UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19139
CNL INCOME FUND VIII, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2963338
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 650-1000
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of
the Act:
Units of limited partnership interest ($1 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 35,000,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $1 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
PART I
Item 1. Business
CNL Income Fund VIII, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 18, 1989. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on August 2, 1990, the
Partnership offered for sale up to $35,000,000 of limited partnership interests
(the "Units") (35,000,000 Units at $1 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
January 30, 1990. The offering terminated on March 7, 1991, at which date the
maximum offering proceeds of $35,000,000 had been received from investors who
were admitted to the Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties 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 "Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totalled
$30,975,000, and were used to acquire 38 Properties, including interests in
eight Properties owned by joint ventures in which the Partnership is a
co-venturer, and to establish a working capital reserve for Partnership
purposes. During the year ended December 31, 1995, the Partnership sold its
Property in Ocoee, Florida and reinvested the majority of the net sales proceeds
in a Shoney's in North Fort Myers, Florida. Also, during the year ended December
31, 1995, the Partnership sold two Properties in Jacksonville, Florida. During
the year ended December 31, 1996, the Partnership reinvested the remaining net
sales proceeds from the 1995 sale of the Property in Ocoee, Florida, to acquire
one additional Property indirectly through a joint venture in which the
Partnership is a co-venturer. Also, during the year ended December 31, 1996, the
Partnership sold its Property in Orlando, Florida. As a result of the above
transactions as of December 31, 1998, the Partnership currently owns 36
Properties, including interests in nine Properties owned by joint ventures in
which the Partnership is a co-venturer. The Properties are leased on a
triple-net basis with the lessees responsible for all repairs and maintenance,
property taxes, insurance and utilities.
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").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. APF has agreed to issue shares of its
common stock, par value $0.01 per share (the "APF Shares"), as consideration for
the Merger. At a special meeting of the partners that is expected to be held in
the third 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. See Item 8.
Financial Statements and Supplementary Data -- Note 11. Subsequent Event.
In the event that the Limited Partners vote against the Merger, the
Partnership will hold its Properties until the General Partners determine that
the sale or other disposition of the Properties is advantageous in view of the
Partnership's investment objectives. In deciding whether to sell Properties, the
General Partners will consider factors such as potential capital appreciation,
net cash flow and federal income tax considerations. Certain lessees also have
been granted options to purchase Properties, generally at the Property's then
fair market value after a specified portion of the lease term has elapsed. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property purchase options
granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
the joint ventures in which the Partnership is a co-venturer provide for initial
terms, ranging from 14 to 20 years (the average being 18 years), and expire
between 2005 and 2016. All leases are on a triple-net basis, with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities. The leases of the Properties provide for minimum base annual rental
payments (payable in monthly installments) ranging from approximately $41,300 to
$213,800. All of the leases provide for percentage rent, based on sales in
excess of a specified amount. In addition, a majority of the leases provide
that, commencing in specified lease years (ranging from the third to the sixth
lease year), the annual base rent required under the terms of the lease will
increase.
Generally, the leases of the Properties provide for two to four
five-year renewal options subject to the same terms and conditions as the
initial lease. Certain lessees also have been granted options to purchase
Properties at the Property's then fair market value after a specified portion of
the lease term has elapsed. Under the terms of certain leases, the option
purchase price may equal the Partnership's original cost to purchase the
Property (including acquisition costs), plus a specified percentage from the
date of the lease or a specified percentage of the Partnership's purchase price,
if that amount is greater than the Property's fair market value at the time the
purchase option is exercised.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership first must
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
During 1994, the lease relating to the Property in Tiffin, Ohio, was
amended to provide for the payment of reduced annual base rent with no scheduled
rent increases. However, the lease amendment provided for a lower percentage
rent breakpoint, as compared to the original lease agreement, a change that was
designed to result in higher percentage rent payments at any time that
percentage rent became payable. In accordance with a provision in the amendment,
as a result of the tenant assigning the lease to a new tenant during 1998, the
rents under the assigned lease reverted back to those required under the
original lease agreement.
During 1998, the leases relating to the Burger King Properties in New
City and Syracuse, New York and New Philadelphia and Mansfield, Ohio, and
Asheville, North Carolina, were amended to provide for rent reductions from
August 1998 through the end of the lease terms.
Major Tenants
During 1998, three lessees of the Partnership and its consolidated
joint venture, Golden Corral Corporation, Carrols Corporation and Restaurant
Management Services, Inc., each contributed more than ten percent of the
Partnership's total rental income (including rental income from the
Partnership's consolidated joint venture and the Partnership's share of rental
income from eight Properties owned by unconsolidated joint ventures). As of
December 31, 1998, Golden Corral Corporation was the lessee under leases
relating to four restaurants, Carrols Corporation was the lessee under leases
relating to five restaurants and Restaurant Management Services, Inc. was the
lessee under leases relating to five restaurants. It is anticipated that, based
on the minimum rental payments required by the leases, these three lessees each
will continue to contribute more than ten percent of the Partnership's total
rental income in 1999. In addition, three Restaurant Chains, Golden Corral
Family Steakhouse Restaurants, Burger King and Shoney's, each accounted for more
than ten percent of the Partnership's total rental income in 1998 (including
rental income from the Partnership's consolidated joint venture and the
Partnership's share of rental income from eight Properties owned by
unconsolidated joint ventures). In 1999, it is anticipated that these three
Restaurant Chains each will continue to account for more than ten percent of the
Partnership's total rental income to which the Partnership is entitled under the
terms of the leases. Any failure of these lessees or Restaurant Chains could
materially affect the Partnership's income if the Partnership is not able to
re-lease the Properties in a timely manner. No single tenant or group of
affiliated tenants lease Properties with an aggregate carrying value, excluding
acquisition fees and certain acquisition expenses, in excess of 20 percent of
the total assets of the Partnership.
Joint Venture Arrangements
The Partnership has entered into a joint venture arrangement, Woodway
Joint Venture, with an unaffiliated entity to purchase and hold one Property. In
addition, the Partnership has entered into three separate joint venture
arrangements, Asheville Joint Venture, CNL Restaurant Investments II, and
Middleburg Joint Venture with affiliates of the General Partners, to purchase
and hold eight Properties.
<PAGE>
The joint venture arrangements provide for the Partnership and its
joint venture partners to share in all costs and benefits associated with the
joint ventures in accordance with their respective percentage interests in the
joint ventures. The Partnership and its joint venture partners are also jointly
and severally liable for all debts, obligations and other liabilities of the
joint ventures.
Woodway Joint Venture, Asheville Joint Venture and Middleburg Joint
Venture each have an initial term of 20 years and, after the expiration of the
initial term, continue in existence from year to year unless terminated at the
option of either joint venturer or by an event of dissolution. Events of
dissolution include the bankruptcy, insolvency or termination of any joint
venturer, sale of the Property owned by the joint venture and mutual agreement
of the Partnership and each joint venture partner to dissolve the joint venture.
CNL Restaurant Investments II's joint venture agreement does not provide for a
fixed term, but continues in existence until terminated by any of the joint
venturers.
The Partnership has management control of Woodway Joint Venture and
shares management control equally with affiliates of the General Partners for
Asheville Joint Venture, CNL Restaurant Investments II and Middleburg Joint
Venture. The joint venture agreements restrict each venturer's ability to sell,
transfer or assign its joint venture interest without first offering it for sale
to its joint venture partner, either upon such terms and conditions as to which
the venturers may agree or, in the event the venturers cannot agree, on the same
terms and conditions as any offer from a third party to purchase such joint
venture interest.
Net cash flow from operations of Woodway Joint Venture, Asheville Joint
Venture, CNL Restaurant Investments II and Middleburg Joint Venture is
distributed 87.68%, 85.54%, 36.8%, and 12.46%, respectively, to the Partnership
and the balance is distributed to each of the other joint venture partners in
accordance with their respective percentage interest in the joint venture. Any
liquidation proceeds, after paying joint venture debts and liabilities and
funding reserves for contingent liabilities, will be distributed first to the
joint venture partners with positive capital account balances in proportion to
such balances until such balances equal zero, and thereafter in proportion to
each joint venture partner's percentage interest in the joint venture.
Certain Management Services
CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership. Under this agreement,
CNL Fund Advisors, Inc. is responsible for collecting rental payments,
inspecting the Properties and the tenants' books and records, assisting the
Partnership in responding to tenant inquiries and notices and providing
information to the Partnership about the status of the leases and the
Properties. CNL Fund Advisors, Inc. also assists the General Partners in
negotiating the leases. For these services, the Partnership has agreed to pay
CNL Fund Advisors, Inc. an annual fee of one percent of the sum of gross
operating revenues from Properties wholly owned by the Partnership plus the
Partnership's allocable share of gross revenues of joint ventures in which the
Partnership is a co-venturer, but not in excess of competitive fees for
comparable services. Under the management agreement, the management fee is
subordinated to receipt by the Limited Partners of an aggregate, ten percent,
cumulative, noncompounded annual return on their adjusted capital contributions
(the "10% Preferred Return"), calculated in accordance with the Partnership's
limited partnership agreement (the "Partnership Agreement"). In any year in
which the Limited Partners have not received the 10% Preferred Return, no
management fee will be paid.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains and restaurants in other well-known national chains, including
those offering different types of food and service.
<PAGE>
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who may
also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 1998, the Partnership owned, either directly or
through joint venture arrangements, 36 Properties located in 12 states.
Reference is made to the Schedule of Real Estate and Accumulated Depreciation
filed with this report for a listing of the Properties and their respective
costs, including acquisition fees and certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 17,400
to 467,400 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The buildings
generally are rectangular and are constructed from various combinations of
stucco, steel, wood, brick and tile. Building sizes range from approximately
1,300 to 10,900 square feet. All buildings on Properties are freestanding and
surrounded by paved parking areas. Buildings are suitable for conversion to
various uses, although modifications may be required prior to use for other than
restaurant operations.
Generally, a lessee is required, under the terms of its lease
agreement, to make such capital expenditures as may be reasonably necessary to
refurbish buildings, premises, signs and equipment so as to comply with the
lessee's obligations, if applicable, under the franchise agreement to reflect
the current commercial image of its Restaurant Chain. These capital expenditures
are required to be paid by the lessee during the term of the lease.
Leases with Major Tenants. The terms of the leases with the
Partnership's major tenants as of December 31, 1998 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business -Leases.
Golden Corral Corporation leases four Golden Corral restaurants. The
initial term of each lease is 15 years (expiring in 2005) and the average
minimum base annual rent is approximately $163,500 (ranging from approximately
$145,500 to $189,700).
Restaurant Management Services leases four Shoney's restaurants and one
Popeyes restaurant. The initial term of each lease is 20 years (expiring between
2010 and 2015) and the average minimum base annual rent is approximately
$104,500 (ranging from approximately $41,300 to $139,400).
Carrols Corporation leases five Burger King restaurants. The initial
term of each lease is 20 years (expiring in 2011) and the average minimum base
annual rent is approximately $89,600 (ranging from approximately $83,000 to
$98,000).
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of March 11, 1999, there were 3,430 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. Limited Partners who wish to sell
their Units may offer the Units for sale pursuant to the Partnership's
distribution reinvestment plan (the "Plan"), and Limited Partners who wish to
have their distributions used to acquire additional Units (to the extent Units
are available for purchase), may do so pursuant to such Plan. The General
Partners have the right to prohibit transfers of Units. From inception through
December 31, 1998, the price paid for any Unit transferred pursuant to the Plan
was $.95 per Unit. The price paid for any Unit transferred other than pursuant
to the Plan was subject to negotiation by the purchaser and the selling Limited
Partner. The Partnership will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 1998 and 1997 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
1998 (1) 1997 (1)
-------------------------------- ---------------------------------
High Low Average High Low Average
------- ------- ---------- -------- ------- ----------
<S> <C>
First Quarter (2) (2) (2) $1.00 $ .80 $ .91
Second Quarter $ .98 $.80 $.92 (2) (2) (2)
Third Quarter .95 .95 .95 1.00 .88 .94
Fourth Quarter 1.00 .76 .92 (2) (2) (2)
</TABLE>
(1) A total of 255,125 and 62,676 Units were transferred other than
pursuant to the Plan for the years ended December 31, 1998 and 1997,
respectively.
(2) No transfer of Units took place during the quarter other than pursuant
to the Plan.
The capital contribution per Unit was $1. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For the years ended December 31, 1998 and 1997, the Partnership
declared cash distributions of $3,850,003 and $3,150,003, respectively, to the
Limited Partners. For each of the quarters ended March 31, 1998 and December 31,
1998, the Partnership declared special distributions to the Limited Partners of
$350,000, which represented cumulative excess operating reserves. No amounts
distributed to partners for the years ended December 31, 1998 and 1997, 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. No distributions have been made to the General Partners
to date. As indicated in the chart below, these distributions were declared at
the close of each of the Partnership's calendar quarters. These amounts include
monthly distributions made in arrears for the Limited Partners electing to
receive distributions on this basis.
Quarter Ended 1998 1997
-------------
------------- ------------
March 31 $1,137,500 $ 787,500
June 30 787,501 787,501
September 30 787,501 787,501
December 31 1,137,501 787,501
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although some Limited Partners, in accordance with their election, receive
monthly distributions, for an annual fee.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- -------------- -------------- --------------- --------------
<S> <C>
Year ended December 31:
Revenues (1) $ 3,625,906 $ 3,619,489 $ 3,593,610 $ 3,667,137 $ 3,670,207
Net income (2) 3,288,912 3,241,567 3,096,992 3,336,755 3,308,267
Cash distributions
declared (3) 3,850,003 3,150,003 3,412,500 3,325,002 3,307,500
Net income per Unit (2) 0.093 0.092 0.088 0.094 0.094
Cash distributions declared
per Unit (3) 0.110 0.090 0.098 0.095 0.095
At December 31:
Total assets $32,071,119 $32,258,296 $32,437,106 $32,575,586 $32,615,349
Partners' capital 30,655,307 31,216,398 31,124,834 31,440,342 31,428,589
</TABLE>
(1) Revenues include equity in earnings of unconsolidated joint ventures
and minority interest in income of the consolidated joint venture.
(2) Net income for the year ended December 31, 1998 and 1995, includes
$108,176 and $71,638, respectively, from gain on sale of land and
buildings. In addition, net income for the years ended December 31,
1996 and 1995, includes $99,031 and $11,712, respectively, from a loss
on sale of land and buildings.
(3) Distributions for the years ended December 31, 1998, 1996, and 1995,
include special distributions to the Limited Partners of $350,000,
$262,500, and $175,000, respectively, which represented cumulative
excess operating reserves. Distributions for the year ended December
31, 1998 include an additional special distribution to the Limited
Partners of $350,000 declared the first quarter of 1998 from cumulative
excess operating reserves.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership was organized on August 18, 1989, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurant
Properties were to be constructed, which are leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains. The
leases are triple-net leases, with the lessee generally responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 1998, the Partnership owned 36 Properties, either directly or indirectly
through joint venture arrangements.
Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 1998, 1997, and 1996 was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest received,
less cash paid for expenses). Cash from operations was $3,562,592, $3,543,056,
and $3,462,668 for the years ended December 31, 1998, 1997, and 1996,
respectively. The increase in cash from operations for 1998, as compared to
1997, was primarily a result of changes in the Partnership's working capital,
and the increase in cash from operations for 1997, as compared to 1996, was
primarily a result of changes in income and expenses as discussed in "Results of
Operations" below and changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
years ended December 31, 1998, 1997, and 1996.
<PAGE>
In May 1996, the Partnership reinvested the remaining net sales
proceeds of approximately $234,100 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.
In October 1996, the Partnership sold its Property in Orlando, Florida,
to the tenant for $1,375,000. In connection therewith, the Partnership accepted
a promissory note in the principal sum of $1,388,568, representing the gross
sales price of $1,375,000 plus tenant closing costs of $13,568 that the
Partnership financed on behalf of the tenant. The promissory note bears interest
at a rate of 10.75% per annum and is collateralized by a mortgage on the
Property. The promissory note is being collected in 12 monthly installments of
interest only, afterwards, in 24 monthly installments of $15,413 consisting of
principal and interest, and thereafter in 144 monthly installments of $16,220
consisting of principal and interest. The mortgage note receivable balances at
December 31, 1998 and 1997 of $1,356,466 and $1,394,979, respectively, include
accrued interest of $12,044 and $12,386, respectively, relating to this
Property. Proceeds received from the collection of this mortgage note will be
distributed to the Limited Partners or will be used for other Partnership
purposes. This Property was originally acquired by the Partnership in December
1990 and had a cost of approximately $1,177,000, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the Property
for approximately $198,000 in excess of its original purchase price. Due to the
fact that the Partnership had recognized accrued rental income since the
inception of the lease relating to the straight lining of future scheduled rent
increases in accordance with generally accepted accounting principles, the
Partnership wrote off the cumulative balance of such accrued rental income at
the time of the sale of this Property, resulting in a loss of $99,031 for
financial reporting purposes. 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.
In July 1998, the Partnership received $116,397 as a settlement from
the Florida Department of Transportation for a right of way taking relating to a
parcel of land on its Property in Brooksville, Florida. In connection therewith,
the Partnership recognized a gain of $108,176 for financial reporting purposes.
The Partnership anticipates that it will distribute amounts sufficient to enable
the limited partners to pay federal and state income taxes, if any (at a level
reasonably assumed by the general partners), resulting from the right of way
taking. The Partnership intends to reinvest the proceeds in an additional
Property or use the funds for other Partnership purposes.
None of the Properties owned by the Partnership or the joint ventures
in which the Partnership owns an interest is or may be encumbered. Under its
Partnership Agreement, the Partnership is prohibited from borrowing for any
purpose; provided, however, that the General Partners or their affiliates are
entitled to reimbursement, at cost, for actual expenses incurred by the General
Partners or their affiliates on behalf of the Partnership. Affiliates of the
General Partners from time to time incur certain operating expenses on behalf of
the Partnership for which the Partnership reimburses the affiliates without
interest.
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 December 31, 1998, the Partnership had
$1,809,258 invested in such short-term investments as compared to $1,602,236 at
December 31, 1997. The increase during 1998, as compared to 1997, is primarily
due to the receipt of a settlement for a right-of-way taking related to the
Partnership's Property in Brooksville, Florida, as described above. The funds
remaining at December 31, 1998, after the payment of distributions and other
liabilities, will be used to meet the Partnership's working capital and other
needs.
During 1998, 1997, and 1996, affiliates incurred $98,613, $80,998, and
$100,264, respectively, for certain operating expense on behalf of the
Partnership. As of December 31, 1998 and 1997 the Partnership owed $20,216 and
$4,599, respectively, to affiliates for such amounts and accounting and
administrative services. As of March 11, 1999, the Partnership had reimbursed
the affiliates all such amounts. In addition, during the years ended December
31, 1996 and 1995 the Partnership incurred $41,250 and $13,800, respectively, in
real estate disposition fees due to an affiliate as a result of its services in
connection with the sale of the Property in Orlando, Florida and the two
Properties in Jacksonville, Florida. No such fees were incurred during the year
ended December 31, 1998 and 1997. The payment of such fees is deferred until the
Limited Partners have received the sum of their 10% Preferred Return and their
adjusted capital contributions. Other liabilities of the Partnership, including
distributions payable, increased to $1,231,946 at December 31, 1998, from
$873,875 at December 31, 1997. The increase in other liabilities is primarily
attributable to the Partnership's accruing a special distribution payable to the
Limited Partners of $350,000 at December 31, 1998, from cumulative excess
operating reserves. No special distribution payable was accrued at December 31,
1997. The General Partners believe that the Partnership has sufficient cash on
hand to meet its current working capital needs.
Based on cash from operations, and for the years ended December 31,
1998 and 1996, cumulative excess operating reserves, the Partnership declared
distributions to the Limited Partners of $3,850,003, $3,150,003, and $3,412,500
for the years ended December 31, 1998, 1997, and 1996, respectively. This
represents distributions of $0.110 per Unit for the year ended December 31,
1998, $0.090 per Unit for the year ended December 31, 1997, and $0.098 per Unit
for the year ended December 31, 1996. No amounts distributed to the Limited
Partners for the years ended December 31, 1998, 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 General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance 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 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.
Due to low operating expenses and ongoing cash flow, the General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition, because all leases of the Partnership's Properties are
on a triple-net basis, it is not anticipated that a permanent reserve for
maintenance and repairs will be established at this time. To the extent,
however, that the Partnership has insufficient funds for such purposes, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
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.
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. As consideration for the Merger, APF has agreed to
issue 4,042,635 APF Shares which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the price paid
by APF investors in APF's most recent public offering. 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. Legg Mason Wood
Walker, Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a financial point
of view. 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 third 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. 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.
Results of Operations
During 1996 and 1997, 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 1998, the Partnership and its consolidated joint venture, Woodway Joint
Venture, owned and leased 28 wholly-owned Properties. In addition, during 1996,
1997, and 1998, the Partnership was a co-venturer in three joint ventures that
owned and leased a total of eight Properties. As of December 31, 1998, the
Partnership owned, either directly or through joint venture arrangements, 36
Properties which are subject to long-term, triple-net leases. The leases of the
Properties provide for minimum base annual rental amounts (payable in monthly
installments) ranging from approximately $41,300 to $213,800. All of the leases
provide for percentage rent based on sales in excess of a specified amount. In
addition, a majority of the leases provide that, commencing in specified lease
years (ranging from the third to sixth lease year), the annual base rent
required under the terms of the lease will increase. For further description of
the Partnership's leases and Properties, see Item 1. Business - Leases and Item
2. Properties, respectively.
During the years ended December 31, 1998, 1997, and 1996, the
Partnership and its consolidated joint venture, Woodway Joint Venture, earned
$2,991,048, $3,015,642, and $3,182,058, respectively, in rental income from
operating leases and earned income from direct financing leases. The decrease in
rental and earned income for 1998, as compared to 1997, is primarily due to the
fact that the leases relating to the Burger King Properties in New City and
Syracuse, New York and New Philadelphia and Mansfield, Ohio were amended to
provide for rent reductions from August 1998 through the end of the lease terms.
The decrease in rental and earned income during 1997, as compared to 1996, is
primarily attributable to the sale of the Property in Orlando, Florida, in
October 1996, as described above in "Liquidity and Capital Resources."
For the years ended December 31, 1998, 1997, and 1996, the Partnership
also earned $101,911, $85,735, and $31,712, respectively, in contingent rental
income. The increase in contingent rental income for 1998, as compared to 1997,
is primarily attributable to an increase in gross sales for certain restaurant
Properties requiring the payment of contingent rental income. The increase in
contingent rental income during 1997 as compared to 1996, is primarily
attributable to (i) the Partnership adjusting estimated contingent rental
amounts accrued at December 31, 1996, to actual amounts during the year ended
December 31, 1997, and (ii) increased gross sales of certain restaurant
Properties requiring the payment of contingent rental income.
During the years ended December 31, 1998, 1997, and 1996, the
Partnership also earned $269,744, $238,338, and $127,246, respectively, in
interest and other income. The increase in interest and other income during 1997
as compared to 1996, is primarily attributable to the interest earned on the
mortgage notes accepted in connection with the sale of the one Property located
in Orlando, Florida, in October 1996 and the two Properties located in
Jacksonville, Florida, in December 1995.
For the years ended December 31, 1998, 1997, and 1996, the Partnership
also earned $276,721, $293,480, and $266,500, respectively, attributable to net
income earned by unconsolidated joint ventures in which the Partnership is a
co-venturer. The decrease in net income by joint ventures for 1998, as compared
to 1997, is primarily due to the fact that the lease relating to the Burger King
Property in Asheville, North Carolina of Asheville Joint Venture was amended to
provide for rent reductions from August 1998 through the end of the lease term.
The increase in net income earned by joint ventures during 1997 as compared to
1996, is primarily attributable to the fact that the Partnership invested in
Middleburg Joint Venture in May 1996, as described above in "Liquidity and
Capital Resources."
During the year ended December 31, 1998, three lessees of the
Partnership and its consolidated joint venture, Golden Corral Corporation,
Carrols Corporation and Restaurant Management Services, Inc., each contributed
more than ten percent of the Partnership's total rental income (including rental
income from the Partnership's consolidated joint venture and the Partnership's
share of rental income from eight Properties owned by joint ventures). As of
December 31, 1998, Golden Corral Corporation was the lessee under leases
relating to four restaurants, Carrols Corporation was the lessee under leases
relating to five restaurants and, Restaurant Management Services, Inc. was the
lessee under leases relating to five restaurants. It is anticipated that, based
on the minimum annual rental payments required by the leases, these three
lessees will continue to contribute more than ten percent of the Partnership's
total rental income during 1999. In addition, during the year ended December 31,
1998, three Restaurant Chains, Golden Corral Family Steakhouse Restaurants,
Burger King and Shoney's, each accounted for more than ten percent of the
Partnership's total rental income (including rental income from the
Partnership's consolidated joint venture and the Partnership's share of rental
income from eight Properties owned by unconsolidated joint ventures). In 1999,
it is anticipated that these three Restaurant Chains each will continue to
account for more than ten percent of the Partnership's total rental income to
which the Partnership is entitled under the terms of the leases. Any failure of
these lessees or Restaurant Chains could materially affect the Partnership's
income if the Partnership is not able to re-lease the Property in a timely
manner.
Operating expenses, including depreciation and amortization expense,
were $445,170, $377,922, and $397,587 for the years ended December 31, 1998,
1997, and 1996, respectively. The increase in operating expenses during 1998, as
compared to 1997, is partially due to an increase in depreciation expense
relating to the fact that during 1998, the Partnership reclassified the leases
for its Properties in New City and Syracuse, New York and New Philadelphia and
Mansfield, Ohio from direct financing leases to operating leases due to lease
amendments.
The increase in operating expenses for 1998, is also partially due to
the fact that the Partnership incurred $21,042 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 in
"Liquidity and Capital Resources." 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.
The decrease in operating expenses during 1997, as compared to 1996, is
primarily attributable to a decrease in accounting and administrative expenses
associated with operating the Partnership and its Properties.
As a result of the right of way settlement for the Partnership's
Property in Brooksville, Florida, as described above in "Liquidity and Capital
Resources," the Partnership recognized a gain on sale of land of $108,176 during
the year ended December 31, 1998, for financial reporting purposes. As a result
of the 1996 sale of the Property in Orlando, Florida, as described above in
"Liquidity and Capital Resources," the Partnership recognized a loss of $99,031
for the year ended December 31, 1996. No Properties were sold during 1997.
The Partnership's leases as of December 31, 1998, are triple-net leases
and contain provisions that the General Partners believe mitigate the adverse
effect of inflation. Such provisions include clauses requiring the payment of
percentage rent based on certain restaurant sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease. Management expects that increases in restaurant sales volume due to
inflation and real sales growth should result in an increase in rental income
over time. Continued inflation also may cause capital appreciation of the
Partnership's Properties. Inflation and changing prices, however, also may have
an adverse impact on the sales of the restaurants and on potential capital
appreciation of the Properties.
Year 2000
The Year 2000 problem is the result of information technology systems
and embedded systems (products which are made with microprocessor (computer)
chips such as HVAC systems, physical security systems and elevators) using a
two-digit format, as opposed to four digits, to indicate the year. Such
information technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.
The Partnership currently does not have any information technology
systems. Affiliates of the General Partners provide all services requiring the
use of information technology systems pursuant to a management agreement with
the Partnership. The maintenance of embedded systems, if any, at the
Partnership's Properties is the responsibility of the tenants of the Properties
in accordance with the terms of the Partnership's leases. The General Partners
and affiliates have established a team dedicated to reviewing the internal
information technology systems used in the operation of the Partnership, and the
information technology and embedded systems and the Year 2000 compliance plans
of the Partnership's tenants, significant suppliers, financial institutions and
transfer agent.
The information technology infrastructure of the affiliates of the
General Partners consists of a network of personal computers and servers that
were obtained from major suppliers. The affiliates utilize various
administrative and financial software applications on that infrastructure to
perform the business functions of the Partnership. The inability of the General
Partners and affiliates to identify and timely correct material Year 2000
deficiencies in the software and/or infrastructure could result in an
interruption in, or failure of, certain of the Partnership's business activities
or operations. Accordingly, the General Partners and affiliates have requested
and are evaluating documentation from the suppliers of the software and
infrastructure of the affiliates regarding the Year 2000 compliance of their
products that are used in the business activities or operations of the
Partnership. The General Partners and affiliates have not yet received
sufficient certifications to be assured that the suppliers have
<PAGE>
fully considered and mitigated any potential material impact of the Year 2000
deficiencies. The costs expected to be incurred by the General Partners and
affiliates to become Year 2000 compliant will be incurred by the General
Partners and affiliates; therefore, these costs will have no impact on the
Partnership's financial position or results of operations.
The Partnership has material third party relationships with its
tenants, financial institutions and 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. If any of these third parties are unable to meet their obligations
to the Partnership because of the Year 2000 deficiencies, such a failure may
have a material impact on the Partnership. Accordingly, the General Partners
have requested and are evaluating documentation from the Partnership's tenants,
financial institutions, and transfer agent relating to their Year 2000
compliance plans. The General Partners have not yet received sufficient
certifications to be assured that the tenants, financial institutions, and
transfer agent have fully considered and mitigated any potential material impact
of the Year 2000 deficiencies. Therefore, the General Partners do not, at this
time, know of the potential costs to the Partnership of any adverse impact or
effect of any Year 2000 deficiencies by these third parties.
The General Partners currently expect that all year 2000 compliance
testing and any necessary remedial measures on the information technology
systems used in the business activities and operations of the Partnership will
be completed prior to June 30, 1999. Based on the progress the General Partners
and affiliates have made in identifying and addressing the Partnership's Year
2000 issues and the plan and timeline to complete the compliance program, the
General Partners do not foresee significant risks associated with the
Partnership's Year 2000 compliance at this time. Because the General Partners
and affiliates are still evaluating the status of the information technology
systems used in business activities and operations of the Partnership and the
systems of the third parties with which the Partnership conducts its business,
the General Partners have not yet developed a comprehensive contingency plan and
are unable to identify "the most reasonably likely worst case scenario" at this
time. If the General Partners identify significant risks related to the
Partnership's Year 2000 compliance or if the Partnership's Year 2000 compliance
program's progress deviates substantially from the anticipated timeline, the
General Partners will develop appropriate contingency plans.
Interest Rate Risk
The Partnership has provided fixed rate mortgage notes to borrowers.
The General Partners believe that the estimated fair value of the mortgage notes
at December 31, 1998 approximated the outstanding principal amounts. The
Partnership is exposed to equity loss in the event of changes in interest rates.
The following table presents the expected cash flows of principal that are
sensitive to these changes.
Mortgage notes
Fixed Rates
------------------
1999 $ 47,552
2000 61,451
2001 68,361
2002 76,049
2003 84,601
Thereafter 1,457,906
------------------
$ 1,795,920
==================
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
This information is described above in Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Interest Rate
Risk.
Item 8. Financial Statements and Supplementary Data
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants
Financial Statements:
Balance Sheets
Statements of Income
Statements of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund VIII, Ltd.
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Income Fund VIII, Ltd. (a Florida limited partnership) at December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules listed in the index appearing under item 14(a)(2)
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related financial statements. These financial
statements and financial statement schedules are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Orlando, Florida
February 4, 1999, except for Note 11 for which the date is March 11, 1999
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
----------------- ----------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation $15,769,278 $13,960,232
Net investment in direct financing leases 7,802,785 10,044,975
Investment in joint ventures 2,809,759 2,877,717
Mortgage notes receivable 1,811,726 1,853,386
Cash and cash equivalents 1,809,258 1,602,236
Receivables, less allowance for doubtful
accounts of $24,636 and $19,228 84,265 51,393
Prepaid expenses 3,959 4,357
Accrued rental income, less allowance for
doubtful accounts of $4,501 in 1998 and 1,927,418 1,811,329
1997
Other assets 52,671 52,671
----------------- ----------------
$32,071,119 $32,258,296
================= ================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 4,258 $ 8,359
Escrowed real estate taxes payable 27,838 24,459
Distributions payable 1,137,501 787,501
Due to related parties 75,266 59,649
Rents paid in advance and deposits 62,349 53,556
----------------- ----------------
Total liabilities 1,307,212 933,524
Minority interest 108,600 108,374
Partners' capital 30,655,307 31,216,398
----------------- ----------------
$32,071,119 $32,258,296
================= ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C>
Revenues:
Rental income from operating leases $ 1,897,209 $ 1,804,273 $ 1,867,968
Earned income from direct financing leases 1,093,839 1,211,369 1,314,090
Contingent rental income 101,911 85,735 31,712
Interest and other income 269,744 238,338 127,246
-------------- -------------- --------------
3,362,703 3,339,715 3,341,016
-------------- -------------- --------------
Expenses:
General operating and administrative 146,943 140,586 156,177
Professional services 24,837 23,284 27,682
State and other taxes 5,372 5,081 4,757
Depreciation 246,976 208,971 208,971
Transaction costs 21,042 -- --
-------------- -------------- --------------
445,170 377,922 397,587
-------------- -------------- --------------
Income Before Minority Interest in Income of
Consolidated Joint Venture, Equity in
Earnings of Unconsolidated Joint Ventures
and Gain (Loss) on Sale of Land and
Buildings 2,917,533 2,961,793 2,943,429
Minority Interest in Income of Consolidated
Joint Venture (13,518 ) (13,706 ) (13,906)
Equity in Earnings of Unconsolidated Joint
Ventures 276,721 293 ,480 266,500
Gain (Loss) on Sale of Land and Buildings 108,176 -- (99,031)
-------------- -------------- --------------
Net Income $ 3,288,912 $ 3,241,567 $ 3,096,992
============== ============== ==============
Allocation of Net Income:
General partners $ 31,807 $ 32,416 $ 31,413
Limited partners 3,257,105 3,209,151 3,065,579
-------------- -------------- --------------
$ 3,288,912 $ 3,241,567 $ 3,096,992
============== ============== ==============
Net Income Per Limited Partner Unit $ 0.093 $ 0.092 $ 0.088
============== ============== ==============
Weighted Average Number of
Limited Partner Units Outstanding 35,000,000 35,000,000 35,000,000
============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
General Partners Limited Partners
--------------------------- ----------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
------------- ------------ ------------- ------------- ------------ ------------ -----------
<S> <C>
Balance, December 31, 1995 $ 1,000 $ 161,612 $ 35,000,000 $ (15,772,138 ) $ 16,064,868 $ (4,015,000) $31,440,342
Distributions to limited
partners ($0.098 per
limited partner unit) -- -- -- (3,412,500 ) -- -- (3,412,500)
Net income -- 31,413 -- -- 3,065,579 -- 3,096,992
------------ ------------ ------------- -------------- ------------- ------------- ------------
Balance, December 31, 1996 1,000 193,025 35,000,000 (19,184,638 ) 19,130,447 (4,015,000) 31,124,834
Distributions to limited
partners ($0.090 per
limited partner unit) -- -- -- (3,150,003 ) -- -- (3,150,003)
Net income -- 32,416 -- -- 3,209,151 -- 3,241,567
------------ ------------ ------------- -------------- ------------- ------------- ------------
Balance, December 31, 1997 1,000 225,441 35,000,000 (22,334,641 ) 22,339,598 (4,015,000) 31,216,398
Distributions to limited
partners ($0.110 per
limited partner unit) -- -- -- (3,850,003 ) -- -- (3,850,003)
Net income -- 31,807 -- -- 3,257,105 -- 3,288,912
------------ ------------ ------------- -------------- ------------- ------------- ------------
Balance, December 31, 1998 $ 1,000 $ 257,248 $ 35,000,000 $ (26,184,644 ) $ 25,596,703 $ (4,015,000) $30,655,307
============ ============ ============= ============== ============= ============= ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
--------------- ---------------- ----------------
<S> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 3,144,635 $ 3,114,439 $ 3,222,903
Distributions from unconsolidated
joint ventures 344,643 356,589 323,531
Cash paid for expenses (185,270 ) (163,215 ) (194,218 )
Interest received 258,584 235,243 110,452
--------------- ---------------- ----------------
Net cash provided by operating activities 3,562,592 3,543,056 3,462,668
--------------- ---------------- ----------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 116,397 -- --
Additions to land and buildings on operating
leases -- -- (1,135 )
Investment in direct financing leases -- -- (1,326 )
Investment in joint venture -- -- (234,059 )
Collections on mortgage notes receivable 41,292 8,799 2,557
Other 36 -- (34,793 )
--------------- ---------------- ----------------
Net cash provided by (used in) investing
activities 157,725 8,799 (268,756 )
--------------- ---------------- ----------------
Cash Flows from Financing Activities:
Distributions to limited partners (3,500,003 ) (3,412,502 ) (3,325,000 )
Distributions to holder of minority interest (13,292 ) (13,391 ) (13,503 )
--------------- ---------------- ----------------
Net cash used in financing activities (3,513,295 ) (3,425,893 ) (3,338,503 )
--------------- ---------------- ----------------
Net Increase (Decrease) in Cash and Cash Equivalents 207,022 125,962 (144,591 )
Cash and Cash Equivalents at Beginning of Year 1,602,236 1,476,274 1,620,865
--------------- ---------------- ----------------
Cash and Cash Equivalents at End of Year $ 1,809,258 $ 1,602,236 $ 1,476,274
=============== ================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
--------------- --------------- ----------------
<S> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $ 3,288,912 $ 3,241,567 $ 3,096,992
--------------- --------------- ----------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 246,976 208,971 208,971
Minority interest in income of consolidated
joint venture 13,518 13,706 13,906
Equity in earnings of unconsolidated
joint ventures, net of distributions 67,922 63,109 57,031
Loss (gain) on sale of land and buildings (108,176 ) -- 99,031
Decrease (increase) in receivables (32,504 ) (25,641 ) 429
Decrease (increase) in prepaid expenses 398 20 (1,465 )
Decrease in net investment in direct
financing leases 177,947 178,250 157,194
Increase in accrued rental income (116,089 ) (128,736 ) (219,757 )
Increase (decrease) in accounts
payable and accrued expenses (722 ) 9,987 12,203
Increase (decrease) in due to related parties 15,617 2,769 (4,505 )
Increase (decrease) in rents paid in advance
and deposits 8,793 (20,946 ) 42,638
--------------- --------------- ----------------
Total adjustments 273,680 301,489 365,676
--------------- --------------- ----------------
Net Cash Provided by Operating Activities $ 3,562,592 $ 3,543,056 $ 3,462,668
=============== =============== ================
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Mortgage notes accepted in exchange for
sale of land and buildings $ -- $ -- $ 1,375,000
=============== =============== ================
Distributions declared and unpaid at December 31 $ 1,137,501 $ 787,501 $ 1,050,000
=============== =============== ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund VIII, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50 percent shareholders of
the Corporate General Partner. The general partners have responsibility
for managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
on a triple-net basis, whereby the tenant is generally responsible for
all operating expenses relating to the property, including property
taxes, insurance, maintenance and repairs. The leases are accounted for
using either the direct financing or the operating method. Such methods
are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (Note 4). Unearned income is deferred and
amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Partnership's
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date. Whenever a tenant defaults
under the terms of its lease, or events or changes in
circumstance indicate that the tenant will not lease the
property through the end of the lease term, the Partnership
either reserves or writes-off the cumulative accrued rental
income balance.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review the properties for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through
operations. The general partners determine whether an impairment in
value has occurred by comparing the estimated future undiscounted cash
flows, including the residual value of the property, with the carrying
cost of the individual property. If an impairment is indicated, the
assets are adjusted to their fair value. Although the general partners
have made their best estimate of these factors based on current
conditions, it is reasonably possible that changes could occur in the
near term which could adversely affect the general partners' estimate
of net cash flows expected to be generated from its properties and the
need for asset impairment write-downs.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
and to decrease rental or other income or increase bad debt expense for
the current period, although the Partnership continues to pursue
collection of such amounts. If amounts are subsequently determined to
be uncollectible, the corresponding receivable and the allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership accounts for its 87.68%
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.
The Partnership's investments in Asheville Joint Venture, CNL
Restaurant Investments II and Middleburg Joint Venture are accounted
for using the equity method since the Partnership shares control with
affiliates which have the same general partners.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts. The Partnership limits investment of
temporary cash investments to financial institutions with high credit
standing; therefore, the Partnership believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
2. Leases:
The Partnership leases its land and buildings primarily to operators of
national and regional fast-food and family-style restaurants. The
leases are accounted for under the provisions of Statement of Financial
Accounting Standards No. 13, "Accounting for Leases." Some of the
leases have been classified as operating leases and some of the leases
have been classified as direct financing leases. For property leases
classified as direct financing leases, the building portions of the
majority of property leases are accounted for as direct financing
leases while the land portions of these leases are accounted for as
operating leases. Substantially all leases are for 15 to 20 years and
provide for minimum and contingent rentals. In addition, the tenant
pays all property taxes and assessments, fully maintains the interior
and exterior of the building and carries insurance coverage for public
liability, property damage, fire and extended coverage. The lease
options generally allow tenants to renew the leases for two to four
successive five-year periods subject to the same terms and conditions
of the initial lease. Most leases also allow the tenant to purchase the
property at fair market value after a specified portion of the lease
has elapsed.
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C>
Land $ 9,159,115 $ 9,167,336
Buildings 8,295,673 6,231,430
----------------- -----------------
17,454,788 15,398,766
Less accumulated depreciation (1,685,510 ) (1,438,534 )
----------------- -----------------
$15,769,278 $13,960,232
================= =================
</TABLE>
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - Continued:
In July 1998, the Partnership received $116,397 as a settlement from
the Florida Department of Transportation for a right of way taking
related to a parcel of land on its property in Brooksville, Florida. In
connection therewith, the Partnership recognized a gain of $108,176 for
financial reporting purposes.
Some leases provide for escalating guaranteed minimum rents throughout
the lease terms. Income from these scheduled rent increases is
recognized on a straight-line basis over the terms of the leases. For
the years ended December 31, 1998, 1997, and 1996, the Partnership
recognized $116,089, $128,736 (net $4,501 in reserves), and $219,757,
respectively, of such rental income.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 1998:
1999 $1,889,012
2000 1,919,651
2001 2,017,044
2002 2,065,510
2003 2,096,121
Thereafter 12,027,545
-----------------
$22,014,883
=================
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
4. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at December 31:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C>
Minimum lease payments
receivable $14,095,756 $18,939,788
Estimated residual values 2,457,619 3,040,615
Less unearned income (8,750,590 ) (11,935,428 )
----------------- -----------------
Net investment in direct
financing leases $7,802,785 $10,044,975
================= =================
</TABLE>
In August 1998, four of the Partnership's leases were amended. As a
result, the Partnership reclassified these leases from direct financing
leases to operating leases. In accordance with the Statement of
Financial Accounting Standards #13, "Accounting for Leases," the
Partnership recorded each of the reclassified leases at the lower of
original cost, present fair value, or present carrying value. No losses
on the termination of direct financing leases were recorded for
financial reporting purposes.
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 1998:
1999 $1,106,822
2000 1,106,822
2001 1,130,328
2002 1,142,042
2003 1,142,042
Thereafter 8,467,700
-----------------
$14,095,756
=================
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 3).
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
5. Investment in Joint Ventures:
The Partnership has an 85.54%, a 36.8%, and a 12.46% interest in the
profits and losses of Asheville Joint Venture, CNL Restaurant
Investments II, and Middleburg Joint Venture, respectively. The
remaining interests in these joint ventures are held by affiliates of
the Partnership which have the same general partners.
Asheville Joint Venture and Middleburg Joint Venture each own and lease
one property, and CNL Restaurant Investments II owns and leases six
properties to an operator of national fast-food or family-style
restaurants. The following presents the joint ventures' combined,
condensed financial information at December 31:
<TABLE>
<CAPTION>
1998 1997
--------------- -----------------
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation $6,320,059 $6,487,210
Net investment in direct financing lease 1,319,045 1,335,223
Cash 1,176 596
Receivables 17,395 14,169
Prepaid expenses 719 1,017
Accrued rental income 162,857 128,993
Liabilities 580 864
Partners' capital 7,820,671 7,966,344
Revenues 940,168 1,001,284
Net income 762,579 824,576
</TABLE>
The Partnership recognized income totalling $276,721, $293,480, and
$266,500 for the years ended December 31, 1998, 1997, and 1996,
respectively, from these joint ventures.
6. Mortgage Notes Receivable:
As of December 31, 1995, the Partnership had accepted two promissory
notes in the principal sum totalling $460,000, in connection with the
sale of two of its properties in Jacksonville, Florida. The promissory
notes, which are collateralized by mortgages on the properties, bear
interest at a rate of ten percent per annum, and are being collected in
119 equal monthly installments of $2,106 and $1,931, with balloon
payments of $218,252 and $200,324, respectively, due in December 2005.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
6. Mortgage Notes Receivable - Continued:
In addition, in connection with the sale in 1996 of its property in
Orlando, Florida, the Partnership accepted a promissory note in the
principal sum of $1,388,568, representing the gross sales price of
$1,375,000 plus tenant closing costs of $13,568 that the Partnership
financed on behalf of the tenant. The promissory note bears interest at
a rate of 10.75% per annum, is collateralized by a mortgage on the
property and is being collected in 12 monthly installments of interest
only, in 24 monthly installments of $15,413 consisting of principal and
interest, and thereafter in 144 monthly installments of $16,220
consisting of principal and interest.
The mortgage notes receivable consisted of the following at December
31:
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C>
Principal balance $1,795,920 $1,837,212
Accrued interest receivable 15,806 16,174
--------------- ----------------
$1,811,726 $1,853,386
=============== ================
</TABLE>
The general partners believe that the estimated fair value of mortgage
notes receivable at December 31, 1998 and 1997, approximated the
outstanding principal amount based on estimated current rates at which
similar loans would be made to borrowers with similar credit and for
similar maturities.
7. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of properties, are allocated 99 percent
to the limited partners and one percent to the general partners.
Distributions of net cash flow are made 99 percent to the limited
partners and one percent to the general partners; provided, however,
that the one percent of net cash flow to be distributed to the general
partners is subordinated to receipt by the limited partners of an
aggregate, ten percent, cumulative, noncompounded annual return on
their adjusted capital contributions (the "10% Preferred Return").
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
7. Allocations and Distributions - Continued:
Generally, net sales proceeds from the sale of properties not in
liquidation of the Partnership, to the extent distributed, will be
distributed first to the limited partners in an amount sufficient to
provide them with their 10% Preferred Return, plus the return of their
adjusted capital contributions. The general partners will then receive,
to the extent previously subordinated and unpaid, a one percent
interest in all prior distributions of net cash flow and a return of
their capital contributions. Any remaining sales proceeds will be
distributed 95 percent to the limited partners and five percent to the
general partners. Any gain from the sale of a property not in
liquidation of the Partnership is, in general, allocated in the same
manner as net sales proceeds are distributable. Any loss from the sale
of a property is, in general, allocated first, on a pro rata basis, to
partners with positive balances in their capital accounts; thereafter,
95 percent to the limited partners and five percent to the general
partners.
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: i) first to pay and discharge all
of the Partnership's liabilities to creditors, ii) second, to establish
reserves that may be deemed necessary for any anticipated or unforeseen
liabilities or obligations of the Partnership, iii) third, to pay all
of the Partnership's liabilities, if any, to the general and limited
partners, iv) fourth, after allocations of net income, gains and/or
losses, to distribute to the partners with positive capital account
balances, in proportion to such balances, up to amounts sufficient to
reduce such positive balances to zero, and v) thereafter, any funds
remaining shall then be distributed 95 percent to the limited partners
and five percent to the general partners.
During the years ended December 31, 1998, 1997, and 1996, the
Partnership declared distributions to the limited partners of
$3,850,003, $3,150,003, and $3,412,500, respectively. No distributions
have been made to the general partners to date.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
8. Income Taxes:
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C>
Net income for financial
reporting purposes $3,288,912 $3,241,567 $3,096,992
Depreciation for tax reporting
purposes in excess of
depreciation for financial
reporting purposes (166,412 ) (204,419 ) (219,372 )
Direct financing leases recorded as
operating leases for tax
reporting purposes 177,946 178,250 157,197
Allowance for doubtful accounts 5,408 18,954 (23,716 )
Accrued rental income (116,089 ) (133,237 ) (219,757 )
Rents paid in advance 9,293 (21,446 ) 42,637
Gain or loss on sale of land and
buildings for tax reporting
purposes in excess of gain or
loss for financial reporting purposes 3,170 670 99,031
Capitalized transaction costs for tax
reporting purposes 21,042 -- --
Equity in earnings of unconsolidated
joint ventures for tax reporting
purposes in excess of (less
than) equity in earnings of
unconsolidated joint ventures for
financial reporting purposes 15,563 (2,987 ) 13,320
Minority interest in timing differences
of consolidated joint venture 1,443 1,571 1,677
-------------- -------------- --------------
Net income for federal income tax
purposes $3,240,276 $3,078,923 $2,948,009
============== ============== ==============
</TABLE>
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
9. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the majority stockholder
of CNL Fund Advisors, Inc. The other individual general partner, Robert
A. Bourne, serves as treasurer, director and vice chairman of the board
of CNL Fund Advisors, Inc. During the years ended December 31, 1998,
1997, and 1996, CNL Fund Advisors, Inc. (hereinafter referred to as the
"Affiliate") performed certain services for the Partnership, as
described below.
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
acted as manager of the Partnership's properties pursuant to a
management agreement with the Partnership. In connection therewith, the
Partnership agreed to pay the Affiliate an annual, noncumulative,
subordinated management fee of one percent of the sum of gross revenues
from properties wholly owned by the Partnership and the Partnership's
allocable share of gross revenues from joint ventures, but not in
excess of competitive fees for comparable services. These fees will be
incurred and will be payable only after the limited partners receive
their 10% Preferred Return. Due to the fact that these fees are
noncumulative, if the limited partners have not received their 10%
Preferred Return in any particular year, no management fees will be due
or payable for such year. As a result of such threshold, no management
fees were incurred during the years ended December 31, 1998, 1997, and
1996.
The Affiliate is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Affiliate provides a
substantial amount of services in connection with the sale. However, if
the net sales proceeds are reinvested in a replacement property, no
such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are
distributed. The payment of the real estate disposition fee is
subordinated to receipt by the limited partners of their aggregate 10%
Preferred Return, plus their adjusted capital contributions. During the
year ended December 31, 1996, the Partnership incurred $41,250 in
deferred, subordinated real estate disposition fees as the result of
the sale of the property in Orlando, Florida. No deferred, subordinated
real estate disposition fees were incurred for the years ended December
31, 1998 and 1997.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
9. Related Party Transactions - Continued:
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $96,202, $80,461 and $89,317
for the years ended December 31, 1998, 1997, and 1996, respectively,
for such services.
The due to related parties consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C>
Due to Affiliates:
Accounting and administrative
services $20,216 $4,599
Deferred, subordinated real
estate disposition fee 55,050 55,050
--------------- ---------------
$75,266 $59,649
=============== ===============
</TABLE>
10. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees, each representing more than ten percent of the
Partnership's total rental and earned income (including the
Partnership's share of total rental and earned income from the
unconsolidated joint ventures) for each of the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- --------------
<S> <C>
Golden Corral Corporation $728,641 $706,839 $663,889
Restaurant Management Services, Inc. 527,360 531,110 533,990
Carrols Corporation. 482,081 523,517 526,034
Flagstar Enterprises, Inc. and Quincy's
Restaurants, Inc. N/A N/A 356,720
</TABLE>
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
10. Concentration of Credit Risk - Continued:
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than
ten percent of the Partnership's total rental and earned income
(including the Partnership's share of total rental and earned income
from the unconsolidated joint ventures), for each of the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- --------------- --------------
<S> <C>
Burger King $ 961,542 $1,003,419 $ 989,480
Golden Corral Family Steakhouse
Restaurants 750,869 735,949 681,042
Shoney's 603,304 607,054 609,072
</TABLE>
The information denoted by N/A indicates that for each period
presented, the tenant and the chains did not represent more than ten
percent of the Partnership's total rental and earned income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
11. Subsequent Event:
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 4,042,635 shares of its common stock, par value $0.01 per shares
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the
price paid by APF investors in APF's most recent public offering. 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. Legg Mason
Wood Walker, Incorporated has rendered a fairness opinion that the APF
Share consideration, payable by APF, is fair to the Partnership from a
financial point of view.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
11. Subsequent Event - Continued:
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 third 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. 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.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 52, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, a director and Chief Executive Officer since its formation
in 1980. Mr. Seneff has been Chairman of the Board of Directors, director, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979. Mr.
Seneff also has held the position of Chairman of the Board of Directors, Chief
Executive Officer, President and director of CNL Management Company, a
registered investment advisor, since its formation in 1976, has served as Chief
Executive Officer, Chairman of the Board and a director of CNL Investment
Company, has served as Chief Executive Officer, a director and Chairman of the
Board of Directors of Commercial Net Lease Realty, Inc., a publicly-traded REIT,
listed on the NYSE, since 1992, served as Chief Executive Officer, a director
and Chairman of the Board of Directors of CNL Realty Advisors, Inc. from its
inception in May 1992 through December 1997, at which time such company merged
with Commercial Net Lease Realty, Inc., and has held the position of Chief
Executive Officer, Chairman of the Board and a director of CNL Institutional
Advisors, Inc., a registered investment advisor, since its inception in December
1990. Mr. Seneff has served as Chairman of the Board of Directors of CNL
American Properties Fund, Inc. since December 1994 and as a director and Chief
Executive Officer since May 1994. Mr. Seneff has served as Chairman of the
Board, Chief Executive Officer and a director of CNL Fund Advisors, Inc. since
March 1994. Mr. Seneff has served as Chairman of the Board, Chief Executive
Officer and a director of CNL Hospitality Properties, Inc. since June 1996 and
of CNL Hospitality Advisors, Inc. since January 1997. Mr. Seneff has also served
as Chairman of the Board, Chief Executive Officer and a director of CNL Health
Care Properties, Inc. since December 1997 and CNL Health Care Advisors, Inc.
since July 1997. Mr. Seneff previously served on the Florida State Commission on
Ethics and is a former member and past Chairman of the State of Florida
Investment Advisory Council, which advises the Florida Board of Administration
investments for various Florida employee retirement funds. The Florida Board of
Administration, Florida's principal investment advisory and money management
agency, oversees the investment of more then $60 billion of retirement funds.
Mr. Seneff has served as a member of the board of directors of First Union
National Bank of Florida since May 1998 and has served as a member of the
Orlando Advisory Board of First Union National Bank of Florida since March 1994.
Since 1971, Mr. Seneff has been active in the acquisition, development, and
management of real estate projects and, directly or through an affiliated
entity, has served as a general partner or joint venturer in over 100 real
estate ventures involved in the financing, acquisition, construction, and rental
of restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 65 privately
offered real estate limited partnerships in which Mr. Seneff, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund
III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund
VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund
X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund
XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund
XVI, Ltd., CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII, Ltd. (the "CNL
Income Fund Partnerships"), public real estate limited partnerships with
investment objectives similar to those of the Partnership, in which Mr. Seneff
serves as a general partner. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 51, is President and Treasurer of CNL Group,
Inc., President, Treasurer, a director, and a registered principal of CNL
Securities Corp., President, Treasurer, and a director of CNL Investment
Company, and Chief Investment Officer, a director and Treasurer of CNL
Institutional Advisors, Inc., a registered investment advisor. Mr. Bourne served
as President of CNL Institutional Advisor, Inc. from the date of its inception
through July 1997. Mr. Bourne served as President of Commercial Net Lease
Realty, Inc. from July 1992 through February 1996, served as Secretary and
Treasurer from February 1996 through December 1997, and has served as a director
since July 1992 and as Vice Chairman of the Board of Directors since February
1996. In addition, Mr. Bourne served as President of CNL Realty Advisors, Inc.
from May 1992 through February 1996, served as Treasurer from February 1996
through December 1997, served as a director from May 1992 through December 31,
1997 and served as Vice Chairman from February 1996 through December 1997, at
which time such company merged with Commercial Net Lease Realty, Inc. Mr. Bourne
has served as a Vice Chairman of the Board of Directors and Treasurer of CNL
American Properties Fund, Inc. since February 1999, has served as a director
since May 1994 and previously served as President from May 1994 through February
1999. Mr. Bourne has served as a director of CNL Fund Advisors, Inc. since March
1994, has served as Treasurer and Vice Chairman of the Board of Directors since
September 1997, and previously served as President from March 1994 through
September 1997. Mr. Bourne has served as President and a director of CNL
Hospitality Properties, Inc. since June 1996 and of CNL Hospitality Advisors,
Inc. since January 1997. Mr. Bourne has served as President and director of CNL
Health Care Properties, Inc. since December 1997 and CNL Health Care Advisors,
Inc. since July 1997. Mr. Bourne, who joined CNL Securities Corp. in 1979, has
participated as a general partner or joint venturer in over 100 real estate
ventures involved in the financing, acquisition, construction, and rental of
restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 64 privately
offered real estate limited partnerships in which Mr. Bourne, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are the CNL Income Fund Partnerships, public real estate limited
partnerships with investment objectives similar to those of the Partnership, in
which Mr. Bourne serves as a general partner. Mr. Bourne formerly was a
certified public accountant with Coopers & Lybrand and a partner in the firm of
Bourne & Rose, P.A. Mr. Bourne received a B.A. in Accounting, with honors, from
Florida State University in 1970.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL
Realty Corporation was organized to serve as the corporate general partner of
real estate limited partnerships, such as the Partnership, organized by one or
both of the individual General Partners. CNL Realty Corporation currently serves
as the corporate general partner of the CNL Income Fund Partnerships.
CNL Fund Advisors, Inc. provides certain management services in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation organized in 1994 under the laws of the State of Florida, and its
principal office is located at 400 East South Street, Orlando, Florida 32801.
CNL Fund Advisors, Inc. is a majority owned subsidiary of CNL Group, Inc., a
diversified real estate company, and was organized to perform property
acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Fund Advisors,
Inc., was organized in 1980 under the laws of the State of Florida. CNL Group,
Inc. is a diversified real estate company which provides a wide range of real
estate, development and financial services to companies in the United States
through the activities of its subsidiaries. These activities are primarily
focused on the franchised restaurant and hospitality industries. James M.
Seneff, Jr., an individual General Partner of the Partnership, is the Chairman
of the Board, Chief Executive Officer, and a director of CNL Group, Inc. Mr.
Seneff and his wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as members
of the Boards of Directors of those entities. The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.
Curtis B. McWilliams, age 43, joined CNL Group, Inc. in April 1997 and
currently serves as an Executive Vice President. In addition, Mr. McWilliams has
served as President of CNL Fund Advisors, Inc. and as President of the
Restaurant and Financial Services Groups within CNL Group, Inc. since April
1997. Mr. McWilliams has served as President of CNL American Properties Fund,
Inc. since February 1999 and previously served as Executive Vice President from
February 1998 through February 1999. From September 1983 through March 1997, Mr.
McWilliams was employed by Merrill Lynch & Co., most recently as Chairman of
Merrill Lynch's Private Advisory Services until March 1997. Mr. McWilliams
received a B.S.E. in Chemical Engineering from Princeton University in 1977 and
a Masters of Business Administration with a concentration in finance from the
University of Chicago in 1983.
<PAGE>
John T. Walker, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since January 1996, as Chief Operating Officer
since March 1995, and previously served as Senior Vice President since December
1994. In addition, Mr. Walker has served as Executive Vice President of CNL Fund
Advisors, Inc. since January 1996, Chief Operating Officer since April 1995, and
previously served as Senior Vice President from November 1994 through January
1996. In addition, Mr. Walker previously served as Executive Vice President of
CNL Hospitality Properties, Inc. and CNL Hospitality Advisors, Inc. From May
1992 to May 1994, Mr. Walker, a certified public accountant, was Executive Vice
President for Finance and Administration and Chief Financial Officer of Z Music,
Inc., a cable television network (subsequently acquired by Gaylord
Entertainment), where he was responsible for overall financial and
administrative management and planning. From January 1990 through April 1992,
Mr. Walker was Chief Financial Officer of the First Baptist Church in Orlando,
Florida. From April 1984 through December 1989, he was a partner in the
accounting firm of Chastang, Ferrell & Walker, P.A., where he was the partner in
charge of audit and consulting services, and from 1981 to 1984, Mr. Walker was a
Senior Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a Cum Laude
graduate of Wake Forest University with a B.S. in Accountancy and is a certified
public accountant.
Lynn E. Rose, age 50, a certified public accountant, has served as
Secretary of CNL American Properties Fund, Inc. since December 1994 and served
as Treasurer from December 1994 through February 1999. Ms. Rose has served as a
director and Secretary of CNL Fund Advisors, Inc. since March 1994, and as
Treasurer from the date of its inception through June 30, 1997. Ms. Rose has
served as Secretary of CNL Group, Inc. since 1987, as Chief Financial Officer of
CNL Group, Inc. since December 1993, and served as Controller of CNL Group, Inc.
from 1987 until December 1993. In addition, Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has
served as Chief Operating Officer, Vice President and Secretary of CNL Corporate
Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial
Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in
1990, as Treasurer of CNL Realty Advisors, Inc. from 1991 to February 1996, and
as Secretary and a director of CNL Realty Advisors, Inc. since its inception in
1991 until December 31, 1997, at which time CNL Realty Advisors, Inc. merged
with Commercial Net Lease Realty, Inc. In addition, Ms. Rose served as Secretary
and Treasurer of Commercial Net Lease Realty, Inc. from 1992 to February 1996.
Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality Properties,
Inc. and CNL Health Care Properties, Inc. and as Secretary, Treasurer and a
director of CNL Hospitality Advisors, Inc. and CNL Health Care Advisors, Inc.
Ms. Rose also currently serves as Secretary for approximately 50 additional
corporations. Ms. Rose oversees the legal compliance, accounting, tenant
compliance, and reporting for over 250 corporations, partnerships and joint
ventures. Prior to joining CNL, Ms. Rose was a partner with Robert A. Bourne in
the accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Ms.
Rose holds a B.A. in Sociology from the University of Central Florida.
Jeanne A. Wall, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since December 1994. Ms. Wall has served as
Executive Vice President of CNL Fund Advisors, Inc. since November 1994, and
previously served as Vice President from March 1994 through November 1994. Ms.
Wall has served as Chief Operating Officer of CNL Investment Company and of CNL
Securities Corp. since November 1994 and has served as Executive Vice President
of CNL Investment Company since January 1991. Ms. Wall joined CNL Securities
Corp. in 1984. In 1985, Ms. Wall became Vice President of CNL Securities Corp.
In 1987, she became Senior Vice President and in July 1997 she became Executive
Vice President of CNL Securities Corp. In this capacity, Ms. Wall serves as
national marketing and sales director and oversees the national marketing plan
for the CNL investment programs. In addition, Ms. Wall oversees product
development, partnership administration and investor services for programs
offered through participating brokers and corporate communications for CNL
Group, Inc. and its affiliates. Ms. Wall also has served as Senior Vice
President of CNL Institutional Advisors, Inc., a registered investment advisor,
from 1990 to 1993, as Vice President of CNL Realty Advisors, Inc. since its
inception in 1991 until December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., and served as Vice President
of Commercial Net Lease Realty, Inc. from 1992 through December 31, 1997. In
addition, Ms. Wall serves as Executive Vice President of CNL Hospitality
Properties, Inc., CNL Hospitality Advisors, Inc., CNL Health Care Properties,
Inc. and CNL Health Care Advisors, Inc. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp. Ms. Wall currently serves as a trustee on the board of the
Investment Program Association and on the Direct Participation Program committee
for the National Association of Securities Dealers (NASD).
Steven D. Shackelford, age 35, a certified public accountant, has
served as Chief Financial Officer of CNL American Properties Fund, Inc. since
January 1997 and as Chief Financial Officer of CNL Fund Advisors, Inc. since
September 1996. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse where he was responsible for
advising foreign clients seeking to raise capital and a public listing in the
United States. From August 1992 to March 1995, he served as a manager in the
Price Waterhouse, Paris, France office serving several multinational clients.
Mr. Shackelford was an audit staff and audit senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a B.A. in
Accounting, with honors, and a Masters of Business Administration from Florida
State University.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 11, 1999, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 11, 1999, the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>
Title of Class Name of Partner Percent of Class
<S> <C>
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
-----
100%
</TABLE>
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above. On March 11, 1999, the
Registrant entered into an Agreement and Plan of Merger with CNL American
Properties Fund, Inc. ("APF") pursuant to which the Registrant would be merged
with and into a subsidiary of APF (the "Merger"). For further discussion, see
Item 8. Financial Statements and Supplementary Data -- Note 11.
Subsequent Event.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 1998, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
----------------------- --------------------- -----------------------
<S> <C>
Reimbursement to affiliates for Operating expenses are reimbursed Operating expenses incurred on
operating expenses at the lower of cost or 90 percent behalf of the Partnership: $98,613
of the prevailing rate at which
comparable services could have been Accounting and administrative
obtained in the same geographic services: $96,202
area. Affiliates of the General
Partners from time to time incur
certain operating expenses on
behalf of the Partnership for which
the Partnership reimburses the
affiliates without interest.
Annual, subordinated manage-ment fee to One percent of the sum of gross $ - 0 -
affiliates operating revenues from Properties
wholly owned by the Partnership
plus the Partnership's allocable
share of gross revenues of joint
ventures in which the Partnership
is a co-venturer, subordinated to
certain minimum returns to the
Limited Partners. The management
fee will not exceed competitive
fees for comparable services. Due
to the fact that these are
non-cumulative if the Limited
Partners have not received their
10% Preferred Return in any
particular years no management
fees will be due or payable for
such year.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
----------------------- --------------------- -----------------------
<S> <C>
Deferred, subordinated real estate A deferred, subordinated real $ - 0 -
disposition fee payable to estate disposition fee, payable
affiliates upon sale of one or more
Properties, in an amount equal to
the lesser of (i) one-half of a
competitive real estate
commission, or (ii) three percent
of the sales price of such
Property or Properties. Payment of
such fee shall be made only if
affiliates of the General Partners
provide a substantial amount of
services in connection with the
sale of a Property or Properties
and shall be subordinated to
certain minimum returns to the
Limited Partners. However, if the
net sales are reinvested in a
replacement Property, no such real
estate disposition fee will be
incurred until such replacement
Property is sold an the net sales
proceeds are distributed.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to one percent of Partnership
cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to five percent of
sales proceeds from a sale or sales not Partnership distributions of such
in liquidation of the Partnership net sales proceeds, subordinated to
certain minimum returns to the
Limited Partners.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
----------------------- --------------------- -----------------------
<S> <C>
General Partners' share of Partnership Distributions of net sales proceeds $ - 0 -
net sales proceeds from a sale or sales from a sale or sales of
in liquidation of the Partnership substantially all of the
Partnership's assets will be
distributed in the following order
or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net
loss, gain and loss, in proportion
to such balances, up to amounts
sufficient to reduce such balances
to zero; and (iii) thereafter, 95%
to the Limited Partners and 5% to
the General Partners.
</TABLE>
As discussed above in Item 8. Financial Statements and Supplementary
Data -- Note 11. Subsequent Event, the Registrant has entered into an Agreement
and Plan of Merger, dated March 11, 1999, with APF pursuant to which the
Registrant would be merged with and into a subsidiary of APF in exchange for the
issuance of APF Shares. The APF Shares are expected to be listed for trading on
the New York Stock Exchange concurrently with the consummation of the Merger. If
the Merger is approved by Limited Partners holding units greater than 50% of the
outstanding units of the Registrant, the General Partners of the Registrant
would receive certain benefits, including:
o With respect to their ownership in the Registrant, the General
Partners will be issued approximately 54,864 shares of APF
common stock, par value $0.01 per share.
o Following the Merger, James M. Seneff, Jr. and Robert A.
Bourne, the individual General Partners, will continue to
serve as directors of APF, with Mr. Seneff serving as Chairman
and Mr. Bourne serving as Vice Chairman. As APF directors,
they may also be entitled to receive stock options under any
stock option plan adopted by APF.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1998 and 1997
Statements of Income for the years ended December 31, 1998,
1997, and 1996
Statements of Partners' Capital for the years ended December
31, 1998, 1997, and 1996
Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996
Notes to Financial Statements
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1998
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1998
Schedule IV - Mortgage Loans on Real Estate at December 31,
1998
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
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.)
<PAGE>
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) The Registrant filed no reports on Form 8-K during the period
October 1, 1998 through December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 1999.
CNL INCOME FUND VIII, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
-----------------------------
JAMES M. SENEFF, JR.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C>
/s/ Robert A. Bourne President, Treasurer and Director March 30, 1999
- ---------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 30, 1999
- ---------------------------
James M. Seneff, Jr. (Principal Executive Officer)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<S> <C>
Costs Capitalized
Subsequent To
Initial Cost Acquisition
-------------------------- -------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
---------- ----------- ------------- --------- -------
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurants:
Brandon, Florida - $478,467 - - -
New City, New York - 372,977 - 557,832 -
Mansfield, Ohio - 377,395 - 496,524 -
Syracuse, New York - 363,431 - 485,920 -
New Philadelphia, Ohio - 310,920 - 523,967 -
Baseball City, Florida (g) - 394,813 - - -
Denny's Restaurant:
Tiffin, Ohio - 143,592 335,971 - -
Golden Corral Family
Steakhouse Restaurants:
College Station, Texas - 517,623 - 877,505 -
Houston, Texas - 663,999 - 1,129,910 -
Beaumont, Texas - 552,646 - 893,054 -
Grand Prairie, Texas - 681,824 - 914,235 -
Hardee's Restaurant:
Jefferson, Ohio - 150,587 - - -
Jack in the Box Restaurants:
Waco, Texas - 412,942 - - -
Mesa, Arizona - 609,921 - - -
KFC Restaurant:
Norton Shores, Michigan - 177,897 - - -
Perkins Restaurant:
Memphis, Tennessee - 431,065 - - -
Popeyes Famous Fried
Chicken Restaurant:
Jacksonville, Florida - 103,063 114,507 149,978 -
Quincy's Family Steakhouse
Restaurant:
Statesville, North Carolina - 257,225 - - -
Shoney's Restaurants:
Sun City, Florida - 382,883 - 736,865 -
Brooksville, Florida - 225,067 - - -
Bayonet Point, Florida - 418,464 - - -
Memphis, Tennessee - 368,290 601,660 - -
North Fort Myers, Florida - 398,423 - - -
Wendy's Old Fashioned
Hamburger Restaurant:
Midlothian, Virginia - $365,601 - $477,745 -
----------- ----------- ----------- -------
$9,159,115 $1,052,138 $7,243,535 -
=========== =========== =========== =======
Property of Joint Venture in Which
the Partnership has an 85.54%
Interest and has Invested in Under
an Operating Lease:
Burger King Restaurant:
Asheville, North Carolina - $438,695 $450,432 - -
=========== =========== =========== =======
Properties of Joint Venture in Which
the Partnership has a 36.8% Interest
and has Invested in Under an
Operating Leases:
Burger King Restaurants:
Columbus, Ohio - $345,696 $651,985 - -
San Antonio, Texas - 350,479 623,615 - -
Pontiac, Michigan - 277,192 982,200 - -
Raceland, Louisiana - 174,019 986,879 - -
New Castle, Indiana - 264,239 662,265 - -
Hastings, Minnesota - 155,553 657,159 - -
----------- ----------- ----------- -------
$1,567,178 $4,564,103 - -
=========== =========== =========== =======
Property of Joint Venture in Which
the Partnership has a 12.46%
Interest and has Invested in Under
an Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Middleburg Heights, Ohio - $521,571 - - -
=========== =========== =========== =======
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Burger King Restaurants:
Brandon, Florida - - - $483,107 -
Baseball City, Florida (g) - - - 551,446 -
Hardee's Restaurants:
Brunswick, Ohio - 116,199 457,907 - -
Grafton, Ohio - 66,092 411,798 - -
Jefferson, Ohio - - 443,444 - -
Lexington, Ohio - 124,707 433,264 - -
Jack in the Box Restaurants:
Waco, Texas - - - 406,745 -
Mesa, Arizona - - 561,477 - -
KFC Restaurants:
Grand Rapids, Michigan - 169,175 620,623 - -
Norton Shores, Michigan - - 509,228 - -
Perkins Restaurant:
Memphis, Tennessee - - - 594,154 -
Quincy's Family Steakhouse
Restaurant:
Statesville, North Carolina - - 705,444 - -
Shoney's Restaurants:
Brooksville, Florida - - - 644,369 -
Bayonet Point, Florida - - 575,985 - -
North Fort Myers, Florida - - 552,240 - -
----------- ----------- ----------- -------
$476,173 $5,271,410 $2,679,821 -
=========== =========== =========== =======
Property of Joint Venture in Which
the Partnership has a 12.46%
Interest and has Invested in Under
a Direct Financing Lease:
Golden Corral Family
Steakhouse Restaurant:
Middleburg Heights, Ohio - - $1,357,288 - -
=========== =========== =========== =======
Gross Amount at Which Life on Which
Carried at Close of Period (c) Depreciation in
-------------------------------------- Date Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ------------- ---------- ----------- --------- --------- ---------------
$478,467 (f) $478,467 - 1991 10/90 (d)
372,977 557,832 930,809 10,270 1977 03/91 (i)
377,395 496,524 873,919 9,142 1989 03/91 (i)
363,431 485,920 849,351 8,947 1987 03/91 (i)
310,920 523,967 834,887 9,647 1989 03/91 (i)
394,813 (f) 394,813 - 1991 02/91 (d)
143,592 335,971 479,563 61,714 1990 03/91 (h)
517,623 877,505 1,395,128 242,817 1990 09/90 (b)
663,999 1,129,910 1,793,909 301,722 1990 10/90 (b)
552,646 893,054 1,445,700 255,357 1990 11/90 (b)
681,824 914,235 1,596,059 252,228 1990 11/90 (b)
150,587 (f) 150,587 - 1990 11/90 (d)
412,942 (f) 412,942 - 1991 11/90 (d)
609,921 (f) 609,921 - 1991 02/92 (d)
177,897 (f) 177,897 - 1990 03/91 (d)
431,065 (f) 431,065 - 1990 11/90 (d)
103,063 264,485 367,548 70,378 1979 09/90 (b)
257,225 (f) 257,225 - 1991 10/91 (d)
382,883 736,865 1,119,748 192,325 1991 10/90 (b)
225,067 (f) 225,067 - 1991 12/90 (d)
418,464 (f) 418,464 - 1989 06/91 (d)
368,290 601,660 969,950 148,190 1991 08/91 (b)
398,423 (f) 398,423 - 1991 09/95 (d)
$365,601 $477,745 $843,346 $122,773 1991 03/91 (b)
----------- ----------- ------------ -----------
$9,159,115 $8,295,673 $17,454,788 $1,685,510
=========== =========== ============ ===========
$438,695 $450,432 $889,127 $116,948 1986 03/91 (b)
=========== =========== ============ ===========
$345,696 $651,985 $997,681 $157,846 1986 09/91 (b)
350,479 623,615 974,094 150,977 1986 09/91 (b)
277,192 982,200 1,259,392 237,791 1987 09/91 (b)
174,019 986,879 1,160,898 238,924 1988 09/91 (b)
264,239 662,265 926,504 160,335 1988 09/91 (b)
155,553 657,159 812,712 159,099 1990 09/91 (b)
----------- ----------- ------------ -----------
$1,567,178 $4,564,103 $6,131,281 $1,104,972
=========== =========== ============ ===========
$521,571 (f) $521,571 - 1995 05/96 (d)
=========== ============ ===========
- (f) (f) (d) 1991 10/90 (d)
- (f) (f) (d) 1991 02/91 (d)
(f) (f) (f) (e) 1990 11/90 (e)
(f) (f) (f) (e) 1990 11/90 (e)
- (f) (f) (d) 1990 11/90 (d)
(f) (f) (f) (e) 1990 11/90 (e)
- (f) (f) (d) 1991 11/90 (d)
- (f) (f) (d) 1991 02/92 (d)
(f) (f) (f) (e) 1990 02/91 (e)
- (f) (f) (d) 1990 03/91 (d)
- (f) (f) (d) 1990 11/90 (d)
- (f) (f) (d) 1991 10/91 (d)
- (f) (f) (d) 1991 12/90 (d)
- (f) (f) (d) 1989 06/91 (d)
- (f) (f) (d) 1991 09/95 (d)
- (f) (f) (d) 1995 05/96 (d)
</TABLE>
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(a) Transactions in real estate and accumulated depreciation during 1998,
1997, and 1996, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
----------------- -----------------
<S> <C>
Properties the Partnership has Invested
in Under Operating Leases:
Balance, December 31, 1995 $ 15,906,963 $ 1,020,592
Dispositions (508,197) --
Depreciation expense -- 208,971
----------------- -----------------
Balance, December 31, 1996 15,398,766 1,229,563
Depreciation expense -- 208,971
----------------- -----------------
Balance, December 31, 1997 15,398,766 1,438,534
Reclass to operating lease 2,064,243 --
Dispositions (8,221) --
Depreciation expense -- 246,976
----------------- -----------------
Balance, December 31, 1998 $ 17,454,788 $ 1,685,510
================= =================
Property of Joint Venture in Which
the Partnership has an 85.54%
Interest and has Invested in
Under an Operating Lease:
Balance, December 31, 1995 $ 889,127 $ 71,906
Depreciation expense -- 15,014
----------------- -----------------
Balance, December 31, 1996 889,127 86,920
Depreciation expense -- 15,014
----------------- -----------------
Balance, December 31, 1997 889,127 101,934
Depreciation expense -- 15,014
----------------- -----------------
Balance, December 31, 1998 $ 889,127 $ 116,948
================= =================
</TABLE>
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
----------------- ----------------
<S> <C>
Property of Joint Venture in Which the
Partnership has a 36.8% Interest and
has Invested in Under Operating
Leases:
Balance, December 31, 1995 $ 6,131,281 $ 648,561
Depreciation expense -- 152,137
----------------- ----------------
Balance, December 31, 1996 6,131,281 800,698
Depreciation expense -- 152,137
----------------- ----------------
Balance, December 31, 1997 6,131,281 952,835
Depreciation expense -- 152,137
----------------- ----------------
Balance, December 31, 1998 $ 6,131,281 $ 1,104,972
================= ================
Property of Joint Venture in Which
the Partnership has a 12.46%
Interest and has Invested in
Under an Operating Lease:
Balance, December 31, 1995 $ -- $ --
Acquisitions 521,571 --
Depreciation expense (d) -- --
----------------- ----------------
Balance, December 31, 1996 521,571 --
Depreciation expense -- --
----------------- ----------------
Balance, December 31, 1997 521,571 --
Depreciation expense -- --
----------------- ----------------
Balance, December 31, 1998 $ 521,571 $ --
================= ================
</TABLE>
(b) Depreciation expense is computed for buildings and improvements
based upon estimated lives of 30 years.
(c) As of December 31, 1998, the aggregate cost of the Properties owned
by the Partnership and its consolidated joint venture, and the
unconsolidated joint ventures for federal income tax purposes was
$26,164,478 and $8,899,266, respectively. All of the leases are
treated as operating leases for federal income tax purposes.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1998
(d) For financial reporting purposes, the portion of the lease relating
to the building has been recorded as a direct financing lease. The
cost of the building has been included in the net investment in
direct financing lease; therefore, depreciation is not applicable.
(e) For financial reporting purposes, the lease for land and building
has been recorded as a direct financing lease. The cost of the land
and building has been included in net investment in direct
financing leases; therefore, depreciation is not applicable.
(f) For financial reporting purposes, certain components of the lease
relating to land and building have been recorded as a direct
financing lease. Accordingly, costs relating to these components of
this lease are not shown.
(g) The restaurant on this Property was converted from a Popeyes Famous
Fried Chicken Restaurant to a Burger King restaurant in February
1993.
(h) Effective January 1, 1994, the lease for this Property was amended,
resulting in the reclassification of the building portion of the
lease as an operating lease. The building was recorded at net book
value as of January 1, 1994, and depreciated over its remaining
estimated life of approximately 27 years.
(i) Effective August 1, 1998, the lease for this Property was amended,
resulting in the reclassification of the building portion of the
lease as an operating lease. The building was recorded at net book
value as of August 1, 1998, and depreciated over its remaining
estimated life of approximately 23 years.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1998
<TABLE>
<CAPTION>
Principal
Amount
of Loans
Subject to
Carrying Delinquent
Final Periodic Face Amount of Principal or
Interest Maturity Payment Prior Amount of Mortgages Description
Rate Date Terms Liens Mortgages (1) Interest
---------- ------------------ ---------- --------- ------------ ------------- ---------------
<S> <C>
Church's
Jacksonville, FL
First Mortgage 10.00% December 2005 (2) $ -- $ 240,000 $ 237,527 $ --
Church's
Jacksonville, FL
First Mortgage 10.00% December 2005 (3) -- 220,000 217,733 --
Ponderosa
Orlando, FL
First Mortgage 10.75% October 2011 (4) -- 1,388,568 $1,356,466 --
--------- ------------ ------------- ---------------
Total $ -- $1,848,568 $1,811,726 $ --
========= ============ ============= ===============
</TABLE>
(1) The tax carrying value of the notes is $1,811,726.
(2) Monthly payments of principal and interest at an annual rate of 10%,
with a balloon payment at maturity of $218,252.
(3) Monthly payments of principal and interest at an annual rate of 10%,
with a balloon payment at maturity of $200,324.
(4) Twelve monthly payments of interest only, afterwards, in 24 monthly
installments of $15,413 consisting of principal and interest, and
thereafter in 144 monthly installments of $16,220 consisting of
principal and interest at an annual rate of 10.75%.
(5) The changes in the carrying amounts are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C>
Balance at beginning of
period $1,853,386 $1,862,262 $ 463,833
New mortgage loans -- -- 1,388,568
Interest earned 191,738 194,784 74,059
Collection of principal and
interest (233,398) (203,660) (64,198)
--------------- --------------- ---------------
Balance at end of period $1,811,726 $1,853,386 $1,862,262
=============== =============== ===============
</TABLE>
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number
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.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund VIII, Ltd. at December 31, 1998, and its statement of
income for the year then ended and is qualified in its entirety by reference to
the Form 10-K of CNL Income Fund VIII, Ltd. for the year ended December 31,
1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,809,258
<SECURITIES> 0
<RECEIVABLES> 108,901
<ALLOWANCES> 24,636
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 17,454,788
<DEPRECIATION> 1,685,510
<TOTAL-ASSETS> 32,071,119
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30,655,307
<TOTAL-LIABILITY-AND-EQUITY> 32,071,119
<SALES> 0
<TOTAL-REVENUES> 3,362,703
<CGS> 0
<TOTAL-COSTS> 445,170
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,288,912
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,288,912
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,288,912
<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>
