UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
Amendment No. 1
(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, 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 jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 422-1574
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 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>
The Form 10-K of CNL Income Fund X, Ltd. for the year ended December
31, 1997 is being amended to provide additional disclosure under Item 1.
Business, Item 2. Properties and Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Capital Resources, Short-Term
Liquidity and Long-Term Liquidity.
PART I
Item 1. Business
CNL Income Fund X, 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 September 9, 1991, the Partnership
offered for sale up to $40,000,000 of limited partnership interests (the
"Units") (4,000,000 Units at $10 per Unit) pursuant to a registration statement
on Form S-11 under the Securities Act of 1933, as amended, effective March 20,
1991. The offering terminated on March 18, 1992, at which date the maximum
offering proceeds of $40,000,000 had been received from investors who were
admitted to the Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of national and regional fast-food and family-style restaurant chains
(the "Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totalled
$35,200,000, and were used to acquire 47 Properties, including interests in nine
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, 1995, the Partnership sold its Property in Denver,
Colorado, and reinvested the majority of the net sales proceeds in a Shoney's in
Fort Myers Beach, Florida. During the year ended December 31, 1996, the
Partnership reinvested the remaining net sales proceeds from the 1995 sale of
the Property in Denver, Colorado, in a Golden Corral Property located in
Clinton, North Carolina, with affiliates of the General Partners as
tenants-in-common. During the year ended December 31, 1997, the Partnership sold
its Property in Fremont, California, and reinvested the majority of the net
sales proceeds in a Boston Market in Homewood, Alabama. In addition, during
1997, the Partnership used approximately $130,400 that had been previously
reserved for working capital purposes, to invest in a Chevy's Fresh Mex Property
located in Miami, Florida, with affiliates of the General Partners as
tenants-in-common. As a result of the above transactions, as of December 31,
1997, the Partnership owned 49 Properties. The 49 Properties include nine
Properties owned by joint ventures in which the Partnership is a co-venturer and
two Properties owned with affiliates as tenants-in-common. During January 1998,
the Partnership sold its Property in Sacramento, California, to the tenant and
intends to reinvest the net sales proceeds in an additional Property. The
Partnership leases the Properties 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. In general, the General Partners plan to seek the sale of some of
the Properties commencing seven to 12 years after their acquisition. 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 or joint venture
purchase options granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. Generally, the leases of the Properties owned by the
Partnership and the joint ventures in which the Partnership is a co-venturer,
provide for initial terms ranging from 14 to 20 years (the average being 18
years) and expire between 2006 and 2016. All leases are on a triple-net basis,
with the lessee 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 $26,200 to $198,500. All of 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
second 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 -year
renewal options subject to the same terms and conditions as the initial lease.
Certain lessees also have been granted options to purchase Properties at the
Property's then fair market value after a specified portion of the lease term
has elapsed. Under the terms of certain leases, the option purchase price may
equal the Partnership's original cost to purchase the Property (including
acquisition costs), plus a specified percentage from the date of the lease or a
specified percentage of the Partnership's purchase price, if that amount is
greater than the Property's fair market value at the time the purchase option is
exercised.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership first must
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
In December 1997, the lease relating to the Perkins Property in Ft.
Pierce, Florida, was amended to provide for reduced base rents effective May
1997 through December 31, 1998, with rent deferrals totalling $144,633 being
payable by the tenant at the time that the Property is leased to another tenant,
the date the Property is sold or upon termination of the lease, whichever occurs
first.
Major Tenants
During 1997, three lessees (or group of affiliated lessees) of the
Partnership and its consolidated joint venture, (i) Golden Corral Corporation,
(ii) Foodmaker, Inc. and (iii) Flagstar Enterprises, Inc. and Denny's, Inc.
(which are affiliated entities under common control of Flagstar Corporation)
(hereinafter referred to as Flagstar Corporation), each contributed more than
ten percent of the Partnership's total rental income (including rental income
from the Partnership's consolidated joint venture and the Partnership's share of
rental income from eight Properties owned by unconsolidated joint ventures and
two Properties owned with affiliates as tenants-in-common). As of December 31,
1997, Golden Corral Corporation was the lessee under leases relating to four
restaurants, Foodmaker, Inc. was the lessee under leases relating to six
restaurants and Flagstar Corporation was the lessee under leases relating to
nine restaurants. It is anticipated that based on the minimum rental payments
required by the leases, these three lessees (or groups of affiliated lessees)
each will continue to contribute more than ten percent of the Partnership's
total rental income in 1998 and subsequent years. In addition, five Restaurant
Chains, Golden Corral Family Steakhouse Restaurants ("Golden Corral"), Hardee's,
Burger King, Shoney's and Jack in the Box, each accounted for more than ten
percent of the Partnership's total rental income during 1997 (including rental
income from the Partnership's consolidated joint venture and the Partnership's
share of rental income from eight Properties owned by unconsolidated joint
ventures and two Properties owned with affiliates as tenants-in-common). In
subsequent years, it is anticipated that these five Restaurant Chains each will
continue to account for more than ten percent of the Partnership's total rental
income to which the Partnership is entitled under the terms of the leases. Any
failure of these lessees or Restaurant Chains could materially affect the
Partnership's income. 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 Arrangements and Tenancy in Common Arrangements
The Partnership has entered into a joint venture arrangement, Allegan
Real Estate Joint Venture, with an unaffiliated entity to purchase and hold one
Property. In addition, the Partnership has entered into three separate joint
venture arrangements: CNL Restaurant Investments III with CNL Income Fund IX,
Ltd., an affiliate of the General Partners, to purchase and hold six properties;
Ashland Joint Venture with CNL Income Fund IX, Ltd. and CNL Income Fund XI,
Ltd., affiliates of the General Partners, to purchase and hold one Property; and
Williston Real Estate Joint Venture with CNL Income Fund XII, Ltd., an affiliate
of the General Partners, to purchase and hold one Property. The affiliates are
limited partnerships 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 an 88.26% interest in Allegan Real Estate
Joint Venture, a 50 percent interest in CNL Restaurant Investments III, a 10.51%
interest in Ashland Joint Venture and a 41 percent interest in Williston Real
Estate 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 III's joint venture agreement does not
provide a fixed term, but continues in existence until terminated by either of
the joint venturers. Ashland Joint Venture has an initial term of 30 years and
Allegan Real Estate Joint Venture and Williston Real Estate Joint Venture each
have an initial term of 20 years and, after the expiration of the initial term,
each of the three joint ventures 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 Partnership has management control of Allegan Real Estate Joint
Venture and shares management control equally with affiliates of the General
Partners for CNL Restaurant Investments III, Williston Real Estate Joint Venture
and Ashland 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 III,
Allegan Real Estate Joint Venture, Ashland Joint Venture and Williston Real
Estate Joint Venture is distributed 50 percent, 88.26%, 10.51% and 41 percent,
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 agreements, in January 1996, the
Partnership entered into an agreement to hold a Golden Corral Property as
tenants-in-common with CNL Income Fund IV, Ltd., CNL Income Fund VI, Ltd., and
CNL Income Fund XV, Ltd., affiliates of the General Partners. The agreement
provides for the Partnership and the affiliates to share in the profits and
losses of the Property in proportion to each co- tenant's percentage interest.
The Partnership owns a 13.37% interest in this Property.
In addition, in December 1997, the Partnership entered into an
agreement to hold a Chevy's Fresh Mex Property as tenants-in-common with CNL
Income Fund III, Ltd., CNL Income Fund VII, Ltd., and CNL Income Fund XIII,
Ltd., affiliates of the General Partners. The agreement provides for the
Partnership and the affiliates to share in the profits and losses of the
Property in proportion to each co-venturer's percentage interest. The
Partnership owns a 6.69% interest in this Property.
Each of the affiliates is a limited partnership organized pursuant to
the laws of the State of Florida. The tenancy in common agreement restricts each
co-tenant's ability to sell, transfer, or assign its interest in the tenancy in
common's Property without first offering it for sale to the remaining co-tenant.
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.
Certain Management Services
CNL Income Fund Advisors, Inc., an affiliate of the General Partners
provided certain services relating to management of the Partnership and its
Properties pursuant to a management agreement with the Partnership through
September 30, 1995. Under this agreement, CNL Income Fund Advisors, Inc. was
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 Income Fund Advisors, Inc. also
assisted the General Partners in negotiating the leases. For these services, the
Partnership had agreed to pay CNL Income Fund Advisors, Inc. an annual fee of
one percent of the sum of gross 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, 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").
Effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its
rights in, and its obligations under, the management agreement with the
Partnership to CNL Fund Advisors, Inc. All of the terms and conditions of the
management agreement, including the payment of fees, as described above, remain
unchanged.
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 Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who may
also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 1997, the Partnership owned 49 Properties. Of the 49
Properties, 38 are owned by the Partnership in fee simple, nine are owned
through joint venture arrangements and two are owned through tenancy in common
arrangements. 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 filed with this report for a listing of
the Properties and their respective costs, including acquisition fees and
certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 14,000
to 200,900 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.
1
<PAGE>
The following table lists the Properties owned by the Partnership as of
December 31, 1997 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation filed with this report.
State Number of Properties
----- --------------------
Alabama 2
California 1
Florida 6
Idaho 1
Illinois 1
Louisiana 2
Michigan 2
Missouri 1
Montana 6
North Carolina 4
New Hampshire 3
New Mexico 3
New York 3
Ohio 3
Pennsylvania 1
South Carolina 1
Tennessee 3
Texas 6
------
TOTAL PROPERTIES: 49
======
Buildings. Each of the Properties owned by the Partnership include 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
1,800 to 10,700 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, 1997, 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, 1997, the aggregate cost
basis of the Properties owned by the Partnership (including its consolidated
joint venture), and the unconsolidated joint ventures (including Properties
owned through tenancy in common arrangements) for federal income tax purposes
was $30,453,448 and $9,254,434, respectively.
2
<PAGE>
The following table lists the Properties owned by the Partnership as of
December 31, 1997 by Restaurant Chain.
3
<PAGE>
Restaurant Chain Number of Properties
---------------- --------------------
Boston Market 1
Burger King 12
Chevys Fresh Mex 1
Denny's 3
Golden Corral 4
Hardee's 7
Jack in the Box 6
Long John Silver's 2
Perkins 3
Pizza Hut 6
Shoney's 4
------
TOTAL PROPERTIES 49
======
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 restaurant 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.
At December 31, 1997, 1996, 1995, 1994, and 1993, all of the Properties
were occupied. The following is a schedule of the average annual rent for each
of the five years ended December 31:
<TABLE>
<CAPTION>
<S> <C>
For the Year Ended December 31:
1997 1996 1995 1994 1993
-------------------------------------------------------------------------------------
Rental Revenues (1) $3,823,808 $3,894,384 $3,882,392 $4,050,876 $3,714,797
Properties 49 48 47 47 47
Average Rent per Unit $78,037 $81,133 $82,604 $86,189 $79,038
</TABLE>
(1) Rental revenues include the Partnership's share of rental revenues from the
nine Properties owned through joint venture arrangements and the two
properties owned through a tenancy in common arrangement. Rental revenues
have been adjusted, as applicable, for any amounts for which the Partnership
has established an allowance for doubtful accounts.
4
<PAGE>
The following is a schedule of lease expirations for leases in place as
of December 31, 1997 for each of the ten years beginning with 1998 and
thereafter.
<TABLE>
<CAPTION>
<S> <C>
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
----------------------- ------------------ -------------------- --------------
1998 - - -
1999 - - -
2000 - - -
2001 - - -
2002 - - -
2003 - - -
2004 - - -
2005 - - -
2006 10 648,971 16.97%
2007 3 538,740 14.09%
Thereafter 36 2,636,162 68.94%
-------- ------------- -------------
Totals 49 3,823,873 100.00%
======== ============= =============
</TABLE>
Leases with Major Tenants. The terms of the leases with the
Partnership's major tenants as of December 31, 1997 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business -Leases.
Golden Corral Corporation leases four Golden Corral restaurants. The
initial term of each lease is 15 years (expiring between 2007 and 2011) and the
average minimum base rent is approximately $156,900 (ranging from
approximately $88,100 to $198,500).
Foodmaker, Inc. leases six Jack in the Box restaurants. The initial term
of each lease is between 18 and 20 years (expiring between 2009 and 2012) and
the average minimum base rent is approximately $81,600 (ranging from
approximately $62,900 to $99,400).
Flagstar Corporation leases seven Hardee's restaurants and two Denny's
restaurants. The initial term of each lease is 20 years (expiring in 2012) and
the average minimum base rent is approximately $69,100 (ranging from
approximately $43,500 to $111,800).
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.
At the time the Partnership elects to dispose of its Properties, other
than as a result of the exercise of tenant options to purchase Properties, the
Partnership will be in competition with other persons and entities to locate
purchasers for its Properties.
5
<PAGE>
PART II
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, 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 December
31, 1997, the Partnership owned 49 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, 1997, 1996 and 1995, was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest received,
less cash paid for expenses). Cash from operations was $3,596,417, $3,695,802
and $3,527,362 for the years ended December 31, 1997, 1996 and 1995,
respectively. The decrease in cash from operations during 1997, as compared to
1996, and the increase in 1996, as compared to 1995, is primarily a result of
changes in the Partnership's working capital during each of the respective
years.
Other sources and uses of capital included the following during the
years ended December 31, 1997, 1996 and 1995.
In July 1995, the Partnership sold a small parcel of land as a result
of an easement relating to its Property in Hendersonville, North Carolina, for
$7,200, resulting in a gain of $1,112 for financial reporting purposes. In
addition, in August 1995, the Partnership sold its Property in Denver, Colorado,
for $1,057,000 and received net sales proceeds of $1,050,186, resulting in a
gain of $66,102 for financial reporting purposes. This Property was originally
acquired by the Partnership in December 1991 and had a cost of approximately
$977,000, excluding acquisition fees and miscellaneous acquisition expenses;
therefore, the Partnership sold the Property for approximately $73,200 in excess
of its original purchase price. In September 1995, the Partnership reinvested
$928,122 in a Shoney's in Fort Myers Beach, Florida.
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
February 28, 1998, the sale for the vacant parcel of land had not been
consummated 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 December 31, 1997.
In January 1996, the Partnership reinvested the remaining net sales
proceeds from the 1995 sale of the Property in Denver, Colorado, and the
proceeds from the granting of an easement relating to the Property in
Hendersonville, North Carolina, in a Golden Corral Property located in Clinton,
North Carolina, with affiliates of the General Partners as tenants-in-common. In
connection therewith, the Partnership and its affiliates entered into an
agreement whereby each co-venturer will share in the profits and losses of the
Property in proportion to its applicable percentage interest. As of December 31,
1997, the Partnership owned a 13.37% interest in this Property.
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. In October
1997, the Partnership reinvested approximately $1,277,300 of the net sales
proceeds in a Boston Market Property in Homewood, Alabama. 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. 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
income taxes, if any (at a level reasonably assumed by the General Partners)
resulting from the sale. The Partnership intends to reinvest the remaining net
sales proceeds in an additional Property or use such amounts to pay Partnership
liabilities.
In December 1997, the Partnership used approximately $130,400 that had
been previously reserved for working capital purposes, to invest in a Chevy's
Fresh Mex Property located in Miami, Florida, with affiliates of the General
Partners as tenants-in-common. In connection therewith, the Partnership and its
affiliates entered into an agreement whereby each co-venturer will share in the
profits and losses of the Property in proportion to its applicable percentage
interest. As of December 31, 1997, the Partnership owned a 6.69% interest in
this Property.
During 1997, the Partnership entered into a contract to sell the
Property in Sacramento, California, to the tenant. In January 1998, the
Partnership sold this Property for $1,250,000 and received net sales proceeds of
$1,234,175, resulting in a gain of approximately $163,300 for financial
reporting purposes. The Partnership intends to reinvest the net sales proceeds
in an additional Property.
None of the Properties owned by the Partnership, or the joint ventures
or the 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 and net
sales proceeds from the sale of Properties, pending reinvestment in additional
Properties or payment of Partnership liabilities, are invested in money market
accounts or other short-term highly liquid investments such as demand deposit
accounts at commercial banks, CDs 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 partners. At December 31, 1997,
the Partnership had $1,583,883 invested in such short-term investments as
compared to $1,769,483 at December 31, 1996. The decrease in cash is primarily
attributable to the Partnership using approximately $130,400 that had been
previously reserved for working capital purposes, to invest in a Property
located in Miami, Florida, with affiliates, as tenants-in-common, in December
1997. As of December 31, 1997, the average interest rate earned on the rental
income deposited in demand deposit accounts at commercial banks was
approximately three percent annually. The funds remaining at December 31, 1997,
after payment of distributions and other liabilities, will be used to meet the
Partnership's working capital and other needs.
6
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Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
7
<PAGE>
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 of the Partnership, to the extent
that the General Partners determine that such funds are available for
distribution. Based on cash from operations, and during the years ended December
31, 1996 and 1995, cumulative excess operating reserves, the Partnership
declared distributions to the Limited Partners of $3,600,003 for the year ended
December 31, 1997 and $3,640,003 for each of the years ended December 31, 1996
and 1995. This represents distributions of $0.90 per Unit for the year ended
December 31, 1997 and $0.91 per Unit for each of the years ended December 31,
1996 and 1995. The General Partners anticipate that the Partnership will declare
a special distribution to the Limited Partners during the quarter ending March
31, 1998, representing cumulative excess operating reserves. No amounts
distributed to the Limited Partners for the years ended December 31, 1997, 1996
and 1995, 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.
8
<PAGE>
During 1997, 1996 and 1995, affiliates of the General Partners incurred
$86,327, $112,363 and $100,249, respectively, for certain operating expenses. As
of December 31, 1997 and 1996, the Partnership owed $4,946 and $1,609,
respectively, to affiliates for such amounts and accounting and administrative
services. As of February 28, 1998, the Partnership had reimbursed the affiliates
all such amounts. Other liabilities, including distributions payable, decreased
to $1,066,237 at December 31, 1997, from $1,148,901 at December 31, 1996,
partially 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. Other liabilities also decreased due to a decrease in escrowed
real estate taxes payable and rents paid in advance at December 31, 1997. The
General Partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During 1995, the Partnership owned and leased 39 wholly owned
Properties (including one Property in Denver, Colorado, which was sold in August
1995), during 1996, the Partnership owned and leased 38 wholly owned Properties,
and during 1997, the Partnership owned and leased 39 wholly owned Properties
(including one Property in Fremont, California, which was sold in September
1997). In addition, during 1997, 1996 and 1995, the Partnership was a
co-venturer in three separate joint ventures that each owned and leased one
Property and one joint venture which owned and leased six Properties. During
1996, the Partnership also owned and leased one Property with affiliates as
tenants-in-common and during 1997, the Partnership owned and leased two
Properties with affiliates as tenants-in-common. As of December 31, 1997, the
Partnership owned, either directly or through joint venture arrangements 49
Properties which are subject to long-term, triple-net leases. The leases of the
Properties provide for minimum base annual rental amounts (payable in monthly
installments) ranging from approximately $26,200 to $198,500. All of 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 second to the sixth lease year), the annual base rent
required under the terms of the lease will increase. For further description of
the Partnership's leases and Properties, see Item 1. Business Leases and Item 2.
Properties, respectively.
During the years ended December 31, 1997, 1996 and 1995, the
Partnership and its consolidated joint venture, Allegan Real Estate Joint
Venture, earned $3,402,320, $3,481,139 and $3,474,227, respectively, in rental
income from operating leases and earned income from direct financing leases. The
decrease in rental and earned income during 1997, as compared to 1996, is
partially attributable to the Partnership increasing its allowance for doubtful
accounts by approximately $64,600 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 the financial difficulties the tenant is
experiencing. No such allowance was established during 1996. The Partnership
intends to pursue collection of past due amounts from this tenant and will
recognize such amounts as income if collected. Rental and earned income also
decreased by approximately $36,600 during 1997, as compared to 1996, due to the
fact that the Partnership sold its Property in Fremont, California, in September
1997. This decrease was partially offset by an increase of approximately $28,100
in rental income as a result of reinvesting the majority of these net sales
proceeds in a Property in Homewood, Alabama, in October 1997.
During the years ended December 31, 1997, 1996 and 1995, the
Partnership also earned $51,678, $45,126 and $53,189, respectively, in
contingent rental income. The increase in contingent rental income during 1997,
as compared to 1996, is primarily attributable to a change in the percentage
rent formula in accordance with the terms of the lease agreement for one of the
Partnership's leases during 1997. The decrease in contingent rent during 1996,
as compared to 1995, was primarily a result of decreases in gross sales relating
to certain restaurant Properties during 1996.
For the years ended December 31, 1997, 1996 and 1995, the Partnership
also earned $278,919, $278,371 and $267,799, respectively, attributable to net
income earned by unconsolidated joint ventures in which the Partnership is a
co-venturer. The increase in net income earned by unconsolidated joint ventures
during 1996, as compared to 1995, is primarily attributable to the Partnership
investing in a Property in Clinton, North Carolina, in January 1996, with
affiliates of the General Partners as tenants-in-common, as described above in
"Capital Resources."
During at least one of the years ended December 31, 1997, 1996 and
1995, three lessees (or group of affiliated lessees), of the Partnership and its
consolidated joint venture, Golden Corral Corporation, Foodmaker, Inc. and
Flagstar Corporation, each contributed more than ten percent of the
Partnership's total rental income (including rental income from the
Partnership's consolidated joint venture and the Partnership's share of rental
income from eight Properties owned by unconsolidated joint ventures and two
Properties owned with affiliates as tenants-in-common). As of December 31, 1997,
Golden Corral Corporation was the lessee under leases relating to four
restaurants, Foodmaker, Inc. was the lessee under leases relating to six
restaurants and Flagstar Corporation was the lessee under leases relating to
nine restaurants. It is anticipated that based on the minimum rental payments
required by the leases, these three lessees (or groups of affiliated lessees)
each will continue to contribute more than ten percent of the Partnership's
total rental income during 1998 and subsequent years. In addition, during at
least one of the years ended December 31, 1997, 1996 and 1995, five Restaurant
Chains, Golden Corral, Hardee's, Burger King, Shoney's and Jack in the Box, each
accounted for more than ten percent of the Partnership's total rental income
(including rental income from the Partnership's consolidated joint venture and
the Partnership's share of rental income from eight Properties owned by
unconsolidated joint ventures and two Properties owned with affiliates as
tenants-in-common). In subsequent years, it is anticipated that these five
Restaurant Chains each will continue to account for more than ten percent of the
Partnership's total rental income to which the Partnership is entitled under the
terms of the leases. Any failure of these lessees or Restaurant Chains could
materially affect the Partnership's income.
Operating expenses, including depreciation and amortization expense,
were $414,105, $410,057 and $390,926 for the years ended December 31, 1997, 1996
and 1995, respectively. The increase in operating expenses during 1997, as
compared to 1996, is partially a result of the Partnership recording
approximately $9,700, for real estate taxes relating to the Perkins Properties
located in Lancaster and Amherst, New York, which are leased by the same tenant,
due to the current financial difficulties of the tenant. Payment of these taxes
remains the responsibility of the tenant of this Property; however, the General
Partners believe that the tenant's ability to pay these expenses is doubtful.
The Partnership intends to pursue collection from the tenant of any such amounts
paid by the Partnership and will recognize such amounts as income if collected.
The increase in operating expenses during 1997, as compared to 1996, is
partially offset by a decrease in accounting and administrative expenses
associated with operating the Partnership and its Properties.
The increase in operating expenses during 1997, as compared to 1996, is
also partially attributable to, and the increase during 1996, as compared to
1995, is partially offset by a decrease in state taxes during 1996 as a result
of receiving a state tax refund from the state of New Hampshire during 1996, for
taxes paid in prior years.
Operating expenses increased during 1996, as compared to 1995, due to
an increase in accounting and administrative expenses associated with operating
the Partnership and its Properties and an increase in insurance expense as a
result of the General Partners' obtaining contingent liability and Property
coverage for the Partnership beginning in May 1995. Operating expenses also
increased during 1996, as compared to 1995, due to an increase in professional
fees during the year ended December 31, 1996, as a result of obtaining appraisal
updates for 1996 and 1995, to prepare an annual statement of unit valuation to
qualified plans in accordance with the Partnership's partnership agreement.
As a result of the sale of the Property in Fremont, California, as
discussed above in "Capital Resources," the Partnership recognized a gain of
$132,238 for financial reporting purposes for the year ended December 31, 1997.
In addition, as a result of the granting of an easement relating to the Property
in Hendersonville, North Carolina, and the sale of the Property in Denver,
Colorado, as described above in "Capital Resources," the Partnership recognized
a gain for financial reporting purposes of $67,214 during the year ended
December 31, 1995. No Properties were sold during the year ended December 31,
1996.
The General Partners of the Partnership are in the process of assessing
and addressing the impact of the year 2000 on their company package software.
The hardware and built-in software are believed to be year 2000 compliant.
Accordingly, the General Partners do not expect this matter to materially impact
how the Partnership conducts business nor its current or future results of
operations or financial position.
The Partnership's leases as of December 31, 1997, 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.
9
<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 29th day of
July, 1999.
CNL INCOME FUND X, 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.
Signature Title Date
--------- ----- ----
/s/ Robert A. Bourne President, Treasurer and July 29, 1999
Robert A. Bourne Director (Principal Financial
and Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer July 29, 1999
James M. Seneff, Jr. and Director (Principal
Executive Officer)
<PAGE>
