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 0-20017
CNL INCOME FUND IX, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3004138
(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 ($10 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 $10 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
The Form 10-K of CNL Income Fund IX, 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 IX, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on April 16, 1990. 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 March 20, 1991, the Partnership offered
for sale up to $35,000,000 in limited partnership interests (the "Units")
(3,500,000 Units each at $10 per Unit) pursuant to a registration statement on
Form S-11 under the Securities Act of 1933, as amended. The offering terminated
on September 6, 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
$30,800,000, and were used to acquire 40 Properties, including 13 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, 1997, the Partnership sold its Property in Alpharetta,
Georgia, and reinvested the net sales proceeds in an IHOP Property located in
Englewood, Colorado, with an affiliate of the General Partners, as
tenants-in-common. As a result of the above transactions, as of December 31,
1997, the Partnership owned 40 Properties. The 40 Properties include 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. The Partnership
leases the Properties 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 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, generally provide
for initial terms ranging from 10 to 20 years (the average being 17 years), and
expire between 2005 and 2017. The 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
$50,400 to $171,400. In addition, generally the leases provide for percentage
rent, based on sales in excess of a specified amount. In addition, a majority of
the leases provide that, commencing in specified lease years (ranging from the
third to the sixth lease year), the annual base rent required under the terms of
the lease will increase.
Generally, the leases of the Properties provide for two to four
five-year renewal options subject to the same terms and conditions as the
initial lease. Certain lessees also have been granted options to purchase
Properties at the Property's then fair market value after a specified portion of
the lease term has elapsed. Under the terms of certain leases, the option
purchase price may equal the Partnership's original cost to purchase the
Property (including acquisition costs), plus a specified percentage from the
date of the lease or a specified percentage of the Partnership's purchase price,
if that amount is greater than the Property's fair market value at the time the
purchase option is exercised.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership first must
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
During 1994, a temporary operator assumed operations of the restaurant
business located at the Copley Township, Ohio Property and paid the Partnership
rent on a month-to-month basis. During 1995, a new temporary operator assumed
operations of the restaurant business for this Property and was paying the
Partnership rent on a month-to-month basis. During 1997, the Partnership
re-leased this Property to Shells Seafood Restaurants. The new lease terms for
this Property are substantially the same as the Partnership's other leases as
described above in the first two paragraphs of this section.
Major Tenants
During 1997, five of the Partnership's lessees (or group of affiliated
lessees), (i) Carrols Corporation, (ii) TPI Restaurants, Inc., (iii) Flagstar
Enterprises, Inc., (iv) Burger King Corporation and BK Acquisition, Inc. (which
are affiliated entities under common control) (hereinafter referred to as Burger
King Corp.) and (v) Golden Corral Corporation, each contributed more than ten
percent of the Partnership's total rental income (including the Partnership's
share of rental income from 13 Properties owned by joint ventures and one
Property owned as tenants-in-common). As of December 31, 1997, Carrols
Corporation was the lessee under leases relating to four restaurants, TPI
Restaurants, Inc. was the lessee under leases relating to five restaurants,
Flagstar Enterprises, Inc. was the lessee under leases relating to six
restaurants, Burger King Corp. was the lessee under leases relating to the 13
restaurants owned by joint ventures and Golden Corral Corporation was the lessee
under leases relating to two restaurants. It is anticipated that, based on the
minimum rental payments required by the leases, these five lessees or groups of
affiliated lessees each will continue to contribute more than ten percent of the
Partnership's total rental income in 1998 and subsequent years. In addition,
four Restaurant Chains, Burger King, Hardee's, Shoney's and Golden Corral Family
Steakhouse Restaurants ("Golden Corral"), each accounted for more than ten
percent of the Partnership's total rental income during 1997 (including the
Partnership's share of the rental income from 13 Properties owned by joint
ventures and one Property owned as tenants-in-common). In subsequent years, it
is anticipated that these four Restaurant Chains each will continue to account
for more than ten percent of the total rental income to which the Partnership is
entitled under the terms of its leases. Any failure of these lessees or
Restaurant Chains could materially affect the Partnership's income. No single
tenant or group of affiliated tenants lease Properties with an aggregate
carrying value in excess of 20 percent of the total assets of the Partnership.
Joint Venture Arrangements and Tenancy in Common Arrangements
The Partnership has entered into the following joint venture
arrangements: CNL Restaurant Investments II with CNL Income Fund VII, Ltd. and
CNL Income Fund VIII, Ltd., affiliates of the General Partners, to purchase and
hold six Properties; CNL Restaurant Investments III with CNL Income Fund X,
Ltd., an affiliate of the General Partners, to purchase and hold six Properties;
and Ashland Joint Venture with CNL Income Fund X, Ltd. and CNL Income Fund XI,
Ltd., affiliates 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 a 45.2% interest in CNL Restaurant
Investments II, a 50 percent interest in CNL Restaurant Investments III, and a
27.33% interest in Ashland 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.
CNL Restaurant Investments II's and CNL Restaurant Investments III's
joint venture agreements do not provide a fixed term, but continue in existence
until terminated by any of the joint venturers. Ashland Joint Venture has an
initial term of 30 years and, after the expiration of the initial term,
continues in existence from year to year unless terminated at the option of any
of the joint venturers 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 its joint venture partners to dissolve the 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 partners, 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 CNL Restaurant Investments II, CNL
Restaurant Investments III and Ashland Joint Venture is distributed 45.2%, 50
percent and 27.33%, 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.
In addition to the above joint venture arrangements, in July 1997, the
Partnership entered into an agreement to hold an IHOP Property as
tenants-in-common , with CNL Income Fund III, Ltd., an affiliate of the General
Partners. The agreement provides for the Partnership and the affiliate to share
in the profits and losses of the Property in proportion to each co-venturer's
percentage interest. The Partnership owns a 67.23% interest in this Property.
The affiliate is a limited partnership organized pursuant to the laws of the
State of Florida. The tenancy in common agreement restricts each co-tenant's
ability to sell, transfer, or assign its interest in the tenancy in common's
Property without first offering it for sale to the remaining co-tenant.
The use of joint venture and tenancy in common 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 and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
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 rental 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.
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 40 Properties. Of the 40
Properties, 26 are owned by the Partnership in fee simple, 13 are owned through
joint venture arrangements and one Property is owned through a tenancy in common
arrangement. See Item 1. Business - Joint Venture and Tenancy in Common
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 21,400
to 169,800 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.
1
<PAGE>
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
----- --------------------
Alabama 3
Colorado 1
Florida 1
Georgia 1
Illinois 1
Indiana 2
Louisiana 3
Michigan 1
Minnesota 1
Mississippi 1
North Carolina 3
New Hampshire 3
New York 3
Ohio 7
South Carolina 1
Tennessee 2
Texas 6
-------
TOTAL PROPERTIES: 40
=======
2
<PAGE>
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
2,100 to 10,600 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 joint ventures (including
Properties held through tenancy in common arrangements) for federal income tax
purposes was $23,476,756 and $15,036,874, respectively.
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 18
Denny's 4
Golden Corral 3
Hardee's 6
IHOP 1
Perkins 2
Shells Seafood Restaurant 1
Shoney's 5
------
TOTAL PROPERTIES 40
======
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 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.
3
<PAGE>
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>
<S> <C>
For the Year Ended December 31:
1997 1996 1995 1994 1993
--------------------------------------------------------------------------------
Rental Revenues (1) $3,350,655 $3,516,267 $3,534,838 $3,482,391 $2,994,767
Properties 40 40 40 40 40
Average Rent per Unit $83,766 $87,907 $88,371 $87,060 $74,869
</TABLE>
(1) Rental revenues include the Partnership's share of rental revenues from the
13 Properties owned through joint venture arrangements and the one property
owned through a tenancy in common arrangement. Rental revenues have been
adjusted, as applicable, for any amounts for which the Partnership has
established an allowance for doubtful accounts.
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.
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
------------------ ---------------- ------------------- ---------------
1998 - - -
1999 - - -
2000 - - -
2001 - - -
2002 - - -
2003 - - -
2004 - - -
2005 8 625,126 18.49%
2006 11 910,294 26.92%
Thereafter 21 1,845,943 54.59%
-------- -------------- -----------
Totals 40 3,381,363 100.00%
======== ============== ===========
Leases with Major Tenants. The terms of each 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.
Carrols Corporation leases four Burger King restaurants. The initial
term of each lease is 20 years (expiring in 2011) and the average minimum base
annual rent is approximately $112,300 (ranging from approximately $108,000 to
$121,200).
TPI Restaurants, Inc. leases four Shoney's restaurants and one Captain
D's restaurant. The initial term of each lease is 15 years (expiring in 2006)
and the average minimum base annual rent is approximately $111,500 (ranging from
approximately $64,200 to $161,000).
Flagstar Enterprises, Inc. leases six Hardee's restaurants. The initial
term of each lease is 20 years (expiring in 2011) and the average minimum base
annual rent is approximately $74,400 (ranging from approximately $51,500 to
$93,700).
Burger King Corporation leases 13 Burger King restaurants with an
initial term of 14 years (expiring between 2005 and 2006) and the average
minimum base annual rent is approximately $103,700 (ranging from approximately
$73,800 to $134,100).
Golden Corral Corporation leases two Golden Corral restaurants with an
initial term of 15 years (expiring in 2005) and the average minimum base annual
rent is approximately $164,500 (ranging from approximately $157,500 to
$171,400).
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.
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on April 16, 1990, 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, to be leased primarily to operators of
selected 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 December 31, 1997,
the Partnership owned 40 Properties, either directly or indirectly through joint
venture or tenancy in common 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 $3,157,964, $3,356,240
and $3,098,276 for the years ended December 31, 1997, 1996 and 1995,
respectively. The decrease in cash from operations during 1997, as compared to
1996 is primarily a result of changes in income and expenses as discussed in
"Results of Operations" below and changes in the Partnership's working capital.
The increase in cash from operations during 1996, as compared to 1995, is
primarily due to changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
years ended December 31, 1997, 1996 and 1995.
In June 1997, the Partnership sold its Property in Alpharetta, Georgia,
and received net sales proceeds of $1,053,571, resulting in a gain for financial
reporting purposes of $199,643. This Property was originally acquired by the
Partnership in September 1991 and had a cost of approximately $711,200,
excluding acquisition fees and miscellaneous acquisition expenses; therefore,
the Partnership sold the Property for approximately $342,400 in excess of its
original purchase price. In July 1997, the Partnership reinvested approximately
$1,049,800 of these net sales proceeds in an IHOP Property in Englewood,
Colorado, as tenants-in-common, with an affiliate of the General Partners. In
connection therewith, the Partnership and the affiliate entered into an
agreement whereby each co-venturer will share in the profits and losses of the
Property in proportion to each co-venturer's percentage interest. As of December
31, 1997, the Partnership owned a 67.23% interest in the Property. The General
Partners believe that the transaction, or a portion thereof, relating to the
sale of the Property in Alpharetta, Georgia, and the reinvestment of the
proceeds in an IHOP Property in Englewood, Colorado, will qualify as a like-kind
exchange transaction for federal income tax purposes.
In December 1996, the tenant of the Property in Woodmere, Ohio,
exercised its option under the terms of its lease agreement, to substitute the
existing Property for a replacement Property. In conjunction therewith, the
Partnership simultaneously exchanged the Burger King Property in Woodmere, Ohio,
with a Burger King Property in Carrboro, North Carolina. The lease for the
Property in Woodmere, Ohio, was amended to allow the Property in Carrboro, North
Carolina, to continue under the terms of the original lease. All closing costs
were paid by the tenant. The Partnership accounted for this as a non-monetary
exchange of similar assets and recorded the acquisition of the Property in
Carrboro, North Carolina, at the net book value of the Property in Woodmere,
Ohio. No gain or loss was recognized due to this being accounted for as a
non-monetary exchange of similar assets.
None of the Properties owned by the Partnership, or the joint ventures
or tenancy in common arrangements 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, 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 $1,250,388 invested in such
short-term investments as compared to $1,288,618 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.
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 purpose, 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, the Partnership declared
distributions to the Limited Partners of $3,150,004 for the year ended December
31, 1997 and $3,185,004 for each of the years ended December 31, 1996 and 1995.
This represents a distribution of $0.90 per Unit for the year ended December 31,
1997 and $0.91 per Unit for each of the years ended December 31, 1996 and 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 of the General Partners incurred
on behalf of the Partnership $77,999, $97,032 and $88,563, respectively, for
certain operating expenses. As of December 31, 1997 and 1996, the Partnership
owed $4,619 and $1,405, 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. Other liabilities, including
distributions payable, decreased to $944,578 at December 31, 1997, from $982,846
at December 31, 1996, primarily as the result of the Partnership's accruing a
special distribution payable to the Limited Partners of $35,000, at December 31,
1996, which was paid in January 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 the years ended December 31, 1997, 1996 and 1995, the
Partnership owned and leased 27 wholly-owned Properties (including one Property
in Alpharetta, Georgia, which was sold in June 1997). In addition, during 1997,
1996 and 1995, the Partnership was a co-venturer in two separate joint ventures
that each owned and leased six properties and one joint venture that owned and
leased one Property. During 1997, the Partnership also owned and leased one
Property with an affiliate as tenants-in-common. As of December 31, 1997, the
Partnership owned, either directly or through joint venture arrangements, 40
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 $50,400 to $171,400. Generally, 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. For
further description of the Partnership's leases and Properties, see Item 1.
Business - Leases and Item 2. Properties, respectively.
During the years ended December 31, 1997, 1996 and 1995, the
Partnership earned $2,572,954, $2,771,319 and $2,807,108, respectively, in
rental income from operating leases and earned income from direct financing
leases from the Partnership's wholly owned Properties. The decrease in rental
and earned income in 1997, as compared to 1996, is partially due to a decrease
in rental and earned income of approximately $65,000 during 1997, due to the
fact that during April 1997, the operator of the Property in Copley Township,
Ohio, ceased operations of the Property and the Partnership ceased recording
rental income and wrote-off the allowance for doubtful accounts. The Partnership
re-leased this Property to Shells Seafood Restaurants in September 1997 and rent
commenced December 1997. The decrease in rental and earned income during 1996,
as compared to 1995, is primarily the result of the fact that during 1996, the
Partnership established an allowance for doubtful accounts relating to the same
Property in Copley Township, Ohio.
Rental and earned income also decreased during 1997, as compared to
1996, due to the fact that the Partnership established an allowance for doubtful
accounts of approximately $70,000 during 1997, relating to the Perkins
Properties in Williamsville and Rochester, New York, which are leased by the
same tenant, due to financial difficulties the tenant is experiencing. No such
allowance was established during 1996. 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 $51,800
during 1997, as a result of the sale of the Property in Alpharetta, Georgia, in
June 1997. In July 1997, the Partnership reinvested the net sales proceeds in a
Property in Englewood, Colorado, as tenants-in-common, with an affiliate of the
General Partners, as discussed above in "Capital Resources."
In addition, for the years ended December 31, 1997, 1996 and 1995, the
Partnership earned $74,867, $120,999 and $110,036, respectively, in contingent
rental income. The decrease in contingent rental income for 1997, as compared to
1996, is primarily attributable to a change in the contingent rent formula
(consisting of an increase to the sales breakpoint on which contingent rents are
computed) in accordance with the terms of the leases, for certain restaurant
Properties requiring the payment of contingent rental income. The increase in
contingent rental income during 1996, as compared to 1995, is primarily a result
of increased gross sales of certain restaurant Properties requiring the payment
of contingent rental income.
During the years ended December 31, 1997, 1996 and 1995, the
Partnership also earned $537,853, $460,400 and $453,794, respectively, in income
attributable to net income earned by joint ventures in which the Partnership is
a co-venturer. The increase in net income earned by joint ventures during 1997,
as compared to 1996 and 1995, 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.
During at least one of the years ended December 31, 1997, 1996 and
1995, five of the Partnership's lessees (or group of affiliated lessees),
Carrols Corporation, TPI Restaurants, Inc., Flagstar Enterprises, Inc., Golden
Corral Corporation and Burger King Corporation, each contributed more than ten
percent of the Partnership's total rental income (including the Partnership's
share of rental income from 13 Properties owned by joint ventures and one
Property owned as tenants-in-common). As of December 31, 1997, Carrols
Corporation was the lessee under leases relating to four restaurants, TPI
Restaurants, Inc. was the lessee under leases relating to five restaurants,
Flagstar Enterprises, Inc. was the lessee under leases relating to six
restaurants, Burger King Corp. was the lessee under leases relating to the 13
restaurants owned by joint ventures and Golden Corral Corporation was the lessee
under leases relating to two restaurants. It is anticipated that, based on the
minimum rental payments required by the leases, these five lessees or groups of
affiliated lessees each will continue to contribute more than ten percent of the
Partnership's total rental income in 1998 and subsequent years. In addition,
during at least one of the years ended December 31, 1997, 1996 and 1995, four
Restaurant Chains, Burger King, Hardee's, Golden Corral and Shoney's, each
accounted for more than ten percent of the Partnership's total rental income
(including the Partnership's share of the rental income from 13 Properties owned
by joint ventures and one Property owned as tenants-in-common). In subsequent
years, it is anticipated that these four Restaurant Chains each will continue to
account for more than ten percent of the total rental income to which the
Partnership is entitled under the terms of its leases. Any failure of these
lessees or Restaurant Chains could materially affect the Partnership's income.
Operating expenses, including depreciation and amortization expense,
were $492,354, $443,767 and $440,176 for the years ended December 31, 1997, 1996
and 1995, respectively. The increase in operating expenses for 1997, as compared
to 1996, is partially attributable to the fact that the Partnership recorded bad
debt expense of $21,000 relating to the Property in Copley Township, Ohio. Due
to the fact that the former tenant ceased operating the Property in April 1997,
the General Partners believe collection of this amount is doubtful. In addition,
the increase in operating expenses during 1997, was partially due to the fact
that during 1997, the Partnership recorded past due real estate taxes relating
to the Property in Copley Township, Ohio of $23,191. The Partnership recorded
$9,905 of such expense during 1996. In addition, the increase in operating
expenses for 1997, as compared to 1996, was partially attributable to the fact
that the Partnership recorded approximately $7,600 in real estate tax expense in
1997 relating to the Perkins Properties in Williamsville and Rochester, New
York, which are leased by the same tenant, due to the financial difficulties the
tenant is experiencing. The Partnership intends to pursue collection of such
amounts and will recognize such amounts as income if collected. No real estate
tax expense was recorded for these Properties in 1996.
The increase in operating expenses during 1996, as compared to 1995, is
primarily a result of 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 May 1995.
As a result of the 1997 sale of the Property in Alpharetta, Georgia, as
described above in "Capital Resources," the Partnership recognized a gain for
financial reporting purposes of $199,643 for the year ended December 31, 1997.
No Properties were sold during 1996 or 1995.
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, in general, 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 volumes 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.
4
<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 IX, 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.
Signature Title Date
--------- ----- ----
/s/ Robert A. Bourne President, Treasurer and July 29, 1999
- -------------------- Director(Principal Financial
Robert A. Bourne and Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and July 29, 1999
- ------------------------ Director (Principal Executive
James M. Seneff, Jr. Officer
<PAGE>
