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, 1999
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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
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CNL Income Fund VIII, Ltd.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-2963338
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
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</TABLE>
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 VIII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- -------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $1,835,604 and
$1,685,510, respectively $ 15,619,184 $ 15,769,278
Net investment in direct financing leases 7,721,863 7,802,785
Investment in joint ventures 2,776,099 2,809,759
Mortgage notes receivable 1,507,221 1,811,726
Cash and cash equivalents 1,896,858 1,809,258
Receivables, less allowance for doubtful accounts
of $24,636 in 1998 5,426 84,265
Prepaid expenses 14,426 3,959
Accrued rental income, less allowance for doubtful
accounts of $4,501 in 1999 and 1998 1,976,584 1,927,418
Other assets 52,671 52,671
------------------- -------------------
$ 31,570,332 $ 32,071,119
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 96,091 $ 4,258
Escrowed real estate taxes payable 21,347 27,838
Distributions payable 787,501 1,137,501
Due to related party 81,968 75,266
Rents paid in advance 60,950 62,349
------------------- -------------------
Total liabilities 1,047,857 1,307,212
Commitments and Contingencies (Note 3)
Minority interest 108,640 108,600
Partners' capital 30,413,835 30,655,307
------------------- -------------------
$ 31,570,332 $ 32,071,119
=================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------- -------------
<S> <C>
Revenues:
Rental income from operating leases $ 492,313 $ 455,192 $ 985,302 $ 910,748
Earned income from direct financing leases 235,628 297,998 472,487 597,440
Contingent rental income 13,335 2,547 16,614 21,033
Interest and other income 57,044 70,242 111,409 135,326
------------ ------------ ------------- -------------
798,320 825,979 1,585,812 1,664,547
------------ ------------ ------------- -------------
Expenses:
General operating and administrative 34,860 43,649 72,509 76,092
Professional services 8,404 6,857 14,136 12,363
State and other taxes 112 103 17,646 5,372
Depreciation 75,047 52,243 150,094 104,485
Transaction costs 87,527 -- 121,090 --
------------ ------------ ------------- -------------
205,950 102,852 375,475 198,312
------------ ------------ ------------- -------------
Income Before Minority Interest in Income of
Consolidated Joint Venture and Equity in
Earnings of Unconsolidated Joint Ventures 592,370 723,127 1,210,337 1,466,235
Minority Interest in Income of Consolidated
Joint Venture (3,330 ) (3,307 ) (6,685 ) (6,711 )
Equity in Earnings of Unconsolidated Joint
Ventures 69,647 71,149 129,878 139,253
------------ ------------ ------------- -------------
Net Income $ 658,687 $ 790,969 $1,333,530 $1,598,777
============ ============ ============= =============
Allocation of Net Income:
General partners $ 6,587 $ 7,910 $ 13,335 $ 15,988
Limited partners 652,100 783,059 1,320,195 1,582,789
------------ ------------ ------------- -------------
$ 658,687 $ 790,969 $1,333,530 $1,598,777
============ ============ ============= =============
Net Income Per Limited Partner Unit $ 0.019 $ 0.022 $ 0.038 $ 0.045
============ ============ ============= =============
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.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
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<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1999 1998
------------------------ ------------------------
<S> <C>
General partners:
Beginning balance $ 258,248 $ 226,441
Net income 13,335 31,807
----------------- -----------------
271,583 258,248
----------------- -----------------
Limited partners:
Beginning balance 30,397,059 30,989,957
Net income 1,320,195 3,257,105
Distributions ($0.045 and $0.110 per
limited partner unit, respectively (1,575,002 ) (3,850,003 )
----------------- -----------------
30,142,252 30,397,059
----------------- -----------------
Total partners' capital $30,413,835 $30,655,307
================= =================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
---------------- ----------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $1,717,444 $1,873,504
---------------- ----------------
Cash Flows from Investing Activities:
Collections on mortgage notes receivable 301,803 20,097
---------------- ----------------
Net cash provided by investing activities 301,803 20,097
---------------- ----------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,925,002 ) (1,925,001 )
Distributions to holder of minority interest (6,645 ) (6,587 )
---------------- ----------------
Net cash used in financing activities (1,931,647 ) (1,931,588 )
---------------- ----------------
Net Increase (Decrease) in Cash and Cash Equivalents 87,600 (37,987 )
Cash and Cash Equivalents at Beginning of Period 1,809,258 1,602,236
---------------- ----------------
Cash and Cash Equivalents at End of Period $1,896,858 $1,564,249
================ ================
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
period $ 787,501 $ 787,501
================ ================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
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, 1999 may not be indicative of
the results that may be expected for the year ending December 31, 1999.
Amounts as of December 31, 1998, 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 VIII, Ltd. (the "Partnership") for the year ended December
31, 1998.
The Partnership accounts for its approximate 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.
2. Mortgage Notes Receivable:
As of December 31, 1998, the Partnership had accepted three promissory
notes in connection with the sale of three of its properties. During
the six months ended June 30, 1999, the maker relating to one of the
promissory notes prepaid principal in the amount of $272,500. The
amount was applied to the outstanding principal balance.
3. Commitments and Contingencies:
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to
which the Partnership would be merged with and into a subsidiary of APF
(the "Merger"). As consideration for the Merger, APF has agreed to
issue 2,021,318 shares of its common stock, par value $0.01 per share
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $20.00 per APF Share, the
price paid by APF investors (after an adjustment for a one for two
reverse stock split effective June 3, 1999) in three previous public
offerings, the most recent of which was completed in December 1998. In
order to assist the general partners in evaluating the proposed merger
consideration, the general partners retained Valuation Associates, a
nationally recognized real estate appraisal firm, to appraise the
Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other
assets were valued on a going concern basis (meaning the Partnership
continues
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
3. Commitments and Contingencies - Continued:
unchanged) at $39,843,631 as of December 31, 1998. The APF Shares are
expected to be listed for trading on the New York Stock Exchange
concurrently with the consummation of the Merger, and therefore, would
be freely tradable at the option of the former limited partners. At a
special meeting of the partners that is expected to be held in the
fourth quarter of 1999, limited partners holding in excess of 50% of
the Partnership's outstanding limited partnership interests must
approve the Merger prior to consummation of the transaction. If the
limited partners at the special meeting approve the Merger, APF will
own the properties and other assets of the Partnership. The general
partners intend to recommend that the limited partners of the
Partnership approve the Merger. In connection with their
recommendation, the general partners will solicit the consent of the
limited partners at the special meeting. If the limited partners reject
the Merger, the Partnership will bear the portion of the transaction
costs based upon the percentage of "For" votes and the general partners
will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in
connection with the proposed Merger. On July 8, 1999, the plaintiffs
amended the complaint to add three additional limited partners as
plaintiffs. Additionally, on June 22, 1999, a limited partner in
certain of the CNL Income Funds served a lawsuit against the general
partners, APF, CNL Fund Advisors, Inc. and certain of its affiliates in
connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend
vigorously against the claims. See Part II - Item 1. Legal Proceedings.
<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 triple-net leases, with the lessees responsible for all repairs and
maintenance, property taxes, insurance and utilities. As of June 30, 1999, the
Partnership owned 36 Properties, which included interests in nine Properties
owned by joint ventures in which the Partnership is a co-venturer.
Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 1999 and 1998, 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 $1,717,444 and
$1,873,504 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in cash from operations for the six months ended June 30, 1999, is
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital.
Other sources and uses of capital included the following during the six
months ended June 30, 1999.
As of December 31, 1998, the Partnership had accepted three promissory
notes in connection with the sale of three of its Properties. During the six
months ended June 30, 1999, the maker relating to one of the promissory notes
prepaid principal of $272,500 which was applied to the outstanding principal
balance. The Partnership intends to reinvest the $272,500 payment in an
additional Property.
Currently, rental income from the Partnership's Properties and any
amounts collected under its promissory note, as described above, are invested in
money market accounts or other short-term, highly liquid investments such as
demand deposit accounts at commercial banks, certificates of deposits, 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 June 30, 1999, the Partnership had $1,896,858 invested in such
short-term investments, as compared to $1,809,258 at December 31, 1998. The
funds remaining at June 30, 1999, after payment of distributions and other
liabilities, will be used to invest in an additional Property and 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.
<PAGE>
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 and, for the six months ended June 30, 1998,
accumulated excess operating reserves, the Partnership declared distributions to
limited partners of $1,575,002 and $1,925,001 for the six months ended June 30,
1999 and 1998, respectively ($787,501 for each of the quarters ended June 30,
1999 and 1998). This represents distributions of $0.045 and $0.055 per unit for
the six months ended June 30, 1999 and 1998, respectively ($0.023 per unit for
the quarters ended June 30, 1999 and 1998). No distributions were made to the
general partners for the quarters and six months ended June 30, 1999 and 1998.
No amounts distributed to the limited partners for the six months ended June 30,
1999 and 1998 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,
decreased to $1,047,857 at June 30, 1999, from $1,307,212 at December 31, 1998,
partially as a result of the payment of a special distribution accrued at
December 31, 1998, of accumulated, excess operating reserves to the limited
partners of $350,000 in January 1999. In addition, the decrease in liabilities
is partially offset by an increase in liabilities due to the Partnership
accruing transaction costs relating to the proposed Merger with CNL American
Properties Fund, Inc. ("APF"), as described below. 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 six months ended June 30, 1999 and 1998, the Partnership and
its consolidated joint venture, Woodway Joint Venture, owned and leased 28
wholly owned Properties to operators of fast-food and family-style restaurant
chains. In connection therewith, during the six months ended June 30, 1999 and
1998, the Partnership and Woodway Joint Venture earned $1,457,789 and
$1,508,188, respectively, in rental income from operating leases and earned
income from direct financing leases, $727,941 and $753,190 of which was earned
during the quarters ended June 30, 1999 and 1998, respectively. Rental and
earned income
<PAGE>
decreased during the quarter and six months ended June 30, 1999, due to the fact
that the leases relating to four Burger King Properties were amended to provide
for rent reductions from August 1998 through the end of the lease term.
For the six months ended June 30, 1999 and 1998, the Partnership also
earned $16,614 and $21,033, respectively, in contingent rental income, $13,335
and $2,547 of which was earned during the quarters ended June 30, 1999 and 1998,
respectively. Contingent rental income was lower during the six months ended
June 30, 1999, as compared to the six months ended June 30, 1998, due to the
fact that during the six months ended June 30, 1998, the Partnership recorded
additional contingent rental amounts as a result of adjusting estimated
contingent rental amounts accrued at December 31, 1997, to actual amounts.
Contingent rental income was higher for the quarter ended June 30, 1999, as
compared to the quarter ended June 30, 1998, due to a change in the percentage
rent formula in accordance with the terms of the lease agreement for the Wendy's
Property in Midlothian, Virginia.
During the six months ended June 30, 1999 and 1998, the Partnership
also earned $111,409 and $135,326, respectively, in interest and other income,
$57,044 and $70,242 of which was earned during the quarters ended June 30, 1999
and 1998. The decrease in interest and other income during the quarter and six
months ended June 30, 1999, is primarily attributable to a reduction in the
interest earned on the mortgage note accepted in connection with the sale of the
Property located in Orlando, Florida due to the fact that the maker of the note
prepaid principal in the amount of $272,500 during the six months ended June 30,
1999, as described above in "Capital Resources."
For the quarters and six months ended June 30, 1999 and 1998, the
Partnership owned and leased eight Properties indirectly through joint venture
arrangements. In connection with these joint venture arrangements, during the
six months ended June 30, 1999 and 1998, the Partnership earned $129,878 and
$139,253, respectively, attributable to net income earned by these
unconsolidated joint ventures, $69,647 and $71,149 of which was earned during
the quarters ended June 30, 1999 and 1998, respectively. The decrease in net
income earned by joint ventures for the quarter and six months ended June 30,
1999, is primarily due to the fact that the lease relating to the Burger King
Property in Asheville, North Carolina, owned by Asheville Joint Venture, was
amended to provide for rent reductions from August 1998 through the end of the
lease term.
Operating expenses, including depreciation and amortization expense,
were $375,475 and $198,312 for the six months ended June 30, 1999 and 1998,
respectively, $205,950 and $102,852 of which was earned during the quarters
ended June 30, 1999 and 1998, respectively. The increase in operating expenses
during the quarter and six months ended June 30, 1999, as compared to the
quarter and six months ended June 30, 1998, is partially due to an increase in
depreciation expense due to the fact that, in August 1998, the Partnership
reclassified the leases for four Burger King Properties from direct financing
leases to operating leases, as a result of lease amendments.
The increase in operating expenses for the quarter and six months ended
June 30, 1999, is also partially due to the fact that the Partnership incurred
$87,527 and $121,090, respectively, in transaction costs related to the general
partners retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed Merger with APF, as described below. If the limited
partners reject the Merger, the Partnership will bear the portion of the
transaction costs based upon the percentage of "For" votes and the general
partners will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
In addition, the increase in operating expenses for the six months
ended June 30, 1999 is due to the Partnership incurring additional state taxes
due to changes in tax laws of a state in which the Partnership conducts
business.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF (the "Merger"). As consideration for the Merger, APF
has agreed to issue 2,021,318 shares of its common stock, par value $0.01 per
share (the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $20.00 per APF Share, the price paid
by APF investors (after an adjustment for a one for two reverse stock split
effective June 3, 1999) in three previous public offerings, the most recent of
which was completed in December 1998. In order to assist the general partners in
evaluating the proposed merger consideration, the general partners retained
Valuation Associates, a nationally recognized real estate appraisal firm, to
appraise the Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other assets
were valued on a going concern basis (meaning the Partnership continues
unchanged) at $39,843,631 as of December 31, 1998. The APF Shares are expected
to be listed for trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and therefore, would be freely tradable at the
option of the former limited partners. At a special meeting of the partners that
is expected to be held in the fourth quarter of 1999, limited partners holding
in excess of 50% of the Partnership's outstanding limited partnership interests
must approve the Merger prior to consummation of the transaction. If the limited
partners at the special meeting approve the Merger, APF will own the properties
and other assets of the Partnership. The general partners intend to recommend
that the limited partners of the Partnership approve the Merger. In connection
with their recommendation, the general partners will solicit the consent of the
limited partners at the special meeting. If the limited partners reject the
Merger, the Partnership will bear the portion of the transaction costs based
upon the percentage of "For" votes and the general partners will bear the
portion of such transaction costs based upon the percentage of "Against" votes
and abstentions.
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in connection with
the proposed Merger. On July 8, 1999, the plaintiffs amended the complaint to
add three additional limited partners as plaintiffs. Additionally, on June 22,
1999, a limited partner in certain of the CNL Income Funds served a lawsuit
against us and APF in connection with the proposed Merger. The general partners,
APF and CNL Fund Advisors, Inc. and certain of its affiliates, believe that the
lawsuits are without merit and intend to defend vigorously against the claims.
See Part II - Item 1. Legal Proceedings.
Year 2000 Readiness Disclosure
The Year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. As of June 30, 1999 the
Partnership did not have any information or non-information technology systems.
The general partners and certain of the affiliates of the general partners
provide all services requiring the use of information and non-information
technology systems pursuant to a management agreement with the Partnership. The
information technology system of the affiliates of the general partners consists
of a network of personal computers and servers built using hardware and software
from mainstream suppliers. The non-information technology systems of the
affiliates of the general partners are primarily facility related and include
building security systems, elevators, fire suppressions, HVAC, electrical
systems and other utilities. The affiliates of the general partners have no
internally generated programmed software coding to correct because substantially
all of the software utilized by the general partners and affiliates is purchased
or licensed from external providers. The maintenance of non-information
technology systems at the Partnership's Properties is the responsibility of the
tenants of the Properties in accordance with the terms of the Partnership's
leases.
In early 1998, the general partners and affiliates formed a Year 2000
team, for the purpose of identifying, understanding and addressing the various
issues associated with the Year 2000 problem. The Y2K Team consists of the
general partners and members from certain of the affiliates of the general
partners, including representatives from senior management, information systems,
telecommunications, legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have potential Year 2000 problems. The Y2K Team is in the
process of conducting inspections, interviews and tests to identify which of the
Partnership's systems could have a potential Year 2000 problem.
The information system of the affiliates of the general partners is
comprised of hardware and software applications from mainstream suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and manufacturers to verify the Year 2000 compliance of their products. In
addition, the Y2K Team has also requested and is evaluating documentation from
other companies with which the Partnership has a material third party
relationship, including the Partnership's tenants, vendors, financial
institutions and the Partnership's transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. The Y2K Team has also requested and is evaluating documentation
from the non-information technology systems providers of the affiliates of the
general partners. Although the general partners continue to receive positive
responses from the companies with which the Partnership has third party
relationships regarding their Year 2000 compliance, the general partners cannot
be assured that the tenants, financial institutions, transfer agent, other
vendors and system providers have adequately considered the impact of the Year
2000. The general partners are not able to measure the effect on the operations
of the Partnership of any third party's failure to adequately address the impact
of the Year 2000.
The general partners and their affiliates have identified and have
implemented upgrades for certain hardware equipment. In addition, the general
partners and their affiliates have identified certain software applications
which will require upgrades to become Year 2000 compliant. The general partners
expect that all of these upgrades, as well as any other necessary remedial
measures on the information technology systems used in the business activities
and operations of the Partnership, to be completed by September 30, 1999,
although, the general partners cannot be assured that the upgrade solutions
provided by the vendors have addressed all possible Year 2000 issues. The
general partners do not expect the aggregate cost of the Year 2000 remedial
measures to be material to the results of operations of the Partnership.
The general partners and their affiliates have received certification
from the Partnership's transfer agent of its Year 2000 compliance. Due to the
material relationship of the Partnership with its transfer agent, the Y2K Team
is evaluating the Year 2000 compliance of the systems of the transfer agent and
expects to have the evaluation completed by September 30, 1999. Despite the
positive response from the transfer agent and the evaluation of the transfer
agent's system by the Y2K Team, the general partners cannot be assured that the
transfer agent has addressed all possible Year 2000 issues. In the event that
the systems of the transfer agent are not Year 2000 compliant, the general
partners and their affiliates will have to allocate resources to internally
perform the functions of the transfer agent. The general partners do not
anticipate that the additional cost of these resources would have a material
impact on the Partnership.
Based upon the progress the general partners and their affiliates have
made in addressing the Year 2000 issues and their plan and timeline to complete
the compliance program, the general partners do not foresee significant risks
associated with Year 2000 compliance at this time. The general partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership being affected by them; therefore, we have not developed a
comprehensive contingency plan. However, if the general partners and their
affiliates identify significant risks related to their Year 2000 compliance, or
if their progress deviates from the anticipated timeline, the general partners
and their affiliates will develop contingency plans as deemed necessary at that
time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
No material changes in the Partnership's market risk occurred from
December 31, 1998 through June 30, 1999. Information regarding the Partnership's
market risk at December 31, 1998 is included in its Annual Report on Form 10-K
for the year ended December 31, 1998.
<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.
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
2.1 Agreement and Plan of Merger by and between the
Registrant and CNL American Properties Fund, Inc.
("APF") dated March 11, 1999 and as amended June
4, 1999 (Filed as Appendix B to the Prospectus
Supplement for the Registrant, constituting a
part of Amendment No. 1 to the Registration
Statement of APF on Form S-4, File No. 74329.)
<PAGE>
3.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund VIII, Ltd. (Included as
Exhibit 3.2 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 VIII, Ltd. (Included as
Exhibit 3.2 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 VIII, 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
VIII, 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
No reports on Form 8-K were filed during the quarter ended
June 30, 1999.
<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 August, 1999.
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, 1999, 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, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,896,858
<SECURITIES> 0
<RECEIVABLES> 5,426
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 17,454,788
<DEPRECIATION> 1,835,604
<TOTAL-ASSETS> 31,570,332
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30,413,835
<TOTAL-LIABILITY-AND-EQUITY> 31,570,332
<SALES> 0
<TOTAL-REVENUES> 1,585,812
<CGS> 0
<TOTAL-COSTS> 375,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,333,530
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,333,530
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,333,530
<EPS-BASIC> 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 liabilites.
</FN>
</TABLE>
