UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(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, 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 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) 650-1000
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 3,500,000 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>
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 41 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,
1998, the Partnership owned 41 Properties, including 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. In February and March 1999, the
Partnership sold two Properties, one in Corpus Christi, Texas and one in
Rochester, New York, respectively. The Partnership intends to reinvest the net
sales proceeds from these sales in additional Properties. The Partnership leases
the Properties on a triple-net basis with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities.
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").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. APF has agreed to issue shares of its
common stock, par value $0.01 per share (the "APF Shares"), as consideration for
the Merger. At a special meeting of the partners that is expected to be held in
the third 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. See Item 8.
Financial Statements and Supplementary Data -- Note 10. Subsequent Event.
In the event that the Limited Partners vote against the Merger, 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. 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, the
joint ventures in which the Partnership is a co-venturer and the Properties
owned with affiliates as tenants-in-common, 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 $51,500 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 five
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 1998, a tenant, Brambury Associates filed for bankruptcy and
rejected the lease relating to one of their two leases and ceased making rental
payments to the Partnership on the rejected lease. The Partnership will not
recognize rental and earned income from 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 lost revenues resulting from the lease
that was rejected 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 General Partners are currently seeking either a new tenant or
purchaser for the Property with the rejected lease. The Partnership continued
receiving rental payments on the lease that was not rejected and in March 1999,
the Partnership sold this Property to a third party. The Partnership intends to
reinvest the net sales proceeds in an additional Property.
During 1998, four of the Partnership's leases, were amended to provide
for rent reductions from August 1998 through the end of the lease term. However,
the General Partners do not anticipate that any decrease in rental income due to
these rent reductions relating to the Properties will have a material effect on
the Partnership's financial position or results of operations.
During 1994, the leases relating to the Properties in Blufton, Alliance
and North Baltimore, Ohio were amended to provide for the payment of reduced
annual base rent with no scheduled rent increases. However, the lease amendment
provided for lower percentage rent breakpoints, as compared to the original
lease agreement, a change that was designed to result in higher percentage rent
payments at any time that percentage rent became payable. In accordance with a
provision in the amendments, as a result of the former tenant assigning the
leases to a new tenant during 1998, the rents under the assigned lease reverted
back to those that were required under the original lease agreements.
Major Tenants
During 1998, 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, 1998, 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 five
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 1999. 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 1998 (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 1999, 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 if the Partnership is not able to re-lease the Properties
in a timely manner. No single tenant or group of affiliated tenants lease
Properties with an aggregate carrying value, excluding acquisition fees and
certain acquisition expenses, in excess of 20 percent of the total assets of the
Partnership.
Joint Venture Arrangements
The Partnership has entered into three separate joint venture
arrangements, CNL Restaurant Investments II, CNL Restaurant Investments III and
Ashland Joint Venture, with affiliates of the General Partners to purchase and
hold 13 Properties.
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 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 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 percent interest in this Property.
Certain Management Services
CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement. Under this agreement, CNL Fund Advisors,
Inc. is 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 Fund Advisors, Inc. also
assists the General Partners in negotiating the leases. For these services, the
Partnership has agreed to pay CNL 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").
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.
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.
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, 1998, the Partnership owned, either directly or
through joint venture arrangements, 41 Properties, located in 17 states.
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.
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.
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.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 1998 (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 $104,800 (ranging from approximately $98,200 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 $97,500 (ranging from
approximately $56,200 to $140,800).
Flagstar Enterprises, Inc. leases five Hardee's restaurants. The
initial term of each lease is 20 years (expiring in 2011) and the average
minimum base annual rent is approximately $65,900 (ranging from approximately
$46,000 to $83,600).
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).
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of March 11, 1999, there were 3,390 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. Limited Partners who wish to sell
their Units may offer the Units for sale pursuant to the Partnership's
distribution reinvestment plan (the "Plan"), and Limited Partners who wish to
have their distributions used to acquire additional Units (to the extent Units
are available for purchase), may do so pursuant to such Plan. The General
Partners have the right to prohibit transfers of Units. From inception through
December 31, 1998, the price for any Unit transferred pursuant to the Plan was
$9.50 per Unit. The price paid for any Unit transferred other than pursuant to
the Plan was subject to negotiation by the purchaser and the selling Limited
Partner. The Partnership will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 1998 and 1997 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
1998 (1) 1997 (1)
---------------------------------- ----------------------------------
High Low Average High Low Average
------- -------- ---------- -------- -------- ----------
<S> <C>
First Quarter $ 9.56 $ 9.11 $ 9.27 $ 9.50 $ 8.35 $ 9.12
Second Quarter 9.50 8.74 9.24 10.00 8.10 9.10
Third Quarter 10.00 9.10 9.49 9.50 7.90 9.04
Fourth Quarter 9.30 8.15 8.52 (2) (2) (2)
</TABLE>
(1) A total of 26,620 and 22,979 Units were transferred other than pursuant
to the Plan for the years ended December 31, 1998 and 1997,
respectively.
(2) No transfer of Units took place during the quarter other than pursuant
to the Plan.
The capital contribution per Unit was $10. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For the years ended December 31, 1998 and 1997, the Partnership
declared cash distributions in the aggregate amounts of $3,220,004 and
$3,150,004, respectively, to the Limited Partners. During the quarter ended
March 31, 1998, the Partnership declared a special distributions to the Limited
Partners of $70,000, which represented cumulative excess operating reserves. No
amounts distributed to partners for the years ended December 31, 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. No distributions have been made to the General
Partners to date. As indicated in the chart below, these distributions were
declared at the close of each of the Partnership's calendar quarters. These
amounts include monthly distributions made in arrears for the Limited Partners
electing to receive such distributions on this basis.
Quarter Ended 1998 1997
---------------------- ------------ -----------
March 31 $857,501 $787,501
June 30 787,501 787,501
September 30 787,501 787,501
December 31 787,501 787,501
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although some Limited Partners, in accordance with their election, receive
monthly distributions, for an annual fee.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- ------------- -------------- -------------- ---------------
<S> <C>
Year ended December 31:
Revenues (1) $ 3,100,685 $3,230,343 $ 3,404,066 $ 3,428,147 $ 3,362,394
Net income (3) 2,286,698 2,937,632 2,960,299 2,987,971 3,003,583
Cash distributions
declared (2) (4) 3,220,004 3,150,004 3,185,004 3,185,004 3,150,002
Net income per Unit 0.65 0.83 0.84 0.85 0.85
Cash distributions declared
per Unit (2) 0.92 0.90 0.91 0.91 0.90
At December 31:
Total assets $ 30,099,078 $31,096,421 $31,343,847 $31,517,255 $ 31,735,391
Partners' capital 29,213,918 30,147,224 30,359,596 30,584,301 30,781,334
</TABLE>
(1) Revenues include equity in earnings of joint ventures and adjustments
to accrued rental income as a result of a tenant filing for bankruptcy.
(2) Distributions for the year ended December 31, 1998, includes a special
distribution to the Limited Partners of $70,000 and distributions for
each of the years ended December 31, 1996 and 1995 each include a
special distribution to the Limited Partners of $35,000 which
represented cumulative excess operating reserves.
(3) Net income for the year ended December 31, 1998, includes $314,775 from
provision for loss on land and building and impairment in carrying
value of net investment in direct financing lease. Net income for the
year ended December 31, 1997, includes $199,643 from a gain on sale of
land and building.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
<PAGE>
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 generally triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 1998, the Partnership owned 41 Properties, either directly or indirectly
through joint venture arrangements.
Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 1998, 1997, and 1996, 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 $3,253,390, $3,157,964,
and $3,356,240 for the years ended December 31, 1998, 1997, and 1996,
respectively. The increase in cash from operations during 1998, as compared to
1997, and the decrease 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.
Other sources and uses of capital included the following during the
years ended December 31, 1998, 1997, and 1996.
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 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.
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, 1998, the Partnership owned a 67 percent interest in the Property. This
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, was structured as a like-kind exchange transaction for
federal income tax purposes.
In February and March 1999, the Partnership sold its Properties in
Corpus Christi, Texas, and Rochester, New York, and received net sales proceeds
in excess of the carrying value of the Properties. The Partnership intends to
reinvest the net sales proceeds in additional Properties.
None of the Properties owned by the Partnership or the joint ventures
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 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 December 31, 1998, the Partnership had
$1,287,379 invested in such short-term investments as compared to $1,250,388 at
December 31, 1997. The funds remaining at December 31, 1998, after the payment
of distributions and other liabilities, will be used to meet the Partnership's
working capital and other needs.
During 1998, 1997, and 1996, affiliates of the General Partners
incurred on behalf of the Partnership $111,596, $77,999, and $97,032,
respectively, for certain operating expenses. As of December 31, 1998 and 1997,
the Partnership owed $24,187 and $4,619, respectively, to affiliates for such
amounts and accounting and administrative services. As of March 11, 1999, the
Partnership had reimbursed the affiliates all such amounts. Other liabilities,
including distributions payable, decreased to $860,973 at December 31, 1998,
from $944,578 at December 31, 1997, partially as the result of a decrease in
accrued real estate tax expense and a decrease in rents paid in advance at
December 31, 1998. The General Partners believe that the Partnership has
sufficient cash on hand to meet its current working capital needs.
Based on cash from operations, the Partnership declared distributions
to the Limited Partners of $3,220,004, $3,150,004, and $3,185,004 for the years
ended December 31, 1998, 1997, and 1996, respectively. This represents a
distribution of $0.92, $0.90, and $0.91 per Unit for the years ended December
31, 1998, 1997, and 1996, respectively. No amounts distributed to the Limited
Partners for the years ended December 31, 1998, 1997, and 1996, 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 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.
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.
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. As consideration for the Merger, APF has agreed to
issue 3,700,097 APF Shares which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the price paid
by APF investors in APF's most recent public offering. 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. Legg Mason Wood
Walker, Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a financial point
of view. 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 third 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. 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.
Results of Operations
During the years ended December 31, 1998, 1997, and 1996, the
Partnership owned and leased 28 wholly-owned Properties (including one Property
in Alpharetta, Georgia, which was sold in June 1997). In addition, during 1998,
1997, and 1996, 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 1998 and 1997, the Partnership also owned and leased
one Property with an affiliate as tenants-in-common. As of December 31, 1998,
the Partnership owned, either directly or through joint venture arrangements, 41
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 $51,500 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, 1998, 1997 and 1996, the
Partnership earned $2,354,610, $2,572,954, and $2,771,319, respectively, in
rental income from operating leases (net of adjustments to accrued rental
income) and earned income from direct financing leases from the Partnership's
wholly owned Properties. The decrease in rental and earned income during 1998
and 1997, each as compared to the previous year, is due to the fact that the
Partnership established an allowance for doubtful accounts of approximately
$93,800 and $68,800 during 1998 and 1997, respectively, relating to the Perkins
Properties in Williamsville and Rochester, New York, which were leased by the
same tenant, due to financial difficulties the tenant is experiencing. No such
allowance was established during 1996. In May 1998, the tenant of these
Properties filed for bankruptcy and rejected the lease relating to one of the
Properties. As a result, during 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. The Partnership will not recognize rental and earned income from the
rejected 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
lost revenues resulting from the lease that was rejected 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 General Partners are
currently seeking either a new tenant or purchaser for the Property with the
rejected lease. The Partnership continued receiving rental payments on the lease
that was not rejected and in March 1999, the Partnership sold this Property to a
third party. The Partnership intends to reinvest the net sales proceeds in an
additional Property.
The decrease during 1998, as compared to 1997, is also partially
attributable to a decrease of approximately $52,000 during 1998, 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. Rental and earned income relating
to these Properties are expected to remain at reduced amounts as a result of
these amendments.
The decrease in rental and earned income during 1998, as compared to
1997, is partially offset by an increase of approximately $93,800 for rental
amounts relating to the Partnership's Properties in Blufton, Alliance and North
Baltimore, Ohio, during 1998. During 1994, the leases relating to these
Properties were amended to provide for the payment of reduced annual base rent
with no scheduled rent increases. In accordance with a provision in the
amendments, as a result of the former tenant assigning the leases to a new
tenant during 1998, the rents under the assigned leases, reverted back to those
that were required under the original lease agreements.
In addition, rental and earned income decreased approximately $47,700
and $51,800 during 1998 and 1997, respectively, 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 "Liquidity and Capital Resources."
The decrease in rental and earned income during 1998, as compared to
1997, is partially offset by an increase in rental and earned income of
approximately $49,100 during 1998, as a result of the Partnership re-leasing the
Property in Copley Township, Ohio, for which rent commenced in 1997. The former
operator of the Property ceased operations of the Property in April 1997,
resulting in a decrease in rental income of approximately $65,000 during 1997,
as compared to 1996.
In addition, for the years ended December 31, 1998, 1997, and 1996, the
Partnership earned $79,780, $74,867, and $120,999, respectively, in contingent
rental income. The decrease in contingent rental income for 1997, as compared to
1996, is primarily attributable to a change, beginning in 1997, 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.
During the years ended December 31, 1998, 1997, and 1996, the
Partnership also earned $596,166, $537,853, and $460,400, 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 1998 and 1997, each as compared to the previous year, 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 the year ended December 31, 1998, 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, 1998, 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 five 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
1999. In addition, four Restaurant Chains, Burger King, Hardee's, Golden Corral,
Family Steakhouse Restaurants, and Shoney's, each accounted for more than ten
percent of the Partnership's total rental income during 1998 (including the
Partnership's share of the rental income from 13 Properties owned by joint
ventures and one Property owned as tenants-in-common). 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 if the Partnership is not able to
re-lease the Properties in a timely manner.
Operating expenses, including depreciation and amortization expense,
were $499,212, $492,354, and $443,767 for the years ended December 31, 1998,
1997, and 1996, respectively. The increase in operating expenses during 1998, as
compared to 1997 is partially attributable to the fact that the Partnership
incurred $19,041 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 above in "Liquidity and Capital
Resources." 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. The increase in
operating expenses during 1998 was also attributable to an increase in legal
fees incurred in conjunction with the tenant of the Properties in Williamsville
and Rochester, New York filing for bankruptcy, as described above.
The increase during 1998, as compared to 1997, is partially offset by,
and the increase for 1997, as compared to 1996, is partially attributable to,
the fact that during 1997, the Partnership recorded bad debt expense of $21,000
relating to the Property in Copley Township, Ohio. The former tenant ceased
operating the Property in April 1997, and the General Partners ceased collection
efforts. In addition, the increase in operating expenses during 1997, as
compared to 1996, was partially due to the fact that, the Partnership recorded
past due real estate taxes relating to the Property in Copley Township, Ohio of
$23,191 and $9,906 during 1997 and 1996, respectively. Due to the fact that the
Property was re-leased to a new tenant in September 1997, no such expenses were
recorded during 1998.
During the year ended December 31, 1998, the Partnership established an
allowance for loss on building and an impairment in carrying value of net
investment in direct financing lease for a total of $314,775 for financial
reporting purposes relating to the Properties in Williamsville and Rochester,
New York, due to the fact that, during 1998, the tenant, Brambury Associates,
filed for bankruptcy. The losses represent the difference between each
Property's carrying value at December 31, 1998, and the current estimate of net
realizable value at December 31, 1998 for each Property. No such allowance was
established during the years ended December 31, 1997 and 1996.
As a result of the 1997 sale of the Property in Alpharetta, Georgia, as
described above in "Liquidity and 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 1998 or 1996.
The Partnership's leases as of December 31, 1998, 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.
Year 2000
The Year 2000 problem is the result of information technology systems
and embedded systems (products which are made with microprocessor (computer)
chips such as HVAC systems, physical security systems and elevators) using a
two-digit format, as opposed to four digits, to indicate the year. Such
information technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.
The Partnership currently does not have any information technology
systems. Affiliates of the General Partners provide all services requiring the
use of information technology systems pursuant to a management agreement with
the Partnership. The maintenance of embedded systems, if any, at the
Partnership's Properties is the responsibility of the tenants of the Properties
in accordance with the terms of the Partnership's leases. The General Partners
and affiliates have established a team dedicated to reviewing the internal
information technology systems used in the operation of the Partnership, and the
information technology and embedded systems and the Year 2000 compliance plans
of the Partnership's tenants, significant suppliers, financial institutions and
transfer agent.
The information technology infrastructure of the affiliates of the
General Partners consists of a network of personal computers and servers that
were obtained from major suppliers. The affiliates utilize various
administrative and financial software applications on that infrastructure to
perform the business functions of the Partnership. The inability of the General
Partners and affiliates to identify and timely correct material Year 2000
deficiencies in the software and/or infrastructure could result in an
interruption in, or failure of, certain of the Partnership's business activities
or operations. Accordingly, the General Partners and affiliates have requested
and are evaluating documentation from the suppliers of the software and
infrastructure of the affiliates regarding the Year 2000 compliance of their
products that are used in the business activities or operations of the
Partnership. The General Partners and affiliates have not yet received
sufficient certifications to be assured that the suppliers have fully considered
and mitigated any potential material impact of the Year 2000 deficiencies. The
costs expected to be incurred by the General Partners and affiliates to become
Year 2000 compliant will be incurred by the General Partners and affiliates;
therefore, these costs will have no impact on the Partnership's financial
position or results of operations.
The Partnership has material third party relationships with its
tenants, financial institutions and 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. If any of these third parties are unable to meet their obligations
to the Partnership because of the Year 2000 deficiencies, such a failure may
have a material impact on the Partnership. Accordingly, the General Partners
have requested and are evaluating documentation from the Partnership's tenants,
financial institutions, and transfer agent relating to their Year 2000
compliance plans. The General Partners have not yet received sufficient
certifications to be assured that the tenants, financial institutions, and
transfer agent have fully considered and mitigated any potential material impact
of the Year 2000 deficiencies. Therefore, the General Partners do not, at this
time, know of the potential costs to the Partnership of any adverse impact or
effect of any Year 2000 deficiencies by these third parties.
The General Partners currently expect that all year 2000 compliance
testing and any necessary remedial measures on the information technology
systems used in the business activities and operations of the Partnership will
be completed prior to June 30, 1999. Based on the progress the General Partners
and affiliates have made in identifying and addressing the Partnership's Year
2000 issues and the plan and timeline to complete the compliance program, the
General Partners do not foresee significant risks associated with the
Partnership's Year 2000 compliance at this time. Because the General Partners
and affiliates are still evaluating the status of the information technology
systems used in business activities and operations of the Partnership and the
systems of the third parties with which the Partnership conducts its business,
the General Partners have not yet developed a comprehensive contingency plan and
are unable to identify "the most reasonably likely worst case scenario" at this
time. If the General Partners identify significant risks related to the
Partnership's Year 2000 compliance or if the Partnership's Year 2000 compliance
program's progress deviates substantially from the anticipated timeline, the
General Partners will develop appropriate contingency plans.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants
Financial Statements:
Balance Sheets
Statements of Income
Statements of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund IX, Ltd.
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Income Fund IX, Ltd. (a Florida limited partnership) at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules listed in the index appearing under item 14(a)(2) present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Orlando, Florida
February 2, 1999, except for Note 10 for which the date is March 11, 1999
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
----------------- ----------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation and allowance
for loss on building $15,066,178 $14,163,111
Net investment in direct financing leases, less
allowance for impairment in carrying value 5,905,995 7,482,757
Investment in joint ventures 6,473,381 6,619,364
Cash and cash equivalents 1,287,379 1,250,388
Receivables, less allowance for doubtful
accounts of $206,052 and $108,316 93,569 96,134
Prepaid expenses 3,185 3,924
Lease costs, less accumulated amortization
of $1,577 and $77 13,423 14,923
Accrued rental income 1,255,968 1,465,820
----------------- ----------------
$30,099,078 $31,096,421
================= ================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 1,103 $ 4,490
Accrued and escrowed real estate taxes payable 9,022 45,591
Distributions payable 787,501 787,501
Due to related parties 24,187 4,619
Rents paid in advance and deposits 63,347 106,996
----------------- ----------------
Total liabilities 885,160 949,197
Partners' capital 29,213,918 30,147,224
----------------- ----------------
$30,099,078 $31,096,421
================= ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C>
Revenues:
Rental income from operating leases $ 1,804,248 $ 1,742,351 $ 1,854,245
Adjustments to accrued rental income (267,600 ) -- --
Earned income from direct 826,962 830,603 917,074
financing leases
Contingent rental income 79,780 74,867 120,999
Interest and other income 61,129 44,669 51,348
-------------- -------------- --------------
2,504,519 2,692,490 2,943,666
-------------- -------------- --------------
Expenses:
General operating and administrative 142,996 153,175 152,437
Professional services 43,685 24,658 26,610
Bad debt expense 5,133 21,000 --
Real estate taxes 6,247 30,835 9,906
State and other taxes 14,337 11,126 2,775
Depreciation and amortization 267,773 251,560 252,039
Transaction costs 19,041 -- --
-------------- -------------- --------------
499,212 492,354 443,767
-------------- -------------- --------------
Income Before Equity in Earnings of Joint
Ventures, Gain on Sale of Land and
Building, and Provision for Loss on
Building and Impairment in Carrying
Value of Net Investment in Direct
Financing Lease 2,005,307 2,200,136 2,499,899
Equity in Earnings of Joint Ventures 596,166 537,853 460,400
Gain on Sale of Land and Building -- 199,643 --
Provision for Loss on Building and Carrying
Value of Net Investment in Direct
Financing Lease (314,775 ) -- --
-------------- -------------- --------------
Net Income $ 2,286,698 $ 2,937,632 $ 2,960,299
============== ============== ==============
Allocation of Net Income:
General partners $ 23,991 $ 27,380 $ 29,603
Limited partners 2,262,707 2,910,252 2,930,696
-------------- -------------- --------------
$ 2,286,698 $ 2,937,632 $ 2,960,299
============== ============== ==============
Net Income Per Limited Partner Unit $ 0.65 $ 0.83 $ 0.84
============== ============== ==============
Weighted Average Number of
Limited Partner Units Outstanding 3,500,000 3,500,000 3,500,000
============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
General Partners Limited Partners
--------------------------- ---------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
------------- ------------ ------------- -------------- ------------ ------------ -----------
<S> <C>
Balance, December 31, 1995 $ 1,000 $ 132,789 $ 35,000,000 $ (13,505,579 ) $ 13,146,091 $ (4,190,000 ) $ 30,584,301
Distributions to limited
partners ($0.91 per
limited partner unit) -- -- -- (3,185,004 ) -- -- (3,185,004)
Net income -- 29,603 -- -- 2,930,696 -- 2,960,299
------------ ------------ ------------- -------------- ------------- ------------- -------------
Balance, December 31, 1996 1,000 162,392 35,000,000 (16,690,583 ) 16,076,787 (4,190,000 ) 30,359,596
Distributions to limited
partners ($0.90 per
limited partner unit) -- -- -- (3,150,004 ) -- -- (3,150,004)
Net income -- 27,380 -- -- 2,910,252 -- 2,937,632
------------ ------------ ------------- -------------- ------------- ------------- -------------
Balance, December 31, 1997 1,000 189,772 35,000,000 (19,840,587 ) 18,987,039 (4,190,000 ) 30,147,224
Distributions to limited
partners ($0.92 per
limited partner unit) -- -- -- (3,220,004 ) -- -- (3,220,004)
Net income -- 23,991 -- -- 2,262,707 -- 2,286,698
------------ ------------ ------------- -------------- ------------- ------------- -------------
Balance, December 31, 1998 $ 1,000 $ 213,763 $ 35,000,000 $ (23,060,591 ) $ 21,249,746 $ (4,190,000 ) $ 29,213,918
============ ============ ============= ============== ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---------------- ---------------- ----------------
<S> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 2,695,934 $ 2,666,373 $ 2,900,048
Distributions from joint ventures 738,544 676,806 603,833
Cash paid for expenses (223,753 ) (229,884 ) (186,126)
Interest received 42,665 44,669 38,485
---------------- ---------------- ----------------
Net cash provided by operating activities 3,253,390 3,157,964 3,356,240
---------------- ---------------- ----------------
Cash Flows from Investing Activities:
Proceeds from sale of land and building -- 1,053,571 --
Investment in joint venture 3,605 (1,049,762 ) --
Payment of lease costs -- (15,000 ) --
---------------- ---------------- ----------------
Net cash provided by (used in)
operating activities 3,605 (11,191 ) --
---------------- ---------------- ----------------
Cash Flows from Financing Activities:
Distributions to limited partners (3,220,004 ) (3,185,003 ) (3,185,004 )
---------------- ---------------- ----------------
Net cash used in financing activities (3,220,004 ) (3,185,003 ) (3,185,004 )
---------------- ---------------- ----------------
Net Increase (Decrease) in Cash and Cash Equivalents 36,991 (38,230 ) 171,236
Cash and Cash Equivalents at Beginning of Year 1,250,388 1,288,618 1,117,382
---------------- ---------------- ----------------
Cash and Cash Equivalents at End of Year $ 1,287,379 $ 1,250,388 $ 1,288,618
================ ================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C>
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Net income $2,286,698 $2,937,632 $2,960,299
------------ ------------ ------------
Adjustments to reconcile net income to net
cash provided by operating
activities:
Bad debt expense 5,133 21,000 --
Depreciation 266,273 251,483 251,483
Amortization 1,500 77 556
Equity in earnings of joint ventures,
net of distributions 142,378 138,953 143,433
Gain on sale of land and building -- (199,643 ) --
Provision for loss on building and
impairment in carrying value of net
investment in direct financing lease 314,775 -- --
Decrease (increase) in receivables (2,568 ) (41,878 ) 87,823
Decrease (increase) in prepaid expenses 739 (79 ) (2,913 )
Decrease in net investment in direct
financing leases 92,647 121,311 89,696
Decrease (increase) in accrued
rental income 209,852 (70,837 ) (225,434 )
Increase (decrease) in accounts payable and
accrued expenses (39,956 ) (16,524 ) 12,111
Increase (decrease) in due to
related parties 19,568 3,214 (4,639 )
Increase (decrease) in rents paid in
advance and deposits (43,649 ) 13,255 43,825
------------ ------------ ------------
Total adjustments 966,692 220,332 395,941
------------ ------------ ------------
Net Cash Provided by Operating Activities $3,253,390 $3,157,964 $3,356,240
============ ============ ============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Land and building under operating lease exchanged
for land and building under operating lease $ -- $ -- $ 406,768
============ ============ ============
Distributions declared and unpaid at December 31 $ 787,501 $ 787,501 $ 822,500
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund IX, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50 percent shareholders of
the Corporate General Partner. The general partners have responsibility
for managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
on a triple-net basis, whereby the tenant is generally responsible for
all operating expenses relating to the property, including property
taxes, insurance, maintenance and repairs. The leases are accounted for
using either the direct financing or the operating method. Such methods
are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (see Note 4). Unearned income is deferred
and amortized to income over the lease terms so as to produce
a constant periodic rate of return on the Partnership's
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date. Whenever a tenant defaults
under the terms of its lease, or events or changes in
circumstance indicate that the tenant will not lease the
property through the end of the lease term, the Partnership
either reserves or writes-off the cumulative accrued rental
income balance.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, will be removed from
the accounts and gains or losses from sales will be reflected in
income. The general partners of the Partnership review the properties
for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable through
operations. The general partners determine whether an impairment in
value has occurred by comparing the estimated future undiscounted cash
flows, including the residual value of the property, with the carrying
cost of the individual property. If an impairment is indicated, the
assets are adjusted to their fair value. Although the general partners
have made their best estimate of these factors based on current
conditions, it is reasonably possible that changes could occur in the
near term which could adversely affect the general partners' estimate
of net cash flows expected to be generated from its properties and the
need for asset impairment write-downs.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
and to decrease rental or other income or increase bad debt expense for
the current period, although the Partnership continued to pursue
collection of such amounts. If amounts are subsequently determined to
be uncollectible, the corresponding receivable and allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership's investments in three
joint ventures and a property in Englewood, Colorado, for which the
property is held as tenants-in-common with an affiliate, are accounted
for using the equity method since the Partnership shares control with
affiliates which have the same general partners.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts. The Partnership limits investment of
temporary cash investments to financial institutions with high credit
standing; therefore, the Partnership believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Lease costs - Lease costs associated with negotiating a new lease are
amortized over the term of the new lease using the straight-line
method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets. The
more significant areas requiring the use of management estimates relate
to the allowance for doubtful accounts and future cash flows associated
with long-lived assets. Actual results could differ from those
estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 1998 presentation.
These reclassifications had no effect on partners' capital or net
income.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
2. Leases:
The Partnership leases its land and buildings to operators of national
and regional fast-food and family-style restaurants. The leases are
accounted for under the provisions of Statement of Financial Accounting
Standards No. 13, "Accounting for Leases." Some of the leases have been
classified as operating leases and some of the leases have been
classified as direct financing leases. For the leases classified as
direct financing leases, the building portions of the property leases
are accounted for as direct financing leases while a majority of the
land portion of these leases are operating leases. Substantially all
leases are for 15 to 20 years and provide for minimum and contingent
rentals. In addition, the tenant pays all property taxes and
assessments, fully maintains the interior and exterior of the building
and carries insurance coverage for public liability, property damage,
fire and extended coverage. The lease options generally allow tenants
to renew the leases for two to five successive five-year periods
subject to the same terms and conditions as the initial lease. Most
leases also allow the tenant to purchase the property at fair market
value after a specified portion of the lease has elapsed.
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C>
Land $8,207,939 $8,207,939
Buildings 8,818,794 7,452,942
----------------- -----------------
17,026,733 15,660,881
Less accumulated depreciation (1,711,187 ) (1,497,770 )
----------------- -----------------
15,315,546 $14,163,111
Less allowance for loss on
building (249,368 ) --
----------------- -----------------
$15,066,178 $14,163,111
================= =================
</TABLE>
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings - Continued:
In June 1997, the Partnership sold its property in Alpharetta, Georgia,
and received net sales proceeds of $1,053,571, resulting in a gain of
$199,643 for financial reporting purposes. 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.
During 1998, the Partnership recorded a provision for loss on building
in the amount of $249,368 for financial reporting purposes relating to
the property in Williamsville, New York. The tenant of this property
filed for bankruptcy during 1998, and rejected the lease. The allowance
represents the difference between the carrying value of the property at
December 31, 1998 and the current estimated net realizable value for
this property.
Some leases provide for escalating guaranteed minimum rents throughout
the lease term. Income from these scheduled rent increases is
recognized on a straight-line basis over the terms of the leases. For
the year ended December 31, 1998, the Partnership recognized a loss of
$209,852 (net of $267,600 in write-offs) and for the years ended
December 31, 1997 and 1996, the Partnership recognized income of
$70,837, and $225,434, respectively, of such rental income.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 1998:
1999 $1,726,921
2000 1,726,921
2001 1,763,564
2002 1,889,001
2003 1,897,501
Thereafter 9,771,187
-----------------
$18,775,095
=================
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
4. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at December 31:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
<S> <C>
Minimum lease payments receivable $11,521,454 $13,764,606
Estimated residual values 2,091,629 2,495,379
Less unearned income (7,641,681 ) (8,777,228)
------------------ ------------------
5,971,402 7,482,757
Less allowance for impairment in
carrying value (65,407 ) --
------------------ ------------------
Net investment in direct financing
leases $5,905,995 $7,482,757
================== ==================
</TABLE>
In August 1998, four of the Partnership's leases were amended. As a
result, the Partnership reclassified the direct financing leases to
operating leases. In accordance with Statement of Financial Accounting
Standards #13, "Accounting for Leases," the Partnership recorded each
of the reclassified leases at the lower of original cost, present fair
value, or present carrying amount. No loss on termination of direct
financing lease was recorded for financial reporting purposes.
During 1998, the Partnership recorded a provision for loss on
investment in direct financing lease of $65,407 for financial reporting
purposes relating to the Property in Rochester, New York, due to the
fact that the tenant filed for bankruptcy during 1998. The allowance
represents the difference between the carrying value of the Property at
December 31, 1998 and the current estimated net realizable value for
this Property.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
4. Net Investment in Direct Financing Leases - Continued:
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at December 31, 1998:
1999 $ 832,979
2000 832,979
2001 844,812
2002 890,607
2003 890,607
Thereafter 7,229,470
-----------------
$11,521,454
=================
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 3).
5. Investment in Joint Ventures:
The Partnership has a 45.2%, a 50 percent and a 27.33% interest in the
profits and losses of CNL Restaurant Investments II, CNL Restaurant
Investments III and Ashland Joint Venture, respectively. The remaining
interests in these joint ventures are held by affiliates of the
Partnership which have the same general partners.
In July 1997, the Partnership used the net sales proceeds from the sale
of the property in Alpharetta, Georgia, to acquire a 67 percent
interest in an IHOP property located in Englewood, Colorado, as
tenants-in-common with an affiliate of the general partners. The
Partnership accounts for its investment in this property using the
equity method since the Partnership shares control with an affiliate,
and amounts relating to its investment are included in investment in
joint ventures.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
5. Investment in Joint Ventures - Continued:
CNL Restaurant Investments II and CNL Restaurant Investments III each
own and lease six properties to an operator of national fast-food
restaurants and Ashland Joint Venture owns and leases one property to
an operator of national fast-food restaurants. The Partnership and an
affiliate, as tenants in common own and lease one property to an
operator of a national family-style restaurant. The following presents
the joint ventures' combined, condensed financial information at
December 31:
<TABLE>
<CAPTION>
1998 1997
------------------- -----------------
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation $12,253,332 $12,582,754
Net investment in direct financing lease 991,524 1,003,680
Cash 1,196 15,124
Receivables 23,283 35,773
Prepaid expenses 24,790 23,544
Accrued rental income 36,855 11,620
Liabilities 1,641 14,280
Partners' capital 13,329,339 13,658,215
Revenues 1,576,778 1,506,380
Net income 1,208,451 1,141,755
</TABLE>
The Partnership recognized income totalling $596,166, $537,853, and
$460,400 for the years ended December 31, 1998, 1997, and 1996,
respectively, from these joint ventures.
6. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of properties, are allocated 99 percent
to the limited partners and one percent to the general partners.
Distributions of net cash flow are made 99 percent to the limited
partners and one percent to the general partners; provided, however,
that the one percent of net cash flow to be distributed to the general
partners 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").
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
6. Allocations and Distributions - Continued:
Generally, net sales proceeds from the sale of properties, not in
liquidation of the Partnership, to the extent distributed, will be
distributed first to the limited partners in an amount sufficient to
provide them with their 10% Preferred Return, plus the return of their
adjusted capital contributions. The general partners will then receive,
to the extent previously subordinated and unpaid, a one percent
interest in all prior distributions of net cash flow and a return of
their capital contributions. Any remaining sales proceeds will be
distributed 95 percent to the limited partners and five percent to the
general partners. Any gain from the sale of a property, not in
liquidation of the Partnership, is, in general, allocated in the same
manner as net sales proceeds are distributable. Any loss from the sale
of a property is, allocated first, on a pro rata basis, to partners
with positive balances in their capital accounts; and thereafter, 95
percent to the limited partners and five percent to the general
partners.
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: i) first to pay and discharge all
of the Partnership's liabilities to creditors, ii) second, to establish
reserves that may be deemed necessary for any anticipated or unforeseen
liabilities or obligations of the Partnership, iii) third, to pay all
of the Partnership's liabilities, if any, to the general and limited
partners, iv) fourth, after allocations of net income, gains and/or
losses, to distribute to the partners with positive capital accounts
balances, in proportion to such balances, up to amounts sufficient to
reduce such positive balances to zero, and v) thereafter, any funds
remaining shall then be distributed 95 percent to the limited partners
and five percent to the general partners.
During the years ended December 31, 1998, 1997, and 1996, the
Partnership declared distributions to the limited partners of
$3,220,004, $3,150,004, and $3,185,004, respectively. No distributions
have been made to the general partners to date.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
7. Income Taxes:
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------ ------------
<S> <C>
Net income for financial reporting
purposes $2,286,698 $2,937,632 $2,960,299
Depreciation for tax reporting purposes
in
excess of depreciation for financial (97,473 ) (116,620 ) (123,734 )
reporting purposes
Direct financing leases recorded as
operating leases for tax reporting
purposes 92,647 121,311 89,696
Gain on sale of land and building for
financial reporting purposes in
excess -- (195,820 ) --
of gain for tax reporting purposes
Equity in earnings of joint ventures for
tax reporting purposes in excess
of equity in earnings of joint
ventures 8,256 36,745 37,469
for financial reporting purposes
Capitalization of transaction costs for
tax reporting purposes 19,041 -- --
Accrued rental income 209,852 (70,837 ) (225,434 )
Rents paid in advance (44,149 ) 13,255 43,825
Allowance for loss on building and
investment in direct financing leases 314,775 -- --
Allowance for doubtful accounts 97,736 79,333 14,221
-------------- ------------ ------------
Net income for federal income tax
purposes $2,887,383 $2,804,999 $2,796,342
============== ============ ============
</TABLE>
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
8. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the majority stockholder
of CNL Fund Advisors, Inc. The other individual general partner, Robert
A. Bourne, serves as treasurer, director and vice chairman of the board
of CNL Fund Advisors. During the years ended December 31, 1998, 1997,
and 1996, CNL Fund Advisors, Inc. (hereinafter referred to as the
"Affiliate") performed certain services for the Partnership, as
described below.
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
acted as manager of the Partnership's properties pursuant to a
management agreement with the Partnership. In connection therewith, the
Partnership agreed to pay the Affiliate an annual, noncumulative,
subordinated management fee of one percent of the sum of gross revenues
from properties wholly owned by the Partnership and the Partnership's
allocable share of gross revenues from joint ventures, but not in
excess of competitive fees for comparable services. These fees will be
incurred and will be payable only after the limited partners receive
their 10% Preferred Return. Due to the fact that these fees are
noncumulative, if the limited partners have not received their 10%
Preferred Return in any particular year, no management fees will be due
or payable for such year. As a result of such threshold, no management
fees were incurred during the years ended December 31, 1998, 1997, and
1996.
The Affiliate is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Affiliate provides a
substantial amount of services in connection with the sale. However, if
the net sales proceeds are reinvested in a replacement property, no
such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are
distributed. The payment of the real estate disposition fee is
subordinated to receipt by the limited partners of their aggregate 10%
Preferred Return, plus their adjusted capital contributions. No
deferred, subordinated real estate disposition fees have been incurred
since inception.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
8. Related Party Transactions - Continued:
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $94,808, $79,234, and
$82,487 for the years ended December 31, 1998, 1997, and 1996,
respectively, for such services.
The due to related parties at December 31, 1998 and 1997, totalled
$24,187 and $4,619, respectively.
9. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees, each representing more than ten percent of the
Partnership's total rental and earned income (including the
Partnership's share of total rental and earned income from joint
ventures), for each of the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C>
Burger King Corporation and BK
Acquisition, Inc. $647,953 $649,445 $623,949
TPI Restaurants, Inc. 557,000 556,700 565,351
Carrols Corporation 388,121 440,057 442,286
Flagstar Enterprises, Inc. 367,211 436,312 460,762
Golden Corral Corporation 360,555 337,337 N/A
</TABLE>
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than
ten percent of the Partnership's total rental and earned income
(including the Partnership's share of total rental and earned income
from joint ventures), for each of the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C>
Burger King $1,143,522 $1,249,715 $1,310,994
Shoney's 805,729 808,675 889,148
Hardees 438,324 436,312 460,762
Golden Corral Family Steakhouse
Restaurants 360,555 337,337 N/A
</TABLE>
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
9. Concentration of Credit Risk - Continued:
The information denoted by N/A indicates that for each period
presented, the tenant and the chains did not represent more than ten
percent of the Partnership's total rental and earned income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
10. Subsequent Event:
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 3,700,097 shares of its common stock, par value $0.01 per shares
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the
price paid by APF investors in APF's most recent public offering. 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. Legg Mason
Wood Walker, Incorporated has rendered a fairness opinion that the APF
Share consideration, payable by APF, is fair to the Partnership from a
financial point of view. 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 third 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. 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>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 52, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, a director and Chief Executive Officer since its formation
in 1980. Mr. Seneff has been Chairman of the Board of Directors, director, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979. Mr.
Seneff also has held the position of Chairman of the Board of Directors, Chief
Executive Officer, President and director of CNL Management Company, a
registered investment advisor, since its formation in 1976, has served as Chief
Executive Officer, Chairman of the Board and a director of CNL Investment
Company, has served as Chief Executive Officer, a director and Chairman of the
Board of Directors of Commercial Net Lease Realty, Inc., a publicly-traded REIT,
listed on the NYSE, since 1992, served as Chief Executive Officer, a director
and Chairman of the Board of Directors of CNL Realty Advisors, Inc. from its
inception in May 1992 through December 1997, at which time such company merged
with Commercial Net Lease Realty, Inc., and has held the position of Chief
Executive Officer, Chairman of the Board and a director of CNL Institutional
Advisors, Inc., a registered investment advisor, since its inception in December
1990. Mr. Seneff has served as Chairman of the Board of Directors of CNL
American Properties Fund, Inc. since December 1994 and as a director and Chief
Executive Officer since May 1994. Mr. Seneff has served as Chairman of the
Board, Chief Executive Officer and a director of CNL Fund Advisors, Inc. since
March 1994. Mr. Seneff has served as Chairman of the Board, Chief Executive
Officer and a director of CNL Hospitality Properties, Inc. since June 1996 and
of CNL Hospitality Advisors, Inc. since January 1997. Mr. Seneff has also served
as Chairman of the Board, Chief Executive Officer and a director of CNL Health
Care Properties, Inc. since December 1997 and CNL Health Care Advisors, Inc.
since July 1997. Mr. Seneff previously served on the Florida State Commission on
Ethics and is a former member and past Chairman of the State of Florida
Investment Advisory Council, which advises the Florida Board of Administration
investments for various Florida employee retirement funds. The Florida Board of
Administration, Florida's principal investment advisory and money management
agency, oversees the investment of more then $60 billion of retirement funds.
Mr. Seneff has served as a member of the board of directors of First Union
National Bank of Florida since May 1998 and has served as a member of the
Orlando Advisory Board of First Union National Bank of Florida since March 1994.
Since 1971, Mr. Seneff has been active in the acquisition, development, and
management of real estate projects and, directly or through an affiliated
entity, has served as a general partner or joint venturer in over 100 real
estate ventures involved in the financing, acquisition, construction, and rental
of restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 65 privately
offered real estate limited partnerships in which Mr. Seneff, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund
III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund
VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund
X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund
XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund
XVI, Ltd., CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII, Ltd. (the "CNL
Income Fund Partnerships"), public real estate limited partnerships with
investment objectives similar to those of the Partnership, in which Mr. Seneff
serves as a general partner. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 51, is President and Treasurer of CNL Group,
Inc., President, Treasurer, a director, and a registered principal of CNL
Securities Corp., President, Treasurer, and a director of CNL Investment
Company, and Chief Investment Officer, a director and Treasurer of CNL
Institutional Advisors, Inc., a registered investment advisor. Mr. Bourne served
as President of CNL Institutional Advisor, Inc. from the date of its inception
through July 1997. Mr. Bourne served as President of Commercial Net Lease
Realty, Inc. from July 1992 through February 1996, served as Secretary and
Treasurer from February 1996 through December 1997, and has served as a director
since July 1992 and as Vice Chairman of the Board of Directors since February
1996. In addition, Mr. Bourne served as President of CNL Realty Advisors, Inc.
from May 1992 through February 1996, served as Treasurer from February 1996
through December 1997, served as a director from May 1992 through December 31,
1997 and served as Vice Chairman from February 1996 through December 1997, at
which time such company merged with Commercial Net Lease Realty, Inc. Mr. Bourne
has served as a Vice Chairman of the Board of Directors and Treasurer of CNL
American Properties Fund, Inc. since February 1999, has served as a director
since May 1994 and previously served as President from May 1994 through February
1999. Mr. Bourne has served as a director of CNL Fund Advisors, Inc. since March
1994, has served as Treasurer and Vice Chairman of the Board of Directors since
September 1997, and previously served as President from March 1994 through
September 1997. Mr. Bourne has served as President and a director of CNL
Hospitality Properties, Inc. since June 1996 and of CNL Hospitality Advisors,
Inc. since January 1997. Mr. Bourne has served as President and director of CNL
Health Care Properties, Inc. since December 1997 and CNL Health Care Advisors,
Inc. since July 1997. Mr. Bourne, who joined CNL Securities Corp. in 1979, has
participated as a general partner or joint venturer in over 100 real estate
ventures involved in the financing, acquisition, construction, and rental of
restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 64 privately
offered real estate limited partnerships in which Mr. Bourne, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are the CNL Income Fund Partnerships, public real estate limited
partnerships with investment objectives similar to those of the Partnership, in
which Mr. Bourne serves as a general partner. Mr. Bourne formerly was a
certified public accountant with Coopers & Lybrand and a partner in the firm of
Bourne & Rose, P.A. Mr. Bourne received a B.A. in Accounting, with honors, from
Florida State University in 1970.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL
Realty Corporation was organized to serve as the corporate general partner of
real estate limited partnerships, such as the Partnership, organized by one or
both of the individual General Partners. CNL Realty Corporation currently serves
as the corporate general partner of the CNL Income Fund Partnerships.
CNL Fund Advisors, Inc. provides certain management services in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation organized in 1994 under the laws of the State of Florida, and its
principal office is located at 400 East South Street, Orlando, Florida 32801.
CNL Fund Advisors, Inc. is a majority owned subsidiary of CNL Group, Inc., a
diversified real estate company, and was organized to perform property
acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Fund Advisors,
Inc., was organized in 1980 under the laws of the State of Florida. CNL Group,
Inc. is a diversified real estate company which provides a wide range of real
estate, development and financial services to companies in the United States
through the activities of its subsidiaries. These activities are primarily
focused on the franchised restaurant and hospitality industries. James M.
Seneff, Jr., an individual General Partner of the Partnership, is the Chairman
of the Board, Chief Executive Officer, and a director of CNL Group, Inc. Mr.
Seneff and his wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as members
of the Boards of Directors of those entities. The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.
Curtis B. McWilliams, age 43, joined CNL Group, Inc. in April 1997 and
currently serves as an Executive Vice President. In addition, Mr. McWilliams has
served as President of CNL Fund Advisors, Inc. and as President of the
Restaurant and Financial Services Groups within CNL Group, Inc. since April
1997. Mr. McWilliams has served as President of CNL American Properties Fund,
Inc. since February 1999 and previously served as Executive Vice President from
February 1998 through February 1999. From September 1983 through March 1997, Mr.
McWilliams was employed by Merrill Lynch & Co., most recently as Chairman of
Merrill Lynch's Private Advisory Services until March 1997. Mr. McWilliams
received a B.S.E. in Chemical Engineering from Princeton University in 1977 and
a Masters of Business Administration with a concentration in finance from the
University of Chicago in 1983.
John T. Walker, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since January 1996, as Chief Operating Officer
since March 1995, and previously served as Senior Vice President since December
1994. In addition, Mr. Walker has served as Executive Vice President of CNL Fund
Advisors, Inc. since January 1996, Chief Operating Officer since April 1995, and
previously served as Senior Vice President from November 1994 through January
1996. In addition, Mr. Walker previously served as Executive Vice President of
CNL Hospitality Properties, Inc. and CNL Hospitality Advisors, Inc. From May
1992 to May 1994, Mr. Walker, a certified public accountant, was Executive Vice
President for Finance and Administration and Chief Financial Officer of Z Music,
Inc., a cable television network (subsequently acquired by Gaylord
Entertainment), where he was responsible for overall financial and
administrative management and planning. From January 1990 through April 1992,
Mr. Walker was Chief Financial Officer of the First Baptist Church in Orlando,
Florida. From April 1984 through December 1989, he was a partner in the
accounting firm of Chastang, Ferrell & Walker, P.A., where he was the partner in
charge of audit and consulting services, and from 1981 to 1984, Mr. Walker was a
Senior Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a Cum Laude
graduate of Wake Forest University with a B.S. in Accountancy and is a certified
public accountant.
Lynn E. Rose, age 50, a certified public accountant, has served as
Secretary of CNL American Properties Fund, Inc. since December 1994 and served
as Treasurer from December 1994 through February 1999. Ms. Rose has served as a
director and Secretary of CNL Fund Advisors, Inc. since March 1994, and as
Treasurer from the date of its inception through June 30, 1997. Ms. Rose has
served as Secretary of CNL Group, Inc. since 1987, as Chief Financial Officer of
CNL Group, Inc. since December 1993, and served as Controller of CNL Group, Inc.
from 1987 until December 1993. In addition, Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has
served as Chief Operating Officer, Vice President and Secretary of CNL Corporate
Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial
Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in
1990, as Treasurer of CNL Realty Advisors, Inc. from 1991 to February 1996, and
as Secretary and a director of CNL Realty Advisors, Inc. since its inception in
1991 until December 31, 1997, at which time CNL Realty Advisors, Inc. merged
with Commercial Net Lease Realty, Inc. In addition, Ms. Rose served as Secretary
and Treasurer of Commercial Net Lease Realty, Inc. from 1992 to February 1996.
Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality Properties,
Inc. and CNL Health Care Properties, Inc. and as Secretary, Treasurer and a
director of CNL Hospitality Advisors, Inc. and CNL Health Care Advisors, Inc.
Ms. Rose also currently serves as Secretary for approximately 50 additional
corporations. Ms. Rose oversees the legal compliance, accounting, tenant
compliance, and reporting for over 250 corporations, partnerships and joint
ventures. Prior to joining CNL, Ms. Rose was a partner with Robert A. Bourne in
the accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Ms.
Rose holds a B.A. in Sociology from the University of Central Florida.
Jeanne A. Wall, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since December 1994. Ms. Wall has served as
Executive Vice President of CNL Fund Advisors, Inc. since November 1994, and
previously served as Vice President from March 1994 through November 1994. Ms.
Wall has served as Chief Operating Officer of CNL Investment Company and of CNL
Securities Corp. since November 1994 and has served as Executive Vice President
of CNL Investment Company since January 1991. Ms. Wall joined CNL Securities
Corp. in 1984. In 1985, Ms. Wall became Vice President of CNL Securities Corp.
In 1987, she became Senior Vice President and in July 1997 she became Executive
Vice President of CNL Securities Corp. In this capacity, Ms. Wall serves as
national marketing and sales director and oversees the national marketing plan
for the CNL investment programs. In addition, Ms. Wall oversees product
development, partnership administration and investor services for programs
offered through participating brokers and corporate communications for CNL
Group, Inc. and its affiliates. Ms. Wall also has served as Senior Vice
President of CNL Institutional Advisors, Inc., a registered investment advisor,
from 1990 to 1993, as Vice President of CNL Realty Advisors, Inc. since its
inception in 1991 until December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., and served as Vice President
of Commercial Net Lease Realty, Inc. from 1992 through December 31, 1997. In
addition, Ms. Wall serves as Executive Vice President of CNL Hospitality
Properties, Inc., CNL Hospitality Advisors, Inc., CNL Health Care Properties,
Inc. and CNL Health Care Advisors, Inc. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp. Ms. Wall currently serves as a trustee on the board of the
Investment Program Association and on the Direct Participation Program committee
for the National Association of Securities Dealers (NASD).
Steven D. Shackelford, age 35, a certified public accountant, has
served as Chief Financial Officer of CNL American Properties Fund, Inc. since
January 1997 and as Chief Financial Officer of CNL Fund Advisors, Inc. since
September 1996. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse where he was responsible for
advising foreign clients seeking to raise capital and a public listing in the
United States. From August 1992 to March 1995, he served as a manager in the
Price Waterhouse, Paris, France office serving several multinational clients.
Mr. Shackelford was an audit staff and audit senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a B.A. in
Accounting, with honors, and a Masters of Business Administration from Florida
State University.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 11, 1999, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 11, 1999, the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>
Title of Class Name of Partner Percent of Class
<S> <C>
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
----
100%
</TABLE>
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above. On March 11, 1999, the
Registrant entered into an Agreement and Plan of Merger with CNL American
Properties Fund, Inc. ("APF") pursuant to which the Registrant would be merged
with and into a subsidiary of APF (the "Merger"). For further discussion, see
Item 8. Financial Statements and Supplementary Data -- Note 10.
Subsequent Event.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 1998, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
----------------------- --------------------- -----------------------
<S> <C>
Reimbursement to affiliates for Operating expenses are reimbursed Operating expenses incurred on
operating expenses at the lower of cost or 90 percent behalf of the Partnership:
of the prevailing rate at which $111,596
comparable services could have been
obtained in the same geographic Accounting and administrative
area. Affiliates of the General services: $94,808
Partners from time to time incur
certain operating expenses on
behalf of the Partnership for which
the Partnership reimburses the
affiliates without interest.
Annual, subordinated manage-ment fee to One percent of the sum of gross $ - 0 -
affiliates operating 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, subordinated to
certain minimum returns to the
Limited Partners. The management
fee will not exceed competitive
fees for comparable services. Due
to the fact that these fees are
non-cumulative, if the Limited
Partners have not received their
10% Preferred Return in any
particular year, no management
fees will be due or payable for
such year.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
----------------------- --------------------- -----------------------
<S> <C>
Deferred, subordinated real estate A deferred, subordinated real $ - 0 -
disposition fee payable to affiliates estate disposition fee, payable
upon sale of one or more
Properties, in an amount equal to
the lesser of (i) one-half of a
competitive real estate
commission, or (ii) three percent
of the sales price of such
Property or Properties. Payment of
such fee shall be made only if
affiliates of the General Partners
provide a substantial amount of
services in connection with the
sale of a Property or Properties
and shall be subordinated to
certain minimum returns to the
Limited Partners. However, if the
net sales proceeds are reinvested
in a replacement Property, no such
real estate disposition fee will
be incurred until such replacement
Property is sold and the net sales
proceeds are distributed.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to one percent of Partnership
cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to five percent of
sales proceeds from a sale or sales not Partnership distributions of such
in liquidation of the Partnership net sales proceeds, subordinated to
certain minimum returns to the
Limited Partners.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
----------------------- --------------------- -----------------------
<S> <C>
General Partners' share of Partnership Distributions of net sales proceeds $ - 0 -
net sales proceeds from a sale or sales from a sale or sales of
in liquidation of the Partnership substantially all of the
Partnership's assets will be
distributed in the following order
or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net
loss, gain and loss, in proportion
to such balances, up to amounts
sufficient to reduce such balances
to zero; and (iii) thereafter, 95%
to the Limited Partners and 5% to
the General Partners.
</TABLE>
As discussed above in Item 8. Financial Statements and Supplementary
Data -- Note 10. Subsequent Event. The Registrant has entered into an Agreement
and Plan of Merger, dated March 11, 1999, with APF pursuant to which the
Registrant would be merged with and into a subsidiary of APF in exchange for the
issuance of APF Shares. The APF Shares are expected to be listed for trading on
the New York Stock Exchange concurrently with the consummation of the Merger. If
the Merger is approved by Limited Partners holding units greater than 50% of the
outstanding units of the Registrant, the General Partners of the Registrant
would receive certain benefits, including:
o With respect to their ownership in the Registrant, the General
Partners will be issued approximately 33,349 shares of APF
common stock, par value $0.01 per share.
o Following the Merger, James M. Seneff, Jr. and Robert A.
Bourne, the individual General Partners, will continue to
serve as directors of APF, with Mr. Seneff serving as Chairman
and Mr. Bourne serving as Vice Chairman. As APF directors,
they may also be entitled to receive stock options under any
stock option plan adopted by APF.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1998 and 1997
Statements of Income for the years ended December 31, 1998,
1997, and 1996
Statements of Partners' Capital for the years ended December
31, 1998, 1997, and 1996
Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996
Notes to Financial Statements
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1998, 1997, and 1996.
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1998
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1998
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
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.)
<PAGE>
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) The Registrant files no reports on Form 8-K during the period
October 1, 1998 through December 31, 1998.
<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 30th day of
March, 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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C>
/s/ Robert A. Bourne President, Treasurer and Director March 30, 1999
- ----------------------------- (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 30, 1999
- ------------------------------ (Principal Executive Oficer)
James M. Seneff, Jr.
</TABLE>
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Additions Deductions
------------------------------ -----------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
-------- --------------- ----------- ------------- ------------- ----------- ----------- ----------
<S> <C>
1996 Allowance for
doubtful
accounts (a) $ 14,762 $ -- $ 22,298 (b) $ 8,077 (c) $ -- $28,983
=========== ============= ============= =========== =========== ==========
1997 Allowance for
doubtful
accounts (a) $ 28,983 $ -- $ 107,293 (b) $ 27,960 (c) $ -- $108,316
=========== ============= ============= =========== =========== ==========
1998 Allowance for
doubtful
accounts (a) $ 108,316 $ -- $ 164,929 (b) $ 1,220 (c) $ 65,973 $206,052
=========== ============= ============= =========== =========== ==========
</TABLE>
(a) Deducted from receivables and accrued rental income on the balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible
<PAGE>
<TABLE>
<CAPTION>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<S> <C>
Costs Capitalized
Subsequent to
Initial Cost Acquisition
-------------------------- ---------------------
Encum- Buildings and Improve- Carrying s
brances Land Improvements ments Costs
------------- ----------- ------------- ---------- -----------
Properties the Parnership has
Invested in Under
Operating Leases:
Burger King Restaurants:
Shelby, North Carolina - $289,663 $554,268 - -
Maple Heights, Ohio - 430,563 454,823 - -
Suwanee, Georgia - 437,658 - - -
Watertown, New York - 360,181 529,594 - -
Carrboro, North Carolina - 406,768 523,067 - -
Denny's Restaurants:
Grand Prairie, Texas - 240,876 96,580 161,889 -
North Baltimore, Ohio - 133,187 - - -
Golden Corral Family
Steakhouse Restaurants:
Brownsville, Texas - 518,605 988,611 - -
Tyler, Texas - 652,103 982,353 - -
Hardee's Restaurants:
Farragut, Tennessee - 308,269 455,341 - -
Greenville, South Carolina - 310,545 511,438 - -
Perkins Restaurants:
Williamsville, New York (l) - 349,299 649,528 - -
Rochester, New York - 503,527 - - -
Shell's Seafood Restaurants:
Copley Township, Ohio - 361,412 552,301 - -
Shoney's Restaurants:
Windcrest, Texas - 445,983 670,370 - -
Wildwood, Florida - 420,416 - - -
Bedford, Indiana - 262,103 - - -
Grenada, Mississippi - 335,001 454,723 - -
Huntsville, Alabama (g) - 638,400 717,302 - -
Corpus Christi, Texas - 803,380 516,606 - -
------------ ------------ ---------- ---------
$8,207,939 $8,656,905 $161,889 -
============ ============ ========== =========
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Burger King Restaurants:
Suwanee, Georgia - - $330,541 - -
Denny's Restaurants:
Alliance, Ohio - 92,120 - 490,706 -
Bluffton, Ohio - 150,380 538,173 - -
N. Baltimore, Ohio - - 308,155 - -
Hardee's Restaurants:
Millbrook, Alabama - 125,703 541,865 - -
Greenville, Tennessee - 127,449 402,926 - -
Wooster, Ohio - 137,427 537,227 - -
Auburn, Alabama - 85,890 364,269 - -
Perkins Restaurants:
Rochester, New York - - 648,182 - -
Shoney's Restaurants:
Wildwood, Florida - - 846,903 - -
Bedford, Indiana - - 540,604 - -
------------ ------------ ---------- ---------
$718,969 $5,058,845 $490,706 -
============ ============ ========== =========
Property in Which the
Partners has a 67%
Interest as Tenants-in-
Common and has
Invested in Under
Operating Lease:
IHOP Restaurant:
Englewood Colorado - $552,590 - - -
============ ============ ========== =========
Properties of Joint Venture in
Which the Partnership has
a 45.2% Interest and has
Invested in Under
Operating Leases:
Burger King Restaurants:
Columbus, Ohio - $345,696 $651,985 - -
San Antonio, Texas - 350,479 623,615 - -
Pontiac, Michigan - 277,192 982,200 - -
Raceland, Louisiana - 174,019 986,879 - -
New Castle, Indiana - 264,239 662,265 - -
Hastings, Minnesota - 155,553 657,159 - -
------------ ------------ ---------- ---------
$1,567,178 $4,564,103 - -
============ ============ ========== =========
Properties of Joint Venture in
Which the Partnership has
a 50% Interest and has
Invested in Under
Operating Leases:
Burger King Restaurants:
Greensboro, North Carolina - $338,800 $650,109 - -
Metairie, Louisiana - 429,883 342,455 - -
Lafayette, Louisiana - 350,932 773,129 - -
Nashua, New Hampshire - 514,815 838,536 - -
Pontiac, Illinois - 203,095 719,226 - -
Dover, New Hampshire - 406,259 998,023 - -
------------ ------------ ---------- ---------
$2,243,784 $4,321,478 - -
============ ============ ========== =========
Property of Joint Venture in Which
the Parntership has a 27.33%
Interest and has Invested in
Under Operating Lease:
Burger King Restaurant
Ashland, New Hampshire - $293,478 $997,104 - -
============ ============ ========== =========
Property in Which the Partnership
has a 67% Interest as Tenants-
in-Common and has Invested
In Under Direct Financing Leases
IHOP Restaurant
Englewood, Colorado - - $1,008,839 - -
============ ============ ========== =========
Gross Amount at Which Life on Which
Carried at Close of Period (c) Depreciation in
----------------------------------------- Date Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
------------- ------------ ------------ ------------ --------- -------- ---------------
$289,663 $554,268 $843,931 $10,116 1985 05/91 (j)
430,563 454,823 885,386 114,890 1980 06/91 (b)
437,658 (f) 437,658 (d) 1991 11/91 (d)
360,181 529,594 889,775 125,991 1986 11/91 (b)
406,768 523,067 929,835 9,546 1983 12/96 (i) (j)
240,876 258,469 499,345 62,027 1991 08/91 (b)
133,187 (f) 133,187 (d) 1986 11/91 (d)
518,605 988,611 1,507,216 248,462 1990 06/91 (b)
652,103 982,353 1,634,456 246,889 1990 06/91 (b)
308,269 455,341 763,610 109,739 1991 10/91 (b)
310,545 511,438 821,983 122,699 1991 10/91 (b)
349,299 649,528 998,827 6,993 1986 12/91 (k)
503,527 (f) 503,527 (d) 1988 12/91 (d)
361,412 552,301 913,713 81,949 1991 12/91 (h)
445,983 670,370 1,116,353 165,113 1991 08/91 (b)
420,416 (f) 420,416 (d) 1991 08/91 (d)
262,103 (f) 262,103 (d) 1991 08/91 (d)
335,001 454,723 789,724 109,964 1991 09/91 (b)
638,400 717,302 1,355,702 173,201 1989 10/91 (b)
803,380 516,606 1,319,986 123,608 1991 10/91 (b)
- ------------- ------------ ------------ -----------
$8,207,939 $8,818,794 $17,026,733 $1,711,187
============= ============ ============ ===========
- (f) (f) (d) 1991 11/91 (d)
(f) (f) (f) (e) 1992 10/91 (e)
(f) (f) (f) (e) 1986 10/91 (e)
- (f) (f) (d) 1986 11/91 (d)
(f) (f) (f) (e) 1991 10/91 (e)
(f) (f) (f) (e) 1991 10/91 (e)
(f) (f) (f) (e) 1991 10/91 (e)
(f) (f) (f) (e) 1991 10/91 (e)
- (f) (f) (d) 1988 12/91 (d)
- (f) (f) (d) 1991 08/91 (d)
- (f) (f) (d) 1991 08/91 (d)
$552,590 (f) $552,590 (d) 1996 07/97 (d)
============= ============
$345,696 $651,985 $997,681 $157,845 1986 09/91 (b)
350,479 623,615 974,094 150,977 1986 09/91 (b)
277,192 982,200 1,259,392 237,791 1987 09/91 (b)
174,019 986,879 1,160,898 238,924 1988 09/91 (b)
264,239 662,265 926,504 160,335 1988 09/91 (b)
155,553 657,159 812,712 159,099 1990 09/91 (b)
- ------------- ------------ ------------ -----------
$1,567,178 $4,564,103 $6,131,281 $1,104,971
============= ============ ============ ===========
$338,800 $650,109 $988,909 $146,467 1990 03/92 (b)
429,883 342,455 772,338 77,154 1990 03/92 (b)
350,932 773,129 1,124,061 174,183 1989 03/92 (b)
514,815 838,536 1,353,351 188,920 1987 03/92 (b)
203,095 719,226 922,321 162,039 1988 03/92 (b)
406,259 998,023 1,404,282 224,850 1987 03/92 (b)
- ------------- ------------ ------------ -----------
$2,243,784 $4,321,478 $6,565,262 $973,613
============= ============ ============ ===========
$293,478 $997,104 $1,290,582 $207,799 1987 10/92 (b)
============= ============ ============ ===========
- (f) (f) (d) 1996 07/97 (d)
=============
</TABLE>
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(a) Transactions in real estate and accumulated depreciation during 1998,
1997, and 1996, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
----------------- ---------------
<S> <C>
Properties the Partnership has Invested
in Under Operating Leases:
Balance, December 31, 1995 $ 16,043,836 $ 994,804
Disposition (406,768) --
Acquisition 406,768 --
Depreciation expense -- 251,483
----------------- ---------------
Balance, December 31, 1996 16,043,836 1,246,287
Disposition (382,955) --
Depreciation expense -- 251,483
----------------- ---------------
Balance, December 31, 1997 15,660,881 1,497,770
Reclassified to operating lease 1,726,862 --
Reclassified to capital lease (361,010) (52,855 )
Depreciation expense -- 266,272
----------------- ---------------
Balance, December 31, 1998 $ 17,026,733 $ 1,711,187
================= ===============
Properties of Joint Venture in Which
the Partnership has a 45.2%
Interest and has Invested in
Under an Operating Lease:
Balance, December 31, 1995 $ 6,131,281 $ 648,561
Depreciation expense -- 152,137
----------------- ---------------
Balance, December 31, 1996 6,131,281 800,698
Depreciation expense -- 152,136
----------------- ---------------
Balance, December 31, 1997 6,131,281 952,834
Depreciation expense -- 152,137
----------------- ---------------
Balance, December 31, 1998 $ 6,131,281 $ 1,104,971
================= ===============
</TABLE>
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
---------------- ----------------
<S> <C>
Properties of Joint Venture in
Which the Partnership has a 50%
Interest and has Invested
in Under Operating Leases:
Balance, December 31, 1995 $ 6,565,262 $ 541,467
Depreciation expense -- 144,049
---------------- ----------------
Balance, December 31, 1996 6,565,262 685,516
Depreciation expense -- 144,049
---------------- ----------------
Balance, December 31, 1997 6,565,262 829,565
Depreciation expense -- 144,048
---------------- ----------------
Balance, December 31, 1998 $ 6,565,262 $ 973,613
================ ================
Property of Joint Venture in Which
the Partnership has a 27.33%
Interest and has Invested in
Under an Operating Lease:
Balance, December 31, 1995 $ 1,290,582 $ 108,088
Depreciation expense -- 33,237
---------------- ----------------
Balance, December 31, 1996 1,290,582 141,325
Depreciation expense -- 33,237
---------------- ----------------
Balance, December 31, 1997 1,290,582 174,562
Depreciation expense -- 33,237
---------------- ----------------
Balance, December 31, 1998 $ 1,290,582 $ 207,799
================ ================
Property in Which the Partnership
has a 67% Interest as
Tenants-in-Common and has
Invested in Under a Direct Financing
Lease:
Balance, December 31, 1997 $ 552,590 $ --
Depreciation expense (d) -- --
---------------- ----------------
Balance, December 31, 1998 $ 552,590 $ --
================ ================
</TABLE>
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1998
(b) Depreciation expense is computed for buildings and improvements
based upon estimated lives of 30 years.
(c) As of December 31, 1998, the aggregate cost of the Properties owned
by the Partnership and joint ventures for federal income tax
purposes was $23,476,756 and $15,548,555, respectively. All of the
leases are treated as operating leases for federal income tax
purposes
(d) For financial reporting purposes, the portion of the lease relating
to the building has been recorded as a direct financing lease. The
cost of the building has been included in net investment in direct
financing leases; therefore, depreciation is not applicable.
(e) For financial reporting purposes, the lease for the land and
building has been recorded as a direct financing lease. The cost of
the land and building has been included in net investment in direct
financing leases; therefore, depreciation is not applicable.
(f) For financial reporting purposes, certain components of the lease
relating to land and building have been recorded as a direct
financing lease. Accordingly, costs relating to these components of
this lease are not shown.
(g) The Huntsville Property contains a Shoney's restaurant and a
Captain D's restaurant, both of which are operated by the same
lessee pursuant to one lease agreement.
(h) Effective January 1, 1995, the lease for this Property was
terminated, resulting in the reclassification of the building
portion of the lease to an operating lease. The building was
recorded at net book value as of January 1, 1995, and will be
depreciated over its remaining estimated life of approximately 27
years. During 1997, the Partnership released this Property to
Shells Seafood Restaurants.
(i) This Property was exchanged for a Burger King Property previously
owned and located in Woodmere, Ohio, during 1996.
(j) Effective August 1, 1998, the lease for this property was amended,
resulting in the reclassification of the building portion of the
lease to an operating lease. The building was recorded at net book
value as of August 1, 1998, and will be depreciated over its
remaining estimated life of approximately 22 years.
(k) Effective September 30, 1998, the lease for this property was
terminated, resulting in the reclassification of the building
portion of the lease to an operating lease. The building was
recorded at net book value at September 30, 1998, and will be
depreciated over its remaining estimated life of approximately 23
years.
(l) For financial reporting purposes, the undepreciated cost of the
Property in Williamsville, New York, was written down to net
realizable value due to an impairment in value. The Partnership
recognized the impairment by recording an allowance for loss on the
building in the amount of $249,368 for the year ended December 31,
1998. The impairment at December 31, 1998, represents the
difference between the Property's carrying value and the current
estimate of the net realizable value of the Property. The cost of
the Property presented on this schedule is the gross amount at
which the Property was carried at December 31, 1998, excluding the
allowance for loss on the building.
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number
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.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund IX, Ltd. at December 31, 1998, and its statement of
income for the year then ended and is qualified in its entirety by reference to
the Form 10-K of CNL Income Fund IX, Ltd. for the year ended December 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,287,379
<SECURITIES> 0
<RECEIVABLES> 299,621
<ALLOWANCES> 206,052
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 16,777,365
<DEPRECIATION> 1,711,187
<TOTAL-ASSETS> 30,099,078
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 29,213,918
<TOTAL-LIABILITY-AND-EQUITY> 30,099,078
<SALES> 0
<TOTAL-REVENUES> 2,504,519
<CGS> 0
<TOTAL-COSTS> 494,079
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,133
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,286,698
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,286,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,286,698
<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>
