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 March 31, 1999
--------------------------------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from ____________________ to ______________________
Commission file number
0-20016
---------------------------------------
CNL Income Fund X, Ltd.
--------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-3004139
- ------------------------------------------------------ ------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
- ------------------------------------------------------ ------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
------------------------------------------------
</TABLE>
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
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets
Condensed Statements of Income
Condensed Statements of Partners' Capital
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II.
Other Information
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------------ ------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $1,402,126 and
$1,329,832 and allowance for loss on land
and building of $908,518 in 1999 and 1998 $ 17,362,457 $ 16,685,182
Net investment in direct financing leases, less
allowance for impairment in carrying value
of $93,328 in 1998 10,092,876 10,713,000
Investment in joint ventures 4,196,724 3,421,329
Cash and cash equivalents 1,225,257 1,835,972
Restricted cash -- 361,403
Receivables, less allowance for doubtful
accounts of $235,736 and $236,810 35,646 81,100
Prepaid expenses 19,847 5,229
Accrued rental income, less allowance for
doubtful accounts of $275,520 and $269,421 1,367,237 1,342,166
Other assets 35,484 35,484
------------------ ------------------
$ 34,335,528 $ 34,480,865
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 49,902 $ 2,403
Accrued and escrowed real estate taxes payable 30,258 27,418
Distributions payable 900,001 900,001
Due to related party 10,588 29,987
Rents paid in advance and deposits 126,906 103,414
------------------ ------------------
Total liabilities 1,117,655 1,063,223
Minority interest 64,446 64,745
Partners' capital 33,153,427 33,352,897
------------------ ------------------
$ 34,335,528 $ 34,480,865
================== ==================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1999 1998
--------------- --------------
<S> <C>
Revenues:
Rental income from operating leases $448,457 $ 447,273
Earned income from direct financing leases 276,858 358,837
Interest and other income 13,714 26,472
--------------- --------------
739,029 832,582
--------------- --------------
Expenses:
General operating and administrative 50,482 38,237
Bad debt expense -- 2,033
Professional services 10,045 5,199
Real estate taxes 11,604 --
State and other taxes 14,577 10,271
Depreciation 72,294 58,198
Transaction costs 33,661 --
--------------- --------------
192,663 113,938
--------------- --------------
Income Before Minority Interest in Income of
Consolidated Joint Venture, Equity in
Earnings of Unconsolidated Joint Ventures,
and Gain on Sale of Land and Buildings 546,366 718,644
Minority Interest in Income of Consolidated
Joint Venture (1,879 ) (2,186 )
Equity in Earnings of Unconsolidated Joint Ventures 81,404 63,134
Gain on Sale of Land and Buildings 74,640 171,159
--------------- --------------
Net Income $ 700,531 $ 950,751
=============== ==============
Allocation of Net Income:
General partners $ 6,261 $ 7,796
Limited partners 694,270 942,955
--------------- --------------
$ 700,531 $ 950,751
=============== ==============
Net Income Per Limited Partner Unit $ 0.17 $ 0.24
=============== ==============
Weighted Average Number of Limited Partner
Units Outstanding 4,000,000 4,000,000
=============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Quarter Ended Year Ended
March 31, December 31,
1999 1998
------------------- ------------------
<S> <C>
General partners:
Beginning balance $ 229,725 $ 208,709
Net income 6,261 21,016
------------------- ------------------
235,986 229,725
------------------- ------------------
Limited partners:
Beginning balance 33,123,172 34,945,334
Net income 694,270 1,857,842
Distributions ($0.23 and $0.92 per
limited partner unit, respectively) (900,001 ) (3,680,004 )
------------------- ------------------
32,917,441 33,123,172
------------------- ------------------
Total partners' capital $ 33,153,427 $ 33,352,897
=================== ==================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1999 1998
--------------- --------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 841,122 $1,003,374
--------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 1,150,000 1,231,106
Additions to land and buildings on
operating leases (1,257,217 ) --
Investment in joint venture (802,431 ) --
Decrease (increase) in restricted cash 359,990 (1,230,672 )
--------------- --------------
Net cash provided by (used in)
investing activities (549,658 ) 434
--------------- --------------
Cash Flows from Financing Activities:
Distributions to limited partners (900,001 ) (900,001 )
Distributions to holder of minority interest (2,178 ) (2,196 )
--------------- --------------
Net cash used in financing activities (902,179 ) (902,197 )
--------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents (610,715 ) 101,611
Cash and Cash Equivalents at Beginning of Quarter 1,835,972 1,583,883
--------------- --------------
Cash and Cash Equivalents at End of Quarter $1,225,257 $1,685,494
=============== ==============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
quarter $ 900,001 $ 980,001
=============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
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 ended March 31, 1999, may not be indicative of the results
that may be expected for the year ending December 31, 1999. Amounts as
of December 31, 1998, 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,
1998.
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 Buildings on Operating Leases:
In March 1999, the Partnership sold its property in Amherst, New York,
and received net sales proceeds of $1,150,000 and recorded a gain of
$74,640 for financial reporting purposes. In March 1999, the
Partnership reinvested the net sales proceeds from the sale of the
property in Amherst, New York, plus additional funds, in a Golden
Corral property in Fremont, Nebraska (see Note 3).
3. Net Investment in Direct Financing Leases:
At December 31, 1998, the Partnership had recorded an allowance for
impairment in carrying value of $93,328 relating to the Property in
Amherst, New York, due to the tenant filing for bankruptcy. The
allowance represented the difference between the carrying value of the
property at December 31, 1998 and the estimated net realizable value
for this property. In March 1999, the Partnership sold this property
and received net sales proceeds of $1,150,000 and recorded a gain of
$74,640 for financial reporting
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
3. Net Investment in Direct Financing Leases - Continued:
purposes, resulting in a net loss of approximately $18,700. The
building portion of this property had been classified as a direct
financing lease. In connection therewith, the gross investment (minimum
lease payments receivable and the estimated residual value), unearned
income and the allowance for impairment in carrying value relating to
the building were removed from the accounts and the gain from the sale
of the property was reflected in income (see Note 2).
4. Investment in Joint Ventures:
In January 1999, the Partnership entered into a joint venture
arrangement, Ocean Shores Joint Venture, with CNL Income Fund XVII,
Ltd., an affiliate of the general partners, to hold one restaurant
property. The Partnership contributed approximately $802,400 to the
joint venture and as of March 31, 1999, owned a 69.06% interest in the
profits and losses of the joint venture. The Partnership accounts for
its investment in this joint venture under the equity method since the
Partnership shares control with an affiliate.
The following presents the combined, condensed financial information
for all of the Partnership's investments in joint ventures and
properties held as tenants-in-common at:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------------ -------------------
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation $ 9,633,883 $ 9,340,944
Net investment in direct
financing leases 1,465,599 657,426
Cash 9,741 2,935
Receivables 32 7,597
Prepaid expenses 4,159 24,337
Accrued rental income 28,010 19,880
Liabilities 2,473 3,119
Partners' capital 11,138,951 10,050,000
Revenues 302,967 1,115,856
Net income 219,991 843,914
</TABLE>
The Partnership recognized income totalling $81,404 and $63,134 for the
quarters ended March 31, 1999 and 1998, respectively, from these joint
ventures.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
5. Merger Transaction:
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to
which the Partnership would be merged with and into a subsidiary of APF
(the "Merger"). As consideration for the Merger, APF has agreed to
issue 4,243,243 shares of its common stock, par value $0.01 per share
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the
price paid by APF investors in three previous public offerings, the
most recent of which was completed in December 1998. In order to assist
the general partners in evaluating the proposed merger consideration,
the general partners retained Valuation Associates, a nationally
recognized real estate appraisal firm, to appraise the Partnership's
restaurant property portfolio. Based on Valuation Associates'
appraisal, the Partnership's property portfolio and other assets were
valued on a going concern basis (meaning the Partnership continues
unchanged) at $41,779,262 as of December 31, 1998. Legg Mason Wood
Walker, Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a
financial point of view. The APF Shares are expected to be listed for
trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and, therefore, would be freely tradable at
the option of the former limited partners. At a special meeting of the
partners that is expected to be held in the third quarter of 1999,
limited partners holding in excess of 50% of the Partnership's
outstanding limited partnership interests must approve the Merger prior
to consummation of the transaction. If the limited partners at the
special meeting approve the Merger, APF will own the Properties and
other assets of the Partnership. The general partners intend to
recommend that the limited partners of the Partnership approve the
Merger. In connection with their recommendation, the general partners
will solicit the consent of the limited partners at the special
meeting. If the limited partners reject the Merger, the Partnership
will bear the portion of the transaction costs based upon the
percentage of "For" votes and the general partners will bear the
portion of such transaction costs based upon the percentage of
"Against" votes and abstentions.
On May 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in
connection with the proposed Merger (see Part II - Item 1. Legal
Proceedings). The general partners and APF believe that the lawsuit is
without merit and intend to defend vigorously against the claims.
Because the lawsuit was so recently filed, it is premature to further
comment on the lawsuit at this time.
<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, which are leased primarily to operators of national and regional
fast-food and family-style restaurant chains (collectively, the "Properties").
The leases generally are triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of March
31, 1999, the Partnership owned 49 Properties, which included interests in ten
Properties owned by joint ventures in which the Partnership is a co-venturer and
two Properties owned with affiliates of the general partners as
tenants-in-common.
Liquidity and Capital Resources
The Partnership's primary source of capital for the quarters ended
March 31, 1999 and 1998, 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 $841,122 and
$1,003,374 for the quarters ended March 31, 1999 and 1998, respectively. The
decrease in cash from operations for the quarter ended March 31, 1999, is
primarily a result of changes in income and expenses as described below in
"Results of Operations" and changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
quarter ended March 31, 1999.
In January 1999, the Partnership used a portion of the net proceeds
from the sales of properties during 1998 and 1997 to enter into a joint venture
arrangement, Ocean Shores Joint Venture, with CNL Income Fund XVII, Ltd., an
affiliate of the general partners, to hold one restaurant property. The
Partnership contributed approximately $802,400 to the joint venture and as of
March 31, 1999, owned a 69.06% interest in the profits and losses of the joint
venture.
In March 1999, the Partnership sold its Property in Amherst, New York,
and received net sales proceeds of $1,150,000. The Partnership had recorded an
allowance for impairment in carrying value relating to this Property of $93,329
at December 31, 1998 due to the tenant filing for bankruptcy. The allowance
represented the difference between the carrying value of the property at
December 31, 1998 and the estimated net realizable value for this property. At
March 31, 1999 the Partnership recorded a gain relating to the sale of this
Property of $74,460, for financial reporting purposes, resulting in a net loss
relating to the sale of this Property of approximately $18,700. In March 1999,
the Partnership reinvested the net sales proceeds from the sale of this
Property, plus additional funds, in a Golden Corral Property in Fremont,
Nebraska.
<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 March 31, 1999, the Partnership had $1,225,257
invested in such short-term investments, as compared to $1,835,972 at December
31, 1998. The decrease in cash and cash equivalents is primarily attributable to
the fact that in January 1999, the Partnership used uninvested net sales
proceeds from the 1997 and 1998 sales of Properties to enter into a joint
venture arrangement, with an affiliate of the general partners. The funds
remaining at March 31, 1999, after payment of distributions and other
liabilities, will be used meet the Partnership's working capital and other
needs.
Total liabilities of the Partnership, including distributions payable,
increased to $1,117,655 at March 31, 1999, from $1,063,223 at December 31, 1998,
partially due to an increase in rents paid in advance at March 31, 1999, as
compared to December 31, 1998. In addition, the increase in liabilities at March
31, 1999 is partially a result of the Partnership accruing transaction costs
relating to the proposed Merger with CNL American Properties Fund, Inc. ("APF"),
as described below. The general partners believe that the Partnership has
sufficient cash on hand to meet its current working capital needs.
Based on current and anticipated future cash from operations, and, for
the quarter ended March 31, 1998, accumulated excess operating reserves, the
Partnership declared distributions to limited partners of $900,001 and $980,001
for the quarters ended March 31, 1999 and 1998, respectively. This represents
distributions of $0.23 and $0.25 per unit for the quarters ended March 31, 1999
and 1998, respectively. No distributions were made to the general partners for
the quarters ended March 31, 1999 and 1998. No amounts distributed to the
limited partners for the quarters ended March 31, 1999 and 1998, are required to
be or have been treated by the Partnership as a return of capital for purposes
of calculating the limited partners' return on their adjusted capital
contributions. 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.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-
<PAGE>
Liquidity and Capital Resources - Continued
net" basis to operators of national and regional restaurant chains. APF has
agreed to issue shares of its common stock, par value $0.01 per share (the "APF
Shares"), as consideration for the Merger. APF has agreed to issue 4,243,243 APF
Shares which, for the purposes of valuing the merger consideration, have been
valued by APF at $10.00 per APF Share, the price paid by APF investors in three
previous public offerings, the most recent of which was completed in December
1998. In order to assist the general partners in evaluating the proposed merger
consideration, the general partners retained Valuation Associates, a nationally
recognized real estate appraisal firm, to appraise the Partnership's restaurant
property portfolio. Based on Valuation Associates' appraisal, the Partnership's
property portfolio and other assets were valued on a going concern basis
(meaning the Partnership continues unchanged) at $41,779,262 as of December 31,
1998. Legg Mason Wood Walker, Incorporated has rendered a fairness opinion that
the APF Share consideration, payable by APF, is fair to the Partnership from a
financial point of view. The APF Shares are expected to be listed for trading on
the New York Stock Exchange concurrently with the consummation of the Merger,
and therefore, would be freely tradable at the option of the former limited
partners. At a special meeting of the partners that is expected to be held in
the third quarter of 1999, limited partners holding in excess of 50% of the
Partnership's outstanding limited partnership interests must approve the Merger
prior to consummation of the transaction. If the limited partners at the special
meeting approve the Merger, APF will own the Properties and other assets of the
Partnership. The general partners intend to recommend that the limited partners
of the Partnership approve the Merger. In connection with their recommendation,
the general partners will solicit the consent of the limited partners at the
special meeting. If the limited partners reject the Merger, the Partnership will
bear the portion of the transaction costs based upon the percentage of "For"
votes and the general partners will bear the portion of such transaction costs
based upon the percentage of "Against" votes and abstentions.
On May 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in connection with
the proposed Merger (see Part II - Item 1. Legal Proceedings). The general
partners and APF believe that the lawsuit is without merit and intend to defend
vigorously against the claims. Because the lawsuit was so recently filed, it is
premature to further comment on the lawsuit at this time.
Results of Operations
During the quarter ended March 31, 1998, the Partnership and its
consolidated joint venture, Allegan Real Estate Joint Venture, owned and leased
39 wholly owned Properties (which included one Property in Sacramento,
California, which was sold in January 1998) to operators of fast-food and
family-style restaurant chains. During the quarter ended March 31, 1999, the
Partnership and Allegan Real Estate Joint Venture owned and leased 39 wholly
owned Properties (which included one Property in Amherst, New York which was
sold in March 1999). In connection therewith, during the quarters ended March
31, 1999 and 1998, the Partnership and
<PAGE>
Results of Operations - Continued
Allegan Real Estate Joint Venture earned $725,315 and $806,110, respectively, in
rental income from operating leases and earned income from direct financing
leases from these Properties. Rental and earned income decreased by
approximately $23,600 due to the fact that Brambury Associates, the tenant of
the Properties in Lancaster and Amherst, New York, filed for bankruptcy. In
connection therewith, they rejected the lease relating to the Lancaster, New
York Property and ceased making rental payments on such lease. The lost revenues
resulting from this Property could have an adverse effect on the results of
operations of the Partnership if the Partnership is unable to re-lease the
Property in a timely manner. The Partnership will not recognize rental income
relating to this Property until a new tenant is located or until the Property is
sold and the proceeds from such sale are reinvested in an additional Property.
The general partners are currently seeking either a new tenant or purchaser for
this Property. Rental and earned income also decreased by approximately $27,600
during the quarter ended March 31, 1999 due to the fact that the Partnership
sold the Property located in Amherst, New York, as described above in "Liquidity
and Capital Resources," and in conjunction therewith, established an allowance
for doubtful accounts for rental amounts past due at the time of the sale. The
Partnership will continue to pursue collection of the past due rental amounts
and any amounts collected will be recorded as income.
In addition, rental and earned income decreased by approximately
$36,800 due to the fact that in October 1998, Boston Chicken, Inc., the tenant
of the Boston Market Property in Homewood, Alabama, filed for bankruptcy and
rejected the lease relating to this Property and ceased making rental payments
to the Partnership. The Partnership will not recognized rental and earned income
from this Property until a new tenant for this Property is located or until the
Property is sold and the proceeds from such a sale are reinvested in an
additional Property. The lost revenues resulting from the rejection of this
lease could have an adverse effect on the results of operations of the
Partnership if the Partnership is not able to re-lease this Property in a timely
manner. The general partners are currently seeking either a new tenant or
purchaser for this Property.
Rental and earned income also decreased by $22,400 due to the fact that
the leases relating to the Burger King Properties in Irondequoit, New York,
Ashland, Ohio and Henderson, North Carolina were amended to provide for rent
reductions from August 1998 through the end of the lease term. In addition,
rental and earned income decreased by approximately $16,300, as a result of the
sale of the Properties in Sacramento, California in January 1998 and Billings,
Montana in October 1998. The decrease in rental and earned income was partially
offset by an increase in rental and earned income of approximately $8,700 due to
the reinvestment of net sales proceeds from the 1998 sale of the Property in
Sacramento, California in a Property in San Marcos, Texas and the reinvestment
of net sales proceeds from the 1999 sale of the Property in Amherst, New York,
in a Property in Fremont, Nebraska.
<PAGE>
Results of Operations - Continued
The decrease in rental and earned income during the quarter ended March
31, 1999, as compared to the quarter ended March 31, 1998, was also partially
offset by an increase in rental and earned income of approximately $43,400
relating 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. In January 1999, the rents reverted back to the
amounts due under the original lease agreement.
During the quarters ended March 31, 1999 and 1998, the Partnership
earned $13,714 and $26,472, respectively, in interest and other income. The
decrease in interest and other income during the quarter ended March 31, 1999,
as compared to the quarter ended March 31, 1999, was primarily attributable to
the fact that during the quarter ending March 31, 1998, the Partnership earned
interest on the net sales proceeds relating to the sale of the Property in
Sacramento, California, pending the reinvestment of the net sales proceeds in an
additional Property. The net sales proceeds were reinvested in November 1998.
For the quarter ended March 31, 1999 and 1998, the Partnership also
owned and leased eight Properties indirectly through joint venture arrangements
and two Properties as tenants-in-common with affiliates of the general partners.
For the quarter ended March 31, 1999, the Partnership also owned and leased one
additional Property indirectly through a joint venture arrangement. In
connection therewith, during the quarters ended March 31, 1999 and 1998, the
Partnership earned $81,404 and $63,134, respectively, attributable to the net
income earned by these unconsolidated joint ventures. The increase in net income
earned by unconsolidated joint ventures during the quarter ended March 31, 1999,
was primarily attributable to the Partnership investing in a joint venture
arrangement, Ocean Shores Joint Venture, in January 1999, with CNL Income Fund
XVII, Ltd., an affiliate of the general partners.
Operating expenses, including depreciation expense, were $192,663 and
$113,938 for the quarters ended March 31, 1999 and 1998, respectively. The
increase in operating expense during the quarter ended March 31, 1999, as
compared to the quarter ended March 31, 1998, was primarily the result of an
increase in depreciation expense due to the purchase of the Property in Fremont,
Nebraska in March 1999 and the fact that during 1998, the Partnership
reclassified the leases relating to the Properties in Irondequoit, New York,
Ashland, Ohio, and Henderson, North Carolina from direct financing leases to
operating leases due to lease amendments. The increase in operating expenses was
also partially due to the fact that the Partnership accrued insurance and real
estate tax expense as a result of the fact that two tenants filed for
bankruptcy, and rejected two leases relating to the Properties in Lancaster, New
York and Homewood, Alabama, as described above. The Partnership will continue to
incur certain expenses, such as real estate taxes, insurance and maintenance
relating to these Properties with rejected leases until replacement tenants or
purchasers are located. The Partnership is currently seeking either replacement
tenants or purchasers for these Properties.
<PAGE>
Results of Operations - Continued
In addition, the increase in operating expenses for the quarter ended
March 31, 1999 is partially due to the fact that the Partnership incurred
$33,661 in transaction costs related to the general partners retaining financial
and legal advisors to assist them in evaluating and negotiating the Merger with
APF, as described above in "Liquidity and Capital Resources." If the limited
partners reject the Merger, the Partnership will bear the portion of the
transaction costs based upon the percentage of "For" votes and the general
partners will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
As a result of the sale of the Property in Amherst, New York, as
described above in "Liquidity and Capital Resources," the Partnership recorded a
gain of $74,640 for financial reporting purposes during the quarter ended March
31, 1999. As a result of the sale of the Property in Sacramento, California, and
the sale of the parcel of land in Austin, Texas, the Partnership recognized a
gain of $171,159 for financial reporting purposes for the quarter ended March
31, 1998.
Year 2000 Readiness Disclosure
The Year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. The Partnership does not have any
information or non-information technology systems. The general partners and
affiliates of the general partners provide all services requiring the use of
information and non-information technology systems pursuant to a management
agreement with the Partnership. The information technology system of the
affiliates of the general partners consists of a network of personal computers
and servers built using hardware and software from mainstream suppliers. The
non-information technology systems of the affiliates of the general partners are
primarily facility related and include building security systems, elevators,
fire suppressions, HVAC, electrical systems and other utilities. The affiliates
of the general partners have no internally generated programmed software coding
to correct, because substantially all of the software utilized by the general
partners and affiliates is purchased or licensed from external providers. The
maintenance of non-information technology systems at the Partnership's
Properties is the responsibility of the tenants of the Properties in accordance
with the terms of the Partnership's leases.
In early 1998, the general partners and affiliates formed a Year 2000
committee (the "Y2K Team") for the purpose of identifying, understanding and
addressing the various issues associated with the Year 2000 problem. The Y2K
Team consists of the general partners and members from the affiliates of the
general partners, including representatives from senior management, information
systems, telecommunications, legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have potential Year 2000 problems. The Y2K Team is in the
process of conducting inspections, interviews and tests to identify which of the
Partnership's systems could have a potential Year 2000 problem.
<PAGE>
Year 2000 Readiness Disclosure - Continued
The information system of the affiliates of the general partners is
comprised of hardware and software applications from mainstream suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and manufacturers to verify the Year 2000 compliance of their products. In
addition, the Y2K Team has also requested and is evaluating documentation from
other companies with which the Partnership has a material third party
relationship, including the Partnership's tenants, vendors, financial
institutions and the Partnership's transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. The Y2K Team has also requested and is evaluating documentation
from the non-information technology systems providers of the affiliates of the
general partners. Although the general partners continue to receive positive
responses from the Companies with which the Partnership has third party
relationships regarding their Year 2000 compliance, the general partners cannot
be assured that the tenants, financial institutions, transfer agent, other
vendors and system providers have adequately considered the impact of the Year
2000. The general partners are not able to measure the effect on the operations
of the Partnership of any third party's failure to adequately address the impact
of the Year 2000.
The general partners and their affiliates have identified and have
implemented upgrades for certain hardware equipment. In addition, the general
partners and their affiliates have identified certain software applications
which will require upgrades to become Year 2000 compliant. The general partners
expect all of these upgrades, as well as any other necessary remedial measures
on the information technology systems used in the business activities and
operations of the Partnership, to be completed by September 30, 1999, although,
the general partners cannot be assured that the upgrade solutions provided by
the vendors have addressed all possible Year 2000 issues. The general partners
do not expect the aggregate cost of the Year 2000 remedial measures to be
material to the results of operations of the Partnership.
The general partners and affiliates have received certification from
the Partnership's transfer agent of its Year 2000 compliance. Due to the
material relationship of the Partnership with its transfer agent, the Y2K Team
is evaluating the Year 2000 compliance of the systems of the transfer agent and
expects to have the evaluation completed by September 30, 1999. Despite the
positive response from the transfer agent and the evaluation of the transfer
agent's system by the Y2K Team, the general partners cannot be assured that the
transfer agent has addressed all possible Year 2000 issues. In the event that
the systems of the transfer agent are not Year 2000 compliant, the general
partners and their affiliates would have to allocate resources to internally
perform the functions of the transfer agent. The general partners do not
anticipate that the additional cost of these resources would have a material
impact on the Partnership.
<PAGE>
Year 2000 Readiness Disclosure - Continued
Based upon the progress the general partners and affiliates have made
in addressing the Year 2000 issues and their plan and timeline to complete the
compliance program, the general partners do not foresee significant risks
associated with Year 2000 compliance at this time. The general partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership being affected by them; therefore, they have not developed a
comprehensive contingency plan. However, if the general partners and their
affiliates identify significant risks related to their Year 2000 compliance, or
if their progress deviates from the anticipated timeline, the general partners
and their affiliates will develop contingency plans as deemed necessary at that
time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 5, 1999, four limited partners in several of the CNL
Income Funds filed a lawsuit, Jon Hale, Mary J. Hewitt,
Charles A. Hewitt, and Gretchen M. Hewitt v. James M. Seneff,
Jr., Robert A. Bourne, CNL Realty Corporation, and CNL
American Properties Fund, Inc., Case No. CIO-99-0003561, in
the Circuit Court of the Ninth Judicial Circuit of Orange
County, Florida, alleging that the Messrs. Seneff and Bourne
and CNL Realty Corporation, as general partners of the CNL
Income Funds, breached their fiduciary duties and violated the
provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed acquisition of the
CNL Income Funds by APF. The plaintiffs are seeking
unspecified damages and equitable relief. The general partners
and APF believe that the lawsuit is without merit and intend
to defend vigorously against such claims. Because the lawsuit
was so recently filed, it is premature to further comment on
the lawsuit at this time.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default 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
2.1 Agreement and Plan of Merger by and between the
Registrant and CNL American Properties Fund,
Inc. ("APF") dated March 11, 1999 (filed as
Appendix B to the Prospectus Supplement for the
Registrant, constituting a part of the
Registration Statement of APF on Form S-4, File
No. 74329.)
3.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund X, Ltd. (Included as Exhibit
3.2 to Registration Statement No. 33-35049 on
Form S-11 and incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund X, Ltd. (included as Exhibit
3.2 to Registration Statement No. 33-35049 on
Form S-11 and incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited
Partnership of CNL Income Fund X, Ltd. (Included
as Exhibit 3.3 to Post-Effective Amendment No. 4
to Registration Statement No. 33-35049 on Form
S-11 and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund X,
Ltd. and CNL Investment Company (Included as
Exhibit 10.1 to Form 10-K filed with the
Securities and Exchange Commission on March 17,
1998, and incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL
Investment Company to CNL Income Fund Advisors,
Inc. (Included as Exhibit 10.2 to Form 10-K
filed with the Securities and Exchange
Commission on March 30, 1995, and incorporated
herein by reference.)
10.3 Assignment of Management Agreement from CNL
Income Fund Advisors, Inc. to CNL Fund Advisors,
Inc. (Included as Exhibit 10.3 to Form 10-K
filed with the Securities and Exchange
Commission on April 1, 1996, and incorporated
herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) Reports on Form 8-K
Current Report on Form 8-K dated March 11, 1999 and
filed March 12, 1999, describing the proposed merger
of the Partnership with and into a subsidiary of CNL
American Properties Fund, Inc.
<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 14th day of May, 1999.
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 March 31, 1999, and its statement of income
for the three months then ended and is qualified in its entirety by reference to
the Form 10Q of CNL Income Fund X, Ltd. for the three months ended March 31,
1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,225,257
<SECURITIES> 0
<RECEIVABLES> 271,382
<ALLOWANCES> 235,736
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 18,764,583
<DEPRECIATION> 1,402,126
<TOTAL-ASSETS> 34,335,528
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 33,153,427
<TOTAL-LIABILITY-AND-EQUITY> 34,335,528
<SALES> 0
<TOTAL-REVENUES> 739,029
<CGS> 0
<TOTAL-COSTS> 192,663
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 700,531
<INCOME-TAX> 0
<INCOME-CONTINUING> 700,531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 700,531
<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.
</FN>
</TABLE>
