<PAGE>
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, 1999
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)
450 South Orange Avenue
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
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, totaled
$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. During the year ended December 31, 1999, the Partnership sold its
Properties in Rochester, New York and Corpus Christi, Texas, and used a portion
of the net sales proceeds to reinvest in a Property in Albany, Georgia. In
addition, the Partnership reinvested a portion of the net sales proceeds in a
Property in Dublin, California and a Property in Montgomery, Alabama, each as
tenants-in-common, with affiliates of the General Partners. As a result of the
above transactions, as of December 31, 1999, the Partnership owned 42
Properties. The 42 Properties include 13 Properties owned by joint ventures in
which the Partnership is a co-venturer and three Properties owned with
affiliates as tenants-in-common. The Partnership leases the Properties
generally on a triple-net basis with the lessees responsible for all repairs and
maintenance, property taxes, insurance and utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. 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.
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 "Termination
of 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. Under the Agreement
and Plan of Merger, APF was to issue shares of its common stock as consideration
for the Merger. On March 1, 2000, the General Partners and APF announced that
they had mutually agreed to terminate the Agreement and Plan of Merger. The
agreement to terminate the Agreement and Plan of Merger was based, in large
part, on the General Partners' concern that, in light of market conditions
relating to publicly traded real estate investment trusts, the value of the
transaction had diminished. As a result of such diminishment, the General
partners; ability to unequivocally recommend voting for the transaction, in the
exercise of their fiduciary duties, had become questionable.
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 of the General Partners as tenants-in-common, generally
provide for initial terms ranging from 7.60 to 20 years (the average being 17
years), and
1
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expire between 2005 and 2019. The leases are generally 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.
Lessees of 26 of the Partnership's 42 Properties 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. Fair market value will be
determined through an appraisal by an independent appraisal firm. 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 of two Properties, Brambury Associates filed for
bankruptcy, rejected the lease relating to one Property in Williamsville, New
York, 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 for the
Property in Rochester, New York, which was not rejected, and, in March 1999, the
Partnership sold this Property to a third party.
In March 1999, the Partnership reinvested a portion of the net sales
proceeds from the sales of the Properties in Rochester, New York and Corpus
Christi, Texas, in a Golden Corral Property located in Albany, Georgia. The
lease terms for this Property are substantially the same as the Partnership's
other leases, as described above. In addition, in November 1999, the Partnership
reinvested a portion of the net sales proceeds from the sale of the Property in
Rochester, New York in two IHOP Properties located in Montgomery, Alabama and
Dublin, California, with affiliates of the General Partners, each as tenants-in-
common, as described below in "Joint Venture and Tenancy in Common
Arrangements". The lease terms for these Properties are substantially the same
as the Partnership's other leases, as described above.
Major Tenants
During 1999, four of the Partnership's lessees (or group of affiliated
lessees), (i) Carrols Corporation, (ii) Flagstar Enterprises, Inc., (iii) Burger
King Corporation and BK Acquisition, Inc. (which are affiliated entities under
common control) (hereinafter referred to as Burger King Corp.) and (iv) 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 three Properties owned as tenants-in-
common). As of December 31, 1999, Carrols Corporation was the lessee under
leases relating to four 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 three restaurants.
It is anticipated that, based on the minimum rental payments required by the
leases, these four lessees or groups of affiliated lessees each will continue to
contribute more than ten percent of the Partnership's total rental income in
2000. 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 1999
(including the Partnership's share of the rental income from 13 Properties owned
by joint ventures and three Properties owned as tenants-in-common). In 2000, 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
2
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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 in excess of 20 percent of the total assets of the Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into the following separate joint venture
arrangements: CNL Restaurant Investments II with CNL Income Fund VII, Ltd. and
CNL Income Fund VIII, Ltd., to purchase and hold six Properties; CNL Restaurant
Investments III with CNL Income Fund X, Ltd., to purchase and hold six
Properties; and Ashland Joint Venture with CNL Income Fund X, Ltd. and CNL
Income Fund XI, Ltd., to purchase and hold one Property. Each CNL Income Fund
is an affiliate of the General Partners and is a limited partnership organized
pursuant to the laws of the State of Florida.
The joint venture arrangements provide for the Partnership and its joint
venture partners to share in all costs and benefits associated with the joint
ventures in accordance with their respective percentage interests in the joint
ventures. The Partnership has a 45.2% interest in CNL Restaurant Investments
II, a 50 percent interest in CNL Restaurant Investments III and a 27.33%
interest in Ashland Joint Venture. The Partnership and its joint venture
partners are also jointly and severally liable for all debts, obligations and
other liabilities of the joint ventures.
CNL Restaurant Investments II's and CNL Restaurant Investments III's joint
venture agreements do not provide a fixed term, but continue in existence until
terminated by any of the joint venturers. Ashland Joint Venture has an initial
term of 14 years and, after the expiration of the initial term, continues in
existence from year to year unless terminated at the option of any of the joint
venturers or by an event of dissolution. Events of dissolution include the
bankruptcy, insolvency or termination of any joint venturer, sale of the
Property owned by the joint venture and mutual agreement of the Partnership and
its joint venture partners to dissolve the joint venture.
The joint venture agreements restrict each venturer's ability to sell,
transfer or assign its joint venture interest without first offering it for sale
to its joint venture partners, either upon such terms and conditions as to which
the venturers may agree or, in the event the venturers cannot agree, on the same
terms and conditions as any offer from a third party to purchase such joint
venture interest.
Net cash flow from operations of CNL Restaurant Investments II, CNL
Restaurant Investments III and Ashland Joint Venture is distributed 45.2%, 50
percent and 27.33%, respectively, to the Partnership and the balance is
distributed to each of the other joint venture partners in accordance with their
respective percentage interest in the joint venture. Any liquidation proceeds,
after paying joint venture debts and liabilities and funding reserves for
contingent liabilities, will be distributed first to the joint venture partners
with positive capital account balances in proportion to such balances until such
balances equal zero, and thereafter in proportion to each joint venture
partner's percentage interest in the joint venture.
In addition to the above joint venture arrangements, in July 1997, the
Partnership entered into an agreement to hold an IHOP Property as tenants-in-
common with CNL Income Fund III, Ltd. In addition, in November 1999, the
Partnership entered into an agreement to hold a Property in Dublin, California,
as tenants-in-common, with CNL Income Fund VI, Ltd., and an agreement to hold a
Property in Montgomery, Alabama, as tenants-in-common, with CNL Income Fund VII,
Ltd. Each CNL Income Fund is an affiliate of the General Partners and is a
limited partnership organized pursuant to the laws of the State of Florida. The
agreements provide for the Partnership and the affiliates to share in the
profits and losses of the Properties in proportion to each party's percentage
interest. The Partnership owns a 67 percent, 25 percent and 29 percent interest
in the Properties in Englewood, California, Dublin, California, and Montgomery,
Alabama, respectively. The tenancy in common agreements restrict each co-
tenant's ability to sell, transfer, or assign its interest in the tenancy in
common's Properties without first offering them for sale to the remaining co-
tenants.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the Property if the proceeds are reinvested in an additional Property.
3
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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.
Employees
The Partnership has no employees. The officers of CNL Realty Corporation
and the officers and employees of CNL American Properties Fund, Inc. ("APF"),
the parent company 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 Financial Group,
Inc., (formerly 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, 1999, the Partnership owned 42 Properties. Of the 42
Properties, 26 are owned by the Partnership in fee simple, 13 are owned through
joint venture arrangements and three are owned through a tenancy in common
arrangement. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation 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.
4
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The following table lists the Properties owned by the Partnership as of
December 31, 1999 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation for the year ended December 31, 1999.
State Number of Properties
----- --------------------
Alabama 5
California 2
Colorado 1
Florida 1
Georgia 1
Illinois 1
Indiana 2
Louisiana 3
Michigan 1
Minnesota 1
Mississippi 1
New Hampshire 3
New York 2
North Carolina 3
Ohio 7
South Carolina 1
Tennessee 2
Texas 5
----
TOTAL PROPERTIES 42
====
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The buildings
generally are rectangular and are constructed from various combinations of
stucco, steel, wood, brick and tile. Building sizes range from approximately
2,100 to 10,600 square feet. All buildings on Properties are freestanding and
surrounded by paved parking areas. Buildings are suitable for conversion to
various uses, although modifications may be required prior to use for other than
restaurant operations. As of December 31, 1999, the Partnership had no plans
for renovation of the Properties. Depreciation expense is computed for
buildings and improvements using the straight line method using a depreciable
life of 40 years for federal income tax purposes. As of December 31, 1999, the
aggregate cost of the Properties owned by the Partnership and joint ventures
(including Properties owned through tenancy in common arrangements) for federal
income tax purposes was $14,379,873 and $12,704,635, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 1999 by Restaurant Chain.
Restaurant Chain Number of Properties
---------------- --------------------
Burger King 18
Captain D's 1
Denny's 4
Golden Corral 3
Hardee's 6
IHOP 3
Perkins 1
Shells Seafood Restaurant 1
Shoney's 5
----
TOTAL PROPERTIES 42
====
5
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The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
The General Partners believe that the Properties are adequately covered by
insurance. In addition, the General Partners have obtained contingent liability
and property coverage for the Partnership. This insurance is intended to reduce
the Partnership's exposure in the unlikely event a tenant's insurance policy
lapses or is insufficient to cover a claim relating to the Property.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on
a long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. Generally, a
lessee is required, under the terms of its lease agreement, to make such capital
expenditures as may be reasonably necessary to refurbish buildings, premises,
signs and equipment so as to comply with the lessee's obligations, if
applicable, under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures are required to be
paid by the lessee during the term of the lease. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
As of December 31, 1999, 1998, 1997, 1996 and 1995, the Properties were
98%, 98%, 100%, 100% and 100% occupied, respectively. The following is a
schedule of the average rent per Property for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Rental Revenues (1) $3,168,448 $3,473,845 $3,350,655 $3,516,267 $3,534,838
Properties (2) 42 41 40 40 40
Average Rent per
Property $ 75,439 $ 84,728 $ 83,766 $ 87,907 $ 88,371
</TABLE>
(1) Rental income includes the Partnership's share of rental income from the
Properties owned through joint venture arrangements and the Properties
owned through tenancy in common arrangements. Rental revenues have been
adjusted, as applicable, for any amounts for which the Partnership has
established an allowance for doubtful accounts.
(2) Excludes a Property that was vacant at December 31, and that did not
generate rental revenues during the year ended December 31.
The following is a schedule of lease expirations for leases in place as of
December 31, 1999 for the next ten years and thereafter.
<TABLE>
<CAPTION>
Percentage of
Expiration Number Annual Rental Gross Annual
Year of Leases Revenues Rental Income
----------- --------- ------------- -------------
<C> <S> <C> <C>
2000 -- $ -- --
2001 -- -- --
2002 -- -- --
2003 -- -- --
2004 -- -- --
2005 8 623,991 19.37%
2006 11 750,532 23.30%
2007 -- -- --
2008 -- -- --
2009 -- --
Thereafter 22 1,846,204 57.33%
--------- ----------- ------
Total (1) 41 $ 3,220,727 100.00%
========= =========== ======
</TABLE>
(1) Excludes one Property which was vacant at December 31, 1999.
6
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Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 1999 (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 $85,617 (ranging from approximately $92,469 to $84,827).
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 three Golden Corral restaurants with an
initial term of 15 years (expiring in 2005 and 2014) and the average minimum
base annual rent is approximately $155,363 (ranging from approximately $137,100
to $171,400).
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Item 3. Legal Proceedings
On May 11, 1999, four limited partners in several CNL Income Funds served a
derivative and purported class action lawsuit filed April 22, 1999 against the
general partners and APF in the Circuit Court of the Ninth Judicial Circuit of
Orange County, Florida, alleging that the general partners breached their
fiduciary duties and violated provisions of certain of the CNL Income Fund
partnership agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8, 1999, the
plaintiffs filed an amended complaint which, in addition to naming three
additional plaintiffs, includes allegations of aiding and abetting and
conspiring to breach fiduciary duties, negligence and breach of duty of good
faith against certain of the defendants and seeks additional equitable relief.
As amended, the caption of the case is Jon Hale, Mary J. Hewitt, Charles A.
------------------------------------
Hewitt, Gretchen M. Hewitt, Bernard J. Schulte, Edward M. and Margaret Berol
- ----------------------------------------------------------------------------
Trust, and Vicky Berol v. James M. Seneff, Jr., Robert A. Bourne, CNL Realty
- ----------------------------------------------------------------------------
Corporation, and CNL American Properties Fund, Inc., Case No. CIO-99-0003561.
- ----------------------------------------------------
On June 22, 1999, a limited partner of several CNL Income Funds served a
purported class action lawsuit filed April 29, 1999 against the general partners
and APF, Ira Gaines, individually and on behalf of a class of persons similarly
----------------------------------------------------------------------
situated, v. CNL American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
- --------------------------------------------------------------------------------
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc., CNL Financial
- ----------------------------------------------------------------------
Corporation a/k/a CNL Financial Corp., CNL Financial Services, Inc. and CNL
- ---------------------------------------------------------------------------
Group, Inc., Case NO. CIO-99-3796, in the Circuit Court of the Ninth Judicial
- -----------
Circuit of Orange County, Florida, alleging that the general partners breached
their fiduciary duties and that APF aided and abetted their breach of fiduciary
duties in connection with the proposed Merger. The plaintiff is seeking
unspecified damages and equitable relief.
On September 23, 1999, Judge Lawrence Kirkwood entered an order
consolidating the two cases under the caption In re: CNL Income Funds
-----------------------
Litigation, Case No. 99-3561. Pursuant to this order, the plaintiffs in these
- ----------------------------
cases filed a consolidated and amended complaint on November 8, 1999. On
December 22, 1999, the General Partners and CNL Group, inc. filed motions to
dismiss and motions to strike. On December 28, 1999, APF and CNL Fund Advisors,
Inc. filed motions to dismiss. On March 6, 2000, all of the defendants filed a
Joint Notice of Filing Form 8-K Reports and Suggestion of Mootness.
7
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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
(a) As of March 15, 2000, 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. During 1999, Limited Partners who
wished to sell their Units may have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase), may have done so pursuant to such
Plan. The General Partners had the right to prohibit transfers of Units. From
inception through December 31, 1999, 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 1999 and 1998 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
1999 (1) 1998 (1)
------------------------------------------ -------------------------------------------
High Low Average High Low Average
----------- ----------- ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $10.00 $9.00 $9.50 $ 9.56 $9.11 $9.27
Second Quarter 9.55 7.98 9.00 9.50 8.74 9.24
Third Quarter 9.50 7.50 8.88 10.00 9.10 9.49
Fourth Quarter 8.10 7.20 7.73 9.30 8.15 8.52
</TABLE>
(1) A total of 38,261 and 26,620 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1999 and 1998, respectively.
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, 1999 and 1998, the Partnership declared
cash distributions in the aggregate amounts of $3,150,004 and $3,220,004,
respectively, to the Limited Partners. Distributions for 1998 included $70,000
declared as a special distribution to the Limited Partners, which represented
cumulative excess operating reserves. No amounts distributed to partners for
the years ended December 31, 1999 and 1998, are required to be or have been
treated by the Partnership as a return of capital for purposes of calculating
the Limited Partners' return on their adjusted capital contributions. 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 1999 1998
------------- -------- --------
March 31 $787,501 $857,501
June 30 787,501 787,501
September 30 787,501 787,501
December 31 787,501 787,501
8
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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.
(b) Not applicable.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31:
Revenues (1) $ 3,082,697 $ 3,100,685 $ 3,230,343 $ 3,404,066 $ 3,428,147
Net Income (3) 2,385,067 2,286,698 2,937,632 2,960,299 2,987,971
Cash distributions
declared (2) 3,150,004 3,220,004 3,150,004 3,185,004 3,185,004
Net income per Unit 0.68 0.65 0.83 0.84 0.85
Cash distributions
declared per Unit (2) 0.90 0.92 0.90 0.91 0.91
At December 31:
Total assets $29,443,276 $30,099,078 $31,096,421 $31,343,847 $31,517,255
Partners' capital 28,448,981 29,213,918 30,147,224 30,359,596 30,584,301
</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 special
distribution to the Limited Partners of $70,000 and distributions for each
of the years ended December 31, 1996 and 1995 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, 1999 and 1997, includes $75,997 and $199,643, respectively,
from gains, on sales of land and buildings.
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, 1999, the Partnership owned 42 Properties, either directly or
indirectly through joint venture or tenancy in common arrangements.
Capital Resources
The Partnership's primary source of capital for the years ended December
31, 1999, 1998, and 1997, 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 $2,868,096, $3,253,390, and
$3,157,964 for the years ended December 31, 1999, 1998, and 1997, respectively.
The decrease in cash from operations during 1999, as compared to 1998, was
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital. The
increase during 1998, as compared to 1997, was primarily the result of changes
in income and expenses as described in "Results of Operations" below.
Other sources and uses of capital included the following during the years
ended December 31, 1999, 1998, and 1997:
9
<PAGE>
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 party will share in the profits and losses of the
Property in proportion to each party's percentage interest. As of December 31,
1999, the Partnership owned a 67 percent interest in the Property. This
transaction, 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 1999, the Partnership sold its Property in Corpus Christi,
Texas, and received net sales proceeds of $1,350,000, resulting in a gain of
$56,369 for financial reporting purposes. This Property was originally acquired
by the Partnership in October 1991 and had a cost of approximately $1,319,986,
excluding acquisition fees and miscellaneous acquisition expenses; therefore,
the Partnership sold the Property for approximately $30,000 in excess of its
original purchase price. In March 1999, the Partnership reinvested the net
sales proceeds in a Property in Albany, Georgia, at an approximate cost of
$1,641,200. The transaction, relating to the sale of the Property in Corpus
Christi, Texas, and the reinvestment of the net sales proceeds in the Property
in Albany, Georgia, qualified as a like-kind exchange transaction for federal
income tax purposes.
In addition, in March 1999, the Partnership sold its Property in Rochester,
New York, and received net sales proceeds of $1,050,000, resulting in a gain of
$19,628 for financial reporting purposes. This Property was originally acquired
by the Partnership in December 1991 and had a cost of approximately $968,814,
excluding acquisition fees and miscellaneous acquisition expenses; therefore,
the Partnership sold the Property for approximately $81,200 in excess of its
original purchase price. In March 1999, the Partnership reinvested a portion of
the net sales proceeds in a Property in Albany, Georgia, as described above. In
addition, in November 1999, the Partnership reinvested the remaining net sales
proceeds in a Property in Montgomery, Alabama, and a Property in Dublin,
California, each as tenants-in-common with affiliates of the General Partners.
In connection therewith, the Partnership and the affiliates entered into
agreements whereby each party will share in the profits and losses of each
Property in proportion to each party's percentage interest. As of December 31,
1999, the Partnership owned a 29 percent and a 25 percent interest,
respectively, in the Properties.
None of the Properties owned by the Partnership, or the joint ventures or
tenancy in common arrangements in which the Partnership owns an interest, is or
may be encumbered. Under its partnership agreement, the Partnership is
prohibited from borrowing for any purpose; provided, however, that the General
Partners or their affiliates are entitled to reimbursement, at cost, for actual
expenses incurred by the General Partners or their affiliates on behalf of the
Partnership. Affiliates of the General Partners from time to time incur certain
operating expenses on behalf of the Partnership for which the Partnership
reimburses the affiliates without interest.
Currently, rental income from the Partnership's Properties is invested in
money market accounts or other short-term highly liquid investments such as
demand deposit accounts at commercial banks, certificates of deposit and money
market accounts with less than a 30-day maturity date, pending the Partnership's
use of such funds to pay Partnership expenses or to make distributions to the
partners. At December 31, 1999, the Partnership had $936,506 invested in such
short-term investments as compared to $1,287,379 at December 31, 1998. The
decrease in cash was partially attributable to the Partnership investing a
portion of the amounts held at December 31, 1998, in Properties, as described
above, and a decrease in rents paid in advance. As of December 31, 1999, the
average interest rate earned on the rental income deposited in demand deposit
accounts at commercial banks was approximately 1.25% annually. The funds
remaining at December 31, 1999, will be used towards the payment of
distributions and other liabilities.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily of
the operating expenses of the Partnership.
10
<PAGE>
The Partnership's investment strategy of acquiring Properties for cash and
leasing them under triple-net leases to operators who generally meet specified
financial standards minimizes the Partnership's operating expenses. The General
Partners believe that the leases will continue to generate cash flow in excess
of operating expenses.
Due to low operating expenses and ongoing cash flow, the General Partners
believe that the Partnership has sufficient working capital reserves at this
time. In addition, because all leases of the Partnership's Properties are on a
triple-net basis, it is not anticipated that a permanent reserve for maintenance
and repairs will be established at this time. To the extent, however, that the
Partnership has insufficient funds for such purpose, the General Partners will
contribute to the Partnership an aggregate amount of up to one percent of the
offering proceeds for maintenance and repairs.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining after
the payment of the operating expenses, to the extent that the General Partners
determine that such funds are available for distribution. Based on current and
anticipated future cash from operations, the Partnership declared distributions
to the Limited Partners of $3,150,004, $3,220,004, and $3,150,004 for the years
ended December 31, 1999, 1998, and 1997, respectively. This represents a
distribution of $0.90, $0.92, and $0.90 per Unit for the years ended December
31, 1999, 1998, and 1997, respectively. No amounts distributed to the Limited
Partners for the years ended December 31, 1999, 1998, and 1997, are required to
be or have been treated by the Partnership as a return of capital for purposes
of calculating the Limited Partners' return on their adjusted capital
contributions. The Partnership intends to continue to make distributions of
cash available for distribution to the Limited Partners on a quarterly basis.
During 1999, 1998, and 1997, affiliates of the General Partners incurred on
behalf of the Partnership $178,711, $111,596, and $77,999, respectively, for
certain operating expenses. As of December 31, 1999 and 1998, the Partnership
owed $62,066 and $24,187, respectively, to affiliates for such amounts and
accounting and administrative services. As of March 15, 2000, the Partnership
had reimbursed the affiliates all such amounts. Other liabilities, including
distributions payable, increased to $932,229 at December 31, 1999, from $860,973
at December 31, 1998, primarily as the result of the Partnership accruing
transaction costs relating to the proposed Merger with CNL American Properties
Fund, Inc. ("APF"), as described below in "Termination of Merger." The increase
was partially offset by a decrease in rents paid in advance at December 31,
1999. Total liabilities at December 31, 1999, to the extent they exceed cash
and cash equivalents at December 31, 1999, will be paid from future cash from
operations, and in the event, the General Partners elect to make additional
contributions, from future General Partner contributions.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the year ended December 31, 1997, the Partnership owned and leased
28 wholly owned Properties (including one Property in Alpharetta, Georgia, which
was sold in June 1997), during 1998, the Partnership owned and leased 27 wholly
owned Properties, and during 1999, the Partnership owned and leased 28 wholly
owned Properties (including two Properties which were sold during 1999). In
addition, during 1999, 1998, and 1997, 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. The Partnership also owned and
leased one Property with an affiliate as tenants-in-common during 1997 and 1998
and three Properties with affiliates as tenants-in-common in 1999. As of
December 31, 1999, the Partnership owned, either directly or through joint
venture and tenancy in common arrangements, 42 Properties, which are generally
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.
11
<PAGE>
During the years ended December 31, 1999, 1998 and 1997, the Partnership
earned $2,335,381, $2,363,610, and $2,572,954, respectively, in rental income
from operating leases (net of adjustments to accrued rental income) and earned
income from direct financing leases its wholly owned Properties. The decrease
in rental and earned income during 1999 and 1998, each as compared to the
previous year, was due to the fact that the Partnership established an allowance
for doubtful accounts of $206,000 and $97,300 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 was experiencing. No such allowance was established during 1999. In
May 1998, the tenant of these Properties filed for bankruptcy and rejected the
lease relating to the Property in Williamsville, New York. As a result, during
1998, the Partnership reversed 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. Rental and earned
income decreased approximately $210,100 during 1999, as compared to 1998, as a
result of the lease rejection and the fact that the tenant ceased making rental
payments in October 1998. 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 this
Property. The Partnership continued receiving rental payments on the lease that
was not rejected, relating to the Property in Rochester, New York, and in March
1999, the Partnership sold this Property to a third party, which resulted in a
decrease in rental and earned income during 1999, as compared to 1998, of
approximately $203,200. In March and November 1999, the Partnership reinvested
these net sales proceeds in a Property in Albany, Georgia and two Properties
with affiliates of the General Partners, as tenants-in-common, as described in
"Capital Resources."
The decrease during 1999 and 1998, each as compared to the previous year,
was also partially attributable to a decrease of approximately $69,800 and
$52,000 during 1999 and 1998, respectively, due to the fact that the leases
relating to the Burger King Properties in Shelby, North Carolina; Maple Heights,
Ohio; Watertown, New York and Carrboro, North Carolina were amended to provide
for rent reductions. 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 1999 and 1998, each as
compared to the previous year, was partially offset by an increase of
approximately $6,100 and $93,800 for rental amounts relating to the
Partnership's Properties in Blufton, Alliance and North Baltimore, Ohio, during
1999 and 1998, respectively. 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. The increase during
1999 relating to these Properties was partially offset by approximately $33,600
due to the fact that the Partnership established an allowance for doubtful
accounts, due to financial difficulties the tenants are experiencing. No such
allowance was established during 1998 or 1997.
Rental and earned income decreased by approximately $142,600 during 1999,
as compared to 1998, due to the fact that, during 1999, the Partnership sold the
Property located in Corpus Christi, Texas, as described above in "Capital
Resources." The decrease was partially offset by an increase of approximately
$137,100 due to the fact that the Partnership, in March 1999, reinvested the net
sales proceeds in a Property in Albany, Georgia, as described above in "Capital
Resources."
Rental and earned income was also lower during 1999, as compared to 1998,
due to the fact that during 1999, the Partnership established an allowance for
doubtful accounts of approximately $19,500 relating to past due rental amounts
for the Property in Grand Prairie, Texas, in accordance with the Partnership's
collection policy. No such allowance was established during 1998 or 1997.
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 "Capital Resources."
The decrease in rental and earned income during 1998, as compared to 1997,
was 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
12
<PAGE>
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.
In addition, for the years ended December 31, 1999, 1998, and 1997, the
Partnership earned $59,287, $79,780, and $74,867, respectively, in contingent
rental income. The decrease in contingent rental income during 1999, as
compared to 1998, is primarily attributable to a decrease in gross sales of
certain restaurant Properties whose leases require the payment of contingent
rental income.
During the years ended December 31, 1999, 1998, and 1997, the Partnership
also earned $606,337, $596,166, and $537,853, 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 1999
and 1998, each as compared to the previous year, was 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. In addition, during November 1999, the Partnership reinvested
a portion of the net sales proceeds it received from the sale of the Property in
Rochester, New York, in a Property in Dublin, California, and Montgomery,
Alabama, each as tenants-in-common with affiliates of the General Partners.
During the year ended December 31, 1999, four of the Partnership's lessees
(or group of affiliated lessees), Carrols Corporation, 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 three Properties owned as tenants-in-common). As of December 31, 1999,
Carrols Corporation was the lessee under leases relating to four 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 three restaurants. It is anticipated that, based on
the minimum rental payments required by the leases, these four lessees or groups
of affiliated lessees each will continue to contribute more than ten percent of
the Partnership's total rental income in 2000. 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 1999 (including the Partnership's share of the rental
income from 13 Properties owned by joint ventures and three Properties 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
$773,627, $499,212, and $492,354 for the years ended December 31, 1999, 1998,
and 1997, respectively. The increase in operating expenses during 1999 and
1998, each as compared to the previous year, was primarily attributable to the
fact that the Partnership incurred $181,109 and $19,041, respectively, in
transaction costs related to the General Partners retaining financial and legal
advisors to assist them in evaluating and negotiating the proposed merger with
APF, as described below in "Termination of Merger."
The increase in operating expenses during 1999 was also partially due to an
increase in depreciation expense as a result (i) of lease amendments causing the
reclassification of two leases, one Property in Carrboro, North Carolina and one
Property in Shelby, North Carolina, from direct financing leases to operating
leases during 1998, and (ii) the acquisition of the Property in Albany, Georgia
in March 1999.
Operating expenses also increased during 1999 and 1998, due to an increase
in legal fees, insurance and real estate tax expense incurred in connection with
the tenant of the Property in Williamsville, New York filing for bankruptcy,
rejecting the lease, and ceasing rental payments. The Partnership will continue
to incur these types of expenses until a replacement tenant or purchaser is
located. During the year ended December 31, 1998, the Partnership established
an allowance for loss on building and an impairment in the carrying value of the
net investment in direct financing leases for a total of $314,775 for financial
reporting purposes relating to the Properties in Williamsville and Rochester,
New York. The losses represented the difference between each Property's
carrying value at December 31, 1998, and the estimated net realizable value at
December 31, 1998 for each Property. No such allowance was established during
the years ended December 31, 1999 and 1997.
13
<PAGE>
The increase in operating expenses during 1998, as compared to 1997, was
partially offset by 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. The Property was re-leased to a new tenant
in September 1997.
As a result of the 1999 sale of the Property in Rochester, New York and the
sale of the Property in Corpus Christi, Texas, and the 1997 sale of the Property
in Alpharetta, Georgia, as described above in "Capital Resources," the
Partnership recognized gains for financial reporting purposes of $75,997 and
$199,643 for the years ended December 31, 1999 and 1997, respectively. No
Properties were sold during 1998.
The Partnership's leases as of December 31, 1999, 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.
Termination of Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with APF, pursuant to which the Partnership would be merged with and into
a subsidiary of APF. Under the Agreement and Plan of Merger, APF was to issue
shares of its common stock as consideration for the Merger. On March 1, 2000,
the General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger. The agreement to terminate the
Agreement and Plan of Merger was based, in large part, on the General Partners'
concern that, in light of market conditions relating to publicly traded real
estate investment trusts, the value of the transaction had diminished. As a
result of such diminishment, the General Partners' ability to unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become questionable.
Overview of Year 2000 Problem
The year 2000 problem concerns the inability of information and non-
information technology systems to properly recognize and process date-sensitive
information beyond January 1, 2000. The failure to accurately recognize the
year 2000 could result in a variety of problems from data miscalculations to the
failure of entire systems.
Status
The Partnership generally does not directly own information technology
systems. The General Partners and their affiliates generally provide all
services requiring the use of information and some non-information technology
systems. In early 1998, affiliates of the General Partners formed a year 2000
committee ("the Y2K Team") that assessed the readiness of any systems that are
date sensitive and completed upgrades for the hardware equipment and software
that was not year 2000 compliant, as necessary. The cost for these upgrades and
other remedial measures is the responsibility of the General Partners and their
affiliates. The General Partners and their affiliates do not expect that the
Partnership will incur any costs in connection with the year 2000 remedial
measures. In addition, the Y2K Team requested and received certifications of
compliance from other companies with which the General Partners, their
affiliates, and the Partnership have material third party relationships.
In assessing the risks presented by the year 2000 problem, the Y2K Team
identified potential worst case scenarios involving the future of the
information and non-information technology systems used by the Partnership's
transfer agent, financial institutions and tenants. As of January 14, 2000, the
General Partners and their affiliates have tested the information and non-
information technology systems used by the Partnership and have not experienced
material disruption or other significant problems. In addition, as of the same
date, the General Partners are not aware of any material year 2000 problems
relating to information and non-information technology systems of third parties
with which the Partnership maintains material relationships, including those
of the Partnership's transfer agent, financial institutions
14
<PAGE>
and tenants. In addition, in the Partnership's interactions with its transfer
agent, financial institutions and tenants, the systems of these third parties
have functioned normally. Until the Partnership's first distribution in 2000
and the delivery of the information by the transfer agent to stockholders in
early 2000, the General Partners will continue to monitor the year 2000
compliance of the transfer agent. In addition, the General Partners will
continue to monitor the systems used by the Partnership and to maintain contact
with third parties with which the Partnership has material relationships with
respect to year 2000 compliance and any year 2000 issues that may arise at a
later date. The General Partners will develop contingency plans relating to
ongoing year 2000 issues at the time that such issues are identified and such
plans are deemed necessary.
Based on the information provided to the Y2K Team, the upgrades and
remedial measures by the General Partners and their affiliates, and the normal
functioning to date of information and non-information technology systems used
by the Partnership and those third parties, the General Partners do not foresee
significant risks associated with its year 2000 compliance at this time. In
addition, the General Partners and their affiliates do not expect to incur any
additional costs in connection with the year 2000 remedial efforts. However,
there can be no assurance that the General Partners and their affiliates or any
third parties will not have ongoing year 2000 issues that may have adverse
effects on the Partnership.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
15
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONTENTS
--------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants 17
Financial Statements:
Balance Sheets 18
Statements of Income 19
Statements of Partners' Capital 20
Statements of Cash Flows 21
Notes to Financial Statements 23
</TABLE>
16
<PAGE>
Report of Independent Certified Public 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 VIII, Ltd. (a Florida limited partnership) at December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States 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.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 4, 2000, except for Note 10 for which the date is March 1, 2000.
17
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
------
Land and buildings on operating leases, less
accumulated depreciation and allowance for
loss on building $ 14,692,716 $ 15,066,178
Net investment in direct financing leases,
less allowance for impairment in carrying value 5,319,764 5,905,995
Investment in joint ventures 7,169,101 6,473,381
Cash and cash equivalents 936,506 1,287,379
Receivables, less allowance for doubtful
accounts of $55,896 and $206,052,
respectively 108,238 93,569
Prepaid expenses 21,447 3,185
Lease costs, less accumulated amortization of
$3,077 and $1,577, respectively 11,923 13,423
Accrued rental income 1,183,581 1,255,968
------------ ------------
$ 29,443,276 $ 30,099,078
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable $ 107,139 $ 1,103
Escrowed real estate taxes payable 8,116 9,022
Distributions payable 787,501 787,501
Due to related parties 62,066 24,187
Rents paid in advance and deposits 29,473 63,347
------------ ------------
Total liabilities 994,295 885,160
Partners' capital 28,448,981 29,213,918
------------ ------------
$ 29,443,276 $ 30,099,078
============ ============
</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,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rental income from operating leases $ 1,615,198 $ 1,804,248 $ 1,742,351
Adjustments to accrued rental income -- (267,600) --
Earned income from direct financing leases 720,183 826,962 830,603
Contingent rental income 59,287 79,780 74,867
Interest and other income 81,692 61,129 44,669
----------- ----------- -----------
2,476,360 2,504,519 2,692,490
----------- ----------- -----------
Expenses:
General operating and administrative 166,844 142,996 153,175
Professional services 51,336 43,685 24,658
Bad debt expense -- 5,133 21,000
Real estate taxes 29,069 6,247 30,835
State and other taxes 27,021 14,337 11,126
Depreciation and amortization 318,248 267,773 251,560
Transaction costs 181,109 19,041 --
----------- ----------- -----------
773,627 499,212 492,354
----------- ----------- -----------
Income Before Equity in Earnings of Joint Ventures, Gain
on sale of Land and Buildings, Impairment and Provision
for loss on Building and Impairment in Carrying Value of
Net Investment in Direct Financing Lease 1,702,733 2,005,307 2,200,136
Equity in Earnings of Joint Ventures 606,337 596,166 537,853
Gain on Sale of Land and Buildings 75,997 -- 199,643
Provision for Loss on Building and Impairment in Carrying
Value of Net Investment in Direct Financing Lease -- (314,775) --
----------- ----------- -----------
Net Income $ 2,385,067 $ 2,286,698 $ 2,937,632
=========== =========== ===========
Allocation of Net Income:
General partners $ 23,654 $ 23,991 $ 27,380
Limited partners 2,361,413 2,262,707 2,910,252
----------- ----------- -----------
$ 2,385,067 $ 2,286,698 $ 2,937,632
=========== =========== ===========
Net Income Per Limited Partner Unit $ 0.68 $ 0.65 $ 0.83
=========== =========== ===========
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, 1999, 1998 and 1997
<TABLE>
<CAPTION>
General Partners Limited Partners
---------------------------- -----------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs
------------- ----------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 1,000 $ 162,392 $ 35,000,000 $ (16,690,583) $ 16,076,787 $ (4,190,000)
Distributions to limited
partners ($0.90 per limited
partner unit) -- -- -- (3,150,004) -- --
Net income -- 27,380 -- -- 2,910,252 --
------------- ----------- ------------- ------------- ------------ ------------
Balance, December 31, 1997 1,000 189,772 35,000,000 (19,840,587) 18,987,039 (4,190,000)
Distributions to limited
partners ($0.92 per limited
partner unit) -- -- -- (3,220,004) -- --
Net income -- 23,991 -- -- 2,262,707 --
------------- ----------- ------------- ------------- ------------ ------------
Balance, December 31, 1998 1,000 213,763 35,000,000 (23,060,591) 21,249,746 (4,190,000)
Distributions to limited
partners ($0.90 per limited
partner unit) -- -- -- (3,150,004) -- --
Net income -- 23,654 -- -- 2,361,413 --
------------- ----------- ------------- ------------- ------------ ------------
Balance, December 31, 1999 $ 1,000 $ 237,417 $ 35,000,000 $ (26,210,595) $ 23,611,159 $ (4,190,000)
============= =========== ============= ============= ============ ============
<CAPTION>
Total
------------
<S> <C>
Balance, December 31, 1996 $ 30,359,596
Distributions to limited
partners ($0.90 per limited
partner unit) (3,150,004)
Net income 2,937,632
------------
Balance, December 31, 1997 30,147,224
Distributions to limited
partners ($0.92 per limited
partner unit) (3,220,004)
Net income 2,286,698
------------
29,213,918
Balance, December 31, 1998
Distributions to limited
partners ($0.90 per limited
partner unit) (3,150,004)
Net income 2,385,067
------------
Balance, December 31, 1999 $ 28,448,981
============
</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,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 2,388,494 $ 2,695,934 $ 2,666,373
Distributions from joint ventures 738,371 738,544 676,806
Cash paid for expenses (325,027) (223,753) (229,884)
Interest received 66,258 42,665 44,669
----------- ----------- -----------
Net cash provided by operating activities 2,868,096 3,253,390 3,157,964
----------- ----------- -----------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 2,400,000 -- 1,053,571
Purchase of land and building (1,641,211) -- --
Investment in joint ventures (827,754) -- (1,049,762)
Payment of lease costs -- -- (15,000)
Other -- 3,605 --
----------- ----------- -----------
Net cash provided by (used in) investing
activities (68,965) 3,605 (11,191)
----------- ----------- -----------
Cash Flows from Financing Activities:
Distributions to limited partners (3,150,004) (3,220,004) (3,185,003)
----------- ----------- -----------
Net cash used in financing activities (3,150,004) (3,220,004) (3,185,003)
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (350,873) 36,991 (38,230)
Cash and Cash Equivalents at Beginning of Year 1,287,379 1,250,388 1,288,618
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 936,506 $ 1,287,379 $ 1,250,388
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31:
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Net income $ 2,385,067 $ 2,286,698 $ 2,937,632
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 316,748 266,273 251,483
Amortization 1,500 1,500 77
Equity in earnings of joint ventures, net of
distributions 132,034 142,378 138,953
Gain on sale of land and buildings (75,997) -- (199,643)
Bad debt expense -- 5,133 21,000
Provision for loss on building and impairment in
carrying value of net investment in direct
financing lease -- 314,775 --
Increase in receivables (14,669) (2,568) (41,878)
Decrease (increase) in prepaid expenses (18,262) 739 (79)
Decrease in net investment in direct financing
leases 61,066 92,647 121,311
Decrease (increase) in accrued rental income (28,526) 209,852 (70,837)
Increase (decrease) in accounts payable and
accrued expenses 105,130 (39,956) (16,524)
Increase in due to related parties 37,879 19,568 3,214
Increase (decrease) in rents paid in advance and
deposits (33,874) (43,649) 13,255
----------- ----------- -----------
Total adjustments 483,029 966,692 220,332
----------- ----------- -----------
Net Cash Provided by Operating Activities $ 2,868,096 $ 3,253,390 $ 3,157,964
=========== =========== ===========
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at December 31 $ 787,501 $ 787,501 $ 787,501
=========== =========== ===========
</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, 1999, 1998, and 1997
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 generally - 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 generally on a
triple-net basis, whereby the tenant is 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 methods. 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.
23
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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 reverses 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 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 the 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 properties in Englewood, Colorado; Dublin, California; and
Montgomery, Alabama for which the properties are held as tenants-in-common
with affiliates, 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
24
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
1. Significant Accounting Policies - Continued:
-------------------------------------------
plus accrued interest, which approximates market value. 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. Actual results could
differ from those estimates.
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
25
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
2. Leases - Continued:
------------------
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>
1999 1998
------------ ------------
<S> <C> <C>
Land $ 7,465,608 $ 8,207,939
Buildings 9,378,821 8,818,794
------------ ------------
16,844,429 17,026,733
Less accumulated depreciation (1,902,345) (1,711,187)
------------ ------------
14,942,084 15,315,546
Less allowance for loss on
building (249,368) (249,368)
------------ ------------
$ 14,692,716 $ 15,066,178
============ ============
</TABLE>
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 estimated net realizable value for the property.
26
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
During February and March 1999, the Partnership sold its properties in
Corpus Christi, Texas and Rochester, New York, respectively, and received
net sales proceeds of $1,350,000 and $1,050,000, respectively, resulting in
a gain of $56,369 and $19,628, respectively, for financial reporting
purposes (see Note 4). These properties were originally acquired by the
Partnership in 1991 and 1992 and had a total cost of approximately
$2,288,800, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the properties for a total of
approximately $111,200 in excess of their original purchase prices. In
March 1999, the Partnership reinvested a portion of these net sales
proceeds in a Golden Corral property located in Albany, Georgia, at an
approximate cost of $1,641,200. In addition, in November 1999, the
Partnership reinvested a portion of the net sales proceeds in two
properties held as tenants-in-common with affiliates of the general
partners (see Note 5).
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 years ended
December 31, 1999 and 1997, the Partnership recognized income of $26,847
and $70,837, respectively, and for the year ended December 31,1998, the
Partnership recognized a loss of $209,852 (net of $267,600 in reversals),
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, 1999:
2000 $ 1,688,910
2001 1,719,797
2002 1,814,486
2003 1,822,986
2004 1,822,986
Thereafter 8,600,498
-----------
$17,469,663
===========
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.
27
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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>
1999 1998
----------- ------------
<S> <C> <C>
Minimum lease payments receivable $ 9,613,462 $ 11,521,454
Estimated residual values 1,929,582 2,091,629
Less unearned income (6,223,280) (7,641,681)
----------- ------------
5,319,764 5,971,402
Less allowance for impairment in
carrying value -- (65,407)
----------- ------------
Net investment in direct financing leases $ 5,319,764 $ 5,905,995
=========== ============
</TABLE>
In August 1998, two 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 No.
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.
As of December 31, 1998, the Partnership had recorded an allowance of
$65,407 for impairment in the carrying value of the Property in Rochester,
New York, due to the tenant filing for bankruptcy. The allowance
represented the difference between the carrying value of the property at
December 31, 1998 and the estimated net realizable value for the property.
In March 1999, the Partnership sold the property and received net sales
proceeds of $1,050,000 and recorded a gain of $19,628 for financial
reporting purposes, resulting in a total net loss of approximately $45,800.
The building portion of this property had been classified as a direct
financing lease. In connection therewith, the gross investment (minimum
lease payments receivable and the estimated residual value), unearned
income and the allowance for impairment in carrying value relating to the
building, were removed from the accounts and the gain from the sale of the
property was reflected in income (see Note 3).
28
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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, 1999:
2000 $ 743,173
2001 755,006
2002 800,801
2003 800,801
2004 800,801
Thereafter 5,712,880
-----------
$ 9,613,462
===========
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%, 50 percent and 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. The Partnership also owns a property in Englewood,
Colorado, as tenants-in-common with an affiliate of the general partners.
As of December 31, 1999, the Partnership owned a 67 percent interest in
this property.
In November 1999, the Partnership used a portion of the net proceeds from
the sales of properties in Corpus Christi, Texas and Rochester, New York to
acquire a 25 percent interest in an IHOP property in Dublin, California
with CNL Income Fund VI, Ltd., a Florida limited partnership and affiliate
of the general partners, and a 29 percent interest in an IHOP property in
Montgomery, Alabama, with CNL Income Fund VII, Ltd., also a Florida limited
partnership and affiliate of the general partners, as tenants-in-common.
29
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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 affiliates, as
tenants-in-common own, and lease three properties to operators of national
family-style restaurants. The following presents the joint ventures'
combined, condensed financial information at December 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Land and buildings on operating
leases, less accumulated
depreciation $ 14,054,203 $ 12,253,332
Net investment in direct
financing leases 1,910,711 991,524
Cash 122,661 1,196
Receivables 53,584 23,283
Prepaid expenses 22,155 24,790
Accrued rental income 67,411 36,855
Liabilities 116,326 1,641
Partners' capital 16,114,399 13,329,339
Revenues 1,626,728 1,576,778
Net income 1,256,254 1,208,451
</TABLE>
The Partnership recognized income totaling $606,337, $596,166, and $537,853
for the years ended December 31, 1999, 1998, and 1997, 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").
30
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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, 1999, 1998, and 1997, the Partnership
declared distributions to the limited partners of $3,150,004, $3,220,004,
and $3,150,004, respectively. No distributions have been made to the
general partners to date.
31
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income for financial reporting purposes $ 2,385,067 $ 2,286,698 $ 2,937,632
Depreciation for tax reporting purposes in
excess of depreciation for financial
reporting purposes (44,433) (97,473) (116,620)
Direct financing leases recorded as operating
leases for tax reporting purposes 62,969 92,647 121,311
Gain on sale of land and buildings for
financial reporting purposes in excess
of gain for tax reporting purposes (63,807) -- (195,820)
Equity in earnings of joint ventures for
tax reporting purposes in excess of
equity in earnings of joint ventures for
financial reporting purposes 62,547 8,256 36,745
Capitalization of transaction costs for
tax reporting purposes 181,109 19,041 --
Accrued rental income (26,847) 209,852 (70,837)
Rents paid in advance (33,374) (44,149) 13,255
Allowance for loss on building and
investment in direct financing leases -- 314,775 --
Allowance for doubtful accounts (150,154) 97,736 79,333
----------- ----------- -----------
Net income for federal income tax purposes $ 2,373,077 $ 2,887,383 $ 2,804,999
=========== =========== ===========
</TABLE>
32
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
8. Related Party Transactions:
--------------------------
One of the individual general partners, James M. Seneff, Jr., is one of the
principal shareholders of CNL Holdings, Inc. The other individual general
partner, Robert A. Bourne, serves as President and Treasurer of CNL
Financial Group, Inc., a wholly owned subsidiary of CNL Holdings, Inc., CNL
Fund Advisors, Inc. (the "Advisor") was a majority owned subsidiary of CNL
Financial Group, Inc. until it merged with CNL American Properties Fund,
Inc. ("APF"), effective September 1, 1999. The individual general partners
are stockholders and directors of APF.
The Advisor provides certain services relating to management of the
Partnership and its properties pursuant to a management agreement with the
Partnership. In connection therewith, the Partnership agreed to pay the
Advisor 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 are incurred and are 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, 1999, 1998, and 1997.
The Advisor 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 Advisor 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.
33
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
8. Related Party Transactions - Continued:
--------------------------------------
During the years ended December 31, 1999, 1998, and 1997, the Advisor and
its affiliate provided accounting and administrative services to the
Partnership on a day-to-day basis including services relating to the
proposed and terminated merger as described in Note 10. The Partnership
incurred $116,167, $94,808 and $79,234 for the years ended December 31,
1999, 1998, and 1997, respectively, for such services.
The due to related parties at December 31, 1999 and 1998, totaled $62,066
and $24,187, 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 and properties
held as tenants-in-common with affiliate) for each of the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Burger King Corp. $ 648,960 $ 647,953 $ 649,445
Golden Corral Corp. 486,531 360,555 337,337
Flagstar Enterprises, Inc. 365,630 367,211 436,312
Carrols Corp. 328,051 388,121 440,057
Shoney's, Inc. N/A 557,000 556,700
</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
and properties held as tenants-in-common with affiliate) for each of the
years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Burger King $ 1,086,287 $ 1,143,522 $ 1,249,715
Shoney's 659,426 805,729 808,675
Golden Corral Family
Steakhouse Restaurant 486,531 360,555 337,337
Hardee's 436,081 438,324 436,312
</TABLE>
34
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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. Commitments and Contingencies:
-----------------------------
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. Under the Agreement and Plan of Merger, APF was
to issue shares of its common stock as consideration for the Merger. On
March 1, 2000, the General Partners and APF announced that they had
mutually agreed to terminate the Agreement and Plan of Merger. The
agreement to terminate the Agreement and Plan of Merger was based, in large
part, on the General Partners' concern that, in light of market conditions
relating to publicly traded real estate investment trusts, the value of the
transaction had diminished. As a result of such diminishment, the General
Partners' ability to unequivocally recommend voting for the transaction, in
the exercise of their fiduciary duties, had become questionable.
35
<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 Financial Group, Inc. and their affiliates, all of
which are affiliates of the General Partners.
James M. Seneff, Jr., age 53, 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 co-
venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff is a
principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial
Group, Inc. (formerly CNL Group, Inc.), a diversified real estate company, and
has served as a director, Chairman of the Board and Chief Executive Officer of
CNL Financial Group, Inc. since its formation in 1980. Mr. Seneff has served as
a director and Chairman of the Board since inception in 1994, and served as
Chief Executive Officer from 1994 through August 1999, of CNL American
Properties Fund, Inc., a public, unlisted real estate investment trust. He also
served as a director, Chairman of the Board and Chief Executive Officer of CNL
Fund Advisors, Inc., the advisor to CNL American Properties Fund, Inc. until it
merged with the company in September 1999. In addition, he serves as a
director, Chairman of the Board and Chief Executive Officer of CNL Health Care
Properties, Inc., as well as CNL Health Care Corp., the advisor to the company.
He also serves as director, Chairman of the Board and Chief Executive Officer of
CNL Hospitality Properties, Inc., a public, unlisted real estate investment
trust, as well as CNL Hospitality Corp., its advisor. Since 1992, Mr. Seneff
has served as Chairman of the Board and Chief Executive Officer of Commercial
Net Lease Realty, Inc., a public real estate investment trust that is listed on
the New York Stock Exchange. Mr. Seneff has also served as a director, Chairman
of the Board and Chief Executive Officer of the following affiliated companies
since formation: CNL Securities Corp., since 1979; CNL Investment Company, since
1990; and CNL Institutional Advisors, a registered investment advisor for
pension plans, since 1990. Mr. Seneff formerly served as a director of First
Union National Bank of Florida, N.A., and currently serves as the Chairman of
the Board of CNLBank. Mr. Seneff 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 recommends to the Florida Board of
Administration investments for various Florida employee retirement funds. The
Florida Board of Administration is Florida's principal investment advisory and
money management agency and oversees the investment of more than $60 billion of
retirement funds. Mr. Seneff received his degree in Business Administration
from Florida State University in 1968.
Robert A. Bourne, age 52, Since joining CNL Securities Corp. in 1979, Mr.
Bourne has participated as a general partner or co-venturer in over 100 real
estate ventures involved in the financing, acquisition, construction, and
leasing of restaurants, office buildings, apartment complexes, hotels, and other
real estate. Mr. Bourne is the President and Treasurer of CNL Financial Group,
Inc. (formerly CNL Group, Inc.). Mr. Bourne has served as a director since
inception in 1994, President from 1994 through February 1999, Treasurer from
February 1999 through August 1999, and Vice Chairman of the Board since February
1999 of CNL American Properties Fund, Inc., a public, unlisted real estate
investment trust. He also served in the following positions for CNL Fund
Advisors, Inc., the advisor to CNL American Properties Fund, Inc. prior to its
merger with CNL American Properties Fund, Inc.: director from 1994 through
August 1999, Treasurer from July 1998 through August 1999, President from 1994
through September 1997, and Vice Chairman of the Board from September 1997
through August 1999. Mr. Bourne is a director and President of CNL Health Care
Properties, Inc., as well as a director and President of CNL Health Care Corp.,
the advisor to the company. He is also a director, Vice Chairman of the Board
and President of CNL Hospitality Properties, Inc., a
36
<PAGE>
public, unlisted real estate investment trust, as well as CNL Hospitality Corp.,
its advisor. Mr. Bourne also serves as a director of CNLBank. He has served as a
director since 1992, Vice Chairman of the Board since February 1996, Secretary
and Treasurer from February 1996 through 1997, and President from July 1992
through February 1996, of Commercial Net Lease Realty Inc., a public real estate
investment trust listed on the New York Stock Exchange. Mr. Bourne holds the
following positions for these affiliates of CNL Financial Group, Inc.: director,
President and Treasurer of CNL Investment Company; director, President,
Treasurer, and Registered Principal of CNL Securities Corp., a subsidiary of CNL
Investment Company and director, President, Treasurer, and Chief Investment
Officer of CNL Institutional Advisors, Inc., a registered investment advisor for
pension plans. Mr. Bourne began his career as a certified public accountant
employed by Coopers & Lybrand, Certified Public Accountants, from 1971 through
1978, where he attained the position of tax manager in 1975. Mr. Bourne
graduated from Florida State University in 1970 where he received a B.A. in
Accounting, with honors.
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 450 South Orange Avenue, Orlando, Florida 32801.
CNL Fund Advisors, Inc. was a majority owned subsidiary of CNL Financial Group,
Inc., until its merger effective September 1, 1999. On September 1, 1999, CNL
American Properties Fund, Inc. acquired CNL Fund Advisors, Inc. and was
organized to perform property acquisition, property management and other
services.
CNL Financial Group, Inc., which was the parent company of CNL Fund
Advisors, Inc. through August 1999, was organized in 1980 under the laws of the
State of Florida. CNL Financial 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 Financial Group, Inc. Mr. Seneff and
his wife own all of the outstanding shares of CNL Holdings, Inc., the Parent
company of CNL Financial Group, Inc.
The following persons serve as operating officers of CNL Financial 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 Financial Group, Inc. and its affiliated companies.
Curtis B. McWilliams, age 44, joined CNL Financial Group, Inc. in April
1997 and served as an Executive Vice President through August 1999. He serves
as Chief Executive Officer of CNL American Properties Fund, Inc. and CNL Fund
Advisors, Inc. In addition, Mr. McWilliams served as President of CNL Fund
Advisors, Inc. and as President of the Restaurant and Financial Services Groups
within CNL Financial Group, Inc. through August 1999. Mr. McWilliams served as
President of CNL American Properties Fund, Inc. from February 1999 through
August 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 41, serves as President and Chief Operating Officer of
CNL American Properties Fund, Inc. and CNL Fund Advisors, Inc. He served as
Executive Vice President of CNL American Properties Fund, Inc. from January 1996
through August 1999, as Chief Operating Officer since March 1995 through August
1999, and previously served as Senior Vice President from December 1994 through
August 1999. In addition, Mr. Walker has served as Executive Vice President of
CNL Fund Advisors, Inc. since January 1996 through August 1999, Chief Operating
Officer from April 1995 through August 1999, 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. As of September 1, 1999, Mr. Walker
serves as
37
<PAGE>
President for CNL American Properties Fund, 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 51, Ms. Rose served as Secretary of CNL American
Properties Fund, Inc., a public, unlisted real estate investment trust, from
1994 through August 1999, and served as Treasurer from 1994 through February
1999. She also served as Treasurer of CNL Fund Advisors, Inc., from 1994
through July 1998, and served as Secretary and a director from 1994 through
August 1999, at which point it merged with CNL American Properties Fund, Inc.
In addition, she is Secretary and Treasurer of CNL Health Care Properties, Inc.,
and serves as Secretary of its subsidiaries. In addition, she serves as
Secretary, Treasurer and a director of CNL Health Care Corp., the advisor to
the company. Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality
Properties, Inc., a public, unlisted real estate investment trust, as Secretary,
Treasurer and a director of CNL Hospitality Corp., its Advisor, and as Secretary
of the subsidiaries of the company. Ms. Rose served as Secretary and Treasurer
of Commercial Net Lease Realty, Inc., a public real estate investment trust
listed on the New York Stock Exchange, from 1992 to February 1996, and as
Secretary and a director of CNL Realty Advisors, Inc., its advisor, from its
inception in 1991 through 1997. She also served as Treasurer of CNL Realty
Advisors, Inc. from 1991 through February 1996. Ms. Rose, a certified public
accountant, has served as Secretary of CNL Financial Group, Inc. (formerly CNL
Group, Inc.) since 1987, served as Controller from 1987 to 1993 and has served
as Chief Financial Officer since 1993. She also serves as Secretary of the
subsidiaries of CNL Financial Group, Inc. and holds various other offices in the
subsidiaries. In addition, she serves as Secretary for approximately 50
additional corporations affiliated with CNL Financial Group, Inc. and its
subsidiaries. Ms. Rose oversees the tax and legal compliance for over 375
corporations, partnerships and joint ventures, and the accounting and financial
reporting for over 200 entities. 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. She was licensed as a certified public accountant in 1979.
Jeanne A. Wall, age 41, Ms. Wall served as Executive Vice President of CNL
American Properties Fund, Inc., a public, unlisted real estate investment trust,
from 1994 through August 1999, and as Executive Vice President of CNL Fund
Advisors, Inc., its advisor, from 1994 through August 1999, at which point it
merged with CNL American Properties Fund, Inc. Ms. Wall also serves as Executive
Vice President of CNL Health Care Properties, Inc. and CNL Health Care Corp.,
the Advisor to the Company. Ms. Wall also serves as Executive Vice President of
CNL Hospitality Properties, Inc., a public, unlisted real estate investment
trust, and serves as Executive Vice President and a director of CNL Hospitality
Corp., its advisor. She also serves as a director for CNLBank. Ms. Wall serves
as Executive Vice President of CNL Financial Group, Inc. (formerly CNL Group,
Inc.). Ms. Wall has served as Chief Operating Officer of CNL Investment Company
and of CNL Securities Corp. since 1994 and has served as Executive Vice
President of CNL Investment Company since January 1991. In 1984, Ms. Wall joined
CNL Securities Corp. and in 1985, became Vice President. In 1987, she became a
Senior Vice President and in July 1997, 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, communications and
investor services for programs offered through participating brokers. Ms. Wall
also served as Senior Vice President of CNL Institutional Advisors Inc., a
registered investment advisor, from 1990 to 1993. Ms. Wall served as Vice
President of Commercial Net Lease Realty, Inc., a public real estate investment
trust listed on the New York Stock Exchange, from 1992 through 1997, and served
as Vice President of CNL Realty Advisors, Inc. from its inception in 1991
through 1997. Ms. Wall currently serves as a trustee on the Board of the
Investment Program Association, is a member of the Corporate Advisory Council
for the International Association for Financial Planning and is a member of IWF,
International Women's Forum. In addition, she previously served on the Direct
Participation Program committee for the National Association of Securities
Dealers, Inc. Ms. Wall holds a B.A. in Business Administration from Linfield
College and is a registered principal of CNL Securities Corp.
Steven D. Shackelford, age 36, a certified public accountant, serves as
Senior Vice President, Chief Financial Officer, and Secretary of CNL American
Properties Fund, Inc. and CNL Fund Advisors, Inc. He served as Chief Financial
Officer of CNL American Properties Fund, Inc. from January 1997 and as Chief
Financial Officer of CNL
38
<PAGE>
Fund Advisors, Inc. since September 1996 through August 1999. 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 15, 2000, 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 15, 2000, the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>
Title of Class Name of Partner Percent of Class
-------------- --------------- ----------------
<S> <C> <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.
39
<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, 1999, 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, 1999
- -------------------------------- ------------------------------------- ------------------------------
<S> <C> <C>
Reimbursement to affiliates for Operating expenses are reimbursed at Operating expenses incurred on
operating expenses the lower of cost or 90 percent of behalf of the Partnership:
the prevailing rate at which $178,711
comparable services could have been
obtained in the same geographic area. Accounting and administrative
Affiliates of the General Partners services: $116,167
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- One percent of the sum of gross $-0-
ment fee to 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 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.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1999
- --------------------------- ------------------------------------- -----------------------
<S> <C> <C>
Deferred, subordinated real A deferred, subordinated real estate $-0-
estate disposition fee disposition fee, payable upon sale of
payable to affiliates 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 equal $-0-
subordinated share of to one percent of Partnership
Partnership net cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Partnership net sales distributions of such net sales
proceeds from a sale or sales proceeds, subordinated to certain
not in liquidation of the minimum returns to the Limited
Partnership Partners.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1999
- --------------------------- ------------------------------------- -----------------------
<S> <C> <C>
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales from a sale or sales of substantially
proceeds from a sale or sales all of the Partnership's assets will
in liquidation of the be distributed in the following order
Partnership 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>
42
<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 Certified Public Accountants
Balance Sheets at December 31, 1999 and 1998
Statements of Income for the years ended December 31, 1999, 1998,
and 1997
Statements of Partners' Capital for the years ended December 31,
1999, 1998, and 1997
Statements of Cash Flows for the years ended December 31, 1999,
1998, and 1997
Notes to Financial Statements
2. Financial Statement Schedule
Schedule II -Valuation and Qualifying Accounts for the years ended
December 31, 1999, 1998 and 1997
Schedule III - Real Estate and Accumulated Depreciation at December
31, 1999
Notes to Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1999
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.)
43
<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 filed no reports on Form 8-K during the period October 1,
1999 through December 31, 1999.
44
<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 23rd day of
March, 2000.
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> <C>
/s/ Robert A. Bourne President, Treasurer and Director March 23, 2000
- ------------------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 23, 2000
- ------------------------------------
James M. Seneff, Jr. Executive Officer)
</TABLE>
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
------------------------------------------------
Years Ended December 31, 1999, 1998, and 1997
<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> <C> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= ======== =========
1999 Allowance for
doubtful
accounts (a) $ 206,052 $ -- $ 55,896 (b) $ 206,052 (c) $ -- $ 55,896
========= ========= ========= ========= ======== =========
</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.
F-1
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period (c)
--------------------------- ------------------ --------------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
------- ----------- -------------- -------- -------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Properties the Partnership has
Invested in Under
Operating Leases:
Burger King Restaurants:
Shelby, North Carolina - $ 289,663 $ 554,268 - - $ 289,663 $ 554,268 $ 843,931
Maple Heights, Ohio - 430,563 454,823 - - 430,563 454,823 885,386
Suwanee, Georgia - 437,658 - - - 437,658 (f) 437,658
Watertown, New York - 360,181 529,594 - - 360,181 529,594 889,775
Carrboro, North Carolina - 406,768 523,067 - - 406,768 523,067 929,835
Denny's Restaurants:
Grand Prairie, Texas - 240,876 96,580 161,889 - 240,876 258,469 499,345
North Baltimore, Ohio - 133,187 - - - 133,187 (f) 133,187
Golden Corral Family
Steakhouse Restaurants:
Brownsville, Texas - 518,605 988,611 - - 518,605 988,611 1,507,216
Tyler, Texas - 652,103 982,353 - - 652,103 982,353 1,634,456
Albany, Georgia - 564,576 1,076,633 - - 564,576 1,076,633 1,641,209
Hardee's Restaurants:
Farragut, Tennessee - 308,269 455,341 - - 308,269 455,341 763,610
Greenville, South Carolina - 310,545 511,438 - - 310,545 511,438 821,983
Perkins Restaurants:
Williamsville, New York (l) - 349,299 649,528 - - 349,299 649,528 998,827
Shell's Seafood Restaurants:
Copley Township, Ohio - 361,412 552,301 - - 361,412 552,301 913,713
Shoney's Restaurants:
Windcrest, Texas - 445,983 670,370 - - 445,983 670,370 1,116,353
Wildwood, Florida - 420,416 - - - 420,416 (f) 420,416
Bedford, Indiana - 262,103 - - - 262,103 (f) 262,103
Grenada, Mississippi - 335,001 454,723 - - 335,001 454,723 789,724
Huntsville, Alabama (g) - 638,400 717,302 - - 638,400 717,302 1,355,702
---------- ---------- -------- --- ---------- ---------- -----------
$7,465,608 $9,216,932 $161,889 - $7,465,608 $9,378,821 $16,844,429
========== ========== ======== === ========== ========== ===========
<CAPTION>
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Depreciation struction Acquired Computed
------------ --------- -------- ---------------
<S> <C> <C> <C> <C>
Properties the Partnership has
Invested in Under
Operating Leases:
Burger King Restaurants:
Shelby, North Carolina $ 34,393 1985 05/91 (j)
Maple Heights, Ohio 130,050 1980 06/91 (b)
Suwanee, Georgia (d) 1991 11/91 (d)
Watertown, New York 143,644 1986 11/91 (b)
Carrboro, North Carolina 32,458 1983 12/96 (i) (j)
Denny's Restaurants:
Grand Prairie, Texas 70,707 1991 08/91 (b)
North Baltimore, Ohio (d) 1986 11/91 (d)
Golden Corral Family
Steakhouse Restaurants:
Brownsville, Texas 281,416 1990 06/91 (b)
Tyler, Texas 279,634 1990 06/91 (b)
Albany, Georgia 29,039 1998 03/99 (b)
Hardee's Restaurants:
Farragut, Tennessee 124,917 1991 10/91 (b)
Greenville, South Carolina 139,747 1991 10/91 (b)
Perkins Restaurants:
Williamsville, New York (l) 24,213 1986 12/91 (k)
Shell's Seafood Restaurants:
Copley Township, Ohio 102,436 1991 12/91 (h)
Shoney's Restaurants:
Windcrest, Texas 187,459 1991 08/91 (b)
Wildwood, Florida (d) 1991 08/91 (d)
Bedford, Indiana (d) 1991 08/91 (d)
Grenada, Mississippi 125,121 1991 09/91 (b)
Huntsville, Alabama (g) 197,111 1989 10/91 (b)
----------
$1,902,345
==========
</TABLE>
F-2
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION> Costs Capitalized
Subsequent to Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period (c)
-------------------------- ---------------------- -------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
------- ------------ ------------- ------- --------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 - - $ 345,696 $ 651,985 $ 997,681
San Antonio, Texas - 350,479 623,615 - - 350,479 623,615 974,094
Pontiac, Michigan - 277,192 982,200 - - 277,192 982,200 1,259,392
Raceland, Louisiana - 174,019 986,879 - - 174,019 986,879 1,160,898
New Castle, Indiana - 264,239 662,265 - - 264,239 662,265 926,504
Hastings, Minnesota - 155,553 657,159 - - 155,553 657,159 812,712
------------ ----------- ------- -------- ---------- ----------- ----------
$ 1,567,178 $ 4,564,103 - - $1,567,178 $ 4,564,103 $6,131,281
============ =========== ======= ======== ========== =========== ==========
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 - - $ 338,800 $ 650,109 $ 988,909
Metairie, Louisiana - 429,883 342,455 - - 429,883 342,455 772,338
Lafayette, Louisiana - 350,932 773,129 - - 350,932 773,129 1,124,061
Nashua, New Hampshire - 514,815 838,536 - - 514,815 838,536 1,353,351
Pontiac, Illinois - 203,095 719,226 - - 203,095 719,226 922,321
Dover, New Hampshire - 406,259 998,023 - - 406,259 998,023 1,404,282
------------ ----------- ------ ------- ---------- ----------- ----------
$ 2,243,784 $ 4,321,478 - - $2,243,784 $ 4,321,478 $6,565,262
============ =========== ====== ======= ========== =========== ==========
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 - - $ 293,478 $ 997,104 $1,290,582
============ =========== ======== ======== ========== =========== ==========
<CAPTION>
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Depreciation struction Acquired Computed
--------------- ---------- ----------- -------------------
<S> <C> <C> <C> <C>
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 179,579 1986 09/91 (b)
San Antonio, Texas 171,764 1986 09/91 (b)
Pontiac, Michigan 270,531 1987 09/91 (b)
Raceland, Louisiana 271,820 1988 09/91 (b)
New Castle, Indiana 182,410 1988 09/91 (b)
Hastings, Minnesota $ 181,003 1990 09/91 (b)
--------------
$ 1,257,107
==============
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 $ 168,138 1990 03/92 (b)
Metairie, Louisiana 88,569 1990 03/92 (b)
Lafayette, Louisiana 199,954 1989 03/92 (b)
Nashua, New Hampshire 216,871 1987 03/92 (b)
Pontiac, Illinois 186,013 1988 03/92 (b)
Dover, New Hampshire 258,118 1987 03/92 (b)
--------------
$ 1,117,663
==============
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 $ 241,036 1987 10/92 (b)
==============
</TABLE>
F-3
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Initial Cost Acquisition
------------------------------ -----------------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
--------------- ------------ ----------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Property in Which the
Partnership has a 67%
Interest as Tenants-in-
Common and has
Invested in Under
Operating Lease:
IHOP Restaurant:
Englewood Colorado - $552,590 - - -
======== ======== ======== ========
Property in Which the Partnership
has a 25% Interest as
Tenants -in-Common and has
Invested in Under an Operating
Lease:
IHOP Restaurant:
Dublin, California - $670,899 $879,237 - -
======== ======== ======== ========
Property in Which the Partnership
has a 29% Interest as
Tenants -in-Common and has
Invested in Under an Operating
Lease:
IHOP Restaurant:
Montgomery, Alabama - $584,126 - - -
======== ======== ======== ========
<CAPTION>
Gross Amount at Which
Carried at Close of Period (c) Date
-----------------------------------------------------
Buildings and Accumulated of Con-
Land Improvements Total Depreciation struction
------------ --------------------- ------------ -------------------- -------------
<S> <C> <C> <C> <C> <C>
Property in Which the
Partnership has a 67%
Interest as Tenants-in-
Common and has
Invested in Under
Operating Lease:
IHOP Restaurant:
Englewood Colorado $552,590 (f) $ 552,590 (d) 1996
======== ==========
Property in Which the Partnership
has a 25% Interest as
Tenants -in-Common and has
Invested in Under an Operating
Lease:
IHOP Restaurant:
Dublin, California $670,899 $879,237 $1,550,136 $3,968 1998
======== ======== ========== ======
Property in Which the Partnership
has a 29% Interest as
Tenants -in-Common and has
Invested in Under an Operating
Lease:
IHOP Restaurant:
Montgomery, Alabama $584,126 (f) $ 584,126 (d) 1998
======== ==========
<CAPTION>
Life on Which
Depreciation in
Latest Income
Date Statement is
Acquired Computed
------------------ -----------------------
<S> <C> <C>
Property in Which the
Partnership has a 67%
Interest as Tenants-in-
Common and has
Invested in Under
Operating Lease:
IHOP Restaurant: 07/97 (d)
Englewood Colorado
Property in Which the Partnership
has a 25% Interest as
Tenants -in-Common and has
Invested in Under an Operating
Lease:
IHOP Restaurant:
Dublin, California 11/99 (b)
Property in Which the Partnership
has a 29% Interest as
Tenants -in-Common and has
Invested in Under an Operating
Lease:
IHOP Restaurant:
Montgomery, Alabama 11/99 (d)
</TABLE>
F-4
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Initial Cost Acquisition
----------------------------- --------------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
------------ ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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 - -
Shoney's Restaurants:
Wildwood, Florida - - 846,903 - -
Bedford, Indiana - - 540,604 - -
----------- --------------- ------------ -----------
$718,969 $4,410,663 $490,706 -
=========== =============== ============ ===========
<CAPTION>
Gross Amount at Which
Carried at Close of Period (c)
---------------------------------------------------
Date
Buildings and Accumulated of Con-
Land Improvements Total Depreciation struction
---------- ----------------- ------------------ ---------------- ----------
<S> <C> <C> <C> <C> <C>
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Burger King Restaurants:
Suwanee, Georgia - (f) (f) (d) 1991
Denny's Restaurants:
Alliance, Ohio (f) (f) (f) (e) 1992
Bluffton, Ohio (f) (f) (f) (e) 1986
N. Baltimore, Ohio - (f) (f) (d) 1986
Hardee's Restaurants:
Millbrook, Alabama (f) (f) (f) (e) 1991
Greenville, Tennessee (f) (f) (f) (e) 1991
Wooster, Ohio (f) (f) (f) (e) 1991
Auburn, Alabama (f) (f) (f) (e) 1991
Shoney's Restaurants:
Wildwood, Florida - (f) (f) (d) 1991
Bedford, Indiana - (f) (f) (d) 1991
<CAPTION>
Life on Which
Depreciation in
Latest Income
Date Statement is
Acquired Computed
----------- ------------------
<S> <C> <C>
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Burger King Restaurants:
Suwanee, Georgia 11/91 (d)
Denny's Restaurants:
Alliance, Ohio 10/91 (e)
Bluffton, Ohio 10/91 (e)
N. Baltimore, Ohio 11/91 (d)
Hardee's Restaurants:
Millbrook, Alabama 10/91 (e)
Greenville, Tennessee 10/91 (e)
Wooster, Ohio 10/91 (e)
Auburn, Alabama 10/91 (e)
Shoney's Restaurants:
Wildwood, Florida 08/91 (d)
Bedford, Indiana 08/91 (d)
</TABLE>
F-5
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period (c)
--------------------- ------------------ ---------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
------- ------ ------------- -------- -------- ---- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 - - - (f) (f)
===== ========== ===== ===== ====
Property in Which the Partnership
has a 29% Interest as Tenants-
in-Common and has Invested
In Under Direct Financing Leases:
IHOP Restaurant
Montgomery, Alabama - - $ 933,873 - - - (f) (f)
===== ========== ===== ===== ====
<CAPTION>
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Depreciation struction Acquired Computed
------------ --------- -------- ---------------
<S> <C> <C> <C> <C>
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 (d) 1996 07/97 (d)
Property in Which the Partnership
has a 29% Interest as Tenants-
in-Common and has Invested
In Under Direct Financing Leases:
IHOP Restaurant
Montgomery, Alabama (d) 1998 11/99 (d)
</TABLE>
F-6
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
---------------------------------------------------
DEPRECIATION
------------
December 31, 1999
(a) Transactions in real estate and accumulated depreciation during 1999, 1998,
and 1997, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
------------ ------------
<S> <C> <C>
Properties the Partnership has Invested
in Under Operating Leases:
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
Acquisition 1,641,209 --
Dispositions (1,823,513) (125,590)
Depreciation expense -- 316,748
------------ -----------
Balance, December 31, 1999 $ 16,844,429 $ 1,902,345
============ ===========
Property of Joint Venture in Which the Partnership
has a 45.2% Interest and has Invested in Under
an Operating Lease:
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
Depreciation expense -- 152,136
------------ -----------
Balance, December 31, 1999 $ 6,131,281 $ 1,257,107
============ ===========
</TABLE>
F-7
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
----------------------------------------------------
DEPRECIATION - CONTINUED
------------------------
December 31, 1999
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
----------- ------------
<S> <C> <C>
Properties of Joint Venture in Which the Partnership
has a 50% Interest and has Invested in Under Operating
Leases:
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
Depreciation expense -- 144,050
----------- -----------
Balance, December 31, 1999 $ 6,565,262 $ 1,117,663
=========== ===========
Property of Joint Venture in Which the
Partnership has a 27.33% Interest and has Invested in
Under an Operating Lease:
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
Depreciation expense -- 33,237
----------- -----------
Balance, December 31, 1999 $ 1,290,582 $ 241,036
=========== ===========
Property in Which the Partnership has a 67% Interest as
Tenants-in-Common and has Invested in Under a
Operating Lease:
Balance, December 31, 1996 $ -- $ --
Acquisition 552,590 --
Depreciation expense (d) -- --
----------- -----------
Balance, December 31, 1997 552,590 --
Depreciation expense (d) -- --
----------- -----------
Balance, December 31, 1998 552,590 --
Depreciation expense (d) -- --
----------- -----------
Balance, December 31, 1999 $ 552,590 $ --
=========== ===========
</TABLE>
F-8
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
----------------------------------------------------
DEPRECIATION - CONTINUED
------------------------
December 31, 1999
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
----------- ------------
<S> <C> <C>
Property in Which the Partnership has a 25% Interest as
Tenants-in-Common and has Invested in Under a
Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisition 1,550,137 --
Depreciation expense -- 3,968
----------- -------
Balance, December 31, 1999 $ 1,550,137 $ 3,968
=========== =======
Property in Which the Partnership has a 29% Interest as
Tenants-in-Common and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisition 584,126 --
Depreciation expense (d) -- --
----------- -------
Balance, December 31, 1999 $ 584,126 $ --
=========== =======
</TABLE>
(b) Depreciation expense is computed for buildings and improvements based upon
estimated lives of 30 years.
(c) As of December 31, 1999, the aggregate cost of the Properties owned by the
Partnership and joint ventures for federal income tax purposes was
$22,521,545 and $18,616,692, 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, Alabama 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.
F-9
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
----------------------------------------------------
DEPRECIATION - CONTINUED
------------------------
December 31, 1999
(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 re-leased 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
estimated 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, 1999, excluding the allowance for loss
on the building.
F-10
<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>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund IX, Ltd. at December 31, 1999, and its statement of
income for the twelve months then ended and is qualified in its entirety by
reference to the Form-10K of CNL Income Fund IX, Ltd. for the twelve months
ended December 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 936,506
<SECURITIES> 0
<RECEIVABLES> 164,134
<ALLOWANCES> 55,896
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 16,595,061
<DEPRECIATION> 1,902,345
<TOTAL-ASSETS> 29,443,276
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 28,448,981
<TOTAL-LIABILITY-AND-EQUITY> 29,443,276
<SALES> 0
<TOTAL-REVENUES> 2,476,360
<CGS> 0
<TOTAL-COSTS> 773,627
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,385,067
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,385,067
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,385,067
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund IX, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
