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, 1998
------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-20017
CNL Income Fund IX, Ltd.
(Exact name of registrant as specified in its charter)
Florida 59-3004138
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street
Orlando, Florida 32801
- ---------------------------- -----------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
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
Part I Page
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
Part II
Other Information 10
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
ASSETS 1998 1997
------ ----------- -----------
Land and buildings on operating
leases, less accumulated
depreciation of $1,623,510 and
$1,497,770 $14,037,371 $14,163,111
Net investment in direct financing
leases 7,418,138 7,482,757
Investment in joint ventures 6,529,221 6,619,364
Cash and cash equivalents 1,239,186 1,250,388
Receivables, less allowance for
doubtful accounts of $270,294 and
$108,316 15,370 96,134
Prepaid expenses 10,541 3,924
Lease costs, less accumulated
amortization of $827 and $77 14,173 14,923
Accrued rental income 1,234,707 1,465,820
----------- -----------
$30,498,707 $31,096,421
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 888 $ 4,490
Accrued and escrowed real estate
taxes payable 33,149 45,591
Distributions payable 787,501 787,501
Due to related parties 3,626 4,619
Rents paid in advance and deposits 129,623 106,996
----------- -----------
Total liabilities 954,787 949,197
Partners' capital 29,543,920 30,147,224
----------- -----------
$30,498,707 $31,096,421
=========== ===========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------- --------- ---------- -------
<S> <C>
Revenues:
Rental income from
operating leases $ 407,682 $ 435,520 $ 852,817 $ 879,887
Adjustments to accrued
rental income (267,598) - (267,598) -
Earned income from direct
financing leases 132,106 202,357 342,263 423,111
Contingent rental income 10,059 17,556 41,661 29,827
Interest and other income 16,047 16,930 27,668 29,593
--------- --------- ---------- ----------
298,296 672,363 996,811 1,362,418
--------- --------- ---------- ----------
Expenses:
General operating and
administrative 37,701 38,007 71,079 71,247
Bad debt expense 5,133 - 5,133 21,000
Professional services 8,406 6,779 14,742 11,131
Real estate taxes - 4,810 - 19,128
State and other taxes 192 151 14,337 11,127
Depreciation and
amortization 63,245 62,871 126,490 125,742
--------- --------- ---------- ----------
114,677 112,618 231,781 259,375
--------- --------- ---------- ----------
Income Before Equity in
Earnings of Joint Ventures
and Gain on Sale of Land
and Building 183,619 559,745 765,030 1,103,043
Equity in Earnings of Joint
Ventures 148,860 118,790 276,668 225,038
Gain on Sale of Land and
Building - 199,643 - 199,643
--------- --------- ---------- ----------
Net Income $ 332,479 $ 878,178 $1,041,698 $1,527,724
========= ========= ========== ==========
Allocation of Net Income:
General partners $ 3,325 $ 6,786 $ 10,417 $ 13,281
Limited partners 329,154 871,392 1,031,281 1,514,443
--------- --------- ---------- ----------
$ 332,479 $ 878,178 $1,041,698 $1,527,724
========= ========= ========== ==========
Net Income Per Limited
Partner Unit $ 0.09 $ 0.25 $ 0.29 $ 0.43
========= ========= ========== ==========
Weighted Average Number
of Limited Partner
Units Outstanding 3,500,000 3,500,000 3,500,000 3,500,000
========= ========= ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
1998 1997
---------------- ------------
General partners:
Beginning balance $ 190,772 $ 163,392
Net income 10,417 27,380
----------- -----------
201,189 190,772
----------- -----------
Limited partners:
Beginning balance 29,956,452 30,196,204
Net income 1,031,281 2,910,252
Distributions ($0.47 and $0.90
per limited partner unit,
respectively) (1,645,002) (3,150,004)
----------- -----------
29,342,731 29,956,452
----------- -----------
Total partners' capital $29,543,920 $30,147,224
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1998 1997
----------- -----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 1,633,800 $ 1,558,499
----------- -----------
Cash Flows from Investing
Activities:
Proceeds from sale of land
and building - 1,053,571
Increase in restricted cash - (1,053,571)
----------- -----------
Net cash used in investing
activities - -
----------- ----------
Cash Flows from Financing
Activities:
Distributions to limited
partners (1,645,002) (1,610,001)
----------- -----------
Net cash used in
financing activities (1,645,002) (1,610,001)
----------- -----------
Net Decrease in Cash and Cash
Equivalents (11,202) (51,502)
Cash and Cash Equivalents at
Beginning of Period 1,250,388 1,288,618
----------- -----------
Cash and Cash Equivalents at End
of Period $ 1,239,186 $ 1,237,116
=========== ===========
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.
4
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1998 and 1997
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, 1998, may not be indicative
of the results that may be expected for the year ending December 31,
1998. Amounts as of December 31, 1997, 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 IX, Ltd. (the "Partnership") for the year ended December
31, 1997.
The general partners are in the process of analyzing the effects of the
consensus reached by the Financial Accounting Standards Board in EITF
98-9, entitled "Accounting for Contingent Rent in the Interim Financial
Periods," issued in May 1998. The general partners do not expect that
the conclusions reached in this consensus will have a material effect
on the Partnership's financial position or results of operations.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CNL Income Fund IX, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on April 16, 1990, 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
selected national and regional fast-food and family-style restaurant chains. The
leases are generally triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of June 30,
1998, the Partnership owned 40 Properties, including interests in 13 Properties
owned by joint ventures in which the Partnership is a co-venturer and one
Property owned with an affiliate as tenants in common.
Liquidity and Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 1998 and 1997, 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 $1,633,800 and
$1,558,499 for the six months ended June 30, 1998 and 1997, respectively. The
increase in cash from operations for the six months ended June 30, 1998, as
compared to the six months ended June 30, 1997, is primarily a result of changes
in the Partnership's working capital.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At June 30, 1998, the Partnership had $1,239,186
invested in such short-term investments, as compared to $1,250,388 at December
31, 1997. The funds remaining at June 30, 1998, after payment of distributions
and other liabilities, will be used to meet the Partnership's working capital
and other needs.
Total liabilities of the Partnership, including distributions payable,
increased to $954,787 at June 30, 1998, from $949,197 at December 31, 1997. The
general partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.
Based on cash from operations, and for the six months ended June 30,
1998, accumulated excess operating reserves, the Partnership declared
distributions to the limited partners of $1,645,002 and $1,575,002 for the six
months ended June 30, 1998 and 1997, respectively ($787,501 for each of the
quarters ended June 30, 1998 and 1997). This represents distributions of $0.47
and $0.45 per unit for the six months ended June 30, 1998 and 1997, respectively
($0.23 per unit for each of the quarters ended June
6
<PAGE>
Liquidity and Capital Resources - Continued
30, 1998 and 1997). No distributions were made to the general partners for the
quarters and six months ended June 30, 1998 and 1997. No amounts distributed to
the limited partners for the six months ended June 30, 1998 and 1997, are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the limited partners' return on their adjusted
capital contributions. The Partnership intends to continue to make distributions
of cash available for distribution to the limited partners on a quarterly basis.
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.
Results of Operations
During the six months ended June 30, 1997, the Partnership owned and
leased 27 wholly owned Properties (including one Property in Alpharetta,
Georgia, which was sold in June 1997) and during the six months ended June 30,
1998, the Partnership owned and leased 26 wholly owned Properties to operators
of fast-food and family-style restaurant chains. In connection therewith, during
the six months ended June 30, 1998 and 1997, the Partnership earned $927,482 and
$1,302,998, respectively, in rental income from operating leases (net of
adjustments to accrued rental income) and earned income from direct financing
leases from these Properties, $272,190 and $637,877 of which was earned during
the quarters ended June 30, 1998 and 1997, respectively. The decrease in rental
and earned income during the quarter and six months ended June 30, 1998, as
compared to the quarter and six months ended June 30, 1997, is partially
attributable to the Partnership establishing an allowance for doubtful accounts
of approximately $14,600 and $29,300 for the quarters and six months ended June
30, 1998, relating to the Property in Grand Prairie, Texas, in accordance with
its collection policy. No such allowance was established during the quarter and
six months ended June 30, 1997. The Partnership intends to pursue collection of
past due amounts from this tenant and will recognize such amounts as income if
collected.
In addition, rental and earned income decreased approximately $22,900
and $47,700 during the quarter and six months ended June 30, 1998, as a result
of the sale of the Property in Alpharetta, Georgia, in June 1997. The
Partnership reinvested the net sales proceeds in an additional Property as
tenants-in-common with affiliates of the general partners in July 1997,
resulting in an increase in equity in earnings of joint ventures, as described
below.
7
<PAGE>
Results of Operations - Continued
The decrease during the quarter and six months ended June 30, 1998 is
also partially attributable to the fact that in May 1998, the tenant of the
Properties in Williamsville and Rochester, New York, filed for bankruptcy. As a
result, during the quarter and six months ended June 30, 1998, the Partnership
wrote off approximately $267,600 of accrued rental income (non-cash accounting
adjustments relating to the straight-lining of future scheduled rent increases
over the lease term in accordance with generally accepted accounting
principles). The Partnership also increased the allowance for doubtful accounts
during the quarter and six months ended June 30, 1998, by approximately $33,000
and $68,800, respectively, for rental and earned income amounts due from this
tenant due to the fact that collection of such amounts is questionable. The
Partnership is currently seeking either replacement tenants or purchasers for
these Properties. The Partnership will not recognize any rental and earned
income from these Properties until replacement tenants or purchasers for these
Properties are located.
The decrease in rental and earned income was partially offset by the
fact that in September 1997, the Partnership re-leased the Property in Copley
Township, Ohio to a new tenant to operate the Property as a Shell's Seafood
restaurant. The Partnership had ceased recording rental income relating to the
former tenant in September 1997.
During the six months ended June 30, 1998 and 1997, the Partnership
also earned $41,661 and $29,827, respectively, in contingent rental income,
$10,059 and $17,556 of which was earned during the quarters ended June 30, 1998
and 1997, respectively. The decrease during the quarter ended June 30, 1998, as
compared to the quarter ended June 30, 1997, is primarily attributable to the
fact that during the quarter ended June 30, 1998, the Partnership increased the
allowance for doubtful accounts for contingent rental income amounts due from
the tenant relating to the Property in Grand Prairie, Texas, in accordance with
its collection policy. The increase in contingent rental income during the six
months ended June 30, 1998, as compared to the six months ended June 30, 1997,
is primarily attributable to, and the decrease during the quarter ended June 30,
1998, as compared to the quarter ended June 30, 1997, is partially offset by, an
increase in gross sales of certain restaurant Properties whose leases require
the payment of contingent rental income.
For the six months ended June 30, 1998 and 1997, the Partnership also
owned and leased 13 Properties indirectly through joint venture arrangements and
during the six months ended June 30, 1998, the Partnership owned and leased one
Property with an affiliate as tenants-in-common. In connection therewith, during
the six months ended June 30, 1998 and 1997, the Partnership earned $276,668 and
$225,038, respectively, attributable to net income earned by these joint
ventures, $148,860 and $118,790 of which was earned during the quarters ended
June 30, 1998 and 1997, respectively. The increase in net income earned by joint
ventures
8
<PAGE>
Results of Operations - Continued
for the quarter and six months ended June 30, 1998 is primarily due to the fact
that in July 1997, the Partnership reinvested the net sales proceeds it received
from the sale of the Property in Alpharetta, Georgia, in an IHOP Property
located in Englewood, Colorado, as tenants-in-common, with an affiliate of the
general partners.
Operating expenses, including depreciation and amortization expense,
were $231,781 and $259,375 for the six months ended June 30, 1998 and 1997,
respectively, of which $114,677 and $112,618 were incurred for the quarters
ended June 30, 1998 and 1997, respectively. The decrease in operating expenses
during the six months ended June 30, 1998, as compared to the six months ended
June 30, 1997, is partially attributable to the fact that the Partnership
recorded bad debt expense of $21,000 relating to the Property in Copley
Township, Ohio, during the six months ended June 30, 1997, as a result of the
former tenant ceasing operating the Property in April 1997. In addition, the
decrease in operating expenses during the six months ended June 30, 1998, was
due to the fact that the Partnership recorded past due real estate taxes
relating to the Property in Copley Township, Ohio, of approximately $19,000
during the six months ended June 30, 1997. Due to the fact that the Property was
re-leased to a new tenant in September 1997, no such expenses were recorded
during the six months ended June 30, 1998.
As a result of the sale of the Property in Alpharetta, Georgia, during
1997, the Partnership recognized a gain for financial reporting purposes of
$199,643 during the quarter and six months ended June 30, 1997. No Properties
were sold during the quarter and six months ended June 30, 1998.
The general partners are in the process of analyzing the effects of the
consensus reached by the Financial Accounting Standards Board in EITF 98-9,
entitled "Accounting for Contingent Rent in the Interim Financial Periods,"
issued in May 1998. The general partners do not expect that the conclusions
reached in this consensus will have a material effect on the Partnership's
financial position or results of operations.
9
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
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 - None.
(b) No reports on Form 8-K were filed during the quarter
ended June 30, 1998.
10
<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 11th day of August, 1998.
CNL INCOME FUND IX, 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 IX, Ltd. at June 30, 1998, and its statement of income
for the six months then ended and is qualified in its entirety by reference to
the Form 10Q of CNL Income Fund IX, Ltd. for the six months ended June 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,239,186
<SECURITIES> 0
<RECEIVABLES> 285,664
<ALLOWANCES> 270,294
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 15,660,881
<DEPRECIATION> 1,623,510
<TOTAL-ASSETS> 30,498,707
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 29,543,920
<TOTAL-LIABILITY-AND-EQUITY> 30,498,707
<SALES> 0
<TOTAL-REVENUES> 996,811
<CGS> 0
<TOTAL-COSTS> 226,648
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,133
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,041,698
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,041,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,041,698
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund IX, Ltd. has an
unclassified balance sheet; therefore no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
