FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-19140
CNL Income Fund VII, Ltd.
(Exact name of registrant as specified in its charter)
Florida 59-2963871
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street
Orlando, Florida 32801
- ---------------------------- -----------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 6-8
Part II
Other Information 9
<PAGE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
March 31, December 31,
ASSETS 1998 1997
----------- -----------
Land and buildings on operating
leases, less accumulated
depreciation of $2,245,659
and $2,169,570 $15,306,774 $15,382,863
Net investment in direct financing
leases 3,427,625 3,447,152
Investment in joint ventures 3,375,579 3,393,932
Mortgage notes receivable, less
deferred gain of $126,056 and
$126,303 1,248,539 1,250,597
Cash and cash equivalents 846,587 761,317
Receivables, less allowance for
doubtful accounts of $34,471
and $32,959 12,681 64,092
Prepaid expenses 6,865 4,755
Accrued rental income, less
allowance for doubtful accounts
of $9,845 in 1998 and 1997 1,138,762 1,114,632
Other assets 60,422 60,422
----------- -----------
$25,423,834 $25,479,762
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 3,772 $ 6,131
Escrowed real estate taxes payable 8,683 7,785
Distributions payable 675,000 675,000
Due to related parties 35,487 34,883
Rents paid in advance 73,899 60,671
----------- -----------
Total liabilities 796,841 784,470
Minority interest 147,356 147,514
Partners' capital 24,479,637 24,547,778
----------- -----------
$25,423,834 $25,479,762
=========== ===========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended
March 31,
1998 1997
---------- -------
Revenues:
Rental income from operating leases $ 492,724 $ 487,282
Earned income from direct financing
leases 104,375 123,665
Contingent rental income 9,420 1,111
Interest and other income 43,990 44,969
---------- ----------
650,509 657,027
---------- ----------
Expenses:
General operating and administrative 33,112 31,726
Professional services 5,281 4,908
Real estate taxes - 1,028
State and other taxes 2,688 4,518
Depreciation and amortization 76,089 76,089
---------- ----------
117,170 118,269
---------- ----------
Income Before Minority Interest in
Income of Consolidated Joint Venture,
Equity in Earnings of Unconsolidated
Joint Ventures and Gain on Sale of
Land and Building 533,339 538,758
Minority Interest in Income of
Consolidated Joint Venture (4,660) (4,627)
Equity in Earnings of Unconsolidated
Joint Ventures 77,933 41,279
Gain on Sale of Land and Building 247 222
---------- ----------
Net Income $ 606,859 $ 575,632
========== ==========
Allocation of Net Income:
General partners $ 6,069 $ 5,756
Limited partners 600,790 569,876
---------- ----------
$ 606,859 $ 575,632
========== ==========
Net Income Per Limited Partner Unit $ 0.020 $ 0.019
========== ==========
Weighted Average Number of Limited
Partner Units Outstanding 30,000,000 30,000,000
========== ==========
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Quarter Ended Year Ended
March 31, December 31,
1998 1997
------------- --------
General partners:
Beginning balance $ 181,085 $ 156,785
Net income 6,069 24,300
----------- -----------
187,154 181,085
----------- -----------
Limited partners:
Beginning balance 24,366,693 24,484,985
Net income 600,790 2,581,708
Distributions ($0.023 and
$0.090 per limited partner
unit, respectively) (675,000) (2,700,000)
----------- -----------
24,292,483 24,366,693
----------- -----------
Total partners' capital $24,479,637 $24,547,778
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1998 1997
---------- ----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 749,233 $ 718,025
---------- ----------
Cash Flows from Investing Activities:
Investment in joint venture - (617,035)
Collections on mortgage notes
receivable 2,600 2,349
Other 13,255 -
---------- ---------
Net cash provided by (used in)
investing activities 15,855 (614,686)
---------- ----------
Cash Flows from Financing Activities:
Distributions to limited partners (675,000) (675,000)
Distributions to holder of minority
interest (4,818) (4,946)
---------- ----------
Net cash used in financing
activities (679,818) (679,946)
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents 85,270 (576,607)
Cash and Cash Equivalents at Beginning of
Quarter 761,317 1,305,429
---------- ----------
Cash and Cash Equivalents at End of
Quarter $ 846,587 $ 728,822
========== ==========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid
at end of quarter $ 675,000 $ 675,000
========== ==========
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1998 and 1997
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter ended March 31, 1998, may not be indicative of the results
that may be expected for the year ending December 31, 1998. Amounts as
of December 31, 1997, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund VII, Ltd. (the "Partnership) for the year ended December
31, 1997.
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.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CNL Income Fund VII, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 18, 1989, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as land upon which restaurants were to be
constructed (the "Properties"), which are leased primarily to operators of
national and regional fast-food and family-style restaurant chains. The leases
are triple-net leases, with the lessees generally responsible for all repairs
and maintenance, property taxes, insurance and utilities. As of March 31, 1998,
the Partnership owned 40 Properties, including ten Properties owned by joint
ventures in which the Partnership is a co-venturer and two Properties owned with
affiliates as tenants-in-common.
Liquidity and Capital Resources
The Partnership's primary source of capital for the quarters ended
March 31, 1998 and 1997, was cash from operations (which includes cash received
from tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $749,233 and
$718,025 for the quarters ended March 31, 1998 and 1997, respectively. The
increase in cash from operations for the quarter ended March 31, 1998, as
compared to the quarter ended March 31, 1997, is primarily a result of changes
in income and expenses as described in "Results of Operations" below.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At March 31, 1998, the Partnership had $846,587
invested in such short-term investments, as compared to $761,317 at December 31,
1997. The funds remaining at March 31, 1998, after payment of distributions and
other liabilities, will be used to meet the Partnership's working capital and
other needs.
Total liabilities of the Partnership, including distributions payable,
increased to $796,841 at March 31, 1998, from $784,470 at December 31, 1997,
primarily as a result of an increase in rents paid in advance at March 31, 1998.
The general partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.
Based on cash from operations, the Partnership declared distributions
to the limited partners of $675,000 for each of the quarters ended March 31,
1998 and 1997. This represents distributions for each applicable quarter of
$0.023 per unit. No distributions were made to the general partners for the
quarters ended March 31, 1998 and 1997. No amounts distributed to the limited
partners for the quarters ended March 31, 1998 and 1997,
6
<PAGE>
Liquidity and Capital Resources - Continued
are required to be or have been treated by the Partnership as a return of
capital for purposes of calculating the limited partners' return on their
adjusted capital contributions. The Partnership intends to continue to make
distributions of cash available for distribution to the limited partners on a
quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
Results of Operations
During the quarter ended March 31, 1997, the Partnership and its
consolidated joint venture, San Antonio #849 Joint Venture, owned and leased 31
wholly owned Properties (including two Properties in Columbus, Indiana and
Dunnellon, Florida, which were sold in May and October 1997, respectively) and
during the quarter ended March 31, 1998, the Partnership and its consolidated
joint venture owned and leased 29 wholly owned Properties to operators of
fast-food and family-style restaurant chains. In connection therewith, during
the quarters ended March 31, 1998 and 1997, the Partnership and San Antonio #849
Joint Venture earned $597,099 and $610,947, respectively, in rental income from
operating leases and earned income from direct financing leases. Rental and
earned income decreased during the quarter ended March 31, 1998, as compared to
the quarter ended March 31, 1997, primarily as a result of the sales of the
Properties in Columbus, Indiana and Dunnellon, Florida in May and October 1997,
respectively.
During the quarters ended March 31, 1998 and 1997, the Partnership
owned and leased nine Properties indirectly through other joint venture
arrangements. In addition, during the quarters ended March 31, 1998 and 1997,
the Partnership owned one and two Properties, respectively, indirectly with
affiliates as tenants-in-common. In connection therewith, during the quarters
ended March 31, 1998 and 1997, the Partnership earned $77,933 and $41,279,
respectively, attributable to net income earned by these unconsolidated joint
ventures. The increase in net income earned by joint ventures during the quarter
ended March 31, 1998, as compared to the quarter ended March 31, 1997, is
primarily due to the fact that in December 1997, the Partnership reinvested the
net sales proceeds received from the sale of two Properties in October 1997, in
a Property in Smithfield, North Carolina, and a Property in Miami, Florida, with
affiliates of the general partners as tenants-in-common.
7
<PAGE>
Results of Operations - Continued
During the quarters ended March 31, 1998 and 1997, the Partnership also
earned $9,420 and $1,111, respectively, in contingent rental income. The
increase in contingent rental income is primarily attributable to increased
gross sales of certain restaurant Properties, the leases of which require the
payment of contingent rent.
Operating expenses, including depreciation and amortization expense,
were $117,170 and $118,269 for the quarters ended March 31, 1998 and 1997,
respectively.
As a result of the sale of the Property in Florence, South Carolina, in
August 1995, and recording the gain using the installment method, the
Partnership recognized a gain for financial reporting purposes of $247 and $222
for the quarters ended March 31, 1998 and 1997, respectively.
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the quarter
ended March 31, 1998.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 12th day of May, 1998.
CNL INCOME FUND VII, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
----------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund VII, Ltd. at March 31, 1998, and its statement of
income for the three months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund VII, Ltd. for the three months
ended March 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 846,587
<SECURITIES> 0
<RECEIVABLES> 47,152
<ALLOWANCES> 34,471
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 17,552,433
<DEPRECIATION> 2,245,659
<TOTAL-ASSETS> 25,423,834
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 24,479,637
<TOTAL-LIABILITY-AND-EQUITY> 25,423,834
<SALES> 0
<TOTAL-REVENUES> 650,509
<CGS> 0
<TOTAL-COSTS> 117,170
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 606,859
<INCOME-TAX> 0
<INCOME-CONTINUING> 606,859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 606,859
<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>
