net sales proceeds to pay liabilities of the
Partnership, including quarterly distributions to the limited partners.
In June 1997, the Partnership entered into an operating agreement for
the property located in South Haven, Michigan, with an operator to
operate the property as an Arby's restaurant. In connection therewith,
the Partnership used approximately $120,400 of the net sales proceeds
from the sale of the property in Franklin, Tennessee, for conversion
costs associated with the Arby's property. The Partnership reinvested
the majority of the remaining net sales proceeds in additional
properties.
During 1997, the Partnership sold its properties in Salem, New
Hampshire; Port St. Lucie, Florida; and Tampa, Florida for a total of
$3,365,172 and received net sales proceeds totalling $3,291,566
resulting in a total gain of $447,521 for financial reporting purposes.
These properties were originally acquired by the Partnership in 1989
and had total costs of approximately $2,934,400, excluding acquisition
fees and miscellaneous acquisition expenses; therefore, the Partnership
sold the properties for approximately $357,300 in excess of their
original purchase prices. The Partnership reinvested the majority of
net sales proceeds in additional properties.
In November 1997, the Partnership sold its property in Richmond,
Indiana, to a third party for $400,000 and received net sales proceeds
of $385,179. As a result of this transaction, the Partnership
recognized a loss of $141,567 for financial reporting purposes. In
December 1997, the Partnership reinvested the net sales proceeds in a
property located in Vancouver, Washington, as tenants-in-common with
affiliates of the general partners (see Note 5).
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - Continued:
During the year ended December 31, 1998, the Partnership sold its
properties in Port Orange, Florida, and Tyler, Texas to the tenants for
a total of $2,180,000 and received net sales proceeds totalling
$2,125,220, resulting in a total gain of $440,822 for financial
reporting purposes. These properties were originally acquired by the
Partnership in 1988 and 1989 and had costs totaling approximately
$1,791,300, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold these properties for a total
of approximately $333,900 in excess of their original purchase prices.
In connection with the sale of the properties, the Partnership incurred
deferred, subordinated, real estate disposition fees of $65,400 (see
Note 10).
In July 1997, the Partnership entered into a new lease for the property
in Connorsville, Indiana, with a new tenant to operate the property as
an Arby's restaurant. In connection therewith, during 1998, the
Partnership paid $125,000 in renovation costs.
In 1997, the Partnership established an allowance for loss on land and
buildings of $250,694, for financial reporting purposes, relating to
the properties in Belding, Michigan and Lebanon, New Hampshire. Due to
the fact that the Partnership has not been able to successfully
re-lease these properties, the Partnership increased the allowance by
$155,612 for the property in Belding, Michigan, and $122,875 for the
property in Lebanon, New Hampshire, owned by the Partnership's
consolidated joint venture, CNL/Longacre Joint Venture at December 31,
1998. In addition, at December 31, 1998, the Partnership established an
allowance for loss on land and building of $124,670 relating to the
property located in Daleville, Indiana, due to the fact that the tenant
terminated the lease with the Partnership. The allowances represent the
difference between the net carrying values of the properties at
December 31, 1998 and current estimates of net realizable values for
these properties.
Some leases provide for escalating guaranteed minimum rents throughout
the lease terms. Income from these scheduled rent increases is
recognized on a straight-line basis over the terms of the leases. For
the years ended December 31, 1998, 1997, and 1996, the Partnership
recognized $70,237, $19,527, and $27,875, respectively, of such rental
income.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - Continued:
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 1998:
1999 $1,087,538
2000 1,101,658
2001 1,075,591
2002 987,031
2003 999,957
Thereafter 8,250,965
------------------
$13,502,740
==================
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant gross sales.
4. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at December 31:
1998 1997
-------------- ---------------
Minimum lease payments
receivable $3,260,110 $4,213,033
Estimated residual values 566,502 806,792
Less unearned income (2,117,646 ) (2,742,344 )
-------------- ---------------
Net investment in direct
financing leases $1,708,966 $2,277,481
============== ===============
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
4. Net Investment in Direct Financing Leases - Continued:
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 1998:
1999 $ 220,518
2000 220,518
2001 220,518
2002 220,518
2003 220,518
Thereafter 2,157,520
----------------
$3,260,110
================
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 3).
In May 1997, the Partnership sold its property in Smyrna, Tennessee, to
a third party for $655,000 and received net sales proceeds of $634,310,
resulting in a gain of $101,995 for financial reporting purposes. This
property was originally acquired by the Partnership in March 1989 and
had a cost of approximately $569,500, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the
property for approximately $64,800 in excess of its original purchase
price. The Partnership used approximately $82,500 of the net sales
proceeds to pay liabilities of the Partnership, including quarterly
distributions to the limited partners. In addition, the Partnership
reinvested the remaining net sales proceeds in additional properties as
tenants-in-common with affiliates of the general partners.
In June 1998, the Partnership terminated its lease with the tenant of
the property in Daleville, Indiana. As a result, the Partnership
reclassified these assets from net investment in direct financing lease
to land and building on operating lease. In accordance with Statement
of Financial Accounting Standards #13, "Accounting for Leases," the
Partnership recorded the reclassified assets at the lower of original
cost, present fair value, or present carrying value. No loss on
termination of direct financing lease was recorded for financial
reporting purposes.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
5. Investment in Joint Ventures:
As of December 31, 1998, the Partnership had a 43 percent and a 48.9%
interest in the profits and losses of Cocoa Joint Venture and Halls
Joint Venture, respectively. The remaining interests in these joint
ventures are held by affiliates of the Partnership which have the same
general partners.
In October 1997, the Partnership used a portion of the net sales
proceeds from the sale of the Property in Smyrna, Tennessee to acquire
a property in Mesa, Arizona, as tenants-in-common with an affiliate of
the general partners. The Partnership accounts for its investment in
this property using the equity method since the Partnership shares
control with an affiliate, and amounts relating to its investment are
included in investment in joint ventures. As of December 31, 1998, the
Partnership owned a 42.09% interest in this property.
In addition, in December 1997, the Partnership used some or all of the
net sales proceeds from the sales of the Properties in Franklin,
Tennessee; Richmond, Indiana, and Smyrna, Tennessee to acquire a
property in Vancouver, Washington, as tenants-in-common with affiliates
of the general partners. The Partnership accounts for its investment in
this property using the equity method since the Partnership shares
control with an affiliate, and amounts relating to its investment are
included in investment in joint ventures. As of December 31, 1998, the
Partnership owned a 27.78% interest in this property.
In May, 1998, the Partnership entered into a joint venture arrangement,
RTO Joint Venture, with an affiliate of the general partners, to
construct and hold one restaurant property. Construction was completed
and rent commenced in December 1998. As of December 31, 1998, the
Partnership had contributed $766,746 to the joint venture. The
Partnership holds a 53.12% interest in the profits and losses of the
joint venture. The Partnership accounts for its investment in this
joint venture under the equity method since the Partnership shares
control with an affiliate.
Cocoa Joint Venture, Halls Joint Venture, RTO Joint Venture and the
Partnership and affiliates as tenants-in-common in two separate
tenancy-in-common arrangements, each own and lease one property to an
operator of national fast-food or family-style restaurants.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
5. Investment in Joint Ventures - Continued:
The following presents the combined condensed financial information for
all of the Partnership's investments in joint ventures at December 31:
<TABLE>
<CAPTION>
<S> <C>
1998 1997
--------------- ---------------
Land and buildings on operating
leases, less accumulated
depreciation $4,812,568 $4,277,972
Net investment in direct financing
lease 817,525 --
Cash 17,992 24,994
Receivables 5,168 4,417
Prepaid expenses 458 270
Accrued rental income 112,279 68,819
Liabilities 46,398 1,250
Partners' capital 5,719,592 4,375,222
Revenues 555,103 151,242
Net income 454,922 121,605
</TABLE>
The Partnership recognized income totaling $173,941, $56,015, and
$46,452 for the years ended December 31, 1998, 1997, and 1996,
respectively, from these joint ventures.
6. Mortgage Notes Receivable:
In connection with the sale in 1995 of its property in Myrtle Beach,
South Carolina, the Partnership accepted a promissory note in the
principal sum of $1,040,000, collateralized by a mortgage on the
property. The promissory note bears interest at 10.25% per annum and is
being collected in 59 equal monthly installments of $9,319, including
interest, with a balloon payment of $991,332 due in July 2000. As a
result of this sale being accounted for using the installment sales
method for financial reporting purposes as required by Statement of
Financial Accounting Standards No. 66, "Accounting for Sales of Real
Estate," the Partnership recognized a gain of $1,134, $1,024, and $924
for the years ended December 31, 1998, 1997, and 1996, respectively.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
6. Mortgage Notes Receivable - Continued:
In addition, in connection with the sale in 1996 of its property in St.
Cloud, Florida, the Partnership accepted a promissory note in the
principal sum of $1,057,299, representing the balance of the sales
price of $1,050,000 plus tenant closing costs in the amount of $7,299
that the Partnership financed on behalf of the tenant. The note is
collateralized by a mortgage on the property. The promissory note bears
interest at a rate of 10.75% per annum and was being collected in 12
monthly installments of interest only, and thereafter in 168 equal
monthly installments of principal and interest. As a result of this
sale being accounted for using the installment sales method for
financial reporting purposes as required by Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate," the
Partnership recognized a gain of $2,157, $338, and $18,445 for the
years ended December 31, 1998, 1997, and 1996, respectively.
The mortgage notes receivable consisted of the following at December
31:
<TABLE>
<CAPTION>
<S> <C>
1998 1997
----------------- -----------------
Principal balance $2,049,981 $2,069,912
Accrued interest receivable 17,945 11,412
Less deferred gains on sale of land and buildings (319,866) (323,157 )
----------------- -----------------
$1,748,060 $1,758,167
================= =================
</TABLE>
The general partners believe that the estimated fair values of mortgage
notes receivable at December 31, 1998 and 1997, approximate the
outstanding principal amount based on estimated current rates at which
similar loans would be made to borrowers with similar credit and for
similar maturities.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
7. Receivables:
In June 1997, the Partnership terminated the leases with the tenant of
the properties in Connorsville and Richmond, Indiana. In connection
therewith, the Partnership accepted a promissory note from the former
tenant for $35,297 for amounts relating to past due real estate taxes
the Partnership had accrued as a result of the former tenant's
financial difficul-ties. The promissory note is uncollateralized, bears
interest at a rate of ten percent per annum, and is being collected in
36 monthly installments. Receivables at December 31, 1998 and 1997,
included $25,783 and $37,099, respectively of such amounts, including
accrued interest of $1,802 in 1997.
8. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of properties, are allocated 99 percent
to the limited partners and one percent to the general partners.
Distributions of net cash flow are made 99 percent to the limited
partners and one percent to the general partners; provided, however,
that the one percent of net cash flow to be distributed to the general
partners is subordinated to receipt by the limited partners of an
aggregate, ten percent, cumulative, noncompounded annual return on
their adjusted capital contributions (the "10% Preferred Return").
Generally, net sales proceeds from the sale of properties not in
liquidation of the Partnership, to the extent distributed, will be
distributed first to the limited partners in an amount sufficient to
provide them with their 10% Preferred Return, plus the return of their
adjusted capital contributions. The general partners will then receive,
to the extent previously subordinated and unpaid, a one percent
interest in all prior distributions of net cash flow and a return of
their capital contributions. Any remaining sales proceeds will be
distributed 95 percent to the limited partners and five percent to the
general partners.
Any gain from the sale of a property not in liquidation of the
Partnership is, in general, allocated in the same manner as net sales
proceeds are distributable. Any loss from the sale of a property is, in
general, allocated first, on a pro rata basis, to partners with
positive balances in their capital accounts; and thereafter, 95 percent
to the limited partners and five percent to the general partners.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
8. Allocations and Distributions - Continued:
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: i) first to pay and discharge all
of the Partnership's liabilities to creditors, ii) second, to establish
reserves that may be deemed necessary for any anticipated or unforeseen
liabilities or obligations of the Partnership, iii) third, to pay all
of the Partnership's liabilities, if any, to the general and limited
partners, iv) fourth, after allocations of net income, gains and/or
losses, to distribute to the partners with positive capital accounts
balances, in proportion to such balances, up to amounts sufficient to
reduce such positive balances to zero, and v) thereafter, any funds
remaining shall then be distributed 95 percent to the limited partners
and five percent to the general partners.
During the year ended December 31, 1998, the Partnership declared
distributions to the limited partners of $3,838,327, and during each of
the years ended December 31, 1997 and 1996, the Partnership distributed
$2,300,000. Distributions for 1998 included $1,838,327 as a result of
the distribution of net sales proceeds from the 1997 and 1998 sales of
the properties in Tampa and Port Orange, Florida. This amount was
applied toward the limited partners' 10% Preferred Return. No
distributions have been made to the general partners to date.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
9. Income Taxes:
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------ ------------
<S> <C>
Net income for financial
reporting purposes $1,544,895 $1,731,915 $1,428,159
Depreciation for tax reporting purposes
less than (in excess of) depreciation for
financial reporting purposes 18,802 (23,618 ) (28,058 )
Gain on disposition of land and buildings
for financial reporting purposes in
excess of gain for tax reporting purposes (16,347 ) (354,648 ) (1,606 )
Allowance for loss on land and buildings 403,157 250,694 239,525
Direct financing leases recorded as operating
leases for tax reporting purposes 38,017 42,682 46,387
Equity in earnings of unconsolidated
joint ventures for tax reporting purposes
in excess of (less than) equity in
earnings
of unconsolidated joint ventures for 10,795 (1,914 ) (1,900 )
financial reporting purposes
Capitalization of transaction costs for tax
reporting purposes 14,644 -- --
Allowance for doubtful accounts 3,613 100,149 33,254
Accrued rental income (70,237 ) (19,527 ) (27,875 )
Capitalization of administrative expenses
for tax 22,990 -- --
reporting purposes
Rents paid in advance (6,867 ) 1,241 (17,632 )
Minority interest in temporary differences
of consolidated joint venture (84,622 ) (41,515 ) (343 )
Other 1,705 36,721 --
-------------- ------------ ------------
Net income for federal income tax purposes $1,880,545 $1,722,180 $1,669,911
============== ============ ============
</TABLE>
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
10. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the majority stockholder
of CNL Fund Advisors, Inc. The other individual general partner, Robert
A. Bourne, serves as treasurer, director and vice chairman of the board
of CNL Fund Advisors. During the years ended December 31, 1998, 1997,
and 1996, CNL Fund Advisors, Inc. (hereinafter referred to as the
"Affiliate") performed certain services for the Partnership, as
described below.
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
acted as manager of the Partnership's properties pursuant to a
management agreement with the Partnership. In connection therewith, the
Partnership agreed to pay the Affiliate an annual, noncumulative,
subordinated management fee of one percent of the sum of gross revenues
from properties wholly owned by the Partnership and the Partnership's
allocable share of gross revenues from joint ventures, but not in
excess of competitive fees for comparable services in the same
geographic area. These fees will be incurred and will be payable only
after the limited partners receive their 10% Preferred Return. Due to
the fact that these fees are noncumulative, if the limited partners do
not receive their 10% Preferred Return in any particular year, no
management fees will be due or payable for such year. As a result of
such threshold, no management fees were incurred during the years ended
December 1998, 1997, and 1996.
The Affiliate of the Partnership is also entitled to receive a
deferred, subordinated real estate disposition fee, payable upon the
sale of one or more properties based on the lesser of one-half of a
competitive real estate commission or three percent of the sales price
if the Affiliate provides a substantial amount of services in
connection with the sale. However, if the net sales proceeds are
reinvested in a replacement property, no such real estate disposition
fees will be incurred until such replacement property is sold and the
net sales proceeds are distributed. The payment of the real estate
disposition fee is subordinated to receipt by the limited partners of
their aggregate 10% Preferred Return, plus their adjusted capital
contributions. During the years ended December 31, 1998 and 1996, the
Partnership incurred a deferred, subordinated real estate disposition
fee of $65,400 and $34,500, respectively, as the result of the sale of
the properties during 1998 and 1996, respectively. No deferred,
subordinated real estate disposition fee was incurred for the year
ended December 31, 1997 due to the reinvestment of net sales proceeds
in additional properties.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
10. Related Party Transactions - Continued:
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $94,611, $80,145, and
$83,563 for the years ended December 31, 1998, 1997, and 1996,
respectively, for such services.
During 1997, the Partnership and an affiliate of the general partners
acquired a property in Mesa, Arizona, as tenants-in-common for a
purchase price of $1,084,111 (of which the Partnership contributed
$460,911 or 42.23%) from CNL BB Corp., also an affiliate of the general
partners. CNL BB Corp. had purchased and temporarily held title to this
property in order to facilitate the acquisition of the property by the
Partnership. The purchase price paid by the Partnership represented the
Partnership's percent of interest in the costs incurred by CNL BB Corp.
to acquire and carry the property, including closing costs.
The due to related parties consisted of the following at December 31:
1998 1997
------------- -------------
Due to Affiliates:
Expenditures incurred on
behalf of the Partnership $ 77,907 $ 67,106
Accounting and administrative
services 50,641 42,261
Deferred, subordinated real
estate disposition fee 99,900 34,500
------------- -------------
$228,448 $143,867
============= =============
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
11. Concentration of Credit Risk:
The following schedule presents total rental and earned income
(including mortgage interest income) from individual lessees, or
affiliated groups of lessees, each representing more than ten percent
of the Partnership's total rental and earned income (including the
Partnership share of total rental and earned income from unconsolidated
joint ventures and the properties held as tenants-in-common with
affiliates), for each of the years ended December 31:
1998 1997 1996
----------- ---------- ---------
Golden Corral Corporation $195,511 $195,511 $ N/A
Shoney's, Inc. N/A 229,795 241,119
In addition, the following schedule presents total rental and earned
income (including mortgage interest income) from individual restaurant
chains, each representing more than ten percent of the Partnership's
total rental and earned income and mortgage interest income (including
the Partnership's share of total rental and earned income from joint
ventures and the properties held as tenants-in-common with affiliates)
for each of the years ended December 31:
1998 1997 1996
------------ ----------- ------------
Wendy's Old Fashioned
Hamburger Restaurant $220,347 $302,253 $293,817
Golden Corral Family
Steakhouse 195,511 N/A N/A
Denny's N/A 312,510 310,021
Perkins N/A 228,492 268,939
The information denoted by N/A indicates that for each period
presented, the tenant and the chains did not represent more than ten
percent of the Partnership's total rental and earned income (including
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.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
12. Subsequent Event:
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 shares
(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 APF's most recent public offering. 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. 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.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Group, Inc. and their
affiliates, all of which are affiliates of the General Partners. In addition,
during 1995, the Partnership had available to it the services, personnel and
experience of CNL Income Fund Advisors, Inc., prior to its merger with CNL Fund
Advisors, Inc., effective January 1, 1996.
James M. Seneff, Jr., age 52, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, a director and Chief Executive Officer since its formation
in 1980. Mr. Seneff has been Chairman of the Board of Directors, director, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979. Mr.
Seneff also has held the position of Chairman of the Board of Directors, Chief
Executive Officer, President and director of CNL Management Company, a
registered investment advisor, since its formation in 1976, has served as Chief
Executive Officer, Chairman of the Board and a director of CNL Investment
Company, has served as Chief Executive Officer, a director and Chairman of the
Board of Directors of Commercial Net Lease Realty, Inc., a publicly-traded REIT,
listed on the NYSE, since 1992, served as Chief Executive Officer, a director
and Chairman of the Board of Directors of CNL Realty Advisors, Inc. from its
inception in May 1992 through December 1997, at which time such company merged
with Commercial Net Lease Realty, Inc., and has held the position of Chief
Executive Officer, Chairman of the Board and a director of CNL Institutional
Advisors, Inc., a registered investment advisor, since its inception in December
1990. Mr. Seneff has served as Chairman of the Board of Directors of CNL
American Properties Fund, Inc. since December 1994 and as a director and Chief
Executive Officer since May 1994. Mr. Seneff has served as Chairman of the
Board, Chief Executive Officer and a director of CNL Fund Advisors, Inc. since
March 1994. Mr. Seneff has served as Chairman of the Board, Chief Executive
Officer and a director of CNL Hospitality Properties, Inc. since June 1996 and
of CNL Hospitality Advisors, Inc. since January 1997. Mr. Seneff has also served
as Chairman of the Board, Chief Executive Officer and a director of CNL Health
Care Properties, Inc. since December 1997 and CNL Health Care Advisors, Inc.
since July 1997. Mr. Seneff previously served on the Florida State Commission on
Ethics and is a former member and past Chairman of the State of Florida
Investment Advisory Council, which advises the Florida Board of Administration
investments for various Florida employee retirement funds. The Florida Board of
Administration, Florida's principal investment advisory and money management
agency, oversees the investment of more then $60 billion of retirement funds.
Mr. Seneff has served as a member of the board of directors of First Union
National Bank of Florida since May 1998 and has served as a member of the
Orlando Advisory Board of First Union National Bank of Florida since March 1994.
Since 1971, Mr. Seneff has been active in the acquisition, development, and
management of real estate projects and, directly or through an affiliated
entity, has served as a general partner or joint venturer in over 100 real
estate ventures involved in the financing, acquisition, construction, and rental
of restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 65 privately
offered real estate limited partnerships in which Mr. Seneff, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund
III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund
VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund
X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund
XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund
XVI, Ltd., CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII, Ltd. (the "CNL
Income Fund Partnerships"), public real estate limited partnerships with
investment objectives similar to those of the Partnership, in which Mr. Seneff
serves as a general partner. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
<PAGE>
Robert A. Bourne, age 51, is President and Treasurer of CNL Group,
Inc., President, Treasurer, a director, and a registered principal of CNL
Securities Corp., President, Treasurer, and a director of CNL Investment
Company, and Chief Investment Officer, a director and Treasurer of CNL
Institutional Advisors, Inc., a registered investment advisor. Mr. Bourne served
as President of CNL Institutional Advisor, Inc. from the date of its inception
through July 1997. Mr. Bourne served as President of Commercial Net Lease
Realty, Inc. from July 1992 through February 1996, served as Secretary and
Treasurer from February 1996 through December 1997, and has served as a director
since July 1992 and as Vice Chairman of the Board of Directors since February
1996. In addition, Mr. Bourne served as President of CNL Realty Advisors, Inc.
from May 1992 through February 1996, served as Treasurer from February 1996
through December 1997, served as a director from May 1992 through December 31,
1997 and served as Vice Chairman from February 1996 through December 1997, at
which time such company merged with Commercial Net Lease Realty, Inc. Mr. Bourne
has served as a Vice Chairman of the Board of Directors and Treasurer of CNL
American Properties Fund, Inc. since February 1999, has served as a director
since May 1994 and previously served as President from May 1994 through February
1999. Mr. Bourne has served as a director of CNL Fund Advisors, Inc. since March
1994, has served as Treasurer and Vice Chairman of the Board of Directors since
September 1997, and previously served as President from March 1994 through
September 1997. Mr. Bourne has served as President and a director of CNL
Hospitality Properties, Inc. since June 1996 and of CNL Hospitality Advisors,
Inc. since January 1997. Mr. Bourne has served as President and director of CNL
Health Care Properties, Inc. since December 1997 and CNL Health Care Advisors,
Inc. since July 1997. Mr. Bourne, who joined CNL Securities Corp. in 1979, has
participated as a general partner or joint venturer in over 100 real estate
ventures involved in the financing, acquisition, construction, and rental of
restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 64 privately
offered real estate limited partnerships in which Mr. Bourne, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are the CNL Income Fund Partnerships, public real estate limited
partnerships with investment objectives similar to those of the Partnership, in
which Mr. Bourne serves as a general partner. Mr. Bourne formerly was a
certified public accountant with Coopers & Lybrand and a partner in the firm of
Bourne & Rose, P.A. Mr. Bourne received a B.A. in Accounting, with honors, from
Florida State University in 1970.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL
Realty Corporation was organized to serve as the corporate general partner of
real estate limited partnerships, such as the Partnership, organized by one or
both of the individual General Partners. CNL Realty Corporation currently serves
as the corporate general partner of the CNL Income Fund Partnerships.
CNL Fund Advisors, Inc. provides certain management services in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation organized in 1994 under the laws of the State of Florida, and its
principal office is located at 400 East South Street, Orlando, Florida 32801.
CNL Fund Advisors, Inc. is a majority owned subsidiary of CNL Group, Inc., a
diversified real estate company, and was organized to perform property
acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Fund Advisors,
Inc., was organized in 1980 under the laws of the State of Florida. CNL Group,
Inc. is a diversified real estate company which provides a wide range of real
estate, development and financial services to companies in the United States
through the activities of its subsidiaries. These activities are primarily
focused on the franchised restaurant and hospitality industries. James M.
Seneff, Jr., an individual General Partner of the Partnership, is the Chairman
of the Board, Chief Executive Officer, and a director of CNL Group, Inc. Mr.
Seneff and his wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as members
of the Boards of Directors of those entities. The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.
Curtis B. McWilliams, age 43, joined CNL Group, Inc. in April 1997 and
currently serves as an Executive Vice President. In addition, Mr. McWilliams has
served as President of CNL Fund Advisors, Inc. and as President of the
Restaurant and Financial Services Groups within CNL Group, Inc. since April
1997. Mr. McWilliams has served as President of CNL American Properties Fund,
Inc. since February 1999 and previously served as Executive Vice President from
February 1998 through February 1999. From September 1983 through March 1997, Mr.
McWilliams was employed by Merrill Lynch & Co., most recently as Chairman of
Merrill Lynch's Private Advisory Services until March 1997. Mr. McWilliams
received a B.S.E. in Chemical Engineering from Princeton University in 1977 and
a Masters of Business Administration with a concentration in finance from the
University of Chicago in 1983.
John T. Walker, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since January 1996, as Chief Operating Officer
since March 1995, and previously served as Senior Vice President since December
1994. In addition, Mr. Walker has served as Executive Vice President of CNL Fund
Advisors, Inc. since January 1996, Chief Operating Officer since April 1995, and
previously served as Senior Vice President from November 1994 through January
1996. In addition, Mr. Walker previously served as Executive Vice President of
CNL Hospitality Properties, Inc. and CNL Hospitality Advisors, Inc. From May
1992 to May 1994, Mr. Walker, a certified public accountant, was Executive Vice
President for Finance and Administration and Chief Financial Officer of Z Music,
Inc., a cable television network (subsequently acquired by Gaylord
Entertainment), where he was responsible for overall financial and
administrative management and planning. From January 1990 through April 1992,
Mr. Walker was Chief Financial Officer of the First Baptist Church in Orlando,
Florida. From April 1984 through December 1989, he was a partner in the
accounting firm of Chastang, Ferrell & Walker, P.A., where he was the partner in
charge of audit and consulting services, and from 1981 to 1984, Mr. Walker was a
Senior Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a Cum Laude
graduate of Wake Forest University with a B.S. in Accountancy and is a certified
public accountant.
Lynn E. Rose, age 50, a certified public accountant, has served as
Secretary of CNL American Properties Fund, Inc. since December 1994 and served
as Treasurer from December 1994 through February 1999. Ms. Rose has served as a
director and Secretary of CNL Fund Advisors, Inc. since March 1994, and as
Treasurer from the date of its inception through June 30, 1997. Ms. Rose has
served as Secretary of CNL Group, Inc. since 1987, as Chief Financial Officer of
CNL Group, Inc. since December 1993, and served as Controller of CNL Group, Inc.
from 1987 until December 1993. In addition, Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has
served as Chief Operating Officer, Vice President and Secretary of CNL Corporate
Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial
Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in
1990, as Treasurer of CNL Realty Advisors, Inc. from 1991 to February 1996, and
as Secretary and a director of CNL Realty Advisors, Inc. since its inception in
1991 until December 31, 1997, at which time CNL Realty Advisors, Inc. merged
with Commercial Net Lease Realty, Inc. In addition, Ms. Rose served as Secretary
and Treasurer of Commercial Net Lease Realty, Inc. from 1992 to February 1996.
Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality Properties,
Inc. and CNL Health Care Properties, Inc. and as Secretary, Treasurer and a
director of CNL Hospitality Advisors, Inc. and CNL Health Care Advisors, Inc.
Ms. Rose also currently serves as Secretary for approximately 50 additional
corporations. Ms. Rose oversees the legal compliance, accounting, tenant
compliance, and reporting for over 250 corporations, partnerships and joint
ventures. Prior to joining CNL, Ms. Rose was a partner with Robert A. Bourne in
the accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Ms.
Rose holds a B.A. in Sociology from the University of Central Florida.
Jeanne A. Wall, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since December 1994. Ms. Wall has served as
Executive Vice President of CNL Fund Advisors, Inc. since November 1994, and
previously served as Vice President from March 1994 through November 1994. Ms.
Wall has served as Chief Operating Officer of CNL Investment Company and of CNL
Securities Corp. since November 1994 and has served as Executive Vice President
of CNL Investment Company since January 1991. Ms. Wall joined CNL Securities
Corp. in 1984. In 1985, Ms. Wall became Vice President of CNL Securities Corp.
In 1987, she became Senior Vice President and in July 1997 she became Executive
Vice President of CNL Securities Corp. In this capacity, Ms. Wall serves as
national marketing and sales director and oversees the national marketing plan
for the CNL investment programs. In addition, Ms. Wall oversees product
development, partnership administration and investor services for programs
offered through participating brokers and corporate communications for CNL
Group, Inc. and its affiliates. Ms. Wall also has served as Senior Vice
President of CNL Institutional Advisors, Inc., a registered investment advisor,
from 1990 to 1993, as Vice President of CNL Realty Advisors, Inc. since its
inception in 1991 until December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., and served as Vice President
of Commercial Net Lease Realty, Inc. from 1992 through December 31, 1997. In
addition, Ms. Wall serves as Executive Vice President of CNL Hospitality
Properties, Inc., CNL Hospitality Advisors, Inc., CNL Health Care Properties,
Inc. and CNL Health Care Advisors, Inc. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp. Ms. Wall currently serves as a trustee on the board of the
Investment Program Association and on the Direct Participation Program committee
for the National Association of Securities Dealers (NASD).
Steven D. Shackelford, age 35, a certified public accountant, has
served as Chief Financial Officer of CNL American Properties Fund, Inc. since
January 1997 and as Chief Financial Officer of CNL Fund Advisors, Inc. since
September 1996. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse where he was responsible for
advising foreign clients seeking to raise capital and a public listing in the
United States. From August 1992 to March 1995, he served as a manager in the
Price Waterhouse, Paris, France office serving several multinational clients.
Mr. Shackelford was an audit staff and audit senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a B.A. in
Accounting, with honors, and a Masters of Business Administration from Florida
State University.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 11, 1999, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 11, 1999, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
-------------- --------------- ----------------
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
----
100%
====
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above. On March 11, 1999, the
Registrant entered into an Agreement and Plan of Merger with CNL American
Properties Fund, Inc. ("APF") pursuant to which the Registrant would be merged
with and into a subsidiary of APF (the "Merger"). For further discussion, see
Item 8. Financial Statements and Supplementary Data -- Note 12.
Subsequent Event.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 1998, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
------------------------ --------------------- -----------------------
<S> <C>
Reimbursement to affiliates for Operating expenses are reimbursed Operating expenses incurred on
operating expenses at the lower of cost or 90 percent behalf of the Partnership: $79,438
of the prevailing rate at which
comparable services could have been Accounting and administrative
obtained in the same geographic services: $94,611
area. Affiliates of the General
Partners from time to time incur
certain operating expenses on
behalf of the Partnership for which
the Partnership reimburses the
affiliates without interest.
Annual, subordinated manage-ment fee to One percent of the sum of gross $ - 0 -
affiliates operating revenues from Properties
wholly owned by the Partnership
plus the Partnership's allocable
share of gross revenues of joint
ventures in which the Partnership
is a co-venturer, subordinated to
certain minimum returns to the
Limited Partners. The management
fee will not exceed competitive
fees for comparable services. Due
to the fact that these fees are
noncumulative, if the Limited
Partners do not receive their 10%
Preferred Return in any particular
year, no management fees will be
due or payable for such year.
<PAGE>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
------------------------ --------------------- -----------------------
Deferred, subordinated real estate A deferred, subordinated real $ 65,400
disposition fee payable to affiliates estate disposition fee, payable
upon sale of one or more
Properties, in an amount equal to
the lesser of (i) one-half of a
competitive real estate
commission, or (ii) three percent
of the sales price of such
Property or Properties. Payment of
such fee shall be made only if
affiliates of the General Partners
provide a substantial amount of
services in connection with the
sale of a Property or Properties
and shall be subordinated to
certain minimum returns to the
Limited Partners. However, if the
net sales proceeds are reinvested
in a replacement Property, no such
real estate disposition fee will
be incurred until such replacement
Property is sold and the net sales
proceeds are distributed.
A deferred, subordinated share
General Partners' deferred, equal to one percent of Partnership $ - 0 -
sub-ordinated share of Partnership net distributions of net cash flow,
cash flow subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to five percent of
sales proceeds from a sale or sales not Partnership distributions of such
in liquidation of the Partnership net sales proceeds, subordinated to
certain minimum returns to the
Limited Partners.
<PAGE>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
------------------------ --------------------- -----------------------
General Partners' share of Partnership Distributions of net sales proceeds $ - 0 -
net sales proceeds from a sale or sales from a sale or sales of
in liquidation of the Partnership substantially all of the
Partnership's assets will be
distributed in the following order
or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net
loss, gain and loss, in proportion
to such balances, up to amounts
sufficient to reduce such balances
to zero; and (iii) thereafter, 95%
to the Limited Partners and 5% to
the General Partners.
</TABLE>
As discussed above in Item 8. Financial Statements and Supplementary
Data -- Note 12. Subsequent Event, the Registrant has entered into an Agreement
and Plan of Merger, dated March 11, 1999, with APF pursuant to which the
Registrant would be merged with and into a subsidiary of APF in exchange for the
issuance of APF Shares. The APF Shares are expected to be listed for trading on
the New York Stock Exchange concurrently with the consummation of the Merger. If
the Merger is approved by Limited Partners holding units greater than 50% of the
outstanding units of the Registrant, the General Partners of the Registrant
would receive certain benefits. For instance, following the Merger, James M.
Seneff, Jr. and Robert A. Bourne, the individual General Partners, will continue
to serve as directors of APF, with Mr. Seneff serving as Chairman and Mr. Bourne
serving as Vice Chairman. As APF directors, they may also be entitled to receive
stock options under any stock option plan adopted by APF.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1998 and 1997
Statements of Income for the years ended December 31, 1998,
1997, and 1996
Statements of Partners' Capital for the years ended December
31, 1998, 1997, and 1996
Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1998, 1997, and 1996
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1998
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1998
Schedule IV - Mortgage Loans on Real Estate at December 31,
1998
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 Amended and Restated Affidavit and Certificate of
Limited Partnership of CNL Income Fund V, Ltd.
(Included as Exhibit 3.1 to Form 10-K filed with the
Securities and Exchange Commission on March 31, 1994,
and incorporated herein by reference.)
4.1 Amended and Restated Affidavit and Certificate of
Limited Partnership of CNL Income Fund V, Ltd.
(Included as Exhibit 3.1 to Form 10-K filed with the
Securities and Exchange Commission on March 31, 1994,
and incorporated herein by reference.)
4.2 Amended and Restated Certificate and Agreement of
Limited Partnership of CNL Income Fund V, Ltd.
(Included as Exhibit 4.2 to Form 10-K filed with the
Securities and Exchange Commission on March 31, 1994,
and incorporated herein by reference.)
10.1 Management Agreement (Included as Exhibit 10.1 to
Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein
by reference.)
10.2 Assignment of Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 30, 1995,
and incorporated herein by reference.)
10.3 Assignment of Management Agreement from CNL Income
Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on April 1, 1996,
and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from October
1, 1998 through December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 1999.
CNL INCOME FUND V, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
JAMES M. SENEFF, JR.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
Signature Title Date
--------- ----- ----
/s/ Robert A.Bourne President, Treasurer and Director March 30, 1999
- -------------------------------- (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 30, 1999
- -------------------------------- (Principal Executive Officer)
James M. Seneff, Jr.
<PAGE>
</TABLE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
<S> <C>
Additions Deductions
------------------------------- ----------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
-------- ----------------- -------------- -------------- --------------- ------------ ------------ -----------
1996 Allowance for
doubtful
accounts (a) $ 4,490 $ -- $ 46,493 (b) $ 5,846 (c) $ 7,394 $ 37,743
============== ============== =============== ============ ============ ===========
1997 Allowance for
doubtful
accounts (a) $ 37,743 $ 9,007 $ 92,395 (b) $ -- (c) $ 1,253 $137,892
============== ============== =============== ============ ============ ===========
1998 Allowance for
doubtful
accounts (a) $ 137,892 $ -- $ 17,303 (b) $ 3,094 (c) $ 10,596 $141,505
============== ============== =============== ============ ============ ===========
</TABLE>
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
<PAGE>
<TABLE>
<CAPTION>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<S> <C>
Costs Capitalized
Subsequent To
Initial Cost Acquisition n
--------------------------- ---------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
----------- ------------ ------------ ---------- --------
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurant:
Lawrenceville, Georgia - $482,070 - $368,416 -
Captain D's Restaurant:
Belleville, Illinois - 186,050 383,781 - -
Denny's Restaurant:
Daleville, Indiana (l) (n) - 125,562 404,935 - -
New Castle, Indiana - 117,394 471,340 - -
Golden Corral Family
Steakhouse Restaurants:
Livingston, Texas - 156,382 429,107 - -
Victoria, Texas - 504,787 742,216 - -
Hardee's Restaurants:
Belding, Michigan (j) - 113,884 564,805 - -
Connorsville, Indiana - 279,665 - 591,137 -
South Haven, Michigan - 120,847 599,339 120,363 -
IHOP:
Houston, Texas - 513,384 671,713 - -
Pizza Hut Restaurant:
Mexia, Texas - 237,944 200,501 - -
Taco Bell Restaurants:
Bountiful, Utah - 330,164 - 319,511 -
Centralia, Washington - 215,302 - 378,836 -
Tony Romas:
Sandy, Utah - 595,330 - - -
Wendy's Old Fashioned
Hamburger Restaurants:
Tampa, Florida - 336,218 462,400 - -
Endicott, New York - 277,965 243,839 - -
Ithaca, New York - 310,462 208,618 - -
Other:
Lebanon, New Hampshire (g) (o) - 448,726 - 696,741 -
------------ ------------ ---------- ---------
$5,352,136 $5,382,594 $2,475,004 -
============ ============ ========== ========
Property of Joint Venture in Which the
Partnership has a 43% Interest and has
Invested in Under an Operating Lease:
Waffle House Restaurant:
Cocoa, Florida - $183,229 $192,857 - -
============ ============ ========== ========
Property of Joint Venture in Which the
Partnership has a 48.90% Interest and
has Invested in Under an Operating
Lease:
Burger King Restaurant:
Knoxville, Tennessee - $283,961 $430,406 - -
============ ============ ========== ========
Property in Which the Partnership
has a 42.09% Interest as
Tenants-in-Common and has
Invested in Under an
Operating Lease:
Boston Market Restaurant:
Mesa, Arizona (k) - $440,842 $650,622 - -
============ ============ ========== ========
Property in Which the Partnership
has a 27.78% Interest as
Tenants-in-Common and has
Invested in Under an
Operating Lease:
Chevy's Fresh Mex Restaurant:
Vancouver, Washington - $875,659 $1,389,366 - -
============ ============ ========== ========
Property of Joint Venture in Which
the Partnership has a 53.12% Interest
and has Invested in Under an Operating
Lease:
Ruby Tuesday's Restaurant:
Orlando, Florida - $623,496 - - -
============ ============ ========== ========
Properties the Partnership
has Invested in Under
Direct Financing Leases:
Captain D's Restaurant
Zanesville, Ohio - $99,651 $390,518 - -
Denny's Restaurant:
Huron, Ohio - 27,418 456,139 - -
Tony Romas:
Sandy, Utah - - 911,072 - -
------------ ------------ ---------- --------
$127,069 $1,757,729 - -
============ ============ ========== ========
Gross Amount at Which Life on Which
Carried at Close of Period (c) Depreciation i
--------------------------------------- Date Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
--------- ----------- ----------- ----------- --------- --------- -------------
$482,070 $368,416 $850,486 $116,665 1989 04/89 (b)
186,050 383,781 569,831 125,262 1988 03/89 (b)
125,562 404,935 530,497 13,827 1974 02/89 (l)
117,394 471,340 588,734 93,923 1989 02/89 (h)
156,382 429,107 585,489 133,498 1986 09/89 (b)
504,787 742,216 1,247,003 223,516 1989 12/89 (b)
113,884 564,805 678,689 101,906 1989 03/89 (i)
279,665 591,137 870,802 152,936 1989 03/89 (b)
120,847 719,702 840,549 125,294 1989 03/89 (i)
513,384 671,713 1,185,097 24,567 1997 11/97 (b)
237,944 200,501 438,445 65,163 1985 03/89 (b)
330,164 319,511 649,675 99,847 1989 05/89 (b)
215,302 378,836 594,138 114,703 1989 08/89 (b)
595,330 (f) 595,330 (d) 1997 12/97 (d)
336,218 462,400 798,618 151,564 1987 02/89 (b)
277,965 243,839 521,804 73,828 1976 12/89 (b)
310,462 208,618 519,080 63,164 1977 12/89 (b)
448,726 696,741 1,145,467 216,092 1989 03/89 (b)
- ----------- ---------- --------- -----------
$5,352,136 $7,857,598 $13,209,734 $1,895,755
=========== =========== ============ ===========
$183,229 $192,857 $376,086 $57,909 1986 12/89 (b)
========== =========== ============ ===========
$283,961 $430,406 $714,367 $127,688 1985 01/90 (b)
========== =========== ============ ===========
$440,842 $650,622 $1,091,464 $25,837 1997 10/97 (b)
========== =========== ============ ===========
$875,659 $1,389,366 $2,265,025 $46,436 1994 12/97 (b)
========== =========== ============ ===========
$623,496 (f) $623,496 (d) 1998 05/98 (d)
========== ============ ===========
(f) (f) (f) (e) 1988 03/89 (e)
(f) (f) (f) (e) 1971 05/89 (e)
- (f) (f) (d) 1997 12/97 (d)
</TABLE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(a) Transactions in real estate and accumulated depreciation during 1998,
1997 and 1996, are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Accumulated
Cost Depreciation
---------------- ----------------
Properties the Partnership has Invested
in Under Operating Leases:
Balance, December 31, 1995 $ 18,769,088 $ 2,128,453
Dispositions (1,053,110 ) (158,845 )
Depreciation expense -- 376,766
---------------- ----------------
Balance, December 31, 1996 17,715,978 2,346,374
Dispositions (3,099,783 ) (726,447 )
Depreciation expense (j) (n) -- 324,431
---------------- ----------------
Balance, December 31, 1997 14,616,195 1,944,358
Reclassification from direct financing lease 530,497 --
Dispositions (1,936,958 ) (315,857 )
Depreciation expense (j)(n)(o) -- 267,254
---------------- ----------------
Balance, December 31, 1998 $ 13,209,734 $ 1,895,755
================ ================
Property of Joint Venture in Which the Partnership has
a 43% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1995 $ 376,086 $ 38,624
Depreciation expense -- 6,429
---------------- ----------------
Balance, December 31, 1996 376,086 45,053
Depreciation expense -- 6,428
---------------- ----------------
Balance, December 31, 1997 376,086 51,481
Depreciation expense -- 6,428
---------------- ----------------
Balance, December 31, 1998 $ 376,086 $ 57,909
================ ================
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1998
Accumulated
Cost Depreciation
----------------- ---------------
Property of Joint Venture in Which the
Partnership has a 48.90% Interest and
has Invested in Under an
Operating Lease:
Balance, December 31, 1995 $ 714,367 $ 84,647
Depreciation expense -- 14,347
---------------- --------------
Balance, December 31, 1996 714,367 98,994
Depreciation expense -- 14,347
---------------- --------------
Balance, December 31, 1997 714,367 113,341
Depreciation expense -- 14,347
---------------- --------------
Balance, December 31, 1998 $ 714,367 $ 127,688
================ ==============
Property in Which the Partnership has a 42.09%
Interest as Tenants-in-common and has
Invested in Under an Operating Lease:
Balance, December 31, 1996 $ --- $ --
Acquisitions 1,091,464 --
Depreciation expense -- 4,021
---------------- --------------
Balance, December 31, 1997 1,091,464 4,021
Depreciation expense -- 21,816
---------------- --------------
Balance, December 31, 1998 $ 1,091,464 $ 25,837
================ ==============
Property in Which the Partnership has a 27.78%
Interest as Tenants-in-common and has Invested
in Under an Operating Lease:
Balance, December 31, 1996 $ -- $ --
Acquisitions 2,265,025 --
Depreciation expense -- 127
---------------- --------------
Balance, December 31, 1997 2,265,025 127
Depreciation expense -- 46,309
---------------- --------------
Balance, December 31, 1998 $ 2,265,025 $ 46,436
================ ==============
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1998
Accumulated
Cost Depreciation
----------------- ---------------
Property of Joint Venture in Which the
Partnership has a 53.12% Interest
and has Invested in Under an
Operating Lease:
Balance, December 31, 1997 $ -- $ --
Acquisition 623,496 --
Depreciation expense (d) -- --
---------------- --------------
Balance, December 31, 1998 $ 623,496 $ --
================ ==============
</TABLE>
(b) Depreciation expense is computed for buildings and
improvements based upon estimated lives of 30 years.
(c) As of December 31, 1998, the aggregate cost of the Properties
owned by the Partnership and its consolidated joint venture,
and the unconsolidated joint ventures for federal income tax
purposes was $14,858,382 and $5,889,641, respectively. All of
the leases are treated as operating leases for federal income
tax purposes.
(d) For financial reporting purposes, the portion of the lease
relating to the building has been recorded as a direct
financing lease. The cost of the building has been included in
the net investment in direct financing leases; therefore,
depreciation is not applicable.
(e) For financial reporting purposes, the lease for land and
building has been recorded as a direct financing lease. The
cost of the land and building has been included in net
investment in direct financing leases; therefore, depreciation
is not applicable.
(f) For financial reporting purposes, certain components of the
lease relating to the land and building have been recorded as
a direct financing lease. Accordingly, costs related to these
components of this lease are not shown.
(g) The restaurant on the Property in Lebanon, New Hampshire, was
converted from a Ponderosa Steakhouse restaurant to a local,
independent restaurant in 1992.
(h) Effective January 1994, the lease for this Property was
amended, resulting in the reclassification of the building
portion of the lease as an operating lease. The building was
recorded at net book value as of January 1, 1994, and
depreciated over its remaining estimated life of approximately
25 years.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
CONTINUED
December 31, 1998
(i) Effective February 1994, the lease for this Property was
terminated, resulting in the lease's reclassification as an
operating lease. The building was recorded at net book value
as of February 1994 and will be depreciated over its remaining
estimated life of approximately 25 years.
(j) For financial reporting purposes, the undepreciated cost of
the Property in Belding, Michigan, was written down to net
realizable value due to an impairment in value. The
Partnership recognized the impairment by recording an
allowance for loss on land and building in the amount of
$307,283 at December 31, 1998. The impairment at December 31,
1998 represents the difference between the Property's carrying
value and estimated net realizable value of the Property. The
cost of the Property presented on this schedule is the gross
amount at which the Property was carried at December 31, 1998,
excluding the allowance for loss on land and building.
(k) During the year ended December 31, 1997, the Partnership and
an affiliate, as tenants-in-common, purchased land and
building from CNL BB Corp, an affiliate of the General
Partners, for an aggregate cost of $1,091,464.
(l) Effective March 1998, the lease for this property was
terminated, resulting in the lease being reclassified as an
operating lease. The building was recorded at net book value
as of March 1998, and will be depreciated over its remaining
estimated life of approximately 20 years.
(m) For financial reporting purposes, the undepreciated cost of
the Property in Lebanon, New Hampshire, was written down to
net realizable value due to an impairment in value. The
Partnership recognized the impairment by recording an
allowance for loss on land and building in the amount of
$221,898 at December 31, 1998. The impairment at December 31,
1998, represents the difference between the Property's
carrying value and the current estimated net realizable value
of the Property. The cost of the Property presented on this
schedule is the gross amount at which the Property was carried
at December 31, 1998, excluding the allowance for loss on land
and building.
(n) For financial reporting purposes, the undepreciated cost of
the Property in Daleville, Indiana, was written down to net
realizable value due to an impairment in value. The
Partnership recognized the impairment by recording an
allowance for loss on the building in the amount of $124,670
for the year ended December 31, 1998. The impairment at
December 31, 1998, represents the difference between the
Property's carrying value and the current estimated net
realizable value of the Property. The cost of the Property
presented on this schedule is the gross amount at which the
Property was carried at December 31, 1998, excluding the
allowance for loss on the building.
<PAGE>
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Principal
Amount of
Final Periodic Carrying Loan Subject
Interest Maturity Payment Prior Face Amount Amount of to Delinquent
Description Rate Date Terms Liens of Mortgage Mortgage(1) Principal or Interest
----------- ---- ---- ----- ----- ----------- -------- ---------------------
Perkins -
Myrtle Beach, FL
First Mortgage 10.25% July 2000 (2) $-- $ 1,040,000 $ 876,248 $--
Ponderosa -
St. Cloud, FL October
First Mortgage 10.75% 2011 (3) -- $ 1,057,299 $ 871,812 $--
--------- ---------------- ------------- ----------------------
Total $-- $ 2,097,299 $1,748,060(4) $--
========= ================ ============= ======================
(1) Carrying amount consists of outstanding principal plus accrued
interest less deferred gains. The tax carrying value of the notes
are $1,767,587, which are net of deferred gains of $308,178.
(2) Monthly payments of principal and interest at an annual rate of
10.25%, with a balloon payment at maturity of $1,006,004.
(3) Twelve monthly payments of interest only and 168 equal monthly
payments of principal and interest at an annual rate of 10.75%.
(4) The changes in the carrying amounts are summarized as follows:
1998 1997 1996
-------------- -------------- -------------
Balance at beginning of period $ 1,758,167 $ 1,772,858 $ 895,736
New mortgage loan -- -- 1,057,299
Interest earned 223,031 211,263 126,533
Collections of principal and interest (236,429 ) (227,316 ) (123,832 )
Deferred gain on sale of land and building -- -- (183,802 )
Recognition of deferred gain on sale of land and 3,291 1,362 924
building
-------------- -------------- -------------
Balance at end of period $ 1,748,060 $ 1,758,167 $1,772,858
============== ============== =============
<PAGE>
</TABLE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number
3.1 Amended and Restated Affidavit and Certificate of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit
3.1 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
4.1 Amended and Restated Affidavit and Certificate of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit
3.1 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
4.2 Amended and Restated Certificate and Agreement of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit
4.2 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
10.1 Management Agreement (Included as Exhibit 10.1 to Form 10-K
filed with the Securities and Exchange Commission on March 31,
1994, and incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL Investment Company
to CNL Income Fund Advisors, Inc. (Included as Exhibit 10.2 to
Form 10-K filed with the Securities and Exchange Commission on
March 30, 1995, and incorporated herein by reference.)
10.3 Assignment of Management Agreement from CNL Income Fund
Advisors, Inc. to CNL Fund Advisors, Inc. (Included as Exhibit
10.3 to Form 10-K filed with the Securities and Exchange
Commission on April 1, 1996, and incorporated herein by
reference.)
27 Financial Data Schedule (Filed herewith.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund V, Ltd. at December 31, 1998, and its statement of
income for the year then ended and is qualified in its entirety by reference to
the Form 10-K of CNL Income Fund V, Ltd. for the year ended December 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 352,648
<SECURITIES> 0
<RECEIVABLES> 228,995
<ALLOWANCES> 141,505
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 12,555,883
<DEPRECIATION> 1,895,755
<TOTAL-ASSETS> 17,135,485
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,227,102
<TOTAL-LIABILITY-AND-EQUITY> 17,135,485
<SALES> 0
<TOTAL-REVENUES> 1,783,277
<CGS> 0
<TOTAL-COSTS> 514,410
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,882
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,544,895
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,544,895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,544,895
<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>
