<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund VII, Ltd. at March 31, 1996, and its statement of
income for the three months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Income Fund VII, Ltd. for the three months
ended March 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 726,263
<SECURITIES> 0
<RECEIVABLES> 314,149
<ALLOWANCES> 300,022
<INVENTORY> 0
<CURRENT-ASSETS> 745,558
<PP&E> 18,596,450
<DEPRECIATION> 1,768,171
<TOTAL-ASSETS> 25,797,494
<CURRENT-LIABILITIES> 695,729
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 24,952,434
<TOTAL-LIABILITY-AND-EQUITY> 25,797,494
<SALES> 0
<TOTAL-REVENUES> 713,243
<CGS> 0
<TOTAL-COSTS> 134,715
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 612,527
<INCOME-TAX> 0
<INCOME-CONTINUING> 612,527
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 612,527
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
-----------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission file number
0-19140
----------------------
CNL Income Fund VII, Ltd.
- - ------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2963871
- - ---------------------------- ------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street, #500
Orlando, Florida 32801
- - ---------------------------- ------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--------- ---------
CONTENTS
--------
Part I Page
----
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 6-10
Part II
Other Information 11
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
March 31, December 31,
ASSETS 1996 1995
----------- ------------
Land and buildings on operating
leases, less accumulated
depreciation of $1,768,171
and $1,686,119 $16,828,279 $16,401,919
Net investment in direct financing
leases 4,151,098 4,676,119
Investment in joint ventures 1,813,617 1,823,158
Mortgage notes receivable, less
deferred gain of $127,864 and
$128,065 1,265,809 1,267,849
Cash and cash equivalents 726,263 725,074
Receivables, less allowance for
doubtful accounts of $300,022
and $461,143 14,127 48,191
Prepaid expenses 5,168 5,033
Accrued rental income, less
allowance for doubtful accounts
of $9,500 and $9,155 932,711 907,851
Other assets 60,422 60,422
----------- -----------
$25,797,494 $25,915,616
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 4,784 $ 3,655
Accrued and escrowed real estate
taxes payable 1,497 47,111
Distributions payable 675,000 675,000
Due to related parties 14,448 13,311
Rents paid in advance - 11,983
----------- -----------
Total liabilities 695,729 751,060
Commitment (Note 2)
Minority interest 149,331 149,649
Partners' capital 24,952,434 25,014,907
----------- -----------
$25,797,494 $25,915,616
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended
March 31,
1996 1995
---------- ----------
Revenues:
Rental income from operating leases $ 499,110 $ 514,201
Earned income from direct financing
leases 125,775 136,000
Contingent rental income 228 3,925
Interest and other income 88,130 9,450
---------- ----------
713,243 663,576
---------- ----------
Expenses:
General operating and administrative 40,054 26,759
Professional services 10,192 5,841
State and other taxes 2,417 2,405
Depreciation and amortization 82,052 86,096
---------- ----------
134,715 121,101
---------- ----------
Income Before Minority Interest in
Income of Consolidated Joint Venture,
Equity in Earnings of Unconsolidated
Joint Ventures and Gain on Sale of
Land and Building 578,528 542,475
Minority Interest in Income of
Consolidated Joint Venture (4,631) (4,635)
Equity in Earnings of Unconsolidated
Joint Ventures 38,429 38,496
Gain on Sale of Land and Building 201 -
---------- ----------
Net Income $ 612,527 $ 576,336
========== ==========
Allocation of Net Income:
General partners $ 6,125 $ 5,763
Limited partners 606,402 570,573
---------- ----------
$ 612,527 $ 576,336
========== ==========
Net Income Per Limited Partner Unit $ 0.020 $ 0.019
========== ==========
Weighted Average Number of Limited
Partner Units Outstanding 30,000,000 30,000,000
========== ==========
See accompanying notes to condensed financial statements.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Quarter Ended Year Ended
March 30, December 31,
1996 1995
------------- ------------
General partners:
Beginning balance $ 133,199 $ 112,415
Net income 6,125 20,784
----------- -----------
139,324 133,199
----------- -----------
Limited partners:
Beginning balance 24,881,708 25,620,346
Net income 606,402 1,961,364
Distributions ($0.023 and
$0.090 per limited partner
unit, respectively) (675,000) (2,700,002)
----------- -----------
24,813,110 24,881,708
----------- -----------
Total partners' capital $24,952,434 $25,014,907
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1996 1995
----------- -----------
Increase (Decrease) in Cash and
Cash Equivalents:
Net Cash Provided by Operating
Activities $ 679,016 $ 673,368
----------- -----------
Cash Flows from Investing
Activities:
Collections on mortgage
notes receivable 2,122 -
----------- -----------
Net cash provided by
investing activities 2,122 -
----------- -----------
Cash Flows from Financing
Activities:
Distributions to limited
partners (675,000) (735,000)
Distributions to holder
of minority interest (4,949) (3,081)
----------- -----------
Net cash used in
financing activities (679,949) (738,081)
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 1,189 (64,713)
Cash and Cash Equivalents at
Beginning of Quarter 725,074 1,005,053
----------- -----------
Cash and Cash Equivalents at End of
Quarter $ 726,263 $ 940,340
=========== ===========
Supplemental Schedule of Non-Cash
Investing and Financing
Activities:
Net investment in direct
financing lease reclassified
as building under operating
lease as a result of lease
amendment $ 508,412 $ -
=========== ===========
Distributions declared and
unpaid at end of quarter $ 675,000 $ 675,000
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1996 and 1995
1. Basis of Presentation:
---------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter ended March 31, 1996, may not be indicative of the results
that may be expected for the year ending December 31, 1996. Amounts as
of December 31, 1995, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund VII, Ltd. (the "Partnership) for the year ended December 31,
1995.
The Partnership accounts for its 83 percent interest in San Antonio #849
Joint Venture using the consolidation method. Minority interest
represents the minority joint venture partner's proportionate share of
the equity in the Partnership's consolidated joint venture. All
significant intercompany accounts and transactions have been eliminated.
Effective January 1, 1996, the Partnership adopted Statement of
Financial Accounting Standards No. 121. "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The
Statement requires that an entity review long-lived assets and certain
identifiable intangibles, to be held and used, for impairment whenever
events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. Adoption of this standard had no
material effect on the Partnership's financial position or results of
operations.
2. Commitment:
----------
In March 1996, the Partnership entered into a purchase and sale
agreement to sell its property in Colorado Springs, Colorado, to an
unrelated, third party. The closing is scheduled to take place no later
than June 30, 1996. The general partners anticipate that proceeds
received from the sale of this property will be in excess of the
carrying value of the property and will be reinvested in an additional
property. The sale of this Property had not occurred as of April 30,
1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CNL Income Fund VII, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 18, 1989, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as land upon which restaurants were to be
constructed (the "Properties"), which are leased primarily to operators of
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 March
31, 1996, the Partnership owned 41 Properties, including nine Properties owned
by joint ventures in which the Partnership is a co-venturer and one Property
owned with an affiliate as tenants-in-common.
Liquidity and Capital Resources
- - -------------------------------
The Partnership's primary source of capital for the quarters ended March
31, 1996 and 1995, was cash from operations (which includes cash received from
tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $679,016 and
$673,368 for the quarters ended March 31, 1996 and 1995, respectively.
In March 1996, the Partnership entered into an agreement with the tenant
of the Property in Daytona Beach, 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
$13,200 of the rental payment deferral amounts. The tenant made the first
payment of approximately $5,700 in April 1996 in accordance with the terms of
the agreement, and has agreed to pay the Partnership the remaining balance due
of approximately $33,700 in six remaining annual installments through 2002.
In March 1996, the Partnership entered into a purchase and sale
agreement to sell its Property in Colorado Springs, Colorado, to an unrelated,
third party. The closing is scheduled to take place no later than June 30,
1996. The general partners anticipate that proceeds received from the sale of
this Property will be in excess of the carrying value of the Property and will
be reinvested in an additional Property. The sale of this Property had not
occurred as of April 30, 1996.
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 March 31, 1996, the Partnership had
$726,263 invested in such short-term investments as compared to $725,074 at
December 31, 1995. The funds remaining at March 31, 1996, after payment of
distributions and other liabilities, will be used to meet the Partnership's
working capital and other needs.
Total liabilities of the Partnership, including distributions payable,
decreased to $695,729 at March 31, 1996, from $751,060 at December 31, 1995,
primarily as the result of the reversal of real estate taxes that the
Partnership had accrued at December 31, 1995, for the Properties in Pueblo and
Colorado Springs, Colorado. The accrual for real estate taxes was reversed due
to the fact that the corporate franchisor paid the amounts due as described
below in "Results of Operations." The general partners believe that the
Partnership has sufficient cash on hand to meet its current working capital
needs.
Based primarily on cash from operations, the Partnership declared
distributions to the limited partners of $675,000 for each of the quarters
ended March 31, 1996 and 1995. This represents distributions for each
applicable quarter of $0.023 per unit. No distributions were made to the
general partners for the quarters ended March 31, 1996 and 1995. No amounts
distributed to the limited partners for the quarters ended March 31, 1996 and
1995, are required to be or have been treated by the Partnership as a return
of capital for purposes of calculating the limited partners' return on their
adjusted capital contributions. The Partnership intends to continue to make
distributions of cash available for distribution to the limited partners on a
quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash
flow in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection
with the operations of the Partnership.
Results of Operations
- - ---------------------
During the quarter ended March 31, 1995, the Partnership and its
consolidated joint venture, San Antonio #849 Joint Venture, owned and leased
34 wholly owned Properties (including two Properties in Florence, South
Carolina, and Jacksonville, Florida, which were sold in August and December
1995, respectively) and during the quarter ended March 31, 1996, the
Partnership and its consolidated joint venture owned and leased 32 wholly
owned Properties to operators of fast-food and family-style restaurant chains.
In connection therewith, during the quarters ended March 31, 1996 and 1995,
the Partnership and San Antonio #849 Joint Venture earned $624,885 and
$650,201, respectively, in rental income from operating leases and earned
income from direct financing leases. Rental and earned income decreased
approximately $41,500 during the quarter ended March 31, 1996, as compared to
the quarter ended March 31, 1995, as a result of the sale of the Partnership's
Properties in Florence, South Carolina, and Jacksonville, Florida, in August
and December 1995, respectively.
In addition, rental and earned income decreased approximately $2,700
during the quarter ended March 31, 1996, as compared to the quarter ended
March 31, 1995, as a result of the fact that the Partnership negotiated an
assignment and amendment of the lease for its Property in Pueblo, Colorado.
As a result of the assignment and amendment, the Partnership wrote off amounts
due from the former tenant totalling approximately $119,100, approximately
$110,600 of which had been previously reserved by the Partnership and
approximately $8,500 of which was charged to income, during the quarter ended
March 31, 1996.
Rental and earned income also decreased approximately $14,300 during the
quarter ended March 31, 1996, as compared to the quarter ended March 31, 1995,
as the result of the Partnership's amending the lease for its Property in
Hartland, Michigan, to provide for reduced base rental payments for a one-year
period, beginning in January 1996. This increase was partially offset by a
decrease of approximately $10,500 due to the fact that the Partnership
increased its allowance for doubtful accounts relating to this Property during
the quarter ended March 31, 1995, and no such adjustments were made during the
quarter ended March 31, 1996. During the quarter ended March 31, 1996, the
building portion of the lease was reclassified from a direct financing lease
to an operating lease as a result of the lease amendment.
The decrease in rental and earned income during the quarter ended March
31, 1996, as compared to the quarter ended March 31, 1995, was partially
offset as a result of the fact that the Partnership recorded as income
approximately $14,600 in rental payment deferrals for the Property in Daytona
Beach, Florida. Previously, the Partnership had established an allowance for
doubtful accounts for these amounts. In March 1996, the Partnership entered
into an agreement with the tenant to collect the remaining balance, as
discussed above in "Liquidity and Capital Resources." If such amounts are
collected, the Partnership will reverse the remaining allowance for doubtful
accounts and record such amounts as income.
The decrease in rental and earned income during the quarter ended March
31, 1996, as compared to the quarter ended March 31, 1995, was also partially
offset by an increase of approximately $10,500 due to the fact that in January
1996, the Partnership agreed to accept reduced monthly rents from the tenant
of the Property in Colorado Springs, Colorado, beginning January 29, 1996, for
a six month period. During the quarter ended March 31, 1995, the Partnership
did not recognize any income from this Property as a result of establishing an
allowance for doubtful accounts for rent receivable amounts. In March 1996,
the Partnership entered into a purchase and sale agreement to sell this
Property as described above in "Liquidity and Capital Resources." The
Partnership intends to continue pursuing collection of past due amounts and
will recognize any such amounts as income if collected.
During the quarters ended March 31, 1996 and 1995, the Partnership also
owned and leased eight Properties indirectly through other joint venture
arrangements and one Property indirectly with an affiliate as tenants-in-
common. In connection therewith, during the quarters ended March 31, 1996 and
1995, the Partnership earned $38,429 and $38,496, respectively, attributable
to net income earned by these unconsolidated joint ventures.
In addition, during the quarters ended March 31, 1996 and 1995, the
Partnership earned $88,130 and $9,450, respectively, in interest and other
income. The increase in interest and other income during the quarter ended
March 31, 1996, as compared to the quarter ended March 31, 1995, was partially
attributable to an increase of approximately $35,300 relating to interest
earned on the mortgage notes receivable accepted in connection with the sales
of the Properties in Florence, South Carolina, and Jacksonville, Florida, in
August and December 1995, respectively. In addition, the increase in interest
and other income was partially attributable to the Partnership recognizing
approximately $46,400 in other income due to the fact that the corporate
franchisor paid past due real estate taxes relating to the Properties in
Pueblo and Colorado Springs, Colorado, during the quarter ended March 31,
1996. Due to financial difficulties the former tenant of these Properties had
been experiencing, the Partnership had previously accrued the past due real
estate taxes relating to these Properties.
Operating expenses, including depreciation and amortization expense,
were $134,715 and $121,101 for the quarters ended March 31, 1996 and 1995,
respectively. The increase in operating expenses during the quarter ended
March 31, 1996, as compared to the quarter ended March 31, 1995, is primarily
a result of an increase in (i) accounting and administrative expenses
associated with operating the Partnership and its Properties and (ii)
insurance expense as a result of the general partners' obtaining contingent
liability and property coverage for the Partnership, effective May 1995. This
insurance policy is intended to reduce the Partnership's exposure in the
unlikely event a tenant's insurance policy lapses or is insufficient to cover
a claim relating to the Property. Operating expenses also increased due to the
fact that during the quarter ended March 31, 1996, the Partnership incurred
professional services as a result of appraisal updates obtained to prepare an
annual statement of unit valuation to qualified plans in accordance with the
Partnership's partnership agreement. During 1995, these professional services
were incurred during the quarter ended June 30, 1995. Operating expenses also
increased during the quarter ended March 31, 1996, as compared to the quarter
ended March 31, 1995, as a result of an increase in depreciation expense due
to the reclassification of the building portion of the lease relating to the
Property in Hartland, Michigan, from a direct financing lease to an operating
lease.
The increase in operating expenses was partially offset by a decrease in
depreciation expense during the quarter ended March 31, 1996, as compared to
the quarter ended March 31, 1995, as a result of the demolition of the
Property in Daytona Beach, Florida, the sale of the Property in Florence,
South Carolina, and the sale of the Property in Jacksonville, Florida, during
1995.
As a result of the sale of the Property in Florence, South Carolina, in
August 1995, and recording the gain using the installment method, the
Partnership recognized a gain for financial reporting purposes of $201 during
the quarter ended March 31, 1996. No Properties were sold during the quarters
ended March 31, 1996 or 1995.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
-----------------
Item 2. Changes in Securities. Inapplicable.
---------------------
Item 3. Defaults upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Inapplicable.
Item 5. Other Information. Inapplicable.
-----------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1996.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 14th day of May, 1996.
CNL INCOME FUND VII, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-----------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-----------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
