FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-20016
CNL Income Fund X, Ltd.
(Exact name of registrant as specified in its charter)
Florida 59-3004139
(State or other juris- (I.R.S. Employer
diction of incorporation Identification No.)
or organization)
400 E. South Street, #500
Orlando, Florida 32801
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8-11
Part II
Other Information 12
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
ASSETS 1997 1996
------ ------------- ------------
Land and buildings on operating
leases, less accumulated
depreciation of $1,056,388 and
$898,779 $14,489,450 $15,224,392
Net investment in direct financing
leases 13,515,340 14,219,805
Investment in joint ventures 3,388,415 3,449,210
Cash and cash equivalents 1,771,316 1,769,483
Restricted cash 1,362,821 -
Receivables, less allowance for
doubtful accounts of $111,391 and
$4,428 106,902 52,470
Prepaid expenses 10,034 5,503
Accrued rental income, less
allowance for doubtful accounts
of $111,495 and $88,781 1,730,249 1,683,593
Other assets 33,104 33,104
----------- -----------
$36,407,631 $36,437,560
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 2,065 $ 2,913
Escrowed real estate taxes payable 26,522 45,060
Distributions payable 900,001 940,000
Due to related parties 9,409 1,609
Rents paid in advance and
deposits 208,860 160,928
----------- -----------
Total liabilities 1,146,857 1,150,510
Minority interest 64,512 64,385
Commitment (Note 5)
Partners' capital 35,196,262 35,222,665
----------- -----------
$36,407,631 $36,437,560
=========== ===========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C>
Revenues:
Rental income from
operating leases $ 471,805 $ 527,259 $1,413,443 $1,381,652
Earned income from direct
financing leases 376,124 342,685 1,129,655 1,234,470
Contingent rental income 10,014 7,613 22,186 9,965
Interest and other income 14,289 19,753 74,727 64,987
---------- ---------- ---------- ----------
872,232 897,310 2,640,011 2,691,074
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 37,138 42,278 112,266 130,969
Professional services 5,282 4,877 17,114 23,125
State and other taxes - - 9,503 9,314
Depreciation and
amortization 52,536 60,296 157,609 155,422
---------- ---------- ---------- ----------
94,956 107,451 296,492 318,830
---------- ---------- ---------- ----------
Income Before Minority
Interest in Income of
Consolidated Joint
Venture, Equity in
Earnings of Unconsoli-
dated Joint Ventures and
Gain on Sale of Land and
Net Investment in Direct
Financing Lease 777,276 789,859 2,343,519 2,372,244
Minority Interest in
Income of Consolidated
Joint Venture (2,271) (2,278) (6,325) (6,264)
Equity in Earnings of
Unconsolidated Joint
Ventures 71,523 71,490 204,167 205,623
Gain on Sale of Land and
Net Investment in Direct
Financing Lease 132,238 - 132,238 -
---------- ---------- ---------- ---------
Net Income $ 978,766 $ 859,071 $2,673,599 $2,571,603
========== ========== ========== ==========
Allocation of Net Income:
General partners $ 8,466 $ 8,591 $ 25,414 $ 25,716
Limited partners 970,300 850,480 2,648,185 2,545,887
---------- ---------- ---------- ----------
$ 978,766 $ 859,071 $2,673,599 $2,571,603
========== ========== ========== ==========
Net Income Per Limited
Partner Unit $ 0.24 $ 0.21 $ 0.66 $ 0.64
========== ========== ========== ==========
Weighted Average Number
of Limited Partner Units
Outstanding 4,000,000 4,000,000 4,000,000 4,000,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
1997 1996
----------------- ------------
General partners:
Beginning balance $ 174,718 $ 140,100
Net income 25,414 34,618
----------- -----------
200,132 174,718
----------- -----------
Limited partners:
Beginning balance 35,047,947 35,260,756
Net income 2,648,185 3,427,194
Distributions ($0.68 and
$0.91 per limited partner
unit,respectively) (2,700,002) (3,640,003)
----------- -----------
34,996,130 35,047,947
----------- -----------
Total partners' capital $35,196,262 $35,222,665
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1997 1996
----------- ----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 2,748,032 $ 2,809,766
----------- -----------
Cash Flows from Investing
Activities:
Proceeds from sale of land and
building 1,363,805 -
Additions to land and buildings
on operating leases - (978)
Investment in direct financing
leases - (1,542)
Investment in joint ventures - (129,503)
Return of capital from joint
venture - 20,551
Increase in restricted cash (1,363,805) -
----------- -----------
Net cash used in investing
activities - (111,472)
----------- -----------
Cash Flows from Financing
Activities:
Distributions to limited
partners (2,740,001) (2,740,001)
Distributions to holder of
minority interest (6,198) (5,709)
----------- -----------
Net cash used in financing
activities (2,746,199) (2,745,710)
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 1,833 (47,416)
Cash and Cash Equivalents at Beginning
of Period 1,769,483 1,832,853
----------- -----------
Cash and Cash Equivalents at End of
Period $ 1,771,316 $ 1,785,437
=========== ===========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid
at end of period $ 900,001 $ 900,001
=========== ===========
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1997 and 1996
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and nine months ended September 30, 1997, may not be
indicative of the results that may be expected for the year ending
December 31, 1997. Amounts as of December 31, 1996, included in the
financial statements, have been derived from audited financial
statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund X, Ltd. (the "Partnership") for the year ended December 31,
1996.
The Partnership accounts for its 88.26% interest in Allegan Real Estate
Joint Venture using the consolidation method. Minority interest
represents the minority joint venture partner's proportionate share of
the equity in the Partnership's consolidated joint venture. All
significant intercompany accounts and transactions have been
eliminated.
2. Land and Building on Operating Leases:
In September 1997, the Partnership sold its property in Fremont,
California, to the franchisor, for $1,420,000 and received net sales
proceeds (net of $2,745 which represents amounts due to the former
tenant for prorated rent) of $1,363,805, resulting in a gain of
$132,238 for financial reporting purposes. This property was originally
acquired by the Partnership in March 1992 and had a cost of
approximately $1,116,900, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the property for
approximately $249,700 in excess of its original purchase price.
5
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
3. Net Investment in Direct Financing Leases:
In September 1997, the Partnership sold its property in Fremont,
California, for which the building portion had been classified as a
direct financing lease. In connection therewith, the gross investment
(minimum lease payments receivable and the estimated residual value)
and unearned income relating to the building were removed from the
accounts and the gain from the sale of the property was reflected in
income (Note 2).
4. Restricted Cash:
As of September 30, 1997, the net sales proceeds of $1,363,805 from the
sale of the property in Fremont, California, less escrow fees (net of
accrued interest) of $984 were being held in an interest-bearing escrow
account pending the release of funds by the escrow agent to acquire an
additional property.
5. Commitment:
In October 1995, the tenant of the Partnership's property located in
Austin, Texas, entered into a sublease agreement for a vacant parcel of
land under which the subtenant has the option to purchase such land.
The subtenant exercised the purchase option and in accordance with the
terms of the sublease agreement, the tenant assigned the purchase
contract, together with the purchase contract payment of $69,000, from
the subtenant, to the Partnership. As of September 30, 1997, the sale
of the vacant parcel of land had not closed and, as a result, the net
proceeds of $68,000 (representing the original $69,000 received by the
Partnership, less $1,000 in costs incurred in anticipation of the sale)
were recorded as a deposit at September 30, 1997. The contract price of
$69,000 exceeds the Partnership's cost attributable to the parcel of
land.
6
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
6. Subsequent Event:
In October 1997, the Partnership reinvested approximately $1,270,500 of
the net sales proceeds it received from the sale of the property in
Fremont, California, in a Boston Market property located in Homewood,
Alabama. In connection therewith, the Partnership entered into a long
term, triple- net lease with terms substantially the same as its other
leases. The Partnership acquired the Boston Market property from an
affiliate of the general partners. The affiliate had purchased and
temporarily held title to the property in order to facilitate the
acquisition of the property by the Partnership. The purchase price paid
by the Partnership represented the costs incurred by the affiliate to
acquire the property, including closing costs.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CNL Income Fund X, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on April 16, 1990, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as land upon which restaurants were to be
constructed (the "Properties"), which are leased primarily to operators of
selected national and regional fast-food and family-style restaurant chains. The
leases are triple-net leases, with the lessees generally responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of
September 30, 1997, the Partnership owned 47 Properties, including nine
Properties owned by joint ventures in which the Partnership is a co-venturer and
one property owned with affiliates as tenants-in-common.
Liquidity and Capital Resources
The Partnership's primary source of capital for the nine months ended
September 30, 1997 and 1996, was cash from operations (which includes cash
received from tenants, distributions from joint ventures, and interest and other
income received, less cash paid for expenses). Cash from operations was
$2,748,032 and $2,809,766 for the nine months ended September 30, 1997 and 1996,
respectively. The decrease in cash from operations for the nine months ended
September 30, 1997, is primarily a result of changes in income and expenses as
discussed below in "Results of Operations" and changes in the Partnership's
working capital.
Other sources and uses of capital included the following during the
nine months ended September 30, 1997.
In September 1997, the Partnership sold its Property in Fremont,
California, to the franchisor, for $1,420,000 and received net sales proceeds
(net of $2,745 which represents amounts due to the former tenant for prorated
rent) of $1,363,805, resulting in a gain of $132,238 for financial reporting
purposes. This Property was originally acquired by the Partnership in March 1992
and had a cost of approximately $1,116,900, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the Property
for approximately $249,700 in excess of its original purchase price. As of
September 30, 1997, the net sales proceeds of $1,363,805 less escrow fees (net
of accrued interest) of $984 were being held in an interest-bearing escrow
account pending the release of funds by the escrow agent to acquire an
additional Property. In October 1997, the Partnership reinvested approximately
$1,270,500 of the net sales proceeds in a Boston Market Property in Homewood,
Alabama. In connection therewith, the Partnership entered into a long term,
triple-net lease with terms substantially the same as its other leases. The
Partnership acquired the Boston Market Property from an affiliate of the general
partners. The affiliate had purchased and temporarily held title to the Property
in order to facilitate the acquisition of the Property by the Partnership. The
purchase price paid by the Partnership represented the costs incurred by the
affiliate to
8
<PAGE>
Liquidity and Capital Resources - Continued
acquire the Property, including closing costs. The general partners believe that
the transaction, or a portion thereof, relating to the sale of the Property in
Fremont, California and the reinvestment of the proceeds in a Boston Market
Property in Homewood, Alabama, will qualify as a like-kind exchange transaction
for federal income tax purposes. However, the Partnership will distribute
amounts sufficient to enable the limited partners to pay federal and state (at a
level reasonably assumed by the general partners) income taxes, if any,
resulting from the sale. The Partnership intends to reinvest the remaining net
sales proceeds in an additional Property or use them for other Partnership
purposes.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At September 30, 1997, the Partnership had
$1,771,316 invested in such short-term investments as compared to $1,769,483 at
December 31, 1996. The funds remaining at September 30, 1997, after payment of
distributions and other liabilities, will be used to meet the Partnership's
working capital and other needs.
Total liabilities of the Partnership, including distributions payable,
decreased to $1,146,857 at September 30, 1997, from $1,150,510 at December 31,
1996, primarily as the result of the Partnership's accruing a special
distribution payable to the limited partners of $40,000 at December 31, 1996,
which was paid in January 1997 from cumulative excess operating reserves. The
decrease is partially offset by an increase in rents paid in advance at
September 30, 1997. The general partners believe that the Partnership has
sufficient cash on hand to meet its current working capital needs.
In October 1995, the tenant of the Partnership's Property located in
Austin, Texas, entered into a sublease agreement for a vacant parcel of land
under which the subtenant has the option to purchase such land. The subtenant
exercised the purchase option and in accordance with the terms of the sublease
agreement, the tenant assigned the purchase contract, together with the purchase
contract payment of $69,000, from the subtenant, to the Partnership. As of
September 30, 1997, the sale of the vacant parcel of land had not closed and, as
a result, the net proceeds of $68,000 (representing the original $69,000
received by the Partnership, less $1,000 in costs incurred in anticipation of
the sale) were recorded as a deposit at September 30, 1997.
Based primarily on cash from operations, the Partnership declared
distributions to limited partners of $2,700,002 for each of the nine months
ended September 30, 1997 and 1996 ($900,001 for each of the quarters ended
September 30, 1997 and 1996). This represents distributions for each applicable
nine months of $0.68 per unit ($0.23 per unit for each applicable quarter ended
September 30, 1997 and 1996). No distributions were made to the
9
<PAGE>
Liquidity and Capital Resources - Continued
general partners for the quarters and nine months ended September 30, 1997 and
1996. No amounts distributed or to be distributed to the limited partners for
the nine months ended September 30, 1997 and 1996, are required to be or have
been treated by the Partnership as a return of capital for purposes of
calculating the limited partners' return on their adjusted capital
contributions. The Partnership intends to continue to make distributions of cash
available for distribution to the limited partners on a quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
Results of Operations
During the nine months ended September 30, 1997 and 1996, the
Partnership and its consolidated joint venture, Allegan Real Estate Joint
Venture, owned and leased 39 wholly owned Properties (including one Property in
Fremont, California, which was sold in September 1997) to operators of fast-food
and family-style restaurant chains. In connection therewith, during the nine
months ended September 30, 1997 and 1996, the Partnership and Allegan Real
Estate Joint Venture earned $2,543,098 and $2,616,122, respectively, in rental
income from operating leases and earned income from direct financing leases for
these Properties, $847,929 and $869,944 of which was earned during the quarters
ended September 30, 1997 and 1996, respectively. The decrease in rental and
earned income during the quarter and nine months ended September 30, 1997, as
compared to the quarter and nine months ended September 30, 1996, is primarily
attributable to the Partnership increasing its allowance for doubtful accounts
by approximately $27,900 and $89,500, respectively, during 1997, for rental
amounts relating to the Perkins Properties located in Lancaster and Amherst, New
York, which are leased by the same tenant, due to financial difficulties the
tenant is experiencing. No such allowance was established during the quarter and
nine months ended September 30, 1996. As of October 31, 1997, the Partnership
was negotiating an agreement with the tenant of these Properties for the
collection of past due amounts and will recognize such amounts as income if
collected.
The decrease in rental and earned income during the quarter and nine
months ended September 30, 1997, as compared to the quarter and nine months
ended September 30, 1996, is partially offset by an increase of approximately
$14,300 and $34,800 during the quarter and nine months ended September 30, 1997,
respectively,
10
<PAGE>
Results of Operations - Continued
due to the fact that in March 1996, the lease relating to the Perkins Property
in Ft. Pierce, Florida, was amended to provide for reduced annual base rent from
an effective date of October 1, 1995 through January 1, 1997.
For the nine months ended September 30, 1997 and 1996, the Partnership
also earned $22,186 and $9,965, respectively, in contingent rental income,
$10,014 and $7,613 of which was earned during the quarters ended September 30,
1997 and 1996, respectively. The increase in contingent rental income during the
quarter and nine months ended September 30, 1997, is primarily attributable to
an increase in gross sales relating to certain restaurant Properties, the leases
of which require the payment of contingent rent.
For the nine months ended September 30, 1997 and 1996, the Partnership
also owned and leased eight Properties indirectly through other joint venture
arrangements and one Property as tenants-in-common with affiliates of the
general partners. In connection therewith, during the nine months ended
September 30, 1997 and 1996, the Partnership earned $204,167 and $205,623,
respectively, attributable to the net income earned by these unconsolidated
joint ventures, $71,523 and $71,490 of which was earned during the quarters
ended September 30, 1997 and 1996, respectively.
Operating expenses, including depreciation and amortization expense,
were $296,492 and $318,830 for the nine months ended September 30, 1997 and
1996, respectively, of which $94,956 and $107,451 were incurred for the quarters
ended September 30, 1997 and 1996, respectively. The decrease in operating
expenses during the quarter and nine months ended September 30, 1997, as
compared to the quarter and nine months ended September 30, 1996, is primarily
the result of a decrease in accounting and administrative expenses associated
with operating the Partnership and its Properties.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the quarter
ended September 30, 1997.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 10th day of November, 1997.
CNL INCOME FUND X, LTD.
By:CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-----------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-----------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund X, Ltd. at September 30, 1997, and its statement of
income for the nine months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund X, Ltd. for the nine months ended
September 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,134,137<F2>
<SECURITIES> 0
<RECEIVABLES> 218,293
<ALLOWANCES> 111,391
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 15,545,838
<DEPRECIATION> 1,056,388
<TOTAL-ASSETS> 36,407,631
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 35,196,262
<TOTAL-LIABILITY-AND-EQUITY> 36,407,631
<SALES> 0
<TOTAL-REVENUES> 2,640,011
<CGS> 0
<TOTAL-COSTS> 296,492
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,673,599
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,673,599
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,673,599
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund X, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
<F2>Cash balance includes $1,362,821 in restricted cash.
</FN>
</TABLE>
