FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-20016
CNL Income Fund X, Ltd.
(Exact name of registrant as specified in its charter)
Florida 59-3004139
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street
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 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 7-10
Part II
Other Information 11
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
ASSETS 1998 1997
------ ----------- --------
Land and buildings on operating
leases, less accumulated
depreciation of $1,229,643 and
$1,113,247 $15,084,387 $15,709,899
Net investment in direct financing
leases 12,827,334 13,460,125
Investment in joint ventures 3,455,668 3,505,326
Cash and cash equivalents 1,698,371 1,583,883
Restricted cash 1,248,895 92,236
Receivables, less allowance for
doubtful accounts of $249,909 and
$137,856 - 123,903
Prepaid expenses 13,098 5,877
Accrued rental income, less
allowance for doubtful accounts
of $257,225 and $117,593 1,327,359 1,775,374
Other assets 33,104 33,104
----------- -----------
$35,688,216 $36,289,727
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 1,834 $ 6,033
Escrowed real estate taxes payable 57,163 27,784
Distributions payable 900,001 900,001
Due to related parties 4,348 4,946
Rents paid in advance and
deposits 164,746 132,419
----------- -----------
Total liabilities 1,128,092 1,071,183
Minority interest 64,488 64,501
Partners' capital 34,495,636 35,154,043
----------- -----------
$35,688,216 $36,289,727
=========== ===========
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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- -------
<S> <C>
Revenues:
Rental income from
operating leases $ 446,745 $ 494,200 $ 896,256 $ 958,253
Adjustments to accrued
rental income (426,116) (6,099) (432,215) (16,615)
Earned income from direct
financing leases 264,420 350,942 623,257 753,531
Contingent rental income 6,794 7,810 10,655 12,172
Interest and other income 32,294 39,696 58,766 60,438
---------- ---------- ---------- ----------
324,137 886,549 1,156,719 1,767,779
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 45,324 39,970 83,561 75,128
Bad debt expense 3,854 - 5,887 -
Professional services 8,160 4,974 13,359 11,832
Real estate taxes 9,574 - 9,574 -
State and other taxes 249 - 10,520 9,503
Depreciation and
amortization 58,198 52,536 116,396 105,073
---------- ---------- ---------- ----------
125,359 97,480 239,297 201,536
---------- ---------- ---------- ----------
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 Building 198,778 789,069 917,422 1,566,243
Minority Interest in
Income of Consolidated
Joint Venture (2,069) (2,082) (4,255) (4,054)
Equity in Earnings of Uncon-
solidated Joint Ventures 74,135 70,820 137,269 132,644
Gain on Sale of Land and
Building - - 171,159 -
---------- ---------- ---------- ---------
Net Income $ 270,844 $ 857,807 $1,221,595 $1,694,833
========== ========== ========== ==========
Allocation of Net Income:
General partners $ 2,708 $ 8,578 $ 10,504 $ 16,948
Limited partners 268,136 849,229 1,211,091 1,677,885
---------- ---------- ---------- ----------
$ 270,844 $ 857,807 $1,221,595 $1,694,833
========== ========== ========== ==========
Net Income Per Limited
Partner Unit $ 0.07 $ 0.21 $ 0.30 $ 0.42
========== ========== ========== ==========
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
Six Months Ended Year Ended
June 30, December 31,
1998 1997
---------------- -----------
General partners:
Beginning balance $ 208,709 $ 174,718
Net income 10,504 33,991
----------- -----------
219,213 208,709
----------- -----------
Limited partners:
Beginning balance 34,945,334 35,047,947
Net income 1,211,091 3,497,390
Distributions ($0.47 and
$0.90 per limited partner
unit, respectively) (1,880,002) (3,600,003)
----------- -----------
34,276,423 34,945,334
----------- -----------
Total partners' capital $34,495,636 $35,154,043
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1998 1997
----------- -------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 1,908,622 $ 1,779,469
----------- -----------
Cash Flows from Investing
Activities:
Proceeds from sale of land
and building 1,231,106 -
Increase in restricted cash (1,140,970) -
----------- ----------
Net cash provided by
investing activities 90,136 -
----------- ----------
Cash Flows from Financing
Activities:
Distributions to limited
partners (1,880,002) (1,840,000)
Distributions to holder of
minority interest (4,268) (3,915)
----------- -----------
Net cash used in
financing activities (1,884,270) (1,843,915)
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 114,488 (64,446)
Cash and Cash Equivalents at Beginning
of Period 1,583,883 1,769,483
----------- -----------
Cash and Cash Equivalents at End of
Period $ 1,698,371 $ 1,705,037
=========== ===========
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 Six Months Ended June 30, 1998 and 1997
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 1998, may not be indicative
of the results that may be expected for the year ending December 31,
1998. Amounts as of December 31, 1997, 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,
1997.
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.
Certain items in the prior year's financial statements have been
reclassified to conform to 1998 presentation. These reclassifications
had no effect on partners' capital or net income.
The general partners are in the process of analyzing the effects of the
consensus reached by the Financial Accounting Standards Board in EITF
98-9, entitled "Accounting for Contingent Rent in the Interim Financial
Periods," issued in May 1998. The general partners do not expect that
the conclusions reached in this consensus will have a material effect
on the Partnership's financial position or results of operations.
2. Land and Building on Operating Leases:
In January 1998, the Partnership sold its property in Sacramento,
California, to the tenant for $1,250,000 and received net sales
proceeds of $1,230,672, resulting in a gain of $163,349 for financial
reporting purposes. This property was originally acquired by the
Partnership in December 1991
5
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1998 and 1997
2. Land and Building on Operating Leases - Continued:
and had a cost of approximately $969,400, excluding acquisition fees
and miscellaneous acquisition expenses; therefore, the Partnership sold
the property for approximately $261,300 in excess of its original
purchase price.
In addition, in March 1998, a vacant parcel of land relating to the
property in Austin, Texas, was sold to a third party who had previously
subleased the land from the Partnership's lessee. In connection
therewith, the Partnership received net sales proceeds of $68,434
($68,000 of which had been received as a deposit in 1995), resulting in
a gain of $7,810 for financial reporting purposes.
3. Net Investment in Direct Financing Leases:
In March 1998, the Partnership sold its property in Sacramento,
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 (see Note 2).
4. Restricted Cash:
As of June 30, 1998, the net sales proceeds of $1,230,672 from the sale
of the property in Sacramento, California, plus accrued interest of
$18,223 were being held in an interest-bearing escrow account pending
the release of funds by the escrow agent to acquire an additional
property.
6
<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 June 30,
1998, the Partnership owned 48 Properties, including nine Properties owned by
joint ventures in which the Partnership is a co-venturer and two properties
owned with affiliates as tenants-in-common.
Liquidity and Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 1998 and 1997, 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 $1,908,622 and
$1,779,469 for the six months ended June 30, 1998 and 1997, respectively. The
increase in cash from operations for the six months ended June 30, 1998, is
primarily a result of changes in the Partnership's working capital.
Other sources and uses of capital included the following during the six
months ended June 30, 1998.
In January 1998, the Partnership sold its Property in Sacramento,
California, to the tenant, for $1,250,000 and received net sales proceeds of
$1,230,672, resulting in a gain of $163,349 for financial reporting purposes.
This Property was originally acquired by the Partnership in December 1991 and
had a cost of approximately $969,400, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the Property
for approximately $261,300 in excess of its original purchase price. As of June
30, 1998, net sales proceeds of $1,230,672 plus accrued interest of $18,223 were
being held in an interest-bearing escrow account pending the release of funds by
the escrow agent to acquire an additional Property.
In addition, in March 1998, a vacant parcel of land relating to the
Property in Austin, Texas, was sold to a third party who had previously
subleased the land from the Partnership's lessee. In connection therewith, the
Partnership received net sales proceeds of $68,434 ($68,000 of which had been
received as a deposit in 1995), resulting in a gain of $7,810 for financial
reporting purposes.
7
<PAGE>
Liquidity and Capital Resources - Continued
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 June 30, 1998, the Partnership had $1,698,371
invested in such short-term investments as compared to $1,583,883 at December
31, 1997. The funds remaining at June 30, 1998, 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,
increased to $1,128,092 at June 30, 1998, from $1,071,183 at December 31, 1997,
primarily as the result of an increase in rents paid in advance and escrowed
real estate taxes payable at June 30, 1998, as compared to December 31, 1997.
The general partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.
Based on cash from operations, and for the six months ended June 30,
1998, accumulated excess operating reserves, the Partnership declared
distributions to limited partners of $1,880,002 and $1,800,001 for each of the
six months ended June 30, 1998 and 1997, respectively ($900,001 for each of the
quarters ended June 30, 1998 and 1997). This represents distributions of $0.47
and $0.45 per unit for the six months ended June 30, 1998 and 1997, respectively
($0.23 per unit for each applicable quarter ended June 30, 1998 and 1997). No
distributions were made to the general partners for the quarters and six months
ended June 30, 1998 and 1997. No amounts distributed to the limited partners for
the six months ended June 30, 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.
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 six months ended June 30, 1998 and 1997, 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, and one Property in Sacramento,
California, which
8
<PAGE>
Results of Operations - Continued
was sold in January 1998) to operators of fast-food and family-style restaurant
chains. In connection therewith, during the six months ended June 30, 1998 and
1997, the Partnership and Allegan Real Estate Joint Venture earned $1,087,298
and $1,695,169, respectively, in rental income from operating leases (net of
adjustments to accrued rental income) and earned income from direct financing
leases from these Properties, $285,049 and $839,043 of which was earned during
the quarters ended June 30, 1998 and 1997, respectively. The decrease in rental
and earned income during the quarter and six months ended June 30, 1998, as
compared to the quarter and six months ended June 30, 1997, is partially due to
a decrease of approximately $19,500 and $62,900 for the quarter and six months
ended June 30, 1998, respectively, in rental and earned income due to the fact
that the lease relating to the Perkins Property in Ft. Pierce, Florida, was
amended to provide for rent reductions from May 1997 through December 31, 1998.
Due to the lease amendment and questionable collectibility of future scheduled
rent increases from this tenant, the Partnership increased its reserve for
accrued rental income (non-cash accounting adjustment relating to the
straight-lining of future scheduled rent increases over the lease term in
accordance with generally accepted accounting principles) by approximately
$133,500 and $139,600 during the quarter and six months ended June 30, 1998,
respectively, as compared to approximately $6,100 and $16,600 during the quarter
and six months ended June 30, 1997, respectively. In addition, rental and earned
income decreased by approximately $60,400 and $115,300 during the quarter and
six months ended June 30, 1998, respectively, as a result of the sale of the
Properties in Fremont, California in September 1997 and Sacramento, California
in January 1998.
In addition, the decrease during the quarter and six months ended June
30, 1998, as compared to the quarter and six months ended June 30, 1997, was
partially attributable to the fact that in May 1998, the tenant of the
Properties in Lancaster and Amherst, New York, filed for bankruptcy. As a
result, during the quarter and six months ended June 30, 1998, the Partnership
wrote off approximately $292,600 of accrued rental income (non-cash accounting
adjustment relating to the straight-lining of future scheduled rent increases
over the lease term in accordance with generally accepted accounting
principles). The Partnership also increased the allowance for doubtful accounts
for past due rental amounts for these Properties in the amount of $87,100 and
$77,100 for the quarter and six months ended June 30, 1998, respectively, due to
the fact that collection of such amounts is questionable. The Partnership is
currently seeking either replacement tenants or purchasers for these Properties.
The Partnership will not recognize any rental and earned income from these
Properties until replacement tenants or purchasers for these Properties are
located.
The decrease in rental and earned income for the quarter and six months
ended June 30, 1998 was partially offset by an increase in rental and earned
income of approximately $36,800 and $73,600
9
<PAGE>
Results of Operations - Continued
during the quarter and six months ended June 30, 1998, respectively, due to the
reinvestment of a portion of the net sales proceeds from the 1997 sale of the
Property in Fremont, California, in a Property in Homewood, Alabama in October
1997.
For the six months ended June 30, 1998 and 1997, 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, and for the six months ended June 30, 1998, the Partnership
owned and leased one additional Property as tenants-in-common with affiliates of
the general partners. In connection therewith, during the six months ended June
30, 1998 and 1997, the Partnership earned $137,269 and $132,644, respectively,
attributable to the net income earned by unconsolidated joint ventures, $74,135
and $70,820 of which was earned during the quarters ended June 30, 1998 and
1997, respectively. The increase in net income earned by unconsolidated joint
ventures during the quarter and six months ended June 30, 1998, as compared to
the quarter and six months ended June 30, 1997, is primarily attributable to the
Partnership investing in a Property in Miami, Florida, in December 1997, with
affiliates of the general partners as tenants-in-common.
Operating expenses, including depreciation and amortization expense,
were $239,297 and $201,536 for the six months ended June 30, 1998 and 1997,
respectively, of which $125,359 and $97,480 were incurred for the quarters ended
June 30, 1998 and 1997, respectively. The increase in operating expenses during
the quarter and six months ended June 30, 1998, as compared to the quarter and
six months ended June 30, 1997, is partially the result of an increase in
depreciation expense due to the purchase of the Property in Homewood, Alabama,
in October 1997. In addition, the increase in operating expenses is partially
due to the fact that the Partnership recorded bad debt expense and real estate
tax expense relating to the Properties in Lancaster and Amherst, New York due to
the fact that the tenant of these Properties filed for bankruptcy, as described
above.
As a result of the sale of the Property in Sacramento, California, and
the sale of the parcel of land in Austin, Texas, as described above in
"Liquidity and Capital Resources," the Partnership recognized a gain of $171,159
for financial reporting purposes during the six months ended June 30, 1998. No
Properties were sold during the six months ended June 30, 1997.
The general partners are in the process of analyzing the effects of the
consensus reached by the Financial Accounting Standards Board in EITF 98-9,
entitled "Accounting for Contingent Rent in the Interim Financial Periods,"
issued in May 1998. The general partners do not expect that the conclusions
reached in this consensus will have a material effect on the Partnership's
financial position or results of operations.
10
<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 June 30, 1998.
11
<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 11th day of August, 1998.
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 June 30, 1998, and its statement of income
for the six months then ended and is qualified in its entirety by reference to
the Form 10Q of CNL Income Fund X, Ltd. for the six months ended June 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,947,266<F2>
<SECURITIES> 0
<RECEIVABLES> 249,909
<ALLOWANCES> 249,909
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 16,314,030
<DEPRECIATION> 1,229,643
<TOTAL-ASSETS> 35,688,216
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 34,495,636
<TOTAL-LIABILITY-AND-EQUITY> 35,688,216
<SALES> 0
<TOTAL-REVENUES> 1,156,719
<CGS> 0
<TOTAL-COSTS> 233,410
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,887
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,221,595
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,221,595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,221,595
<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 $1,248,895 in restricted cash.
</FN>
</TABLE>
