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, 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 of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street, Suite 500
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 422-1574
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which
registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of limited partnership interest ($1 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is
no market value for such Units. Each Unit was originally sold at $1 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
ITEM 1. BUSINESS
CNL Income Fund VII, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 18, 1989. 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 January 30, 1990, the
Partnership offered for sale up to $30,000,000 of limited partnership
interests (the "Units") (30,000,000 Units each at $1 per Unit) pursuant to a
registration statement on Form S-11 under the Securities Act of 1933, as
amended. The offering terminated on August 1, 1990, as of which date the
maximum offering proceeds of $30,000,000 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 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 $26,550,000, and were used to acquire 42 Properties, including
interests in nine Properties owned by joint ventures in which the Partnership
is a co-venturer, and to establish a working capital reserve for Partnership
purposes. During 1994, the Partnership sold its Property in St. Paul,
Minnesota, and reinvested the majority of the net sales proceeds in a Checkers
Property in Winter Springs, Florida, consisting of only land, and a Jack in
the Box Property in Yuma, Arizona, which is owned as tenants-in-common with an
affiliate of the General Partners. The lessee of the Property consisting of
only land owns the building currently on the land. During 1995, the
Partnership sold its Properties in Florence, South Carolina, and Jacksonville,
Florida, and accepted promissory notes in the principal sum of $1,160,000 and
$240,000, respectively. In addition, the building located on the
Partnership's Property in Daytona Beach, Florida, was demolished in accordance
with a condemnation agreement during 1995. During the year ended December 31,
1996, the Partnership sold its Properties in Hartland, Michigan, and Colorado
Springs, Colorado, and reinvested the net sales received from the sale of the
Colorado Springs, Colorado Property in a Boston Market Property in Marietta,
Georgia. As a result of the above transactions, the Partnership currently
owns 40 Properties, including interests in 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. In February 1997, the Partnership used the
net sales proceeds from the sale of the Property in Hartland, Michigan, to
invest in CNL Mansfield Joint Venture with an affiliate of the General
Partners in exchange for a 79 percent interest in the joint venture. The
Properties are leased on a triple-net basis with the lessee responsible for
all repairs and maintenance, property taxes, insurance and utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to
sell Properties, the General Partners will consider factors such as potential
capital appreciation, net cash flow and federal income tax considerations.
Certain lessees also have been granted options to purchase Properties,
generally at the Property's then fair market value after a specified portion
of the lease term has elapsed. In general, the General Partners plan to seek
the sale of some of the Properties commencing seven to 12 years after their
acquisition. The Partnership has no obligation to sell all or any portion of
a Property at any particular time, except as may be required under property
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
and the joint ventures in which the Partnership is a co-venturer provide for
initial terms ranging from five to 20 years (the average being 17 years), and
expire between 1998 and 2016. All leases are on a triple-net basis, with the
lessee 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
$22,100 to $166,700. The majority of the leases provide for percentage rent,
based on sales in excess of a specified
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amount. In addition, some of the leases provide that, commencing in specified
lease years (generally ranging from the sixth to the eleventh lease year), the
annual base rent required under the terms of the lease will increase.
Generally, the leases of the Properties provide for two to 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 after a specified portion of the
lease term has elapsed. Under the terms of certain leases, the option
purchase price may equal the Partnership's original cost to purchase the
Property (including acquisition costs), plus a specified percentage from the
date of the lease or a specified percentage of the Partnership's purchase
price, if that amount is greater than the Property's fair market value at the
time the purchase option is exercised.
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 that 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.
From 1992 through March 31, 1996, certain rent concessions and payment
deferrals were granted by the Partnership for two Properties leased by the
same tenant in Daytona Beach and Jacksonville, Florida. The difference
between the rent due on the Daytona Beach Property under the lease agreement
and the rent collected for the period December 1, 1992 through March 31, 1996,
was deferred. During 1996, the Partnership entered into an agreement with the
tenant to collect these deferred amounts in annual installments through 2002.
In conjunction therewith, the tenant began paying full rent in accordance with
the terms of the original lease agreement.
In January 1996, the lease relating to the Shoney's Property in Pueblo,
Colorado, was assigned by the Partnership's tenant to the corporate franchisor
and, in connection with this assignment, the lease agreement was amended. The
lease amendment provides for reduced annual base rental payments with
increases beginning in the fourth lease year and every three years thereafter
throughout the term of the lease.
Also, in January 1996, the tenant of the Shoney's Property in Colorado
Springs, Colorado, entered into a management agreement with the corporate
franchisor. In connection therewith, the Partnership had agreed to accept
reduced monthly rent for this Property beginning January 29, 1996 and through
the six month period thereafter at the greater of $5,000 per month or 6.5% of
gross sales for that given month. In July 1996, the Partnership sold this
Property to an unrelated third party. In October 1996, the Partnership
reinvested the net sales proceeds, along with additional funds, in a Boston
Market Property located in Marietta, Georgia. The lease terms of this
Property are substantially the same as those described in the first three
paragraphs of this section.
In addition, in January 1996, the lease relating to the Hardee's
Property in Hartland, Michigan, was amended to provide for reduced base rental
payments for a one-year period. In October 1996, the Partnership sold this
Property to an unrelated third party. In February 1997, the Partnership
reinvested the net sales proceeds in CNL Mansfield Joint Venture, as described
below under "Joint Venture Arrangements." The lease terms of the lease of CNL
Mansfield Joint Venture are substantially the same as those described in the
first three paragraphs of this section.
Major Tenants
During 1996, three lessees of the Partnership and its consolidated joint
venture, Golden Corral Corporation, Restaurant Management Services, Inc. and
Flagstar Enterprises, 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 rental
income from eight Properties owned by unconsolidated joint ventures and one
Property owned with an affiliate as tenants-in-common). As of December 31,
1996, Golden Corral Corporation was the lessee under leases relating to four
restaurants, Restaurant Management Services, Inc. was the lessee under leases
relating to seven restaurants and one site currently consisting of land only
and Flagstar Enterprises, Inc. was the lessee under leases relating to six
restaurants. It is anticipated that, based on the minimum rental payments
required by the leases, these three lessees each will continue to contribute
more than ten percent of the Partnership's total rental income in 1997 and
subsequent years. In addition, three Restaurant Chains, Golden Corral Family
Steakhouse Restaurants, Hardee's and Burger King, each accounted for more than
ten percent of the Partnership's total rental income in 1996 (including rental
income from the Partnership's consolidated joint venture and the Partnership's
share of rental
2
income from eight Properties owned by unconsolidated joint ventures and one
Property owned with an affiliate as tenants-in-common). In subsequent years,
it is anticipated that these three Restaurant Chains each will continue to
account for more than ten percent of the Partnership's total rental income to
which the Partnership is entitled under the terms of the leases. Any failure
of these lessees or Restaurant Chains could materially affect the
Partnership's income. 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, San
Antonio #849 Joint Venture, with an unaffiliated entity to purchase and hold
one Property. In addition, the Partnership has entered into three separate
joint venture arrangements, Halls Joint Venture, CNL Restaurant Investments II
and Des Moines Real Estate Joint Venture, with affiliates of the General
Partners to purchase and hold eight 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 also jointly and
severally liable for all debts, obligations and other liabilities of the joint
venture.
San Antonio #849 Joint Venture, Halls Joint Venture and Des Moines Real
Estate Joint Venture each have an initial term of 20 years and, after the
expiration of the initial term, continue in existence from year to year unless
terminated at the option of any 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 each joint venture partner to dissolve the
joint venture. CNL Restaurant Investments II's joint venture agreement does
not provide a fixed term, but continues in existence until terminated by any
of the joint venturers.
The Partnership has management control of the San Antonio #849 Joint
Venture and shares management control equally with affiliates of the General
Partners for Halls Joint Venture, CNL Restaurant Investments II and Des Moines
Real Estate 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 San Antonio #849 Joint Venture, Halls
Joint Venture, CNL Restaurant Investments II and Des Moines Real Estate Joint
Venture is distributed 83 percent, 51 percent, 18 percent and 4.79%,
respectively, to the Partnership and the balance is distributed to each of the
other joint venture partners in accordance with their respective percentage
interests in the joint venture. Any liquidation proceeds, after paying joint
venture debts and liabilities and funding reserves for contingent liabilities,
will be distributed first to the joint venture partners with positive capital
account balances in proportion to such balances until such balances equal
zero, and thereafter in proportion to each joint venture partner's percentage
interest in the joint venture.
In addition to the above joint venture agreements, in July 1994, the
Partnership entered into an agreement to hold a Jack in the Box Property as
tenants-in-common with an affiliate of the General Partners. The agreement
provides for the Partnership and the affiliate to share in the profits and
losses of the Property in proportion to each co-venturer's percentage
interest. The Partnership owns a 48.33% interest in this Property.
In February 1997, the Partnership entered into a joint venture
arrangement, CNL Mansfield Joint Venture, with an affiliate of the General
Partners, to own a 79 percent interest in the joint venture.
Certain Management Services
CNL Investment Company, an affiliate of the General Partners, provided
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership through December 31,
1994. Under this agreement, CNL Investment Company was responsible for
collecting rental payments, inspecting the Properties and the tenants' books
and records, assisting the Partnership in responding to tenant inquiries and
notices and providing information to the Partnership about the status of the
leases and the
3
Properties. CNL Investment Company also assisted the General Partners in
negotiating the leases. For these services, the Partnership had agreed to pay
CNL Investment Company an annual fee of one percent of the sum of gross rental
revenues from Properties wholly owned by the Partnership plus the
Partnership's allocable share of gross revenues of joint ventures in which the
Partnership is a co-venturer and the Property held as tenants-in-common with
an affiliate, but not in excess of competitive fees for comparable services.
Under the management agreement, the management fee is subordinated to receipt
by the Limited Partners of an aggregate, ten percent, cumulative,
noncompounded annual return on their adjusted capital contributions (the "10%
Preferred Return"), calculated in accordance with the Partnership's limited
partnership agreement (the "Partnership Agreement").
Effective January 1, 1995, certain officers and employees of CNL
Investment Company became officers and employees of CNL Income Fund Advisors,
Inc., an affiliate of the General Partners, and CNL Investment Company
assigned its rights in, and its obligations under, the management agreement
with the Partnership to CNL Income Fund Advisors, Inc. In addition, effective
October 1, 1995, CNL Income Fund Advisors, Inc. assigned its rights in, and
its obligations under, the management agreement with the Partnership to CNL
Fund Advisors, Inc. All of the terms and conditions of the management
agreement, including the payment of fees, as described above, remain
unchanged.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60
days' prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains,
including those offering different types of food and service.
At the time the Partnership elects to dispose of its Properties, other
than as a result of the exercise of tenant options to purchase Properties, the
Partnership will be in competition with other persons and entities to locate
purchasers for its Properties.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who
may also perform certain services for the Partnership.
ITEM 2. PROPERTIES
As of December 31, 1996, the Partnership owned, either directly or
through joint venture arrangements, 40 Properties located in 12 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 10,800
to 110,200 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. Generally, each of the Properties owned by the Partnership
includes a building that is one of a Restaurant Chain's approved designs.
However, the building located on the Checkers Property is owned by the tenant,
while the land parcel is owned by the Partnership.
4
In addition, the building located on the Partnership's Property in
Daytona Beach, Florida, was demolished in accordance with a condemnation
agreement during 1995. The buildings generally are rectangular and are
constructed from various combinations of stucco, steel, wood, brick and tile.
The sizes of the buildings owned by the Partnership range from approximately
700 to 10,600 square feet. All buildings on Properties acquired by the
Partnership 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, 1996 (see Item 1. Business -
Major Tenants), are substantially the same as those described in
Item 1. Business - Leases.
Golden Corral Corporation leases four Golden Corral restaurants. The
initial term of each lease is 15 years (expiring between 2004 and 2005) and
the average minimum base annual rent is approximately $147,800 (ranging from
approximately $137,100 to $166,700).
Restaurant Management Services, Inc. leases five Popeyes restaurants,
one Shoney's restaurant, one Church's Fried Chicken restaurant and one site
currently consisting of land only (formerly operated as a Church's Fried
Chicken). The initial term of each lease is 20 years (expiring between 2009
and 2010) and the average minimum base annual rent is approximately $53,700
(ranging from approximately $22,100 to $121,000).
Flagstar Enterprises, Inc. leases six Hardee's restaurants. The initial
term of each lease is 20 years (expiring between 2010 and 2012) and the
average minimum base annual rent is approximately $78,900 (ranging from
approximately $68,400 to $89,400).
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 February 28, 1997, there were 3,174 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
5
transfers of Units. Since inception, the price paid for any Unit transferred
pursuant to the Plan has been $.95 per Unit. The price to be paid for any
Unit transferred other than pursuant to the Plan is subject to negotiation by
the purchaser and the selling Limited Partner. The Partnership will not
redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 1996 and 1995 other
than pursuant to the Plan, net of commissions (which ranged from zero to
17.2%).
1996 (1) 1995 (1)
--------------------- ---------------------
High Low Average High Low Average
------ ----- ------- ------ ----- -------
First Quarter $ .88 $ .79 $ .84 $ .95 $ .85 $ .90
Second Quarter .95 .82 .94 .77 .77 .77
Third Quarter .95 .91 .93 .82 .80 .81
Fourth Quarter .78 .75 .76 .95 .88 .93
(1) A total of 153,050 and 74,371 Units were transferred other than pursuant
to the Plan for the years ended December 31, 1996 and 1995,
respectively.
The capital contribution per Unit was $1. 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, 1996 and 1995, the Partnership declared
cash distributions of $2,700,000 and $2,700,002, respectively, to the Limited
Partners. No amounts distributed to partners for the years ended December 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. 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 1996 1995
------------- -------- --------
March 31 $675,000 $675,000
June 30 675,000 675,001
September 30 675,000 675,001
December 31 675,000 675,000
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.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31:
Revenues (1) $ 2,882,709 $ 2,716,883 $ 2,917,331 $ 2,953,405 $ 2,957,156
Net income (2) 2,326,863 1,982,148 2,503,300 2,433,910 2,553,053
Cash distributions
declared (3) 2,700,000 2,700,002 2,760,002 2,700,000 2,700,004
Net income per Unit (2) 0.077 0.065 0.083 0.080 0.084
Cash distributions
declared per Unit(3) 0.090 0.090 0.092 0.090 0.090
At December 31:
Total assets $25,523,853 $25,915,616 $26,644,363 $26,872,295 $26,508,455
Partners' capital 24,641,770 25,014,907 25,732,761 25,989,463 26,255,553
</TABLE>
6
(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 years ended December 31, 1996, 1995, 1994 and 1992,
includes $195,675, $1,421, $77,379 and $110,344, respectively, from
gains on dispositions of land and buildings. Net income for the year
ended December 31, 1996, includes a loss on sale of land and building of
$235,465. In addition, net income for the year ended December 31, 1995,
includes a loss on demolition of building and a loss on sale of land and
building of $174,466 and $6,556, respectively.
(3) Distributions for the year ended December 31, 1994, include a special
distribution to the Limited Partners of $60,000 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 18, 1989, 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 lessee generally responsible for
all repairs and maintenance, property taxes, insurance and utilities. As of
December 31, 1996, the Partnership owned 40 Properties, either directly or
indirectly through joint venture arrangements.
Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended December
31, 1996, 1995 and 1994, was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest
received, less cash paid for expenses). Cash from operations was $2,670,869,
$2,484,538 and $2,734,382 for the years ended December 31, 1996, 1995 and
1994, respectively. The increase in cash from operations during 1996, and the
decrease in 1995, each as compared to the prior year, are primarily a result
of changes in income and expenses as discussed in "Results of Operations"
below and changes in the Partnership's working capital during each of the
respective years.
Other sources and uses of capital included the following during the
years ended December 31, 1996, 1995 and 1994.
In May 1994, the Partnership sold its Property in St. Paul, Minnesota,
for $871,322 and received net sales proceeds of $869,036, resulting in a gain
of $77,379 for financial reporting purposes. The Property was originally
acquired by the Partnership in August 1990, and had a cost of approximately
$750,100, excluding acquisition fees and miscellaneous acquisition expenses;
therefore, the Partnership sold the Property for approximately $118,900 in
excess of its original purchase price. In July 1994, the Partnership
reinvested approximately $426,000 of the net sales proceeds in a Property in
Yuma, Arizona, as tenants-in-common with an affiliate of the General Partners.
In addition, in July 1994, the Partnership reinvested approximately $397,500
in a Property in Winter Springs, Florida, in which the tenant owns the
building currently on the land. The remaining net sales proceeds were used
for other Partnership purposes.
In August 1995, the Partnership sold its Property in Florence, South
Carolina, to the tenant for $1,160,000, and in connection therewith, accepted
a promissory note in the principal sum of $1,160,000, collateralized by a
mortgage on the Property. The note bears interest at a rate of 10.25% per
annum and is being collected in 59 equal monthly installments of $10,395, with
a balloon payment of $1,106,657 due in July 2000. Collections commenced
August 10, 1995. In accordance with Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate," the Partnership
recorded the sale of the Property using the installment sales method.
Therefore, the gain on the sale of the Property was deferred and is being
recognized as income proportionately as payments under
7
the mortgage note are collected. The Partnership recognized a gain of $836
and $1,421 for financial reporting purposes for the years ended December 31,
1996 and 1995, respectively, and had a deferred gain in the amount of $127,229
and $128,065 at December 31, 1996 and 1995, respectively. The mortgage notes
receivable balance at December 31, 1996 and 1995, include principal of
$1,139,788 and $1,147,275, respectively, and accrued interest of $6,281 and
$6,639, respectively, and are shown net of the deferred gain of $127,229 and
$128,065, respectively. Proceeds received from the sale of this Property will
be reinvested in additional Properties or used for other Partnership purposes.
In November 1994, the Partnership received notice from the subtenant of
its Property in Jacksonville, Florida, that it intended to exercise its option
to purchase the Property in accordance with the terms of its sublease
agreement. In December 1995, the Partnership sold its Property in
Jacksonville, Florida, to the subtenant for $240,000, and in connection
therewith, accepted a promissory note in the principal sum of $240,000,
collateralized by a mortgage on the Property. The note bears interest at a
rate of ten percent per annum and is being collected in 119 equal monthly
installments of $2,106, with a balloon payment of $218,252 due December 2005.
Collections commenced in January 1996. As a result of the sale of the
Property, the Partnership recognized a loss of $6,556 for financial reporting
purposes for the year ended December 31, 1995. The mortgage notes receivable
balance at December 31, 1996 and 1995, include principal of $238,666 and
$240,000, respectively, and accrued interest of $1,989 and $2,000,
respectively. Proceeds received from the sale of this Property will be
distributed to the Limited Partners or will be used for other Partnership
purposes.
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. 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 July 1996, the Partnership sold its Property in Colorado Springs,
Colorado, for $1,075,000, and received net sales proceeds of $1,044,909,
resulting in a gain of $194,839 for financial reporting purposes. This
Property was originally acquired by the Partnership in July 1990 and had a
cost of approximately $900,900, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $144,000 in excess of its original purchase price. In October
1996, the Partnership reinvested the net sales proceeds, along with
additional funds, in a Boston Market Property located in Marietta, Georgia.
The sale of the Property in Colorado Springs, Colorado, was structured to
qualify as a like-kind exchange transaction in accordance with Section 1031 of
the Internal Revenue Code. As a result, no gain was recognized for federal
income tax purposes. Therefore, the Partnership was not required to
distribute any of the net sales proceeds from the sale of this Property to
Limited Partners for the purpose of paying federal and state income taxes.
In addition, in October 1996, the Partnership sold its Property in
Hartland, Michigan, for $625,000 and received net sales proceeds of $617,035,
resulting in a loss of approximately $235,465, for financial reporting
purposes. In February 1997, the Partnership reinvested the net sales proceeds
in CNL Mansfield Joint Venture, with an affiliate of the General Partners, in
exchange for a 79 percent interest in the joint venture.
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
make distributions to the partners. At December 31, 1996, the Partnership had
$1,305,429 invested in such short-term investments, as compared to $725,074 at
December 31, 1995. The increase in the amount invested in short-term
investments is primarily a result of the receipt of the net sales proceeds
from the sale of the Property in Hartland, Michigan, which had not been
reinvested as of December 31, 1996. The net sales proceeds were reinvested in
8
February 1997, as discussed above. The funds remaining at December 31, 1996,
after payment of distributions and other liabilities, will be used to meet the
Partnership's working capital and other needs.
During 1996, 1995 and 1994, affiliates of the General Partners incurred
on behalf of the Partnership $97,288, $94,618 and $83,868, respectively, for
certain operating expenses. As of December 31, 1996 and 1995, the Partnership
owed $1,867 and $6,111, respectively, to affiliates for such amounts and
accounting and administrative services. As of February 28, 1997, the
Partnership had reimbursed the affiliates all such amounts. In addition,
during the year ended December 31, 1995, the Partnership incurred $7,200 in
real estate disposition fees due to an affiliate as a result of its services
in connection with the sale of the Property in Jacksonville, Florida. The
payment of such fees is deferred until the Limited Partners have received the
sum of their 10% Preferred Return and their adjusted capital contributions.
Amounts payable to other parties, including distributions payable, of the
Partnership decreased to $685,694 at December 31, 1996, from $725,766 at
December 31, 1995, primarily as a result of a decrease in accrued real estate
taxes payable relating to two of the Partnership's Properties as of December
31, 1996, as discussed in "Results of Operations" below. Liabilities at
December 31, 1996, to the extent they exceed cash and cash equivalents at
December 31, 1996, will be paid from future cash from operations, from amounts
collected under the mortgage notes described above or, in the event the
General Partners elect to make additional capital contributions, from future
General Partner contributions.
Based primarily on current and anticipated future cash from operations,
and cumulative excess operating reserves for the year ended December 31, 1994,
the Partnership declared distributions to the Limited Partners of $2,700,000,
$2,700,002 and $2,760,002 for the years ended December 31, 1996, 1995 and
1994, respectively. This represents distributions of $0.090 per Unit for each
of the years ended December 31, 1996 and 1995 and $0.092 per Unit for the year
ended December 31, 1994. No amounts distributed or to be distributed to the
Limited Partners for the years ended December 31, 1996, 1995 and 1994 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 believe that the Partnership has sufficient working capital reserves
at this time. In addition, because all leases of the Partnership's Properties
are on a triple-net basis, it is not anticipated that a permanent reserve for
maintenance and repairs will be established at this time. To the extent,
however, that the Partnership has insufficient funds for such purposes, the
General Partners will contribute to the Partnership an aggregate amount of up
to one percent of the offering proceeds for maintenance and repairs.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection
with the operations of the Partnership.
Results of Operations
During 1994, the Partnership owned and leased 34 wholly owned Properties
(including one Property in St. Paul, Minnesota, which was sold in May 1994),
during 1995, the Partnership owned and leased 33 wholly owned Properties
(including two Properties in Florence, South Carolina, and Jacksonville,
Florida, which were sold in August and December 1995, respectively) and during
1996, the Partnership owned and leased 33 wholly owned Properties (including
two Properties in Colorado Springs, Colorado, and Hartland, Michigan, which
were sold in July and October 1996, respectively). In addition, during 1996,
1995 and 1994, the Partnership was a co-venturer in four separate joint
ventures which owned and leased nine Properties and one Property the
Partnership owned and leased
9
with an affiliate as tenants-in-common. As of December 31, 1996, the
Partnership and its consolidated joint venture, San Antonio #849 Joint
Venture, owned (either directly, as tenants-in-common with an affiliate or
through joint venture arrangements) 40 wholly owned Properties which are, in
general, 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 $22,100 to $166,700. All of 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
specified lease years (generally ranging from the sixth to the eleventh lease
year), the annual base rent required under the terms of the lease will
increase. 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, 1996, 1995 and 1994, the Partnership
and its consolidated joint venture, San Antonio #849 Joint Venture, earned
$2,459,094, $2,427,464 and $2,704,481, respectively, in rental income from
operating leases and earned income from direct financing leases. The increase
in rental and earned income during 1996, as compared to 1995, and the decrease
in rental and earned income during 1995, as compared to 1994, is partially
attributable to the fact that during 1995, the Partnership did not recognize
any rental income relating to the Property in Pueblo, Colorado, due to the
fact that the Partnership established an allowance for doubtful accounts of
approximately $110,600 for past due rental amounts. No such allowance was
established during 1996 due to the fact that in January 1996, the Partnership
negotiated the assignment and amendment of the lease for the Property with the
corporate franchisor and received rental payments of approximately $77,000
relating to this Property.
In addition, the increase in rental and earned income during 1996, as
compared to 1995, and the decrease in rental and earned income during 1995, as
compared to 1994, is partially attributable to the fact that, during 1995, the
Partnership did not recognize any rental income relating to the Property in
Colorado Springs, Colorado, due to the fact that the Partnership established
an allowance for doubtful accounts of approximately $102,800 for past due
rental amounts relating to this Property. No such allowance was established
during 1996 due to the fact that in January 1996, the Partnership agreed to
accept reduced monthly rents beginning January 29, 1996, for a six month
period, as described in Item 1. Business - Leases and in connection
therewith, recognized approximately $22,400 in rental income during 1996. In
July 1996, the Partnership sold this Property, and in October 1996, reinvested
the sales proceeds in a Boston Market Property in Marietta, Georgia, as
described in above "Liquidity and Capital Resources."
In addition, the increase in rental and earned income during 1996, as
compared to 1995, and the decrease during 1995, as compared to 1994, is
partially due to the Partnership establishing an allowance for doubtful
accounts of approximately $45,400 during 1995, for rent receivable amounts
relating to the Property in Hartland, Michigan, as a result of the fact that
the tenant had continued to experience financial difficulties. No such
adjustments were made during 1996 due to the fact that during 1996, the lease
for this Property was amended to provide for lower base rental payments, as
described in Item 1. Business - Leases. In October 1996, the Partnership
sold this Property, as described above in "Liquidity and Capital Resources."
The increase in rental and earned income during 1996, as compared to
1995, was partially offset by, and the decrease during 1995, as compared to
1994, is partially attributable to, a decrease of approximately $107,600 and
$53,200 during 1996 and 1995, respectively, as a result of the sale of the
Partnership Properties in Florence, South Carolina, and Jacksonville, Florida,
in August and December 1995, respectively. However, as a result of the
Partnership accepting mortgage notes for the sale of these Properties,
interest income increased during 1996 and 1995, as discussed below and above
in "Liquidity and Capital Resources."
For the years ended December 31, 1996, 1995 and 1994, the Partnership
also earned $44,973, $68,820 and $57,509, respectively, in contingent rental
income. The decrease in contingent rental income during 1996, as compared to
1995, is primarily attributable to the change in the percentage rent formula
in accordance with the terms of the lease agreement for one of the
Partnership's leases during 1996. The increase in contingent rent during
1995, as compared to 1994, was primarily a result of the Partnership's
collecting approximately $7,000 in contingent rent payments during 1995,
relating to the Property in Jacksonville, Florida, that had been written off
as uncollectible in 1994.
10
During the years ended December 31, 1996, 1995 and 1994, the Partnership
earned $240,079, $84,390 and $31,165, respectively, in interest and other
income. The increase in interest and other income during 1996 and 1995, each
as compared to the previous year, was primarily attributable to an increase in
interest earned on the mortgage notes accepted in connection with the sales of
the Properties in Florence, South Carolina, in August 1995, and Jacksonville,
Florida, in December 1995, as discussed above in "Liquidity and Capital
Resources." In addition, the increase in interest and other income during
1996, as compared to 1995, is attributable to the Partnership recognizing
approximately $46,500 in other income due to the fact that the corporate
franchisor of the Properties in Pueblo and Colorado Springs, Colorado, paid
past due real estate taxes relating to the Properties and the Partnership
reversed such amounts during 1996 that it had previously accrued as payable
during 1995.
For the years ended December 31, 1996, 1995 and 1994, the Partnership
also earned $157,254, $154,937 and $142,974, respectively, attributable to net
income earned by eight Properties owned indirectly through unconsolidated
joint ventures in which the Partnership is a co-venturer and one Property
owned indirectly with an affiliate as tenants-in-common. The increase in net
income earned by unconsolidated joint ventures during 1995, as compared to
1994, is primarily due to the acquisition in July 1994, of a Property with an
affiliate as tenants-in-common, which is included in equity in earnings of
unconsolidated joint ventures.
During the years ended December 31, 1996, 1995 and 1994, three lessees
of the Partnership and its consolidated joint venture, Golden Corral
Corporation, Restaurant Management Services, Inc. and Flagstar Enterprises,
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 rental income from eight Properties
owned by unconsolidated joint ventures and one Property owned with an
affiliate as tenants-in-common). As of December 31, 1996, Golden Corral
Corporation was the lessee under leases relating to four restaurants,
Restaurant Management Services, Inc. was the lessee under leases relating to
eight restaurants and Flagstar Enterprises, Inc. was the lessee under leases
relating to six restaurants. It is anticipated that, based on the minimum
rental payments required by the leases, these three lessees each will continue
to contribute more than ten percent of the Partnership's total rental income
during 1997 and subsequent years. In addition, three Restaurant Chains,
Golden Corral Family Steakhouse Restaurants, Hardee's and Burger King, each
accounted for more than ten percent of the Partnership's total rental income
in 1996, 1995 and 1994 (including rental income from the Partnership's
consolidated joint venture and the Partnership's share of rental income from
eight Properties owned by unconsolidated joint ventures and one Property owned
with an affiliate as tenants-in-common). In subsequent years, it is
anticipated that these three Restaurant Chains each will continue to account
for more than ten percent of the Partnership's total rental income to which
the Partnership is entitled under the terms of the leases. Any failure of
these lessees or Restaurant Chains could materially affect the Partnership's
income.
Operating expenses, including depreciation and amortization expense,
were $516,056, $555,134 and $491,410 for the years ended December 31, 1996,
1995 and 1994, respectively. The decrease in operating expenses during 1996,
as compared to 1995, and the increase in 1995, as compared to 1994, was
primarily attributable to the fact that the Partnership accrued approximately
$22,100 and $24,400 for current and past due real estate taxes relating to the
Properties in Colorado Springs and Pueblo, Colorado, respectively, during
1995. As discussed above, the amounts accrued during 1995 were reversed and
recorded as other income during 1996. No real estate taxes were recorded
during 1996 relating to the Property in Pueblo, Colorado, due to the fact that
the new tenant is responsible for the real estate taxes under the terms of the
assigned lease. In July 1996, the Partnership sold the Property in Colorado
Springs, Colorado, as discussed above in "Liquidity and Capital Resources,"
and in connection therewith, paid approximately $9,000 in 1996 real estate
taxes which were due upon the sale of the Property.
The decrease in operating expenses during 1996, as compared to 1995, was
partially attributable to a decrease in depreciation expense 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. The increase in operating expenses during
1995, as compared to 1994, was partially offset by a decrease in depreciation
expense due to the sale of the Property in St. Paul, Minnesota, in May 1994.
The decrease in operating expenses during 1996, as compared to 1995, was
partially offset by, and the increase during 1995, as compared to 1994, was
partially attributable to, an increase in accounting and administrative
expenses associated with operating the Partnership and its Properties and an
increase in insurance expense as a result
11
of the General Partners' obtaining contingent liability and property coverage
for the Partnership, as discussed in "Liquidity and Capital Resources."
As a result of the sale of the Property in Colorado Springs, Colorado,
during 1996, as discussed above in "Liquidity and Capital Resources," the
Partnership recognized a gain of $194,839 for financial reporting purposes,
for the year ended December 31, 1996. As a result of the sale of the Property
in Hartland, Michigan, as discussed above in "Liquidity and Capital
Resources," the Partnership recognized a loss for financial reporting purposes
of $235,465, for the year ended December 31, 1996.
In connection with the sale of its Property in Florence, South Carolina,
during 1995, as described above in "Liquidity and Capital Resources," the
Partnership recognized a gain for financial reporting purposes of $836 and
$1,421 for the years ended December 31, 1996 and 1995, respectively. In
accordance with Statement of Financial Accounting Standards No. 66,
"Accounting for Sales of Real Estate," the Partnership recorded the sale using
the installment sales method. As such, the gain on sale was deferred and is
being recognized as income proportionately as payments under the mortgage note
are collected. Therefore, the balance of the deferred gain of $127,229 and
$128,065 at December 31, 1996, are being recognized as income in future
periods as payments are collected. For federal income tax purposes, a gain of
approximately $97,300 from the sale of this Property was also deferred during
1995 and is being recognized as payments under the mortgage note are
collected.
In addition, as a result of the sale of the Property in Jacksonville,
Florida, during 1995, as described above in "Liquidity and Capital Resources,"
the Partnership recognized a loss for financial reporting purposes of $6,556
for the year ended December 31, 1995. In addition, as a result of the
demolition of the Property in Daytona Beach, Florida, as described above in
"Liquidity and Capital Resources," the Partnership recognized a loss on
demolition of building for financial reporting purposes of $174,466 for the
year ended December 31, 1995.
As a result of the sale of the Property in St. Paul, Minnesota, during
1994, the Partnership recognized a gain of $77,379 for financial reporting
purposes for the year ended December 31, 1994. The amount of gain for
financial reporting purposes was reduced by approximately $46,000 relating to
accrued rental income recorded in previous periods as a result of the
Partnership's recognizing scheduled rent increases on a straight-line basis
over the term of the lease.
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.
The Partnership's leases as of December 31, 1996, 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. Inflation has had a minimal effect on income from operations.
Management expects that increases in restaurant sales volumes due to inflation
and real sales growth should result in an increase in rental income over time.
Continued inflation also may cause capital appreciation of the Partnership's
Properties. Inflation and changing prices, however, also may have an adverse
impact on the sales of the restaurants and on potential capital appreciation
of the Properties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
12
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants 14
Financial Statements:
Balance Sheets 15
Statements of Income 16
Statements of Partners' Capital 17
Statements of Cash Flows 18
Notes to Financial Statements 21
13
Report of Independent Accountants
To the Partners
CNL Income Fund VII, Ltd.
We have audited the financial statements and the financial statement
schedules of CNL Income Fund VII, Ltd. (a Florida limited partnership) listed
in Item 14(a) of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CNL Income Fund VII, Ltd. as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules referred to above, when considered
in relation to the basic financial statements taken as a whole, present
fairly, in all material respects, the information required to be included
therein.
/s/Coopers & Lybrand L.L.P.
Orlando, Florida
February 5, 1997
14
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
ASSETS 1996 1995
----------- -----------
Land and buildings on operating
leases, less accumulated
depreciation $15,930,547 $16,401,919
Net investment in direct financing
leases 4,098,192 4,676,119
Investment in joint ventures 1,789,238 1,823,158
Mortgage notes receivable, less
deferred gain 1,259,495 1,267,849
Cash and cash equivalents 1,305,429 725,074
Receivables, less allowance for
doubtful accounts of $43,234
and $461,143 63,386 48,191
Prepaid expenses 4,654 5,033
Accrued rental income, less
allowance for doubtful accounts
of $10,786 and $9,155 1,012,490 907,851
Other assets 60,422 60,422
----------- -----------
$25,523,853 $25,915,616
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 6,502 $ 3,655
Accrued and escrowed real estate
taxes payable 4,192 47,111
Distributions payable 675,000 675,000
Due to related parties 9,067 13,311
Rents paid in advance 38,705 11,983
----------- -----------
Total liabilities 733,466 751,060
Minority interest 148,617 149,649
Partners' capital 24,641,770 25,014,907
----------- -----------
$25,523,853 $25,915,616
=========== ===========
See accompanying notes to financial statements.
15
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
1996 1995 1994
---------- ---------- -----------
Revenues:
Rental income from operating
leases $1,954,033 $1,888,830 $2,148,237
Earned income from direct
financing leases 505,061 538,634 556,244
Contingent rental income 44,973 68,820 57,509
Interest and other income 240,079 84,390 31,165
---------- ---------- ----------
2,744,146 2,580,674 2,793,155
---------- ---------- ----------
Expenses:
General operating and
administrative 159,001 146,747 100,873
Professional services 27,640 27,379 27,717
Bad debt expense - 2,584 4,928
Real estate taxes 9,010 46,512 -
State and other taxes 2,448 2,562 6,327
Depreciation and amortization 317,957 329,350 351,565
---------- ---------- ----------
516,056 555,134 491,410
---------- ---------- ----------
Income Before Minority Interest
in Income of Consolidated Joint
Venture, Equity in Earnings of
Unconsolidated Joint Ventures,
Gain (Loss) on Sale of Land
and Building and Loss on
Demolition of Building 2,228,090 2,025,540 2,301,745
Minority Interest in Income of
Consolidated Joint Venture (18,691) (18,728) (18,798)
Equity in Earnings of Unconsoli-
dated Joint Ventures 157,254 154,937 142,974
Gain (Loss) on Sale of Land
and Buildings (39,790) (5,135) 77,379
Loss on Demolition of Building - (174,466) -
---------- ---------- ----------
Net Income $2,326,863 $1,982,148 $2,503,300
========== ========== ==========
Allocation of Net Income:
General partners $ 23,586 $ 20,784 $ 24,899
Limited partners 2,303,277 1,961,364 2,478,401
---------- ---------- ----------
$2,326,863 $1,982,148 $2,503,300
========== ========== ==========
Net Income Per Limited Partner
Unit $ 0.077 $ 0.065 $ 0.083
========== ========== ==========
Weighted Average Number of
Limited Partner Units
Outstanding 30,000,000 30,000,000 30,000,000
========== ========== ==========
See accompanying notes to financial statements.
16
<TABLE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
General Partners Limited Partners
----------------- ---------------------------------------------------
Accumu- Accumu-
Contri- lated Contri- Distri- lated Syndication
butions Earnings butions butions Earnings Costs Total
-------- --------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993 $1,000 $ 86,516 $30,000,000 $ (9,317,619) $ 8,659,566 $(3,440,000) $25,989,463
Distributions to
limited partners
($0.092 per
limited partner
unit) - - - (2,760,002) - - (2,760,002)
Net income - 24,899 - - 2,478,401 - 2,503,300
------ -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31,
1994 1,000 111,415 30,000,000 (12,077,621) 11,137,967 (3,440,000) 25,732,761
Distributions to
limited partners
($0.090 per limited
partner unit) - - - (2,700,002) - - (2,700,002)
Net income - 20,784 - - 1,961,364 - 1,982,148
------ -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31,
1995 1,000 132,199 30,000,000 (14,777,623) 13,099,331 (3,440,000) 25,014,907
Distributions to
limited partners
($0.090 per limited
partner unit) - - - (2,700,000) - - (2,700,000)
Net income - 23,586 - - 2,303,277 - 2,326,863
------ -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31,
1996 $1,000 $155,785 $30,000,000 $(17,477,623) $15,402,608 $(3,440,000) $24,641,770
====== ======== =========== ============ =========== =========== ===========
See accompanying notes to financial statements.
17
</TABLE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
----------- ----------- -----------
Increase (Decrease) in Cash
and Cash Equivalents:
Cash Flows From Operating
Activities:
Cash received from
tenants $ 2,549,406 $ 2,399,249 $ 2,666,534
Distributions from
unconsolidated
joint ventures 191,174 190,398 175,728
Cash paid for expenses (248,523) (174,993) (136,134)
Interest received 178,812 69,884 28,254
----------- ----------- -----------
Net cash provided
by operating
activities 2,670,869 2,484,538 2,734,382
----------- ----------- -----------
Cash Flows From Investing
Activities:
Additions to land and
buildings on opera-
ting leases (1,041,555) - (397,536)
Proceeds from sale of
land and buildings 1,661,943 - 869,036
Investment in joint
ventures - - (425,887)
Collections on mortgage
notes receivable 8,821 12,725 -
----------- ----------- -----------
Net cash provided
by investing
activities 629,209 12,725 45,613
----------- ----------- -----------
Cash Flows From Financing
Activities:
Distributions to
limited partners (2,700,000) (2,760,002) (2,700,002)
Distributions to holder
of minority interest (19,723) (17,240) (20,464)
----------- ----------- -----------
Net cash used in
financing
activities (2,719,723) (2,777,242) (2,720,466)
----------- ----------- -----------
Net Increase (Decrease) in
Cash and Cash Equivalents 580,355 (279,979) 59,529
Cash and Cash Equivalents at
Beginning of Year 725,074 1,005,053 945,524
----------- ----------- -----------
Cash and Cash Equivalents at
End of Year $ 1,305,429 $ 725,074 $ 1,005,053
=========== =========== ===========
See accompanying notes to financial statements.
18
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
1996 1995 1994
----------- ----------- -----------
Reconciliation of Net Income
to Net Cash Provided by
Operating Activities:
Net income $ 2,326,863 $ 1,982,148 $ 2,503,300
----------- ----------- -----------
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 317,957 328,982 349,565
Amortization - 368 2,000
Minority interest in
income of consoli-
dated joint venture 18,691 18,728 18,798
Loss (gain) on sale of
land and building 39,790 5,135 (77,379)
Loss on demolition of
building - 174,466 -
Equity in earnings of
unconsolidated joint
ventures, net of
distributions 33,920 35,461 32,754
Decrease (increase) in
receivables (14,827) 799 38,492
Decrease (increase) in
prepaid expenses 379 (3,320) 1,814
Decrease in net invest-
ment in direct
financing leases 70,329 70,872 62,904
Increase in accrued
rental income (104,639) (169,520) (168,302)
Increase (decrease) in
accounts payable and
accrued expenses (40,072) 46,367 (2,377)
Increase (decrease) in
due to related
parties (4,244) 6,111 -
Increase (decrease) in
rents paid in advance 26,722 (12,059) (27,187)
----------- ----------- -----------
Total adjustments 344,006 502,390 231,082
----------- ----------- -----------
Net Cash Provided by Operating
Activities $ 2,670,869 $ 2,484,538 $ 2,734,382
=========== =========== ===========
See accompanying notes to financial statements.
19
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
1996 1995 1994
----------- ----------- -----------
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Mortgage notes accepted
in exchange for sale of
land and buildings $ - $ 1,400,000 $ -
=========== =========== ===========
Distributions declared and
unpaid at December 31 $ 675,000 $ 675,000 $ 735,000
=========== =========== ===========
See accompanying notes to financial statements.
20
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund VII, 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 methods. 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 net 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.
21
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
1. Significant Accounting Policies - Continued:
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations. The
general partners determine whether an impairment in value has occurred
by comparing the estimated future undiscounted cash flows, including the
residual value of the property, with the carrying cost of the individual
property. Although the general partners have made their best estimate
of these factors based on current conditions, it is reasonably possible
that changes could occur in the near term which could adversely affect
the general partners' estimate of net cash flows expected to be
generated from its properties and the need for asset impairment write-
downs. If an impairment is indicated, a loss will be recorded for the
amount by which the carrying value of the asset exceeds its fair market
value.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
and 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 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.
The Partnership's investments in Halls Joint Venture, CNL Restaurant
Investments II, Des Moines Real Estate Joint
22
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
1. Significant Accounting Policies - Continued:
Venture and a property in Yuma, Arizona, held as tenants-in-common with
an affiliate are accounted for using the equity method since the
Partnership shares control with affiliates which have the same general
partners.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents. Cash and cash equivalents consist of demand deposits
at commercial banks and money market funds (some of which are backed by
government securities). Cash equivalents are stated at cost plus
accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand deposits
at commercial banks and money market funds may exceed federally insured
levels; however, the Partnership has not experienced any losses in such
accounts. The Partnership limits investment of temporary cash
investments to financial institutions with high credit standing;
therefore, the Partnership believes it is not exposed to any significant
credit risk on cash and cash equivalents.
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.
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.
23
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
1. Significant Accounting Policies - Continued:
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 1996 presentation.
These reclassifications had no effect on partners' capital or net
income.
New Accounting Standard - 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." This 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. Leases:
The Partnership leases its land or 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, ten 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 eight of these leases are operating
leases. Substantially all leases are for 15 to 20 years and provide for
minimum and contingent rentals. In addition, the tenant generally 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.
24
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
1996 1995
----------- -----------
Land $ 8,673,793 $ 8,866,709
Buildings 9,121,968 9,221,329
----------- -----------
17,795,761 18,088,038
Less accumulated
depreciation (1,865,214) (1,686,119)
----------- -----------
$15,930,547 $16,401,919
=========== ===========
During 1994, the Partnership sold its property in St. Paul, Minnesota,
for $871,322 and received net sales proceeds of $869,036, resulting in a
gain of $77,379 for financial reporting purposes. This property was
originally acquired by the Partnership in August 1990, and had a cost of
approximately $750,100, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the property for
approximately $118,900 in excess of its original purchase price. In
July 1994, the Partnership reinvested $397,536 of the net sales proceeds
in land of a Checkers property in Winter Springs, Florida.
In April 1995, the building located on the Partnership's property in
Daytona Beach, Florida, was demolished in accordance with a condemnation
agreement. As a result, the Partnership recognized a loss for the
undepreciated cost of the building of $174,466 for financial reporting
purposes. Currently, the existing tenant remains responsible for
complying with the terms of the lease.
In August 1995, the Partnership sold its property in Florence, South
Carolina, to the tenant for $1,160,000 and accepted the sales proceeds
in the form of a promissory note (see Note 6). The total carrying value
of the property was $1,030,515, including acquisition fees,
miscellaneous acquisition expenses and net of accumulated depreciation.
As a result of this sale being accounted for using the installment sales
method for financial reporting purposes, the Partnership recognized a
gain of $836 and $1,421 for the years ended December 31, 1996 and 1995,
respectively, and had a deferred gain in the amount of $127,229 and
$128,065 at December 31, 1996 and 1995, respectively (see Note 6).
25
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
3. Land and Buildings on Operating Leases - Continued:
In December 1995, the Partnership sold its property in Jacksonville,
Florida, to the subtenant and accepted a promissory note for the gross
sales price of $240,000 (see Note 6), resulting in a loss, net of
closing costs, of $6,556 for financial reporting purposes.
In July 1996, the Partnership sold its property in Colorado Springs,
Colorado, for $1,075,000 and received net sales proceeds of $1,044,909,
resulting in a gain of $194,839 for financial reporting purposes. This
property was originally acquired by the Partnership in July 1990 and had
a cost of approximately $900,900, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the
property for approximately $144,000 in excess of its original purchase
price. In October 1996, the Partnership reinvested the net sales
proceeds along with additional funds, in a Boston Market property
located in Marietta, Georgia.
In addition, in October 1996, the Partnership sold its property in
Hartland, Michigan, for $625,000 and received net sales proceeds of
$617,035, resulting in a loss of approximately $235,465 for financial
reporting purposes.
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, 1996, 1995 and 1994, the Partnership
recognized $104,639, $169,520 and $168,302, 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, 1996:
1997 $ 1,884,130
1998 1,878,860
1999 1,888,137
2000 1,922,102
2001 2,021,705
Thereafter 14,800,176
-----------
$24,395,110
===========
26
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
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:
1996 1995
----------- ------------
Minimum lease payments
receivable $ 7,824,101 $ 9,402,387
Estimated residual values 1,266,893 1,403,028
Less unearned income (4,992,802) (6,129,296)
----------- ------------
Net investment in direct
financing leases $ 4,098,192 $ 4,676,119
=========== ============
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 1996:
1997 $ 570,486
1998 576,921
1999 576,921
2000 576,921
2001 578,078
Thereafter 4,944,774
----------
$7,824,101
==========
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).
5. Investment in Joint Ventures:
The Partnership has a 51 percent interest, an 18 percent interest and a
4.79% interest in the profits and losses of Halls Joint Venture, CNL
Restaurant Investments II and Des Moines Real Estate Joint Venture,
respectively. The remaining interests in these joint ventures are held
by affiliates of
27
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
5. Investment in Joint Ventures - Continued:
the Partnership which have the same general partners. The Partnership
also has a 48.33% interest in a property in Yuma, Arizona, with an
affiliate of the Partnership that has the same general partners, as
tenants-in-common. The Partnership accounts for its investment in this
property using the equity method since the Partnership shares control
with an affiliate. Amounts relating to its investment are included in
investment in joint ventures. CNL Restaurant Investments II owns and
leases six properties to an operator of national fast-food or family-
style restaurants, and Halls Joint Venture, Des Moines Real Estate Joint
Venture and the Partnership and an affiliate as tenants-in-common, each
own and lease one property to an operator of national fast-food or
family-style restaurants. The following presents the combined,
condensed financial information for the joint ventures and the property
held as tenants-in-common with an affiliate at December 31:
1996 1995
----------- -----------
Land and buildings on
operating leases, less
accumulated depreciation $7,778,815 $7,992,548
Cash 1,106 875
Receivables 14,495 -
Accrued rental income 154,782 123,354
Other assets 1,115 358
Liabilities 1,216 956
Partners' capital 7,949,097 8,116,179
Revenues 911,833 897,583
Net income 689,075 675,899
The Partnership recognized income totalling $157,254, $154,937 and
$142,974 for the years ended December 31, 1996, 1995 and 1994,
respectively, from these joint ventures and the property held as
tenants-in-common with an affiliate.
6. Mortgage Notes Receivable:
In connection with the sale of its property in Florence, South Carolina,
the Partnership accepted a promissory note in the principal sum of
$1,160,000, collateralized by a mortgage on the property. The
promissory note bears interest at a rate of 10.25% per annum and is
being collected in 59 equal monthly installments of $10,395, with a
balloon payment of $1,106,657 due in July 2000.
28
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
6. Mortgage Notes Receivable - Continued:
In addition, the Partnership accepted a promissory note in the principal
sum of $240,000 in connection with the sale of its property in
Jacksonville, Florida. The note is collateralized by a mortgage on the
property. The promissory note bears interest at a rate of ten percent
per annum and is being collected in 119 equal monthly installments of
$2,106, with a balloon payment of $218,252 due in December 2005.
The mortgage notes receivable consisted of the following at December 31:
1996 1995
---------- ----------
Principal balance $1,378,454 $1,387,275
Accrued interest receivable 8,270 8,639
Less deferred gain on sale
of land and building (127,229) (128,065)
---------- ----------
$1,259,495 $1,267,849
========== ==========
The general partners believe that the estimated fair values of mortgage
notes receivable at December 31, 1996 and 1995, approximate the
outstanding principal amount based on estimated current rates at which
similar loans would be made to borrowers with similar credit and for
similar maturities.
7. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of properties, are allocated 99 percent
to the limited partners and one percent to the general partners.
Distributions of net cash flow are made 99 percent to the limited
partners and one percent to the general partners; provided, however,
that the one percent of net cash flow to be distributed to the general
partners is subordinated to receipt by the limited partners of an
aggregate, ten percent, cumulative, noncompounded annual return on their
adjusted capital contributions (the "10% Preferred Return").
Generally, net sales proceeds from the sale of properties, to the extent
distributed, will be distributed first to the limited partners in an
amount sufficient to provide them with their 10% Preferred Return, plus
the return of their adjusted capital contributions. The general
partners will then receive, to the extent previously subordinated
and unpaid,
29
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
7. Allocations and Distributions - Continued:
a one percent interest in all prior distributions of net cash flow
and a return of their capital contributions. Any remaining sales
proceeds will be distributed 95 percent to the limited partners and five
percent to the general partners. Any gain from the sale of a property
is, in general, allocated in the same manner as net sales proceeds are
distributable. Any loss from the sale of a property is, in general,
allocated first, on a pro rata basis, to partners with positive balances
in their capital accounts; and thereafter, 95 percent to the limited
partners and five percent to the general partners.
During the years ended December 31, 1996, 1995 and 1994, the Partnership
declared distributions to the limited partners of $2,700,000, $2,700,002
and $2,760,002, respectively. No distributions have been made to the
general partners to date.
30
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
8. 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:
1996 1995 1994
---------- ---------- ----------
Net income for financial
reporting purposes $2,326,863 $1,982,148 $2,503,300
Depreciation for tax
reporting purposes in
excess of depreciation
for financial reporting
purposes (24,753) (36,960) (31,870)
Gain or loss on sale of
land and buildings for
financial reporting
purposes in excess of
gain or loss for tax
reporting purposes (163,152) 174,513 (31,767)
Direct financing leases
recorded as operating
leases for tax reporting
purposes 70,329 70,872 62,904
Equity in earnings of
unconsolidated joint
ventures for tax report-
ing purposes in excess
of (less than) equity in
earnings of unconsoli-
dated joint ventures
for financial reporting
purposes 1,420 (68) 740
Accrued rental income (104,639) (169,520) (168,302)
Rents paid in advance 26,722 (12,059) (27,187)
Minority interest in
timing differences of
consolidated joint
venture 981 3,525 344
Other - (20,722) 20,722
---------- ---------- ----------
Net income for federal
income tax purposes $2,133,771 $1,991,729 $2,328,884
========== ========== ==========
9. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the parent company of CNL
Investment Company and CNL Fund Advisors, Inc. The other individual
general partner, Robert A. Bourne, is the president of CNL Investment
Company and CNL Fund Advisors, Inc. CNL Income Fund Advisors, Inc. was
a wholly owned subsidiary of CNL Group, Inc. until its merger, effective
January 1, 1996, with CNL Fund Advisors, Inc.
31
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
9. Related Party Transactions - Continued:
During the years ended December 31, 1996, 1995 and 1994, CNL Investment
Company, CNL Income Fund Advisors, Inc. and CNL Fund Advisors, Inc.
(hereinafter referred to collectively as the "Affiliates") each
performed certain services for the Partnership, as described below.
During the years ended December 31, 1996, 1995 and 1994, certain
Affiliates acted as manager of the Partnership's properties pursuant to
a management agreement with the Partnership. In connection therewith,
the Partnership agreed to pay the Affiliates an annual, noncumulative,
subordinated 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 will be incurred
and will be payable only after the limited partners receive their 10%
Preferred Return. Due to the fact that these fees are noncumulative, if
the limited partners do not receive their 10% Preferred Return in any
particular year, no management fee 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, 1996, 1995 and 1994.
Certain Affiliates are also entitled to receive a deferred, subordinated
real estate disposition fee, payable upon the sale of one or more
properties based on the lesser of one-half of a competitive real estate
commission or three percent of the sales price if the Affiliates provide
a substantial amount of services in connection with the sale. However,
if the net 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. During the year
ended December 31, 1995, the Partnership incurred $7,200 in deferred,
subordinated real estate disposition fees as a result of the
Partnership's sale of its property in Jacksonville, Florida. No
deferred, subordinated real estate disposition fees were incurred for
the years ended December 31, 1996 and 1994.
32
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
9. Related Party Transactions - Continued:
During the years ended December 31, 1996, 1995 and 1994, the Affiliates
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $92,985, $81,259 and $46,469
for the years ended December 31, 1996, 1995 and 1994, respectively, for
such services.
The due to related parties consisted of the following at December 31:
1996 1995
-------- --------
Due to Affiliates:
Expenditures incurred on
behalf of the Partnership $ 63 $ 2,697
Accounting and administrative
services 1,804 3,414
Deferred, subordinated real
estate disposition fee 7,200 7,200
------- -------
$ 9,067 $13,311
======= =======
During 1994, the Partnership and an affiliate of the general partners
acquired a property as tenants-in-common for a purchase price of
$881,033 (of which the Partnership contributed $425,887 or 48.33%) from
CNL South Corp., an affiliate of the general partners. CNL South Corp.
had purchased and temporarily held title to this property in order to
facilitate the acquisition of the property by the Partnership and the
affiliate. The purchase price paid by the Partnership and the affiliate
represented the costs incurred by CNL South Corp. to acquire and carry
the property, including closing costs.
10. 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
33
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
10. Concentration of Credit Risk - Continues:
(including the Partnership's share of total rental and earned income
from the unconsolidated joint ventures and the property held as tenants-
in-common with an affiliate), for the years ended December 31:
1996 1995 1994
-------- -------- --------
Golden Corral
Corporation $608,852 $618,413 $622,652
Flagstar Enterprises,
Inc. 464,042 469,374 473,303
Restaurant Management
Services, Inc. 446,867 446,279 420,925
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 the unconsolidated joint ventures and the property held as tenants-
in-common with an affiliate) for at least one of the years ended
December 31:
1996 1995 1994
--------- --------- ---------
Golden Corral
Family Steakhouse
Restaurants $608,852 $618,413 $622,652
Hardees 524,625 548,221 606,270
Burger King 478,901 486,944 473,823
Shoney's 231,990 121,000 336,393
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership. However, the general partners believe that the risk
of such a default is reduced due to the essential or important nature of
these properties for the on-going operations of the lessees.
34
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
11. Subsequent Event:
On February 5, 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, at a total cost of $780,209. The Partnership and its co-
venture partner agreed to contribute approximately $616,245 and
$163,964, respectively. The Partnership and its co-venture partner each
expect to have a 79 percent and 21 percent interest, respectively, in
the profits and losses of the joint venture. The Partnership will
account for its investment in this joint venture under the equity method
since the Partnership will share control with an affiliate.
35
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 50, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, director and Chief Executive Officer since its formation
in 1980. CNL Group, Inc. is the parent company of CNL Securities Corp., CNL
Investment Company, CNL Fund Advisors, Inc., and prior to its merger with CNL
Fund Advisors, Inc., effective January 1, 1996, CNL Income Fund Advisors, Inc.
Mr. Seneff is Chief Executive Officer, and has been a director and registered
principal of CNL Securities Corp., which served as the managing dealer in the
Partnership's offering of Units, since its formation in 1979. Mr. Seneff also
has held the position of President and a director of CNL Management Company, a
registered investment advisor, since its formation in 1976, has served as
Chief Executive Officer and Chairman of the Board of CNL Investment Company,
and Chief Executive Officer and Chairman of the Board of Commercial Net Lease
Realty, Inc. since 1992, has served as the Chairman of the Board and the Chief
Executive Officer of CNL Realty Advisors, Inc. since its inception in 1991,
served as Chairman of the Board and Chief Executive Officer of CNL Income Fund
Advisors, Inc. since its inception in 1994 through December 31, 1995, has
served as Chairman of the Board and Chief Executive Officer of CNL Fund
Advisors, Inc. since its inception in 1994, and has held the position of Chief
Executive Officer and a director of CNL Institutional Advisors, Inc., a
registered investment advisor, since its inception in 1990. In addition, Mr.
Seneff has served as Chairman of the Board and Chief Executive Officer of CNL
American Properties Fund, Inc. since 1994, and has served as Chairman of the
Board and Chief Executive Officer of CNL American Realty Fund, Inc. since 1996
and of CNL Real Estate Advisors, Inc. since January 1997. Mr. Seneff
previously served on the Florida State Commission on Ethics and is a former
member and past Chairman of the State of Florida Investment Advisory Council,
which recommends to the Florida Board of Administration investments for
various Florida employee retirement funds. The Florida Board of
Administration, Florida's principal investment advisory and money management
agency, oversees the investment of more than $40 billion of retirement funds.
Since 1971, Mr. Seneff has been active in the acquisition, development and
management of real estate projects and, directly or through an affiliated
entity, has served as a general partner or joint venturer in over 100 real
estate ventures involved in the financing, acquisition, construction and
rental of office buildings, apartment complexes, restaurants, hotels and other
real estate. Included in these real estate ventures are approximately 65
privately offered real estate limited partnerships in which Mr. Seneff,
directly or through an affiliated entity, serves or has served as a general
partner. Also included are CNL Income Fund, Ltd., CNL Income Fund II, Ltd.,
CNL Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund V, Ltd.,
CNL Income Fund VI, 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.
Robert A. Bourne, age 49, is President and Treasurer of CNL Group, Inc.,
President, a director and a registered principal of CNL Securities Corp.,
President and a director of CNL Investment Company, CNL Fund
36
Advisors, Inc., and prior to its merger with CNL Fund Advisors, Inc.,
effective January 1, 1996, CNL Income Fund Advisors, Inc., and President,
Chief Investment Officer and a director of CNL Institutional Advisors, Inc., a
registered investment advisor. Mr. Bourne also has served as a director since
1992, as President from July 1992 to February 1996, and since February 1996,
as Vice Chairman of the Board of Directors, Secretary and Treasurer of
Commercial Net Lease Realty, Inc. In addition, Mr. Bourne has served as a
director since its inception in 1991, as President from 1991 to February 1996,
as Secretary from February 1996 to July 1996, and since February 1996, as
Treasurer and Vice Chairman of CNL Realty Advisors, Inc. In addition, Mr.
Bourne has served as President and a director of CNL American Properties Fund,
Inc. since 1994, and has served as President and a director of CNL American
Realty Fund, Inc. since 1996 and of CNL Real Estate Advisors, Inc. since
January 1997. Upon graduation from Florida State University in 1970, where he
received a B.A. in Accounting, with honors, Mr. Bourne worked as a certified
public accountant and, from September 1971 through December 1978, was employed
by Coopers & Lybrand, Certified Public Accountants, where he held the
position of tax manager beginning in 1975. From January 1979 until June
1982, Mr. Bourne was a partner in the accounting firm of Cross & Bourne and
from July 1982 through January 1987, he was a partner in the accounting firm
of Bourne & Rose, P.A., Certified Public Accountants. Mr. Bourne, who joined
CNL Securities Corp. in 1979, has participated as a general partner or joint
venturer in over 100 real estate ventures involved in the financing,
acquisition, construction and rental of office buildings, apartment complexes,
restaurants, hotels and other real estate. Included in these real estate
ventures are approximately 64 privately offered real estate limited
partnerships in which Mr. Bourne, directly or through an affiliated entity,
serves or has served as a general partner. Also included are the CNL Income
Fund Partnerships, public real estate limited partnerships with investment
objectives similar to those of the Partnership, in which Mr. Bourne serves as
a general partner.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders
are James M. Seneff, Jr. and Robert A. Bourne, the individual General
Partners. CNL Realty Corporation was organized to serve as the corporate
general partner of real estate limited partnerships, such as the Partnership,
organized by one or both of the individual General Partners. CNL Realty
Corporation currently serves as the corporate general partner of the CNL
Income Fund Partnerships.
CNL Fund Advisors, Inc., provides certain management services in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc.
is a corporation organized in 1994 under the laws of the State of Florida, and
its principal office is located at 400 East South Street, Suite 500, Orlando,
Florida 32801. CNL Fund Advisors, Inc. is a wholly owned subsidiary of CNL
Group, Inc., a diversified real estate company, and was organized to perform
property acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Fund Advisors, Inc.,
is a diversified real estate corporation organized in 1980 under the laws of
the State of Florida. Other subsidiaries and affiliates of CNL Group, Inc.
include a property development and management company, two investment advisory
companies, and seven corporations organized as strategic business units.
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.
John T. Walker, age 38, joined CNL Group, Inc. in September 1994, as
Senior Vice President, responsible for Research and Development. He currently
serves as the Chief Operating Officer and Executive Vice President of CNL Fund
Advisors, Inc. and CNL American Properties Fund, Inc. and serves as Executive
Vice President of CNL American Realty Fund, Inc. and CNL Real Estate Advisors,
Inc. From May 1992 to May 1994, he was Executive Vice President for Finance
and Administration and Chief Financial Officer of Z Music, Inc., a cable
television network which was subsequently acquired by Gaylord Entertainment,
where he was responsible for overall financial and administrative management
and planning. From January 1990 through April 1992, Mr. Walker was Chief
Financial Officer of the First Baptist Church in Orlando, Florida. From
April 1984 through December 1989, he was a partner in the accounting firm of
Chastang, Ferrell & Walker, P.A., where he was the partner in charge
37
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 48, a certified public accountant, has served as Chief
Financial Officer of CNL Group, Inc. since December 1993, has served as
Secretary of CNL Group, Inc. since 1987, and served as Controller of CNL
Group, Inc. from 1987 until December 1993. In addition, Ms. Rose has served
as Chief Financial Officer and Secretary of CNL Securities Corp. since July
1994. She has served as Chief Operating Officer, Vice President and Secretary
of CNL Corporate Services, Inc. since November 1994. Ms. Rose also has served
as Chief Financial Officer and Secretary of CNL Institutional Advisors, Inc.
since its inception in 1990, a director of CNL Realty Advisors, Inc. since its
inception in 1991, Secretary of CNL Realty Advisors, Inc. since its inception
in 1991 (excluding February 1996 to July 1996), Treasurer of CNL Realty
Advisors, Inc. from 1991 to February 1996, Secretary and Treasurer of
Commercial Net Lease Realty, Inc. from 1992 to February 1996, Secretary of CNL
Income Fund Advisors, Inc. since its inception in 1994 to December 1995, and a
director, Secretary and Treasurer of CNL Fund Advisors, Inc. since 1994 and
has served as a director, Secretary and Treasurer of CNL Real Estate Advisors,
Inc. since January 1997. Ms. Rose also has served as Secretary and Treasurer
of CNL American Properties Fund, Inc. since 1994, and has served as Secretary
and Treasurer of CNL American Realty Fund, Inc. since 1996. Ms. Rose also
currently serves as Secretary for approximately 50 additional corporations.
Ms. Rose oversees the management information services, administration, legal
compliance, accounting, tenant compliance, and reporting for over 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 and is a registered financial and operations
principal of CNL Securities Corp. She was licensed as a certified public
accountant in 1979.
Jeanne A. Wall, age 38, has served as Chief Operating Officer of
CNL Investment Company and of CNL Securities Corp. since November 1994 and
previously served as Executive Vice President of CNL Investment Company since
January 1991. In 1984, Ms. Wall joined CNL Securities Corp. as its Partnership
Administrator. In 1985, Ms. Wall became Vice President of CNL Securities
Corp. and, in 1987, she became a Senior 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 the partnership administration and investor
services for programs offered through participating brokers. 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, as Vice President of
Commercial Net Lease Realty, Inc. since 1992, as Executive Vice President of
CNL Income Fund Advisors, Inc. from its inception in 1994 to December 1995, as
Executive Vice President of CNL Fund Advisors, Inc. since 1994, and as
Executive Vice President of CNL American Properties Fund, Inc. since 1994. In
addition, Ms. Wall has served as Executive Vice President of CNL Real Estate
Advisors, Inc. since January 1997 and as Executive Vice President of CNL
American Realty Fund, Inc. since 1996. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp. Ms. Wall currently serves as a trustee on the board of the
Investment Program Association and on the Direct Participation Program
committee for the National Association of Securities Dealers (NASD).
Steven D. Shackelford, age 33, has served as Chief Financial Officer of
CNL Fund Advisors, Inc. since September 1996. Mr. Shackelford joined CNL
Group, Inc. in September 1996. He also currently serves as the Chief
Financial Officer of CNL American Properties Fund, Inc. From March 1995 to
July 1996, he was a senior manager in the national office of Price Waterhouse
where he was responsible for advising foreign clients seeking to raise capital
and a public listing in the United States. From August 1992 to March 1995, he
served as a manager in the Price Waterhouse, Paris, France office serving
several multinational clients. Mr. Shackelford was an audit staff and senior
from 1986 to 1992 in the Orlando, Florida office of Price Waterhouse. Mr
Shackelford received a B.A. in Accounting, with honors, and a Masters of
Business Administration from Florida State University and is a certified
public accountant.
38
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 February 28, 1997, 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 February 28, 1997, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
-------------- --------------- ----------------
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
----
100%
====
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above. There are no arrangements
which at a subsequent date may result in a change in control of the
Registrant.
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, 1996, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31,1996
- ---------------------- ---------------------- ----------------------
Reimbursement to Operating expenses are Operating expenses
affiliates for reimbursed at the incurred on behalf of
operating expenses lower of cost or 90 the Partnership:
percent of the $97,288
prevailing rate at
which comparable Accounting and
services could have administrative
been obtained in the services: $92,985
same geographic 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.
39
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31,1996
- --------------------- ---------------------- ----------------------
Annual, subordinated One percent of the sum $ - 0 -
manage-ment fee to of gross operating
affiliates revenues from
Properties wholly
owned by the
Partnership plus the
Partnership's
allocable share of
gross revenues of
joint ventures in
which the Partnership
is a co-venturer and
the Property owned
with an affiliate as
tenants-in-common,
subordinated to
certain minimum
returns to the Limited
Partners. The
management fee will
not exceed competitive
fees for comparable
services. Due to the
fact that these fees
are non-cumulative, if
the Limited Partners
do not receive their
10% Preferred Return
in any particular
year, no management
fees will be due or
payable for such year.
Deferred, subordinated A deferred, $ - 0 -
real estate subordinated real
disposition fee estate disposition
payable to affiliates 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.
40
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31,1996
- ---------------------- ---------------------- ----------------------
General Partners' A deferred, $ - 0 -
deferred, sub- subordinated share
ordinated share of equal to one percent
Partnership net cash of Partnership
flow distributions of net
cash flow,
subordinated to
certain minimum
returns to the Limited
Partners.
General Partners' A deferred, $ - 0 -
deferred, sub- subordinated share
ordinated share of equal to five percent
Partnership net sales of Partnership
proceeds from a sale distributions of such
or sales net sales proceeds,
subordinated to
certain minimum
returns to the Limited
Partners.
41
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, 1996 and 1995
Statements of Income for the years ended December 31, 1996, 1995
and 1994
Statements of Partners' Capital for the years ended December 31,
1996, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1996, 1995 and 1994
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1996
Notes to Schedule III - Real Estate and Accumulated Depreciation
at December 31, 1996
Schedule IV - Mortgage Loans on Real Estate at December 31, 1996
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 Affidavit and Certificate of Limited Partnership of CNL
Income Fund VII, Ltd. (Included as Exhibit 3.1 to
Registration Statement No. 33-31482 on Form S-11 and
incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund VII, Ltd. (Included as Exhibit 3.1 to
Registration Statement No. 33-31482 on Form S-11 and
incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership of
CNL Income Fund VII, 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 between CNL Income Fund VII, Ltd. and
CNL Investment Company (Included as Exhibit 10.1 to Form
10-K filed with the Securities and Exchange Commission on
April 1, 1996, and incorporated herein by reference.)
42
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.)
(b) The Registrant filed no reports on Form 8-K during the period from
October 1, 1996 through December 31, 1996.
43
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 26th day
of March, 1997.
CNL INCOME FUND VII, 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.
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.
Signature Title Date
---------- ------ ------
/s/ Robert A. Bourne President, Treasurer and March 26, 1997
- -------------------- Director (Principal
Robert A. Bourne Financial and
Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer March 26, 1997
- ----------------------- and Director (Principal
James M. Seneff, Jr. Executive Officer)
<TABLE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
<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> <C> <C> <C> <C> <C> <C>
1994 Allowance for
doubtful
accounts (a) $ 73,073 $ 4,928 $ 99,041(b) $ - $ - $177,042
======== ======== ======== ======== ======== ========
1995 Allowance for
doubtful
accounts (a) $177,042 $ 886 $304,609(b) $ 11,747 $ 492 $470,298
======== ======== ======== ======== ======== ========
1996 Allowance for
doubtful
accounts (a) $470,298 $ - $ 11,187(b) $412,202 $ 15,263 $ 54,020
======== ======== ======== ======== ======== ========
(a) Deducted from receivables and accrued rental income on the balance
sheet.
(b) Reduction of rental, earned and other income.
(c) Amounts written off as uncollectible.
F-1
</TABLE>
<TABLE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
----------------------- -------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- ---------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Properties the Partnership
has Invested in Under
Operating Leases:
Boston Market Restaurant:
Marietta, Georgia - $ 534,421 $ 507,133 $ - $ -
Burger King Restaurants:
Jefferson City, Tennessee - 216,633 546,967 - -
Maryville, Tennessee - 419,766 545,880 - -
Sierra Vista, Arizona - 421,170 - - -
Checkers Drive-In Restaurant:
Winter Springs, Florida - 397,536 - - -
Church's Fried Chicken
Restaurants:
Gainesville, Florida (h) - 79,395 124,653 - -
Daytona Beach, Florida - 149,701 - - -
Golden Corral Family
Steakhouse Restaurants:
Odessa, Texas - 502,364 815,831 - -
Midland, Texas - 481,748 857,185 - -
El Paso, Texas - 745,506 - 802,132 -
Harlingen, Texas - 503,799 - 890,878 -
Hardee's Restaurants:
Columbus, Indiana - 243,328 - - -
Akron, Ohio - 198,086 - - -
Dalton, Ohio - 180,556 - - -
Minerva, Ohio - 143,775 - - -
Orrville, Ohio - 176,169 - - -
Seville, Ohio - 245,648 - - -
Clinton, Tennessee - 295,861 - - -
Jack in the Box Restaurant:
San Antonio, Texas - 525,720 - 381,591 -
KFC Restaurants:
Friendswood, Texas - 161,906 - - -
Arcadia, Florida - 175,020 333,759 - -
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (c) Depreciation
------------------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ------------
<C> <C> <C> <C> <C> <C> <C>
$ 534,421 $ 507,133 $ 1,041,554 $ 2,864 1994 10/96 (b)
216,633 546,967 763,600 120,133 1988 01/90 (b)
419,766 545,880 965,646 121,240 1986 01/90 (b)
421,170 (f) 421,170 - 1990 06/90 (d)
397,536 - 397,536 - - 07/94 (g)
79,395 124,653 204,048 24,760 1983 01/91 (b)
149,701 - 149,701 - 1985 01/91 (j)
502,364 815,831 1,318,195 183,804 1990 03/90 (b)
481,748 857,185 1,338,933 192,573 1990 04/90 (b)
745,506 802,132 1,547,638 168,045 1990 05/90 (b)
503,799 890,878 1,394,677 189,078 1990 06/90 (b)
243,328 - 243,328 - 1955 09/90 (i)
198,086 (f) 198,086 - 1990 11/90 (d)
180,556 (f) 180,556 - 1990 11/90 (d)
143,775 (f) 143,775 - 1990 11/90 (d)
176,169 (f) 176,169 - 1990 11/90 (d)
245,648 (f) 245,648 - 1990 11/90 (d)
295,861 (f) 295,861 - 1992 09/92 (d)
525,720 381,591 907,311 81,790 1990 05/90 (b)
161,906 (f) 161,906 - 1990 06/90 (d)
175,020 333,759 508,779 71,263 1985 08/90 (b)
F-2
</TABLE>
<TABLE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
----------------------- -------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- ---------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Popeyes Famous Fried
Chicken Restaurants:
Jacksonville, Florida - 128,398 139,768 136,262 -
Lake City, Florida - 130,300 254,747 139,099 -
Jacksonville, Florida - 142,490 137,396 134,259 -
Brunswick, Georgia - 104,720 251,955 150,888 -
Rally's Restaurant:
Toledo, Ohio - 281,880 196,608 47,002 -
Shoney's Restaurants:
Pueblo, Colorado - 492,230 559,769 - -
Saddlebrook, Florida - 427,238 - 765,532 -
Taco Bell Restaurant:
Detroit, Michigan - 168,429 - 402,674 -
---------- ---------- ---------- --------
$8,673,793 $5,271,651 $3,850,317 $ -
========== ========== ========== ========
Property of Joint Venture
in Which the Partnership
has a 51% Interest and has
Invested in Under an
Operating Lease:
Burger King Restaurant:
Knoxville, Tennessee - $ 283,961 $ 430,406 $ - $ -
========== ========== ========== ========
Properties of Joint Venture
in Which the Partnership
has an 18% Interest and has
Invested in Under Operating
Leases:
Burger King Restaurants:
Columbus, Ohio - $ 345,696 $ 651,985 $ - $ -
San Antonio, Texas - 350,479 623,615 - -
Pontiac, Michigan - 277,192 982,200 - -
Raceland, Louisiana - 174,019 986,879 - -
New Castle, Indiana - 264,239 662,265 - -
Hastings, Minnesota - 155,553 657,159 - -
---------- ---------- ---------- --------
$1,567,178 $4,564,103 $ - $ -
========== ========== ========== ========
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (c) Depreciation
------------------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ------------
<C> <C> <C> <C> <C> <C> <C>
128,398 276,030 404,428 59,557 1985 04/90 (b)
130,300 393,846 524,146 85,436 1985 04/90 (b)
142,490 271,655 414,145 58,873 1985 04/90 (b)
104,720 402,843 507,563 85,182 1974 04/90 (b)
281,880 243,610 525,490 48,655 1990 01/91 (b)
492,230 559,769 1,051,999 118,957 1989 08/90 (b)
427,238 765,532 1,192,770 167,578 1990 04/90 (b)
168,429 402,674 571,103 85,426 1990 06/90 (b)
---------- ---------- ----------- ----------
$8,673,793 $9,121,968 $17,795,761 $1,865,214
========== ========== =========== ==========
$ 283,961 $ 430,406 $ 714,367 $ 98,994 1985 01/90 (b)
========== =========== =========== ==========
$ 345,696 $ 651,985 $ 997,681 $ 114,380 1986 09/91 (b)
350,479 623,615 974,094 109,403 1986 09/91 (b)
277,192 982,200 1,259,392 172,311 1987 09/91 (b)
174,019 986,879 1,160,898 173,132 1988 09/91 (b)
264,239 662,265 926,504 116,184 1988 09/91 (b)
155,553 657,159 812,712 115,288 1990 09/91 (b)
---------- ----------- ----------- ----------
$1,567,178 $ 4,564,103 $ 6,131,281 $ 800,698
========== =========== =========== ==========
F-3
</TABLE>
<TABLE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
----------------------- -------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- ---------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Property of Joint Venture in
Which the Partnership has a
4.79% Interest and has Invested
in Under an Operating Lease:
Jack in the Box Restaurant:
Des Moines, Washington - $ 322,726 $ 791,658 $ - $ -
========== ========== ========== ========
Property in Which the Partnership
has a 48.33% Interest as Tenants-
in-Common and has Invested in
Under an Operating Lease:
Jack in the Box Restaurant:
Yuma, Arizona - $ 255,235 $ 625,798 $ - $ -
========== ========== ========== ========
Properties the Partnership
has Invested in Under
Direct Financing Leases:
Burger King Restaurant:
Sierra Vista, Arizona - $ - $ - $ 333,212 $ -
Hardee's Restaurants:
Akron, Ohio - - 540,215 - -
Dalton, Ohio - - 490,656 - -
Minerva, Ohio - - 436,663 - -
Orrville, Ohio - - 446,337 - -
Seville, Ohio - - 487,630 - -
Clinton, Tennessee - - 338,216 - -
KFC Restaurants:
Dunnellon, Florida - 147,303 442,618 - -
Friendswood, Texas - - - 359,055 -
Popeyes Famous Fried
Chicken Restaurant:
Jacksonville, Florida - 78,842 146,035 142,348 -
---------- ---------- ---------- --------
$ 226,145 $3,328,370 $ 834,615 $ -
========== ========== ========== ========
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (c) Depreciation
------------------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ------------
<C> <C> <C> <C> <C> <C> <C>
$ 322,726 $ 791,658 $ 1,114,384 $ 111,118 1992 10/92 (b)
========== =========== =========== ==========
$ 255,235 $ 625,798 $ 881,033 $ 51,440 1992 07/94 (b)
========== =========== =========== ==========
- (f) (f) 1990 06/90 (d)
- (f) (f) 1990 11/90 (d)
- (f) (f) 1990 11/90 (d)
- (f) (f) 1990 11/90 (d)
- (f) (f) 1990 11/90 (d)
- (f) (f) 1990 11/90 (d)
- (f) (f) 1992 09/92 (d)
(f) (f) (f) 1987 08/90 (e)
- (f) (f) 1990 06/90 (d)
(f) (f) (f) 1985 04/90 (e)
F-4
</TABLE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(a) Transactions in real estate and accumulated depreciation during 1996,
1995 and 1994, are summarized as follows:
Accumulated
Cost Depreciation
----------- ------------
Properties the Partnership
has Invested in Under
Operating Leases:
Balance, December 31, 1993 $20,112,742 $1,244,505
Acquisitions 397,536 -
Dispositions (809,934) (63,981)
Depreciation expense - 349,565
----------- ----------
Balance, December 31, 1994 19,700,344 1,530,089
Dispositions (1,612,306) (172,952)
Depreciation expense - 328,982
----------- ----------
Balance, December 31, 1995 18,088,038 1,686,119
Acquisitions 1,041,554 -
Dispositions (1,333,831) (138,862)
Depreciation expense - 317,957
----------- ----------
Balance, December 31, 1996 $17,795,761 $1,865,214
=========== ==========
Property of Joint Venture in
Which the Partnership has
a 51% Interest and has
Invested in Under an
Operating Lease:
Balance, December 31, 1993 $ 714,367 $ 55,953
Depreciation expense - 14,347
----------- ----------
Balance, December 31, 1994 714,367 70,300
Depreciation expense - 14,347
----------- ----------
Balance, December 31, 1995 714,367 84,647
Depreciation expense - 14,347
----------- ----------
Balance, December 31, 1996 $ 714,367 $ 98,994
=========== ==========
F-5
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1996
Accumulated
Cost Depreciation
------------ ------------
Properties of Joint Venture in
Which the Partnership has
an 18% Interest and has
Invested in Under Operating
Leases:
Balance, December 31, 1993 $ 6,131,281 $ 344,288
Depreciation expense - 152,136
----------- ----------
Balance, December 31, 1994 6,131,281 496,424
Depreciation expense - 152,137
----------- ----------
Balance, December 31, 1995 6,131,281 648,561
Depreciation expense - 152,137
----------- ----------
Balance, December 31, 1996 $ 6,131,281 $ 800,698
=========== ==========
Property of Joint Venture in
Which the Partnership has
a 4.79% Interest and has
Invested in Under an
Operating Lease:
Balance, December 31, 1993 $ 1,114,384 $ 31,952
Depreciation expense - 26,389
----------- ----------
Balance, December 31, 1994 1,114,384 58,341
Depreciation expense - 26,388
----------- ----------
Balance, December 31, 1995 1,114,384 84,729
Depreciation expense - 26,389
----------- ----------
Balance, December 31, 1996 $ 1,114,384 $ 111,118
=========== ==========
Property in Which the
Partnership has a 48.33%
Interest as Tenants-in-Common
and has Invested in Under an
Operating Lease:
Balance, December 31, 1993 $ - $ -
Acquisitions 881,033 -
Depreciation expense - 9,720
----------- ----------
Balance, December 31, 1994 881,033 9,720
Depreciation expense - 20,860
----------- ----------
Balance, December 31, 1995 881,033 30,580
Depreciation expense - 20,860
----------- ----------
Balance, December 31, 1996 $ 881,033 $ 51,440
=========== ==========
F-6
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1996
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 1996, the aggregate cost of the Properties owned by
the Partnership and its consolidated joint venture, and the
unconsolidated joint ventures (including the Property held as tenants-
in-common) for federal income tax purposes was $22,136,938 and
$8,706,529, 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 the net investment in direct financing
lease; therefore, depreciation is not applicable.
(e) For financial reporting purposes, the lease for the land and building
has been recorded as a direct financing lease. The cost of the land and
building has been included in net investment in direct financing leases;
therefore, depreciation is not applicable.
(f) For financial reporting purposes, certain components of the lease
relating to land and building have been recorded as a direct financing
lease. Accordingly, costs relating to these components of this lease
are not shown.
(g) The building portion of this property is owned by the tenant; therefore,
depreciation is not applicable.
(h) The tenant of this property, Restaurant Management Services, Inc., has
subleased this property to a local, independent restaurant. Restaurant
Management Services, Inc. continues to be responsible for complying with
all the terms of the lease agreement and is continuing to pay rent on
this property, subject to certain rent concessions, to the Partnership.
(i) The restaurant building was originally purchased with the intent to
renovate it. As of December 31, 1995, such renovation has not occurred.
Since the Partnership had allocated all of its costs incurred as of
December 31, 1992, to land, depreciation has not been applicable to
date.
(j) The building located on this property was demolished in 1995; therefore,
depreciation is not applicable.
F-7
<TABLE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1996
<CAPTION> Principal
Amount
of Loans
Subject to
Final Periodic Face Carrying Delinquent
Interest Maturity Payment Prior Amount of Amount of Principal
Description Rate Date Terms Liens Mortgages Mortgages or Interest
- ----------- -------- -------------- -------- ----- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Perkins -
Florence, SC
First Mortgage 10.25% July, 2000 (1) $ - $1,160,000 $1,018,840 $ -
Church's -
Jacksonville, FL
First Mortgage 10.00% December, 2005 (2) - 240,000 240,655 -
----- ---------- ---------- -----------
Total $ - $1,400,000 $1,259,495(3) $ -
===== ========== ========== ===========
</TABLE>
(1) Monthly payments of principal and interest at an annual
rate of 10.25%, with a balloon payment at maturity of $1,106,657.
(2) Monthly payments of principal and interest at an annual
rate of 10.00%, with a balloon payment at maturity of $218,252.
(3) The tax carrying value of the notes is approximately $1,289,662,
which is net of deferred gain of $96,636.
(4) The changes in the carrying amounts are summarized as follows:
1996 1995 1994
---------- ---------- ----------
Balance at beginning of
period $1,267,849 $ - $ -
New mortgage loans - 1,400,000 -
Accrued interest - 8,639 -
Collection of accrued
interest (369) - -
Collection of principal (8,821) (12,725) -
Deferred gain on sale of
land and building - (128,065) -
Recognition of deferred
gain on sale of land
and building 836 - -
---------- ---------- ----------
Balance at end of period $1,259,495 $1,267,849 $ -
========== ========== ==========
F-8
EXHIBITS
EXHIBIT INDEX
Exhibit Number Page
3.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund VII, Ltd. (Included as Exhibit 3.1 to
Registration Statement No. 33-31482 on Form S-11 and
incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund VII, Ltd. (Included as Exhibit 3.1 to
Registration Statement No. 33-31482 on Form S-11 and
incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership of
CNL Income Fund VII, 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 between CNL Income Fund VII, Ltd. and
CNL Investment Company (Included as Exhibit 10.1 to Form
10-K filed with the Securities and Exchange Commission on
April 1, 1996, and incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL Investment
Company to CNL Income Fund Advisors, Inc. (Included as
Exhibit 10.2 to Form 10-K filed with the Securities and
Exchange Commission on March 30, 1995, and incorporated
herein by reference.)
10.3 Assignment of Management Agreement from CNL Income Fund
Advisors, Inc. to CNL Fund Advisors, Inc. (Included as
Exhibit 10.3 to Form 10-K filed with the Securities and
Exchange Commission on April 1, 1996, and incorporated
herein by reference.)
27 Financial Data Schedule (Filed herewith.)
i
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund VII, Ltd. at December 31, 1996, 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 VII, Ltd. for the year ended December 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,305,429
<SECURITIES> 0
<RECEIVABLES> 106,620
<ALLOWANCES> 43,234
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 17,795,761
<DEPRECIATION> 1,865,214
<TOTAL-ASSETS> 25,523,853
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 24,641,770
<TOTAL-LIABILITY-AND-EQUITY> 25,523,853
<SALES> 0
<TOTAL-REVENUES> 2,744,146
<CGS> 0
<TOTAL-COSTS> 516,056
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,326,863
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,326,863
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,326,863
<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>
