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, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-19144
CNL Income Fund VI, Ltd.
(Exact name of registrant as specified in its charter)
Florida 59-2922954
(State or other juris- (I.R.S. Employer
diction of incorporation Identification No.)
or organization)
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
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-9
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 10-17
Part II
Other Information 18
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
ASSETS 1997 1996
------------- -----------
Land and buildings on operating
leases, less accumulated
depreciation and allowance for
loss on land and building $19,546,096 $21,105,355
Net investment in direct
financing leases 3,729,326 4,659,024
Investment in joint ventures 1,049,411 997,016
Cash and cash equivalents 1,619,743 1,127,930
Restricted cash 3,392,257 977,756
Receivables, less allowance for
doubtful accounts of $273,873
and $115,892 75,819 174,983
Prepaid expenses 9,982 1,163
Lease costs, less accumulated
amortization of $5,108 and
$3,691 12,592 14,009
Accrued rental income, less
allowance for doubtful
accounts of $9,697 in 1997
and 1996 956,917 1,045,319
Other assets 26,731 26,731
----------- -----------
$30,418,874 $30,129,286
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 10,694 $ 18,161
Accrued construction costs payable 125,000 -
Accrued and escrowed real estate
taxes payable 24,727 11,338
Due to related parties 16,583 2,633
Distributions payable 787,500 857,500
Rents paid in advance 29,507 30,705
----------- -----------
Total liabilities 994,011 920,337
Commitment (Note 7)
Minority interest 149,967 164,582
Partners' capital 29,274,896 29,044,367
----------- -----------
$30,418,874 $30,129,286
=========== ===========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C>
Revenues:
Rental income from
operating leases $603,263 $699,760 $1,889,623 $2,090,179
Earned income from direct
financing leases 98,328 138,280 369,865 419,663
Contingent rental income 7,946 4,786 34,554 15,286
Interest and other income 43,483 8,785 76,748 35,384
---------- ---------- ---------- ----------
753,020 851,611 2,370,790 2,560,512
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 41,177 39,121 113,543 125,933
Bad debt expense - - 13,102 -
Professional services 6,030 6,287 17,569 21,650
Real estate taxes 1,790 3,833 11,754 3,833
State and other taxes - - 8,968 8,128
Depreciation and
amortization 117,383 121,131 359,714 363,393
---------- ---------- ---------- ----------
166,380 170,372 524,650 522,937
---------- ---------- ---------- ----------
Income Before Minority
Interest in Loss (Income)
of Consolidated Joint
Venture, Equity in
Earnings of Unconsoli-
dated Joint Ventures and
Gain on Sale of Land and
Buildings 586,640 681,239 1,846,140 2,037,575
Minority Interest in Loss
(Income) of Consolidated
Joint Venture 1,715 (5,191) 5,783 (16,260)
Equity in Earnings of
Unconsolidated Joint
Ventures 24,723 24,363 194,079 70,940
Gain on Sale of Land
and Buildings 626,804 - 547,027 -
---------- ---------- ---------- ---------
Net Income $1,239,882 $ 700,411 $2,593,029 $2,092,255
========== ========== ========== ==========
Allocation of Net Income:
General partners $ 7,692 $ 7,004 $ 21,492 $ 20,922
Limited partners 1,232,190 693,407 2,571,537 2,071,333
---------- ---------- ---------- ----------
$1,239,882 $ 700,411 $2,593,029 $2,092,255
========== ========== ========== ==========
Net Income Per Limited
Partner Unit $ 17.60 $ 9.91 $ 36.74 $ 29.59
========== ========== ========== ==========
Weighted Average Number
of Limited Partner Units
Outstanding 70,000 70,000 70,000 70,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
1997 1996
----------------- ------------
General partners:
Beginning balance $ 204,010 $ 175,673
Net income 21,492 28,337
----------- -----------
225,502 204,010
----------- -----------
Limited partners:
Beginning balance 28,840,357 29,285,093
Net income 2,571,537 2,775,264
Distributions ($33.75 and
$46.00 per limited partner
unit, respectively) (2,362,500) (3,220,000)
----------- -----------
29,049,394 28,840,357
----------- -----------
Total partners' capital $29,274,896 $29,044,367
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1997 1996
----------- ----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 2,375,171 $ 2,511,446
----------- -----------
Cash Flows from Investing
Activities:
Proceeds from sale of land
and buildings 4,003,985 -
Additions to land and
buildings on operating
leases (1,112,647) -
Investment in joint ventures - (173,650)
Return of capital from joint
venture 69,997 27,560
Collections on mortgage note
receivable - 3,033
Increase in restricted cash (2,400,061) -
Payment of lease costs (3,300) (3,300)
----------- -----------
Net cash provided by (used
in) investing activities 557,974 (146,357)
----------- -----------
Cash Flows from Financing
Activities:
Distributions to limited
partners (2,432,500) (2,362,500)
Distributions to holder of
minority interest (8,832) (13,437)
----------- -----------
Net cash used in financing
activities (2,441,332) (2,375,937)
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 491,813 (10,848)
Cash and Cash Equivalents at Beginning
of Period 1,127,930 1,120,999
----------- -----------
Cash and Cash Equivalents at End of
Period $ 1,619,743 $ 1,110,151
=========== ===========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid
at end of period $ 787,500 $ 787,500
=========== ===========
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1997 and 1996
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, 1997, may not be
indicative of the results that may be expected for the year ending
December 31, 1997. Amounts as of December 31, 1996, 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, 1996.
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.
2. Land and Buildings:
Land and buildings on operating leases consisted of the following at:
September 30, December 31,
1997 1996
Land $ 9,252,486 $10,364,275
Buildings 13,459,326 13,983,253
----------- -----------
22,711,812 24,347,528
Less accumulated
depreciation (3,213,693) (3,165,150)
----------- -----------
19,498,119 21,182,378
Construction in process 125,000 -
----------- ----------
19,623,119 21,182,378
Less allowance for loss
on land and building (77,023) (77,023)
----------- -----------
$19,546,096 $21,105,355
=========== ===========
5
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
2. Land and Buildings - Continued:
In February 1997, the Partnership reinvested the net sales proceeds
from the sale of the property in Dallas, Texas, in December 1996, along
with additional funds, in a Bertucci's Property in Marietta, Georgia,
for a total cost of approximately $1,112,600.
In June 1997, the Partnership established an allowance for loss on land
and building in the amount of $76,540 and wrote- off accrued rental
income of $3,237 for financial reporting purposes for the property in
Whitehall, Michigan. The allowance for the property represented the
difference between (i) the property's carrying value at June 30, 1997,
plus the accrued rental income that the Partnership had recognized
since the beginning of the renewal option of the lease relating to the
straight-lining of future scheduled rent increases minus (ii) the net
realizable value of $629,888 received as net sales proceeds in
conjunction with the sale of the property in July 1997. The Partnership
sold this property in July 1997, to an unrelated third party, for
$665,000 and received net sales proceeds (net of $2,981 which
represents amounts due to the former tenant for prorated rent) of
$626,907, resulting in a total loss of $79,777 for financial reporting
purposes. Since the Partnership had previously recorded a loss on land
and building relating to the anticipated sale of this property, no
additional loss was recognized in July 1997 as a result of the sale.
In addition, in July 1997, the Partnership sold its property in Naples,
Florida, to an unrelated third party, for $1,530,000 and received net
sales proceeds (net of $9,945 which represents amounts due to the
former tenant for prorated rent) of $1,477,780, resulting in a gain of
$186,550 for financial reporting purposes. This property was originally
acquired by the Partnership in December 1989 and had a cost of
approximately $1,083,900, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the partnership sold the property for
approximately $403,800 in excess of its original purchase price.
In July 1997, the Partnership entered into a new lease for the property
in Greensburg, Indiana, with a new tenant to operate the property as an
Arby's restaurant. In connection therewith, the Partnership has agreed
to fund up to $125,000 in renovation costs, of which $125,000 in costs
had been incurred and accrued as construction in process as of
September 30, 1997.
6
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
2. Land and Buildings - Continued:
In September 1997, the Partnership sold its property in Venice,
Florida, to an unrelated third party, for $1,245,000 and received net
sales proceeds (net of $5,048 which represents amounts due to the
former tenant for prorated rent) of $1,201,648, resulting in a gain of
$283,853 for financial reporting purposes. This property was originally
acquired by the Partnership in August 1989 and had a cost of
approximately $1,032,400, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the property for
approximately $174,300 in excess of its original purchase price.
3. Net investment in Direct Financing Leases:
In July 1997, the Partnership sold its property in Naples, Florida, for
which the building portion had been classified as a direct financing
lease. In connection therewith, the gross investment (minimum lease
payments receivable and estimated residual values) and unearned income
relating to this property were removed from the accounts and the gain
from the sale relating to this property was reflected in income (Note
2).
In addition, in July 1997, the Partnership sold its property in
Plattsmouth, Nebraska, to the tenant, for $700,000 and received net
sales proceeds (net of escrow fees paid of $1,750) of $697,650,
resulting in a gain of $156,401 for financial reporting purposes. This
property was originally acquired by the Partnership in January 1990 and
had a cost of approximately $561,000, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the
property for approximately $138,400 in excess of its original purchase
price.
4. Investment in Joint Ventures:
In January 1997, Show Low Joint Venture, in which the Partnership owns
a 36 percent interest, sold its property to the tenant for $970,000,
resulting in a gain to the joint venture of approximately $360,000 for
financial reporting purposes. The property was originally contributed
to Show Low Joint Venture in July 1990 and had a total cost of
approximately $663,500, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the joint venture sold the property
for approximately $306,500 in excess of its original purchase price.
7
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
4. Investment in Joint Ventures - Continued:
In June 1997, Show Low Joint Venture reinvested $782,413 of the net
sales proceeds in a Darryl's property in Greensboro, North Carolina. As
of September 30, 1997, the Partnership and the other joint venture
partner had received approximately $70,000 and $124,400, respectively,
representing a return of capital, for the remaining unreinvested net
sales proceeds. As of September 30, 1997, the Partnership owned a 36
percent interest in the profits and losses of the joint venture.
The following presents the combined, condensed financial information
for all of the Partnership's investments in joint ventures at:
September 30, December 31,
1997 1996
Land and buildings on
operating leases, less
accumulated depreciation $3,127,157 $3,463,093
Net investment in direct
financing leases 915,157 401,650
Cash 26,186 11,177
Receivables - 21,826
Accrued rental income 195,466 191,594
Other assets 527 44,380
Liabilities 24,253 10,221
Partners' capital 4,240,240 4,123,499
Revenues 340,306 528,092
Gain on sale 360,002 -
Net income 644,096 436,981
The Partnership recognized income totalling $194,079 and $70,940 for
the nine months ended September 30, 1997 and 1996, respectively, from
these joint ventures, $24,723 and $24,363 of which was earned during
the quarters ended September 30, 1997 and 1996, respectively.
5. Receivables:
In June 1997, the Partnership terminated the lease with the tenant of
the property in Greensburg, Indiana. In connection therewith, the
Partnership accepted a promissory note from this former tenant for
$13,077 for amounts relating to past due real estate taxes the
Partnership had incurred 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 September 30, 1997, included
$13,407 of such amounts, including accrued interest of $330.
8
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
6. Restricted Cash:
As of September 30, 1997, the net sales proceeds of $3,377,078 from the
sales of the properties in Naples, Florida; Plattsmouth, Nebraska; and
Venice, Florida, plus accrued interest of $15,179, were being held in
interest-bearing escrow accounts pending the release of funds by the
escrow agent to acquire additional properties on behalf of the
Partnership.
7. Commitment:
In September 1997, CNL Income Fund VI, Ltd. and CNL Income Fund VII,
Ltd., as tenants-in-common, entered into a sales contract with an
unrelated third party to sell the Jack in the Box property in Yuma,
Arizona in which the Partnership owned a 51.67% interest. The sale of
this property occurred in October 1997 (see Note 8).
8. Subsequent Event:
In October 1997, CNL Income Fund VI, Ltd. and CNL Income Fund VII,
Ltd., as tenants-in-common, sold the property in Yuma, Arizona, in
which the Partnership owned a 51.67% interest, for $1,010,000 and
received net sales proceeds of $982,025, resulting in a gain, to the
tenancy-in-common, of approx- mately $128,400 for financial reporting
purposes. The Partnership intends to reinvest its proportionate share
of the net sales proceeds in an additional property.
9
<PAGE>
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, 1997, the Partnership owned 39 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, 1997 and 1996, 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
$2,375,171 and $2,511,446 for the nine months ended September 30, 1997 and 1996,
respectively. The decrease in cash from operations for the nine months ended
September 30, 1997, is primarily a result of changes in income and expenses, 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, 1997.
In January 1997, Show Low Joint Venture, in which the Partnership owns
a 36 percent interest, sold its Property to the tenant for $970,000, resulting
in a gain to the joint venture of approximately $360,000 for financial reporting
purposes. The Property was originally contributed to Show Low Joint Venture in
July 1990 and had a total cost of approximately $663,500, excluding acquisition
fees and miscellaneous acquisition expenses; therefore, the joint venture sold
the Property for approximately $306,500 in excess of its original purchase
price. In June 1997, Show Low Joint Venture reinvested $782,413 of the net sales
proceeds in a Darryl's Property in Greensboro, North Carolina. As of September
30, 1997, the Partnership and the other joint venture partner had received
approximately $70,000 and $124,400, respectively, representing a return of
capital, for the remaining unreinvested net sales proceeds.
In February 1997, the Partnership reinvested the net sales proceeds
from the sale of the Property in Dallas, Texas, in December 1996, along with
additional funds, in a Bertucci's Property in Marietta, Georgia, for a total
cost of approximately $1,112,600.
10
<PAGE>
Liquidity and Capital Resources - Continued
In July 1997, the Partnership sold its Property in Whitehall, Michigan,
to an unrelated third party, for $665,000 and received net sales proceeds (net
of $2,981 which represents amounts due to the former tenant for prorated rent)
of $626,907, resulting in a loss of $79,777 for financial reporting purposes, as
discussed below in "Results of Operations". The net sales proceeds are expected
to be reinvested in a replacement Property.
In addition, in July 1997, the Partnership sold its Property in Naples,
Florida, to an unrelated third party, for $1,530,000 and received net sales
proceeds (net of $9,945 which represents amounts due to the former tenant for
prorated rent) of $1,477,780, resulting in a gain of $186,550 for financial
reporting purposes. This Property was originally acquired by the Partnership in
December 1989 and had a cost of approximately $1,083,900, excluding acquisition
fees and miscellaneous acquisition expenses; therefore, the Partnership sold the
Property for approximately $403,800 in excess of its original purchase price. As
of September 30, 1997, the net sales proceeds of $1,477,780 plus accrued
interest of $10,547 were being held in an interest-bearing escrow account
pending the release of funds by the escrow agent to acquire an additional
Property. The general partners believe that the transaction, or a portion
thereof, relating to the sale of the Property in Naples, Florida, and the
reinvestment of the proceeds will be structured to qualify as a like-kind
exchange transaction for federal income tax purposes.
In addition, in July 1997, the Partnership sold its Property in
Plattsmouth, Nebraska, to the tenant, for $700,000 and received net sales
proceeds (net of escrow fees of $1,750) of $697,650, resulting in a gain of
$156,401 for financial reporting purposes. This Property was originally acquired
by the Partnership in January 1990 and had a cost of approximately $561,000,
excluding acquisition fees and miscellaneous acquisition expenses; therefore,
the Partnership sold the Property for approximately $138,400 in excess of its
original purchase price. As of September 30, 1997, the net sales proceeds of
$697,650 plus accrued interest of $5,124 were being held in an interest-bearing
escrow account pending the release of funds by the escrow agent to acquire an
additional Property. The general partners believe that the transaction, or a
portion thereof, relating to the sale of the Property in Plattsmouth, Nebraska,
and the reinvestment of the proceeds will be structured to qualify as a
like-kind exchange transaction for federal income tax purposes.
In July 1997, the Partnership entered into a new lease for the Property
in Greensburg, Indiana, with a new tenant to operate the Property as an Arby's
restaurant. In connection therewith, the Partnership has agreed to fund up to
$125,000 in renovation costs, of which $125,000 in costs had been incurred and
accrued as construction in process as of September 30, 1997. The renovations
were completed in October 1997, at which time rent commenced.
11
<PAGE>
Liquidity and Capital Resources - Continued
In September 1997, the Partnership sold its Property in Venice,
Florida, to an unrelated third party, for $1,245,000 and received net sales
proceeds (net of $5,048 which represents amounts due to the former tenant for
prorated rent) of $1,201,648, resulting in a gain of $283,853 for financial
reporting purposes. This Property was originally acquired by the Partnership in
August 1989 and had a cost of approximately $1,032,400, excluding acquisition
fees and miscellaneous acquisition expenses; therefore, the Partnership sold the
Property for approximately $174,300 in excess of its original purchase price. As
of September 30, 1997, the net sales proceeds of $1,201,648, less escrow fees
(net of accrued interest) of $492, were being held in an interest-bearing escrow
account pending the release of funds by the escrow agent to acquire an
additional Property. The general partners believe that the transaction, or a
portion thereof, relating to the sale of the Property in Venice, Florida, and
the reinvestment of the proceeds will be structured to qualify as a like-kind
exchange transaction for federal income tax purposes.
In September 1997, CNL Income Fund VI, Ltd. and CNL Income Fund VII,
Ltd., as tenants-in-common, entered into a sales contract with an unrelated
third party to sell the Jack in the Box Property in Yuma, Arizona, in which the
Partnership owned a 51.67% interest. In October 1997, CNL Income Fund VI, Ltd.
and CNL Income Fund VII, Ltd., as tenants-in-common, sold the Property in Yuma,
Arizona, in which the Partnership owned a 51.67% interest, for $1,010,000 and
received net sales proceeds of $982,025, resulting in a gain, to the
tenancy-in-common, of approximately $128,400 for financial reporting purposes.
The Partnership intends to reinvest its proportionate share of the net sales
proceeds in an additional Property.
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, 1997, the Partnership had
$1,619,743 invested in such short-term investments as compared to $1,127,930 at
December 31, 1996. The increase in cash and cash equivalents during the nine
months ended September 30, 1997, is primarily due to the receipt of $626,907 in
net sales proceeds from the sale of the Property in Whitehall, Michigan in July
1997. This increase is partially offset by a decrease in cash and cash
equivalents due to the Partnership investing approximately $134,900 in a
Bertucci's Property, as described above. The funds remaining at September 30,
1997, 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 $994,011 at September 30, 1997, from $920,337 at December 31, 1996,
primarily as the result of the Partnership accruing renovation costs for the
property in Greensburg, Indiana in connection with the new lease entered into in
July 1997. The increase in liabilities was partially offset by a decrease in
12
<PAGE>
Liquidity and Capital Resources - Continued
liabilities as a result of the Partnership's accruing a special distribution
payable to the limited partners of $70,000 at December 31, 1996, which was paid
in January 1997. 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, 1997 and 1996 ($787,500 for each of the quarters ended
September 30, 1997 and 1996). 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, 1997 and 1996. No amounts distributed or to be distributed
to the limited partners for the nine months ended September 30, 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 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, 1996, the Partnership and
its consolidated joint venture, Caro Joint Venture, owned and leased 38 wholly
owned Properties (including one Property in Dallas, Texas, which was sold in
December 1996), and during the nine months ended September 30, 1997, the
Partnership and Caro Joint Venture owned and leased 38 wholly owned Properties
(including three Properties, one in each of Naples, Florida; Plattsmouth,
Nebraska; and Whitehall, Michigan, which were sold in July 1997 and one Property
in Venice, Florida, which was sold in September 1997) to operators of fast-food
and family-style restaurant chains. In connection therewith, the Partnership and
Caro Joint Venture earned $2,259,488 and $2,509,842 during the nine months ended
September 30, 1997 and 1996, respectively, in rental income from operating
leases and earned income from direct financing leases from these Properties,
$701,591 and $838,040 of which was earned during the quarters ended September
30, 1997 and 1996, respectively. Rental and earned income decreased
approximately $91,300 and $144,900 during the quarter and nine months ended
September 30, 1997, respectively, as compared to the
13
<PAGE>
Results of Operations - Continued
quarter and nine months ended September 30, 1996, respectively, as a result of
the sale of the Property in Dallas, Texas, in December 1996, and as a result of
the sales during 1997 of the Properties in Whitehall, Michigan; Naples, Florida;
Plattsmouth, Nebraska and Venice, Florida. During the nine months ended
September 30, 1997, the decrease in rental income was partially offset by an
increase of approximately $27,500 and $65,800 during the quarter and nine months
ended September 30, 1997, respectively, due to the reinvestment of the net sales
proceeds from the 1996 sale of the Property in Dallas, Texas, in a Property in
Marietta, Georgia, in February 1997. The general partners believe that rental
and earned income will further increase when the net sales proceeds from the
sales of the Properties in Whitehall, Michigan; Naples, Florida; Plattsmouth,
Nebraska; and Venice, Florida, are reinvested in replacement Properties.
The decrease in rental income is also attributable to the fact that
during the quarter and nine months ended September 30, 1997, the Partnership's
consolidated joint venture established an allowance for doubtful accounts for
rental amounts unpaid by the tenant of the Property in Caro, Michigan totalling
approximately $17,300 and $65,400, respectively, due to financial difficulties
the tenant is experiencing. No such allowance was established during the quarter
and nine months ended September 30, 1996. The Partnership's consolidated joint
venture will continue to pursue collection of past due rental amounts relating
to this Property and will recognize such amounts as income if collected.
In addition, the decrease in rental and earned income during the
quarter and nine months ended September 30, 1997, as compared to the quarter and
nine months ended September 30, 1996, is also partially attributable to the
Partnership increasing its allowance for doubtful accounts by approximately
$21,800 and $65,500, respectively, for rental amounts relating to the Hardee's
Property located in Greensburg, Indiana, due to financial difficulties the
tenant is experiencing. No such allowance was established during the quarter and
nine months ended September 30, 1996. In June 1997, the Partnership terminated
the lease with the former tenant as discussed above in "Liquidity and Capital
Resources". The Partnership does not intend to continue to pursue the collection
of these rental and other amounts due from the former tenant unless the former
tenant defaults under the promissory note, described above in "Liquidity and
Capital Resources". The general partners believe that rental income from this
Property will increase during the remainder of 1997 as a result of renovating
this Property into an Arby's, for which rent commenced in October 1997, as
discussed above in "Liquidity and Capital Resources".
In addition, rental and earned income decreased during the quarter and
nine months ended September 30, 1997, as a result of the Partnership
establishing an allowance for doubtful accounts during such periods, totalling
approximately $24,900 and $48,900, respectively, for rental amounts relating to
the Property located
14
<PAGE>
Results of Operations - Continued
in Melbourne, Florida, due to financial difficulties the tenant is experiencing.
The Partnership will continue to pursue collection of past due rental amounts
relating to this Property and will recognize such amounts as income if
collected.
In addition, rental and earned income decreased by approximately $9,800
and $29,300 during the quarter and nine months ended September 30, 1997,
respectively, as a result of the fact that in December 1996, the tenant ceased
operations and vacated the Property in Liverpool, New York. The Partnership is
currently seeking either a replacement tenant or purchaser for this Property.
Rental and earned income are expected to remain at reduced amounts until a
replacement tenant or purchaser of this Property is located.
The decrease in rental and earned income for the nine months ended
September 30, 1997 was partially offset by an increase in rental and earned
income due to the fact that during the nine months ended September 30, 1997 and
1996, the Partnership collected and recorded as income approximately $18,600 and
$5,300, respectively, 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.
For the nine months ended September 30, 1997 and 1996, the Partnership
also earned $34,554 and $15,286, respectively, in contingent rental income,
$7,946 and $4,786 of which was earned during the quarters ended September 30,
1997 and 1996, respectively. The increase in contingent rental income during the
quarters and nine months ended September 30, 1997, is primarily attributable to
an increase in gross sales of certain restaurant Properties requiring the
payment of contingent rental income.
During the nine months ended September 30, 1997 and 1996, the
Partnership earned $76,748 and $35,384, respectively, in interest and other
income, $43,483 and $8,785 of which was earned during the quarters ended
September 30, 1997 and 1996, respectively. The increase in interest and other
income during the quarter and nine months ended September 30, 1997, was
primarily attributable to interest earned on the net sales proceeds received and
held in escrow relating to the sales of the Properties in Naples, Florida;
Plattsmouth, Nebraska and Venice, Florida.
For the nine months ended September 30, 1996, the Partnership also
owned and leased three Properties indirectly through joint venture arrangements
and two Properties as tenants-in-common with an affiliate of the general
partners. For the nine months ended September 30, 1997, the Partnership owned
and leased four Properties indirectly through joint venture arrangements
(including one Property in Show Low Joint Venture, which was sold in January
1997) and two Properties as tenants-in-common with an affiliate of the general
partners. In connection therewith, during the nine months ended September 30,
1997 and 1996, the Partnership earned
15
<PAGE>
Results of Operations - Continued
$194,079 and $70,940, respectively, attributable to net income earned by these
joint ventures, $24,723 and $24,363 of which was earned during the quarters
ended September 30, 1997 and 1996, respectively. The increase in net income
earned by joint ventures during the nine months ended September 30, 1997, as
compared to the nine months ended September 30, 1996 is primarily attributable
to the fact that in January 1997, Show Low Joint Venture, in which the
Partnership owns a 36 percent interest, recognized a gain of approximately
$360,000 for financial reporting purposes as a result of the sale of its
Property in January 1997, as described above in "Liquidity and Capital
Resources". Show Low Joint Venture reinvested the majority of the net sales
proceeds in a replacement Property in June 1997.
Operating expenses, including depreciation and amortization expense,
were $524,650 and $522,937 for the nine months ended September 30, 1997 and
1996, respectively, of which $166,380 and $170,372 were incurred for the
quarters ended September 30, 1997 and 1996, respectively. The increase in
operating expenses during the nine months ended September 30, 1997, as compared
to the nine months ended September 30, 1996, is partially due to the fact that
the Partnership's consolidated joint venture recorded bad debt expense and real
estate tax expense of approximately $19,900 relating to the Property located in
Caro, Michigan, representing past due rental and other amounts. The Partnership
intends to continue to pursue the collection of such amounts.
The increase in operating expenses during the nine months ended
September 30, 1997 was partially offset by, and the decrease in operating
expenses during the quarter ended September 30, 1997, was primarily attributable
to, the decrease in depreciation expense which resulted from the sale of the
Property in Dallas, Texas in December 1996, the sale of the Property in
Whitehall, Michigan in July 1997 and the sale of the Property in Venice, Florida
in September 1997. The decrease in depreciation expense was partially offset by
an increase in depreciation expense attributable to the purchase of the Property
in Marietta, Georgia, in February 1997. The increase in operating expenses
during the nine months ended September 30, 1997, was also partially offset by a
decrease in accounting and administrative expenses associated with operating the
Partnership and its Properties.
As a result of the sales of the Properties in Naples, Florida;
Plattsmouth, Nebraska, and Venice, Florida, as discussed above in "Liquidity and
Capital Resources," the Partnership recognized a gain of $626,804 during the
quarter and nine months ended September 30, 1997, for financial reporting
purposes. The gain for the nine months ended September 30, 1997, was partially
offset by a loss of $79,777 for financial reporting purposes, resulting from the
July 1997 sale of the Property in Whitehall, Michigan, as described above in
"Liquidity and Capital Resources", for which the Partnership had established an
allowance for loss on land and building in the amount of $76,540 and had
written-off accrued rental income of $3,237 for financial reporting purposes in
June
16
<PAGE>
Results of Operations - Continued
1997. The allowance for the Property represented the difference between (i) the
Property's carrying value at June 30, 1997, plus the accrued rental income that
the Partnership had recognized since the beginning of the renewal option of the
lease relating to the straight-lining of future scheduled rent increases minus
(ii) the net realizable value of $629,888 received as net sales proceeds in
conjunction with the sale of the Property in July 1997. Since the Partnership
had previously recorded a loss on land and building relating to the anticipated
sale of this Property, no additional loss was recognized in July 1997 as a
result of the sale. No Properties were sold during the quarter and nine months
ended September 30, 1996.
17
<PAGE>
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, 1997.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 11th day of November, 1997.
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, 1997, and its statement of
income for the nine months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund VI, Ltd. for the nine months ended
September 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,012,000<F2>
<SECURITIES> 0
<RECEIVABLES> 349,682
<ALLOWANCES> 273,873
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 22,759,789
<DEPRECIATION> 3,213,693
<TOTAL-ASSETS> 30,418,874
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 29,274,896
<TOTAL-LIABILITY-AND-EQUITY> 30,418,874
<SALES> 0
<TOTAL-REVENUES> 2,370,790
<CGS> 0
<TOTAL-COSTS> 511,548
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,102
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,593,029
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,593,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,593,029
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F2>Cash balance includes $3,392,257 in restricted cash.
<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>
