UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19144
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) 650-1000
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of
the Act:
Units of limited partnership interest ($500 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 70,000 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. During 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 1998, the Partnership sold its Property in Deland, Florida,
Liverpool, New York, Melbourne, Florida, and Bellevue, Nebraska. The Partnership
reinvested the net sales proceeds from the sales of the Property in Deland,
Florida in one Property in Fort Myers, Florida, as tenants-in-common, with an
affiliate of the General Partners and the Partnership reinvested the net sales
proceeds from the sales of the Properties in Melbourne, Florida and Bellevue,
Nebraska in two joint ventures, Warren Joint Venture and Melbourne Joint
Venture, respectively, to each purchase and hold one restaurant Property.
Generally, the Properties are leased on a triple-net basis with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities. As a result of the above transactions, as of December 31, 1998, the
Partnership owned 42 Properties, including interests in six Properties owned by
joint ventures in which the Partnership is a co-venturer and five Properties
owned with affiliates as tenants-in-common.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. APF has agreed to issue shares of its
common stock, par value $0.01 per share (the "APF Shares"), as consideration for
the Merger. At a special meeting of the partners that is expected to be held in
the third quarter of 1999, Limited Partners holding in excess of 50% of the
Partnership's outstanding limited partnership interests must approve the Merger
prior to consummation of the transaction. If the Limited Partners at the special
meeting approve the Merger, APF will own the Properties and other assets of the
Partnership. See Item 8. Financial Statements and Supplementary Data -- Note 12.
Subsequent Event.
In the event that the General Partners vote against the Merger, the
Partnership will hold its Properties until the General Partners determine that
the sale or other disposition of the Properties is advantageous in view of the
Partnership's investment objectives. In deciding whether to sell Properties, the
General Partners will consider factors such as potential capital appreciation,
net cash flow and federal income tax considerations. Certain lessees also have
been granted options to purchase Properties, generally at the Property's then
fair market value after a specified portion of the lease term has elapsed. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property or joint venture
purchase options granted to certain lessees.
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, the
joint ventures in which the Partnership is a co-venturer and the properties
owned with affiliates as tenants-in-common provide for initial terms, ranging
from five to 20 years (the average being 18 years), and expire between 2003 and
2018. All leases are on a triple-net basis, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. The leases of
the Properties provide for minimum base annual rental payments (payable in
monthly installments) ranging from approximately $30,000 to $222,800. 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.
During 1998, the lease relating to the Church's Property in
Gainesville, Florida was amended to provide for rent reductions effective July
1997 through June 2002, at which time the rental payments will revert back to
the original agreement.
Major Tenants
During 1998, four lessees of the Partnership and its consolidated joint
venture, Golden Corral Corporation, Restaurant Management Services, Inc.,
Mid-America Corporation, and IHOP Properties Inc., each contributed more than
ten percent of the Partnership's total rental income (including rental income
from 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 five
properties owned by unconsolidated joint venturers and five Properties owned
with affiliates as tenants-in-common). As of December 31, 1998, Golden Corral
Corporation was the lessee under leases relating to five restaurants, Restaurant
Management Services, Inc. was the lessee under leases relating to seven
restaurants, Mid-America Corporation was the lessee under leases relating to
four restaurants, and IHOP Properties Inc. was the lessee under leases relating
to five restaurants. It is anticipated that, based on the minimum rental
payments required by the leases, these four lessees each will continue to
contribute more than ten percent of the Partnership's total rental income in
1999. In addition, three Restaurant Chains, Golden Corral Family Steakhouse
Restaurants ("Golden Corral"), Burger King and IHOP, each accounted for more
than ten percent of the Partnership's total rental income in 1998 (including the
Partnership's consolidated joint venture and the Partnership's share of the
rental income from the five Properties owned by unconsolidated joint ventures in
which the Partnership is a co-venturer and five Properties owned with affiliates
as tenants-in-common). In 1999, it is anticipated that these three Restaurant
Chains each will continue to account for more than ten percent of the
Partnership's total rental income to which the Partnership is entitled under the
terms of the leases. Any failure of these lessees or Restaurant Chains could
materially affect the Partnership's income if the Partnership is not able to
re-lease the Properties in a timely manner. No single tenant or group of
affiliated tenants lease Properties with an aggregate carrying value, excluding
acquisition fees and certain acquisition expenses, in excess of 20 percent of
the total assets of the Partnership.
Joint Venture Arrangements
The Partnership has entered into a joint venture arrangement, Caro
Joint Venture, with an unaffiliated entity to purchase and hold one Property. In
addition, the Partnership has entered into five separate joint venture
arrangements, Auburn Joint Venture, Show Low Joint Venture, Asheville Joint
Venture, Melbourne Joint Venture, and Warren Joint Venture, with affiliates of
the General Partners, to purchase and hold five 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 each 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, Asheville Joint Venture, Melbourne Joint
Venture, and Warren 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, Asheville Joint Venture, Melbourne Joint Venture,
and Warren Joint Venture is distributed 3.9%, 36.0%, 66.14%, 14.46%, 50 percent
and 64.29%, 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.
The Partnership has also entered into agreements to hold a Property in
Vancouver, Washington and a Property in Clinton Tennessee, as tenants-in-common
with affiliates of the General Partners. The agreement provides for the
Partnership and the affiliate to share in the profits and losses of each
Property in proportion to each co-venturer's percentage interest. The
Partnership owns a 23.04% and 18 percent interest in the Property in Vancouver,
Washington and a Property in Clinton, Tennessee, respectively.
During January 1998, the Partnership entered agreements 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 Properties 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.
In addition, during 1998, the Partnership entered into an agreement to
hold a Bennigan's Property in Ft. Myers, Florida, 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 and net
cash flow from the Properties, in proportion to each co-venturer's percentage
interest. The Partnership owns an 85% interest in the Property in Ft. Myers,
Florida.
Certain Management Services
CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership. Under this agreement,
CNL Fund Advisors, Inc. is responsible for collecting rental payments,
inspecting the Properties and the tenants' books and records, assisting the
Partnership in responding to tenant inquiries and notices and providing
information to the Partnership about the status of the leases and the
Properties. CNL Fund Advisors, Inc. also assists the General Partners in
negotiating the leases. For these services, the Partnership has agreed to pay
CNL Fund Advisors, Inc. an annual fee of one percent of the sum of gross 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"). In any year in which the Limited Partners have not
received the 10% Preferred Return, no property management fee will be paid.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who may
also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 1998, the Partnership owned, either directly or
through joint venture arrangements, 42 Properties located in 17 states.
Reference is made to the Schedule of Real Estate and Accumulated Depreciation
filed with this report for a listing of the Properties and their respective
costs, including acquisition fees and certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 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, 1998 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Restaurant Management Services leases four Popeyes restaurants, two
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 $49,600
(ranging from approximately $30,000 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 $110,500
(ranging from approximately $108,100 to $111,300).
IHOP Properties, Inc. leases five IHOP restaurants. The initial term of
each lease is 20 years (expiring between 2017 and 2018) and the average minimum
base annual rent is approximately $141,600 (ranging from approximately $114,500
to $163,200).
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of March 11, 1999, there were 2,987 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
<PAGE>
price paid for any Unit transferred pursuant to the Plan was $475 per Unit. The
price paid for any Unit transferred other than pursuant to the Plan was subject
to negotiation by the purchaser and the selling Limited Partner. The Partnership
will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 1998 and 1997 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
1998 (1) 1997 (1)
-------------------------------- --------------------------------
High Low Average High Low Average
------- ------- ---------- ------- ------- ----------
<S> <C>
First Quarter $475 $475 $475 $475 $475 $475
Second Quarter 475 442 468 435 361 417
Third Quarter 485 399 464 500 415 453
Fourth Quarter 475 410 458 475 420 461
</TABLE>
(1) A total of 768 and 311 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1998 and 1997, 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, 1998 and 1997, the Partnership
declared cash distributions of $3,220,000 and $3,150,000, respectively, to the
Limited Partners. For the quarter ended December 31, 1998, 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, 1998 and 1997, are required to be or
have been treated by the Partnership as a return of capital for purposes of
calculating the Limited Partners' return on their adjusted capital
contributions. No distributions have been made to the General Partners to date.
As indicated in the chart below, these distributions were declared at the close
of each of the Partnership's calendar quarters. These amounts include monthly
distributions made in arrears for the Limited Partners electing to receive
distributions on this basis.
Quarter Ended 1998 1997
------------------------- -------------- --------------
March 31 $787,500 $ 787,500
June 30 787,500 787,500
September 30 787,500 787,500
December 31 (1) 857,500 787,500
(1) Includes a special distribution to Limited Partners of $70,000, which
represented cumulative excess operating reserves, for the quarter ended
December 31, 1998.
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although some Limited Partners, in accordance with their election, receive
monthly distributions, for an annual fee.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------------- --------------- -------------- --------------- ---------------
<S> <C>
Year ended December 31:
Revenues (1) $ 3,370,532 $ 3,456,406 $3,565,493 $ 3,438,286 $ 3,468,897
Net income (2) 3,020,881 2,899,882 2,803,601 2,861,381 3,095,028
Cash distributions
declared (3) 3,220,000 3,150,000 3,220,000 3,150,000 3,150,000
Net income per Unit (2) 42.75 41.06 39.65 40.47 43.80
Cash distributions declared
per Unit (2) 46.00 45.00 46.00 45.00 45.00
At December 31:
Total assets $29,655,896 $29,993,069 $30,129,286 $30,442,314 $30,754,999
Partners' capital 28,595,130 28,794,249 29,044,367 29,460,766 29,749,385
</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, 1998, 1997, 1995, and 1994, also includes
$345,122, $626,804, $103,283, and $332,664, respectively, from gains on
sale of land and buildings.
(3) Distributions for the year ended December 31, 1998 and 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, 1998, the Partnership owned 42 Properties, either directly or indirectly
through joint venture arrangements.
Liquidity and Capital Resources
During the years ended December 31, 1998, 1997, and 1996, the
Partnership generated cash from operations (which includes cash received from
tenants, distributions from joint ventures and interest received, less cash paid
for expenses) of $3,243,660, $3,156,041, and $3,310,762 for the years ended
December 31, 1998, 1997, and 1996, respectively. The increase in cash from
operations during 1998 and 1997, each as compared to the previous year, is
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital during each
of the respective years.
Other sources and uses of capital included the following during the
years ended December 31, 1998, 1997, and 1996.
<PAGE>
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, 1998, the Partnership
owned an 18 percent 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, March 1997, and
April 1998 in accordance with the terms of the agreement, and has agreed to pay
the Partnership the remaining balance due of approximately $74,400 in four
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. 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
transaction relating to the sale of the Property in Dallas, Texas and the
reinvestment of the net sales proceeds was structured to qualify as a like-kind
exchange transaction for federal income tax purposes.
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, 1998,
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 of
$626,907, resulting in a loss of $79,777 for financial reporting purposes, as
described below in "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 connection therewith,
the Partnership and the 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, 1998, the Partnership
owned a 34.74% interest in this Property.
In addition, in July 1997, the Partnership sold its Property in Naples,
Florida, to an unrelated third party, for $1,530,000 and received net sales
proceeds 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. A portion of the
transaction, relating to the sale of the Property in Naples, Florida, and the
reinvestment of the net sales proceeds was structured to qualify as a like-kind
exchange transaction for federal income tax purposes. The Partnership
distributed amounts sufficient to enable the Limited Partners to pay federal and
state income taxes, 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 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. In connection therewith, the Partnership and the 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, 1998, the Partnership owned a 46.2% interest in this Property.
The Partnership distributed amounts sufficient to enable the Limited Partners to
pay federal and state income taxes 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, 1998,
included $9,561 of such amounts. 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 payments of 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 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. A portion of
the transaction relating to the sale of the Property in Venice, Florida, and the
reinvestment of the net sales proceeds was structured to qualify as a like-kind
exchange transaction for federal income tax purposes. The Partnership
distributed amounts sufficient to enable the Limited Partners to pay federal and
state income taxes 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 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. In
connection therewith, the Partnership and the 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,
1998, the Partnership owned a 23.04% interest in this Property. The transaction
relating to the sale of the Property in Yuma, Arizona and the reinvestment of
the net sales proceeds was structured to qualify as a like-kind exchange
transaction for federal income tax purposes.
In January 1998, the Partnership sold its Property in Deland, Florida,
to the tenant, for $1,250,000 and received net sales proceeds of $1,234,122,
resulting in a gain of $345,122 for financial reporting purposes. This Property
was originally acquired by the Partnership in October 1989 and had a cost of
approximately $1,000,000, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $234,100 in excess of its original purchase price. In June 1998,
the Partnership reinvested the majority of the net sales proceeds in a Property
in Fort Myers, Florida, with an affiliate of the general partners as
tenants-in-common. The transaction relating to the sale of the Property in
Deland, Florida, and the reinvestment of the net sales proceeds, was 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 $552,910. Due to the
fact that during 1997, the Partnership recorded an allowance for loss of
$158,239 for this Property, no gain or loss was recognized for financial
reporting purposes in February 1998, relating to the sale. In April 1998, the
Partnership contributed a portion of the net sales proceeds to Melbourne Joint
Venture, with an affiliate of the General Partners, to construct and hold one
restaurant Property. As of December 31, 1998, the Partnership had contributed an
amount to purchase land and pay construction costs relating to the property
owned by the joint venture. The Partnership has agreed to contribute additional
amounts to fund additional construction costs to the joint venture. The
Partnership expects to have a 50 percent interest in the profits and losses of
the joint venture.
In addition, in February 1998, the Partnership sold its Property in
Liverpool, New York, for $157,500 and received net sales proceeds of $145,221.
Due to the fact that in prior years the Partnership recorded an allowance for
loss of $181,970 for this Property, no gain or loss was recognized for financial
reporting purposes in February 1998, relating to the sale. The Partnership
intends to reinvest the net sales proceeds from the sale of this Property in an
additional Property.
In June 1998, the Partnership sold its Property in Bellevue, Nebraska,
to a third party and received sales proceeds of $900,000. Due to the fact that
during 1998 the Partnership wrote off $155,528 in accrued rental income,
representing a portion of the accrued rental income that the Partnership had
recognized since the inception of the lease relating to the straight-lining of
future scheduled rent increases in accordance with generally accepted accounting
principles, no gain or loss was recorded for financial reporting purposes in
June 1998 relating to this sale. This Property was originally acquired by the
Partnership in December 1989 and had a cost of approximately $899,500, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the Property for approximately $500 in excess of its original
purchase price. In September 1998, the Partnership contributed the majority of
the net sales proceeds to Warren Joint Venture. The Partnership has an
approximate 64 percent interest in the profits and losses of Warren Joint
Venture and the remaining interest in this joint venture is held by an affiliate
of the General Partners.
None of the Properties owned by the Partnership or the joint ventures
in which the Partnership owns an interest is or may be encumbered. Under its
Partnership Agreement, the Partnership is prohibited from borrowing for any
purpose; provided, however, that the General Partners or their affiliates are
entitled to reimbursement, at cost, for actual expenses incurred by the General
Partners or their affiliates on behalf of the Partnership. Affiliates of the
General Partners from time to time incur certain operating expenses on behalf of
the Partnership for which the Partnership reimburses the affiliates without
interest.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At December 31, 1998, the Partnership had
$1,170,686 invested in such short-term investments as compared to $1,614,759 at
December 31, 1997. The decrease in cash and cash equivalents during 1998, is
primarily due to the receipt of $626,907 in net sales proceeds from the sale of
the Property in Whitehall, Michigan in July 1997, which were being held at
December 31, 1997, which were reinvested in a Property in Overland Park, Kansas,
as tenants-in-common with affiliates of the General Partners, in January 1998.
This decrease is partially offset by an increase in cash and cash equivalents
due to the receipt of $145,221 in net sales proceeds from the sale of the
Property in Liverpool, New York in February 1998. The funds remaining at
December 31, 1998, 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 1998, 1997, and 1996, affiliates of the General Partners
incurred on behalf of the Partnership $103,157, $82,503, and $96,112,
respectively, for certain operating expenses. As of December 31, 1998 and 1997,
the Partnership owed $19,403 and $32,019, respectively, to affiliates for such
amounts and accounting and administrative services. Other liabilities of the
Partnership, including distributions payable, decreased to $896,414 at December
31, 1998, from $1,022,326 at December 31, 1997. The decrease in other
liabilities is partially attributable to the payment during 1998 of renovation
costs accrued at December 31, 1997 for the Property in Greensburg, Indiana, in
connection with the new lease entered into in July 1997, as described above. In
addition, the decrease in other liabilities at December 31, 1998 was due to a
decrease in accrued and escrowed real estate taxes payable as a result of the
Partnership accruing real estate taxes relating to its Property in Melbourne,
Florida at December 31, 1997, after the tenant vacated the Property in October
1997. This Property was sold in 1998 and no accrual was made at December 31,
1998. Other liabilities also decreased due to a decrease in rents paid in
advance at December 31, 1998. The decrease in other liabilities is partially
offset by an increase in distributions payable as a result of the Partnership
accruing a special distribution payable to the Limited Partners of $70,000 at
December 31, 1998. 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 years ended December 31, 1998 and 1996, the Partnership declared
distributions to the Limited Partners of $3,220,000, $3,150,000, and $3,220,000
for the years ended December 31, 1998, 1997, and 1996, respectively. This
represents distributions of $46, $45, and $46 per Unit for the years ended
December 31, 1998, 1997, and 1996, respectively. No amounts distributed to the
Limited Partners for the years ended December 31, 1998, 1997, and 1996, are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the Limited Partners' return on their adjusted
capital contributions. The Partnership intends to continue to make distributions
of cash available for distribution to the Limited Partners on a quarterly basis.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
The Partnership's investment strategy of acquiring Properties for cash
and 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.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. As consideration for the Merger, APF has agreed to
issue 3,730,388 APF Shares which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the price paid
by APF investors in APF's most recent public offering. In order to assist the
General Partners in evaluating the proposed merger consideration, the General
Partners retained Valuation Associates, a nationally recognized real estate
appraisal firm, to appraise the Partnership's restaurant property portfolio.
Based on Valuation Associates' appraisal, the Partnership's property portfolio
and other assets were valued on a going concern basis (meaning the Partnership
continues unchanged) at $36,721,726 as of December 31, 1998. Legg Mason Wood
Walker, Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a financial point
of view. The APF Shares are expected to be listed for trading on the New York
Stock Exchange concurrently with the consummation of the Merger, and, therefore,
would be freely tradable at the option of the former Limited Partners. At a
special meeting of the partners that is expected to be held in the third quarter
of 1999, Limited Partners holding in excess of 50% of the Partnership's
outstanding limited partnership interests must approve the Merger prior to
consummation of the transaction. The General Partners intend to recommend that
the Limited Partners of the Partnership approve the Merger. In connection with
their recommendation, the General Partners will solicit the consent of the
Limited Partners at the special meeting.
<PAGE>
Results of Operations
During 1996, the Partnership and its consolidated joint venture, Caro
Joint Venture owned and leased 38 wholly owned Properties (including one
Property in Dallas, Texas, which was sold in December 1996), during 1997, the
Partnership owned and leased 40 wholly owned Properties (including three
Properties which were sold in 1997) and during 1998, the Partnership owned and
leased 36 wholly owned Properties (including four Properties which were sold in
1998). In addition, during 1996, the Partnership was a co-venturer in three
separate joint ventures that each owned and leased one Property, during 1997,
the Partnership was a co-venturer in three 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) and during 1998, the Partnership was a
co-venturer in five separate joint ventures that owned and leased a total of six
Properties. During 1996, the Partnership owned and leased two Properties with
affiliates as tenants-in-common, 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) and during 1998, the Partnership
owned and leased five Properties with affiliates as tenants-in-common. As of
December 31, 1998, the Partnership owned, either directly, as tenants-in-common
with affiliates, or through joint venture arrangements, 42 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 $37,900 to $222,800. 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, 1998, 1997, and 1996, the
Partnership and its consolidated joint venture, Caro Joint Venture, earned
$2,823,377, $2,897,402, and $3,333,665, respectively, in rental income from
operating leases (net of adjustments to accrued rental income) and earned income
from direct financing leases. Rental and earned income decreased by
approximately $185,200 during 1998 due to the sales of four Properties during
1998. The decrease in rental and earned income during 1998 and 1997, each as
compared to the previous year, was partially attributable to a decrease of
approximately $226,600 and $159,400, during 1998 and 1997, respectively, as a
result of the sales of four Properties during 1997. The decrease in rental and
earned income during 1997, as compared to 1996, was partially attributable to a
decrease of $103,100 in rental and earned income from the sale of the Property
in Dallas, Texas in December 1996. The decrease in rental income during 1998 and
1997 was partially offset by an increase of approximately $19,600 and $109,400,
respectively, due to the reinvestment of the net sales proceeds from the 1996
sale of the Property in Dallas, Texas, in a Property in Marietta, Georgia, in
February 1997. The decrease in rental and earned income during 1998 and 1997 was
partially offset by an increase of approximately $293,800 and $1,600,
respectively, in rental and earned income due to the fact that the Partnership
reinvested the net sales proceeds from the 1997 sales of two Properties in two
IHOP Properties in Elgin, Illinois and Manassas, Virginia in December 1997.
In addition, the decrease in rental and earned income for 1998, as
compared to 1997, was partially offset by the fact that during 1998, the
Partnership's consolidated joint venture collected and recognized as income past
due rental amounts of approximately $36,000 for which the Partnership had
previously established an allowance for doubtful accounts. The decrease in
rental income during 1998 as compared to 1997, was partially offset by, and the
decrease in rental income during 1997, as compared to 1996, was 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 was experiencing. No such allowance was
established during 1998 or 1996.
In addition, the decrease in rental and earned income during 1998 as
compared to 1997, was partially offset by, and the decrease during 1997, as
compared to 1996, was 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. No such allowance was
recorded in 1998. 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
<PAGE>
earned income in 1998 and 1997, each as compared to the previous year, was
slightly offset by an increase of $18,400 and $14,200, respectively, in rental
income from the new tenant of this Property who began operating the Property in
1997 after it was renovated into an Arby's Property.
In addition, the decrease in rental and earned income during 1998, as
compared to 1997, was partially due to the fact that during June 1998, the
Partnership wrote off approximately $155,500 in accrued rental income relating
to the Property in Bellevue, Nebraska to adjust the carrying value of the asset
to the net proceeds received from the sale of this Property in June 1998. 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 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 pay the remaining balance of the rental payment deferral amounts as
discussed above in "Liquidity and Capital Resources."
For the years ended December 31, 1998, 1997, and 1996, the Partnership
also earned $156,676, $147,437, and $110,073, respectively, in contingent rental
income. The increase in contingent rental income during 1998 and 1997, each as
compared to the previous year, is primarily attributable to increases in gross
sales relating to certain Properties whose leases require the payment of
contingent rent.
In addition, for the years ended December 31, 1998, 1997, and 1996, the
Partnership earned $323,105, $280,331, and $97,381, 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 during 1998, as
compared to 1997, is primarily due to the fact that in 1998, the Partnership
reinvested the net sales proceeds it received from the 1997 and 1998 sales of
three Properties, in additional Properties in Overland Park, Kansas; Memphis,
Tennessee, and Fort Myers, Florida with affiliates of the general partners as
tenants-in-common. The increase in net income earned by joint ventures during
1998, as compared to 1997, was partially offset by, and the increase in 1997, as
compared to 1996, was primarily due to, the fact that in January 1997, Show Low
Joint Venture, in which the Partnership owns a 36 percent interest, recognized a
gain of approximately $360,000 for financial reporting purposes as a result of
the sale of its Property. Show Low Joint Venture reinvested the majority of the
net sales proceeds in a replacement Property in June 1997. 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."
During the year ended December 31, 1998, four of the Partnership's
lessees, Golden Corral Corporation, Restaurant Management Services, Inc.,
Mid-America Corporation, and IHOP Properties, Inc. each contributed more than
ten percent of the Partnership's total rental income (including rental income
from the Partnership's consolidated joint venture and the Partnership's share of
the rental income from the Properties owned by five unconsolidated joint
ventures in which the Partnership is a co-venturer and five Properties owned
with affiliates as tenants-in-common). As of December 31, 1998, Golden Corral
Corporation and IHOP Properties, Inc. were each the lessees 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
four lessees each will continue to contribute more than ten percent of the
Partnership's total rental income during 1999. In addition, three Restaurant
Chains, Golden Corral, Burger King, and IHOP each accounted for more than ten
percent of the Partnership's total rental income during the year ended December
31, 1998, (including the Partnership's consolidated joint venture and the
Partnership's share of the rental income from the Properties owned by five
unconsolidated joint ventures in which the Partnership is a co-venturer and five
Properties owned with affiliates as tenants-in-common). In 1999, it is
anticipated that these 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 if
the Partnership is not able to re-lease the Properties in a timely manner.
For the years ended 1998, 1997, and 1996, the Partnership also earned
$110,502, $119,961, and $49,056, respectively, in interest and other income. The
increase in interest and other income during the year ended December 31, 1997,
as compared to the year ended December 31, 1996, was primarily attributable to
interest earned on the net sales proceeds received and held in escrow relating
to the sales of several Properties pending reinvestment of the net sales
proceeds in additional Properties.
Operating expenses, including depreciation and amortization expense,
were $694,773, $840,365, and $683,163 for the years ended December 31, 1998,
1997, and 1996, respectively. The decrease in operating expenses during 1998, as
compared to 1997, and 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 during 1997 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, during 1997, the Partnership's
consolidated 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. No
such bad debt expense and real estate tax expense were recorded during the year
ended December 31, 1998 due to the fact that the tenant has been making rental
payments in accordance with the terms of its lease agreement.
The decrease in operating expenses during 1998, as compared to 1997,
was partially attributable to, and the increase in operating expenses during
1997 as compared to 1996, was partially offset by, the decrease in depreciation
expense which resulted from the sale of several Properties during 1998 and 1997
and the sale of the Property in Dallas, Texas in December 1996. The decrease in
depreciation expense was partially offset by an increase in depreciation expense
attributable to the purchase of the Property in Marietta, Georgia, in February
1997.
The decrease in operating expenses for 1998, is partially offset by the
fact that the Partnership incurred $20,211 in transaction costs in 1998 related
to the General Partners retaining financial and legal advisors to assist them in
evaluating and negotiating the proposed Merger with APF, as described in
"Liquidity and Capital Resources." If the Limited Partners reject the Merger,
the Partnership will bear the portion of the transaction costs based upon the
percentage of "For" votes and the General Partners will bear the portion of such
transaction costs based upon the percentage of "Against" votes and abstentions.
As a result of the sale of the Property in Deland, Florida, as
described above in "Liquidity and Capital Resources," the Partnership recognized
a gain of $345,122 during the year ended December 31, 1998, for financial
reporting purposes. 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."
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. This lease was terminated in December 1996. The allowance
at December 31, 1997, represented 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.
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 a third party. No
such provision was recorded during the year ended December 31, 1998.
During the year ended December 31, 1997, the Partnership established an
allowance for loss on land and an allowance for impairment in the carrying value
of the net investment in direct financing lease for its Property in Melbourne,
Florida, in the amount of $158,239. The tenant of this Property vacated the
Property in October 1997 and ceased making rental payments. The allowance
represented 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." No such
provision was recorded during the year ended December 31, 1998 and 1996.
The Partnership's leases as of December 31, 1998, 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.
Year 2000
The Year 2000 problem is the result of information technology systems
and embedded systems (products which are made with microprocessor (computer)
chips such as HVAC systems, physical security systems and elevators) using a
two-digit format, as opposed to four digits, to indicate the year. Such
information technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.
The Partnership currently does not have any information technology
systems. Affiliates of the General Partners provide all services requiring the
use of information technology systems pursuant to a management agreement with
the Partnership. The maintenance of embedded systems, if any, at the
Partnership's Properties is the responsibility of the tenants of the Properties
in accordance with the terms of the Partnership's leases. The General Partners
and affiliates have established a team dedicated to reviewing the internal
information technology systems used in the operation of the Partnership, and the
information technology and embedded systems and the Year 2000 compliance plans
of the Partnership's tenants, significant suppliers, financial institutions and
transfer agent.
The information technology infrastructure of the affiliates of the
General Partners consists of a network of personal computers and servers that
were obtained from major suppliers. The affiliates utilize various
administrative and financial software applications on that infrastructure to
perform the business functions of the Partnership. The inability of the General
Partners and affiliates to identify and timely correct material Year 2000
deficiencies in the software and/or infrastructure could result in an
interruption in, or failure of, certain of the Partnership's business activities
or operations. Accordingly, the General Partners and affiliates have requested
and are evaluating documentation from the suppliers of the software and
infrastructure of the affiliates regarding the Year 2000 compliance of their
products that are used in the business activities or operations of the
Partnership. The General Partners and affiliates have not yet received
sufficient certifications to be assured that the suppliers have fully considered
and mitigated any potential material impact of the Year 2000 deficiencies. The
costs expected to be incurred by the General Partners and affiliates to become
Year 2000 compliant will be incurred by the General Partners and affiliates;
therefore, these costs will have no impact on the Partnership's financial
position or results of operations.
The Partnership has material third party relationships with its
tenants, financial institutions and transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. If any of these third parties are unable to meet their obligations
to the Partnership because of the Year 2000 deficiencies, such a failure may
have a material impact on the Partnership. Accordingly, the General Partners
have requested and are evaluating documentation from the Partnership's tenants,
financial institutions, and transfer agent relating to their Year 2000
compliance plans. The General Partners have not yet received sufficient
certifications to be assured that the tenants, financial institutions, and
transfer agent have fully considered and mitigated any potential material impact
of the Year 2000 deficiencies. Therefore, the General Partners do not, at this
time, know of the potential costs to the Partnership of any adverse impact or
effect of any Year 2000 deficiencies by these third parties.
The General Partners currently expect that all Year 2000 compliance
testing and any necessary remedial measures on the information technology
systems used in the business activities and operations of the Partnership will
be completed prior to June 30, 1999. Based on the progress the General Partners
and affiliates have made in identifying and addressing the Partnership's Year
2000 issues and the plan and timeline to complete the compliance program, the
General Partners do not foresee significant risks associated with the
Partnership's Year 2000 compliance at this time. Because the General Partners
and affiliates are still evaluating the status of the information technology
systems used in business activities and operations of the Partnership and the
systems of the third parties with which the Partnership conducts its business,
the General Partners have not yet developed a comprehensive contingency plan and
are unable to identify "the most reasonably likely worst case scenario" at this
time. If the General Partners identify significant risks related to the
Partnership's Year 2000 compliance or if the Partnership's Year 2000 compliance
program's progress deviates substantially from the anticipated timeline, the
General Partners will develop appropriate contingency plans.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants
Financial Statements:
Balance Sheets
Statements of Income
Statements of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund VI, Ltd.
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Income Fund VI, Ltd. (a Florida limited partnership) at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules listed in the index appearing under item 14(a)(2) present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Orlando, Florida
January 19, 1999, except for Note 12 for which the date is March 11, 1999.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
---------------- ----------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation and allowance for loss
on land and building $18,559,844 $20,785,684
Net investment in direct financing leases, less
allowance for impairment in carrying value 3,929,152 4,708,841
Investment in joint ventures 5,021,121 1,130,139
Cash and cash equivalents 1,170,686 1,614,759
Restricted cash -- 709,227
Receivables, less allowance for doubtful accounts of
$323,813 and $363,410 150,912 157,989
Prepaid expenses 949 4,235
Lease costs, less accumulated amortization of
$7,181 and $5,581 10,519 12,119
Accrued rental income, less allowance for doubtful
accounts of $38,944 and $27,245 785,982 843,345
Other assets 26,731 26,731
----------------- -----------------
$29,655,896 $29,993,069
================= =================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 8,173 $ 14,138
Accrued construction costs payable -- 125,000
Accrued and escrowed real estate taxes payable 2,500 38,025
Due to related parties 19,403 32,019
Distributions payable 857,500 787,500
Rents paid in advance and deposits 28,241 57,663
----------------- -----------------
Total liabilities 915,817 1,054,345
Minority interest 144,949 144,475
Partners' capital 28,595,130 28,794,249
----------------- -----------------
$29,655,896 $29,993,069
================= =================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
------------- ------------- ----------------
<S> <C>
Revenues:
Rental income from operating leases $ 2,520,346 $2,465,817 $2,776,776
Adjustments to accrued rental income (167,227 ) (17,548 ) (537 )
Earned income from direct financing leases 470,258 449,133 557,426
Contingent rental income 156,676 147,437 110,073
Interest and other income 110,502 119,961 49,056
------------- ------------- ----------------
3,090,555 3,164,800 3,492,794
------------- ------------- ----------------
Expenses:
General operating and administrative 160,358 156,847 159,388
Professional services 32,400 25,861 32,272
Bad debt expense 12,854 131,184 --
Real estate taxes -- 43,676 --
State and other taxes 10,392 8,969 7,930
Depreciation and amortization 458,558 473,828 483,573
Transaction costs 20,211 -- --
------------- ------------- ----------------
694,773 840,365 683,163
------------- ------------- ----------------
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 Building and Impairment in
Carrying Value of Net Investment in Direct Financing Lease 2,395,782 2,324,435 2,809,631
Minority interest in Income of Consolidated Joint Venture (43,128 ) 11,275 (24,682 )
Equity in Earnings of Unconsolidated Joint Ventures 323,105 280,331 97,381
Gain (Loss) on Sale of Land and Buildings and Net
Investment 345,122 547,027 (1,706 )
in Direct Financing Leases
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 $3,020,881 $2,899,882 $2,803,601
============= ============= ================
Allocation of Net Income:
General partners $ 28,327 $ 25,353 $ 28,337
Limited partners 2,992,554 2,874,529 2,775,264
------------- ------------- -------------
$3,020,881 $2,899,882 $2,803,601
============= ============= =============
Net Income Per Limited Partner Unit $ 42.75 $ 41.06 $ 39.65
============= ============= =============
Weighted Average Number of Limited Partner Units
Outstanding 70,000 70,000 70,000
============= ============= ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
General Partners Limited Partners
---------------------------- --------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
------------- ------------- ------------- ------------- ------------ ------------ ------------
<S> <C>
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
Distributions to limited
partners ($46.00 per
limited partner unit) -- -- -- (3,220,000 ) -- -- (3,220,000)
Net income -- 28,327 -- -- 2,992,554 -- 3,020,881
-------- -------- ----------- ------------- ------------ ---------- ----------
Balance, December 31, 1998 $1,000 $256,690 $35,000,000 $(28,804,226 ) $26,156,666 $(4,015,000) $28,595,130
======== ================ ============ ============= ============ =========== =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---------------- --------------- ---------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $3,092,644 $3,097,751 $3,363,188
Distributions from unconsolidated joint
ventures 328,721 144,016 114,163
Cash paid for expenses (270,339 ) (180,530 ) (203,432 )
Interest received 92,634 94,804 36,843
---------------- --------------- ---------------
Net cash provided by operating activities 3,243,660 3,156,041 3,310,762
---------------- --------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 2,832,253 4,003,985 982,980
Additions to land and buildings on operating
leases (125,000 ) (2,666,258 ) --
Investment in direct financing leases -- (1,057,282 ) --
Investment in joint ventures (3,896,598 ) (521,867 ) (146,090 )
Return of capital from joint ventures (84 ) 524,975 --
Collections on mortgage note receivable -- -- 3,033
Decrease (increase) in restricted cash 697,650 279,367 (977,017 )
Payment of lease costs (3,300 ) (3,300 ) (3,300 )
---------------- --------------- ---------------
Net cash provided by (used in) investing
activities (495,079 ) 559,620 (140,394 )
---------------- --------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (3,150,000 ) (3,220,000 ) (3,150,000 )
Distributions to holder of minority interest (42,654 ) (8,832 ) (13,437 )
---------------- --------------- ---------------
Net cash used in financing activities (3,192,654 ) (3,228,832 ) (3,163,437 )
---------------- --------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents (444,073 ) 486,829 6,931
Cash and Cash Equivalents at Beginning of Year 1,614,759 1,127,930 1,120,999
---------------- --------------- ---------------
Cash and Cash Equivalents at End of Year $ 1,170,686 $ 1,614,759 $ 1,127,930
================ =============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
--------------- --------------- ----------------
<S> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $3,020,881 $2,899,882 $2,803,601
--------------- --------------- ----------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Bad debt expense 12,854 131,184 --
Depreciation 456,958 471,938 481,683
Amortization 1,600 1,890 1,890
Minority interest in income of
consolidated joint venture 43,128 (11,275 ) 24,682
Equity in earnings of unconsolidated
joint ventures, net of distributions 5,616 (136,315 ) 16,782
Loss (gain) on sale of land and building (345,122 ) (547,027 ) 1,706
Provision for loss on land and building
and impairment in carrying value of
net investment in direct financing
lease -- 263,186 77,023
Decrease (increase) in receivables 8,649 17,113 (90,360 )
Decrease (increase) in prepaid expenses 3,286 (3,072 ) 4,087
Decrease in net investment in direct
financing leases 63,868 67,389 68,177
Decrease (increase) in accrued rental
income 51,142 (81,244 ) (103,935 )
Increase (decrease) in accounts payable
and accrued expenses (37,246 ) 25,964 2,529
Increase (decrease) in due to related
parties (12,532 ) 29,470 (3,391 )
Increase (decrease) in rents paid in
advance and deposits (29,422 ) 26,958 26,288
--------------- --------------- ----------------
Total adjustments 222,779 256,159 507,161
--------------- --------------- ----------------
Net Cash Provided by Operating Activities $3,243,660 $3,156,041 $3,310,762
=============== =============== ================
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Distributions declared and unpaid at
December 31 $ 857,500 $ 787,500 $ 857,500
=============== =============== ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund 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.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date. Whenever a tenant defaults
under the terms of its lease, or events or changes in
circumstance indicate that the tenant will not lease the
property through the end of the lease term, the Partnership
either reserves or writes-off the cumulative accrued rental
income balance.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review 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. If an impairment is indicated, the
assets are adjusted to their fair value. Although the general partners
have made their best estimate of these factors based on current
conditions, it is reasonably possible that changes could occur in the
near term which could adversely affect the general partners' best
estimate of net cash flows expected to be generated from its properties
and the need for asset impairment write-downs.
When the collection of amounts recorded as rental or other income 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
approximate 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.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
The Partnership's investments in Auburn Joint Venture, Show Low Joint
Venture, Asheville Joint Venture, Warren Joint Venture, and Melbourne
Joint Venture and properties in Clinton, North Carolina, Vancouver,
Washington; Overland Park, Kansas; Memphis, Tennessee and Fort Myers,
Florida, each of which is held as tenants-in-common with affiliates,
are accounted for using the equity method since the Partnership shares
control with the affiliates.
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.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
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.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 1998 presentation.
These reclassifications had no effect on partners' capital or net
income.
2. Leases:
The Partnership leases its land and buildings primarily to operators of
national and regional fast-food and family-style restaurants. The
leases are accounted for under the provisions of Statement of Financial
Accounting Standards No. 13, "Accounting for Leases." The leases
generally are classified as operating leases; however, some leases have
been classified as direct financing leases. 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.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C>
Land $ 8,558,191 $ 10,046,309
Buildings 13,587,739 14,344,114
----------------- -----------------
22,145,930 24,390,423
Less accumulated depreciation (3,586,086 ) (3,327,334 )
----------------- -----------------
18,559,844 21,063,089
Less allowance for loss on
land and building -- (277,405 )
----------------- -----------------
$18,559,844 $ 20,785,684
================= =================
</TABLE>
In February 1997, the Partnership reinvested the net sales proceeds
from the sale of a 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 of
$626,907, resulting in a loss of $79,777 for financial reporting
purposes.
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 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.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - Continued:
In 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, which were paid in 1998.
In September 1997, the Partnership sold its property in Venice,
Florida, to a third party, for $1,245,000 and received net sales
proceeds 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 1997, the Partnership recorded a provision for loss on land and
building in the amount of $104,947 for financial reporting purposes for
the property in Liverpool, New York. The terms of this lease were
terminated in December 1996. This allowance represented 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 of $145,221 received in February 1998 from the sale of the
property. Due to the fact that in 1997 and prior years, the Partnership
had recorded an allowance for loss totalling $181,970 for this
property, no gain or loss was recognized for financial reporting
purposes during 1998 relating to the sale of this Property in February
1998.
During 1997, the Partnership established an allowance for loss on land
in the amount of $95,435 for its property in Melbourne, Florida. The
tenant of this Property vacated the property in October 1997 and ceased
making rental payments. 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 of
$552,910 received in February 1998 from the sale of the property. No
gain or loss was recognized for financial reporting purposes relating
to the sale of this property in February 1998.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - Continued:
In January 1998, the Partnership sold its property in Deland, Florida,
to the tenant for $1,250,000 and received net sales proceeds of
$1,234,122, resulting in a gain of $345,122 for financial reporting
purposes. This property was originally acquired by the Partnership in
October 1989 and had a cost of approximately $1,000,000, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the property for approximately $234,100 in excess of
its original purchase price. In June 1998, the Partnership sold its
property in Bellevue, Nebraska, and received sales proceeds of
$900,000. Due to the fact that during 1998, the Partnership wrote off
$155,528 in accrued rental income, representing the majority of the
accrued rental income that the Partnership had recognized since the
inception of the lease relating to the straight-lining of future
scheduled rent increases in accordance with generally accepted
accounting principles, no gain or loss was recorded for financial
reporting purposes in June 1998 relating to this sale. This property
was originally acquired by the Partnership in December 1989 and had a
cost of approximately $899,500, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the
property for approximately $500 in excess of its original purchase
price.
Some leases provide for escalating guaranteed minimum rents throughout
the lease terms. Income from these scheduled rent increases is
recognized on a straight-line basis over the terms of the leases. For
the years ended December 31, 1998, 1997, and 1996, the Partnership
recognized a loss of $51,142 (net of $155,528 in write-offs and $11,699
in reserves), and income of $81,244 (net of $17,548 in reserves) and
$103,935 (net of $537 in reserves), 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, 1998:
1999 $ 2,329,253
2000 2,402,277
2001 2,451,812
2002 2,466,895
2003 2,458,306
Thereafter 11,370,855
-----------------
$23,479,398
=================
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - Continued:
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.
4. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at December 31:
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
<S> <C>
Minimum lease payments
receivable $7,212,677 $9,313,752
Estimated residual values 1,440,446 1,655,911
Less unearned income (4,723,971 ) (6,198,018 )
---------------- -----------------
3,929,152 4,771,645
Less allowance for impairment in
carrying value -- (62,804 )
---------------- ----------------
Net investment in direct financing
leases $3,929,152 $4,708,841
================ =================
</TABLE>
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 1998:
1999 $ 486,632
2000 488,772
2001 501,492
2002 501,492
2003 501,492
Thereafter 4,732,797
----------------
$7,212,677
================
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).
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
4. Net Investment in Direct Financing Leases - Continued:
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).
In addition, in July 1997, the Partnership sold its property in
Plattsmouth, Nebraska, to the tenant, for $700,000 and received net
sales proceeds 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
(i) the 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 3).
In June 1998, the Partnership sold its property in Bellevue, Nebraska,
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 value) and unearned
income relating to this property were removed from the accounts (see
Note 3).
5. Investment in Joint Ventures:
The Partnership has a 3.9%, a 36 percent, a 14.46%, and an 18 percent
interest in the profits and losses of Auburn Joint Venture, Show Low
Joint Venture, Asheville Joint Venture, and a property in Clinton,
North Carolina, held as tenants-in-common, respectively. The remaining
interests in these joint ventures and the property held as tenants in
common are held by affiliates of the Partnership which have the same
general partners.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
5. Investment in Joint Venture - Continued:
In January 1997, Show Low Joint Venture, in which the Partnership owns
a 36 percent interest, sold its property to the tenant for $970,000,
resulting in a gain to the joint venture of approximately $360,000 for
financial reporting purposes. The property was originally contributed
to Show Low Joint Venture in July 1990 and had a 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.
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 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, 1998, the Partnership owned a 23.04% interest in the
Vancouver, Washington, property owned with affiliates as
tenants-in-common.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
5. Investment in Joint Venture - Continued:
In January 1998, the Partnership contributed approximately $558,800 and
$694,800 to acquire a property in Overland Park, Kansas, and a property
in Memphis, Tennessee, respectively, as tenants-in-common with
affiliates of the general partners. As of December 31, 1998, the
Partnership had a 34.74% and a 46.2% interest in the property in
Overland Park, Kansas and Memphis, Tennessee, respectively. In June
1998, the Partnership contributed approximately $1,249,300 to acquire a
property in Fort Myers, Florida, as tenants-in-common with an affiliate
of the general partners. As of December 31, 1998, the Partnership had
an 85 percent interest in the property in Fort Myers, Florida. The
Partnership accounts for its investments in these properties using the
equity method since the Partnership shares control with affiliates, and
amounts relating to its investments are included in investment in joint
ventures.
In April 1998, the Partnership entered into a joint venture
arrangement, Melbourne Joint Venture, with an affiliate of the general
partners, to construct and hold one restaurant property. As of December
31, 1998, the Partnership had contributed approximately $494,900 to
purchase land and pay construction costs relating to the property owned
by the joint venture and has agreed to contribute an additional $31,300
to fund additional construction costs to the joint venture. At December
31, 1998, the Partnership had an approximate 50 percent interest in the
profits and losses of the joint venture. The Partnership accounts for
its investment in this joint venture under the equity method since the
Partnership shares control with the affiliate.
In September 1998, the Partnership entered into a joint venture
arrangement, Warren Joint Venture, with an affiliate of the general
partners to hold one restaurant property. As of December 31, 1998, the
Partnership had contributed approximately $898,100 to the joint venture
to acquire the restaurant property. As of December 31, 1998, the
Partnership owned a 64.29% interest in the profits and losses of the
joint venture. The Partnership accounts for its investment in this
joint venture under the equity method since the Partnership shares
control with the affiliate.
Auburn Joint Venture, Show Low Joint Venture, Asheville Joint Venture,
Melbourne Joint Venture, Warren Joint Venture, and the Partnership and
affiliates as tenants-in-common in five separate tenancy-in-common
arrangements, each own and lease one property to an
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
5. Investment in Joint Venture - Continued:
operator of national fast-food and family-style restaurants. The
following presents the combined, condensed financial information for
the joint ventures and the properties held as tenants-in-common with
affiliates at December 31:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation $9,030,392 $4,568,842
Net investment in direct financing
leases 3,331,869 911,559
Cash 12,138 7,991
Receivables 56,360 22,230
Accrued rental income 237,451 160,197
Other assets 1,190 414
Liabilities 105,868 7,557
Partners' capital 12,563,532 5,663,676
Revenues 1,098,957 471,627
Gain on sale of land and building -- 488,372
Net income 959,057 889,883
</TABLE>
The Partnership recognized income totalling $323,105, $280,331, and
$97,381 for the years ended December 31, 1998, 1997, and 1996,
respectively, from these joint ventures.
6. Restricted Cash:
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. In January 1998, the escrow agent released these funds to
acquire the property in Memphis, Tennessee, with affiliates of the
general partners, as tenants-in-common.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
7. Receivables:
In June 1997, the Partnership terminated the 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, 1998 and 1997,
included $9,561 and $13,631, respectively, of such amounts, including
accrued interest of $554 in 1997.
8. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of properties, are allocated 99 percent
to the limited partners and one percent to the general partners.
Distributions of net cash flow are made 99 percent to the limited
partners and one percent to the general partners; provided, however,
that the one percent of net cash flow to be distributed to the general
partners is subordinated to receipt by the limited partners of an
aggregate, ten percent, cumulative, noncompounded annual return on
their adjusted capital contributions (the "10% Preferred Return").
Generally, net sales proceeds from the sale of properties not in
liquidation of the Partnership, to the extent distributed, will be
distributed first to the limited partners in an amount sufficient to
provide them with their 10% Preferred Return, plus the return of their
adjusted capital contributions. The general partners will then receive,
to the extent previously subordinated and unpaid, a one percent
interest in all prior distributions of net cash flow and a return of
their capital contributions. Any remaining sales proceeds will be
distributed 95 percent to the limited partners and five percent to the
general partners. Any gain from the sale of a property not in
liquidation of the Partnership is, in general, allocated in the same
manner as net sales proceeds are distributable. Any loss from the sale
of a property is, in general, allocated first, on a pro rata basis, to
partners with positive balances in their capital accounts; and
thereafter, 95 percent to the limited partners and five percent to the
general partners.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
8. Allocations and Distributions:
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: i) first to pay and discharge all
of the Partnership's liabilities to creditors, ii) second, to establish
reserves that may be deemed necessary for any anticipated or unforeseen
liabilities or obligations of the Partnership, iii) third, to pay all
of the Partnership's liabilities, if any, to the general and limited
partners, iv) fourth, after allocations of net income, gains and/or
losses, to distribute to the partners with positive capital accounts
balances, in proportion to such balances, up to amounts sufficient to
reduce such positive balances to zero, and v) thereafter, any funds
remaining shall then be distributed 95 percent to the limited partners
and five percent to the general partners.
During the years ended December 31, 1998, 1997, and 1996 the
Partnership declared distributions to the limited partners of
$3,220,000, $3,150,000 and $3,220,000, respectively. No distributions
have been made to the general partners to date.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
9. Income Taxes:
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------ --------------
<S> <C>
Net income for financial reporting purposes $3,020,881 $2,899,882 $2,803,601
Depreciation for tax reporting purposes in excess
of depreciation for financial reporting purposes (65,666 ) (92,303 ) (104,412 )
Allowance for loss on land and building -- 263,186 77,023
Direct financing leases recorded as operating
leases for tax reporting purposes 63,868 67,392 68,177
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 (543,697 ) (335,658 ) 1,706
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 (14,400 ) (147,256 ) (49 )
Allowance for doubtful accounts (39,597 ) 369,935 (78,517 )
Accrued rental income 51,142 (81,244 ) (103,935 )
Rents paid in advance (30,922 ) 26,458 26,288
Capitalization of transaction costs for tax
reporting purposes 20,211 -- --
Minority interest in timing
differences of consolidated joint
venture 14,513 (30,778 ) 1,781
-------------- ------------ --------------
Net income for federal income tax
purposes $2,476,333 $2,939,614 $ 2,691,663
============== ============ ==============
</TABLE>
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
10. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the majority stockholder
of CNL Fund Advisors, Inc. The other individual general partner, Robert
A. Bourne, serves as treasurer, director and vice chairman of the board
of CNL Fund Advisors, Inc. During the years ended December 31, 1998,
1997, and 1996, CNL Fund Advisors, Inc. (hereinafter referred to as the
"Affiliate") performed certain services for the Partnership, as
described below.
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
acted as manager of the Partnership's properties pursuant to a
management agreement with the Partnership. In connection therewith, the
Partnership agreed to pay the Affiliate 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 have not received 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, 1998, 1997, and
1996.
The Affiliate is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Affiliate provides a
substantial amount of services in connection with the sale. However, if
the 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.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
10. Related Party Transactions - Continued:
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $107,969, $87,877 and
$95,420 for the years ended December 31, 1998, 1997, and 1996,
respectively, for such services.
The due to related parties at December 31, 1998 and 1997, totalled
$19,403 and $32,019, 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 properties held as tenants-in-common with affiliates),
for each of the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C>
Golden Corral Corporation $758,646 $751,866 $758,348
IHOP Properties, Inc. 454,889 N/A --
Mid-America Corporation 439,519 439,519 439,519
Restaurant Management
Services, Inc. 438,257 478,750 511,040
</TABLE>
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
11. Concentration of Credit Risk - Continued:
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 properties held as tenants-in-common with
affiliates), for each of the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C>
Golden Corral Family
Steakhouse Restaurants $758,646 $751,866 $758,348
IHOP Properties, Inc. 454,889 N/A --
Burger King 453,634 496,487 455,764
Denny's N/A 317,041 N/A
Hardee's N/A N/A 410,951
</TABLE>
The information denoted by N/A indicates that for each period
presented, the tenant and the chains did not represent more than ten
percent of the Partnership's total rental and earned income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
12. Subsequent Event:
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to
which the Partnership would be merged with and into a subsidiary of APF
(the "Merger"). As consideration for the Merger, APF has agreed to
issue 3,730,388 shares of its common stock, par value $0.01 per shares
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the
price paid by APF investors in APF's most recent public offering. In
order to assist the general partners in evaluating the proposed merger
consideration, the general partners retained Valuation Associates, a
nationally recognized real estate appraisal firm, to appraise the
Partnership's
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
12. Subsequent Event:
restaurant property portfolio. Based on Valuation Associates'
appraisal, the Partnership's property portfolio and other assets were
valued on a going concern basis (meaning the Partnership continues
unchanged) at $36,721,726 as of December 31, 1998. Legg Mason Wood
Walker, Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a
financial point of view. The APF Shares are expected to be listed for
trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and, therefore, would be freely tradable at
the option of the former limited partners. At a special meeting of the
partners that is expected to be held in the third quarter of 1999,
limited partners holding in excess of 50% of the Partnership's
outstanding limited partnership interests must approve the Merger prior
to consummation of the transaction. The general partners intend to
recommend that the limited partners of the Partnership approve the
Merger. In connection with their recommendation, the general partners
will solicit the consent of the limited partners at the special
meeting. If the limited partners reject the Merger, the Partnership
will bear the portion of the transaction costs based upon the
percentage of "For" votes and the general partners will bear the
portion of such transaction costs based upon the percentage of
"Against" votes and abstentions.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 52, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, a director and Chief Executive Officer since its formation
in 1980. Mr. Seneff has been Chairman of the Board of Directors, director, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979. Mr.
Seneff also has held the position of Chairman of the Board of Directors, Chief
Executive Officer, President and director of CNL Management Company, a
registered investment advisor, since its formation in 1976, has served as Chief
Executive Officer, Chairman of the Board and a director of CNL Investment
Company, has served as Chief Executive Officer, a director and Chairman of the
Board of Directors of Commercial Net Lease Realty, Inc., a publicly-traded REIT,
listed on the NYSE, since 1992, served as Chief Executive Officer, a director
and Chairman of the Board of Directors of CNL Realty Advisors, Inc. from its
inception in May 1992 through December 1997, at which time such company merged
with Commercial Net Lease Realty, Inc., and has held the position of Chief
Executive Officer, Chairman of the Board and a director of CNL Institutional
Advisors, Inc., a registered investment advisor, since its inception in December
1990. Mr. Seneff has served as Chairman of the Board of Directors of CNL
American Properties Fund, Inc. since December 1994 and as a director and Chief
Executive Officer since May 1994. Mr. Seneff has served as Chairman of the
Board, Chief Executive Officer and a director of CNL Fund Advisors, Inc. since
March 1994. Mr. Seneff has served as Chairman of the Board, Chief Executive
Officer and a director of CNL Hospitality Properties, Inc. since June 1996 and
of CNL Hospitality Advisors, Inc. since January 1997. Mr. Seneff has also served
as Chairman of the Board, Chief Executive Officer and a director of CNL Health
Care Properties, Inc. since December 1997 and CNL Health Care Advisors, Inc.
since July 1997. Mr. Seneff previously served on the Florida State Commission on
Ethics and is a former member and past Chairman of the State of Florida
Investment Advisory Council, which advises the Florida Board of Administration
investments for various Florida employee retirement funds. The Florida Board of
Administration, Florida's principal investment advisory and money management
agency, oversees the investment of more then $60 billion of retirement funds.
Mr. Seneff has served as a member of the board of directors of First Union
National Bank of Florida since May 1998 and has served as a member of the
Orlando Advisory Board of First Union National Bank of Florida since March 1994.
Since 1971, Mr. Seneff has been active in the acquisition, development, and
management of real estate projects and, directly or through an affiliated
entity, has served as a general partner or joint venturer in over 100 real
estate ventures involved in the financing, acquisition, construction, and rental
of restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 65 privately
offered real estate limited partnerships in which Mr. Seneff, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund
III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund 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.
<PAGE>
Robert A. Bourne, age 51, is President and Treasurer of CNL Group,
Inc., President, Treasurer, a director, and a registered principal of CNL
Securities Corp., President, Treasurer, and a director of CNL Investment
Company, and Chief Investment Officer, a director and Treasurer of CNL
Institutional Advisors, Inc., a registered investment advisor. Mr. Bourne served
as President of CNL Institutional Advisor, Inc. from the date of its inception
through July 1997. Mr. Bourne served as President of Commercial Net Lease
Realty, Inc. from July 1992 through February 1996, served as Secretary and
Treasurer from February 1996 through December 1997, and has served as a director
since July 1992 and as Vice Chairman of the Board of Directors since February
1996. In addition, Mr. Bourne served as President of CNL Realty Advisors, Inc.
from May 1992 through February 1996, served as Treasurer from February 1996
through December 1997, served as a director from May 1992 through December 31,
1997 and served as Vice Chairman from February 1996 through December 1997, at
which time such company merged with Commercial Net Lease Realty, Inc. Mr. Bourne
has served as a Vice Chairman of the Board of Directors and Treasurer of CNL
American Properties Fund, Inc. since February 1999, has served as a director
since May 1994 and previously served as President from May 1994 through February
1999. Mr. Bourne has served as a director of CNL Fund Advisors, Inc. since March
1994, has served as Treasurer and Vice Chairman of the Board of Directors since
September 1997, and previously served as President from March 1994 through
September 1997. Mr. Bourne has served as President and a director of CNL
Hospitality Properties, Inc. since June 1996 and of CNL Hospitality Advisors,
Inc. since January 1997. Mr. Bourne has served as President and director of CNL
Health Care Properties, Inc. since December 1997 and CNL Health Care Advisors,
Inc. since July 1997. Mr. Bourne, who joined CNL Securities Corp. in 1979, has
participated as a general partner or joint venturer in over 100 real estate
ventures involved in the financing, acquisition, construction, and rental of
restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 64 privately
offered real estate limited partnerships in which Mr. Bourne, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are the CNL Income Fund Partnerships, public real estate limited
partnerships with investment objectives similar to those of the Partnership, in
which Mr. Bourne serves as a general partner. Mr. Bourne formerly was a
certified public accountant with Coopers & Lybrand and a partner in the firm of
Bourne & Rose, P.A. Mr. Bourne received a B.A. in Accounting, with honors, from
Florida State University in 1970.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL
Realty Corporation was organized to serve as the corporate general partner of
real estate limited partnerships, such as the Partnership, organized by one or
both of the individual General Partners. CNL Realty Corporation currently serves
as the corporate general partner of the CNL Income Fund Partnerships.
CNL Fund Advisors, Inc. provides certain management services in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation organized in 1994 under the laws of the State of Florida, and its
principal office is located at 400 East South Street, Orlando, Florida 32801.
CNL Fund Advisors, Inc. is a majority owned subsidiary of CNL Group, Inc., a
diversified real estate company, and was organized to perform property
acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Fund Advisors,
Inc., was organized in 1980 under the laws of the State of Florida. CNL Group,
Inc. is a diversified real estate company which provides a wide range of real
estate, development and financial services to companies in the United States
through the activities of its subsidiaries. These activities are primarily
focused on the franchised restaurant and hospitality industries. James M.
Seneff, Jr., an individual General Partner of the Partnership, is the Chairman
of the Board, Chief Executive Officer, and a director of CNL Group, Inc. Mr.
Seneff and his wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as members
of the Boards of Directors of those entities. The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.
Curtis B. McWilliams, age 43, joined CNL Group, Inc. in April 1997 and
currently serves as an Executive Vice President. In addition, Mr. McWilliams has
served as President of CNL Fund Advisors, Inc. and as President of the
Restaurant and Financial Services Groups within CNL Group, Inc. since April
1997. Mr. McWilliams has served as President of CNL American Properties Fund,
Inc. since February 1999 and previously served as Executive Vice President from
February 1998 through February 1999. From September 1983 through March 1997, Mr.
McWilliams was employed by Merrill Lynch & Co., most recently as Chairman of
Merrill Lynch's Private Advisory Services until March 1997. Mr. McWilliams
received a B.S.E. in Chemical Engineering from Princeton University in 1977 and
a Masters of Business Administration with a concentration in finance from the
University of Chicago in 1983.
John T. Walker, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since January 1996, as Chief Operating Officer
since March 1995, and previously served as Senior Vice President since December
1994. In addition, Mr. Walker has served as Executive Vice President of CNL Fund
Advisors, Inc. since January 1996, Chief Operating Officer since April 1995, and
previously served as Senior Vice President from November 1994 through January
1996. In addition, Mr. Walker previously served as Executive Vice President of
CNL Hospitality Properties, Inc. and CNL Hospitality Advisors, Inc. From May
1992 to May 1994, Mr. Walker, a certified public accountant, was Executive Vice
President for Finance and Administration and Chief Financial Officer of Z Music,
Inc., a cable television network (subsequently acquired by Gaylord
Entertainment), where he was responsible for overall financial and
administrative management and planning. From January 1990 through April 1992,
Mr. Walker was Chief Financial Officer of the First Baptist Church in Orlando,
Florida. From April 1984 through December 1989, he was a partner in the
accounting firm of Chastang, Ferrell & Walker, P.A., where he was the partner in
charge of audit and consulting services, and from 1981 to 1984, Mr. Walker was a
Senior Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a Cum Laude
graduate of Wake Forest University with a B.S. in Accountancy and is a certified
public accountant.
Lynn E. Rose, age 50, a certified public accountant, has served as
Secretary of CNL American Properties Fund, Inc. since December 1994 and served
as Treasurer from December 1994 through February 1999. Ms. Rose has served as a
director and Secretary of CNL Fund Advisors, Inc. since March 1994, and as
Treasurer from the date of its inception through June 30, 1997. Ms. Rose has
served as Secretary of CNL Group, Inc. since 1987, as Chief Financial Officer of
CNL Group, Inc. since December 1993, and served as Controller of CNL Group, Inc.
from 1987 until December 1993. In addition, Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has
served as Chief Operating Officer, Vice President and Secretary of CNL Corporate
Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial
Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in
1990, as Treasurer of CNL Realty Advisors, Inc. from 1991 to February 1996, and
as Secretary and a director of CNL Realty Advisors, Inc. since its inception in
1991 until December 31, 1997, at which time CNL Realty Advisors, Inc. merged
with Commercial Net Lease Realty, Inc. In addition, Ms. Rose served as Secretary
and Treasurer of Commercial Net Lease Realty, Inc. from 1992 to February 1996.
Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality Properties,
Inc. and CNL Health Care Properties, Inc. and as Secretary, Treasurer and a
director of CNL Hospitality Advisors, Inc. and CNL Health Care Advisors, Inc.
Ms. Rose also currently serves as Secretary for approximately 50 additional
corporations. Ms. Rose oversees the legal compliance, accounting, tenant
compliance, and reporting for over 250 corporations, partnerships and joint
ventures. Prior to joining CNL, Ms. Rose was a partner with Robert A. Bourne in
the accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Ms.
Rose holds a B.A. in Sociology from the University of Central Florida.
Jeanne A. Wall, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since December 1994. Ms. Wall has served as
Executive Vice President of CNL Fund Advisors, Inc. since November 1994, and
previously served as Vice President from March 1994 through November 1994. Ms.
Wall has served as Chief Operating Officer of CNL Investment Company and of CNL
Securities Corp. since November 1994 and has served as Executive Vice President
of CNL Investment Company since January 1991. Ms. Wall joined CNL Securities
Corp. in 1984. In 1985, Ms. Wall became Vice President of CNL Securities Corp.
In 1987, she became Senior Vice President and in July 1997 she became Executive
Vice President of CNL Securities Corp. In this capacity, Ms. Wall serves as
national marketing and sales director and oversees the national marketing plan
for the CNL investment programs. In addition, Ms. Wall oversees product
development, partnership administration and investor services for programs
offered through participating brokers and corporate communications for CNL
Group, Inc. and its affiliates. Ms. Wall also has served as Senior Vice
President of CNL Institutional Advisors, Inc., a registered investment advisor,
from 1990 to 1993, as Vice President of CNL Realty Advisors, Inc. since its
inception in 1991 until December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., and served as Vice President
of Commercial Net Lease Realty, Inc. from 1992 through December 31, 1997. In
addition, Ms. Wall serves as Executive Vice President of CNL Hospitality
Properties, Inc., CNL Hospitality Advisors, Inc., CNL Health Care Properties,
Inc. and CNL Health Care Advisors, Inc. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp. Ms. Wall currently serves as a trustee on the board of the
Investment Program Association and on the Direct Participation Program committee
for the National Association of Securities Dealers (NASD).
Steven D. Shackelford, age 35, a certified public accountant, has
served as Chief Financial Officer of CNL American Properties Fund, Inc. since
January 1997 and as Chief Financial Officer of CNL Fund Advisors, Inc. since
September 1996. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse where he was responsible for
advising foreign clients seeking to raise capital and a public listing in the
United States. From August 1992 to March 1995, he served as a manager in the
Price Waterhouse, Paris, France office serving several multinational clients.
Mr. Shackelford was an audit staff and audit senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a B.A. in
Accounting, with honors, and a Masters of Business Administration from Florida
State University.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 11, 1999, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 11, 1999, the beneficial
ownership interests of the General Partners in the Registrant.
<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. On March 11, 1999, the
Registrant entered into an Agreement and Plan of Merger with CNL American
Properties Fund, Inc. ("APF") pursuant to which the Registrant would be merged
with and into a subsidiary of APF (the "Merger"). For further discussion, see
Item 8. Financial Statements and Supplementary Data -- Note 12. Subsequent
Event.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 1998, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
------------------------- --------------------- -----------------------
<S> <C>
Reimbursement to affiliates for Operating expenses are reimbursed Operating expenses incurred on
operating expenses at the lower of cost or 90 percent behalf of the Partnership: $103,157
of the prevailing rate at which
comparable services could have been Accounting and administrative
obtained in the same geographic services: $107,969
area. Affiliates of the General
Partners from time to time incur
certain operating expenses on
behalf of the Partnership for which
the Partnership reimburses the
affiliates without interest.
Annual, subordinated manage-ment fee to One percent of the sum of gross $ - 0 -
affiliates operating revenues from Properties
wholly owned by the Partnership
plus the Partnership's allocable
share of gross revenues of joint
ventures in which the Partnership
is a co-venturer 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 have not received their
10% Preferred Return in any
particular year, no management
fees will be due or payable for
such year.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
------------------------ --------------------- -----------------------
<S> <C>
Deferred, subordinated real estate A deferred, subordinated real $ - 0 -
disposition fee payable to affiliates estate disposition fee, payable
upon sale of one or more
Properties, in an amount equal to
the lesser of (i) one-half of a
competitive real estate
commission, or (ii) three percent
of the sales price of such
Property or Properties. Payment of
such fee shall be made only if
affiliates of the General Partners
provide a substantial amount of
services in connection with the
sale of a Property or Properties
and shall be subordinated to
certain minimum returns to the
Limited Partners. However, if the
net sales proceeds are reinvested
in a replacement Property, no such
real estate disposition fee will
be incurred until such replacement
Property is sold and the net sales
proceeds are distributed.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to one percent of Partnership
cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to five percent of
sales proceeds from a sale or sales not Partnership distributions of such
in liquidation of the Partnership net sales proceeds, subordinated to
certain minimum returns to the
Limited Partners.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
------------------------ --------------------- -----------------------
<S> <C>
General Partners' share of Partnership Distributions of net sales proceeds $ - 0 -
net sales proceeds from a sale or sales from a sale or sales of
in liquidation of the Partnership substantially all of the
Partnership's assets will be
distributed in the following order
or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net
loss, gain and loss, in proportion
to such balances, up to amounts
sufficient to reduce such balances
to zero; and (iii) thereafter, 95%
to the Limited Partners and 5% to
the General Partners.
</TABLE>
As discussed above in Item 8. Financial Statements and Supplementary
Data -- Note 12. Subsequent Event, the Registrant has entered into an Agreement
and Plan of Merger, dated March 11, 1999, with APF pursuant to which the
Registrant would be merged with and into a subsidiary of APF in exchange for the
issuance of APF Shares. The APF Shares are expected to be listed for trading on
the New York Stock Exchange concurrently with the consummation of the Merger. If
the Merger is approved by Limited Partners holding units greater than 50% of the
outstanding units of the Registrant, the General Partners of the Registrant
would receive certain benefits, including:
o With respect to their ownership in the Registrant, the General
Partners will be issued approximately 37,724 shares of APF
common stock, par value $0.01 per share.
o Following the Merger, James M. Seneff, Jr. and Robert A.
Bourne, the individual General Partners, will continue to
serve as directors of APF, with Mr. Seneff serving as Chairman
and Mr. Bourne serving as Vice Chairman. As APF directors,
they may also be entitled to receive stock options under any
stock option plan adopted by APF.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1998 and 1997
Statements of Income for the years ended December 31, 1998,
1997, and 1996
Statements of Partners' Capital for the years ended December
31, 1998, 1997, and 1996
Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1998, 1997 and 1996
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1998
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1998
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.)
<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, 1998 through December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 29th day of
March, 1999.
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 29, 1999
- ---------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 29, 1999
- ---------------------------
James M. Seneff, Jr. (Principal Executive Officer)
</TABLE>
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Additions Deductions
------------------------------- --------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
-------- ---------------- ------------- ------------- -------------- ------------ ------------ -----------
<S> <C>
1996 Allowance for
doubtful
accounts (a) $ 203,569 $ -- $ 11,762 (b) $ 78,084 (c) $ 11,658 $ 125,589
============= ============= ============== ============ ============ ===========
1997 Allowance for
doubtful
accounts (a) $ 125,589 $ -- $ 285,570 (b) $ 1,914 (c) $ 18,590 $ 390,655
============= ============= ============== ============ ============ ===========
1998 Allowance for
doubtful
accounts (a) $ 390,655 $ -- $ 46,023 (b) $ 12,264 (c) $ 61,657 $ 362,757
============= ============= ============== ============ ============ ===========
</TABLE>
(a) Deducted from receivables and accrued rental income on the balance
sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
<PAGE>
<TABLE>
<CAPTION>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<S> <C>
Costs Capitalized
Subsequent to
Initial Cost Acquisition
--------------------------- --------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
----------- ---------- -------------- ---------- --------
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 - -
Broadway, Tennessee - 421,258 539,964 - -
Greeneville, Tennessee - 318,817 642,538 - -
Church's Fried Chicken
Restaurant:
Orlando,Florida - 177,440 270,985 - -
Golden Corral Family
Steakhouse Restaurants:
Alburguerque, 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 -
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 - -
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 Restaurants:
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 - -
Other:
Hermitage, Tennessee - 391,156 - 720,026 -
------------ ------------- ---------- --------
$8,558,191 $9,841,252 $3,746,487 -
============ ============= ========== ========
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 14.46% Interest and has
Invested in Under an
Operating Lease:
Burger King Restaurant:
Asheville, North Carolina - $438,695 $450,432 - -
============ ============= ========== ========
Property in Which the Partner-
ship has a 18% 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 - -
============ ============= ========== ========
Property in Which Partnership
has a 46.20% Interest as
Tenants-in-Common has
Invested in Under an
Operating Lease:
IHOP Restaurant:
Memphis, Tennessee - $678,890 $825,076 - -
============ ============= ========== ========
Property of Joint Venture
in Which the Partnership
has a 50% Interest and
has Invested in Under an
Operating Lease:
5 & Diner Restaurant:
Melbourne, Florida - $439,281 $603,584 - -
============ ============= ========== ========
Property in Which the Partnership
has a 85% Interest as
Tenants-in-Common and
has Invested in Under an
Operating Lease:
Bennigan's Restaurant:
Fort Myers, Florida - $638,026 - - -
============ ============= ========== ========
Property of Joint Venture
in Which the Partnership
has a 64.29% Interest and
has Invested in Under an
Operating Lease:
IHOP Restaurant:
Warren,nMichiganan - $507,965 $889,080 - -
============ ============= ========== ========
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 Restaurant:
Waynesburg, Ohio - 136,242 441,299 - -
Jack in the Box Restaurant:
San Antonio, Texas - - 420,568 - -
Other:
Chester, Pennsylvania (g) - 98,009 - 495,472 -
------------ ------------- ---------- --------
- $561,100 $3,127,960 $495,472 -
============ ============= ========== ========
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 -
============ ============= ========== ========
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 -
============ ============= ========== ========
Property in Which the Partnerhsip
has a 34.74% Interest as
Tenants-in-Common and
has Invested in Under
a Direct Financing Lease:
IHOP Restaurant:
Overland Park, Kansas - $335,374 $1,273,134 - -
============ ============= ========== ========
Property in Which the Partnership
has a 85% Interest as
Tenants-in-Common and
has Invested in Under
a Direct Financing Lease:
Bennigan's Restaurant:
Fort Myers, Florida - - $831,741 - -
============ ============= ========== ========
Gross Amount at Which Life on Which
Carried at Close of Period (c) Depreciation in
---------------------------------------- Date Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
------------ ------------ ------------ ----------- --------- -------- -------------
$399,885 $712,762 $1,112,647 $43,911 1993 02/97 (b)
352,845 609,006 961,851 182,479 1986 01/90 (b)
370,839 563,193 934,032 168,495 1986 01/90 (b)
421,258 539,964 961,222 161,792 1985 01/90 (b)
318,817 642,538 961,355 192,527 1988 01/90 (b)
177,440 270,985 448,425 78,375 1985 04/90 (b)
717,708 1,018,823 1,736,531 306,211 1989 12/89 (b)
773,627 908,171 1,681,798 272,949 1989 12/89 (b)
559,095 838,642 1,397,737 252,052 1989 12/89 (b)
670,916 837,317 1,508,233 234,984 1990 04/90 (b)
222,559 640,529 863,088 163,799 1989 07/89 (b)
203,159 413,221 616,380 111,777 1990 11/90 (b)
426,831 (f) 426,831 - 1997 12/97 (d)
366,992 759,788 1,126,780 25,462 1986 12/97 (b)
272,300 (f) 272,300 - 1990 08/90 (d)
150,804 373,558 524,362 108,955 1990 03/90 (b)
321,789 287,429 609,218 78,249 1985 11/90 (b)
121,901 314,168 436,069 89,255 1985 04/90 (b)
141,356 318,077 459,433 90,519 1985 04/90 (b)
83,542 400,791 484,333 111,260 1990 04/90 (b)
93,914 321,942 415,856 89,634 1985 04/90 (b)
116,019 411,773 527,792 115,033 1985 04/90 (b)
320,540 531,507 852,047 164,623 1988 09/89 (b)
171,240 385,709 556,949 114,832 1990 01/89 (b)
130,499 268,580 399,079 80,304 1988 01/90 (b)
119,533 236,219 355,752 70,628 1987 01/90 (b)
141,627 263,021 404,648 78,354 1986 01/90 (b)
391,156 720,026 1,111,182 199,627 1990 02/90 (b)
- ----------- ------------ ------------ -----------
$8,558,191 $13,587,739 $22,145,930 $3,586,086
=========== ============ ============ ===========
$261,013 (f) $261,013 - 1974 06/97 (d)
=========== ============ ===========
$484,362 (f) $484,362 - 1989 01/90 (d)
=========== ============ ===========
$438,695 $450,432 $889,127 $116,948 1986 03/91 (b)
=========== ============ ============ ===========
$138,382 $676,588 $814,970 $66,274 1996 01/96 (b)
=========== ============ ============ ===========
$875,659 $1,389,366 $2,265,025 $46,437 1994 12/97 (b)
=========== ============ ============ ===========
$678,890 $825,076 $1,503,966 $26,642 - 01/98 (b)
=========== ============ ============ ===========
$439,281 $603,584 $1,042,865 $937 - 04/98 (b)
=========== ============ ============ ===========
$638,026 (f) $638,026 - - 06/98 (d)
=========== ============ ===========
$507,965 $889,080 $1,397,045 $8,769 - 09/98 (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) (f) (e) 1990 11/90 (e)
- (f) (f) (d) 1990 08/90 (d)
(f) (f) (f) (e) 1991 12/89 (e)
- (f) (f) (d) 1989 01/90 (d)
===========
- (f) (f) (d) 1974 06/97 (d)
===========
$335,374 $1,273,134 (f) (d) - 01/98 (d)
=========== ============
- (f) (f) (d) - 06/98 (d)
===========
</TABLE>
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(a) Transactions in real estate and accumulated depreciation during 1998,
1997, and 1996, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
---------------- --------------
<S> <C>
Properties the Partnership has Invested
in Under Operating Leases:
Balance, December 31, 1995 $ 25,328,432 $ 2,717,746
Dispositions (980,904 ) (34,279 )
Depreciation expense -- 481,683
---------------- --------------
Balance, December 31, 1996 24,347,528 3,165,150
Acquisitions 2,791,258 --
Dispositions (2,748,363 ) (309,754 )
Depreciation expense -- 471,938
---------------- --------------
Balance, December 31, 1997 24,390,423 3,327,334
Dispositions (2,244,493 ) (198,206 )
Depreciation expense -- 456,958
---------------- --------------
Balance, December 31, 1998 $ 22,145,930 $ 3,586,086
================ ==============
Property of Joint Venture in Which the
Partnership has a 36% Interest and
has Invested in Under an
Operating lease:
Balance, December 31, 1995 $ 721,893 $ 147,919
Depreciation expense -- 20,846
---------------- --------------
Balance, December 31, 1996 721,893 168,765
Acquisitions 261,013 --
Dispositions (721,893 ) (170,478 )
Depreciation expense -- 1,713
---------------- --------------
Balance, December 31, 1997 261,013 --
Depreciation expense (d) -- --
---------------- --------------
Balance, December 31, 1998 $ 261,013 $ --
================ ==============
</TABLE>
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Cost 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, 1995 $ 484,362 $ --
Depreciation expense (d) -- --
---------------- ----------------
Balance, December 31, 1996 484,362 --
Depreciation expense (d) -- --
---------------- ----------------
Balance, December 31, 1997 484,362 --
Depreciation expense (d) -- --
---------------- ----------------
Balance, December 31, 1998 $ 484,362 $ --
================ ================
Property of Joint Venture in Which
the Partnership has a
14.46% Interest and has
Invested in Under an Operating
Lease:
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
Depreciation expense -- 15,015
---------------- ----------------
Balance, December 31, 1998 $ 889,127 $ 116,948
================ ================
Property of Joint Venture in Which
the Partnership has a
64.29% Interest and has
Invested in Under an Operating
Lease:
Balance, December 31, 1997 $ -- $ --
Acquisitions 1,397,045 --
Depreciation expense -- 8,769
---------------- ----------------
Balance, December 31, 1998 $ 1,397,045 $ 8,769
================ ================
</TABLE>
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
--------------- --------------
<S> <C>
Property in Which the Partnership
has an 18% 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
Depreciation expense -- 22,679
--------------- --------------
Balance, December 31, 1998 $ 814,970 $ 66,274
=============== ==============
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 $ -- $ --
Acquisition 2,265,025 --
Depreciation expense -- 127
--------------- --------------
Balance, December 31, 1997 $ 2,265,025 $ 127
Depreciation expense -- 46,310
--------------- --------------
Balance, December 31, 1998 $ 2,265,025 $ 46,437
=============== ==============
Property in Which the Partnership
has a 46.20% Interest as
Tenants-in-Common and has
Invested in Under an Operating
Lease:
Balance, December 31, 1997 $ -- $ --
Acquisitions 1,503,966 --
Depreciation expense -- 26,642
--------------- --------------
Balance, December 31, 1998 $ 1,503,966 $ 26,642
=============== ==============
</TABLE>
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
--------------- --------------
<S> <C>
Property of Joint Venture in Which
the Partnership has a 50%
Interest and has Invested in
Under an Operating Lease:
Balance, December 31, 1997 $ -- $ --
Acquisition 1,042,865 --
Depreciation expense -- 937
--------------- --------------
Balance, December 31, 1998 $ 1,042,865 $ 937
=============== ==============
Property in Which the Partnership
has a 85% Interest as
Tenants-in-Common and has Invested
in Under an Operating
Lease:
Balance, December 31, 1997 $ -- $ --
Acquisition 638,026 --
Depreciation expense -- --
--------------- --------------
Balance, December 31, 1998 $ 638,026 $ --
=============== ==============
</TABLE>
(b) Depreciation expense is computed for buildings and improvements
based upon estimated lives of 30 years.
(c) As of December 31, 1998, the aggregate cost of the Properties owned
by the Partnership and its consolidated joint venture, and the
unconsolidated joint ventures (including the two Properties held as
tenants-in-common) for federal income tax purposes was $25,492,208
and $12,463,859, 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.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1998
(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.
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number
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.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund VI, Ltd. at December 31, 1998, and its statement of
income for the year then ended and is qualified in its entirety by reference to
the Form 10-K of CNL Income Fund VI, Ltd. for the year ended December 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,170,686
<SECURITIES> 0
<RECEIVABLES> 474,725
<ALLOWANCES> 323,813
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 22,145,930
<DEPRECIATION> 3,586,086
<TOTAL-ASSETS> 29,655,896
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 28,595,130
<TOTAL-LIABILITY-AND-EQUITY> 29,655,896
<SALES> 0
<TOTAL-REVENUES> 3,090,555
<CGS> 0
<TOTAL-COSTS> 681,919
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,854
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,020,881
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,020,881
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,020,881
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund VI, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
