FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
0-19144
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
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 10-15
Part II
Other Information 16
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
ASSETS 1998 1997
----------- --------
Land and buildings on operating
leases, less accumulated
depreciation of $3,358,406
and $3,327,334 $18,787,524 $20,785,684
Net investment in direct
financing leases 3,958,994 4,708,841
Investment in joint ventures 3,869,197 1,130,139
Cash and cash equivalents 1,433,338 1,614,759
Restricted cash 903,697 709,227
Receivables, less allowance for
doubtful accounts of $336,917
and $363,410 51,942 157,989
Prepaid expenses 9,154 4,235
Lease costs, less accumulated
amortization of $6,356 and
$5,581 11,344 12,119
Accrued rental income, less
allowance for doubtful
accounts of $9,697 in 1998
and 1997 739,429 843,345
Other assets 26,731 26,731
----------- -----------
$29,791,350 $29,993,069
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 15,519 $ 14,138
Accrued construction costs payable - 125,000
Accrued and escrowed real estate
taxes payable 18,782 38,025
Due to related parties 4,267 32,019
Distributions payable 787,500 787,500
Rents paid in advance 29,269 57,663
----------- -----------
Total liabilities 855,337 1,054,345
Minority interest 147,995 144,475
Partners' capital 28,788,018 28,794,249
----------- -----------
$29,791,350 $29,993,069
=========== ===========
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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- ---------- ----------
<S> <C>
Revenues:
Rental income from
operating leases $495,424 $646,799 $1,127,475 $1,286,360
Earned income from direct
financing leases 132,575 126,623 256,784 271,537
Contingent rental income 2,089 7,672 34,479 26,608
Interest and other income 31,006 17,982 67,682 33,265
-------- -------- ---------- ----------
661,094 799,076 1,486,420 1,617,770
-------- -------- ---------- ----------
Expenses:
General operating and
administrative 40,577 37,661 86,042 72,366
Bad debt expense 12,854 13,102 12,854 13,102
Professional services 10,921 5,561 16,791 11,539
Real estate taxes - 7,432 - 9,964
State and other taxes 487 354 10,392 8,968
Depreciation and
amortization 114,143 122,968 230,053 242,331
-------- -------- ---------- ----------
178,982 187,078 356,132 358,270
-------- -------- ---------- ----------
Income Before Minority
Interest in Loss (Income)
of Consolidated Joint
Venture, Equity in Earnings
of Unconsolidated Joint
Ventures, Gain on Sale
of Land and Building and
Provision for Loss on Land
and Building 482,112 611,998 1,130,288 1,259,500
Minority Interest in Loss
(Income) of Consolidated
Joint Venture (11,659) 225 (24,540) 4,068
Equity in Earnings of Uncon-
solidated Joint Ventures 61,403 20,628 117,899 169,356
Gain on Sale of Land and
Building - - 345,122 -
Provision for Loss on Land
and Building - (79,777) - (79,777)
-------- -------- ---------- ----------
Net Income $531,856 $553,074 $1,568,769 $1,353,147
======== ======== ========== ==========
Allocation of Net Income:
General partners $ 5,318 $ 5,799 $ 13,806 $ 13,800
Limited partners 526,538 547,275 1,554,963 1,339,347
-------- -------- ---------- ----------
$531,856 $553,074 $1,568,769 $1,353,147
======== ======== ========== ==========
Net Income Per Limited
Partner Unit $ 7.52 $ 7.82 $ 22.21 $ 19.13
======== ======== ========== ==========
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
Six Months Ended Year Ended
June 30, December 31,
1998 1997
---------------- --------
General partners:
Beginning balance $ 229,363 $ 204,010
Net income 13,806 25,353
----------- -----------
243,169 229,363
----------- -----------
Limited partners:
Beginning balance 28,564,886 28,840,357
Net income 1,554,963 2,874,529
Distributions ($22.50 and
$45.00 per limited partner
unit, respectively) (1,575,000) (3,150,000)
----------- -----------
28,544,849 28,564,886
----------- -----------
Total partners' capital $28,788,018 $28,794,249
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1998 1997
----------- ------------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 1,655,360 $ 1,613,640
----------- -----------
Cash Flows from Investing
Activities:
Proceeds from sale of land
and buildings 2,832,253 -
Additions to land and build-
ings on operating leases (125,000) (1,112,647)
Investment in joint ventures (2,740,640) -
Decrease (increase) in
restricted cash (204,074) 977,017
Payment of lease costs (3,300) (3,300)
----------- -----------
Net cash used in investing
activities (240,761) (138,930)
----------- -----------
Cash Flows from Financing
Activities:
Distributions to limited
partners (1,575,000) (1,645,000)
Distributions to holder
of minority interest (21,020) (4,228)
----------- -----------
Net cash used in
financing activities (1,596,020) (1,649,228)
----------- -----------
Net Decrease in Cash and Cash
Equivalents (181,421) (174,518)
Cash and Cash Equivalents at
Beginning of Period 1,614,759 1,127,930
----------- -----------
Cash and Cash Equivalents at
End of Period $ 1,433,338 $ 953,412
=========== ===========
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 Six Months Ended June 30, 1998 and 1997
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 1998, may not be indicative
of the results that may be expected for the year ending December 31,
1998. Amounts as of December 31, 1997, 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, 1997.
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:
In January 1998, the Partnership sold its property in Deland, Florida,
to the tenant, for $1,250,000 and received net sales proceeds of
$1,234,122, resulting in a gain of $345,122 for financial reporting
purposes. This property was originally acquired by the Partnership in
October 1989 and had a cost of approximately $1,000,000, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the property for approximately $234,100 in excess of
its original purchase price.
In February 1998, the Partnership sold its property in Melbourne,
Florida, for $590,000 and received net sales proceeds of $552,910. Due
to the fact that during 1997, the Partnership recorded an allowance for
loss of $158,239 for this property, no gain or loss was recognized for
financial reporting purposes in February 1998, relating to the sale.
5
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1998 and 1997
2. Land and Buildings - Continued:
In February 1998, the Partnership sold its property in Liverpool, New
York, for $157,500 and received net sales proceeds of $145,221. Due to
the fact that in prior years the Partnership recorded an allowance for
loss of $181,970 for this property, no gain or loss was recognized for
financial reporting purposes in February 1998, relating to the sale.
In June 1998, the Partnership sold its property in Bellevue, Nebraska,
and received sales proceeds of $900,000. Due to the fact that during
1998, the Partnership wrote off $155,528 in accrued rental income,
representing a portion of the accrued rental income that the
Partnership had recognized since the inception of the lease relating to
the straight-lining of future scheduled rent increases in accordance
with generally accepted accounting principles, no gain or loss was
recorded for financial reporting purposes in June 1998 relating to this
sale. This property was originally acquired by the Partnership in
December 1989 and had a cost of approximately $899,500, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the property for approximately $500 in excess of its
original purchase price.
3. Net Investment in Direct Financing Leases:
In February and June 1998, the Partnership sold its properties in
Melbourne, Florida and Bellevue, Nebraska, respectively, for which the
building portions had been classified as direct financing leases. In
connection therewith, the gross investments (minimum lease payments
receivable and estimated residual values) and unearned income relating
to these properties were removed from the accounts (see Note 2).
4. Investment in Joint Ventures:
In January 1998, the Partnership acquired a 34.74% interest and a 46.2%
interest in a property in Overland Park, Kansas, and a property in
Memphis, Tennessee, respectively, as tenants-in-common with affiliates
of the general partners.
In April 1998, the Partnership entered into a joint venture
arrangement, Melbourne Joint Venture, with an affiliate of the
Partnership which has the same general partners, to construct and hold
one restaurant property. As of June 30, 1998, the Partnership and its
co-venture partner had each contributed
6
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1998 and 1997
4. Investment in Joint Ventures - Continued:
$236,535, to purchase land relating to the joint venture. The
Partnership agreed to contribute approximately $289,700 in additional
construction costs to the joint venture. The Partnership expects to
have a 50 percent interest in the profits and losses of the joint
venture.
In June 1998, the Partnership acquired an 85.07% interest in a property
in Fort Myers, Florida, as tenants-in-common with an affiliate of the
general partners. The Partnership accounts for its investments in these
properties using the equity method since the Partnership shares control
with affiliates, and amounts relating to its investments are included
in investment in joint ventures.
Auburn Joint Venture, Show Low Joint Venture, Asheville Joint Venture,
Melbourne Joint Venture and the Partnership and affiliates as
tenants-in-common in five separate tenancy-in-common arrangements, each
own and lease one property to an operator of national fast-food and
family-style restaurants. The following presents the combined,
condensed financial information for the joint ventures and the five
properties held as tenants-in-common with affiliates at:
June 30, December 31,
1998 1997
Land and buildings on
operating leases, less
accumulated depreciation $7,124,498 $4,568,842
Net investment in direct
financing leases 3,344,203 911,559
Cash 31,002 7,991
Receivables 15,073 22,230
Accrued rental income 194,451 160,197
Other assets 862 414
Liabilities 27,269 7,557
Partners' capital 10,682,820 5,663,676
Revenues 487,764 471,627
Gain on sale of land
and building - 488,372
Net income 422,077 889,883
The Partnership recognized income totalling $117,899 and $169,356 for
the six months ended June 30, 1998 and 1997, respectively, from these
joint ventures, $61,403 and $20,628 of which was earned during the
quarters ended June 30, 1998 and 1997, respectively.
7
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1998 and 1997
5. Restricted Cash:
As of June 30, 1998, the net sales proceeds of $900,000 from the sale
of the property in Bellevue, Nebraska, plus accrued interest of $3,697,
were being held in an interest-bearing escrow account pending the
release of funds by the escrow agent to acquire an additional property
on behalf of the Partnership.
6. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees, each representing more than ten percent of the
Partnership's total rental and earned 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 at least one of the six month periods ended June 30:
1998 1997
-------- ------
Golden Corral Corporation $342,950 $340,363
Restaurant Management
Services, Inc. 221,994 262,125
Mid-America Corporation 219,760 219,760
IHOP Properties, Inc. 214,063 -
The following schedule presents total rental and earned income from
individual restaurant chains, each representing more than ten percent
of the Partnership's total rental and earned 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 at least one of the six month periods ended June 30:
1998 1997
-------- ------
Golden Corral Family
Steakhouse Restaurants $342,950 $340,363
Burger King 227,910 260,851
IHOP 214,063 -
8
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1998 and 1997
6. Concentration of Credit Risk - Continued:
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. However, the general partners believe that the risk
of such a default is reduced due to the essential or important nature
of these properties for the on-going operations of the lessees.
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 June 30, 1998, the Partnership owned 40 Properties, including
five Properties owned by joint ventures in which the Partnership is a
co-venturer and five Properties owned with affiliates as tenants-in-common.
Liquidity and Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 1998 and 1997, 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 $1,655,360 and
$1,613,640 for the six months ended June 30, 1998 and 1997, respectively. The
increase in cash from operations for the six months ended June 30, 1998, is
primarily a result of changes in the Partnership's working capital.
Other sources and uses of capital included the following during the six
months ended June 30, 1998.
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 paid $125,000 during the
six months ended June 30, 1998, in renovation costs, which had been incurred and
accrued as construction costs payable at December 31, 1997.
In January 1998, the Partnership used the net sales proceeds from the
1997 sale of several Properties to acquire a Property in Overland Park, Kansas,
and a Property in Memphis, Tennessee, as tenants-in-common with affiliates of
the general partners. In connection therewith, the Partnership and the
affiliates entered into separate agreements whereby each co-venturer will share
in the profits and losses of each Property in proportion to its applicable
percentage interest. As of June 30, 1998, the Partnership owned a 34.74% and
46.2% interest in the Properties in Overland Park, Kansas, and Memphis,
Tennessee, respectively.
10
<PAGE>
Liquidity and Capital Resources - Continued
In January 1998, the Partnership sold its Property in Deland, Florida,
to the tenant, for $1,250,000 and received net sales proceeds of $1,234,122,
resulting in a gain of $345,122 for financial reporting purposes. This Property
was originally acquired by the Partnership in October 1989 and had a cost of
approximately $1,000,000, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $234,100 in excess of its original purchase price. In June 1998,
the Partnership reinvested the net sales proceeds in a Property in Fort Myers,
Florida, with an affiliate of the general partners as tenants-in-common. The
general partners believe that the transaction, or a portion thereof, relating to
the sale of the Property in Deland, Florida, and the reinvestment of the net
sales proceeds, will qualify as a like-kind exchange transaction for federal
income tax purposes. However, 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), resulting from the sale.
In February 1998, the Partnership sold its Property in Melbourne,
Florida, for $590,000 and received net sales proceeds of $552,910. Due to the
fact that during 1997, the Partnership recorded an allowance for loss of
$158,239 for this Property, no gain or loss was recognized for financial
reporting purposes in February 1998, relating to the sale. In April 1998, the
Partnership reinvested a portion of the net sales proceeds in a joint venture
arrangement, Melbourne Joint Venture, with an affiliate of the Partnership which
has the same general partners, to construct and hold one restaurant Property. As
of June 30, 1998, the Partnership and its co-venture partner had each
contributed $236,535, to purchase land relating to the joint venture. The
Partnership agreed to contribute approximately $289,700 in additional
construction costs to the joint venture. The Partnership expects to have a 50
percent interest in the profits and losses of the joint venture.
In addition, in February 1998, the Partnership sold its Property in
Liverpool, New York, for $157,500 and received net sales proceeds of $145,221.
Due to the fact that in prior years the Partnership recorded an allowance for
loss of $181,970 for this Property, no gain or loss was recognized for financial
reporting purposes in February 1998, relating to the sale. The Partnership
intends to reinvest the net sales proceeds from the sale of this Property in an
additional Property.
In June 1998, the Partnership sold its Property in Bellevue, Nebraska,
to a third party and received sales proceeds of $900,000. Due to the fact that
during 1998 the Partnership wrote off $155,528 in accrued rental income,
representing a portion of the accrued rental income that the Partnership had
recognized since the inception of the lease relating to the straight-lining of
future
11
<PAGE>
Liquidity and Capital Resources - Continued
scheduled rent increases in accordance with generally accepted accounting
principles, no gain or loss was recorded for financial reporting purposes in
June 1998 relating to this sale. This Property was originally acquired by the
Partnership in December 1989 and had a cost of approximately $899,500, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the Property for approximately $500 in excess of its original
purchase price. As of June 30, 1998, the net sales proceeds of $900,000 plus
accrued interest of $3,697, were being held in an interest-bearing escrow
account pending the release of funds by the escrow agent to acquire 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 June 30, 1998, the Partnership had $1,433,338
invested in such short-term investments as compared to $1,614,759 at December
31, 1997. The decrease in cash and cash equivalents during the six months ended
June 30, 1998, is primarily attributable to the payment of construction costs
accrued at December 31, 1997, relating to the Partnership's Property located in
Greensburg, Indiana, as described above. The funds remaining at June 30, 1998,
after payment of distributions and other liabilities, will be used to meet the
Partnership's working capital and other needs and to acquire additional
Properties.
Total liabilities of the Partnership, including distributions payable,
decreased to $855,337 at June 30, 1998, from $1,054,345 at December 31, 1997,
primarily as the result of a decrease in construction costs payable as a result
of the payment during the six months ended June 30, 1998 of construction costs
accrued at December 31, 1997, relating to the Partnership's Property in
Greensburg, Indiana, as described above. The decrease in liabilities was also
partially due to a decrease in rents paid in advance at June 30, 1998, as
compared to December 31, 1997. The general partners believe the Partnership has
sufficient cash on hand to meet the Partnership's current working capital needs.
Based on cash from operations, the Partnership declared distributions
to the limited partners of $1,575,000 for each of the six months ended June 30,
1998 and 1997 ($787,500 for each of the quarters ended June 30, 1998 and 1997).
This represents distributions for each applicable six months of $22.50 per unit
($11.25 per unit for each of the quarters ended June 30, 1998 and 1997). No
distributions were made to the general partners for the quarters and six months
ended June 30, 1998 and 1997. No amounts distributed to the limited partners for
the six months ended June 30, 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. The
Partnership intends to continue to make distributions of cash available to the
limited partners on a quarterly basis.
12
<PAGE>
Liquidity and Capital Resources - Continued
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who 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 six months ended June 30, 1997, the Partnership and its
consolidated joint venture, Caro Joint Venture, owned and leased 37 wholly owned
Properties, and during the six months ended June 30, 1998, the Partnership and
Caro Joint Venture owned and leased 35 wholly owned Properties (including four
Properties which were sold in 1998) to operators of fast-food and family-style
restaurant chains. In connection therewith, the Partnership and Caro Joint
Venture earned $1,384,259 and $1,557,897 during the six months ended June 30,
1998 and 1997, respectively, in rental income from operating leases and earned
income from direct financing leases from these Properties, $627,999 and $773,422
of which was earned during the quarters ended June 30, 1998 and 1997,
respectively. Rental and earned income decreased during the quarter and six
months ended June 30, 1998, as compared to the quarter and six months ended June
30, 1997, primarily as a result of the sales during 1997 of four Properties and
the sales during 1998 of four Properties. During the quarter and six months
ended June 30, 1998, the decrease in rental income was partially offset by an
increase in rental income, 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 and the reinvestment of the net sales proceeds from
the 1997 sales of two Properties in two additional Properties, one in each of
Elgin, Illinois and Manassas, Virginia, in 1997.
The decrease in rental and earned income for the quarter and six months
ended June 30, 1998 was also partially offset by the fact that during the
quarter and six months ended June 30, 1997, the Partnership increased its
allowance for doubtful accounts for the Property located in Greensburg, Indiana,
due to financial difficulties the tenant was experiencing. No such allowance was
recorded during the quarter and six months ended June 30, 1998, due to the fact
that in October 1997, a new tenant began operating this Property. In addition,
the decrease in rental and earned income for the quarter and six months ended
June 30, 1998 was partially offset by the fact that during the quarter and six
months ended June 30, 1998, the Partnership's consolidated joint venture
collected and recognized as income past due rental amounts for which the
Partnership had previously established an allowance for doubtful accounts.
13
<PAGE>
Results of Operations - Continued
During the six months ended June 30, 1998 and 1997, the Partnership
earned $67,682 and $33,265, respectively, in interest and other income, $31,006
and $17,982 of which was earned during the quarters ended June 30, 1998 and
1997, respectively. The increase in interest and other income during the quarter
and six months ended June 30, 1998, was partially attributable to interest
earned on the net sales proceeds relating to the 1998 sales of four Properties
pending the reinvestment in additional Properties. The increase during the six
months ended June 30, 1998, was also partially attributable to the fact that
during the six months ended June 30, 1998, the Partnership's consolidated joint
venture recognized approximately $13,300 in other income due to the fact that
the tenant of the Property in Caro, Michigan, paid past due real estate taxes
relating to the Property and the consolidated joint venture reversed such
amounts during 1998 which had been previously accrued as an expense during 1997.
For the six months ended June 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. For
the six months ended June 30, 1998, the Partnership owned and leased four
Properties indirectly through joint venture arrangements and five Properties as
tenants-in-common with affiliates of the general partners. In connection
therewith, during the six months ended June 30, 1998 and 1997, the Partnership
earned $117,899 and $169,356, respectively, attributable to net income earned by
these joint ventures, $61,403 and $20,628 of which was earned for the quarters
ended June 30, 1998 and 1997, respectively. The decrease in net income earned by
joint ventures during the six months ended June 30, 1998, as compared to the six
months ended June 30, 1997, 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. Show Low Joint Venture
reinvested the majority of the net sales proceeds in a replacement Property in
June 1997. The decrease in net income earned by joint ventures during the six
months ended June 30, 1998, as compared to the six months ended June 30, 1997,
is partially offset by, and the increase in net income for the quarter ended
June 30, 1998, as compared to the quarter ended June 30, 1997, is primarily due
to the fact that in January 1998, the Partnership reinvested the net sales
proceeds it received from the 1997 and 1998 sales of the Properties in
Whitehall, Michigan; Plattsmouth, Nebraska and Deland, Florida, in additional
Properties in Overland Park, Kansas; Memphis, Tennessee and Fort Myers, Florida,
with affiliates of the general partners as tenants-in-common.
During at least one of the six months ended June 30, 1998 and 1997,
four of the Partnership's lessees, Golden Corral Corporation, Restaurant
Management Services, Inc., Mid-America Corporation and IHOP Properties, Inc.,
each contributed more than ten percent of the Partnership's total rental income
(including rental income from
14
<PAGE>
the Partnership's consolidated joint venture and the Partnership's share of the
rental income from Properties owned by unconsolidated joint ventures in which
the Partnership is a co-venturer and Properties owned with affiliates as
tenants-in-common). As of June 30, 1998, Golden Corral Corporation was the
lessee under leases relating to five restaurants, Restaurant Management
Services, Inc. was the lessee under leases relating to seven restaurants and
Mid-America Corporation and IHOP Properties, Inc., were each lessees under
leases relating to four restaurants. It is anticipated that, based on the
minimum annual rental payments required by the leases, these four lessees each
will continue to contribute more than ten percent of the Partnership's total
rental income during the remainder of 1998 and subsequent years. In addition,
three Restaurant Chains, Golden Corral, IHOP and Burger King, each accounted for
more than ten percent of the Partnership's total rental income during at least
one of the six months ended June 30, 1998 and 1997 (including the Partnership's
consolidated joint venture and the Partnership's share of the rental income from
the Properties owned by unconsolidated joint ventures in which the Partnership
is a co-venturer and Properties owned with affiliates as tenants-in-common).
During the remainder of 1998 and in subsequent years, it is anticipated that
these three Restaurant Chains each will continue to account for more than ten
percent of the Partnership's total rental income to which the Partnership is
entitled under the terms of the leases. Any failure of these lessees or
Restaurant Chains could materially affect the Partnership's income.
Operating expenses, including depreciation and amortization expense,
were $356,132 and $358,270 for the six months ended June 30, 1998 and 1997,
respectively, $178,982 and $187,078 of which were incurred for the quarters
ended June 30, 1998 and 1997. The decrease in operating expenses during the
quarter ended June 30, 1998, as compared to the quarter ended June 30, 1997, was
primarily due to a decrease in depreciation expense due to the sale of several
Properties during 1997 and 1998.
As a result of the sale of the Property in Deland, Florida, as
described above in "Liquidity and Capital Resources," the Partnership recognized
a gain of $345,122 during the six months ended June 30, 1998, for financial
reporting purposes. No Properties were sold during the six months ended June 30,
1997.
During the quarter and six months ended June 30, 1997, the Partnership
established an allowance for loss on land and building for its Property in
Whitehall, Michigan, in the amount of $79,777 for financial reporting purposes.
The allowance represented the difference between (i) the Property's carrying
value at June 30, 1997, 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)
the net realizable value of $629,888 received as net sales proceeds in
conjunction with the sale of this property in July 1997. No such allowance was
established during the quarter and six months ended June 30, 1998.
15
<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 June 30, 1998.
16
<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 4th day of August, 1998.
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 June 30, 1998, and its statement of income
for the six months then ended and is qualified in its entirety by reference to
the Form 10Q of CNL Income Fund VI, ltd. for the six months ended June 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,433,338
<SECURITIES> 0
<RECEIVABLES> 388,859
<ALLOWANCES> 336,917
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 22,145,930
<DEPRECIATION> 3,358,406
<TOTAL-ASSETS> 29,791,350
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 28,788,018
<TOTAL-LIABILITY-AND-EQUITY> 29,791,350
<SALES> 0
<TOTAL-REVENUES> 1,486,420
<CGS> 0
<TOTAL-COSTS> 343,278
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,854
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,568,769
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,568,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,568,769
<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>
