<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, 1997, 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, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 728,822
<SECURITIES> 0
<RECEIVABLES> 66,571
<ALLOWANCES> 44,434
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 17,795,761
<DEPRECIATION> 1,941,303
<TOTAL-ASSETS> 25,432,365
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 24,542,402
<TOTAL-LIABILITY-AND-EQUITY> 25,432,365
<SALES> 0
<TOTAL-REVENUES> 657,027
<CGS> 0
<TOTAL-COSTS> 118,269
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 575,632
<INCOME-TAX> 0
<INCOME-CONTINUING> 575,632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 575,632
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund VII, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</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, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-19140
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 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 7-10
Part II
Other Information 11
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
March 31, December 31,
ASSETS 1997 1996
----------- ------------
Land and buildings on operating
leases, less accumulated
depreciation of $1,941,303
and $1,865,214 $15,854,458 $15,930,547
Net investment in direct financing
leases 4,079,474 4,098,192
Investment in joint ventures 2,392,383 1,789,238
Mortgage notes receivable, less
deferred gain of $127,007 and
$127,229 1,257,668 1,259,495
Cash and cash equivalents 728,822 1,305,429
Receivables, less allowance for
doubtful accounts of $44,434
and $43,234 22,137 63,386
Prepaid expenses 6,702 4,654
Accrued rental income, less
allowance for doubtful accounts
of $22,241 and $10,786 1,030,299 1,012,490
Other assets 60,422 60,422
----------- -----------
$25,432,365 $25,523,853
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 7,317 $ 6,502
Accrued and escrowed real estate
taxes payable 6,118 4,192
Distributions payable 675,000 675,000
Due to related parties 11,269 9,067
Rents paid in advance 41,961 38,705
----------- -----------
Total liabilities 741,665 733,466
Minority interest 148,298 148,617
Partners' capital 24,542,402 24,641,770
----------- -----------
$25,432,365 $25,523,853
=========== ===========
See accompanying notes to condensed financial statements.
1
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended
March 31,
1997 1996
---------- ----------
Revenues:
Rental income from operating leases $ 487,282 $ 499,110
Earned income from direct financing
leases 123,665 125,775
Contingent rental income 1,111 228
Interest and other income 44,969 88,130
---------- ----------
657,027 713,243
---------- ----------
Expenses:
General operating and administrative 31,726 40,054
Professional services 4,908 10,192
Real estate taxes 1,028 -
State and other taxes 4,518 2,417
Depreciation and amortization 76,089 82,052
---------- ----------
118,269 134,715
---------- ----------
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 538,758 578,528
Minority Interest in Income of
Consolidated Joint Venture (4,627) (4,631)
Equity in Earnings of Unconsolidated
Joint Ventures 41,279 38,429
Gain on Sale of Land and Building 222 201
---------- ----------
Net Income $ 575,632 $ 612,527
========== ==========
Allocation of Net Income:
General partners $ 5,756 $ 6,125
Limited partners 569,876 606,402
---------- ----------
$ 575,632 $ 612,527
========== ==========
Net Income Per Limited Partner Unit $ 0.019 $ 0.020
========== ==========
Weighted Average Number of Limited
Partner Units Outstanding 30,000,000 30,000,000
========== ==========
See accompanying notes to condensed financial statements.
2
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Quarter Ended Year Ended
March 31, December 31,
1997 1996
------------- ------------
General partners:
Beginning balance $ 156,785 $ 133,199
Net income 5,756 23,586
----------- -----------
162,541 156,785
----------- -----------
Limited partners:
Beginning balance 24,484,985 24,881,708
Net income 569,876 2,303,277
Distributions ($0.023 and
$0.09 per limited partner
unit, respectively) (675,000) (2,700,000)
----------- -----------
24,379,861 24,484,985
----------- -----------
Total partners' capital $24,542,402 $24,641,770
=========== ===========
See accompanying notes to condensed financial statements.
3
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1997 1996
---------- ----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 718,025 $ 679,016
---------- ----------
Cash Flows from Investing Activities:
Investment in joint venture (617,035) -
Collections on mortgage notes
receivable 2,349 2,122
---------- ----------
Net cash provided by (used in)
investing activities (614,686) 2,122
---------- ----------
Cash Flows from Financing Activities:
Distributions to limited partners (675,000) (675,000)
Distributions to holder of minority
interest (4,946) (4,949)
---------- ----------
Net cash used in financing
activities (679,946) (679,949)
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents (576,607) 1,189
Cash and Cash Equivalents at Beginning of
Quarter 1,305,429 725,074
---------- ----------
Cash and Cash Equivalents at End of
Quarter $ 728,822 $ 726,263
========== ==========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid
at end of quarter $ 675,000 $ 675,000
========== ==========
See accompanying notes to condensed financial statements.
4
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1997 and 1996
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter ended March 31, 1997, may not be indicative of the results
that may be expected for the year ending December 31, 1997. Amounts as
of December 31, 1996, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund VII, Ltd. (the "Partnership) for the year ended December 31,
1996.
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.
2. Investment in Joint Ventures:
In February 1997, the Partnership entered into a joint venture
arrangement, CNL Mansfield Joint Venture, with an affiliate of the
Partnership which has the same general partners, to hold one restaurant
property in Mansfield, Texas. As of March 31, 1997, the Partnership and
its co-venture partner had contributed $617,035 and $164,174,
respectively, to the joint venture to acquire the restaurant property.
As of March 31, 1997, the Partnership and its co-venture partner owned a
79 percent and 21 percent interest, respectively, 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.
5
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1997 and 1996
2. Investment in Joint Ventures - Continued:
The following presents the combined, condensed financial information for
all of the Partnership's investments in joint ventures at:
March 31, December 31,
1997 1996
---------- ------------
Land and buildings on
operating leases,
less accumulated
depreciation $8,504,533 $7,778,815
Cash 23,141 1,106
Receivables 7,328 14,495
Prepaids 867 -
Accrued rental income 162,544 154,782
Other assets - 1,115
Liabilities 31,519 1,216
Partners' capital 8,666,894 7,949,097
Revenues 230,186 911,833
Net income 172,191 689,075
The Partnership recognized income totalling $41,279 and $38,429 for the
quarters ended March 31, 1997 and 1996, respectively, from these joint
ventures.
6
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, 1997, the Partnership owned 41 Properties, including ten 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, 1997 and 1996, was cash from operations (which includes cash received from
tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $718,025 and
$679,016 for the quarters ended March 31, 1997 and 1996, respectively. The
increase in cash from operations for the quarter ended March 31, 1997, as
compared to the quarter ended March 31, 1996, is primarily a result of changes
in the Partnership's working capital.
Other sources and uses of capital included the following during the
quarter ended March 31, 1997.
In February 1997, the Partnership entered into a joint venture
arrangement, CNL Mansfield Joint Venture, with an affiliate of the Partnership
which has the same general partners to hold one restaurant Property in
Mansfield, Texas. As of March 31, 1997, the Partnership and its co-venture
partner had contributed $617,035 and $164,174, respectively, to the joint
venture to acquire the restaurant Property. As of March 31, 1997, the
Partnership and its co-venture partner owned a 79 percent and 21 percent
interest, respectively, in the profits and losses of the joint venture.
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, 1997, the Partnership had
$728,822 invested in such short-term investments as compared to $1,305,429 at
December 31, 1996. The decrease in cash and cash equivalents for the quarter
ended March 31, 1997, is primarily attributable to the fact that in February
1997, the Partnership invested in CNL Mansfield Joint Venture, as discussed
above. The funds remaining at March 31, 1997, after payment of distributions
and other liabilities, will be used to meet the Partnership's working capital
and other needs.
7
Liquidity and Capital Resources - Continued
Total liabilities of the Partnership, including rents paid in advance
and distributions payable, increased to $741,665 at March 31, 1997, from
$733,466 at December 31, 1996. 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, 1997 and 1996. 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, 1997 and 1996. No amounts
distributed to the limited partners for the quarters ended March 31, 1997 and
1996, are required to be or have been treated by the Partnership as a return
of capital for purposes of calculating the limited partners' return on their
adjusted capital contributions. 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, 1996, the Partnership and its
consolidated joint venture, San Antonio #849 Joint Venture, owned and leased
32 wholly owned Properties (including two Properties in Colorado Springs,
Colorado, and Hartland, Michigan, which were sold in July and October 1996,
respectively) and during the quarter ended March 31, 1997, the Partnership and
its consolidated joint venture owned and leased 31 wholly owned Properties to
operators of fast-food and family-style restaurant chains. In connection
therewith, during the quarters ended March 31, 1997 and 1996, the Partnership
and San Antonio #849 Joint Venture earned $610,947 and $624,885, respectively,
in rental income from operating leases and earned income from direct financing
leases. Rental and earned income decreased during the quarter ended March 31,
1997, as compared to the quarter ended March 31, 1996, partially as a result
of a decrease of approximately $22,500 due to the sales of the Properties in
Colorado Springs, Colorado, and Hartland, Michigan, in July and October 1996,
respectively. The decrease in rental and earned income during the quarter
ended March 31, 1997, was partially offset by an increase of approximately
$31,000 as a result of the
8
Results of Operations - Continued
purchase of the Boston Market Property in Marietta, Georgia, in October 1996,
from the sales proceeds of the Property in Colorado Springs, Colorado.
In addition, the decrease in rental and earned income at March 31, 1997,
as compared to March 31, 1996, is partially attributable to the Partnership
increasing its allowance for doubtful accounts by approximately $18,000 for
rental amounts relating to the Hardee's Property in Columbus, Indiana, due to
financial difficulties the tenant is experiencing. No such allowance was
established during the quarter ended March 31, 1996. The Partnership is
negotiating an agreement with the tenant for the collection of past due
amounts and will recognize such amounts as income if collected.
During the quarter ended March 31, 1996, the Partnership owned and
leased eight Properties indirectly through other joint venture arrangements
and one Property indirectly with an affiliate as tenants-in-common. During
the quarter ended March 31, 1997, the Partnership owned and leased nine
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, 1997 and 1996, the Partnership
earned $41,279 and $38,429, respectively, attributable to net income earned by
these unconsolidated joint ventures. The increase in net income earned by
joint ventures during the quarter ended March 31, 1997, is primarily due to
the fact that in February 1997, the Partnership reinvested the net sales
proceeds it received from the sale, in October 1996, of the Property in
Hartland, Michigan, in CNL Mansfield Joint Venture, with an affiliate of the
Partnership which has the same general partners.
In addition, during the quarters ended March 31, 1997 and 1996, the
Partnership earned $44,969 and $88,130, respectively, in interest and other
income. The decrease in interest and other income during the quarter ended
March 31, 1997, as compared to the quarter ended March 31, 1996, was primarily
attributable to the fact that during the quarter ended March 31, 1996, the
Partnership recognized approximately $46,500 in other income due to the fact
that the corporate franchisor of the Properties in Pueblo and Colorado
Springs, Colorado, paid the past due real estate taxes relating to these
Properties, and the Partnership reversed such amounts during 1996 that it had
previously accrued as payable during 1995.
Operating expenses, including depreciation and amortization expense,
were $118,269 and $134,715 for the quarters ended March 31, 1997 and 1996,
respectively. The decrease in operating expenses during the quarter ended
March 31, 1997, as compared to the quarter ended March 31, 1996, is primarily
a result of a decrease in accounting and administrative expenses associated
with operating the Partnership and its Properties and a decrease in
professional services as a result of the Partnership incurring the
9
Results of Operations - Continued
cost of the 1996 appraisal updates obtained to prepare an annual statement of
unit valuation to qualified plans in accordance with the partnership agreement
during the quarter ended December 31, 1996. The Partnership incurred the cost
of the 1995 appraisal updates during the quarter ended March 31, 1996.
In addition, the decrease in operating expenses was partially
attributable to a decrease in depreciation expense during the quarter ended
March 31, 1997, as compared to the quarter ended March 31, 1996, as a result
of the sale of the Property in Colorado Springs, Colorado, and the sale of the
Property in Hartland, Michigan, during 1996. The decrease in depreciation
expense was partially offset by the purchase of the Property in Marietta,
Georgia, in October 1996.
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 $222 and
$201 during the quarters ended March 31, 1997 and 1996, respectively.
10
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, 1997.
11
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 13th day of May, 1997.
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)
