UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 422-1574
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of
the Act:
Units of limited partnership interest ($500 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $500 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
PART I
Item 1. Business
CNL Income Fund VI, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 17, 1988. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on June 8, 1989, the Partnership
offered for sale up to $35,000,000 in limited partnership interests (the
"Units") (70,000 Units at $500 per Unit) pursuant to a registration statement on
Form S-11 under the Securities Act of 1933, as amended, effective December 16,
1988. The offering terminated on January 22, 1990, at which date the maximum
offering proceeds of $35,000,000 had been received from investors who were
admitted to the Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of selected national and regional fast-food and family-style
restaurant chains (the "Restaurant Chains"). Net proceeds to the Partnership
from its offering of Units, after deduction of organizational and offering
expenses, totalled $30,975,000, and were used to acquire 42 Properties,
including interests in four Properties owned by joint ventures in which the
Partnership is a co-venturer. During the year ended December 31, 1994, the
Partnership sold its Properties in Batesville and Heber Springs, Arkansas, to
the tenant and reinvested the net sales proceeds in a Jack in the Box Property
in Dallas, Texas, and a Jack in the Box Property in Yuma, Arizona, which is
owned as tenants-in-common with an affiliate of the General Partners. In
addition, during the year ended December 31, 1995, the Partnership sold its
Property in Little Canada, Minnesota, and reinvested the majority of the net
sales proceeds in a Denny's Property in Broken Arrow, Oklahoma. During the year
ended December 31, 1996, the Partnership reinvested the remaining net sales
proceeds from the sale of the Property in Little Canada, Minnesota, in a
Property located in Clinton, North Carolina, with affiliates of the General
Partners as tenants-in-common. Also, during the year ended December 31, 1996,
the Partnership sold its Property in Dallas, Texas. During the year ended
December 31, 1997, the Partnership reinvested the net sales proceeds from the
sale of the Property in Dallas, Texas, in a Bertucci's Property located in
Marietta, Georgia. In addition, during 1997, the Partnership sold its Properties
in Plattsmouth, Nebraska; Venice, Florida; Naples, Florida, and Whitehall,
Michigan, and the Property in Yuma, Arizona, which was held as tenants-in-common
with an affiliate of the General Partners, and reinvested a portion of these net
sales proceeds in two IHOP Properties, one in each of Elgin, Illinois, and
Manassas, Virginia, and in a Property in Vancouver, Washington, as
tenants-in-common with affiliates of the General Partners. In addition, Show Low
Joint Venture, a joint venture in which the Partnership is a co-venturer with an
affiliate of the General Partners, sold its Property in Show Low, Arizona. The
joint venture reinvested the net sales proceeds in a Property in Greensboro,
North Carolina. As a result of the above transactions, as of December 31, 1997,
the Partnership owned 41 Properties, including interests in four Properties
owned by joint ventures in which the Partnership is a co-venturer and two
Properties owned with affiliates as tenants-in-common. During January 1998, the
Partnership reinvested the net sales proceeds from the sales of the Properties
in Whitehall, Michigan and Plattsmouth, Nebraska in one Property in Overland
Park, Kansas and one Property in Memphis, Tennessee, as tenants-in-common, with
affiliates of the General Partners. In addition, in January 1998, the
Partnership sold its Property in Deland, Florida. In February 1998, the
Partnership sold its Properties in Liverpool, New York and Melbourne, Florida.
Generally, the Properties are leased on a triple-net basis with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. In general, the General Partners plan to seek the sale of some of
the Properties commencing seven to 12 years after their acquisition. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property or joint venture
purchase options granted to certain lessees.
1
<PAGE>
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
the joint ventures in which the Partnership is a co-venturer provide for initial
terms, ranging from five to 20 years (the average being 17 years), and expire
between 2003 and 2017. All leases are on a triple-net basis, with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities. The leases of the Properties provide for minimum base annual rental
payments (payable in monthly installments) ranging from approximately $38,100 to
$185,700. Generally, the leases provide for percentage rent based on sales in
excess of a specified amount. In addition, some of the leases provide that,
commencing in the fourth to sixth lease year, the percentage rent will be an
amount equal to the greater of the percentage rent calculated under the lease
formula or a specified percentage (ranging from one to five percent) of the
purchase price or gross sales.
Generally, the leases of the Properties provide for two, three or four
five-year renewal options subject to the same terms and conditions as the
initial lease. Certain lessees also have been granted options to purchase
Properties at the Property's then fair market value, or pursuant to a formula
based on the original purchase price of the Property, after a specified portion
of the lease term has elapsed.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership first must
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
The tenant of the Property in Melbourne, Florida vacated the Property
in October 1997. The Partnership sold this Property in February 1998.
During the year ended December 31, 1997, the Partnership reinvested the
net sales proceeds from the sale of its Property in Dallas, Texas in 1996, in a
Bertucci's Property located in Marietta, Georgia. In addition, during 1997, the
Partnership sold its Properties in Plattsmouth, Nebraska; Venice, Florida;
Naples, Florida, and Whitehall, Michigan, and the Property in Yuma, Arizona,
which was held as tenants-in-common with an affiliate of the General Partners,
and reinvested a portion of these net sales proceeds in two IHOP Properties, one
in each of Elgin, Illinois, and Manassas, Virginia, and in a Property in
Vancouver, Washington, as tenants-in-common with affiliates of the General
Partners as described below in "Joint Venture Arrangements." In addition, Show
Low Joint Venture, a joint venture in which the Partnership is a co-venturer
with an affiliate of the General Partners, sold its Property in Show Low,
Arizona. The joint venture reinvested the net sales proceeds in a Property in
Greensboro, North Carolina. The lease terms for all of these new Properties are
substantially the same as the Partnership's other leases as described above in
the first three paragraphs of this section.
During January 1998, the Partnership reinvested the net sales proceeds
from the sales of the Properties in Whitehall, Michigan, and Plattsmouth,
Nebraska, in one Property in Overland Park, Kansas and one Property in Memphis,
Tennessee, as tenants-in-common, with affiliates of the General Partners as
described below in "Joint Venture Arrangements." The lease terms for these
Properties are substantially the same as the Partnership's other leases as
described above in the first three paragraphs of this section.
Major Tenants
During 1997, three lessees of the Partnership and its consolidated
joint venture, Golden Corral Corporation, Restaurant Management Services, Inc.
and Mid-America Corporation, each contributed more than ten percent of the
Partnership's total rental income (including rental income from the
Partnership's consolidated joint venture in which the Partnership is a
co-venturer and the Partnership's share of the rental income from the three
Properties owned by unconsolidated joint ventures and two Properties owned with
affiliates as tenants-in-common). As of December 31, 1997, 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 was the lessee under leases relating to
four restaurants. It is anticipated that, based on the minimum rental payments
required by the leases, these three lessees each will continue to contribute
more than ten percent of the Partnership's total rental income in 1998 and
subsequent years. In addition, four Restaurant Chains, Golden Corral Family
Steakhouse Restaurants ("Golden Corral"), Hardee's, Burger King and Denny's,
each accounted for more than ten percent of the
2
<PAGE>
Partnership's total rental income in 1997 (including the Partnership's
consolidated joint venture and the Partnership's share of the rental income from
the three Properties owned by unconsolidated joint ventures in which the
Partnership is a co-venturer and two Properties owned with affiliates as
tenants-in-common). In subsequent years, it is anticipated that these four
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. No single tenant or group of
affiliated tenants lease Properties with an aggregate carrying value, excluding
acquisition fees and certain acquisition expenses, in excess of 20 percent of
the total assets of the Partnership.
Joint Venture Arrangements
The Partnership has entered into a joint venture arrangement, Caro
Joint Venture, with an unaffiliated entity to purchase and hold one Property. In
addition, the Partnership has entered into three separate joint venture
arrangements, Auburn Joint Venture, Show Low Joint Venture and Asheville Joint
Venture, with affiliates of the General Partners, to purchase and hold three
Properties through such joint ventures. The joint venture arrangements provide
for the Partnership and its joint venture partners to share in all costs and
benefits associated with the joint venture in accordance with their respective
percentage interests in the joint venture. The Partnership and its joint venture
partners are jointly and severally liable for all debts, obligations and other
liabilities of the joint venture.
Each joint venture has an initial term of 20 years and, after the
expiration of the initial term, continues in existence from year to year unless
terminated at the option of either joint venturer or by an event of dissolution.
Events of dissolution include the bankruptcy, insolvency or termination of any
joint venturer, sale of the Property owned by the joint venture and mutual
agreement of the Partnership and its joint venture partner to dissolve the joint
venture.
The Partnership has management control of Caro Joint Venture and shares
management control equally with affiliates of the General Partners for Auburn
Joint Venture, Show Low Joint Venture and Asheville Joint Venture. The joint
venture agreements restrict each venturer's ability to sell, transfer or assign
its joint venture interest without first offering it for sale to its joint
venture partner, either upon such terms and conditions as to which the venturers
may agree or, in the event the venturers cannot agree, on the same terms and
conditions as any offer from a third party to purchase such joint venture
interest.
Net cash flow from operations of Auburn Joint Venture, Show Low Joint
Venture, Caro Joint Venture and Asheville Joint Venture is distributed 3.9%,
36.0%, 66.0% and 14.0%, respectively, to the Partnership and the balance is
distributed to each of the other joint venture partners in accordance with its
respective percentage interest in the joint venture. Any liquidation proceeds,
after paying joint venture debts and liabilities and funding reserves for
contingent liabilities, will be distributed first to the joint venture partners
with positive capital account balances in proportion to such balances until such
balances equal zero, and thereafter in proportion to each joint venture
partner's percentage interest in the joint venture.
In addition to the above joint venture agreements, the Partnership
entered into an agreement to hold a Jack in the Box Property as
tenants-in-common with an affiliate of the General Partners. The agreement
provides for the Partnership and the affiliate to share in the profits and
losses of the Property in proportion to each co-venturer's percentage interest.
As of December 31, 1996, the Partnership owned a 51.67% interest in this
Property. In October 1997, the Partnership and the affiliate as
tenants-in-common, sold the Jack in the Box Property in Yuma, Arizona. In
December 1997, the Partnership entered into an agreement to hold a Property in
Vancouver, Washington, as tenants-in-common with affiliates of the General
Partners and in conjunction therewith, reinvested its portion of the net sales
proceeds received from the sale of the Property in Yuma, Arizona. The agreement
provides for the Partnership and the affiliate to share in the profits and
losses of the Property in proportion to each co-venturer's percentage interest.
The Partnership owns a 23.04% interest in the Property in Vancouver, Washington.
In addition, in January 1996, the Partnership entered into an agreement
to hold a Golden Corral Property as tenants-in-common with affiliates of the
General Partners. The agreement provides for the Partnership and the affiliates
to share in the profits and losses of the Property in proportion to each
co-venturer's percentage interest.
The Partnership owns a 17.93% interest in this Property.
3
<PAGE>
During January 1998, the Partnership entered into an agreement to hold
an IHOP Property in Overland Park, Kansas and an IHOP Property in Memphis,
Tennessee, as tenants-in-common, with affiliates of the General Partners. The
agreements provide for the Partnership and the affiliates to share in the
profits and losses of the Property and net cash flow from the Properties, in
proportion to each co-venturer's percentage interest. The Partnership owns a
34.74% and 46.2% interest in the Properties in Overland Park, Kansas,and
Memphis, Tennessee, respectively.
Certain Management Services
CNL Income Fund Advisors, Inc., an affiliate of the General Partners,
provided certain services relating to management of the Partnership and its
Properties pursuant to a management agreement with the Partnership through
September 30, 1995. Under this agreement, CNL Income Fund Advisors, Inc. was
responsible for collecting rental payments, inspecting the Properties and the
tenants' books and records, assisting the Partnership in responding to tenant
inquiries and notices and providing information to the Partnership about the
status of the leases and the Properties. CNL Income Fund Advisors, Inc. also
assisted the General Partners in negotiating the leases. For these services, the
Partnership had agreed to pay CNL Income Fund Advisors, Inc. an annual fee of
one percent of the sum of gross rental revenues from Properties wholly owned by
the Partnership plus the Partnership's allocable share of gross revenues of
joint ventures in which the Partnership is a co-venturer and the Property held
as tenants-in-common with an affiliate, but not in excess of competitive fees
for comparable services. Under the management agreement, the management fee is
subordinated to receipt by the Limited Partners of an aggregate, ten percent,
cumulative, noncompounded annual return on their adjusted capital contributions
(the "10% Preferred Return"), calculated in accordance with the Partnership's
limited partnership agreement (the "Partnership Agreement").
Effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its
rights in, and its obligations under, the management agreement with the
Partnership to CNL Fund Advisors, Inc. All of the terms and conditions of the
management agreement, including the payment of fees, as described above, remain
unchanged.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
At the time the Partnership elects to dispose of its Properties, other
than as a result of the exercise of tenant options to purchase Properties, the
Partnership will be in competition with other persons and entities to locate
purchasers for its Properties.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who may
also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 1997, the Partnership owned, either directly or
through joint venture arrangements, 41 Properties located in 18 states.
Reference is made to the Schedule of Real Estate and Accumulated Depreciation
filed with this report for a listing of the Properties and their respective
costs, including acquisition fees and certain acquisition expenses.
4
<PAGE>
Description of Properties
Land. The Partnership's Property sites range from approximately 11,500
to 88,200 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The buildings
generally are rectangular and are constructed from various combinations of
stucco, steel, wood, brick and tile. Building sizes range from approximately
1,200 to 10,700 square feet. All buildings on Properties are freestanding and
surrounded by paved parking areas. Buildings are suitable for conversion to
various uses, although modifications may be required prior to use for other than
restaurant operations.
Generally, a lessee is required, under the terms of its lease
agreement, to make such capital expenditures as may be reasonably necessary to
refurbish buildings, premises, signs and equipment so as to comply with the
lessee's obligations, if applicable, under the franchise agreement to reflect
the current commercial image of its Restaurant Chain. These capital expenditures
are required to be paid by the lessee during the term of the lease.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 1997 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Restaurant Management Services leases five Popeyes restaurants, one
Church's Fried Chicken restaurant and one other restaurant (formerly operated as
a Captain D's). The initial term of each lease is 20 years (expiring between
2009 and 2010) and the average minimum base annual rent is approximately $53,000
(ranging from approximately $46,000 to $61,900).
Golden Corral Corporation leases five Golden Corral restaurants. The
initial term of each lease is 15 years (expiring between 2004 and 2011) and the
average minimum base annual rent is approximately $152,900 (ranging from
approximately $88,000 to $185,700).
Mid-America Corporation leases four Burger King restaurants. The
initial term of each lease is between 14 and 16 years (expiring between 2004 and
2006) and the average minimum base annual rent is approximately $105,000
(ranging from approximately $102,700 to $105,800).
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
5
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of March 13, 1998, there were 2,985 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. Limited Partners who wish to sell
their Units may offer the Units for sale pursuant to the Partnership's
distribution reinvestment plan (the "Plan"), and Limited Partners who wish to
have their distributions used to acquire additional Units (to the extent Units
are available for purchase), may do so pursuant to such Plan. The General
Partners have the right to prohibit transfers of Units. The price paid for any
Unit transferred pursuant to the Plan has been $475 per Unit. The price to be
paid for any Unit transferred other than pursuant to the Plan is subject to
negotiation by the purchaser and the selling Limited Partner. The Partnership
will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 1997 and 1996 other than
pursuant to the Plan, net of commissions (which ranged from zero to 15.5
percent).
<TABLE>
<CAPTION>
1997 (1) 1996 (1)
---------------------------------- ----------------------
<S> <C>
High Low Average High Low Average
First Quarter $475 $475 $475 $475 $355 $431
Second Quarter 435 361 417 475 372 456
Third Quarter 500 415 453 475 400 438
Fourth Quarter 475 420 461 416 416 416
</TABLE>
(1) A total of 311 and 664 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1997 and 1996, respectively.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For the years ended December 31, 1997 and 1996, the Partnership
declared cash distributions of $3,150,000 and $3,220,000, respectively, to the
Limited Partners. For the quarter ended December 31, 1996, the Partnership
declared a special distribution to the Limited Partners of $70,000, which
represented cumulative excess operating reserves. No amounts distributed to
partners for the years ended December 31, 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. No distributions have been made to the General Partners to date.
As indicated in the chart below, these distributions were declared at the close
of each of the Partnership's calendar quarters. These amounts include monthly
distributions made in arrears for the Limited Partners electing to receive
distributions on this basis.
Quarter Ended 1997 1996
------------- ---------- ----------
March 31 $787,500 $787,500
June 30 787,500 787,500
September 30 787,500 787,500
December 31 (1) 787,500 857,500
(1) Includes a special distribution to Limited Partners of $70,000 for the
quarter ended December 31, 1996.
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although some Limited Partners, in accordance with their election, receive
monthly distributions, for an annual fee.
6
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Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ---------
<S> <C>
Year ended December 31:
Revenues (1) $ 3,456,406 $ 3,565,493 $ 3,438,286 $ 3,468,897 $ 3,635,782
Net income (2) 2,899,882 2,803,601 2,861,381 3,095,028 2,955,692
Cash distributions declared (3) 3,150,000 3,220,000 3,150,000 3,150,000 3,150,000
Net income per Unit (2) 41.06 39.65 40.47 43.80 41.80
Cash distributions declared
per Unit (2) 45.00 46.00 45.00 45.00 45.00
At December 31:
Total assets $29,993,069 $30,129,286 $30,442,314 $30,754,999 $30,837,521
Partners' capital 28,794,249 29,044,367 29,460,766 29,749,385 29,804,357
</TABLE>
(1) Revenues include equity in earnings of unconsolidated joint ventures
and minority interest in income of the consolidated joint venture.
(2) Net income for the year ended December 31, 1997 and 1996, includes
provision for loss on land and building of $263,186 and $77,023,
respectively. In addition, net income for the years ended December 31,
1997, 1996 and 1995, includes $79,777, $1,706 and $7,370, respectively,
from a loss on sale of land and buildings. Net income for the years
ended December 31, 1997, 1995 and 1994, also includes $626,804,
$103,283 and $332,664, respectively, from gains on sale of land and
buildings.
(3) Distributions for the year ended December 31, 1996, include a special
distribution to the Limited Partners of $70,000, which represented
cumulative excess operating reserves.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on August 17, 1988, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurant
Properties were to be constructed, which are leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains. The
leases are triple-net leases, with the lessees generally responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 1997, the Partnership owned 41 Properties, either directly or indirectly
through joint venture arrangements.
Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 1997, 1996 and 1995, was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest received,
less cash paid for expenses). Cash from operations was $3,156,041, $3,310,762
and $3,222,430 for the years ended December 31, 1997, 1996 and 1995,
respectively. The decrease in cash from operations during 1997, as compared to
1996, and the increase during 1996, as compared to 1995, are primarily a result
of changes in income and expenses as discussed in "Results of Operations" below
and changes in the Partnership's working capital during each of the respective
years.
Other sources and uses of capital included the following during the
years ended December 31, 1997, 1996 and 1995.
7
<PAGE>
In June 1995, the Partnership sold its Property in Little Canada,
Minnesota, for $904,000 and received net sales proceeds of $899,503, resulting
in a gain of $103,283 for financial reporting purposes. This Property was
originally acquired by the Partnership in October 1989 and had a cost of
approximately $823,900, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the Property for approximately $75,600
in excess of its original purchase price. In August 1995, the Partnership
reinvested $724,612 in a Property in Broken Arrow, Oklahoma. In addition, in
August 1995, the Partnership sold a small parcel of vacant land adjacent to its
Property in Orlando, Florida, for $7,500, resulting in a loss of $7,370 for
financial reporting purposes. In connection therewith, the Partnership accepted
a promissory note for $6,000. The promissory note was collateralized by a
mortgage on the Property, bore interest at a rate of nine percent per annum and
was scheduled to be collected in six monthly installments of $1,026, with
collections commencing September 1995. Receivables include $3,056 from the note
at December 31, 1995. The receivable was collected in full during 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. As of December 31, 1997, the Partnership
owned a 17.93% interest in this Property.
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 payments of approximately $18,600 in each of April 1996 and March 1997 in
accordance with the terms of the agreement, and has agreed to pay the
Partnership the remaining balance due of approximately $90,900 in six remaining
annual installments through 2002.
In December 1996, the Partnership sold its Property in Dallas, Texas,
to an unrelated third party for $1,016,000 and received net sales proceeds of
$982,980. This Property was originally acquired by the Partnership in June 1994
and had a cost of approximately $980,900, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the Property
for approximately $2,100 in excess of its original purchase price. Due to the
fact that the Partnership had recognized accrued rental income since the
inception of the lease relating to the straight-lining of future scheduled rent
increases in accordance with generally accepted accounting principles, the
Partnership wrote off the cumulative balance of such accrued rental income at
the time of the sale of this Property, resulting in a loss on land and building
of $1,706 for financial reporting purposes. Due to the fact that the
straight-lining of future rent increases over the term of the lease is a
non-cash accounting adjustment, the write-off of these amounts is a loss for
financial statement purposes only. As of December 31, 1996, the net sales
proceeds of $977,017, plus accrued interest of $739, were being held in an
interest bearing escrow account pending the release of funds by the escrow agent
to acquire an additional Property. In February 1997, the Partnership reinvested
the net sales proceeds, along with additional funds, in a Bertucci's Property
located in Marietta, Georgia, for a total cost of approximately $1,112,600. The
General Partners believe that the transaction, or a portion thereof, relating to
the sale of the Property in Dallas, Texas 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 January 1997, Show Low Joint Venture, in which the Partnership owns
a 36 percent interest, sold the 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 Property in Greensboro, North Carolina. As of December 31, 1997,
the Partnership had received approximately $70,000 representing a return of
capital for its pro-rata share of the uninvested net sales proceeds.
In July 1997, the Partnership sold the 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
described below in
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"Results of Operations." The net sales proceeds were reinvested in a Property in
Overland Park, Kansas, with affiliates of the General Partners as
tenants-in-common, in January 1998.
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
December 1997, the Partnership reinvested the net sales proceeds in an IHOP
Property in Elgin, Illinois, for a total cost of approximately $1,484,100. 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 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 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. In January 1998, the Partnership reinvested the net
sales proceeds in an IHOP Property in Memphis, Tennessee, with affiliates 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
Plattsmouth, Nebraska, 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 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 December 31, 1997,
included $13,631 of such amounts, including accrued interest of $554. 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 agreed to fund $125,000 in renovation
costs. The renovations were completed in October 1997, at which time rent
commenced.
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. In
December 1997, the Partnership reinvested the net sales proceeds in an IHOP
Property in Manassas, Virginia, for a total cost of approximately $1,126,800.
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 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 October 1997, the Partnership and an affiliate, as
tenants-in-common, sold the Property in Yuma, Arizona, in which the Partnership
owned a 51.67% interest, for a total sales price of $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 Property was
originally acquired in July 1994 and had a total cost of approximately $861,700,
excluding acquisition fees and miscellaneous acquisition expenses; therefore,
the Property was sold for approximately $120,300 in excess of its original
purchase price. The Partnership received approximately $455,000, representing a
return of capital for its pro-rata share of the net sales proceeds. In December
1997, the Partnership
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reinvested the amounts received as a return of capital from the sale of the
Yuma, Arizona Property, in a Property in Vancouver, Washington, as
tenants-in-common with affiliates of the General Partners. The General Partners
believe that the transaction, or a portion thereof, relating to the sale of the
Property in Yuma, Arizona 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 January 1998, the Partnership sold its Property in Deland, Florida,
to the tenant, for $1,250,000 and received net sales proceeds of $1,234,617,
resulting in a gain of approximately $345,100 for financial reporting purposes.
The Partnership intends to reinvest the sales proceeds in an additional Property
during 1998. 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 proceeds will be structured to qualify as a like-kind
exchange transaction for federal income tax purposes.
In February 1998, the Partnership sold its Property in Melbourne,
Florida, for $590,000 and received net sales proceeds of $542,477, resulting in
a loss of $158,239 for financial reporting purposes, which the Partnership
recorded at December 31, 1997, as described below in "Results of Operations." In
addition, in February 1998, the Partnership sold its Property in Liverpool, New
York, for $157,500 and received net sales proceeds of approximately $150,700,
resulting in a loss of $181,970 for financial reporting purposes, which the
Partnership recorded at December 31, 1997, as described below in "Results of
Operations." The Partnership intends to reinvest the net sales proceeds from the
sale of both Properties in additional Properties.
None of the Properties owned by the Partnership or the joint ventures
in which the Partnership owns an interest is or may be encumbered. Under its
Partnership Agreement, the Partnership is prohibited from borrowing for any
purpose; provided, however, that the General Partners or their affiliates are
entitled to reimbursement, at cost, for actual expenses incurred by the General
Partners or their affiliates on behalf of the Partnership. Affiliates of the
General Partners from time to time incur certain operating expenses on behalf of
the Partnership for which the Partnership reimburses the affiliates without
interest.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At December 31, 1997, the Partnership had
$1,614,759 invested in such short-term investments as compared to $1,127,930 at
December 31, 1996. The increase in cash and cash equivalents during 1997, is
primarily due to the receipt of $626,907 in net sales proceeds form 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 December 31, 1997, after payment of distributions and
other liabilities, will be used to invest in an additional Property as described
above and to meet the Partnership's working capital and other needs.
During 1997, 1996 and 1995, affiliates of the General Partners,
incurred on behalf of the Partnership $82,503, $96,112 and $95,898,
respectively, for certain operating expenses. As of December 31, 1997 and 1996,
the Partnership owed $32,019 and $2,633, respectively, to affiliates for such
amounts and accounting and administrative services. As of February 28, 1998, the
Partnership had reimbursed the affiliates all such amounts. Other liabilities of
the Partnership, including distributions payable, increased to $1,022,326 at
December 31, 1997, from $917,704 at December 31, 1996. The increase in other
liabilities is partially attributable to the Partnership accruing renovation
costs for the Property in Greensburg, Indiana, in connection with the new lease
entered into in July 1997, as described above. In addition, the increase in
other liabilities for 1997 was due to an increase in accrued and escrowed real
estate taxes payable due to the Partnership accruing current real estate taxes
relating to its Property in Melbourne, Florida, due to the fact that the tenant
vacated the Property in October 1997. Other liabilities also increased due to an
increase in rents paid in advance. The increase in other liabilities is
partially offset by a decrease in distributions payable as a result of the
Partnership accruing a special distribution payable to the Limited Partners of
$70,000 at December 31, 1996, which was paid in January 1997 from excess
operating reserves. The General Partners believe that the Partnership has
sufficient cash on hand to meet its current working capital needs.
Based on cash from operations, and cumulative excess operating reserves
for the year ended December 31, 1996, the Partnership declared distributions to
the Limited Partners of $3,150,000, $3,220,000 and $3,150,000 for
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the years ended December 31, 1997, 1996 and 1995, respectively. This represents
distributions of $45, $46 and $45 per Unit for the years ended December 31,
1997, 1996 and 1995, respectively. No amounts distributed to the Limited
Partners for the years ended December 31, 1997, 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 for distribution to the Limited Partners on a quarterly basis.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
Due to low operating expenses and ongoing cash flow, the General
Partners do not believe that working capital reserves are necessary at this
time. In addition, because the leases of the Partnership's Properties are on a
triple-net basis, it is not anticipated that a permanent reserve for maintenance
and repairs will be established at this time. To the extent, however, that the
Partnership has insufficient funds for such purposes, the General Partners will
contribute to the Partnership an aggregate amount of up to one percent of the
offering proceeds for maintenance and repairs.
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 1995, the Partnership owned and leased 38 wholly owned
Properties (including one Property in Little Canada, Minnesota, which was sold
in June 1995), during 1996, the Partnership owned and leased 37 wholly owned
Properties (including one Property in Dallas, Texas, which was sold in December
1996), and during 1997, the Partnership owned and leased 39 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). In addition,
during 1995 and 1996, the Partnership was a co-venturer in four separate joint
ventures that each owned and leased one Property, and during 1997, the
Partnership was a co-venturer in four separate joint ventures that owned and
leased a total of five Properties (including one Property in Show Low, Arizona,
which was sold in January, 1997). During 1995, the Partnership owned and leased
one Property with an affiliate as tenants-in-common, during 1996, the
Partnership owned and leased two properties with affiliates as tenants-in-common
and during 1997, the Partnership owned and leased four Properties with
affiliates as tenants-in-common (including one Property in Yuma, Arizona, which
was sold in October, 1997). As of December 31, 1997, the Partnership owned,
either directly, as tenants-in-common with affiliates, or through joint venture
arrangements, 41 Properties which are subject to long-term, triple-net leases.
The leases of the Properties provide for minimum base annual rental amounts
(payable in monthly installments) ranging from approximately $38,100 to
$185,700. Generally, the leases provide for percentage rent based on sales in
excess of a specified amount. In addition, some of the leases provide that,
commencing in the fourth to sixth lease year, the percentage rent will be an
amount equal to the greater of the percentage rent calculated under the lease
formula or a specified percentage (ranging from one to five percent) of the
purchase price or gross sales. For further description of the Partnership's
leases and Properties, see Item 1. Business - Leases and Item 2. Properties,
respectively.
During the years ended December 31, 1997, 1996 and 1995, the
Partnership and its consolidated joint venture, Caro Joint Venture, earned
$2,897,402, $3,333,665 and $3,207,860, respectively, in rental income from
operating leases and earned income from direct financing leases. The decrease in
rental and earned income during the year ended December 31, 1997, as compared to
1996, was partially attributable to a decrease of approximately $159,400 during
1997, as a result of the sales during 1997 of the Properties in Whitehall,
Michigan; Naples, Florida; Plattsmouth, Nebraska and Venice, Florida. The
decrease in rental and earned income during 1997, as compared to 1996, was
partially attributable to, and the increase in rental and earned income during
1996, as compared to 1995,
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was partially offset by, a decrease of $103,100 and $6,800, respectively, of
rental and earned income from the sale of the Property in Dallas, Texas in
December 1996. The decrease in rental income during 1997 was partially offset by
an increase of approximately $109,400 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 decrease in rental and earned income
during 1997 was partially offset by an increase of approximately $1,600 in
rental and earned income due to the fact that the Partnership reinvested the net
sales proceeds from the sales of the Properties in Naples and Venice, Florida in
two IHOP Properties in Elgin, Illinois and Manassas, Virginia in December 1997.
The decrease in rental income during 1997, as compared to 1996, is also
attributable to the fact that during 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 $84,500
due to financial difficulties the tenant is experiencing. No such allowance was
established during 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 1997, as
compared to 1996, is partially attributable to the Partnership increasing its
allowance for doubtful accounts during 1997 by approximately $40,500 for rental
amounts relating to the Hardee's Property located in Greensburg, Indiana, due to
financial difficulties the tenant was experiencing. Rental and earned income
also decreased by approximately $43,700 during 1997 due to the fact that the
Partnership terminated the lease with the former tenant of the Property in
Greensburg, Indiana, in June 1997, as described above in "Liquidity and Capital
Resources." The General Partners have agreed that they will cease collection
efforts on past due rental amounts once the former tenant of this Property pays
all amounts due under the promissory note for past due real estate taxes
described above in "Liquidity and Capital Resources." The decrease in rental and
earned income was slightly offset by an increase of $14,200 in rental income
from the new tenant of this Property who began operating the Property after it
was renovated into an Arby's Property.
In addition, rental and earned income decreased during 1997, as a
result of the Partnership establishing an allowance for doubtful accounts during
1997 totalling approximately $107,100 for rental amounts relating to the
Property located in Melbourne, Florida, due to the fact that the tenant vacated
the Property in October 1997. 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. The Partnership sold this Property in February
1998, as described above in "Liquidity and Capital Resources."
In addition, rental and earned income decreased by approximately
$35,300 during 1997, as a result of the fact that in December 1996, the tenant
ceased operations and vacated the Property in Liverpool, New York. The
Partnership sold this Property in February 1998, as described above in
"Liquidity and Capital Resources."
The decrease in rental and earned income during 1997, as compared to
1996, was offset by, and the increase in rental and earned income for 1996, was
partially attributable to, the fact that 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. 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." The increase in rental
and earned income during 1996, as compared to 1995, was partially attributable
to the fact that during the year ended December 31, 1995, the Partnership
established an allowance for doubtful accounts of approximately $52,900, for
rental payment deferral amounts relating to these Properties deemed
uncollectible. No such allowance was established during the year ended December
31, 1996 or 1997.
Rental and earned income increased during 1996, as compared to 1995,
by approximately $43,700 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 $6,800 during the
year ended December 31, 1996, due to the sale of the Property in Little Canada,
Minnesota, in June 1995.
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In addition, the increase in rental income during 1996, as compared to
1995, was partially attributable to an increase of approximately $35,300 during
1996, due to 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 years ended December 31, 1997, 1996 and 1995, the Partnership
also earned $147,434, $110,073 and $115,946, respectively, in contingent rental
income. The increase in contingent rental income during 1997 is primarily
attributable to increases in gross sales relating to certain Properties. The
decrease in contingent rental income for 1996, as compared to 1995, is primarily
attributable to the decreases in gross sales relating to certain Properties.
In addition, for the years ended December 31, 1997, 1996 and 1995, the
Partnership earned $280,331, $97,381 and $83,483, respectively, attributable to
net income earned by joint ventures in which the Partnership is a co-venturer.
The increase in net income earned by joint ventures in 1997, as compared to
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. In addition, in October
1997, the Partnership and an affiliate, as tenants-in-common, sold the Property
in Yuma, Arizona, and recognized a gain of approximately $128,400 for financial
reporting purposes, as described above in "Liquidity and Capital Resources." The
Partnership owned a 51.67% interest in the Property in Yuma, Arizona, held as
tenants-in-common with an affiliate. The Partnership reinvested its portion of
the net sales proceeds in a Property in Vancouver, Washington, in December 1997,
as described above in "Liquidity and Capital Resources." The increase in net
income earned by these joint ventures during 1996, as compared to 1995, is
primarily attributable to the fact that in January 1996, the Partnership
acquired an interest in a Golden Corral Property in Clinton, North Carolina,
with affiliates as tenants-in-common, as described above in "Liquidity and
Capital Resources."
During the years ended December 31, 1997, 1996 and 1995, three of the
Partnership's lessees, Golden Corral Corporation, Restaurant Management
Services, Inc. and Mid-America Corporation, each contributed more than ten
percent of the Partnership's total rental income (including rental income from
the Partnership's consolidated joint venture and the Partnership's share of the
rental income from the three Properties owned by unconsolidated joint ventures
in which the Partnership is a co-venturer and two Properties owned with
affiliates as tenants-in-common). As of December 31, 1997, 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 was the lessee under leases relating to
four restaurants. It is anticipated that, based on the minimum annual rental
payments required by the leases, these three lessees each will continue to
contribute more than ten percent of the Partnership's total rental income during
1998 and subsequent years. In addition, three Restaurant Chains, Golden Corral,
Hardee's and Burger King, and in 1997, an additional Restaurant Chain, Denny's,
each accounted for more than ten percent of the Partnership's total rental
income in 1997, 1996 and 1995 (including the Partnership's consolidated joint
venture and the Partnership's share of the rental income from the three
Properties owned by unconsolidated joint ventures in which the Partnership is a
co-venturer and two Properties owned with affiliates as tenants-in-common). In
subsequent years, it is anticipated that these four 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.
For the years ended 1997, 1996 and 1995, the Partnership also earned
$119,961, $49,056 and $51,130, respectively, in interest and other income. The
increase in interest and other income during the year ended December 31, 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 Dallas, Texas;
Naples, Florida; Plattsmouth, Nebraska and Venice, Florida.
Operating expenses, including depreciation and amortization expense,
were $840,365, $683,163 and $672,818 for the years ended December 31, 1997, 1996
and 1995, respectively. The increase in operating expenses during 1997, as
compared to 1996, is partially due to the fact that the Partnership recorded
approximately $122,400 in bad debt expense and approximately $19,400 in real
estate tax expense for the Property located in Melbourne, Florida, due to the
fact that the tenant vacated the Property in October 1997. The Partnership sold
this Property in February 1998, as described above in "Liquidity and Capital
Resources." In addition, the Partnership's consolidated
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joint venture, Caro Joint Venture, recorded bad debt expense and real estate tax
expense of approximately $26,200 relating to the Property located in Caro,
Michigan, representing past due rental and other amounts. The joint venture
partners intend to continue to pursue the collection of such amounts relating to
the Property in Caro, Michigan. The increase in operating expenses during 1996,
as compared to 1995, was partially a result of an increase in accounting and
administrative expenses associated with operating the Partnership and its
Properties and an increase in insurance expense as a result of the General
Partners' obtaining contingent liability and Property coverage for the
Partnership beginning in May 1995.
The increase in operating expenses during 1997 was partially offset by
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.
As a result of the sales of the Properties in Naples, Florida;
Plattsmouth, Nebraska and Venice, Florida, as described above in "Liquidity and
Capital Resources," the Partnership recognized a gain of $626,804 during 1997
for financial reporting purposes. The gain for 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."
As a result of the sale of the Property in Dallas, Texas, in December
1996, the Partnership recognized a loss for financial reporting purposes of
$1,706 for the year ended December 31, 1996, as discussed above in "Liquidity
and Capital Resources." In addition, as a result of the sale of the Property in
Little Canada, Minnesota, during 1995 the Partnership recognized a gain of
$103,283, and as a result of the sale during 1995 of a portion of the land of
the Property in Orlando, Florida, the Partnership recognized a loss of $7,370
for the year ended December 31, 1995, as described above in "Liquidity and
Capital Resources."
During the years ended December 31, 1996 and 1997, the Partnership
recorded provisions for losses on land and building in the amounts of $77,023
and $104,947, respectively, for financial reporting purposes for the Property in
Liverpool, New York. The allowance at December 31, 1996, represented the
difference between the Property's carrying value at December 31, 1996 and the
estimated net realizable value for this Property based on an anticipated sales
price to an interested third party. The allowance at December 31, 1997,
represents the difference between the Property's carrying value at December 31,
1997 and the net realizable value of the Property based on the net sales
proceeds received in February 1998 from the sale of the Property.
During the year ended December 31, 1997, the Partnership established an
allowance for loss on land and on allowance for impairment in carrying value of
net investment in direct financing lease for its Property in Melbourne, Florida,
in the amount of $158,239. The allowance represents the difference between the
Property's carrying value at December 31, 1997 and the net sales proceeds
received in February 1998 from the sale of the Property, as described above in
"Liquidity and Capital Resources."
The General Partners of the Partnership are in the process of assessing
and addressing the impact of the year 2000 on their computer package software.
The hardware and built-in software are believed to be year 2000 compliant.
Accordingly, the General Partners do not expect this matter to materially impact
how the Partnership conducts business nor its current or future results of
operations or financial position.
The Partnership's leases as of December 31, 1997, are triple-net leases
and contain provisions that the General Partners believe mitigate the adverse
effect of inflation. Such provisions include clauses requiring the payment of
percentage rent based on certain restaurant sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease. Management expects that increases in restaurant sales volumes due to
inflation and real sales growth should result in an increase in rental income
over time. Continued inflation also may cause capital appreciation of the
Partnership's Properties. Inflation and changing prices, however, also may have
an adverse impact on the sales of the restaurants and on potential capital
appreciation of the Properties.
Item 8. Financial Statements and Supplementary Data
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CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants 16
Financial Statements:
Balance Sheets 17
Statements of Income 18
Statements of Partners' Capital 19
Statements of Cash Flows 20
Notes to Financial Statements 23
15
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Report of Independent Accountants
To the Partners
CNL Income Fund VI, Ltd.
We have audited the financial statements and the financial statement schedules
of CNL Income Fund VI, Ltd. (a Florida limited partnership) listed in Item 14(a)
of this Form 10-K. These financial statements and financial statement schedules
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CNL Income Fund VI, Ltd. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
Orlando, Florida
January 24, 1998, except as to Notes 3 and 12 for which the date is February 9,
1998.
16
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
ASSETS 1997 1996
------ ----------- -----------
Land and buildings on operating
leases, less accumulated
depreciation and allowance for
loss on land and building $20,785,684 $21,105,355
Net investment in direct financing
leases, less allowance for
impairment in carrying value 4,708,841 4,659,024
Investment in joint ventures 1,130,139 997,016
Cash and cash equivalents 1,614,759 1,127,930
Restricted cash 709,227 977,756
Receivables, less allowance for
doubtful accounts of $363,410
and $115,892 157,989 174,983
Prepaid expenses 4,235 1,163
Lease costs, less accumulated
amortization of $5,581 and
$3,691 12,119 14,009
Accrued rental income, less
allowance for doubtful accounts
of $9,697 in 1997 and 1996 843,345 1,045,319
Other assets 26,731 26,731
----------- -----------
$29,993,069 $30,129,286
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 14,138 $ 18,161
Accrued construction costs payable 125,000 -
Accrued and escrowed real
estate taxes payable 38,025 11,338
Due to related parties 32,019 2,633
Distributions payable 787,500 857,500
Rents paid in advance 57,663 30,705
----------- -----------
Total liabilities 1,054,345 920,337
Minority interest 144,475 164,582
Partners' capital 28,794,249 29,044,367
----------- -----------
$29,993,069 $30,129,286
=========== ===========
See accompanying notes to financial statements.
17
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---------- ---------- -------
<S> <C>
Revenues:
Rental income from operating
leases $2,448,269 $2,776,239 $2,738,218
Earned income from direct
financing leases 449,133 557,426 469,642
Contingent rental income 147,437 110,073 115,946
Interest and other income 119,961 49,056 51,130
---------- ---------- ----------
3,164,800 3,492,794 3,374,936
---------- ---------- ----------
Expenses:
General operating and
administrative 156,847 159,388 147,902
Professional services 25,861 32,272 27,741
Bad debt expense 131,184 - -
Real estate taxes 43,676 - -
State and other taxes 8,969 7,930 6,789
Depreciation and amortization 473,828 483,573 490,386
---------- ---------- ----------
840,365 683,163 672,818
---------- ---------- ----------
Income Before Minority Interest
in Income of Consolidated
Joint Venture, Equity in
Earnings of Unconsolidated
Joint Ventures, Gain (Loss) on
Sale of Land and Buildings and
Net Investment in Direct Financing
Leases and Provision for Loss on
Land and Buildings 2,324,435 2,809,631 2,702,118
Minority Interest in Income of
Consolidated Joint Venture 11,275 (24,682) (20,133)
Equity in Earnings of Uncon-
solidated Joint Ventures 280,331 97,381 83,483
Gain (Loss) on Sale of Land and
Buildings and Net Investment in
Direct Financing Leases 547,027 (1,706) 95,913
Provision for Loss on Land and
Buildings and Impairment in
Carrying Value of Net Investment
in Direct Financing Lease (263,186) (77,023) -
---------- ---------- ---------
Net Income $2,899,882 $2,803,601 $2,861,381
========== ========== ==========
Allocation of Net Income:
General partners $ 25,353 $ 28,337 $ 28,411
Limited partners 2,874,529 2,775,264 2,832,970
---------- ---------- ----------
$2,899,882 $2,803,601 $2,861,381
========== ========== ==========
Net Income Per Limited Partner
Unit $ 41.06 $ 39.65 $ 40.47
========== ========== ==========
Weighted Average Number of
Limited Partner Units
Outstanding 70,000 70,000 70,000
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
General Partners Limited Partners
Accumu- Accumu-
Contri- lated Contri- Distri- lated Syndication
butions Earnings butions butions Earnings Costs Total
------- -------- ----------- ------------ ----------- ----------- --------
<S> <C>
Balance, December 31, 1994 $ 1,000 $146,262 $35,000,000 $(16,064,226) $14,681,349 $(4,015,000) $29,749,385
Distributions to limited
partners ($45.00 per
limited partner unit) - - - (3,150,000) - - (3,150,000)
Net income - 28,411 - - 2,832,970 - 2,861,381
------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1995 1,000 174,673 35,000,000 (19,214,226) 17,514,319 (4,015,000) 29,460,766
Distributions to limited
partners ($46.00 per
limited partner unit) - - - (3,220,000) - - (3,220,000)
Net income - 28,337 - - 2,775,264 - 2,803,601
------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1996 1,000 203,010 35,000,000 (22,434,226) 20,289,583 (4,015,000) 29,044,367
Distributions to limited
partners ($45.00 per
limited partner unit) - - - (3,150,000) - - (3,150,000)
Net income - 25,353 - - 2,874,529 - 2,899,882
------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1997 $ 1,000 $228,363 $35,000,000 $(25,584,226) $23,164,112 $(4,015,000) $28,794,249
======= ======== =========== ============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------- ----------- -------
<S> <C>
Increase (Decrease) in Cash and
Cash Equivalents:
Cash Flows from Operating
Activities:
Cash received from tenants $ 3,097,751 $ 3,363,188 $ 3,264,527
Distributions from
unconsolidated joint
ventures 144,016 114,163 95,931
Cash paid for expenses (180,530) (203,432) (181,153)
Interest received 94,804 36,843 43,125
----------- ----------- -----------
Net cash provided by
operating activities 3,156,041 3,310,762 3,222,430
----------- ----------- -----------
Cash Flows from Investing
Activities:
Proceeds from sale of
land and buildings 4,003,985 982,980 899,503
Additions to land and
buildings on operating
leases (2,666,258) - (25,646)
Investment in direct
financing leases (1,057,282) - (723,237)
Investment in joint
ventures (521,867) (146,090) -
Return of capital from
joint ventures 524,975 - -
Collections on mortgage
note receivable - 3,033 2,967
Decrease (increase) in
restricted cash 279,367 (977,017) -
Payment of lease costs (3,300) (3,300) (3,300)
----------- ----------- -----------
Net cash provided
by (used in)
investing activities 559,620 (140,394) 150,287
----------- ----------- -----------
Cash Flows from Financing
Activities:
Reimbursement of acquisi-
tion costs paid by
related parties on
behalf of the Part-
nership - - (1,375)
Distributions to limited
partners (3,220,000) (3,150,000) (3,150,000)
Distributions to holder
of minority interest (8,832) (13,437) (26,824)
----------- ----------- -----------
Net cash used in
financing activities (3,228,832) (3,163,437) (3,178,199)
----------- ----------- -----------
Net Increase in Cash and Cash
Equivalents 486,829 6,931 194,518
Cash and Cash Equivalents at
Beginning of Year 1,127,930 1,120,999 926,481
----------- ----------- -----------
Cash and Cash Equivalents at
End of Year $ 1,614,759 $ 1,127,930 $ 1,120,999
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------- ----------- -------
<S> <C>
Reconciliation of Net Income to
Net Cash Provided by Operating
Activities:
Net income $ 2,899,882 $ 2,803,601 $ 2,861,381
----------- ----------- -----------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 471,938 481,683 489,480
Amortization 1,890 1,890 906
Minority interest in income
of consolidated joint
venture (11,275) 24,682 20,133
Equity in earnings of
unconsolidated joint
ventures, net of
distributions (136,315) 16,782 12,448
Loss (gain) on sale of land
and building (547,027) 1,706 (95,913)
Provision for loss on land
and building and impair-
ment in carrying value
of net investment in
direct financing lease 263,186 77,023 -
Decrease (increase) in
receivables 25,880 (90,360) 44,096
Decrease (increase) in
prepaid expenses (3,072) 4,087 (2,042)
Decrease in net investment
in direct financing leases 67,389 68,177 53,944
Decrease (increase) in
accrued rental income 41,173 (103,935) (131,428)
Increase in accounts payable
and accrued expenses 25,964 2,529 215
Increase (decrease) in
due to related parties 29,470 (3,391) 5,909
Increase (decrease) in
rents paid in advance
and deposits 26,958 26,288 (36,699)
----------- ----------- -----------
Total adjustments 256,159 507,161 361,049
----------- ----------- -----------
Net Cash Provided by Operating
Activities $ 3,156,041 $ 3,310,762 $ 3,222,430
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------- ----------- -------
<S> <C>
Supplemental Schedule of Non-Cash
Investing and Financing
Activities:
Acquisition costs paid by
affiliates on behalf of
the Partnership $ - $ - $ 1,375
=========== =========== ===========
Mortgage note accepted in
connection with sale of
land $ - $ - $ 6,000
=========== =========== ===========
Distributions declared and
unpaid at December 31 $ 787,500 $ 857,500 $ 787,500
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund VI, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50 percent shareholders of
the Corporate General Partner. The general partners have responsibility
for managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
on a triple-net basis, whereby the tenant is generally responsible for
all operating expenses relating to the property, including property
taxes, insurance, maintenance and repairs. The leases are accounted for
using either the direct financing or the operating method. Such methods
are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (Note 4). Unearned income is deferred and
amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Partnership's
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
23
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review the properties for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through
operations. The general partners determine whether an impairment in
value has occurred by comparing the estimated future undiscounted cash
flows, including the residual value of the property, with the carrying
cost of the individual property. Although the general partners have
made their best estimate of these factors based on current conditions,
it is reasonably possible that changes could occur in the near term
which could adversely affect the general partners' best estimate of net
cash flows expected to be generated from its properties and the need
for asset impairment write-downs. If an impairment is indicated, the
assets are adjusted to their fair value.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables
and accrued rental income, and to decrease rental or other income or
increase bad debt expense for the current period, although the
Partnership continues to pursue collection of such amounts. If amounts
are subsequently determined to be uncollectible, the corresponding
receivable and allowance for doubtful accounts are decreased
accordingly.
Investment in Joint Ventures - The Partnership accounts for its 66
percent interest in Caro Joint Venture, a Florida general partnership,
using the consolidation method. Minority interest represents the
minority joint venture partner's proportionate share of equity in the
Partnership's consolidated joint venture. All significant intercompany
accounts and transactions have been eliminated.
24
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
The Partnership's investments in Auburn Joint Venture, Show Low Joint
Venture and Asheville Joint Venture, and a property in Yuma, Arizona, a
property in Clinton, North Carolina, and a property in Vancouver,
Washington, for which each property is held as tenants-in-common with
affiliates, are accounted for using the equity method since the
Partnership shares control with affiliates which have the same general
partners.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts. The Partnership limits investment of
temporary cash investments to financial institutions with high credit
standing; therefore, the Partnership believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Lease Costs - Brokerage fees and lease incentive costs incurred in
finding new tenants and negotiating new leases for the Partnership's
properties are amortized over the terms of the new leases using the
straight-line method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment.
25
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
2. Leases:
The Partnership leases its land and buildings primarily to operators of
national and regional fast-food and family-style restaurants. The
leases are accounted for under the provisions of Statement of Financial
Accounting Standards No. 13, "Accounting for Leases." The leases
generally are classified as operating leases; however, some leases have
been classified as direct financing leases. For the leases classified
as direct financing leases, the building portions of the property
leases are accounted for as direct financing leases while the land
portions of some of these leases are operating leases. Substantially
all leases are for 10 to 20 years and provide for minimum and
contingent rentals. In addition, the tenant pays all property taxes and
assessments, fully maintains the interior and exterior of the building
and carries insurance coverage for public liability, property damage,
fire and extended coverage. The lease options generally allow tenants
to renew the leases for two to four successive five-year periods
subject to the same terms and conditions as the initial lease. Most
leases also allow the tenant to purchase the property at fair market
value after a specified portion of the lease has elapsed.
26
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
1997 1996
----------- -------
Land $10,046,309 $10,364,275
Buildings 14,344,114 13,983,253
----------- -----------
24,390,423 24,347,528
Less accumulated
depreciation (3,327,334) (3,165,150)
----------- -----------
21,063,089 21,182,378
Less allowance for loss
on land and building (277,405) (77,023)
------------ -----------
$20,785,684 $21,105,355
=========== ===========
In December 1996, the Partnership sold its property in Dallas, Texas,
to a third party for $1,016,000 and received net sales proceeds of
$982,980. This property was originally acquired by the Partnership in
June 1994 and had a cost of approximately $980,900, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the property for approximately $2,100 in excess of its
original purchase price. Due to the fact that the Partnership had
recognized accrued rental income since the inception of the lease
relating to the straight-lining of future scheduled rent increases in
accordance with generally accepted accounting principles, the
Partnership wrote-off the cumulative balance of such accrued rental
income at the time of the sale of this property, resulting in a loss on
land and building of $1,706 for financial reporting purposes. Due to
the fact that the straight-lining of future rent increases over the
term of the lease is a non-cash accounting adjustment, the write off of
these amounts is a loss for financial statement purposes only. In
February 1997, the Partnership reinvested the net sales proceeds from
the sale of the property in Dallas, Texas, along with additional funds,
in a Bertucci's property in Marietta, Georgia, for a total cost of
approximately $1,112,600.
In July 1997, the Partnership sold the property in Whitehall, Michigan,
to a 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.
27
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
3. Land and Buildings on Operating Leases - Continued:
In addition, in July 1997, the Partnership sold its property in Naples,
Florida, to a 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
December 1997, the Partnership reinvested the net sales proceeds in an
IHOP property in Elgin, Illinois, for a total cost of approximately
$1,484,100.
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 incurred
$125,000 in renovation costs.
In September 1997, the Partnership sold its property in Venice,
Florida, to a 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. In
December 1997, the Partnership reinvested the net sales proceeds in an
IHOP property in Manassas, Virginia, for a total cost of approximately
$1,126,800.
In 1996 and 1997, the Partnership recorded provisions for losses on
land and building in the amounts of $77,023 and $104,947, respectively,
for financial reporting purposes for the property in Liverpool, New
York. The allowance at December 31, 1996, represented the difference
between the property's carrying value at December 31, 1996 and the
estimated net realizable value for this property based on an
anticipated sales price to an interested third party. The allowance at
December 31, 1997, represents the difference between (i) the property's
carrying value at December 31, 1997, and (ii) the net realizable value
of the property based on the net sales proceeds received in February
1998 from the sale of the property (see Note 12).
28
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
3. Land and Buildings on Operating Leases - Continued:
At December 31, 1997, the Partnership established an allowance for loss
on land in the amount of $95,435 for its property in Melbourne,
Florida. The allowance represents the difference between the property's
carrying value for the land at December 31, 1997, and the net
realizable value of the land based on the net sales proceeds received
in February 1998 from the sale of the property (see Note 12).
Some leases provide for escalating guaranteed minimum rents throughout
the lease terms. Income from these scheduled rent increases is
recognized on a straight-line basis over the terms of the leases. For
the years ended December 31, 1997, 1996 and 1995, the Partnership
recognized $87,094, $103,935 and $131,428, respectively, of such rental
income.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 1997:
1998 $ 2,393,528
1999 2,396,060
2000 2,487,704
2001 2,538,767
2002 2,541,122
Thereafter 14,362,769
-----------
$26,719,950
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
29
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
4. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at December 31:
1997 1996
----------- ----------
Minimum lease payments
receivable $ 9,313,752 $ 8,955,426
Estimated residual
values 1,655,911 1,704,299
Less unearned income (6,198,018) (6,000,701)
----------- -----------
4,771,645 4,659,024
Less allowance for
impairment in
carrying value (62,804) -
----------- ----------
Net investment in direct
financing leases $ 4,708,841 $ 4,659,024
=========== ===========
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 1997:
1998 $ 622,540
1999 622,540
2000 624,680
2001 637,400
2002 637,400
Thereafter 6,169,192
----------
$9,313,752
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (See Note 3).
In 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
3).
30
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
4. Net Investment in Direct Financing Leases - Continued:
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.
At December 31, 1997, the Partnership had established an allowance for
impairment in carrying value in the amount of $62,804 for its property
in Melbourne, Florida. The allowance represents the difference between
the (i) carrying value of the net investment in the direct financing
lease at December 31, 1997, and (ii) the net realizable value of the
net investment in the direct financing lease based on the net sales
proceeds received in February 1998 from the sale of the property (see
Note 12).
5. Investment in Joint Ventures:
The Partnership has a 3.9%, a 36 percent and a 14 percent interest in
the profits and losses of Auburn Joint Venture, Show Low Joint Venture
and Asheville Joint Venture, respectively. The remaining interests in
these joint ventures are held by affiliates of the Partnership which
have the same general partners.
In January 1996, the Partnership acquired a property in Clinton, North
Carolina, as tenants-in-common with affiliates of the general partners.
In connection therewith, the Partnership contributed $146,090 for a
17.93% interest in such property. 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 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
31
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
5. Investment in Joint Venture - Continued:
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 net sales
proceeds in a property in Greensboro, North Carolina. During 1997, the
Partnership received approximately $70,000 representing a return of
capital, for its pro-rata share of the uninvested net sales proceeds.
As of December 31, 1997, the Partnership owned a 36 percent interest in
the profits and losses of the joint venture.
As of December 31, 1996, the Partnership had a 51.67% interest in a
property in Yuma, Arizona, with an affiliate of the Partnership that
has the same general partners, as tenants-in-common. In October 1997,
the Partnership and the affiliate, as tenants-in-common, sold the
property in Yuma, Arizona, for a total sales price of $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 property was originally acquired in July 1994 and had a
total cost of approximately $861,700, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the property was sold
for approximately $120,300 in excess of its original purchase price.
The Partnership received approximately $455,000 representing a return
of capital for its pro-rata share of the net sales proceeds. In
December 1997, the Partnership reinvested the amounts received as a
return of capital from the sale of the Yuma, Arizona property, in a
property in Vancouver, Washington, as tenants-in-common with affiliates
of the general partners. The Partnership accounts for its investment in
the property in Vancouver, Washington, using the equity method since
the Partnership shares control with affiliates, and amounts relating to
its investment are included in investment in joint ventures. As of
December 31, 1997, the Partnership owned a 23.04% interest in the
Vancouver, Washington, property owned with affiliates as
tenants-in-common.
Auburn Joint Venture, Show Low Joint Venture, Asheville Joint Venture,
and the Partnership and affiliates as tenants-in-common in two separate
tenancy-in-common arrangements, each own and lease one property to an
operator of national fast-food and family-style restaurants. The
following presents the
32
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
5. Investment in Joint Venture - Continued:
combined, condensed financial information for the joint ventures and
the two properties held as tenants-in-common with affiliates at
December 31:
1997 1996
---------- -------
Land and buildings on
operating leases,
less accumulated
depreciation $4,568,842 $3,463,093
Net investment in direct
financing leases 911,559 401,650
Cash 7,991 11,177
Receivables 22,230 21,826
Accrued rental income 160,197 191,594
Other assets 414 44,380
Liabilities 7,557 10,221
Partners' capital 5,663,676 4,123,499
Revenues 471,627 528,092
Gain on sale of land
and building 488,372 -
Net income 889,883 436,981
The Partnership recognized income totalling $280,331, $97,381, and
$83,483 for the years ended December 31, 1997, 1996 and 1995,
respectively, from these joint ventures.
6. Restricted Cash:
As of December 31, 1996, net sales proceeds of $977,017 from the sale
of the property in Dallas, Texas, plus accrued interest of $739, were
being held in an interest-bearing escrow account pending the release of
funds by the escrow agent to acquire an additional property. In
February 1997, the escrow agent released these funds to acquire the
property in Marietta, Georgia (see Note 3).
As of December 31, 1997, net sales proceeds of $697,650 from the sale
of the property in Plattsmouth, Nebraska, plus accrued interest of
$11,577, were being held in an interest-bearing escrow account pending
the release of funds by the escrow agent to acquire an additional
property.
33
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
7. 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 December 31, 1997, included
$13,631 of such amounts, including accrued interest of $554.
8. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of properties, are allocated 99 percent
to the limited partners and one percent to the general partners.
Distributions of net cash flow are made 99 percent to the limited
partners and one percent to the general partners; provided, however,
that the one percent of net cash flow to be distributed to the general
partners is subordinated to receipt by the limited partners of an
aggregate, ten percent, cumulative, noncompounded annual return on
their adjusted capital contributions (the "10% Preferred Return").
Generally, net sales proceeds from the sale of properties, to the
extent distributed, will be distributed first to the limited partners
in an amount sufficient to provide them with their 10% Preferred
Return, plus the return of their adjusted capital contributions. The
general partners will then receive, to the extent previously
subordinated and unpaid, a one percent interest in all prior
distributions of net cash flow and a return of their capital
contributions. Any remaining sales proceeds will be distributed 95
percent to the limited partners and five percent to the general
partners. Any gain from the sale of a property is, in general,
allocated in the same manner as net sales proceeds are distributable.
Any loss from the sale of a property is, in general, allocated first,
on a pro rata basis, to partners with positive balances in their
capital accounts; and thereafter, 95 percent to the limited partners
and five percent to the general partners.
During the years ended December 31, 1997, 1996 and 1995 the Partnership
declared distributions to the limited partners of $3,150,000,
$3,220,000 and $3,150,000, respectively. No distributions have been
made to the general partners to date.
34
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
9. Income Taxes:
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -------
<S> <C>
Net income for financial
reporting purposes $2,899,882 $2,803,601 $2,861,381
Depreciation for tax
reporting purposes
in excess of depreci-
ation for financial
reporting purposes (92,303) (104,412) (94,987)
Allowance for loss on
land and building 263,186 77,023 -
Direct financing leases
recorded as operating
leases for tax
reporting purposes 67,392 68,177 53,944
Gain and loss on sale of
land and buildings for
financial reporting
purposes in excess of
gain and loss on sale
for tax reporting
purposes (335,658) 1,706 (2,914)
Equity in earnings of
unconsolidated joint
ventures for financial
reporting purposes in
excess of equity in
earnings of unconsolidated
joint ventures for tax
reporting purposes (147,256) (49) (5,299)
Allowance for doubtful
accounts 369,935 (78,517) 16,154
Accrued rental income (81,244) (103,935) (131,428)
Rents paid in advance 26,458 26,288 (36,699)
Minority interest in
timing differences
of consolidated
joint venture (30,778) 1,781 (200)
---------- ---------- ----------
Net income for federal
income tax purposes $2,939,614 $2,691,663 $2,659,952
========== ========== ==========
</TABLE>
35
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
10. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the parent company of
CNL Fund Advisors, Inc. The other individual general partner, Robert A.
Bourne, served as president of CNL Fund Advisors, Inc. through October
1997. CNL Income Fund Advisors, Inc. was a wholly owned subsidiary of
CNL Group, Inc. until its merger, effective January 1, 1996, with CNL
Fund Advisors, Inc. During the years ended December 31, 1997, 1996 and
1995, CNL Income Fund Advisors, Inc. and CNL Fund Advisors, Inc.
(hereinafter referred to collectively as the "Affiliates") each
performed certain services for the Partnership, as described below.
During the years ended December 31, 1997, 1996 and 1995, certain
Affiliates acted as manager of the Partnership's properties pursuant to
a management agreement with the Partnership. In connection therewith,
the Partnership agreed to pay Affiliates a management fee of one
percent of the sum of gross revenues from properties wholly owned by
the Partnership and the Partnership's allocable share of gross revenues
from joint ventures and the property held as tenants-in-common with an
affiliate, but not in excess of competitive fees for comparable
services. These fees are payable only after the limited partners
receive their 10% Preferred Return. Due to the fact that these fees are
noncumulative, if the limited partners do not receive their 10%
Preferred Return in any particular year, no management fees will be due
or payable for such year. As a result of such threshold, no management
fees were incurred during the years ended December 31, 1997, 1996 and
1995.
Certain Affiliates are also entitled to receive a deferred,
subordinated real estate disposition fee, payable upon the sale of one
or more properties based on the lesser of one-half of a competitive
real estate commission or three percent of the sales price if the
Affiliates provide a substantial amount of services in connection with
the sale. However, if the sales proceeds are reinvested in a
replacement property, no such real estate disposition fees will be
incurred until such replacement property is sold and the net sales
proceeds are distributed. The payment of the real estate disposition
fee is subordinated to receipt by the limited partners of their
aggregate 10% Preferred Return, plus their adjusted capital
contributions. No deferred, subordinated real estate disposition fees
have been incurred since inception.
36
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
10. Related Party Transactions - Continued:
During the years ended December 31, 1997, 1996 and 1995, Affiliates
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $85,714, $95,420 and $81,847
for the years ended December 31, 1997, 1996 and 1995, respectively, for
such services.
The due to related parties at December 31, 1997 and 1996, totalled
$32,019 and $2,633, respectively.
11. 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 two properties held as tenants-in-common with
affiliates), for at least one of the years ended December 31:
1997 1996 1995
-------- -------- ------
Golden Corral
Corporation $751,866 $758,348 $725,908
Restaurant Manage-
ment Services, Inc. 478,750 511,040 440,987
Mid-America
Corporation 439,519 439,519 439,519
In addition, 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 two properties held as tenants-in-common
with affiliates), for at least one of the years ended December 31:
1997 1996 1995
-------- -------- ------
Golden Corral
Family Steakhouse
Restaurants $751,866 $758,348 $725,908
Burger King 496,487 455,764 455,820
Denny's 317,041 336,269 276,547
Hardee's 270,129 410,951 431,465
37
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
11. 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.
12. Subsequent Events:
In January 1998, the Partnership used the net sales proceeds from the
sale of the property in Whitehall, Michigan, to acquire a property in
Overland Park, Kansas, as tenants-in-common with affiliates of the
general partners. In connection therewith, the Partnership contributed
approximately $558,900 for a 34.74% interest in such property. The
Partnership will account for its investment in this property using the
equity method since the Partnership will share control with affiliates.
In January 1998, the Partnership used the net sales proceeds from the
sale of the property in Plattsmouth, Nebraska, to acquire a property in
Memphis, Tennessee, as tenants-in-common with affiliates of the general
partners. In connection therewith, the Partnership contributed
approximately $694,800 for a 46.2% interest in such property. The
Partnership will account for its investment in this property using the
equity method since the Partnership will share control with affiliates.
In addition, in January 1998, the Partnership sold its property in
Deland, Florida, to the tenant, for $1,250,000 and received net sales
proceeds of $1,234,617, resulting in a gain of approximately $345,100
for financial reporting purposes.
38
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
12. Subsequent Events - Continued:
In February 1998, the Partnership sold its property in Melbourne,
Florida, for $590,000 and received net sales proceeds of $542,477,
resulting in a loss of $158,239 for financial reporting purposes which
the Partnership recorded in 1997 (See Notes 3 and 4).
In February 1998, the Partnership sold its property in Liverpool, New
York, for $157,500 and received net sales proceeds of approximately
$150,700, resulting in a loss of $181,970 for financial reporting
purposes which the Partnership recorded in 1996 and in 1997 (See Note
3).
39
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 51, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, director and Chief Executive Officer since its formation in
1980. CNL Group, Inc. is the parent company of CNL Securities Corp., CNL
Investment Company, CNL Fund Advisors, Inc., CNL Real Estate Advisors, Inc. and
prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996, CNL
Income Fund Advisors, Inc. Mr. Seneff is Chief Executive Officer, and has been a
director and registered principal of CNL Securities Corp., which served as the
managing dealer in the Partnership's offering of Units, since its formation in
1979. Mr. Seneff also has held the position of President and a director of CNL
Management Company, a registered investment advisor, since its formation in
1976, has served as Chief Executive Officer and Chairman of the Board of CNL
Investment Company, and Chief Executive Officer and Chairman of the Board of
Commercial Net Lease Realty, Inc. since 1992, has served as the Chairman of the
Board and the Chief Executive Officer of CNL Realty Advisors, Inc. since its
inception in 1991 through December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., served as Chairman of the
Board and Chief Executive Officer of CNL Income Fund Advisors, Inc. since its
inception in 1994 through December 31, 1995, has served as a director, Chairman
of the Board and Chief Executive Officer of CNL Fund Advisors, Inc. since its
inception in 1994, and has held the position of Chief Executive Officer and a
director of CNL Institutional Advisors, Inc., a registered investment advisor,
since its inception in 1990. In addition, Mr. Seneff has served as a director,
Chairman of the Board and Chief Executive Officer of CNL American Properties
Fund, Inc. since 1994, and has served as a director, Chairman of the Board and
Chief Executive Officer of CNL American Realty Fund, Inc. since 1996 and of CNL
Real Estate Advisors, Inc. since January 1997. Mr. Seneff previously served on
the Florida State Commission on Ethics and is a former member and past Chairman
of the State of Florida Investment Advisory Council, which recommends to the
Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of more
than $60 billion of retirement funds. Since 1971, Mr. Seneff has been active in
the acquisition, development and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
joint venturer in over 100 real estate ventures involved in the financing,
acquisition, construction and rental of office buildings, apartment complexes,
restaurants, hotels and other real estate. Included in these real estate
ventures are approximately 65 privately offered real estate limited partnerships
in which Mr. Seneff, directly or through an affiliated entity, serves or has
served as a general partner. Also included are CNL Income Fund, Ltd., CNL Income
Fund II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income
Fund V, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income
Fund IX, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income
Fund XII, Ltd., CNL Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL
Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd. and
CNL Income Fund XVIII, Ltd. (the "CNL Income Fund Partnerships"), public real
estate limited partnerships with investment objectives similar to those of the
Partnership, in which Mr. Seneff serves as a general partner. Mr. Seneff
received his degree in Business Administration from Florida State University in
1968.
40
<PAGE>
Robert A. Bourne, age 50, is President and Treasurer of CNL Group,
Inc., President, a director and a registered principal of CNL Securities Corp.,
President and a director of CNL Investment Company, and prior to its merger with
CNL Fund Advisors, Inc., effective January 1, 1996, CNL Income Fund Advisors,
Inc., and Chief Investment Officer, Vice Chairman of the Board of Directors, a
director and Treasurer of CNL Institutional Advisors, Inc., a registered
investment advisor. Mr. Bourne served as President of CNL Institutional
Advisors, Inc. from the date of its inception through June 30, 1997 and served
as President of CNL Fund Advisors, Inc. from the date of its inception through
October 1997. Mr. Bourne also has served as a director since 1992, as President
from July 1992 to February 1996, as Secretary and Treasurer from February 1996
through December 1997, and since February 1996, served as Vice Chairman of the
Board of Directors of Commercial Net Lease Realty, Inc. In addition, Mr. Bourne
has served as a director since its inception in 1991, as President from 1991 to
February 1996, as Secretary from February 1996 to July 1996, and since February
1996, served as Treasurer and Vice Chairman of CNL Realty Advisors, Inc. through
December 31, 1997, at which time CNL Realty Advisors, Inc. merged with
Commercial Net Lease Realty, Inc. In addition, Mr. Bourne has served as
President and a director of CNL American Properties Fund, Inc. since 1994, and
has served as President and a director of CNL American Realty Fund, Inc. since
1996 and of CNL Real Estate Advisors, Inc. since January 1997. Upon graduation
from Florida State University in 1970, where he received a B.A. in Accounting,
with honors, Mr. Bourne worked as a certified public accountant and, from
September 1971 through December 1978, was employed by Coopers & Lybrand,
Certified Public Accountants, where he held the position of tax manager
beginning in 1975. From January 1979 until June 1982, Mr. Bourne was a partner
in the accounting firm of Cross & Bourne and from July 1982 through January
1987, he was a partner in the accounting firm of Bourne & Rose, P.A., Certified
Public Accountants. Mr. Bourne, who joined CNL Securities Corp. in 1979, has
participated as a general partner or joint venturer in over 100 real estate
ventures involved in the financing, acquisition, construction and rental of
office buildings, apartment complexes, restaurants, hotels and other real
estate. Included in these real estate ventures are approximately 64 privately
offered real estate limited partnerships in which Mr. Bourne, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are the CNL Income Fund Partnerships, public real estate limited
partnerships with investment objectives similar to those of the Partnership, in
which Mr. Bourne serves as a general partner.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL
Realty Corporation was organized to serve as the corporate general partner of
real estate limited partnerships, such as the Partnership, organized by one or
both of the individual General Partners. CNL Realty Corporation currently serves
as the corporate general partner of the CNL Income Fund Partnerships.
CNL Fund Advisors, Inc. provides certain management services in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation organized in 1994 under the laws of the State of Florida, and its
principal office is located at 400 East South Street, Orlando, Florida 32801.
CNL Fund Advisors, Inc. is a wholly owned subsidiary of CNL Group, Inc., a
diversified real estate company, and was organized to perform property
acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Fund Advisors,
Inc., was organized in 1980 under the laws of the State of Florida. CNL Group,
Inc. is a diversified real estate company which provides a wide range of real
estate, development and financial services to companies in the United States
through the activities of its subsidiaries. These activities are primarily
focused on the franchised restaurant and hospitality industries. James M.
Seneff, Jr., an individual General Partner of the Partnership, is the Chairman
of the Board, Chief Executive Officer, and a director of CNL Group, Inc. Mr.
Seneff and his wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as members
of the Boards of Directors of those entities. The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.
41
<PAGE>
Curtis B. McWilliams, age 42, joined CNL Fund Advisors, Inc. in April
1997 and currently serves as President of CNL Fund Advisors, Inc. and as
Executive Vice President of CNL American Properties Fund, Inc. In addition, Mr.
McWilliams serves as Executive Vice President of CNL Group, Inc. and as
President of CNL Financial Services, Inc. and certain other subsidiaries of CNL
Group, Inc. From September 1983 through March 1997, Mr. McWilliams was employed
by Merrill Lynch. From January 1991 to August 1996, Mr. McWilliams was a
managing director in the corporate banking group of Merrill Lynch's investment
banking division. During this time, he was a senior relationship manager with
Merrill Lynch and as such was responsible for a number of the firm's larger
clients. From February 1990 to February 1993, he also served as co-head of one
of the Industrial Banking Groups within Merrill Lynch's investment banking
division and had administrative responsibility for a group of bankers and client
relationships, including the firm's transportation group. From September 1996 to
March 1997, Mr. McWilliams served as Chairman of Merrill Lynch's Private
Advisory Services. Mr. McWilliams received a B.S.E. in Chemical Engineering from
Princeton University in 1977 and a Masters of Business Administration with a
concentration in finance from the University of Chicago in 1983.
John T. Walker, age 39, is the Chief Operating Officer and Executive
Vice President of CNL Fund Advisors, Inc. and CNL American Properties Fund, Inc.
and serves as Executive Vice President of CNL American Realty Fund, Inc. and CNL
Real Estate Advisors, Inc. From May 1992 to May 1994, he was Executive Vice
President for Finance and Administration and Chief Financial Officer of Z Music,
Inc., a cable television network which was subsequently acquired by Gaylord
Entertainment, where he was responsible for overall financial and administrative
management and planning. From January 1990 through April 1992, Mr. Walker was
Chief Financial Officer of the First Baptist Church in Orlando, Florida. From
April 1984 through December 1989, he was a partner in the accounting firm of
Chastang, Ferrell & Walker, P.A., where he was the partner in charge of audit
and consulting services, and from 1981 to 1984, Mr. Walker was a Senior
Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a Cum Laude graduate
of Wake Forest University with a B.S. in Accountancy and is a certified public
accountant.
Lynn E. Rose, age 49, a certified public accountant, has served as
Chief Financial Officer of CNL Group, Inc. since December 1993, has served as
Secretary of CNL Group, Inc. since 1987, and served as Controller of CNL Group,
Inc. from 1987 until December 1993. In addition, Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has
served as Chief Operating Officer, Vice President and Secretary of CNL Corporate
Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial
Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in
1990, served as a director and Secretary of CNL Realty Advisors, Inc. since its
inception in 1991 through December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., Treasurer of CNL Realty
Advisors, Inc. from 1991 to February 1996, Secretary and Treasurer of Commercial
Net Lease Realty, Inc. from 1992 to February 1996, Secretary of CNL Income Fund
Advisors, Inc. since its inception in 1994 to December 1995, and a director,
Secretary and Treasurer of CNL Fund Advisors, Inc. since 1994 and has served as
a director, Secretary and Treasurer of CNL Real Estate Advisors, Inc. since
January 1997. Ms. Rose also has served as Secretary and Treasurer of CNL
American Properties Fund, Inc. since 1994, and has served as Secretary and
Treasurer of CNL American Realty Fund, Inc. since 1996. Ms. Rose also currently
serves as Secretary for approximately 50 additional corporations. Ms. Rose
oversees the management information services, administration, legal compliance,
accounting, tenant compliance, and reporting for over 300 corporations,
partnerships, and joint ventures. Prior to joining CNL, Ms. Rose was a partner
with Robert A. Bourne in the accounting firm of Bourne & Rose, P.A., Certified
Public Accountants. Ms. Rose holds a B.A. in Sociology from the University of
Central Florida. She was licensed as a certified public accountant in 1979.
42
<PAGE>
Jeanne A. Wall, age 39, has served as Chief Operating Officer of CNL
Investment Company and of CNL Securities Corp. since November 1994 and has
served as Executive Vice President of CNL Investment Company since January 1991.
In 1984, Ms. Wall joined CNL Securities Corp. In 1985, Ms. Wall became Vice
President of CNL Securities Corp., in 1987, she became Senior Vice President and
in July 1997, she became Executive Vice President of CNL Securities Corp. In
this capacity, Ms. Wall serves as national marketing and sales director and
oversees the national marketing plan for the CNL investment programs. In
addition, Ms. Wall oversees product development, partnership administration and
investor services for programs offered through participating brokers, and
corporate communications for CNL Group, Inc. and Affiliates. Ms. Wall also has
served as Senior Vice President of CNL Institutional Advisors, Inc., a
registered investment advisor, from 1990 to 1993, as Vice President of CNL
Realty Advisors, Inc. since its inception in 1991 through 1997, as Vice
President of Commercial Net Lease Realty, Inc. from 1992 through 1997, as
Executive Vice President of CNL Fund Advisors, Inc. since 1994, and as Executive
Vice President of CNL American Properties Fund, Inc. since 1994. In addition,
Ms. Wall has served as Executive Vice President of CNL Real Estate Advisors,
Inc. since January 1997 and as Executive Vice President of CNL American Realty
Fund, Inc. since 1996. Ms. Wall holds a B.A. in Business Administration from
Linfield College and is a registered principal of CNL Securities Corp. Ms. Wall
currently serves as a trustee on the board of the Investment Program Association
and on the Direct Participation Program committee for the National Association
of Securities Dealers (NASD).
Steven D. Shackelford, age 34, has served as Chief Financial Officer of
CNL Fund Advisors, Inc. since September 1996 and as Chief Financial Officer of
CNL American Properties Fund, Inc. since January 1997. From March 1995 to July
1996, he was a senior manager in the national office of Price Waterhouse where
he was responsible for advising foreign clients seeking to raise capital and a
public listing in the United States. From August 1992 to March 1995, he served
as a manager in the Price Waterhouse, Paris, France office serving several
multinational clients. Mr. Shackelford was an audit staff and audit senior from
1986 to 1992 in the Orlando, Florida office of Price Waterhouse. Mr. Shackelford
received a B.A. in Accounting, with honors, and a Masters of Business
Administration from Florida State University and is a certified public
accountant.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 13, 1998, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 13, 1998, the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>
Title of Class Name of Partner Percent of Class
<S> <C>
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
----
100%
</TABLE>
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above. There are no arrangements
which at a subsequent date may result in a change in control of the Registrant.
43
<PAGE>
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 1997, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
<TABLE>
<CAPTION>
==========================================================================================================================
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1997
------------------------- --------------------- -----------------------
<S> <C>
Reimbursement to affiliates for Operating expenses are reimbursed Operating expenses incurred on
operating expenses at the lower of cost or 90 percent behalf of the Partnership: $82,503
of the prevailing rate at which
comparable services could have
been obtained in the same Accounting and administrative
geographic area. Affiliates of the services: $85,714
General Partners from time to
time incur certain operating
expenses on behalf of the
Partnership for which the
Partnership reimburses the
affiliates without interest.
Annual, subordinated manage- One percent of the sum of gross $ - 0 -
ment fee to affiliates operating revenues from
Properties wholly owned by the
Partnership plus the Partnership's
allocable share of gross revenues of
joint ventures in which the Partnership
is a co-venturer and the Property owned
with an affiliate as tenants-in-common,
subordinated to certain minimum returns
to the Limited Partners. The management
fee will not exceed competitive fees
for comparable services. Due to the
fact that these fees are
non-cumulative, if the Limited Partners
do not receive their 10% Preferred
Return in any particular year, no
management fees will be due or payable
for such year.
==========================================================================================================================
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1997
------------------------ --------------------- -----------------------
<S> <C>
Deferred, subordinated real estate A deferred, subordinated real $ - 0 -
disposition fee payable to estate disposition fee, payable
affiliates upon sale of one or more
Properties, in an amount equal to the
lesser of (i) one-half of a competitive
real estate commission, or (ii) three
percent of the sales price of such
Property or Properties. Payment of such
fee shall be made only if affiliates of
the General Partners provide a
substantial amount of services in
connection with the sale of a Property
or Properties and shall be subordinated
to certain minimum returns to the
Limited Partners. However, if the net
sales proceeds are reinvested in a
replacement Property, no such real
estate disposition fee will be incurred
until such replacement Property is sold
and the net sales proceeds are
distributed.
General Partners' deferred, sub- A deferred, subordinated share $ - 0 -
ordinated share of Partnership net equal to one percent of
cash flow Partnership distributions of net
cash flow, subordinated to certain
minimum returns to the Limited
Partners.
General Partners' deferred, sub- A deferred, subordinated share $ - 0 -
ordinated share of Partnership net equal to five percent of
sales proceeds from a sale or Partnership distributions of such
sales net sales proceeds, subordinated to
certain minimum returns to the
Limited Partners.
==========================================================================================================================
</TABLE>
45
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1997 and 1996
Statements of Income for the years ended December 31, 1997,
1996 and 1995
Statements of Partners' Capital for the years ended December
31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1997, 1996 and 1995
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1997
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1997
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund VI, Ltd.
(Included as Exhibit 3.3 to Registration Statement No.
33-23892 on Form S-11 and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund VI, Ltd.
(Included as Exhibit 4.2 to Registration Statement No.
33-23892 on Form S-11 and incorporated herein by reference.)
4.2 Agreement and Certificate of Limited Partnership of CNL Income
Fund VI, Ltd. (Included as Exhibit 4.2 to Form 10-K filed with
the Securities and Exchange Commission on April 1, 1996, and
incorporated herein by reference.)
10.1 Management Agreement (Included as Exhibit 10.1 to Form 10-K
filed with the Securities and Exchange Commission on March 31,
1994, and incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL Investment Company
to CNL Income Fund Advisors, Inc. (Included as Exhibit 10.2 to
Form 10-K filed with the Securities and Exchange Commission on
March 30, 1995, and incorporated herein by reference.)
46
<PAGE>
10.3 Assignment of Management Agreement from CNL Income Fund
Advisors, Inc. to CNL Fund Advisors, Inc. (Included as Exhibit
10.3 to Form 10-K filed with the Securities and Exchange
Commission on April 1, 1996, and incorporated herein by
reference.)
27 Financial Data Schedule (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from
October 1, 1997 through December 31, 1997.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 23rd day of
March, 1998.
CNL INCOME FUND VI, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
---------------------------
JAMES M. SENEFF, JR.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
==========================================================================================================================
Signature Title Date
<S> <C>
/s/ Robert A. Bourne President, Treasurer and Director March 23, 1998
- ----------------------------------- (Principal Financial and
Robert A. Bourne Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and March 23, 1998
- ----------------------------------- Director (Principal Executive
James M. Seneff, Jr. Officer)
==========================================================================================================================
</TABLE>
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additions Deductions
Balance at Charged to Charged to Deemed Balance
Beginning Costs and Other Uncollec- at End
Year Description of Year Expenses Accounts tible Collected of Year
- ---- ----------- ---------- ---------- ---------- --------- --------- --------
<S> <C>
1995 Allowance for
doubtful
accounts (a) $186,342 $ - $ 75,202 (b) $ 49,672 $ 8,303 $203,569
======== ======= ======== ======== ======== ========
1996 Allowance for
doubtful
accounts (a) $203,569 $ - $ 11,762 (b) $ 78,084 $ 11,658 $125,589
======== ======= ======== ======== ======== ========
1997 Allowance for
doubtful
accounts (a) $125,589 $ - $268,022 (b) $ 1,914 $ 18,590 $373,107
======== ======= ======== ======== ======== ========
</TABLE>
(a) Deducted from receivables and accrued rental income on the balance
sheet.
(b) Reduction of rental and other income.
F-1
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Properties the Partnership
has Invested In Under
Operating Leases:
Bertucci's:
Marietta, Georgia - $ 399,885 $ 712,762 $ - $ -
Burger King Restaurants:
Sevierville, Tennessee - 352,845 609,006 - -
Walker Springs, Tennessee - 370,839 563,193 - -
Knoxville, Tennessee - 421,258 539,964 - -
Greeneville, Tennessee - 318,817 642,538 - -
Church's Fried Chicken
Restaurant:
Orlando, Florida - 177,440 270,985 - -
Denny's Restaurant:
Deland, Florida - 448,435 - 600,394 -
Golden Corral Family
Steakhouse Restaurants:
Albuquerque, New Mexico - 717,708 1,018,823 - -
Amarillo, Texas - 773,627 908,171 - -
Lawton, Oklahoma - 559,095 838,642 - -
El Paso, Texas - 670,916 - 837,317 -
Hardee's Restaurants:
Greensburg, Indiana - 222,559 - 640,529 -
Bellevue, Nebraska - 397,402 - - -
Springfield, Tennessee - 203,159 413,221 - -
IHOP:
Elgin, Illinois - 426,831 - - -
Manassas, Virginia - 366,992 759,788 - -
Jack in the Box Restaurant:
San Antonio, Texas - 272,300 - - -
KFC Restaurants:
Caro, Michigan - 150,804 - 373,558 -
Gainesville, Florida - 321,789 287,429 - -
Perkins Restaurants:
Melbourne, Florida (i) - 428,901 - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) (h) (i) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
$ 399,885 $ 712,762 $ 1,112,647 $ 20,152 1993 02/97 (b)
352,845 609,006 961,851 162,179 1986 01/90 (b)
370,839 563,193 934,032 149,722 1986 01/90 (b)
421,258 539,964 961,222 143,793 1985 01/90 (b)
318,817 642,538 961,355 171,109 1988 01/90 (b)
177,440 270,985 448,425 69,342 1985 04/90 (b)
448,435 600,394 1,048,829 155,719 1990 10/89 (b)
717,708 1,018,823 1,736,531 272,251 1989 12/89 (b)
773,627 908,171 1,681,798 242,677 1989 12/89 (b)
559,095 838,642 1,397,737 224,097 1989 12/89 (b)
670,916 837,317 1,508,233 207,073 1990 04/90 (b)
222,559 640,529 863,088 140,968 1989 07/89 (b)
397,402 (f) 397,402 - 1990 12/89 (d)
203,159 413,221 616,380 98,003 1990 11/90 (b)
426,831 (f) 426,831 - 1997 12/97 (d)
366,992 759,788 1,126,780 136 1986 12/97 (b)
272,300 (f) 272,300 - 1990 08/90 (d)
150,804 373,558 524,362 96,503 1990 03/90 (b)
321,789 287,429 609,218 68,668 1985 11/90 (b)
428,901 (f) 428,901 - 1990 11/89 (d)
</TABLE>
F-2
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Popeyes Famous Fried
Chicken Restaurants:
Jacksonville, Florida - 121,901 190,505 123,663 -
Jacksonville, Florida - 141,356 185,933 132,144 -
Gainesville, Florida - 83,542 208,564 192,227 -
Jacksonville, Florida - 93,914 158,543 163,399 -
Tallahassee, Florida - 116,019 233,858 177,915 -
Shoney's Restaurants:
Nashville, Tennessee - 320,540 531,507 - -
Taco Bell Restaurant:
Detroit, Michigan - 171,240 - 385,709 -
Waffle House Restaurants:
Clearwater, Florida - 130,499 268,580 - -
Roanoke, Virginia - 119,533 236,219 - -
Atlantic Beach, Florida - 141,627 263,021 - -
Wendy's Old Fashioned
Hamburger Restaurant:
Liverpool, New York (h) - 213,380 155,981 - -
Other:
Hermitage, Tennessee - 391,156 - 720,026 -
----------- ---------- ---------- -------
$10,046,309 $9,997,233 $4,346,881 $ -
=========== ========== ========== =======
Property of Joint Venture
in Which the Partnership
has a 36% Interest and has
Invested in Under an
Operating Lease:
Darryl's Restaurant:
Greensboro, North Carolina - $ 261,013 $ - $ - $ -
=========== ========== ========== =======
Property of Joint Venture
in Which the Partnership
has a 3.9% Interest and has
Invested in Under an
Operating Lease:
KFC Restaurant:
Auburn, Massachusetts - $ 484,362 $ - $ - $ -
=========== ========== ========== =======
Property of Joint Venture in Which
the Partnership has a 14% Interest
and has Invested in Under an
Operating Lease:
Burger King Restaurant:
Asheville, North Carolina - $ 438,695 $ 450,432 $ - $ -
=========== ========== ========== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
121,901 314,168 436,069 78,707 1985 04/90 (b)
141,356 318,077 459,433 79,848 1985 04/90 (b)
83,542 400,791 484,333 97,685 1990 04/90 (b)
93,914 321,942 415,856 78,742 1985 04/90 (b)
116,019 411,773 527,792 101,119 1985 04/90 (b)
320,540 531,507 852,047 146,906 1988 09/89 (b)
171,240 385,709 556,949 101,975 1990 11/89 (b)
130,499 268,580 399,079 71,352 1988 01/90 (b)
119,533 236,219 355,752 62,754 1987 01/90 (b)
141,627 263,021 404,648 69,586 1986 01/90 (b)
213,380 155,981 369,361 40,891 1977 12/89 (b)
391,156 720,026 1,111,182 175,377 1990 02/90 (b)
----------- ----------- ----------- ----------
$10,046,309 $14,344,114 $24,390,423 $3,327,334
=========== =========== =========== ==========
$ 261,013 (f) $ 261,013 $ - 1974 06/97 (d)
=========== =========== ==========
$ 484,362 (f) $ 484,362 $ - 1989 01/90 (d)
=========== =========== ==========
$ 438,695 $ 450,432 $ 889,127 $ 101,933 1986 03/91 (b)
=========== =========== =========== ==========
</TABLE>
F-3
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Property in Which the Partner-
has a 17.93% Interest as
Tenants-in-Common and has
Invested in Under an
Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Clinton, North Carolina - $ 138,382 $ 676,588 $ - $ -
=========== =========== ========== ======
Property in Which the Partner-
ship has a 23.04% Interest
as Tenants-in-Common and
has Invested in Under an
Operating Lease:
Chevy's Fresh Mex Restaurant:
Vancouver, Washington - $ 875,659 $ 1,389,366 $ - $ -
=========== =========== ========== =======
Properties the Partnership
has Invested in Under
Direct Financing Leases:
Denny's Restaurant:
Cheyenne, Wyoming - $ 162,209 $ 648,839 $ - $ -
Broken Arrow, Oklahoma - 164,640 559,972 - -
IHOP:
Elgin, Illinois - - 1,057,282 - -
Hardee's Restaurants:
Bellevue, Nebraska - - 556,737 - -
Waynesburg, Ohio - 136,242 441,299 - -
Jack in the Box Restaurant:
San Antonio, Texas - - 420,568 - -
Perkins Restaurants:
Melbourne, Florida (i) - - - 305,120 -
Other:
Chester, Pennsylvania (g) - 98,009 - 495,472 -
----------- ---------- ---------- -------
- $ 561,100 $3,684,697 $ 800,592 $ -
=========== ========== ========== =======
Property of Joint Venture in Which
the Partnership has a 3.9% Interest
and has Invested in Under a Direct
Financing Lease:
KFC Restaurant:
Auburn, Massachusetts - $ - $ - $ 434,947 $ -
=========== ========== ========== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) (h) (i) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
$ 138,382 $ 676,588 $ 814,970 $ 43,595 1996 01/96 (b)
=========== =========== =========== ==========
$ 875,659 $ 1,389,366 $ 2,265,025 $ 127 1994 12/97 (b)
=========== =========== =========== ==========
(f) (f) (f) (e) 1980 12/89 (e)
(f) (f) (f) (e) 1982 08/95 (e)
- (f) (f) (e) 1997 12/97 (e)
- (f) (f) (d) 1990 12/89 (d)
(f) (f) (f) (e) 1990 11/90 (e)
- (f) (f) (d) 1990 08/90 (d)
- (f) (f) (d) 1990 11/89 (d)
(f) (f) (f) (e) 1991 12/89 (e)
- (f) (f) (d) 1989 01/90 (d)
</TABLE>
F-4
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Property of Joint Venture in
Which the Partnership has a
36% Interest and has Invested
in Under a Direct Financing Lease:
Darryl's Restaurant:
Greensboro, North Carolina - $ - $ - $ 521,400 $ -
=========== ========== ========== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) (h) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
- (f) (f) (d) 1974 06/97 (d)
</TABLE>
F-5
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(a) Transactions in real estate and accumulated depreciation during 1997,
1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost(h)(i) Depreciation
<S> <C>
Properties the Partnership
has Invested In Under
Operating Leases:
Balance, December 31, 1994 $26,191,835 $2,307,725
Dispositions (889,049) (79,459)
Additional costs capitalized 25,646 -
Depreciation expense - 489,480
----------- ----------
Balance, December 31, 1995 25,328,432 2,717,746
Disposition (980,904) (34,279)
Depreciation expense - 481,683
----------- ----------
Balance, December 31, 1996 24,347,528 3,165,150
Acquisition 2,791,258 -
Disposition (2,748,363) (309,754)
Depreciation expense - 471,938
----------- -----------
Balance, December 31, 1997 $24,390,423 $ 3,327,334
=========== ===========
Property of Joint Venture in Which
the Partnership has a 36% Interest
and has Invested in Under an
Operating Lease:
Balance, December 31, 1994 $ 721,893 $ 127,072
Depreciation expense - 20,847
----------- ----------
Balance, December 31, 1995 721,893 147,919
Depreciation expense - 20,846
----------- ----------
Balance, December 31, 1996 721,893 168,765
Acquisition 261,013 -
Disposition (721,893) (170,478)
Depreciation expense - 1,713
----------- ----------
Balance, December 31, 1997 $ 261,013 $ -
=========== =========
</TABLE>
F-6
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Accumulated
Cost(h)(i) Depreciation
<S> <C>
Property of Joint Venture in Which
the Partnership has a 3.9%
Interest and has Invested in
Under an Operating Lease:
Balance, December 31, 1994 $ 484,362 $ -
Depreciation expense (d) - -
----------- ---------
Balance, December 31, 1995 484,362 -
Depreciation expense (d) -
----------
Balance, December 31, 1996 484,362 -
Depreciation expense (d) -
----------
Balance, December 31, 1997 $ 484,362 $ -
=========== =========
Property of Joint Venture in Which
the Partnership has a 14% Interest
and has Invested in Under an
Operating Lease:
Balance, December 31, 1994 $ 889,127 $ 56,891
Depreciation expense - 15,014
----------- ----------
Balance, December 31, 1995 889,127 71,905
Depreciation expense - 15,014
----------- ----------
Balance, December 31, 1996 889,127 86,919
Depreciation expense - 15,014
----------- ----------
Balance, December 31, 1997 $ 889,127 $ 101,933
=========== ==========
Property in Which the Partnership
has a 51.67% Interest as
Tenants-in-Common and has
Invested in Under an Operating
Lease:
Balance, December 31, 1994 $ 881,033 $ 9,720
Depreciation expense - 20,860
----------- ----------
Balance, December 31, 1995 881,033 30,580
Depreciation expense - 20,860
----------- ----------
Balance, December 31, 1996 881,033 51,440
Depreciation expense - 17,383
Dispositions (881,033) (68,823)
----------- ----------
Balance, December 31, 1997 $ - $ -
=========== =========
</TABLE>
F-7
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Accumulated
Cost(h)(i) Depreciation
<S> <C>
Property in Which the Partnership
has a 17.93% Interest as
Tenants-in-Common and has Invested
in Under an Operating Lease:
Balance, December 31, 1995 $ - $ -
Acquisitions 814,970 -
Depreciation expense - 21,168
----------- ----------
Balance, December 31, 1996 814,970 21,168
Depreciation expense - 22,427
----------- ----------
Balance, December 31, 1997 $ 814,970 $ 43,595
=========== ==========
Property in Which the Partnership
has a 23.04% Interest as Tenants-
in-Common and has Invested in
Under an Operating Lease:
Balance, December 31, 1996 $ - $ -
Acquisitions 2,265,025 -
Depreciation expense - 127
----------- ----------
Balance, December 31, 1997 $ 2,265,025 $ 127
=========== ==========
</TABLE>
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 1996, the aggregate cost of the Properties owned
by the Partnership and its consolidated joint venture, and the
unconsolidated joint ventures (including the two Properties held as
tenants-in-common) for federal income tax purposes was $28,598,561
and $3,023,805, respectively. All of the leases are treated as
operating leases for federal income tax purposes.
(d) For financial reporting purposes, the portion of the lease relating
to the building has been recorded as a direct financing lease. The
cost of the building has been included in net investment in direct
financing leases; therefore, depreciation is not applicable.
(e) For financial reporting purposes, the lease for the land and building
has been recorded as a direct financing lease. The cost of the land
and building has been included in net investment in direct financing
leases; therefore, depreciation is not applicable.
(f) For financial reporting purposes, certain components of the lease
relating to land and building have been recorded as a direct
financing lease. Accordingly, costs relating to these components of
this lease are not shown.
(g) The tenant of this Property, Restaurant Management Services, Inc.
subleased this Property to a franchisee of a regional restaurant
chain. The franchisee vacated the Property; however, Restaurant
Management Services, Inc. continues to be responsible for complying
with all of the terms of the lease agreement and is continuing to pay
rent on this Property, subject to certain rent concessions, to the
Partnership.
F-8
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1997
(h) For financial reporting purposes, the undepreciated cost of the
Property in Liverpool, New York, was written down to its net
realizable value due to an anticipated impairment in value. The
Partnership recognized the impairment by recording an allowance for
loss on land and building in the amount of $77,023 and $104,947 at
December 31, 1996 and 1997, respectively. The impairment at December
31, 1996 represents the difference between the Property's carrying
value and the property manager's estimate of the net realizable value
of the Property based on an anticipated sales price to an interested
third party. The impairment at December 31, 1997, represents the
difference between the Property's carrying value and the property
manager's estimate of the net realizable value of the Property based
on the net sales proceeds received in February 1998 from the sale of
the Property. The cost of the Property presented on this schedule is
the gross amount at which the Property was carried at December 31,
1997, excluding the allowance for loss on land and building.
(i) For financial reporting purposes, the undepreciated cost of the
Property in Melbourne, Florida, was written down to its net
realizable value due to an anticipated impairment in value. The
Partnership recognized the impairment by recording an allowance for
loss on land and net investment in direct financing lease in the
amount of $158,239 at December 31, 1997. The impairment at December
31, 1997, represents the difference between the Property's carrying
value and the net sales proceeds received in February 1998 from the
sale of the Property. The cost of the Property presented on this
schedule is the gross amount at which the Property was carried at
December 31, 1997, excluding the allowance for loss on land and net
investment in direct financing lease.
F-9
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number Page
3.1 Certificate of Limited Partnership of CNL Income Fund VI, Ltd.
(Included as Exhibit 3.3 to Registration Statement No.
33-23892 on Form S-11 and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund VI, Ltd.
(Included as Exhibit 4.2 to Registration Statement No.
33-23892 on Form S-11 and incorporated herein by reference.)
4.2 Agreement and Certificate of Limited Partnership of CNL Income
Fund VI, Ltd. (Included as Exhibit 4.2 to Form 10-K filed with
the Securities and Exchange Commission on April 1, 1996, and
incorporated herein by reference.)
10.1 Management Agreement (Included as Exhibit 10.1 to Form 10-K
filed with the Securities and Exchange Commission on March 31,
1994, and incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL Investment Company
to CNL Income Fund Advisors, Inc. (Included as Exhibit 10.2 to
Form 10-K filed with the Securities and Exchange Commission on
March 30, 1995, and incorporated herein by reference.)
10.3 Assignment of Management Agreement from CNL Income Fund
Advisors, Inc. to CNL Fund Advisors, Inc. (Included as Exhibit
10.3 to Form 10-K filed with the Securities and Exchange
Commission on April 1, 1996, and incorporated herein by
reference.)
27 Financial Data Schedule (Filed herewith.)
i
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund VI, Ltd. at December 31, 1997, and its statement of
income for the year then ended and is qualified in its entirety by reference to
the Form 10-K of CNL Income Fund VI, Ltd. for the year ended December 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,614,759
<SECURITIES> 0
<RECEIVABLES> 521,399
<ALLOWANCES> 363,410
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,113,018
<DEPRECIATION> 3,327,334
<TOTAL-ASSETS> 29,993,069
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 28,794,249
<TOTAL-LIABILITY-AND-EQUITY> 29,993,069
<SALES> 0
<TOTAL-REVENUES> 3,164,800
<CGS> 0
<TOTAL-COSTS> 709,181
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 131,184
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,899,882
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,899,882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,899,882
<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 value are shown above for current
assets and current liabilities.
</FN>
</TABLE>
