FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
-----------------------------------
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
0-19144
----------------------
CNL Income Fund VI, Ltd.
- ------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2922954
- ---------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street, #500
Orlando, Florida 32801
- ---------------------------- -------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
------- -------
CONTENTS
--------
Part I Page
----
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 7-11
Part II
Other Information 12
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
ASSETS 1996 1995
------------- ------------
Land and buildings on operating
leases, less accumulated
depreciation of $3,079,722
and $2,717,746 $22,248,710 $22,610,686
Net investment in direct
financing leases 4,676,829 4,727,201
Investment in joint ventures 999,690 867,708
Mortgage note receivable - 3,056
Cash and cash equivalents 1,110,151 1,120,999
Receivables, less allowance for
doubtful accounts of $111,755
and $194,409 55,537 85,339
Prepaid expenses 4,811 5,250
Lease costs, less accumulated
amortization of $3,218 and
$1,801 14,482 15,899
Accrued rental income, less
allowance for doubtful
accounts of $9,697 and $9,160 1,055,433 979,445
Other assets 26,731 26,731
----------- -----------
$30,192,374 $30,442,314
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 16,120 $ 19,846
Accrued and escrowed real estate
taxes payable 13,220 10,424
Due to related parties 6,621 6,024
Distributions payable 787,500 787,500
Rents paid in advance 22,232 4,417
----------- -----------
Total liabilities 845,693 828,211
Minority interest 156,160 153,337
Partners' capital 29,190,521 29,460,766
----------- -----------
$30,192,374 $30,442,314
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------- -------- ---------- ----------
Revenues:
Rental income from
operating leases $699,760 $681,906 $2,090,179 $2,046,160
Earned income from direct
financing leases 138,280 115,799 419,663 337,805
Contingent rental income 4,786 12,293 15,286 23,012
Interest and other income 8,785 15,324 35,384 37,712
-------- -------- ---------- ----------
851,611 825,322 2,560,512 2,444,689
-------- -------- ---------- ----------
Expenses:
General operating and
administrative 39,121 38,012 125,933 100,513
Professional services 6,287 5,066 21,650 21,505
Real estate taxes 3,833 (3,987) 3,833 -
State and other taxes - 150 8,128 6,939
Depreciation and amorti-
zation 121,131 121,399 363,393 369,620
-------- -------- ---------- ----------
170,372 160,640 522,937 498,577
-------- -------- ---------- ----------
Income Before Minority
Interest in Income of
Consolidated Joint Venture,
Equity in Earnings of
Unconsolidated Joint
Ventures, Gain on Sale
of Land and Buildings and
Loss on Sale of Land 681,239 664,682 2,037,575 1,946,112
Minority Interest in Income
of Consolidated Joint
Venture (5,191) (4,924) (16,260) (14,138)
Equity in Earnings of Uncon-
solidated Joint Ventures 24,363 21,105 70,940 61,319
Gain on Sale of Land and
Buildings - - - 103,283
Loss on Sale of Land - (7,370) - (7,370)
-------- -------- ---------- ----------
Net Income $700,411 $673,493 $2,092,255 $2,089,206
======== ======== ========== ==========
Allocation of Net Income:
General partners $ 7,004 $ 6,735 $ 20,922 $ 20,892
Limited partners 693,407 666,758 2,071,333 2,068,314
-------- -------- ---------- ----------
$700,411 $673,493 $2,092,255 $2,089,206
======== ======== ========== ==========
Net Income Per Limited
Partner Unit $ 9.91 $ 9.53 $ 29.59 $ 29.55
======== ======== ========== ==========
Weighted Average Number
of Limited Partner Units
Outstanding 70,000 70,000 70,000 70,000
======== ======== ========== ==========
See accompanying notes to condensed financial statements.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
1996 1995
----------------- ------------
General partners:
Beginning balance $ 175,673 $ 147,262
Net income 20,922 28,411
----------- -----------
196,595 175,673
----------- -----------
Limited partners:
Beginning balance 29,285,093 29,602,123
Net income 2,071,333 2,832,970
Distributions ($33.75 and
$45.00 per limited
partner unit,
respectively) (2,362,500) (3,150,000)
----------- -----------
28,993,926 29,285,093
----------- -----------
Total partners' capital $29,190,521 $29,460,766
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1996 1995
----------- -----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating Activities $ 2,511,446 $ 2,434,251
----------- -----------
Cash Flows from Investing Activities:
Proceeds from sale of land and
building - 899,502
Additions to land and buildings
on operating leases - (205,056)
Investment in direct financing leases - (517,029)
Investment in joint venture (173,650) -
Return of capital from joint venture 27,560 -
Collections on mortgage note
receivable 3,033 -
Increase in restricted cash - (5,655)
Payment of lease costs (3,300) -
----------- -----------
Net cash provided by (used in)
investing activities (146,357) 171,762
----------- -----------
Cash Flows from Financing Activities:
Distributions to limited partners (2,362,500) (2,362,500)
Distributions to holder of minority
interest (13,437) (20,659)
----------- -----------
Net cash used in financing
activities (2,375,937) (2,383,159)
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents (10,848) 222,854
Cash and Cash Equivalents at Beginning
of Period 1,120,999 926,481
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,110,151 $ 1,149,335
=========== ===========
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Building costs incurred and unpaid
at end of period $ - $ 28,844
=========== ===========
Mortgage note accepted in exchange
for sale of land $ - $ 6,000
=========== ===========
Lease costs incurred and unpaid at
end of period $ - $ 16,500
=========== ===========
Distributions declared and unpaid
at end of period $ 787,500 $ 787,500
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1996 and 1995
1. Basis of Presentation:
---------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and nine months ended September 30, 1996, may not be
indicative of the results that may be expected for the year ending
December 31, 1996. Amounts as of December 31, 1995, included in the
financial statements, have been derived from audited financial
statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund VI, Ltd. (the "Partnership") for the year ended December 31,
1995.
The Partnership accounts for its 66 percent interest in the accounts of
Caro Joint Venture using the consolidation method. Minority interest
represents the minority joint venture partner's proportionate share of
the equity in the Partnership's consolidated joint venture. All
significant intercompany accounts and transactions have been eliminated.
Effective January 1, 1996, the Partnership adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The
Statement requires that an entity review long-lived assets and certain
identifiable intangibles, to be held and used, for impairment whenever
events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. Adoption of this standard had no
material effect on the Partnership's financial position or results of
operations.
2. Investment in Joint Ventures:
----------------------------
In January 1996, the Partnership acquired an approximate 18 percent
interest in a Golden Corral property in Clinton, North Carolina, 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 affiliates, and
amounts relating to its investment are included in investment in joint
ventures. In August 1996, the Partnership received approximately
$27,600, representing a return of capital, for excess construction costs
funded as part of the initial investment in January 1996. As of
September 30, 1996, the Partnership owned an approximate 18 percent
interest in this property.
The following presents the combined, condensed financial information for
all of the Partnership's investments in joint ventures at:
September 30, December 31,
1996 1995
------------- ------------
Land and buildings on
operating leases,
less accumulated
depreciation $3,482,910 $2,726,011
Net investment in
direct financing
lease 403,577 408,936
Cash 1,934 1,950
Receivables 11,482 18,298
Accrued rental income 186,891 170,695
Other assets 45,199 47,283
Liabilities 1,134 2,208
Partners' capital 4,130,859 3,370,965
Revenues 385,485 432,218
Net income 316,895 363,865
The Partnership recognized income totalling $70,940 and $61,319 for the
nine months ended September 30, 1996 and 1995, respectively, from these
joint ventures, $24,363 and $21,105 of which was earned during the
quarters ended September 30, 1996 and 1995, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CNL Income Fund VI, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 17, 1988, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurant properties, as well as land upon which restaurants were to
be constructed, which are leased primarily to operators of selected national
and regional fast-food and family-style restaurant chains (collectively, the
"Properties"). The leases are triple-net leases, with the lessees generally
responsible for all repairs and maintenance, property taxes, insurance and
utilities. As of September 30, 1996, the Partnership owned 43 Properties,
including four Properties owned by joint ventures in which the Partnership is
a co-venturer and two Properties owned with affiliates as tenants-in-common.
Liquidity and Capital Resources
- -------------------------------
The Partnership's primary source of capital for the nine months ended
September 30, 1996 and 1995, was cash from operations (which includes cash
received from tenants, distributions from joint ventures, and interest and
other income received, less cash paid for expenses). Cash from operations was
$2,511,446 and $2,434,251 for the nine months ended September 30, 1996 and
1995, respectively. The increase in cash from operations for the nine months
ended September 30, 1996, is primarily a result of changes in income and
expenses, (excluding gain on sale of land and building and loss on sale of
land) as discussed below in "Results of Operations" and changes in the
Partnership's working capital.
Other sources and uses of capital included the following during the nine
months ended September 30, 1996.
In January 1996, the Partnership reinvested the remaining net sales
proceeds from the 1995 sale of the Property in Little Canada, Minnesota, in a
Golden Corral Property located in Clinton, North Carolina, with affiliates of
the general partners as tenants-in-common. In connection therewith, the
Partnership and its affiliates entered into an agreement whereby each co-
venturer will share in the profits and losses of the Property in proportion to
its applicable percentage interest. In August 1996, the Partnership received
approximately $27,600, representing a return of capital, for excess
construction costs funded as part of the initial investment in January 1996.
The Partnership intends to use these funds for other Partnership purposes. As
of September 30, 1996, the Partnership owned an approximate 18 percent
interest in this property.
In connection with the 1995 sale of a small portion of the land of the
Property in Orlando, Florida, the Partnership accepted a promissory note for
$6,000. The note was collateralized by a mortgage on the Property, bore
interest at a rate of nine percent per annum and was collected in six monthly
installments of $1,026. The note was collected in full in February 1996.
In March 1996, the Partnership entered into an agreement with the tenant
of the Properties in Chester, Pennsylvania, and Orlando, Florida, for payment
of certain rental payment deferrals the Partnership had granted to the tenant
through March 31, 1996. Under the agreement, the Partnership agreed to abate
approximately $42,700 of the rental payment deferral amounts. The tenant made
the first payment of approximately $18,600 in April 1996 in accordance with
the terms of the agreement, and has agreed to pay the Partnership the
remaining balance due of approximately $109,500 in six remaining annual
installments through 2002.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments
pending the Partnership's use of such funds to pay Partnership expenses or to
make distributions to the partners. At September 30, 1996, the Partnership
had $1,110,151 invested in such short-term investments, as compared to
$1,120,999 at December 31, 1995. The funds remaining at September 30, 1996,
after payment of distributions and other liabilities, will be used to meet the
Partnership's working capital and other needs.
Total liabilities of the Partnership, including distributions payable,
increased to $845,693 at September 30, 1996, from $828,211 at December 31,
1995, primarily as the result of an increase in rents paid in advance during
the nine months ended September 30, 1996. The general partners believe the
Partnership has sufficient cash on hand to meet the Partnership's current
working capital needs.
Based primarily on cash from operations, the Partnership declared
distributions to the limited partners of $2,362,500 for each of the nine
months ended September 30, 1996 and 1995 ($787,500 for each of the quarters
ended September 30, 1996 and 1995). This represents distributions for each
applicable nine months of $33.75 per unit ($11.25 per unit for each applicable
quarter). No distributions were made to the general partners for the quarters
and nine months ended September 30, 1996 and 1995. No amounts distributed or
to be distributed to the limited partners for the nine months ended September
30, 1996 and 1995, are required to be or have been treated by the Partnership
as a return of capital for purposes of calculating the limited partners'
return on their adjusted capital contributions. The Partnership intends to
continue to make distributions of cash available to the limited partners on a
quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash
flow in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection
with the operations of the Partnership.
Results of Operations
- ---------------------
During the nine months ended September 30, 1995, the Partnership and its
consolidated joint venture, Caro Joint Venture, owned and leased 39 wholly
owned Properties (including one Property in Little Canada, Minnesota, which
was sold in June 1995) and during the nine months ended September 30, 1996,
the Partnership and Caro Joint Venture owned and leased 38 wholly owned
Properties, to operators of fast-food and family-style restaurant chains. In
connection therewith, the Partnership and Caro Joint Venture earned $2,509,842
and $2,383,965 during the nine months ended September 30, 1996 and 1995,
respectively, in rental income from operating leases and earned income from
direct financing leases from these Properties, $838,040 and $797,705 of which
was earned during the quarters ended September 30, 1996 and 1995. Rental and
earned income increased approximately $10,500 and $47,000, respectively, for
the quarter and nine months ended September 30, 1996, due to the acquisition
of a Property located in Broken Arrow, Oklahoma, in August 1995 with the net
sales proceeds from the sale of the Property in Little Canada, Minnesota, in
June 1995. The increase in rental income was partially offset by a decrease
of approximately $6,700 during the nine months ended September 30, 1996, due
to the sale of the Property in Little Canada, Minnesota, in June 1995.
Rental and earned income also increased during the nine months ended
September 30, 1996, as a result of the fact that the Partnership collected and
recorded as income approximately $5,300 in rental payment deferrals for the
two Properties leased by the same tenant in Chester, Pennsylvania, and
Orlando, Florida. Previously, the Partnership had established an allowance
for doubtful accounts for these amounts. These amounts were collected in
accordance with the agreement entered into in March 1996, with the tenant to
collect the remaining balance of the rental payment deferral amounts as
discussed above in "Liquidity and Capital Resources." If such amounts are
collected, the Partnership will reverse the remaining related allowance for
doubtful accounts and record such amounts as income. Rental and earned income
also increased during the quarter and nine months ended September 30, 1996, as
a result of the fact that during the quarter and nine months ended September
30, 1995, the Partnership established an allowance for doubtful accounts of
approximately $13,300 and $39,700, respectively, for rental payment deferral
amounts deemed uncollectible. No such allowance was established during the
quarter and nine months ended September 30, 1996.
In addition, rental and earned income increased approximately $7,800 and
$38,900 during the quarter and nine months ended September 30, 1996,
respectively, as a result of the fact that in April 1995 the Partnership
entered into a new lease for the Property in Hermitage, Tennessee, for which
rent commenced in June 1995.
For the nine months ended September 30, 1996 and 1995, the Partnership
also earned $15,286 and $23,012, respectively, in contingent rental income,
$4,786 and $12,293 of which was earned during the quarters ended September 30,
1996 and 1995, respectively. The decrease in contingent rental income during
the quarter and nine months ended September 30, 1996, is primarily
attributable to a decrease in gross sales of certain restaurant Properties
requiring the payment of contingent rental income.
During the nine months ended September 30, 1996 and 1995, the
Partnership also owned and leased three Properties indirectly through joint
venture arrangements and one Property with an affiliate as tenants-in-common,
and for the nine months ended September 30, 1996, owned and leased one
additional Property as tenants-in-common with affiliates of the general
partners. In connection therewith, during the nine months ended September
30, 1996 and 1995, the Partnership earned $70,940 and $61,319, respectively,
attributable to the net income earned by these unconsolidated joint ventures,
$24,363 and $21,105 of which was earned during the quarters ended September
30, 1996 and 1995, respectively. The increase in net income earned by
unconsolidated joint ventures is primarily attributable to the Partnership
investing in a Golden Corral Property in Clinton, North Carolina, with
affiliates as tenants-in-common in January 1996.
Operating expenses, including depreciation and amortization expense,
were $522,937 and $498,577 for the nine months ended September 30, 1996 and
1995, respectively, of which $170,372 and $160,640 were incurred for the
quarters ended September 30, 1996 and 1995, respectively. The increase in
operating expenses during the nine months ended September 30, 1996, is
primarily the result of an increase in accounting and administrative expenses
associated with operating the Partnership and its Properties and insurance
expense as a result of the general partners obtaining contingent liability and
property coverage for the Partnership, effective May 1995. This insurance
policy 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.
In addition, the increase in operating expenses during the quarter and
nine months ended September 30, 1996, is partially attributable to the fact
that the Partnership accrued $3,833 in past due real estate taxes relating to
its Property in Caro, Michigan, owned by its consolidated joint venture, Caro
Joint Venture. Payment of these taxes remains the responsibility of the
tenant of this Property; however, because of the current financial
difficulties of the tenant, the general partners believe the tenant's ability
to pay these expenses is doubtful. The Partnership intends to pursue
collection from the tenant of any such amounts paid by the Partnership and
will recognize such amounts as income if collected.
The increase in operating expenses was partially offset by a decrease in
depreciation expense as a result of the sale of the Property in Little Canada,
Minnesota, in June 1995.
As a result of the sale of the Property in Little Canada, Minnesota, in
June 1995, the Partnership recognized a gain for financial reporting purposes
of $103,283 and as a result of the sale of a portion of the land of the
Property in Orlando, Florida, in August 1995, the Partnership recognized a
loss of $7,370 during the nine months ended September 30, 1995. No Properties
were sold during the nine months ended September 30, 1996.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
-----------------
Item 2. Changes in Securities. Inapplicable.
---------------------
Item 3. Defaults upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Inapplicable.
Item 5. Other Information. Inapplicable.
-----------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 7th day of November, 1996.
CNL INCOME FUND VI, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund VI, Ltd. at September 30, 1996, and its statement of
income for the nine months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Income Fund VI, Ltd. for the nine months ended
September 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,110,151
<SECURITIES> 0
<RECEIVABLES> 167,292
<ALLOWANCES> 111,755
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 25,328,432
<DEPRECIATION> 3,079,722
<TOTAL-ASSETS> 30,192,374
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 29,190,521
<TOTAL-LIABILITY-AND-EQUITY> 30,192,374
<SALES> 0
<TOTAL-REVENUES> 2,560,512
<CGS> 0
<TOTAL-COSTS> 522,937
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,092,255
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,092,255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,092,255
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund VI, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
