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, 1999
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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
0-20017
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CNL Income Fund IX, Ltd.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-3004138
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
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</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
Part I Page
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 IX, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
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<CAPTION>
June 30, December 31,
1999 1998
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ASSETS
Landand buildings on operating leases,
less accumulated depreciation of
$1,741,537 and $1,711,187, respectively,
and allowance for loss
on building of $249,368 for 1999 and 1998 $ 14,853,524 $ 15,066,178
Net investment in direct financing leases, less
allowance for impairment in carrying value of
$65,407 for 1998 5,351,113 5,905,995
Investment in joint ventures 6,387,805 6,473,381
Cash and cash equivalents 1,941,669 1,287,379
Receivables, less allowance for doubtful accounts
of $92,952 and $206,052, respectively 51,574 93,569
Prepaid expenses 17,002 3,185
Lease costs, less accumulated amortization of
$2,327 and $1,577, respectively 12,673 13,423
Accrued rental income 1,170,144 1,255,968
------------------- -------------------
$ 29,785,504 $ 30,099,078
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 92,339 $ 1,103
Escrowed real estate taxes payable 11,377 9,022
Distributions payable 787,501 787,501
Due to related parties 22,000 24,187
Rents paid in advance and deposits 58,337 63,347
------------------- -------------------
Total liabilities 971,554 885,160
Commitments and Contingencies (Note 4)
Partners' capital 28,813,950 29,213,918
------------------- -------------------
$ 29,785,504 $ 30,099,078
=================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
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<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
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Revenues:
Rental income from operating leases $ 346,107 $ 417,741 $ 764,902 $ 894,478
Adjustments to accrued rental income -- (267,598 ) -- (267,598 )
Earned income from direct financing leases 240,396 132,106 413,584 342,263
Interest and other income 35,410 16,047 58,661 27,668
------------ ------------ ------------ ------------
621,913 298,296 1,237,147 996,811
------------ ------------ ------------ ------------
Expenses:
General operating and administrative 42,662 37,701 84,635 71,079
Bad debt expense -- 5,133 -- 5,133
Professional services 16,879 8,406 25,941 14,742
Real estate taxes 699 -- 8,391 --
State and other taxes 125 192 24,884 14,337
Depreciation and amortization 80,780 63,245 156,690 126,490
Transaction costs 86,351 -- 121,626 --
------------ ------------ ------------ ------------
227,496 114,677 422,167 231,781
------------ ------------ ------------ ------------
Income Before Equity in Earnings of Joint Ventures
and Gain on Sale of Land and Building 394,417 183,619 814,980 765,030
Equity in Earnings of Joint Ventures 148,155 148,860 284,057 276,668
Gain on Sale of Land and Building -- -- 75,997 --
------------ ------------ ------------ ------------
Net Income $ 542,572 $ 332,479 $1,175,034 $1,041,698
============ ============ ============ ============
Allocation of Net Income:
General partners $ 5,426 $ 3,325 $ 11,554 $ 10,417
Limited partners 537,146 329,154 1,163,480 1,031,281
------------ ------------ ------------ ------------
$ 542,572 $ 332,479 $1,175,034 $1,041,698
============ ============ ============ ============
Net Income Per Limited Partner Unit $ 0.15 $ 0.09 $ 0.33 $ 0.29
============ ============ ============ ============
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.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
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<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1999 1998
----------------------- ----------------------
<S> <C>
General partners:
Beginning balance $ 214,763 $ 190,772
Net income 11,554 23,991
----------------- ------------------
226,317 214,763
----------------- ------------------
Limited partners:
Beginning balance 28,999,155 29,956,452
Net income 1,163,480 2,262,707
Distributions ($0.45 and $0.92 per
limited partner unit, respectively) (1,575,002 ) (3,220,004 )
----------------- ------------------
28,587,633 28,999,155
----------------- ------------------
Total partners' capital $28,813,950 $29,213,918
================= ==================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
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<CAPTION>
Six Months Ended
June 30,
1999 1998
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Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $1,470,503 $1,633,800
---------------- ----------------
Cash Flows from Investing Activities:
Proceeds from sale of land and building 2,400,000 --
Additions to land and buildings on --
operating leases (1,641,211 )
---------------- ----------------
Net cash provided by investing activities 758,789 --
---------------- ----------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,575,002 ) (1,645,002 )
---------------- ----------------
Net cash used in financing activities (1,575,002 ) (1,645,002 )
---------------- ----------------
Net Increase (Decrease) in Cash and Cash Equivalents 654,290 (11,202 )
Cash and Cash Equivalents at Beginning of Period 1,287,379 1,250,388
---------------- ----------------
Cash and Cash Equivalents at End of Period $1,941,669 $1,239,186
================ ================
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
quarter $ 787,501 $ 787,501
================ ================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
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, 1999, may not be indicative
of the results that may be expected for the year ending December 31,
1999. Amounts as of December 31, 1998, 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, 1998.
Certain items in the prior year's financial statements have been
reclassified to conform to 1999 presentation. These reclassifications
had no effect on partners' capital or net income.
2. Land and Buildings on Operating Leases:
During February and March 1999, the Partnership sold its properties in
Corpus Christi, Texas and Rochester, New York, respectively, and
received net sales proceeds of $1,350,000 and $1,050,000, respectively,
resulting in a gain of $56,369 and $19,628, respectively, for financial
reporting purposes (see Note 3). These properties were originally
acquired by the Partnership in 1991 and 1992 and had a total cost of
approximately $2,288,800, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the properties
for a total of approximately $111,200 in excess of their original
purchase prices. In March 1999, the Partnership reinvested a portion of
the net sales proceeds it received from these sales in a Golden Corral
property located in Albany, Georgia, at an approximate cost of
$1,641,200.
3. Net Investment in Direct Financing Leases:
At December 31, 1998, the Partnership had recorded an allowance of
$65,407 for impairment in the carrying value of the Property in
Rochester, New York, due to the tenant filing for bankruptcy. The
allowance represented the difference between the carrying value of the
property at December 31, 1998 and the estimated net realizable value
for this property. In March 1999, the Partnership sold this property
and received net sales proceeds of $1,050,000 and recorded a gain of
$19,628 for financial reporting
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
3. Net Investment in Direct Financing Leases - Continued:
purposes, resulting in a total net loss of approximately $45,800. The
building portion of this property had been classified as a direct
financing lease. In connection therewith, the gross investment (minimum
lease payments receivable and the estimated residual value), unearned
income and the allowance for impairment in carrying value relating to
the building, were removed from the accounts and the gain from the sale
of the property was reflected in income (see Note 2.)
4. Commitments and Contingencies:
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to
which the Partnership would be merged with and into a subsidiary of APF
(the "Merger"). As consideration for the Merger, APF has agreed to
issue 1,850,049 shares of its common stock, par value $0.01 per share
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $20.00 per APF Share, the
price paid by APF investors (after an adjustment for a one for two
reverse stock split effective June 3, 1999) in three previous public
offerings, the most recent of which was completed in December 1998. In
order to assist the general partners in evaluating the proposed merger
consideration, the general partners retained Valuation Associates, a
nationally recognized real estate appraisal firm, to appraise the
Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other
assets were valued on a going concern basis (meaning the Partnership
continues unchanged) at $36,414,830 as of December 31, 1998. The APF
Shares are expected to be listed for trading on the New York Stock
Exchange concurrently with the consummation of the Merger, and
therefore, would be freely tradable at the option of the former limited
partners. At a special meeting of the partners that is expected to be
held in the fourth quarter of 1999, limited partners holding in excess
of 50% of the Partnership's outstanding limited partnership interests
must approve the Merger prior to consummation of the transaction. If
the limited partners at the special meeting approve the Merger, APF
will own the properties and other assets of the Partnership. The
general partners intend to recommend that the limited partners of the
Partnership approve the Merger. In connection with their
recommendation, the general partners will solicit the consent of the
limited partners at the special meeting. If the limited partners reject
the Merger, the Partnership will bear the portion of the transaction
costs based upon the percentage of "For" votes and the general partners
will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
4. Commitments and Contingencies - Continued:
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in
connection with the proposed Merger. On July 8, 1999, the plaintiffs
amended the complaint to add three additional limited partners as
plaintiffs. Additionally, on June 22, 1999, a limited partner in
certain of the CNL Income Funds served a lawsuit against the general
partners and APF in connection with the proposed Merger. The general
partners, APF and CNL Fund Advisors, Inc. and certain of its affiliates
believe that the lawsuits are without merit and intend to defend
vigorously against the claims. See Part II - Item 1. Legal Proceedings.
<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
national and regional fast-food and family-style restaurant chains. The leases
generally are triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance and utilities. As of June 30, 1999,
the Partnership owned 40 Properties, which included interests in 13 Properties
owned by joint ventures in which the Partnership is a co-venturer and one
Property owned with an affiliate of the general partners as tenants-in-common.
Capital Resources
The Partnership generated cash from operations (which includes cash
received from tenants, distributions from joint ventures, and interest and other
income received, less cash paid for expenses) during the six months ended June
30, 1999 and 1998, of $1,470,503 and $1,633,800, respectively. The decrease in
cash from operations for the six months ended June 30, 1999, as compared to the
six months ended June 30, 1998, is primarily a result of changes in the
Partnership's working capital.
Other sources and uses of capital included the following during the
quarter and six months ended June 30, 1999.
During February and March 1999, the Partnership sold its Properties in
Corpus Christi, Texas and Rochester, New York, respectively, and received sales
proceeds of $1,350,000 and $1,250,000, respectively, resulting in gains of
$56,369 and $19,628, respectively, for financial reporting purposes. These
Properties were originally acquired by the Partnership in 1991 and 1992 and had
a total cost of approximately $2,288,800, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the
Properties for approximately $111,200 in excess of their original purchase
prices. In March 1999, the Partnership reinvested a majority of the net sales
proceeds in a Golden Corral Property located in Albany, Georgia, at an
approximate cost of $1,641,000. The Partnership intends to reinvest the
remaining net sales proceeds in additional Properties.
Currently, rental income from the Partnership's Properties and any net
sales proceeds held by the Partnership pending reinvestment in additional
Properties, are invested in money market accounts or other short-term, highly
liquid investments such as demand deposits in 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 and, for net sales proceeds, to reinvest in
additional Properties. At June 30, 1999, the Partnership had $1,941,669 invested
in such short-term investments, as compared to $1,287,379 at December 31, 1998.
The increase in cash and cash equivalents for the six months ended June 30,
1999, was primarily attributable to the fact that the Partnership is holding the
remaining net sales proceeds relating to the Property sales described above,
pending reinvestment in additional Properties. The funds remaining at June 30,
1999, after payment of distributions and other liabilities, will be used to
invest in additional Properties and 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 operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and anticipated future 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 $1,575,002 and
$1,645,002 for the six months ended June 30, 1999 and 1998, respectively
($787,501 for each of the quarters ended June 30, 1999 and 1998). This
represents distributions for the six months ended June 30, 1999 and 1998 of
$0.45 and $0.47 per unit, respectively ($0.23 per unit for each of the
applicable quarters). No distributions were made to the general partners for
quarter and the six months ended June 30, 1999 and 1998. No amounts distributed
to the limited partners for the six months ended June 30, 1999 and 1998, 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 $971,554 at June 30, 1999, from $885,160 at December 31, 1998,
primarily as a result of the Partnership accruing transaction costs relating to
the proposed merger with CNL American Properties Fund, Inc. ("APF"), as
described below. 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 six months ended June 30, 1998, the Partnership owned and
leased 27 wholly owned Properties, and during the six months ended June 30,
1999, the Partnership owned and leased 28 wholly owned Properties (which
included two Properties which were sold during 1999), to operators of fast-food
and family-style restaurant chains. In connection with these Properties, during
the six months ended June 30, 1999 and 1998, the Partnership earned $1,178,486
and $969,143, respectively, in rental income from operating leases (net of
adjustments to accrued rental income) and earned income from direct financing
leases, $586,503 and $282,249 of which was earned during the quarters ended June
30, 1999 and 1998, respectively. Rental and earned income were higher for the
quarter and six months ended June 30, 1999, as compared to the quarter and six
months ended June 30, 1998, due to the fact that in May 1998, the tenant of the
Properties in Williamsville and Rochester, New York filed for bankruptcy,
rejected the lease relating to the Property in Williamsville, New York and
ceased making rental payments on such lease. 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) relating to both
Properties. No such amounts were written-off during the quarter and six months
ended June 30, 1999. Rental and earned income were also higher during the
quarter and six months ended June 30, 1999, due to the fact that during the
quarter and six months ended June 30, 1998, the Partnership increased the
allowance for doubtful accounts for past due rental amounts for these Properties
in the amount of $114,600 due to financial difficulties the tenant was
experiencing. No such allowance was established during the quarter and six
months ended June 30, 1999. The increase in rental and earned income during the
quarter and six months ended June 30, 1999 was partially offset by a decrease in
rental and earned income of approximately $21,000 and $63,900 for the quarter
and six months ended June 30, 1999, respectively, due to the fact that the
tenant ceased making rental payments relating to the Property in Williamsville,
New York in May 1998, as described above. The lost revenues resulting from this
Property could have an adverse effect on the results of operations of the
Partnership if the Partnership is unable to re-lease the Property in a timely
manner. The Partnership will not recognize rental income relating to this
Property until a new tenant is located or until the Property is sold and the
proceeds from such sale are reinvested in an additional Property. The general
partners are currently seeking either a new tenant or purchaser for this
Property.
The increase in rental and earned income was also offset by a decrease
of approximately $39,000 and $48,000 during the quarter and six months ended
June 30, 1999, respectively, due to the fact that the Partnership sold the
Property located in Rochester, New York, as described above in "Capital
Resources."
Rental and earned income were also higher during the quarter and six
months ended June 30, 1999 due to the fact that, during the quarter and six
months ended June 30, 1998, the Partnership collected and recorded as income
approximately $14,600 and $29,300, respectively, of past due rental amounts for
which the Partnership had previously established an allowance for doubtful
accounts relating to the Property in Grand Prairie, Texas, in accordance with
the Partnership's collection policy.
The increase in rental and earned income during the quarter and six
months ended June 30, 1999, was also partially offset by a decrease of
approximately $40,300 and $62,300, respectively, as a result of the sale of the
Property in Corpus Christi, Texas, as described above in "Capital Resources." In
March 1999, the Partnership reinvested a portion of these net sales proceeds in
a Property in Albany, Georgia, as described above in "Capital Resources," which
resulted in an increase in rental and earned income of approximately $44,100 and
$48,900 during the quarter and six months ended June 30, 1999, respectively.
In addition, the increase in rental and earned income was partially
offset by a decrease of approximately $31,500 and $59,900 for the quarter and
six months ended June 30, 1999, respectively, due to the fact that the leases
relating to the Burger King Properties in Shelby, North Carolina; Maple Heights,
Ohio; Watertown, New York and Carrboro, North Carolina were amended to provide
for rent reductions from August 1998 through the end of the lease terms. Rental
and earned income relating to these Properties are expected to remain at reduced
amounts as a result of these amendments.
For the six months ended June 30, 1999 and 1998, the Partnership also
owned and leased 13 Properties indirectly through joint venture arrangements and
one Property with an affiliate of the general partners as tenants-in-common. In
connection therewith, during the six months ended June 30, 1999 and 1998, the
Partnership earned $284,057 and $276,668, respectively, attributable to net
income earned by these joint ventures, $148,155 and $148,860 of which was earned
during the quarters ended June 30, 1999 and 1998, respectively.
Operating expenses, including depreciation and amortization expense,
were $422,167 and $231,781 for the six months ended June 30, 1999 and 1998,
respectively, of which $227,496 and $114,677 were incurred for the quarters
ended June 30, 1999 and 1998, respectively. The increase in operating expenses
was partially due to an increase in depreciation expense as a result of the
lease amendments requiring the reclassification of two of the four leases from
direct financing leases to operating leases during 1998 and the additional
depreciation expense relating to the Property acquired in March 1999.
Operating expenses also increased during the quarter and six months
ended June 30, 1999, due to an increase in legal fees, insurance, real estate
tax expense and maintenance incurred in connection with the fact that the tenant
of the Property in Williamsville, New York filed for bankruptcy, rejected the
lease, and ceased making rental payments. The Partnership will continue to incur
these types of expenses until a replacement tenant or purchaser is located. The
Partnership is currently seeking either a replacement tenant or purchaser for
this Property.
The increase in operating expenses for the quarter and six months ended
June 30, 1999, as compared to the quarter and six months ended June 30, 1998,
was also due to the fact that the Partnership incurred $86,351 and $121,626,
during the quarter and six months ended June 30, 1999, respectively, in
transaction costs related to the general partners retaining financial and legal
advisors to assist them in evaluating and negotiating the proposed Merger with
APF, as described below. If the limited partners reject the Merger, the
Partnership will bear the portion of the transaction costs based upon the
percentage of "For" votes and the general partners will bear the portion of such
transaction costs based upon the percentage of "Against" votes and abstentions.
As a result of the sales of the Properties in Corpus Christi, Texas and
Rochester, New York, as described above in "Capital Resources," the Partnership
recognized a total gain of $75,997 for financial reporting purposes during the
quarter and six months ended June 30, 1999. No Properties were sold during the
quarter and six months ended June 30, 1998.
<PAGE>
Proposed Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF (the "Merger"). As consideration for the Merger, APF
has agreed to issue 1,850,049 shares of its common stock, par value $0.01 per
share (the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $20.00 per APF Share, the price paid
by APF investors (after an adjustment for a one for two reverse stock split
effective June 3, 1999) in three previous public offerings, the most recent of
which was completed in December 1998. In order to assist the general partners in
evaluating the proposed merger consideration, the general partners retained
Valuation Associates, a nationally recognized real estate appraisal firm, to
appraise the Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other assets
were valued on a going concern basis (meaning the Partnership continues
unchanged) at $36,414,830 as of December 31, 1998. The APF Shares are expected
to be listed for trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and therefore, would be freely tradable at the
option of the former limited partners. At a special meeting of the partners that
is expected to be held in the fourth quarter of 1999, limited partners holding
in excess of 50% of the Partnership's outstanding limited partnership interests
must approve the Merger prior to consummation of the transaction. If the limited
partners at the special meeting approve the Merger, APF will own the properties
and other assets of the Partnership. The general partners intend to recommend
that the limited partners of the Partnership approve the Merger. In connection
with their recommendation, the general partners will solicit the consent of the
limited partners at the special meeting. If the limited partners reject the
Merger, the Partnership will bear the portion of the transaction costs based
upon the percentage of "For" votes and the general partners will bear the
portion of such transaction costs based upon the percentage of "Against" votes
and abstentions.
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in connection with
the proposed Merger. On July 8, 1999, the plaintiffs amended the complaint to
add three additional limited partners as plaintiffs. Additionally, on June 22,
1999, a limited partner in certain of the CNL Income Funds served a lawsuit
against the general partners, APF and CNL Fund Advisors, Inc. and certain of its
affiliates in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend vigorously
against the claims. See Part II - Item 1. Legal Proceedings.
Year 2000 Readiness Disclosure
The Year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. As of June 30, 1999 the
Partnership did not have any information or non-information technology systems.
The general partners and certain of the affiliates of the general partners
provide all services requiring the use of information and non-information
technology systems pursuant to a management agreement with the Partnership. The
information technology system of the affiliates of the general partners consists
of a network of personal computers and servers built using hardware and software
from mainstream suppliers. The non-information technology systems of the
affiliates of the general partners are primarily facility related and include
building security systems, elevators, fire suppressions, HVAC, electrical
systems and other utilities. The affiliates of the general partners have no
internally generated programmed software coding to correct because substantially
all of the software utilized by the general partners and affiliates is purchased
or licensed from external providers. The maintenance of non-information
technology systems at the Partnership's Properties is the responsibility of the
tenants of the Properties in accordance with the terms of the Partnership's
leases.
In early 1998, the general partners and affiliates formed a Year 2000
team, for the purpose of identifying, understanding and addressing the various
issues associated with the Year 2000 problem. The Y2K Team consists of the
general partners and members from certain of the affiliates of the general
partners, including representatives from senior management, information systems,
telecommunications, legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have potential Year 2000 problems. The Y2K Team is in the
process of conducting inspections, interviews and tests to identify which of the
Partnership's systems could have a potential Year 2000 problem.
The information system of the affiliates of the general partners is
comprised of hardware and software applications from mainstream suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and manufacturers to verify the Year 2000 compliance of their products. In
addition, the Y2K Team has also requested and is evaluating documentation from
other companies with which the Partnership has a material third party
relationship, including the Partnership's tenants, vendors, financial
institutions and the Partnership's transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. The Y2K Team has also requested and is evaluating documentation
from the non-information technology systems providers of the affiliates of the
general partners. Although the general partners continue to receive positive
responses from the companies with which the Partnership has third party
relationships regarding their Year 2000 compliance, the general partners cannot
be assured that the tenants, financial institutions, transfer agent, other
vendors and system providers have adequately considered the impact of the Year
2000. The general partners are not able to measure the effect on the operations
of the Partnership of any third party's failure to adequately address the impact
of the Year 2000.
The general partners and their affiliates have identified and have
implemented upgrades for certain hardware equipment. In addition, the general
partners and their affiliates have identified certain software applications
which will require upgrades to become Year 2000 compliant. The general partners
expect that all of these upgrades, as well as any other necessary remedial
measures on the information technology systems used in the business activities
and operations of the Partnership, to be completed by September 30, 1999,
although, the general partners cannot be assured that the upgrade solutions
provided by the vendors have addressed all possible Year 2000 issues. The
general partners do not expect the aggregate cost of the Year 2000 remedial
measures to be material to the results of operations of the Partnership.
The general partners and their affiliates have received certification
from the Partnership's transfer agent of its Year 2000 compliance. Due to the
material relationship of the Partnership with its transfer agent, the Y2K Team
is evaluating the Year 2000 compliance of the systems of the transfer agent and
expects to have the evaluation completed by September 30, 1999. Despite the
positive response from the transfer agent and the evaluation of the transfer
agent's system by the Y2K Team, the general partners cannot be assured that the
transfer agent has addressed all possible Year 2000 issues. In the event that
the systems of the transfer agent are not Year 2000 compliant, the general
partners and their affiliates will have to allocate resources to internally
perform the functions of the transfer agent. The general partners do not
anticipate that the additional cost of these resources would have a material
impact on the Partnership.
Based upon the progress the general partners and their affiliates have
made in addressing the Year 2000 issues and their plan and timeline to complete
the compliance program, the general partners do not foresee significant risks
associated with Year 2000 compliance at this time. The general partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership being affected by them; therefore, we have not developed a
comprehensive contingency plan. However, if the general partners and their
affiliates identify significant risks related to their Year 2000 compliance, or
if their progress deviates from the anticipated timeline, the general partners
and their affiliates will develop contingency plans as deemed necessary at that
time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
<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.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger by and between the
Registrant and CNL American Properties Fund,
Inc. ("APF") dated March 11, 1999 and as amended
June 4, 1999 (Filed as Appendix B to the
Prospectus Supplement for the Registrant,
constituting a part of Amendment No. 1 to the
Registration Statement of APF on Form S-4, File
No. 74329.)
3.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund IX, Ltd. (Included as Exhibit
3.1 to Registration Statement No. 33-35049 on
Form S-11 and incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund IX, Ltd. (Included as Exhibit
3.1 to Registration Statement No. 33-35049 on
Form S-11 and incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited
Partnership of CNL Income Fund IX, Ltd.
(Included as Exhibit 4.6 to Post-Effective
Amendment No. 1 to Registration Statement No.
33-35049 on Form S-11 and incorporated herein by
reference.)
10.1 Management Agreement between CNL Income Fund IX,
Ltd. and CNL Investment Company (Included as
Exhibit 10.1 to Form 10-K filed with the
Securities and Exchange Commission on March 17,
1998, 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, 1999.
<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 August, 1999
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, 1999, and its statement of income
for the six months then ended and is qualified in its entirety by reference to
the Form 10-Q of CNL Income Fund IX, Ltd. for the six months ended June 30,
1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,941,669
<SECURITIES> 0
<RECEIVABLES> 144,526
<ALLOWANCES> 92,952
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 16,595,061
<DEPRECIATION> 1,741,537
<TOTAL-ASSETS> 29,785,504
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 28,813,950
<TOTAL-LIABILITY-AND-EQUITY> 29,785,504
<SALES> 0
<TOTAL-REVENUES> 1,237,147
<CGS> 0
<TOTAL-COSTS> 422,167
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,175,034
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,175,034
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,175,034
<EPS-BASIC> 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>
