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 March 31, 2000
---------------------------
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)
<TABLE>
<CAPTION>
Florida 59-2963338
- ------------------------------------------------------ ------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
<S> <C>
450 South Orange Avenue
Orlando, Florida 32801
- ------------------------------------------------------ ------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
------------------------------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
<PAGE>
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets
Condensed Statements of Income
Condensed Statements of Partners' Capital
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II.
Other Information
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
<S> <C> ------------------- -------------------
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $2,060,745 and $1,985,698,
respectively $ 15,394,043 $ 15,469,090
Net investment in direct financing leases 7,590,852 7,635,861
Investment in joint ventures 3,162,732 3,197,857
Mortgage notes receivable 1,461,773 1,473,571
Cash and cash equivalents 1,664,519 1,503,989
Receivables, less allowance for doubtful accounts
of $17,494 and $5,764, respectively 36,366 112,454
Prepaid expenses 5,562 15,485
Accrued rental income, less allowance for doubtful
accounts of $4,501 2,031,892 2,018,517
Other assets 52,671 52,671
------------------- -------------------
$ 31,400,410 $ 31,479,495
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 38,391 $ 114,170
Escrowed real estate taxes payable 14,371 9,157
Distributions payable 787,501 787,501
Due to related parties 141,190 121,327
Rents paid in advance 125,070 23,394
------------------- -------------------
Total liabilities 1,106,523 1,055,549
Minority interest 108,704 108,579
Partners' capital 30,185,183 30,315,367
------------------- -------------------
$ 31,400,410 $ 31,479,495
=================== ===================
See Accompanying notes to condensed financial statements
</TABLE>
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended
March 31,
2000 1999
<S> <C> -------------- ---------------
Revenues:
Rental income from operating leases $ 478,969 $ 492,989
Earned income from direct financing leases 231,697 236,859
Contingent rental income 12,691 3,279
Interest and other income 69,734 54,365
-------------- ---------------
793,091 787,492
-------------- ---------------
Expenses:
General operating and administrative 46,130 37,649
Professional services 24,078 5,732
State and other taxes 17,478 17,534
Depreciation 75,047 75,047
Transaction costs 36,955 33,563
-------------- ---------------
199,688 169,525
-------------- ---------------
Income Before Minority Interest in Income of
Consolidated Joint Venture and Equity in
Earnings of Unconsolidated Joint Ventures 593,403 617,967
Minority Interest in Income of Consolidated
Joint Venture (3,365 ) (3,355 )
Equity in Earnings of Unconsolidated Joint Ventures 67,279 60,231
-------------- ---------------
Net Income $ 657,317 $ 674,843
============== ===============
Allocation of Net Income:
General partners $ 6,573 $ 6,748
Limited partners 650,744 668,095
-------------- ---------------
$ 657,317 $ 674,843
============== ===============
Net Income Per Limited Partner Unit $ 0.019 $ 0.019
============== ===============
Weighted Average Number of Limited Partner
Units Outstanding 35,000,000 35,000,000
============== ===============
See accompanying notes to condensed financial statements
</TABLE>
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Quarter Ended Year Ended
March 31, December 31,
2000 1999
------------------- -----------------
<S> <C>
General partners:
Beginning balance $ 286,349 $ 258,248
Net income 6,573 28,101
------------------- -----------------
292,922 286,349
------------------- -----------------
Limited partners:
Beginning balance 30,029,018 30,397,059
Net income 650,744 2,781,963
Distributions ($0.023 and $0.09 per
limited partner unit, respectively ( 787,501 ) (3,150,004 )
------------------- -----------------
29,892,261 30,029,018
------------------- -----------------
Total partners' capital $ 30,185,183 $ 30,315,367
=================== =================
See accompanying notes to condensed financial statements
</TABLE>
<PAGE>
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended
March 31,
2000 1999
--------------- --------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 939,577 $ 924,814
--------------- --------------
Cash Flows from Investing Activities:
Collections on mortgage notes receivable 11,694 283,528
--------------- --------------
Net cash provided by investing activities 11,694 283,528
--------------- --------------
Cash Flows from Financing Activities:
Distributions to limited partners (787,501 ) (1,137,501 )
Distributions to holder of minority interest (3,240 ) (3,330 )
--------------- --------------
Net cash used in financing activities (790,741 ) (1,140,831 )
--------------- --------------
Net Increase in Cash and Cash Equivalents 160,530 67,511
Cash and Cash Equivalents at Beginning of Quarter 1,503,989 1,809,258
--------------- --------------
Cash and Cash Equivalents at End of Quarter $1,664,519 $1,876,769
=============== ==============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
quarter $ 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 Ended March 31, 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 ended March 31, 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund VIII, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 18, 1989 to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as land upon which restaurants were to be
constructed (the "Properties"), which are leased primarily to operators of
national and regional fast-food and family-style restaurant chains. The leases
are triple-net leases, with the lessees responsible for all repairs and
maintenance, property taxes, insurance and utilities. As of March 31, 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 quarters ended
March 31, 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 $939,577 and
$924,814 for the quarters ended March 31, 2000 and 1999, respectively. The
increase in cash from operations for the quarter ended March 31, 2000, was
primarily a result of changes in income and expenses as described in "Results of
Operations" below.
Currently, rental income from the Partnership's Properties is 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 March 31, 2000, the Partnership had $1,664,519 invested in such
short-term investments, as compared to $1,503,989 at December 31, 1999. The
funds remaining at March 31, 2000, after payment of distributions for the
quarter ended March 31, 2000, and other liabilities, will be used to meet the
Partnership's working capital and other needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of 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 $787,501 for each of the quarters ended
March 31, 2000 and 1999. This represents distributions for each applicable
quarter of $0.023 per unit. No distributions were made to the general partners
for the quarters ended March 31, 2000 and 1999. No amounts distributed to the
limited partners for the quarters ended March 31, 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.
Total liabilities of the Partnership, including distributions payable,
increased to $1,106,523 at March 31, 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 March 31, 2000, as compared to December 31, 1999. The
increase in liabilities at March 31, 2000 was partially offset by a decrease in
accounts payable at March 31, 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.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the quarters ended March 31, 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 quarters ended March 31, 2000 and
1999, the Partnership and Woodway Joint Venture earned $710,666 and $729,848,
respectively, in rental income from operating leases and earned income from
direct financing leases. Rental and earned income decreased during the quarter
ended March 31, 2000, due to the fact that the lease relating to the Wendy's
Property in Midlothian, Virginia, was amended in April 1999 to eliminate
scheduled rent increases until the year 2011 due to financial difficulties the
tenant was experiencing.
During the quarter ended March 31, 1999, the Partnership owned and
leased eight Properties indirectly through joint venture arrangements. During
the quarter ended March 31, 2000, the Partnership owned and leased nine
Properties indirectly through joint venture arrangements. In connection
therewith, during the quarters ended March 31, 2000 and 1999, the Partnership
earned $67,279 and $60,231, respectively, attributable to net income earned by
these unconsolidated joint ventures. The increase in net income earned by joint
ventures for the quarter ended March 31, 2000, was primarily due to the fact
that in November 1999, the Partnership invested in Bossier City Joint Venture.
Operating expenses, including depreciation and amortization expense,
were $199,688 and $169,525 for the quarters ended March 31, 2000 and 1999,
respectively. The increase in operating expenses for the quarter ended March 31,
2000 was partially due to an increase in professional services as a result of
the Partnership incurring the cost 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 quarter ended March 31, 2000. The
Partnership incurred the cost of the 1998 appraisal updates during the year
ended December 31, 1998. In addition, the increase in operating expenses for the
quarter ended March 31, 2000 was partially due to an increase in professional
services as a result of the Partnership incurring fees relating to a right of
way settlement for the Partnership's Property in Brooksville, Florida.
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.
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 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
No material changes in the Partnership's market risk occurred from
December 31, 1999 through March 31, 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
are seeking unspecified damages and equitable relief. On July 8,
1999, the plaintiffs filed an amended complaint which, in addition
to naming three additional plaintiffs, includes allegations of
aiding and abetting and conspiring to breach fiduciary duties,
negligence and breach of duty of good faith against certain of the
defendants and seeks additional equitable relief. As amended, the
caption of the case is Jon Hale, Mary J. Hewitt, Charles A.
Hewitt, Gretchen M. Hewitt Bernard J. Schulte, Edward M. and
Margaret Berol Trust, and Vicky Berol v. James M. Seneff, Jr.,
Robert A. Bourne, CNL Realty Corporation, and CNL American
Properties Fund, Inc., Case No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999
against the general partners and APF, Ira Gaines, individually and
on behalf of a class of persons similarly situated, v. CNL
American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc., CNL
Financial Corporation a/k/a CNL Financial Corp., CNL Financial
Services, Inc. and CNL Group, Inc., Case No. CIO-99-3796, in the
Circuit Court of the Ninth Judicial Circuit of Orange County,
Florida, alleging that the general partners breached their
fiduciary duties and that APF aided and abetted their breach of
fiduciary duties in connection with the proposed Merger. The
plaintiff is seeking unspecified damages and equitable relief.
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
A Current Report on Form 8-K dated February 23, 2000 was
filed on March 1, 2000 describing the termination of the
proposed merger of the Partnership with and into a
subsidiary of CNL American Properties Fund, Inc.
<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 10th day of May, 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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet of CNL Income Fund VIII, Ltd. at March 31, 2000, and its statement
of income for the three months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund VIII, Ltd. for the three months
ended March 31, 2000.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,664,519
<SECURITIES> 0
<RECEIVABLES> 53,860
<ALLOWANCES> 17,494
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 17,454,788
<DEPRECIATION> 2,060,745
<TOTAL-ASSETS> 31,400,410
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30,185,183
<TOTAL-LIABILITY-AND-EQUITY> 31,400,410
<SALES> 0
<TOTAL-REVENUES> 793,091
<CGS> 0
<TOTAL-COSTS> 199,688
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 657,317
<INCOME-TAX> 0
<INCOME-CONTINUING> 657,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 657,317
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund VIII, Ltd, has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
