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 September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-19139
CNL Income Fund VIII, Ltd.
(Exact name of registrant as specified in its charter)
Florida 59-2963338
(State or other juris- (I.R.S. Employer
diction of incorporation Identification No.)
or organization)
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
<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 6-9
Part II
Other Information 10
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
ASSETS 1997 1996
------ ------------- -----------
Land and buildings on operating
leases, less accumulated
depreciation of $1,386,291 and,
$1,229,563 $14,012,475 $14,169,203
Net investment in direct financing
leases 10,091,536 10,223,225
Investment in joint ventures 2,888,079 2,940,826
Mortgage notes receivable 1,860,153 1,862,262
Cash and cash equivalents 1,537,453 1,476,274
Receivables, less allowance for
doubtful accounts of $18,796 and
$4,775 27,245 25,675
Prepaid expenses 8,421 4,377
Accrued rental income, less allow-
ance for doubtful accounts of
$4,501 in 1997 1,778,491 1,682,593
Other assets 52,671 52,671
----------- -----------
$32,256,524 $32,437,106
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 4,156 $ 7,693
Escrowed real estate taxes payable 29,272 15,138
Distributions payable 787,501 1,050,000
Due to related parties 64,594 56,880
Rents paid in advance 95,726 74,502
----------- -----------
Total liabilities 981,249 1,204,213
Minority interest 108,297 108,059
Partners' capital 31,166,978 31,124,834
----------- -----------
$32,256,524 $32,437,106
=========== ===========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- -------
<S> <C>
Revenues:
Rental income from
operating leases $ 452,867 $ 458,994 $1,354,475 $1,404,530
Earned income from direct
financing leases 302,203 332,736 910,525 1,001,761
Contingent rental income 2,547 4,441 34,487 12,111
Interest and other income 60,005 26,288 181,801 75,478
---------- ---------- ---------- ----------
817,622 822,459 2,481,288 2,493,880
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 33,808 39,581 103,897 121,787
Professional services 4,632 5,321 15,042 19,309
State and other taxes - - 5,081 4,756
Depreciation and
amortization 52,243 52,243 156,728 156,728
---------- ---------- ---------- ----------
90,683 97,145 280,748 302,580
---------- ---------- ---------- ----------
Income Before Minority
Interest in Income of
Consolidated Joint
Venture, Equity in
Earnings of Unconsoli-
dated Joint Ventures
and Provision for Loss
on Land and Building 726,939 725,314 2,200,540 2,191,300
Minority Interest in
Income of Consolidated
Joint Venture (3,436) (3,485) (10,266) (10,428)
Equity in Earnings of
Unconsolidated Joint
Ventures 74,581 69,183 214,372 192,885
Provision for Loss on
Land and Building - (99,031) - (99,031)
---------- ---------- ---------- ----------
Net Income $ 798,084 $ 691,981 $2,404,646 $2,274,726
========== ========== ========== ==========
Allocation of Net Income:
General partners $ 7,981 $ 7,396 $ 24,046 $ 23,223
Limited partners 790,103 684,585 2,380,600 2,251,503
---------- ---------- ---------- ----------
$ 798,084 $ 691,981 $2,404,646 $2,274,726
========== ========== ========== ==========
Net Income Per Limited
Partner Unit $ 0.023 $ 0.020 $ 0.068 $ 0.064
========== ========== ========== ==========
Weighted Average Number of
Limited Partner Units
Outstanding 35,000,000 35,000,000 35,000,000 35,000,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
1997 1996
----------------- ------------
General partners:
Beginning balance $ 194,025 $ 162,612
Net income 24,046 31,413
----------- -----------
218,071 194,025
----------- -----------
Limited partners:
Beginning balance 30,930,809 31,277,730
Net income 2,380,600 3,065,579
Distributions ($0.068 and
$0.098 per limited
partner unit, respectively) (2,362,502) (3,412,500)
----------- -----------
30,948,907 30,930,809
----------- -----------
Total partners' capital $31,166,978 $31,124,834
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1997 1996
----------- -------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 2,694,116 $ 2,647,878
----------- -----------
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 - (234,059)
Collections on mortgage notes
receivable 2,092 1,893
----------- -----------
Net cash provided by (used
in) investing activities 2,092 (234,627)
----------- -----------
Cash Flows from Financing
Activities:
Distributions to limited
partners (2,625,001) (2,537,500)
Distributions to holder of
minority interest (10,028) (10,125)
----------- -----------
Net cash used in financing
activities (2,635,029) (2,547,625)
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 61,179 (134,374)
Cash and Cash Equivalents at Beginning
of Period 1,476,274 1,620,865
----------- -----------
Cash and Cash Equivalents at End
of Period $ 1,537,453 $ 1,486,491
=========== ===========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid
at end of period $ 787,501 $ 787,500
=========== ===========
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1997 and 1996
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and nine months ended September 30, 1997, may not be
indicative of the results that may be expected for the year ending
December 31, 1997. Amounts as of December 31, 1996, included in the
financial statements, have been derived from audited financial
statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in CNL Income Fund
VIII, Ltd.'s Form 10-K for the year ended December 31, 1996.
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.
5
<PAGE>
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 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 generally triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance and utilities. As of September 30,
1997, the Partnership owned 36 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 nine months ended
September 30, 1997 and 1996, was cash from operations (which includes cash
received from tenants, distributions from joint ventures, and interest and other
income received, less cash paid for expenses). Cash from operations was
$2,694,116 and $2,647,878 for the nine months ended September 30, 1997 and 1996,
respectively. The increase in cash from operations for the nine months ended
September 30, 1997, is primarily a result of changes in income and expenses as
discussed in "Results of Operations" below, and 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 pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At September 30, 1997, the Partnership had
$1,537,453 invested in such short-term investments, as compared to $1,476,274 at
December 31, 1996. The increase in cash and cash equivalents during the nine
months ended September 30, 1997, was partially offset by the payment of a
special distribution to the limited partners of $262,500 in January 1997 of
cumulative excess operating reserves. The funds remaining at September 30, 1997,
after payment of distributions for the quarter ended September 30, 1997, 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 $981,249 at September 30, 1997, from $1,204,213 at December 31,
1996, primarily as the result of the Partnership's accruing a special
distribution payable to the limited partners of $262,500 at December 31, 1996,
as described above, which was paid in January 1997. The decrease in liabilities
was partially offset by an increase in rents paid in advance during the nine
months ended September 30, 1997. The general partners believe that the
Partnership has sufficient cash on hand to meet its current working capital
needs.
6
<PAGE>
Liquidity and Capital Resources - Continued
Based on cash from operations, the Partnership declared distributions
to the limited partners of $2,362,502 and $2,362,500 for the nine months ended
September 30, 1997 and 1996, respectively ($787,501 and $787,500 for the
quarters ended September 30, 1997 and 1996, respectively). This represents
distributions for each applicable nine months of $0.068 per unit ($0.023 per
unit for each applicable quarter). No distributions were made to the general
partners for the quarters and nine months ended September 30, 1997 and 1996. No
amounts distributed or to be distributed to the limited partners for the nine
months ended September 30, 1997 and 1996, are required to be or have been
treated by the Partnership as a return of capital for purposes of calculating
the limited partners' return on their adjusted capital contributions. The
Partnership intends to continue to make distributions of cash available for
distribution to the limited partners on a quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
Results of Operations
During the nine months ended September 30, 1996, the Partnership and
its consolidated joint venture, Woodway Joint Venture, owned and leased 29
wholly owned Properties (including one Property in Orlando, Florida, which was
sold in October 1996) and during the nine months ended September 30, 1997, the
Partnership and its consolidated joint venture owned and leased 28 wholly owned
Properties to operators of fast-food and family-style restaurant chains. In
connection therewith, during the nine months ended September 30, 1997 and 1996,
the Partnership and Woodway Joint Venture earned $2,265,000 and $2,406,291,
respectively, in rental income from operating leases and earned income from
direct financing leases, $755,070 and $791,730 of which was earned during the
quarters ended September 30, 1997 and 1996, respectively. The decrease in rental
and earned income during the quarter and nine months ended September 30, 1997,
as compared to the quarter and nine months ended September 30, 1996, is
primarily attributable to a decrease of approximately $28,500 and $115,100,
respectively, as a result of the sale of the Property in Orlando, Florida, in
October 1996. However, as a result of the Partnership accepting a mortgage note
for this property, interest income increased during the quarter and nine months
ended September 30, 1997, as discussed below.
7
<PAGE>
Results of Operations - Continued
For the nine months ended September 30, 1997 and 1996, the Partnership
also earned $34,487 and $12,111, respectively, in contingent rental income,
$2,547 and $4,441 of which was earned during the quarters ended September 30,
1997 and 1996, respectively. The increase in contingent rental income during the
nine months ended September 30, 1997, as compared to the nine months ended
September 30, 1996, is primarily attributable to (i) the Partnership adjusting
estimated contingent rental amounts accrued at December 31, 1996, to actual
amounts as of the nine months ended September 30, 1997, and (ii) increased gross
sales of certain restaurant Properties requiring the payment of contingent
rental income.
Interest and other income were $181,801 and $75,478 for the nine months
ended September 30, 1997 and 1996, respectively, $60,005 and $26,288 of which
was earned during the quarters ended September 30, 1997 and 1996, respectively.
The increase in interest and other income during the quarter and nine months
ended September 30, 1997, as compared to the quarter and nine months ended
September 30, 1996, is primarily attributable to the interest earned on the
mortgage note receivable accepted in connection with the sale of the Property
located in Orlando, Florida, in October 1996.
For the nine months ended September 30, 1997 and 1996, the Partnership
owned and leased eight Properties indirectly through joint venture arrangements.
In connection therewith, during the nine months ended September 30, 1997 and
1996, the Partnership earned $214,372 and $192,885, respectively, attributable
to net income earned by these unconsolidated joint ventures, $74,581 and $69,183
of which was earned during the quarters ended September 30, 1997 and 1996,
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.
Operating expenses, including depreciation and amortization expense,
were $280,748 and $302,580 for the nine months ended September 30, 1997 and
1996, respectively, of which $90,683 and $97,145 were incurred for the quarters
ended September 30, 1997 and 1996, respectively. The decrease in operating
expenses during the quarter and nine months ended September 30, 1997, as
compared to the quarter and nine months ended September 30, 1996, is primarily
attributable to a decrease in accounting and administrative expenses associated
with operating the Partnership and its Properties. In addition, the decrease in
operating expenses for the nine months ended September 30, 1997 was due to a
decrease in professional services as a result of the Partnership incurring the
cost of the 1996 appraisal updates obtained to prepare an annual statement of
unit valuation to qualified plans in accordance with the partnership agreement
during the quarter ended December 31, 1996. The Partnership incurred the cost of
the 1995 appraisal updates during the nine months ended September 30, 1996.
8
<PAGE>
Results of Operations - Continued
During the quarter and nine months ended September 30, 1996, the
Partnership recorded a provision for loss on land and building in the amount of
$99,031 for financial reporting purposes, relating to the Property in Orlando,
Florida. This provision represented the difference between (i) the Property's
carrying value plus the additional rental income (accrued rental income)
recognized since inception of the lease relating to the straight-lining of
future scheduled rent increases for this Property in accordance with generally
accepted accounting principles and (ii) the net realizable value of the Property
based on the sales proceeds of $1,375,000 accepted in the form of a promissory
note from the sale of this Property in October 1996. The Partnership wrote-off
the non-recoverable portion of the accrued rental income as a result of the
anticipated October 1996 sale, resulting in the provision for loss on land and
building during the nine months ended September 30, 1996. Due to the fact that
the straight-lining of future scheduled rent increases over the term of the
lease is a non-cash accounting adjustment, the write-off of these amounts is a
loss for financial statement purposes only.
9
<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 September 30, 1997.
10
<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 29th day of October, 1997.
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 September 30, 1997, and its statement of
income for the nine months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund VIII, Ltd. for the nine months
ended September 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,537,453
<SECURITIES> 0
<RECEIVABLES> 46,041
<ALLOWANCES> 18,796
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 15,398,766
<DEPRECIATION> 1,386,291
<TOTAL-ASSETS> 32,256,524
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 31,166,978
<TOTAL-LIABILITY-AND-EQUITY> 32,256,524
<SALES> 0
<TOTAL-REVENUES> 2,481,288
<CGS> 0
<TOTAL-COSTS> 280,748
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,404,646
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,404,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,404,646
<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>
