FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 2000
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from ______________________ to ____________________
Commission file number
0-19139
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CNL Income Fund VIII, Ltd.
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(Exact name of registrant as specified in its charter)
Florida 59-2963338
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801-3336
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
<PAGE>
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 9
Part II.
Other Information 10-11
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------------- -------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $2,135,792 and $1,985,698,
respectively $ 15,318,996 $ 15,469,090
Net investment in direct financing leases 7,544,449 7,635,861
Investment in joint ventures 3,145,521 3,197,857
Mortgage notes receivable 1,449,657 1,473,571
Cash and cash equivalents 1,664,145 1,503,989
Receivables, less allowance for doubtful accounts
of $18,804 and $5,764, respectively 40,815 112,454
Prepaid expenses 22,191 15,485
Accrued rental income, less allowance for doubtful
accounts of $4,501 in 1999 1,928,006 2,018,517
Other assets 52,671 52,671
------------------- -------------------
$ 31,166,451 $ 31,479,495
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 27,773 $ 114,170
Accrued and escrowed real estate taxes payable 21,402 9,157
Distributions payable 787,501 787,501
Due to related parties 192,495 121,327
Rents paid in advance 62,591 23,394
------------------- -------------------
Total liabilities 1,091,762 1,055,549
Minority interest 108,549 108,579
Partners' capital 29,966,140 30,315,367
------------------- -------------------
$ 31,166,451 $ 31,479,495
=================== ===================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------- -------------
Revenues:
Rental income from operating leases $ 509,526 $ 492,313 $ 988,495 $ 985,302
Adjustments to accrued rental income (123,370 ) -- (123,370 ) --
Earned income from direct financing leases 214,789 235,628 446,486 472,487
Contingent rental income 4,487 13,335 17,178 16,614
Interest and other income 57,684 57,044 127,418 111,409
------------ ------------ ------------- -------------
663,116 798,320 1,456,207 1,585,812
------------ ------------ ------------- -------------
Expenses:
General operating and administrative 45,997 34,860 92,127 72,509
Professional services 4,361 8,404 28,439 14,136
Real estate taxes 5,676 -- 5,676 --
State and other taxes 750 112 18,228 17,646
Depreciation 75,047 75,047 150,094 150,094
Transaction costs 30,846 87,527 67,801 121,090
------------ ------------ ------------- -------------
162,677 205,950 362,365 375,475
------------ ------------ ------------- -------------
Income Before Minority Interest in Income of
Consolidated Joint Venture and Equity in
Earnings of Unconsolidated Joint Ventures 500,439 592,370 1,093,842 1,210,337
Minority Interest in Income of Consolidated
Joint Venture (3,256 ) (3,330 ) (6,621 ) (6,685 )
Equity in Earnings of Unconsolidated Joint
Ventures 71,275 69,647 138,554 129,878
------------ ------------ ------------- -------------
Net Income $ 568,458 $ 658,687 $1,225,775 $1,333,530
============ ============ ============= =============
Allocation of Net Income:
General partners $ 5,685 $ 6,587 $ 12,258 $ 13,335
Limited partners 562,773 652,100 1,213,517 1,320,195
------------ ------------ ------------- -------------
$ 568,458 $ 658,687 $1,225,775 $1,333,530
============ ============ ============= =============
Net Income Per Limited Partner Unit $ 0.016 $ 0.019 $ 0.035 $ 0.038
============ ============ ============= =============
Weighted Average Number of Limited Partner
Units Outstanding 35,000,000 35,000,000 35,000,000 35,000,000
============ ============ ============= =============
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
2000 1999
----------------------- -----------------
General partners:
Beginning balance $ 286,349 $ 258,248
Net income 12,258 28,101
----------------------- -----------------
298,607 286,349
----------------------- -----------------
Limited partners:
Beginning balance 30,029,018 30,397,059
Net income 1,213,517 2,781,963
Distributions ($0.045 and $0.090 per
limited partner unit, respectively) (1,575,002 ) (3,150,004 )
----------------------- -----------------
29,667,533 30,029,018
----------------------- -----------------
Total partners' capital $ 29,966,140 $ 30,315,367
======================= =================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2000 1999
--------------- --------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $1,718,106 $1,717,444
--------------- --------------
Cash Flows from Investing Activities:
Collections on mortgage notes receivable 23,703 301,803
--------------- --------------
Net cash provided by investing activities 23,703 301,803
--------------- --------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,575,002 ) (1,925,002 )
Distributions to holder of minority interest (6,651 ) (6,645 )
--------------- --------------
Net cash used in financing activities (1,581,653 ) (1,931,647 )
--------------- --------------
Net Increase in Cash and Cash Equivalents 160,156 87,600
Cash and Cash Equivalents at Beginning of Period 1,503,989 1,809,258
--------------- --------------
Cash and Cash Equivalents at End of Period $1,664,145 $1,896,858
=============== ==============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
period $ 787,501 $ 787,501
=============== ==============
See accompanying notes to condensed financial statements.
</TABLE>
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 2000 may not be indicative of
the results that may be expected for the year ending December 31, 2000.
Amounts as of December 31, 1999, included in the financial statements,
have been derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund VIII, Ltd. (the "Partnership") for the year ended December
31, 1999.
The Partnership accounts for its approximate 88 percent interest in
Woodway Joint Venture using the consolidation method. Minority interest
represents the minority joint venture partner's proportionate share of
the equity in the Partnership's consolidated joint venture. All
significant intercompany accounts and transactions have been eliminated.
2. Termination of Merger
On March 1, 2000, the general partners and CNL American Properties Fund,
Inc. ("APF") mutually agreed to terminate the Agreement and Plan of
Merger entered into in March 1999. The general partners are continuing to
evaluate strategic alternatives for the Partnership, including
alternatives to provide liquidity to the limited partners.
3. Subsequent Events:
In July 2000, the Partnership sold its properties in Brooksville, Bayonet
Point and Sun City, Florida, to an unrelated third party for a total of
approximately $3,402,700, resulting in a gain of approximately $484,800
for financial reporting purposes. In July 2000, the Partnership
reinvested the sales proceeds it received from the sale of the properties
in Sun City, Florida and Bayonet Point, Florida in a Bennigan's property
located in Deerfield, Illinois, at an approximate cost of $2,462,700 from
CNL BB Corp., an affiliate of the general partners. CNL BB Corp.
purchased and temporarily held title to this property in order to
facilitate the acquisition of the property by the Partnership. The
purchase price paid by the Partnership represents the costs incurred by
CNL BB Corp. to acquire and carry the property, including closing costs.
In connection therewith, the Partnership entered into a long term,
triple-net lease with terms substantially the same as its other leases.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund VIII, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 18, 1989 to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as land upon which restaurants were to be
constructed (the "Properties"), which are leased primarily to operators of
national and regional fast-food and family-style restaurant chains. The leases
are, in general, triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance and utilities. As of June 30, 2000,
the Partnership owned 37 Properties, which included interests in ten Properties
owned by joint ventures in which the Partnership is a co-venturer.
Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 2000 and 1999 was cash from operations (which includes cash received
from tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $1,718,106 and
$1,717,444 for the six months ended June 30, 2000 and 1999, respectively.
Currently, rental income from the Partnership's Properties and any net
sales proceeds from the sale of Properties, pending the reinvestment in
additional Properties, are invested in money market accounts or other
short-term, highly liquid investments such as demand deposit accounts at
commercial banks, certificates of deposit, and money market accounts with less
than a 30-day maturity date, pending the Partnership's use of such funds to pay
Partnership expenses or to make distributions to the partners. At June 30, 2000,
the Partnership had $1,664,145 invested in such short-term investments, as
compared to $1,503,989 at December 31, 1999. The funds remaining at June 30,
2000, after payment of distributions and other liabilities, will be used to meet
the Partnership's working capital and other needs.
In July 2000, the Partnership sold its Properties in Brooksville,
Florida; Bayonet Point, Florida and Sun City, Florida, to an unrelated third
party for a total of approximately $3,402,700, resulting in a gain of
approximately $484,800 for financial reporting purposes. In July 2000, the
Partnership reinvested the net sales proceeds it received from the sale of the
Properties in Sun City and Bayonet Point, Florida in a Bennigan's Property in
Deerfield, Illinois. The Partnership acquired the Property from an affiliate of
the general partners. The affiliate had purchased and temporarily held title to
the Property in order to facilitate the acquisition of the Property by the
Partnership. The purchase price paid by the Partnership represented the costs
incurred by the affiliate to acquire the Property, including closing costs. The
transaction relating to the sale of the Properties in Sun City and Bayonet
Point, Florida and the reinvestment of the net sales proceeds, was structured to
qualify as a like kind exchange transaction for federal income tax purposes.
However, the Partnership 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 sale. The
Partnership intends to reinvest the net sales proceeds from the Property in
Brooksville, Florida in an additional Property. 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.
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.
Total liabilities of the Partnership, including distributions payable,
increased to $1,091,762 at June 30, 2000, from $1,055,549 at December 31, 1999,
primarily as a result of an increase in rents paid in advance and amounts due to
related parties at June 30, 2000, as compared to December 31, 1999. The increase
in liabilities at June 30, 2000 was partially offset by a decrease in accounts
payable at June 30, 2000 as compared to December 31, 1999. The general partners
believe that the Partnership has sufficient cash on hand to meet its current
working capital needs.
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, the Partnership declared
distributions to limited partners of $1,575,002 for each of the six months ended
June 30, 2000 and 1999 ($787,501 for each of the quarters ended June 30, 2000
and 1999). This represents distributions for each applicable six months of
$0.045 per unit ($0.023 per unit for each applicable quarter). No distributions
were made to the general partners for the quarters and six months ended June 30,
2000 and 1999. No amounts distributed to the limited partners for the six months
ended June 30, 2000 and 1999 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.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the six months ended June 30, 2000 and 1999, the Partnership and
its consolidated joint venture, Woodway Joint Venture, owned and leased 28
wholly owned Properties to operators of fast-food and family-style restaurant
chains. In connection therewith, during the six months ended June 30, 2000 and
1999, the Partnership and Woodway Joint Venture earned $1,311,611 and
$1,457,789, respectively, in rental income from operating leases (net of
adjustments to accrued rental income) and earned income from direct financing
leases, $600,945 and $727,941 of which was earned during the quarters ended June
30, 2000 and 1999, respectively. The decrease in rental and earned income was
primarily due to the fact that during the quarter and six months ended June 30,
2000, the tenant of the Property in Statesville, North Carolina defaulted under
the terms of its lease, discontinued the operations of the restaurant and
vacated the Property. As a result, the Partnership established an allowance for
doubtful accounts of approximately $18,300 for past due rental amounts during
the quarter and six months ended June 30, 2000. In addition, the Partnership
reversed approximately $123,400 of accrued rental income. The accrued rental
income was the accumulated amount of non-cash accounting adjustments previously
recorded in order to recognize future scheduled rent increases as income evenly
over the term of the lease. The general partners will continue to pursue
collection of rental amounts relating to this Property and will recognize such
amounts as income if collected.
During the six months ended June 30, 2000 and 1999, the Partnership
owned and leased nine and eight Properties, respectively, indirectly through
other joint venture arrangements. In connection therewith, during the six months
ended June 30, 2000 and 1999, the Partnership earned $138,554 and $129,878,
respectively, attributable to net income earned by these unconsolidated joint
ventures, $71,275 and $69,647 of which was earned during the quarters ended June
30, 2000 and 1999, respectively. The increase in net income earned by
unconsolidated joint ventures for the quarter and six months ended June 30,
2000, was primarily due to the fact that the Partnership invested in Bossier
City Joint Venture in November 1999.
Operating expenses, including depreciation and amortization expense,
were $362,365 and $375,475 for the six months ended June 30, 2000 and 1999,
respectively, of which $162,677 and $205,950 were incurred during the quarters
ended June 30, 2000 and 1999, respectively. The decrease in operating expenses
for the quarter and six months ended June 30, 2000, was primarily attributable
to the fact that the Partnership incurred less transaction costs relating to the
general partners retaining financial and legal advisors to assist them in
evaluating and negotiating the proposed merger with CNL American Properties
Fund, Inc. ("APF"), due to the termination of the proposed merger, as described
below in "Termination of Merger". The decrease in operating expenses for the six
months ended June 30, 2000 was partially offset by an increase in i)
administrative expenses for servicing the Partnership and its Properties, (ii)
real estate tax expense due to the default of the tenant of the Property in
Statesville, North Carolina, as described above, and (iii) professional services
as a result of the 1999 appraisal updates obtained to prepare an annual
statement of unit valuation to qualified plans in accordance with the
Partnership agreement, during the six months ended June 30, 2000. The
Partnership incurred the cost of the 1998 appraisal updates during the year
ended December 31, 1998.
Termination of Merger
On March 1, 2000, the general partners and APF mutually agreed to
terminate the Agreement and Plan of Merger (the "Merger") entered into in
March 1999. The general partners are continuing to evaluate strategic
alternatives for the Partnership, including alternatives to provide liquidity
to the limited partners.
<PAGE>
Dismissal of Legal Action
As described in greater detail in Part II, Item 1. "Legal Proceedings",
in 1999 two groups of limited partners in several CNL Income Funds filed
purported class action suits against the general partners and APF alleging,
among other things, that the general partners had breached their fiduciary
duties in connection with the proposed Merger. These actions were later
consolidated into one action. On April 25, 2000, the judge in the consolidated
action issued an order dismissing the action without prejudice, with each party
to bear its own costs and attorneys' fees.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
No material changes in the Partnership's market risk occurred from
December 31, 1999 through June 30, 2000. Information regarding the Partnership's
market risk at December 31, 1999 is included in its Annual Report on Form 10-K
for the year ended December 31, 1999.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed merger. The plaintiffs
sought unspecified damages and equitable relief. On July 8, 1999,
the plaintiffs filed an amended complaint which, in addition to
naming three additional plaintiffs, included allegations of aiding
and abetting and conspiring to breach fiduciary duties, negligence
and breach of duty of good faith against certain of the defendants
and sought additional equitable relief. As amended, the caption of
the case was Jon Hale, Mary J. Hewitt, Charles A. Hewitt, Gretchen
M. Hewitt Bernard J. Schulte, Edward M. and Margaret Berol Trust,
and Vicky Berol v. James M. Seneff, Jr., Robert A. Bourne, CNL
Realty Corporation, and CNL American Properties Fund, Inc., Case
No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999
against the general partners and APF, Ira Gaines, individually and
on behalf of a class of persons similarly situated, v. CNL
American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc., CNL
Financial Corporation a/k/a CNL Financial Corp., CNL Financial
Services, Inc. and CNL Group, Inc., Case No. CIO-99-3796, in the
Circuit Court of the Ninth Judicial Circuit of Orange County,
Florida, alleging that the general partners breached their
fiduciary duties and that APF aided and abetted their breach of
fiduciary duties in connection with the proposed merger. The
plaintiff sought unspecified damages and equitable relief.
On September 23, 1999, Judge Lawrence Kirkwood entered an order
consolidating the two cases under the caption In re: CNL Income
Funds Litigation, Case No. 99-3561. Pursuant to this order, the
plaintiffs in these cases filed a consolidated and amended
complaint on November 8, 1999. On December 22, 1999, the general
partners and CNL Group, Inc. filed motions to dismiss and motions
to strike. On December 28, 1999, APF and CNL Fund Advisors, Inc.
filed motions to dismiss. On March 6, 2000, all of the defendants
filed a Joint Notice of Filing Form 8-K Reports and Suggestion of
Mootness.
On April 25, 2000, Judge Kirkwood issued a Stipulated Final Order
of Dismissal of Consolidated Action, dismissing the action without
prejudice, with each party to bear its own costs and attorneys'
fees.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund VIII, Ltd. (Included as Exhibit 3.2
to Registration Statement No. 33-31482 on Form S-11
and incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund VIII, Ltd. (Included as Exhibit 3.2
to Registration Statement No. 33-31482 on Form S-11
and incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund VIII, Ltd. (Included as Exhibit
4.2 to Form 10-K filed with the Securities and
Exchange Commission on April 1, 1996, and
incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund VIII,
Ltd. and CNL Investment Company (Included as Exhibit
10.1 to Form 10-K filed with the Securities and
Exchange Commission on April 1, 1996, and
incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 30, 1995,
and incorporated herein by reference.)
10.3 Assignment of Management Agreement from CNL Income
Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on April 1, 1996,
and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 8th day of August, 2000.
CNL INCOME FUND VIII, LTD.
By: CNL REALTY CORPORATION
General Partner
By:/s/ James M. Seneff, Jr.
------------------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Robert A. Bourne
------------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
