UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
Amendment No. 1
(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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19139
CNL INCOME FUND VIII, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2963338
(State or other 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) 422-1574
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 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
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The Form 10-K of CNL Income Fund VIII, Ltd. for the year ended December
31, 1997 is being amended to provide additional disclosure under Item 1.
Business, Item 2. Properties and Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Capital Resources, Short-Term
Liquidity and Long-Term Liquidity.
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 Property 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, in
Middleburg 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 the Partnership owned 36
Properties, as of December 31, 1997. The 36 properties included 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.
The Partnership will hold its Properties until the General
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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. In general, the General Partners plan to
seek the sale of some of the Properties commencing seven to 12 years after their
acquisition. 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
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$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.
Major Tenants
During 1997, 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, 1997, 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 1998 and subsequent years. 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 1997 (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 subsequent years, 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. No single
tenant or group of affiliated
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tenants lease Properties with an aggregate carrying value 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 with CNL Income Fund VI, Ltd., an
affiliate of the General Partners, to purchase and hold one Property; CNL
Restaurant Investments II with CNL Income Fund VII, Ltd. and CNL Income Fund IX,
Ltd., affiliates of the General Partners, to purchase and hold six Properties;
and Middleburg Joint Venture with CNL Income Fund XII, Ltd., an affiliate of the
General Partners, to purchase and hold one Property. Each of the affiliates is a
limited partnership organized pursuant to the laws of the State of Florida.
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 has an 88 percent interest in Woodway Joint
Venture, an 86 percent interest in Asheville Joint Venture, a 37 percent
interest in CNL Restaurant Investments II, and a 12 percent interest in
Middleburg Joint Venture. 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,
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Asheville Joint Venture, CNL Restaurant Investments II and Middleburg Joint
Venture is distributed 88 percent, 86 percent, 37 percent and 12 percent,
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.
The use of joint venture arrangements allows the Partnership to fully
invest its available funds at times at which it would not have sufficient funds
to purchase an additional property, or at times when a suitable opportunity to
purchase an additional property is not available. The use of joint venture
arrangements also provides the Partnership with increased diversification of its
portfolio among a greater number of properties.
Certain Management Services
CNL Income Fund Advisors, Inc., an affiliate of the General Partners,
provided certain services relating to management of the Partnership and its
Properties pursuant to a management agreement with the Partnership through
September 30, 1995. Under this agreement, CNL Income Fund Advisors, Inc. was
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 Income Fund Advisors, Inc. also
assisted the General Partners in negotiating the leases. For these services, the
Partnership had agreed to pay CNL Income 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").
Effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its
rights in, and its obligations under, the management agreement with the
Partnership to CNL Fund Advisors, Inc. All of the terms and conditions of the
management agreement, including the payment of fees, as described above, remain
unchanged.
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.
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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, 1997, the Partnership owned 36 Properties. Of the 36
Properties, 27 are owned by the Partnership in fee simple and nine are owned
through joint venture arrangements. See Item 1. Business - Joint Venture
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. 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.
The following table lists the Properties owned by the Partnership as of
December 31, 1997 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation filed with this report.
State Number of Properties
Arizona 1
Florida 7
Indiana 1
Louisiana 1
Michigan 3
Minnesota 1
North Carolina 2
New York 2
Ohio 9
Tennessee 2
Texas 6
Virginia 1
------
TOTAL PROPERTIES: 36
======
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. As of December 31, 1997, the Partnership had no plans for
renovation of the Properties. Depreciation expense is computed for buildings and
improvements using the straight line method using a depreciable life of 40 years
for federal income tax purposes. As of December 31, 1997, the aggregate cost
basis of the Properties owned by the Partnership and its consolidated joint
venture, and the unconsolidated joint venture for federal income tax purposes
was $26,172,699 and $8,899,267, respectively.
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The following table lists the Properties owned by the Partnership as of
December 31, 1997 by Restaurant Chain.
Restaurant Chain Number of Properties
Burger King 13
Denny's 1
Golden Corral 5
Hardee's 4
Jack in the Box 2
KFC 2
Perkins 1
Popeyes 1
Quincy's 1
Shoney's 5
Wendy's 1
------
TOTAL PROPERTIES 36
======
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
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.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. 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
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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. The terms of
the leases of the Properties owned by the Partnership are described in Item 1.
Business - Leases.
At December 31, 1997, 1996, 1995, 1994, and 1993 all of the Properties
were occupied. The following is a schedule of the average annual rent for each
of the five years ended December 31: <TABLE> <CAPTION>
For the Year Ended December 31:
1997 1996 1995 1994 1993
----------- ----------- ----------- ------------- -----------
<S> <C>
Rental Revenues (1) $3,467,720 $3,552,341 $3,676,557 $3,708,190 $3,731,390
Properties 36 36 36 38 38
Average Rent per Unit $96,326 $98,676 $102,127 $97,584 $98,194
</TABLE>
(1) Rental revenues include the Partnership's share of rental revenues from the
nine Properties owned through joint venture arrangements. Rental revenues
have been adjusted, as applicable, for any amounts for which the Partnership
has established an allowance for doubtful accounts.
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The following is a schedule of lease expirations for leases in place as of
December 31, 1997 for each of the ten years beginning with 1998 and thereafter.
<TABLE>
<CAPTION>
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
<S> <C>
1998 - - -
1999 - - -
2000 - - -
2001 - - -
2002 - - -
2003 - - -
2004 - - -
2005 4 654,131 19.21%
2006 1 118,136 3.47%
2007 - - -
Thereafter 31 2,632,192 77.32%
-------- ------------- -------------
Totals 36 3,404,459 100.00%
======== ============= =============
</TABLE>
Leases with Major Tenants. The terms of the leases with the
Partnership's major tenants as of December 31, 1997 (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).
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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 $113,600 (ranging from approximately $108,800 to
$122,800).
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.
At the time the Partnership elects to dispose of its Properties,
other than as a result of the exercise of tenant options to purchase Properties,
the Partnership will be in competition with other persons and entities to locate
purchasers for its Properties.
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PART II
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, 1997, the Partnership owned 36 Properties, either directly or indirectly
through joint venture arrangements.
Capital Resources
The Partnership's primary source of capital for the years ended December
31, 1997, 1996 and 1995 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 $3,543,056, $3,462,668 and
$3,263,685 for the years ended December 31, 1997, 1996 and 1995,
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respectively. 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,
and the increase in cash from operations for 1996, as compared to 1995, was
primarily a result of changes in the Partnership's working capital during each
of the respective years.
Other sources and uses of capital included the following during the years
ended December 31, 1997, 1996 and 1995.
In July 1995, the Partnership sold its Property in Ocoee, Florida, for
$1,200,000 and received net sales proceeds of $1,184,865, resulting in a gain of
$71,638 for financial reporting purposes. This Property was originally acquired
by the Partnership in November 1990 and had a cost of approximately $927,900,
excluding acquisition fees and miscellaneous acquisition costs; therefore, the
Partnership sold the Property for approximately $257,000 in excess of its
original purchase price. In September 1995, the Partnership reinvested $950,663
of the net sales proceeds in land and building of a Shoney's in North Fort
Myers, Florida.
In December 1995, the Partnership sold its two Properties in Jacksonville,
Florida, to the subtenant for a total of $460,000, and in connection therewith,
accepted promissory notes in the principal sums of $240,000 and $220,000,
collateralized by mortgages on the Properties. The notes 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. As a result of the sale of the two
Properties, the Partnership recognized a loss of $11,712 for financial reporting
purposes for the year ended December 31, 1995. The mortgage notes receivable
balances at December 31, 1997 and 1996, of $458,407 and $461,255, respectively,
include accrued interest of $3,788 and $3,812, respectively, relating to these
two Properties. Proceeds received from the collection of these mortgage notes
will be distributed to the Limited Partners , used to reinvest in an additional
Property or to pay Partnership liabilities.
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, which purchased a Property in Middleburg Heights,
Ohio. 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
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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, 1997 and 1996 of $1,394,979 and $1,401,007,
respectively, include accrued interest of $12,386 and $12,439, 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.
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 and net sales
proceeds from the sale of Properties, pending reinvestment in additional
Properties or use for the payment of Partnership liabilities, are invested in
money market accounts or other short-term, highly liquid investments such as
demand deposit accounts at commercial banks, CDs and money market accounts with
less than a 30-day maturity date, pending the Partnership's use of such funds to
pay Partnership expenses or to make distributions to the partners. At December
31, 1997, the Partnership had $1,602,236 invested in such short-term investments
as compared to $1,476,274 at December 31, 1996. As of December 31, 1997, the
average interest rate earned on the rental income deposited in demand deposit
accounts at commercial banks was approximately three percent annually. The funds
remaining at December 31, 1997, after the payment of distributions and other
liabilities, will be used to meet the Partnership's working capital and other
needs.
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Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily of
the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash and
leasing them under triple-net leases to operators who generally meet specified
financial standards minimizes the Partnership's operating expenses. The General
Partners believe that the leases will continue to generate cash flow in excess
of operating expenses.
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.
The Partnership generally distributes cash from operations remaining after
the payment of the operating expenses of the Partnership, to the extent that the
General Partners determine that such funds are available for distribution. Based
on cash from operations, and for the years ended December 31, 1996 and 1995,
cumulative excess operating reserves, the Partnership declared distributions to
the Limited Partners of $3,150,003, $3,412,500 and $3,325,002 for the years
ended December 31, 1997, 1996 and 1995, respectively. This represents
distributions of $0.090 per Unit for the year ended December 31, 1997, $0.098
per Unit for the year ended December 31, 1996 and $0.095 per Unit for the year
ended December 31, 1995. The General Partners anticipate that the Partnership
will declare a special distribution to the Limited Partners during the quarter
ending March 31, 1998, representing cumulative excess operating reserves. No
amounts distributed to the Limited Partners for the years ended December 31,
1997, 1996 and 1995, are required to be or have been treated by the Partnership
as a return of capital for purposes of calculating the Limited Partners' return
on their adjusted capital contributions. The Partnership intends to continue to
make distributions of cash available for distribution to the Limited Partners on
a quarterly basis.
During 1997, 1996 and 1995, affiliates incurred $80,998,
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$100,264 and $95,550, respectively, for certain operating expense on behalf of
the Partnership. As of December 31, 1997 and 1996 the Partnership owed $4,599
and $1,830, respectively, to affiliates for such amounts and accounting and
administrative services. As of February 28, 1998, 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, 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, decreased to $873,875 December 31, 1997, from $1,147,333
at December 31, 1996. The decrease in other liabilities is primarily
attributable to the Partnership's accruing a special distribution payable to the
Limited Partners of $262,500 at December 31, 1996, 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.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During 1995, the Partnership owned and leased 31 wholly-owned Properties
(including one Property in Ocoee, Florida, which was sold in July 1995, and two
Properties in Jacksonville, Florida, which were sold in December 1995), during
1996, the Partnership owned and leased 28 wholly-owned Properties (including one
Property in Orlando, Florida, which was sold in October 1996) and during 1997,
the Partnership owned and leased 28 wholly-owned Properties. In addition, during
1995, the Partnership was a co-venturer in two separate joint ventures that each
owned and leased one Property, and one joint venture that owned and leased six
Properties, and during 1996 and 1997, the Partnership was a co-venturer in four
joint ventures that owned and leased a total of nine Properties. As of December
31, 1997, 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.
17
<PAGE>
During the years ended December 31, 1997, 1996 and 1995, the Partnership
and its consolidated joint venture, Woodway Joint Venture, earned $3,015,642,
$3,182,058 and $3,300,816, respectively, in rental income from operating leases
and earned income from direct financing leases. The decrease in rental and
earned income during 1997, as compared to 1996, is primarily attributable to a
decrease of approximately $141,300, as a result of the sale of the Property in
Orlando, Florida, in October 1996, as described above in "Capital Resources."
Rental and earned income decreased approximately $53,600 during the year
ended December 31, 1996, as compared to the year ended December 31, 1995, as a
result of the sale of two Properties located in Jacksonville, Florida, in
December 1995. In addition, rental and earned income decreased approximately
$45,400 during 1996, as compared to 1995, as a result of the sale of the
Property in Orlando, Florida, in October 1996 as described above. However, as a
result of Partnership accepting mortgage notes for the sale of the two
Properties located in Jacksonville, Florida, and the Property located in
Orlando, Florida, interest income increased during the years ended December 31,
1997 and 1996, each as compared to the previous year, as discussed below.
For the years ended December 31, 1997, 1996 and 1995, the Partnership also
earned $85,735, $31,712 and $59,085, respectively, in 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. The decrease in
contingent rental income during 1996, as compared to 1995, is partially
attributable to decreases in gross sales relating to certain Properties.
During the years ended December 31, 1997, 1996 and 1995, the Partnership
also earned $238,338 , $127,246 and $76,445, respectively, in interest and other
income. The increase in interest and other income during 1997 and 1996, each as
compared to the previous year, 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, 1997, 1996 and 1995, the Partnership also
earned $293,480, $266,500 and $244,933, respectively, attributable to net income
earned by unconsolidated joint ventures in which the Partnership is a
co-venturer. The increase in net income earned by joint ventures during 1997 and
1996, each as compared to the previous year, is primarily attributable to the
fact that the Partnership invested in Middleburg Joint Venture in May 1996, as
described above in " Capital Resources."
18
<PAGE>
During at least one of the years ended December 31, 1997, 1996 and 1995,
four lessees of the Partnership and its consolidated joint venture, (i) Golden
Corral Corporation, (ii) Carrols Corporation (iii) Restaurant Management
Services, Inc. and (iv) Flagstar Enterprises, Inc. and Quincy's Inc. (which are
affiliated entities under common control of Flagstar Corporation) (herein after
referred to as Flagstar Corporation), 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, 1997,
Golden Corral Corporation was the lessee under leases relating to four
restaurants, Carrols Corporation was the lessee under leases relating to five
restaurants, Restaurant Management Services, Inc. was the lessee under leases
relating to five restaurants and Flagstar Corporation was the lessee under
leases relating to three restaurants. It is anticipated that, based on the
minimum annual rental payments required by the leases, Golden Corral
Corporation, Carrols Corporation and Restaurant Management Services, each will
continue to contribute more than ten percent of the Partnership's total rental
income during 1998 and subsequent years. In addition, during at least one of the
three years ended December 31, 1997, 1996 and 1995, 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 subsequent years, 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.
Operating expenses, including depreciation and amortization expense, were
$377,922, $397,587 and $390,308 for the years ended December 31, 1997, 1996 and
1995, respectively. 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. The increase in operating expenses during 1996 as compared to 1995,
is primarily attributable to an increase in accounting and administrative
expenses associated with operating the Partnership and its Properties and an
increase in insurance expense as a result of the General Partners' obtaining
contingent liability and property coverage for the Partnership beginning in
1995. The increase in operating expenses during 1996, as compared to 1995, was
partially offset by a decrease in depreciation expense as a result of the sale
of the two properties located in Jacksonville, Florida, in December 1995, as
described above in "Capital Resources."
As a result of the 1996 sale of the Property in Orlando,
19
<PAGE>
Florida, as described above in "Capital Resources," the Partnership recognized a
loss of $99,031 for the year ended December 31, 1996. In addition, as a result
of the 1995 sales of the Property in Ocoee, Florida, and the two Properties in
Jacksonville, Florida, as described above in "Capital Resources," the
Partnership recognized a gain of $71,638 and a loss of $11,712, respectively,
during the year ended December 31, 1995. No Properties were sold during 1997.
The General Partners of the Partnership are in the process of assessing
and addressing the impact of the year 2000 on its computer package software. The
hardware and built-in software are believed to be year 2000 compliant.
Accordingly, the General Partners do not expect this matter to materially impact
how the Partnership conducts business nor its current or future results of
operations or financial position.
The Partnership's leases as of December 31, 1997, 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.
20
<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 29th day of
July, 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 July 29, 1999
- -------------------------- (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Oficer and Director July 29, 1999
- -------------------------- (Principal Executive Officer)
James M. Seneff, Jr.
</TABLE>
