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, 2000
--------------------------------------------------------------------------
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
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- ---------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
------------------------------
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
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets
Condensed Statements of Income
Condensed Statements of Partners' Capital
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II.
Other Information
<PAGE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------------ -------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $2,673,993 and
$2,602,453, respectively $ 13,912,794 $ 13,984,334
Net investment in direct financing leases 3,248,301 3,273,155
Investment in joint ventures 4,585,517 4,605,906
Mortgage notes receivable, less deferred gain of
$123,841 and $124,143, respectively 991,979 994,408
Cash and cash equivalents 980,677 925,348
Receivables, less allowance for doubtful accounts
of $10,960 and $16,679, respectively 3,412 72,644
Prepaid expenses 6,626 14,220
Accrued rental income, less allowance for doubtful
accounts of $9,845 in 2000 and 1999 1,232,172 1,215,696
Other assets 60,422 60,422
------------------ -------------------
$ 25,021,900 $ 25,146,133
================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 34,865 $ 96,894
Distributions payable 675,000 675,000
Due to related parties 72,947 59,131
Rents paid in advance and deposits 71,892 10,107
------------------ -------------------
Total liabilities 854,704 841,132
Minority interest 145,274 145,515
Partners' capital 24,021,922 24,159,486
------------------ -------------------
$ 25,021,900 $ 25,146,133
================== ===================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended
March 31,
2000 1999
-------------- ---------------
Revenues:
Rental income from operating leases $ 471,446 $ 492,724
Earned income from direct financing leases 99,048 101,876
Contingent rental income 5,950 1,510
Interest and other income 51,969 39,558
-------------- ---------------
628,413 635,668
-------------- ---------------
Expenses:
General operating and administrative 45,434 35,336
Professional services 11,926 4,419
State and other taxes 14,430 13,055
Depreciation 71,540 76,089
Transaction costs 37,339 33,273
-------------- ---------------
180,669 162,172
-------------- ---------------
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 447,744 473,496
Minority Interest in Income of Consolidated
Joint Venture (4,712 ) (4,649 )
Equity in Earnings of Unconsolidated Joint Ventures 94,102 73,295
Gain on Sale of Land and Building 302 273
-------------- ---------------
Net Income $ 537,436 $ 542,415
============== ===============
Allocation of Net Income:
General partners $ 5,374 $ 5,424
Limited partners 532,062 536,991
-------------- ---------------
$ 537,436 $ 542,415
============== ===============
Net Income Per Limited Partner Unit $ 0.018 $ 0.018
============== ===============
Weighted Average Number of Limited Partner
Units Outstanding 30,000,000 30,000,000
============== ===============
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Quarter Ended Year Ended
March 31, December 31,
2000 1999
------------------- ------------------
General partners:
Beginning balance $ 230,931 $ 205,744
Net income 5,374 25,187
------------------- ------------------
236,305 230,931
------------------- ------------------
Limited partners:
Beginning balance 23,928,555 24,108,052
Net income 532,062 2,520,503
Distributions ($0.023 and $0.090 per
limited partner unit, respectively) (675,000 ) (2,700,000 )
------------------- ------------------
23,785,617 23,928,555
------------------- ------------------
Total partners' capital $ 24,021,922 $ 24,159,486
=================== ==================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
2000 1999
--------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 732,574 $ 738,569
--------------- ---------------
Cash Flows from Investing Activities:
Collections on mortgage notes receivable 2,708 2,878
--------------- ---------------
Net cash provided by investing activities 2,708 2,878
--------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (675,000 ) (675,000 )
Distributions to holder of minority interest (4,953 ) (4,910 )
--------------- ---------------
Net cash used in financing activities (679,953 ) (679,910 )
--------------- ---------------
Net Increase in Cash and Cash Equivalents 55,329 61,537
Cash and Cash Equivalents at Beginning of Quarter 925,348 856,825
--------------- ---------------
Cash and Cash Equivalents at End of Quarter $ 980,677 $ 918,362
=============== ===============
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.
<PAGE>
</TABLE>
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 2000 and 1999
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, 2000, may not be indicative of the results
that may be expected for the year ending December 31, 2000. Amounts as
of December 31, 1999, 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, 1999.
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 partners' proportionate share of
the equity in the Partnership's consolidated joint venture. All
significant intercompany accounts and transactions have been
eliminated.
2. Termination of Merger:
On March 1, 2000, the general partners and CNL American Properties
Fund, Inc. ("APF") mutually agreed to terminate the Agreement and Plan
of Merger entered into in March 1999. The general partners are
continuing to evaluate strategic alternatives for the Partnership,
including alternatives to provide liquidity to the limited partners.
<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 restaurant chains. The leases generally are
triple-net leases, with the lessees responsible for all repairs and maintenance,
property taxes, insurance and utilities. As of March 31, 2000, the Partnership
owned 40 Properties, which included interests in ten Properties owned by joint
ventures in which the Partnership is a co-venturer and three Properties owned
with affiliates as tenants-in-common.
Capital Resources
The Partnership's primary source of capital for the quarters ended
March 31, 2000 and 1999 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 $732,574 and
$738,569 for the quarters ended March 31, 2000 and 1999, respectively. The
decrease in cash from operations for the quarter ended March 31, 2000, as
compared to the quarter ended March 31, 1999, was primarily a result of changes
in the Partnership's working capital.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments such as,
demand deposit accounts at commercial banks, certificates of deposit, and money
market accounts with less than a 30-day maturity date, pending the Partnership's
use of such funds to pay Partnership expenses or to make distributions to the
partners. At March 31, 2000, the Partnership had $980,677 invested in such
short-term investments, as compared to $925,348 at December 31, 1999. The funds
remaining at March 31, 2000, after payment of distributions and other
liabilities, will be used to meet the Partnership's working capital and other
needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
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.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on cash from operations, the Partnership declared distributions to the
limited partners of $675,000 for each of the quarters ended March 31, 2000 and
1999. 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, 2000 and 1999. No amounts distributed to the limited partners for the
quarters ended March 31, 2000 and 1999, 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.
Total liabilities of the Partnership, including distributions payable,
increased to $854,704 at March 31, 2000, from $841,132 at December 31, 1999. The
increase in liabilities was primarily a result of an increase in rents paid in
advance and deposits at March 31, 2000, as compared to December 31, 1999. The
increase in liabilities was partially offset by a decrease in accounts payable
at March 31, 2000, as compared to December 31, 1999. The general partners
believe that the Partnership has sufficient cash on hand to meet its current
working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the quarter ended March 31, 1999, the Partnership and its
consolidated joint venture, San Antonio #849 Joint Venture, owned and leased 29
wholly owned Properties to operators of fast-food and family-style restaurant
chains (which included one Property which was sold in 1999). During the quarter
ended March 31, 2000, the Partnership and San Antonio #849 Joint Venture owned
and leased 28 wholly owned properties to operators of fast-food and family-style
restaurant chains. In connection therewith, during the quarters ended March 31,
2000 and 1999, the Partnership and San Antonio #849 Joint Venture earned
$570,494 and $594,600, respectively, in rental income from operating leases and
earned income from direct financing leases. The decrease in rental and earned
income for the quarter ended March 31, 2000, as compared to the quarter ended
March 31, 1999, was primarily due to the sale of the Partnership's Property in
Maryville, Tennessee in June 1999. The Partnership reinvested the net sales
proceeds in a Property in Montgomery, Alabama, as tenants-in-common with an
affiliate of the general partners. Rental and earned income are expected to
remain at reduced amounts while equity in earnings of joint ventures is expected
to remain at increased amounts due to the fact that the Partnership reinvested
these net sales proceeds in a Property with an affiliate of the general
partners, as tenants-in-common.
During the quarters ended March 31, 2000 and 1999, the Partnership
owned and leased nine Properties indirectly through other joint venture
arrangements and owned three and two Properties, respectively, indirectly with
affiliates of the general partners as tenants-in-common. In connection
therewith, during the quarters ended March 31, 2000 and 1999, the Partnership
earned $94,102 and $73,295, 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, 2000, as compared to the quarter
ended March 31, 1999, was primarily due to the fact that in 1999, the
Partnership reinvested the net sales proceeds it received from the 1999 sale of
a Property in Maryville, Tennessee in one Property with an affiliate of the
general partners as tenants-in-common.
Operating expenses, including depreciation expense, were $180,669 and
$162,172 for the quarters ended March 31, 2000 and 1999, 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 $302 and $273
for the quarters ended March 31, 2000 and 1999, respectively.
Termination of Merger:
On March 1, 2000, the general partners and CNL American Properties
Fund, Inc. ("APF") mutually agreed to terminate the Agreement and Plan of Merger
entered into in March 1999. The general partners are continuing to evaluate
strategic alternatives for the Partnership, including alternatives to provide
liquidity to the limited partners.
Dismissal of Legal Action
As described in greater detail in Part II, Item 1 ("Legal
Proceedings"), in 1999 two groups of limited partners in several CNL Income
Funds filed purported class action suits against the general partners and APF
alleging, among other things, that the general partners had breached their
fiduciary duties in connection with the proposed Merger. These actions were
later consolidated into one action. On April 25, 2000, the judge in the
consolidated action issued a Stipulated Final Order of Dismissal of Consolidated
Action, dismissing the action without prejudice, with each party to bear its own
costs and attorneys' fees.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes in the Partnership's market risk occurred from
December 31, 1999 through March 31, 2000. Information regarding the
Partnership's market risk at December 31, 1999 is included in its Annual Report
on Form 10-K for the year ended December 31, 1999.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April 22,
1999 against the general partners and APF in the Circuit Court of the
Ninth Judicial Circuit of Orange County, Florida, alleging that the
general partners breached their fiduciary duties and violated
provisions of certain of the CNL Income Fund partnership agreements in
connection with the proposed Merger. The plaintiffs are seeking
unspecified damages and equitable relief. On July 8, 1999, the
plaintiffs filed an amended complaint which, in addition to naming
three additional plaintiffs, includes allegations of aiding and
abetting and conspiring to breach fiduciary duties, negligence and
breach of duty of good faith against certain of the defendants and
seeks additional equitable relief. As amended, the caption of the case
is Jon Hale, Mary J. Hewitt, Charles A. Hewitt, Gretchen M. Hewitt,
Bernard J. Schulte, Edward M. and Margaret Berol Trust, and Vicky Berol
v. James M. Seneff, Jr., Robert A. Bourne, CNL Realty Corporation, and
CNL American Properties Fund, Inc., Case No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds served
a purported class action lawsuit filed April 29, 1999 against the
general partners and APF, Ira Gaines, individually and on behalf of a
class of persons similarly situated, v. CNL American Properties Fund,
Inc., James M. Seneff, Jr., Robert A. Bourne, CNL Realty Corporation,
CNL Fund Advisors, Inc., CNL Financial Corporation a/k/a CNL Financial
Corp., CNL Financial Services, Inc. and CNL Group, Inc., Case NO.
CIO-99-3796, in the Circuit Court of the Ninth Judicial Circuit of
Orange County, Florida, alleging that the general partners breached
their fiduciary duties and that APF aided and abetted their breach of
fiduciary duties in connection with the proposed Merger. The plaintiff
is seeking unspecified damages and equitable relief.
On September 23, 1999, Judge Lawrence Kirkwood entered an order
consolidating the two cases under the caption In re: CNL Income Funds
Litigation, Case No. 99-3561. Pursuant to this order, the plaintiffs in
these cases filed a consolidated and amended complaint on November 8,
1999. On December 22, 1999, the general partners and CNL Group, Inc.
filed motions to dismiss and motions to strike. On December 28, 1999,
APF and CNL Fund Advisors, Inc. filed motions to dismiss. On March 6,
2000, all of the defendants filed a Joint Notice of Filing Form 8-K
Reports and Suggestion of Mootness.
On April 25, 2000, Judge Kirkwood issued a Stipulated Final Order of
Dismissal of Consolidated Action, dismissing the action without
prejudice, with each party to bear its own costs and attorneys' fees.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default 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
3.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund VII, Ltd. (Included as Exhibit 4.1 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 4.1 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.)
(b) Reports on Form 8-K
A Current Report on Form 8-K dated February 23, 2000 was filed on March
1, 2000, describing the termination of the proposed merger of the
Partnership with and into a subsidiary of CNL American Properties Fund,
Inc.
<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 9th day of May, 2000
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, 2000, and its statement of
income for the three months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Income Fund VII, Ltd. for the three months
ended March 31, 2000.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 980,677
<SECURITIES> 0
<RECEIVABLES> 14,372
<ALLOWANCES> 10,960
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 16,586,787
<DEPRECIATION> 2,673,993
<TOTAL-ASSETS> 25,021,900
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 24,021,922
<TOTAL-LIABILITY-AND-EQUITY> 25,021,900
<SALES> 0
<TOTAL-REVENUES> 628,413
<CGS> 0
<TOTAL-COSTS> 180,669
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 537,436
<INCOME-TAX> 0
<INCOME-CONTINUING> 537,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 537,436
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
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>
