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 June 30, 1996
----------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number
0-19139
----------------------
CNL Income Fund VIII, Ltd.
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2963338
---------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street, #500
Orlando, Florida 32801
---------------------------- -------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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CONTENTS
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Part I Page
----
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 7-10
Part II
Other Information 11
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
ASSETS 1996 1995
------ ----------- ------------
Land and buildings on operating
leases, less accumulated
depreciation of $1,125,077 and
$1,020,592 $14,781,886 $14,886,371
Net investment in direct financing
leases 11,014,311 11,091,605
Investment in joint ventures 2,968,403 2,763,798
Mortgage notes receivable 462,576 463,833
Cash and cash equivalents 1,348,284 1,620,865
Receivables, less allowance for
doubtful accounts of $4,538 and
$28,490 2,876 38,522
Prepaid expenses 10,052 2,912
Accrued rental income 1,777,708 1,655,009
Other assets 52,671 52,671
----------- -----------
$32,418,767 $32,575,586
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Accounts payable $ 4,478 $ 7,593
Escrowed real estate taxes payable 16,786 5,496
Distributions payable 787,500 962,500
Due to related parties 18,051 20,135
Rents paid in advance 36,013 31,864
---------- ----------
Total liabilities 862,828 1,027,588
Minority interest 107,852 107,656
Partners' capital 31,448,087 31,440,342
----------- -----------
$32,418,767 $32,575,586
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Revenues:
Rental income from
operating leases $ 473,722 $ 491,189 $ 945,536 $ 981,859
Earned income from
direct financing
leases 333,932 340,966 669,025 682,847
Contingent rental
income 2,317 7,021 7,670 27,205
Interest and other
income 23,938 13,606 49,190 29,970
---------- ---------- ---------- ----------
833,909 852,782 1,671,421 1,721,881
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 39,227 33,753 82,206 59,545
Professional services 4,592 10,023 13,988 16,275
State and other taxes 16 137 4,756 6,797
Depreciation and
amortization 52,242 54,741 104,485 109,481
---------- ---------- ---------- ----------
96,077 98,654 205,435 192,098
---------- ---------- ---------- ----------
Income Before Minority
Interest in Income of
Consolidated Joint
Venture and Equity in
Earnings of Unconsoli-
dated Joint Ventures 737,832 754,128 1,465,986 1,529,783
Minority Interest in
Income of Consoli-
dated Joint Venture (3,484) (3,519) (6,943) (6,989)
Equity in Earnings of
Unconsolidated Joint
Ventures 63,312 61,397 123,702 122,347
---------- ---------- ---------- ----------
Net Income $ 797,660 $ 812,006 $1,582,745 $1,645,141
========== ========== ========== ==========
Allocation of Net Income:
General partners $ 7,976 $ 8,120 $ 15,827 $ 16,451
Limited partners 789,684 803,886 1,566,918 1,628,690
---------- ---------- ---------- ----------
$ 797,660 $ 812,006 $1,582,745 $1,645,141
========== ========== ========== ==========
Net Income Per Limited
Partner Unit $ 0.023 $ 0.023 $ 0.045 $ 0.047
========== ========== ========== ==========
Weighted Average Number of
Limited Partner Units
Outstanding 35,000,000 35,000,000 35,000,000 35,000,000
========== ========== ========== ==========
See accompanying notes to condensed financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
1996 1995
---------------- ------------
General partners:
Beginning balance $ 162,612 $ 129,898
Net income 15,827 32,714
----------- -----------
178,439 162,612
----------- -----------
Limited partners:
Beginning balance 31,277,730 31,298,691
Net income 1,566,918 3,304,041
Distributions ($0.045 and $0.095
per limited partner unit,
respectively) (1,575,000) (3,325,002)
----------- -----------
31,269,648 31,277,730
----------- -----------
Total partners' capital $31,448,087 $31,440,342
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1996 1995
----------- -----------
Increase (Decrease) in Cash and
Cash Equivalents:
Net Cash Provided by Operating
Activities $ 1,720,991 $ 1,695,433
----------- -----------
Cash Flows from Investing
Activities:
Additions to land and building
on operating leases (1,135) -
Investment in direct financing
leases (1,326) -
Investment in joint venture (235,611) -
Collections on mortgage notes
receivable 1,247 -
----------- -----------
Net cash used in investing
activities (236,825) -
----------- -----------
Cash Flows from Financing
Activities:
Distributions to limited
partners (1,750,000) (1,732,500)
Distributions to holder of
minority interest (6,747) (5,163)
----------- -----------
Net cash used in financing
activities (1,756,747) (1,737,663)
----------- -----------
Net Decrease in Cash and
Cash Equivalents (272,581) (42,230)
Cash and Cash Equivalents at
Beginning of Period 1,620,865 1,439,545
----------- -----------
Cash and Cash Equivalents at End
of Period $ 1,348,284 $ 1,397,315
=========== ===========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid
at end of period $ 787,500 $ 787,500
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1996 and 1995
1. Basis of Presentation:
---------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. The financial statements reflect all
adjustments, consisting of normal recurring adjustments, which are, in the
opinion of management, necessary to a fair statement of the results for
the interim periods presented. Operating results for the quarter and six
months ended June 30, 1996, may not be indicative of the results that may
be expected for the year ending December 31, 1996. Amounts as of December
31, 1995, included in the financial statements, have been derived from
audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in CNL Income Fund
VIII, Ltd.'s Form 10-K for the year ended December 31, 1995.
CNL Income Fund VIII, Ltd. (the "Partnership") accounts for its 88 percent
interest in Woodway Joint Venture using the consolidation method.
Minority interest represents the minority joint venture partner's
proportionate share of the equity in the Partnership's consolidated joint
venture. All significant intercompany accounts and transactions have been
eliminated.
Effective January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The Statement
requires that an entity review long-lived assets and certain identifiable
intangibles, to be held and used, for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. Adoption of this standard had no material effect
on the Partnership's financial position or results of operations.
2. Investment in Joint Ventures:
----------------------------
In May 1996, the Partnership entered into a joint venture arrangement,
Middleburg Joint Venture, with an affiliate of the Partnership which has
the same general partners to hold one restaurant property. As of June 30,
1996, the Partnership and its co-venture partner had contributed $235,611
and $1,655,928, respectively, to the joint venture to acquire the
restaurant property. As of June 30, 1996, the Partnership and its co-
venture partner owned approximately a 12 percent and 88
percent interest, respectively, in the profits and losses of the joint
venture. The Partnership accounts for its investment in this joint
venture under the equity method since the Partnership shares control with
the affiliate.
The following presents the combined, condensed financial information for
all of the Partnership's investments in joint ventures at:
June 30, December 31,
1996 1995
----------- ------------
Land and buildings on
operating leases, less
accumulated depreciation $ 6,741,457 $ 6,299,941
Net investment in direct
financing lease 1,365,335 -
Cash 13,166 387
Prepaid expenses 663 278
Accrued rental income 69,166 65,254
Liabilities 13,103 461
Partners' capital 8,176,684 6,365,399
Revenues 372,739 711,701
Net income 285,151 539,159
The Partnership recognized income totalling $123,702 and $122,347 for the six
months ended June 30, 1996 and 1995, respectively, from these joint ventures,
$63,312 and $61,397 of which was earned during the quarters ended June 30, 1996
and 1995, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CNL Income Fund VIII, 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 arrange-ments, 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 generally triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance and utilities. As of June 30, 1996,
the Partnership owned 37 Properties, including interests in nine Properties
owned by joint ventures in which the Partnership is a co-venturer.
Liquidity and Capital Resources
- -------------------------------
The Partnership's primary source of capital for the six months ended June
30, 1996 and 1995, was cash from operations (which includes cash received from
tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $1,720,991 and
$1,695,433 for the six months ended June 30, 1996 and 1995, respectively. The
increase in cash from operations for the six months ended June 30, 1996, is
primarily a result of changes in the Partnership's working capital.
In May 1996, the Partnership reinvested the remaining net sales proceeds
of approximately $235,600 from the 1995 sale of the Property in Ocoee, Florida,
in Middleburg Joint Venture. The Partnership has an approximate 12 percent
interest in the profits and losses of Middleburg Joint Venture and the remaining
interest in this joint venture is held by an affiliate of the Partnership which
has the same general partners.
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 June 30, 1996, the Partnership had $1,348,284
invested in such short-term investments as compared to $1,620,865 at December
31, 1995. The decrease in cash and cash equivalents during the six months ended
June 30, 1996, is primarily the result of the Partnership investing
approximately $235,600 in Middleburg Joint Venture, as described above. Cash
and cash equivalents also decreased as a result of the payment of a special
distribution to the limited partners of $175,000 in January 1996 of cumulative
excess operating reserves. The funds remaining at June 30, 1996, after payment
of distributions and other liabilities, will be used to meet the Partnership's
working capital and other needs.
Total liabilities of the Partnership, including distributions payable,
decreased to $862,828 at June 30, 1996, from $1,027,588 at December 31, 1995,
primarily as the result of the Partnership's
accruing a special distribution payable to the limited partners of $175,000 at
December 31, 1995, as described above, which was paid in January 1996. The
general partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.
Based primarily on cash from operations, the Partnership declared
distributions to the limited partners of $1,575,000 for each of the six months
ended June 30, 1996 and 1995 ($787,500 for each of the quarters ended June 30,
1996 and 1995). This represents distributions for each applicable six months of
$0.045 per unit ($0.023 per unit for each applicable quarter). No distributions
were made to the general partners for the quarters and six months ended June 30,
1996 and 1995. No amounts distributed or to be distributed to the limited
partners for the six months ended June 30, 1996 and 1995, are required to be or
have been treated by the Partnership as a return of capital for purposes of
calculating the limited partners' return on their adjusted capital
contributions. The Partnership intends to continue to make distributions of
cash available for distribution to the limited partners on a quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash and
leasing them under triple-net leases to operators who generally meet specified
financial standards minimizes the Partner-ship'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 appro-priate in connection with
the operations of the Partnership.
Results of Operations
- ---------------------
During the six months ended June 30, 1995, the Partnership and its
consolidated joint venture, Woodway Joint Venture, owned and leased 31 wholly
owned Properties, and during the six months ended June 30, 1996, 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 six months ended June 30, 1996 and 1995, the Partnership
and Woodway Joint Venture earned $1,614,561 and $1,664,706, respec-tively, in
rental income from operating leases and earned income from direct financing
leases, $807,654 and $832,155 of which was earned during the quarters ended June
30, 1996 and 1995, respectively. The decrease in rental and earned income is
primarily attributable to a decrease of approximately $36,900 and $73,900,
respectively, as a result of the sale of the Property in Ocoee, Florida, in July
1995. The decrease was partially offset by an increase of approximately $31,300
and $62,600 during the quarter and six months ended June 30, 1996,
respectively, in rental income due to the reinvestment of a portion of the net
sales proceeds in a Property in North Fort Myers, Florida, in September 1995.
Rental and earned income also decreased approximately $13,900 and $27,800
during the quarter and six months ended June 30, 1996, respectively, as compared
to the quarter and six months ended June 30, 1995, as a result of the sale of
two Properties located in Jacksonville, Florida, in December 1995.
For the six months ended June 30, 1996 and 1995, the Partnership earned
$7,670 and $27,205, respectively, in contingent rental income, $2,317 and $7,021
of which was earned during the quarters ended June 30, 1996 and 1995,
respectively. The decrease in contingent rental income is primarily
attributable to the Partnership's collecting approximately $2,100 and $21,000
during the quarter and six months ended June 30, 1995, respectively, in amounts
previously written off as uncollectible relating to two Properties located in
Jacksonville, Florida, and one Property in Orlando, Florida.
Interest and other income were $49,190 and $29,970 for the six months
ended June 30, 1996 and 1995, respectively, of which $23,938 and $13,606 was
earned for the quarters ended June 30, 1996 and 1995, respectively. The
increase in interest and other income is primarily attributable to the interest
earned on the mortgage notes accepted in connection with the sale of the two
Properties located in Jacksonville, Florida, in December 1995.
For the six months ended June 30, 1995, the Partnership owned and leased
seven Properties indirectly through joint venture arrangements. During the six
months ended June 30, 1996, the Partnership owned and leased eight Properties
indirectly through joint venture arrangements. In connection therewith, during
the six months ended June 30, 1996 and 1995, the Partnership earned $123,702 and
$122,347, respectively, attributable to net income earned by these joint
ventures, $63,312 and $61,397 of which was earned during the quarters ended June
30, 1996 and 1995, respectively. The increase in net income earned by joint
ventures is primarily due to the fact that the Partnership invested in
Middleburg Joint Venture in May 1996, as described in "Liquidity and Capital
Resources."
Operating expenses, including depreciation and amortization expense, were
$205,435 and $192,098 for the six months ended June 30, 1996 and 1995,
respectively, of which $96,077 and $98,654 were incurred for the quarters
ended June 30, 1996 and 1995,
respectively. The increase in operating expenses during the six months ended
June 30, 1996, as compared to the six months ended June 30, 1995, is primarily
attributable to an increase in (i) accounting and administrative expenses
associated with operating the Partnership and its Properties, and (ii) insurance
expense as a result of the general partners' obtaining contingent liability and
property coverage for the Partnership, effective May 1995. This insurance
policy is intended to reduce the Partnership's exposure in the unlikely event a
tenant's insurance policy lapses or is insufficient to cover a claim relating to
the Property. The increase in operating expenses during the six months ended
June 30, 1996, was partially offset by a decrease in depreciation expense as a
result of the sale of the two Properties located in Jacksonville, Florida, in
December 1995.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
-----------------
Item 2. Changes in Securities. Inapplicable.
---------------------
Item 3. Defaults upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Inapplicable.
Item 5. Other Information. Inapplicable.
-----------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 2nd day of August, 1996.
CNL INCOME FUND VIII, 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 VIII, Ltd. at June 30, 1996,and its statement of income
for the six months then ended and is qualified in its entirety by reference to
the Form 10-Q of CNL Income Fund VIII, Ltd. for the six months ended June 30,
1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,348,284
<SECURITIES> 0
<RECEIVABLES> 7,414
<ALLOWANCES> 4,538
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 15,906,963
<DEPRECIATION> 1,125,077
<TOTAL-ASSETS> 32,418,767
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 31,448,087
<TOTAL-LIABILITY-AND-EQUITY> 32,418,767
<SALES> 0
<TOTAL-REVENUES> 1,671,421
<CGS> 0
<TOTAL-COSTS> 205,435
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,582,745
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,582,745
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,582,745
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund VIII, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
