UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-20016
CNL INCOME FUND X, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3004139
(State or other jurisdiction 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) 650-1000
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 4,000,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $10 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
PART I
Item 1. Business
CNL Income Fund 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. During the year ended December 31, 1998, the Partnership sold
its Properties in Sacramento, California and Billings, Montana. During 1998, the
Partnership reinvested the proceeds from the Sacramento, California sale in a
Property in San Marcos, Texas. As a result of the above transactions, as of
December 31, 1998, the Partnership owned 48 Properties, including nine
Properties owned by joint ventures in which the Partnership is a co-venturer and
two Properties owned with affiliates as tenants-in-common. During January 1999,
the Partnership reinvested the net sales proceeds from the sale of its Property
in Billings, Montana in a joint venture, Ocean Shores Joint Venture, to purchase
and hold one 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.
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-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. 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. See Item 8. Financial Statements and Supplementary Data -- Note 11.
Subsequent Events.
In the event that the Limited Partners vote against the Merger, 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
<PAGE>
been granted options to purchase Properties, generally at the Property's then
fair market value after a specified portion of the lease term has elapsed. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property 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 $26,160 to $198,500. The majority 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
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. Effective January 1, 1999, the rents reverted back to the amounts due
under the original lease agreement.
During 1998, two tenants, Brambury Associates and Boston Chicken, Inc.,
filed for bankruptcy and rejected the leases relating to two of their three
leases and ceased making rental payments to the Partnership on the rejected
leases. The Partnership will not recognize rental and earned income from these
Properties until new tenants for these Properties are located or until the
Properties are sold and the proceeds from such sales are reinvested in
additional Properties. The Partnership continued receiving rental payments
relating to the lease that was not rejected until the Partnership sold this
Property in March 1999. The lost revenues resulting from the two leases that
were rejected, as described above, could have an adverse effect on the results
of operations of the Partnership if the Partnership is unable to re-lease these
Properties in a timely manner. The General Partners are currently seeking either
new tenants or purchasers for the two Properties with rejected leases.
During 1994, the lease relating to the Property in Fremont, Ohio, was
amended to provide for the payment of reduced annual base rent with no scheduled
rent increases. However, the lease amendment provided for a lower percentage
rent breakpoint, as compared to the original lease agreement, a change that was
designed to result in higher percentage rent payments at any time that
percentage rent became payable. In accordance with a provision in the amendment,
as a result of the tenant assigning the leases to a new tenant during 1998, the
rents under the assigned lease reverted back to those that were required under
the original lease agreement.
During 1998, three of the Partnership's leases were amended to provide
for rent reductions from August 1998 through the end of the lease term.
<PAGE>
In January 1999, the Partnership invested in Ocean Shores Joint Venture
with an affiliate of the General Partners to hold one restaurant property. The
lease terms for the Property owned by the joint venture are substantially the
same as the Partnership's other leases as described above in the first three
paragraphs of this section.
Major Tenants
During 1998, two lessees of the Partnership and its consolidated joint
venture, Golden Corral Corporation and Foodmaker, Inc., 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, 1998, Golden Corral Corporation was the lessee under leases
relating to four restaurants and Foodmaker, Inc. was the lessee under leases
relating to six restaurants. It is anticipated that based on the minimum rental
payments required by the leases, these two lessees each will continue to
contribute more than ten percent of the Partnership's total rental income in
1999. 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 1998 (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 1999, 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 if the Partnership is not able to
re-lease the Properties in a timely manner. No single tenant or group of
affiliated tenants lease Properties with an aggregate carrying value, excluding
acquisition fees and certain acquisition expenses, in excess of 20 percent of
the total assets of the Partnership.
Joint Venture 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, Ashland Joint Venture and
Williston Real Estate Joint Venture, with affiliates of the General Partners, to
purchase and hold eight Properties.
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 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 40.95%,
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 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 13 percent 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
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.
In January 1999, the Partnership entered into a joint venture
arrangement, Ocean Shore Joint Venture, with an affiliate of the General
Partners to purchase and hold one Property. The joint venture arrangement
provides for the Partnership and its joint venture partners to share in all
costs and benefits associated with the joint venture in proportion to each
partner's percentage interest in the joint venture. The Partnership owns a
69.06% in the profits and losses of the joint venture.
Certain Management Services
CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership. Under this agreement,
CNL Fund Advisors, Inc. is responsible for collecting rental payments,
inspecting the Properties and the tenants' books and records, assisting the
Partnership in responding to tenant inquiries and notices and providing
information to the Partnership about the status of the leases and the
Properties. CNL Fund Advisors, Inc. also assists the General Partners in
negotiating the leases. For these services, the Partnership has agreed to pay
CNL Fund Advisors, Inc. an annual fee of one percent of the sum of gross rental
revenues from Properties wholly owned by the Partnership plus the Partnership's
allocable share of gross revenues of joint ventures in which the Partnership is
a co-venturer, but not in excess of competitive fees for comparable services.
Under the management agreement, the management fee is subordinated to receipt by
the Limited Partners of an aggregate, ten percent, cumulative, noncompounded
annual return on their adjusted capital contributions (the "10% Preferred
Return"), calculated in accordance with the Partnership's limited partnership
agreement (the "Partnership Agreement").
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
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 which offer different types of food and service.
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.
<PAGE>
Item 2. Properties
As of December 31, 1998, the Partnership owned, either directly or
through joint venture arrangements, 48 Properties, located in 17 states.
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 15,700
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.
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.
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.
Leases with Major Tenants. The terms of the leases with the
Partnership's major tenants as of December 31, 1998 (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 $156,700 (ranging from approximately
$88,000 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 2016)
and the average minimum base rent is approximately $91,700 (ranging from
approximately $68,000 to $110,300).
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of March 11, 1999 there were 3,522 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. Limited Partners who wish to sell
their Units may offer the Units for sale pursuant to the Partnership's
distribution reinvestment plan (the "Plan"), and Limited Partners who wish to
have their distributions used to acquire additional Units (to the extent Units
are available for purchase) may do so pursuant to such Plan. The General
Partners have the right to prohibit transfers of Units. From inception, the
price for any Unit transferred pursuant to the Plan was $9.50 per Unit. The
price paid for any Unit transferred other than pursuant to the Plan was subject
to negotiation by the purchaser and the selling Limited Partner. The Partnership
will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 1998 and 1997 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
<S> <C>
1998 (1) 1997 (1)
----------------------------------- ----------------------------------
High Low Average High Low Average
-------- -------- ---------- -------- -------- ----------
First Quarter $10.00 $ 9.30 $ 9.65 $ 9.50 $ 7.75 $ 9.13
Second Quarter 9.50 8.50 9.30 8.70 7.75 8.38
Third Quarter 9.50 7.80 9.29 9.50 8.25 8.67
Fourth Quarter 9.70 8.25 8.85 9.20 8.65 8.62
</TABLE>
(1) A total of 19,100 and 15,700 Units were transferred other than pursuant
to the Plan for the years ended December 31, 1998 and 1997,
respectively.
The capital contribution per Unit was $10. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For the years ended December 31, 1998 and 1997, the Partnership
declared cash distributions of $3,680,004 and $3,600,003, respectively, to the
Limited Partners. During the quarter ended March 31, 1998, the Partnership
declared a special distribution to the Limited Partners of $80,000 which
represented cumulative excess operating reserves. No amounts distributed to
partners for the years ended December 31, 1998 and 1997, are required to be or
have been treated by the Partnership as a return of capital for purposes of
calculating the Limited Partners' return on their adjusted capital
contributions. No distributions have been made to the General Partners to date.
As indicated in the chart below, these distributions were declared at the close
of each of the Partnership's calendar quarters. These amounts include monthly
distributions made in arrears for the Limited Partners electing to receive such
distributions on this basis.
Quarter Ended 1998 1997
-------------------- ------------ ------------
March 31 $980,001 $900,000
June 30 900,001 900,001
September 30 900,001 900,001
December 31 900,001 900,001
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although some Limited Partners, in accordance with their election, receive
monthly distributions, for an annual fee.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
<S> <C>
1998 1997 1996 1995 1994
-------------- --------------- -------------- -------------- --------------
Year ended December 31:
Revenues (1) $ 3,169,493 $ 3,813,248 $ 3,871,869 $ 3,875,779 $ 4,020,289
Net income (2) 1,878,858 3,531,381 3,461,812 3,552,067 3,672,841
Cash distributions
declared (3) 3,680,004 3,600,003 3,640,003 3,640,003 3,625,017
Net income per Unit (2) .46 .87 .86 .88 .91
Cash distributions declared
per Unit (3) .92 .90 .91 .91 .91
At December 31:
Total assets $ 34,480,865 $ 36,289,727 $ 36,437,560 $ 36,563,796 $ 36,722,696
Partners' capital 33,352,897 35,154,043 35,222,665 35,400,856 35,488,792
</TABLE>
(1) Revenues include equity in earnings of unconsolidated joint ventures,
minority interest in income of the consolidated joint venture, and
adjustments to accrued rental income as a result of certain tenants
filing for bankruptcy and rejecting the leases relating to these
Properties.
(2) Net income for the years ended December 31, 1998, 1997, and 1995,
include $218,960, $132,238, and $67,214, respectively, from gains on
sale of land and buildings. Net income for the year ended December 31,
1998, includes $1,001,846 from provision for loss on land, building and
net investment in direct financing lease.
(3) Distributions for the years ended December 31, 1998, 1996, and 1995,
each include a special distribution to the Limited Partners of $80,000,
$40,000, and $40,000, respectively, which represented cumulative excess
operating reserves.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
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 generally triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 1998, the Partnership owned 48 Properties, either directly or indirectly
through joint venture arrangements.
Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 1998, 1997, and 1996, 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 $3,604,438, $3,596,417,
and $3,695,802 for the years ended December 31, 1998, 1997, and 1996,
respectively. The increase in cash from operations during 1998, as compared to
1997, is primarily a result of changes in the Partnership's working capital. The
decrease in cash from operations during 1997, as compared to 1996, is primarily
a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
years ended December 31, 1998, 1997, and 1996.
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,
1998, the Partnership owned a 13 percent 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 for other
Partnership purposes.
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, 1998, the Partnership owned a 6.69% interest in
this Property.
In January 1998, the Partnership sold its property in Sacramento,
California, to the tenant for $1,250,000 and received net sales proceeds of
$1,230,672, resulting in a gain of $163,350 for financial reporting purposes.
This property was originally acquired by the Partnership in December 1991 and
had a cost of approximately $969,400, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the property
for approximately $261,300 in excess of its original purchase price. In November
1998, the Partnership reinvested the majority of the net sales proceeds it
received from the sale of the Property in Sacramento, California in a Jack in
the Box Property located in San Marcos, Texas. 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.
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 (less closing costs of $1,000 that were incurred in
anticipation of the sale) from the subtenant, to the Partnership. In March 1998,
the sale for the vacant parcel of land was consummated and the Partnership
recorded the net sales proceeds of $68,434 ($68,000 of which had been received
as a deposit in 1995), resulting in a gain of $7,810 for financial reporting
purposes.
In October 1998, the Partnership sold its Property in Billings, Montana
to the tenant for $362,000 and received net sales proceeds of $360,688,
resulting in a gain of $47,800 for financial reporting purposes. This property
was originally acquired by the Partnership in April 1992 and had a cost of
approximately $302,000, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the Property for approximately $58,700
in excess of its original purchase price. In January 1999, the Partnership
reinvested the majority of these proceeds plus remaining net proceeds from other
sales of properties in a joint venture, Ocean Shores Joint Venture, with an
affiliate of the General Partners, to hold one restaurant property. The
Partnership owns a 69.06% interest in the profits and losses of the joint
venture. 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.
In March 1999, the Partnership sold its Property in Amherst, New York
and received net sales proceeds in excess of the carrying value of the Property.
The Partnership intends to reinvest the net sales proceeds from the sale of this
Property in an additional Property.
None of the Properties owned by the Partnership or the joint ventures
in which the Partnership owns an interest is or may be encumbered. Under its
Partnership Agreement, the Partnership is prohibited from borrowing for any
purpose; provided, however, that the General Partners or their affiliates are
entitled to reimbursement, at cost, for actual expenses incurred by the General
Partners or their affiliates on behalf of the Partnership. Affiliates of the
General Partners from time to time incur certain operating expenses on behalf of
the Partnership for which the Partnership reimburses the affiliates without
interest.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to partners. At December 31, 1998, the Partnership had $1,835,972
invested in such short-term investments as compared to $1,583,883 at December
31, 1997. The increase in cash is primarily attributable to the Partnership
using only a portion of the net sales proceeds from the sale of the Property in
Sacramento, California to purchase the Property in San Marcos, Texas, as
described above. In January 1999, the Partnership reinvested the remaining net
proceeds in Ocean Shores Joint Venture, as described above. The funds remaining
at December 31, 1998, after payment of distributions and other liabilities and
excluding amounts invested in January 1999 in Ocean Shores Joint Venture, will
be used to meet the Partnership's working capital and other needs.
During 1998, 1997, and 1996, affiliates of the General Partners
incurred $125,405, $86,327, and $112,363, respectively, for certain operating
expenses. As of December 31, 1998 and 1997, the Partnership owed $29,987 and
$4,946, respectively, to affiliates for such amounts and accounting and
administrative services. As of March 11, 1999, the Partnership had reimbursed
the affiliates all such amounts. Other liabilities, including distributions
payable, decreased to $1,033,236 at December 31, 1998, from $1,066,237 at
December 31, 1997, primarily as a result of a decrease in rents paid in advance
at December 31, 1998. The General Partners believe that the Partnership has
sufficient cash on hand to meet its current working capital needs.
Based on cash from operations, and during the years ended December 31,
1998 and 1996, cumulative excess operating reserves, the Partnership declared
distributions to the Limited Partners of $3,680,004, $3,600,003, and $3,640,003
for each of the years ended December 31, 1998, 1997, and 1996, respectively.
This represents distributions of $0.92, $0.90, $0.91 per Unit for the years
ended December 31, 1998, 1997, and 1996, respectively. No amounts distributed to
the Limited Partners for the years ended December 31, 1998, 1997, and 1996, are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the Limited Partners' return on their adjusted
capital contributions. The Partnership intends to continue to make distributions
of cash available for distribution to the Limited Partners on a quarterly basis.
The 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.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
Due to low operating expenses and ongoing cash flow, the General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition, because all leases of the Partnership's Properties are
on a triple-net basis, it is not anticipated that a permanent reserve for
maintenance and repairs will be established at this time. To the extent,
however, that the Partnership has insufficient funds for such purpose, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. 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 APF's most recent public offering. 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. 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.
Results of Operations
During 1996, the Partnership and its consolidated joint venture,
Allegan Real Estate Joint Venture, owned and leased 39 wholly owned Properties,
and during 1997, the Partnership owned and leased 40 wholly owned Properties
(including one Property in Fremont, California, which was sold in September
1997). During 1998, the Partnership owned and leased 40 wholly owned Properties
(including two Properties sold in 1998). In addition, during 1998, 1997, and
1996, the Partnership was a co-venturer in two 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 and 1998, the Partnership owned
and leased two Properties with affiliates as tenants-in-common. As of December
31, 1998, the Partnership owned, either directly or through joint venture
arrangements 48 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 $26,160 to
$198,500. The majority 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, 1998, 1997, and 1996, the
Partnership and its consolidated joint venture, Allegan Real Estate Joint
Venture, earned $2,710,790, $3,402,320, and $3,481,139, respectively, in rental
income from operating leases and earned income from direct financing leases. The
decrease during the year ended December 31, 1998, as compared to the year ended
December 31, 1997, was partially due to a decrease in rental and earned income
of approximately $33,300 due to the fact that the tenant of the Properties in
Lancaster and Amherst, New York, filed for bankruptcy and rejected the lease
relating to one of the two Properties leased by Brambury Associates. As a
result, the tenant ceased making rental payments, on the one rejected lease. The
Partnership wrote off approximately $292,600 of accrued rental income (non-cash
accounting adjustment relating to the straight-lining of future scheduled rent
increases over the lease term in accordance with generally accepted accounting
principles) relating to both Properties. The Partnership also increased the
allowance for doubtful accounts for past due rental amounts for these Properties
in the amount of approximately $82,700 for the year ended December 31, 1998, as
compared to the increase in allowance for doubtful accounts of approximately
$64,600 for the year ended December 31, 1997 due to the fact that collection of
such amounts is questionable. The Partnership continued receiving rental
payments relating to the lease that was not rejected until the Partnership sold
this Property in March 1999. The lost revenues resulting from the lease that was
rejected, as described above, could have an adverse effect on the results of
operations of the Partnership if the Partnership is unable to re-lease these
Properties in a timely manner. The General Partners are currently seeking either
a new tenant or purchaser for the Property with the rejected lease. 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 these
Properties located in Lancaster and Amherst, New York. 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, as described above in "Liquidity and Capital Resources."
Additionally, the decrease in rental and earned income during the year
ended December 31, 1998, as compared to the year ended December 31, 1997, is
partially due to a decrease of approximately $68,800 in rental and earned income
due to the fact that the lease relating to the Perkins Property in Ft. Pierce,
Florida, was amended to provide for rent reductions from May 1997 through
December 31, 1998. Due to the lease amendment and questionable collectibility of
future scheduled rent increases from this tenant, the Partnership increased its
reserve for accrued rental income (non-cash accounting adjustment relating to
the straight-lining of future scheduled rent increases over the lease term in
accordance with generally accepted accounting principles) by approximately
$151,800 during 1998, as compared to approximately $28,800 during 1997. In
addition, rental and earned income decreased by approximately $210,100 during
the year ended December 31, 1998, as a result of the sale of the Properties in
Fremont and Sacramento, California in September 1997 and January 1998 and the
sale of the Property in Billings, Montana in October 1998. The decrease in
rental and earned income for 1998 was partially offset by the fact that the
Partnership recognized rental income of approximately $143,800 and $28,100
during 1998 and 1997, respectively, due to the reinvestment of a portion of the
net sales proceeds from the 1997 sale of the Property in Fremont, California, in
a Property in Homewood, Alabama in October 1997.
In addition, rental and earned income decreased by approximately $3,800
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 payments to the
Partnership. In conjunction with the rejected lease, the Partnership wrote off
approximately $13,200 of accrued rental income (non-cash accounting adjustments
relating to the straight-lining of future scheduled rent increases over the
lease term in accordance with generally accepted accounting principles). The
Partnership will not recognize 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.
The decrease in rental and earned income for the year ended December
31, 1998, as compared to the year ended December 31, 1997, is also partially due
to a decrease of approximately $39,900 for 1998, 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.
During the years ended December 31, 1998, 1997, and 1996, the
Partnership also earned $67,511, $51,678, and $45,126, respectively, in
contingent rental income. The increase in contingent rental income during 1998,
as compared to 1997, is partially attributable to an (i) increase in gross sales
relating to certain restaurant properties during 1998 and due to (ii) adjusting
estimated contingent rental amounts accrued at December 31, 1997, to actual
amounts during the year ended December 31, 1998. 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.
For the years ended December 31, 1998, 1997, and 1996, the Partnership
also earned $292,013, $278,919, and $278,371, 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 1998, as compared to 1997, is primarily attributable to the Partnership
investing in a Property in Miami, Florida, in December 1997, with affiliates of
the General Partners as tenants-in-common, as described above in "Liquidity and
Capital Resources."
During the year ended December 31, 1998, two lessees of the Partnership
and its consolidated joint venture, Golden Corral Corporation and Foodmaker,
Inc., 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, 1998, Golden Corral Corporation was the
lessee under leases relating to four restaurants and Foodmaker, Inc. was the
lessee under leases relating to six restaurants. It is anticipated that based on
the minimum rental payments required by the leases, these two lessees will
continue to contribute more than ten percent of the Partnership's total rental
income during 1999. In addition, during the year ended December 31, 1998, 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 1999, it is anticipated that these five Restaurant Chains
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 if the Partnership is not able to re-lease the
Properties in a timely manner.
Operating expenses, including depreciation and amortization expense,
were $507,749, $414,105, and $410,057 for the years ended December 31, 1998,
1997, and 1996, respectively. The increase in operating expenses during the year
ended December 31, 1998, as compared to the year ended December 31, 1997, is
partially the result of an increase in depreciation expense due to the purchase
of the Property in Homewood, Alabama, in October 1997 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. In addition, the
increase in operating expenses is partially due to the fact that the Partnership
recorded legal expenses relating to the Properties in Lancaster and Amherst, New
York due to the fact that the tenant of these Properties filed for bankruptcy,
as described above.
In addition, the increase in operating expenses for 1998 is due to the
fact that the Partnership incurred $23,779 in transaction costs related to the
General Partners retaining financial and legal advisors to assist them in
evaluating and negotiating the proposed Merger with APF, as described 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.
During 1998, two tenants of the Partnership, Brambury Associates and
Boston Chicken, Inc. filed for bankruptcy and rejected the leases relating to
two of their three leases. The Partnership will 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 with rejected leases.
As a result of the sale of the Properties in Sacramento, California and
Billings, Montana, and the sale of the parcel of land in Austin, Texas, as
described above in "Liquidity and Capital Resources," the Partnership recognized
a gain of $218,960 for financial reporting purposes during the year ended
December 31, 1998. As a result of the sale of the Property in Fremont,
California, as discussed above in "Liquidity and Capital Resources," the
Partnership recognized a gain of $132,238 for financial reporting purposes for
the year ended December 31, 1997. No Properties were sold during the year ended
December 31, 1996.
During the year ended December 31, 1998, the Partnership recorded a
provision for loss on land, building, and impairment in carrying value of net
investment in direct financing lease for financial reporting purposes relating
to the Properties in Lancaster, New York, Amherst, New York, and Homewood,
Alabama. The tenants of these Properties filed for bankruptcy during 1998, and
rejected two of the three leases related to these Properties. The allowance
represents the difference between the carrying value of the Properties at
December 31, 1998, and the estimated net realizable value for these Properties.
The Partnership's leases as of December 31, 1998, 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.
Year 2000
The Year 2000 problem is the result of information technology systems
and embedded systems (products which are made with microprocessor (computer)
chips such as HVAC systems, physical security systems and elevators) using a
two-digit format, as opposed to four digits, to indicate the year. Such
information technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.
The Partnership currently does not have any information technology
systems. Affiliates of the General Partners provide all services requiring the
use of information technology systems pursuant to a management agreement with
the Partnership. The maintenance of embedded systems, if any, at the
Partnership's Properties is the responsibility of the tenants of the Properties
in accordance with the terms of the Partnership's leases. The General Partners
and affiliates have established a team dedicated to reviewing the internal
information technology systems used in the operation of the Partnership, and the
information technology and embedded systems and the Year 2000 compliance plans
of the Partnership's tenants, significant suppliers, financial institutions and
transfer agent.
The information technology infrastructure of the affiliates of the
General Partners consists of a network of personal computers and servers that
were obtained from major suppliers. The affiliates utilize various
administrative and financial software applications on that infrastructure to
perform the business functions of the Partnership. The inability of the General
Partners and affiliates to identify and timely correct material Year 2000
deficiencies in the software and/or infrastructure could result in an
interruption in, or failure of, certain of the Partnership's business activities
or operations. Accordingly, the General Partners and affiliates have requested
and are evaluating documentation from the suppliers of the software and
infrastructure of the affiliates regarding the Year 2000 compliance of their
products that are used in the business activities or operations of the
Partnership. The General Partners and affiliates have not yet received
sufficient certifications to be assured that the suppliers have fully considered
and mitigated any potential material impact of the Year 2000 deficiencies. The
costs expected to be incurred by the General Partners and affiliates to become
Year 2000 compliant will be incurred by the General Partners and affiliates;
therefore, these costs will have no impact on the Partnership's financial
position or results of operations.
The Partnership has material third party relationships with its
tenants, financial institutions and 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. If any of these third parties are unable to meet their obligations
to the Partnership because of the Year 2000 deficiencies, such a failure may
have a material impact on the Partnership. Accordingly, the General Partners
have requested and are evaluating documentation from the Partnership's tenants,
financial institutions, and transfer agent relating to their Year 2000
compliance plans. The General Partners have not yet received sufficient
certifications to be assured that the tenants, financial institutions, and
transfer agent have fully considered and mitigated any potential material impact
of the Year 2000 deficiencies. Therefore, the General Partners do not, at this
time, know of the potential costs to the Partnership of any adverse impact or
effect of any Year 2000 deficiencies by these third parties.
The General Partners currently expect that all year 2000 compliance
testing and any necessary remedial measures on the information technology
systems used in the business activities and operations of the Partnership will
be completed prior to June 30, 1999. Based on the progress the General Partners
and affiliates have made in identifying and addressing the Partnership's Year
2000 issues and the plan and timeline to complete the compliance program, the
General Partners do not foresee significant risks associated with the
Partnership's Year 2000 compliance at this time. Because the General Partners
and affiliates are still evaluating the status of the information technology
systems used in business activities and operations of the Partnership and the
systems of the third parties with which the Partnership conducts its business,
the General Partners have not yet developed a comprehensive contingency plan and
are unable to identify "the most reasonably likely worst case scenario" at this
time. If the General Partners identify significant risks related to the
Partnership's Year 2000 compliance or if the Partnership's Year 2000 compliance
program's progress deviates substantially from the anticipated timeline, the
General Partners will develop appropriate contingency plans.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
----
Report of Independent Accountants 16
Financial Statements:
Balance Sheets 17
Statements of Income 18
Statements of Partners' Capital 19
Statements of Cash Flows 20
Notes to Financial Statements 22
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund X, Ltd.
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Income Fund X, Ltd. (a Florida limited partnership) at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules listed in the index appearing under item 14(a)(2) present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Orlando, Florida
January 30, 1999, except for the second paragraph of Note 11 for which the date
is March 11, 1999.
<PAGE>
<TABLE>
<CAPTION>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
--------------
<S> <C>
December 31,
1998 1997
----------------- ----------------
ASSETS
Land and buildings on operating leases, less
accumulated depreciation and allowance
for loss on land and building $16,685,182 $15,709,899
Net investment in direct financing leases, less
allowance for impairment in carrying value 10,713,000 13,460,125
Investment in joint ventures 3,421,329 3,505,326
Cash and cash equivalents 1,835,972 1,583,883
Restricted cash 361,403 92,236
Receivables, less allowance for doubtful
accounts of $236,810 and $137,856 81,100 123,903
Prepaid expenses 5,229 5,877
Accrued rental income, less allowance for
doubtful accounts of $269,421 and 1,342,166 1,775,374
$117,593
Other assets 35,484 33,104
----------------- ----------------
$34,480,865 $36,289,727
================= ================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 2,403 $ 6,033
Accrued and escrowed real estate taxes
payable 27,418 27,784
Distributions payable 900,001 900,001
Due to related parties 29,987 4,946
Rents paid in advance and deposits 103,414 132,419
----------------- ----------------
Total liabilities 1,063,223 1,071,183
Minority interest 64,745 64,501
Partners' capital 33,352,897 35,154,043
----------------- ----------------
$34,480,865 $36,289,727
================= ================
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
1998 1997 1996
-------------- -------------- -------------
Revenues:
Rental income from operating leases $ 1,886,761 $ 1,896,607 $ 1,921,562
Adjustments to accrued rental income (457,567 ) (28,812 ) (88,781 )
Earned income from direct financing leases 1,281,596 1,534,525 1,648,358
Contingent rental income 67,511 51,678 45,126
Interest and other income 108,481 88,853 75,896
-------------- -------------- -------------
2,886,782 3,542,851 3,602,161
-------------- -------------- -------------
Expenses:
General operating and administrative 163,189 153,672 166,049
Bad debt expense 5,887 -- --
Professional services 44,309 26,890 33,692
Real estate taxes 199 9,703 --
State and other taxes 10,520 9,372 2,357
Depreciation and amortization 259,866 214,468 207,959
Transaction costs 23,779 -- --
-------------- -------------- -------------
507,749 414,105 410,057
-------------- -------------- -------------
Income Before Minority Interest in Income of
Consolidated Joint Venture, Equity in
Earnings of Unconsolidated Joint Ventures,
Gain on Sale of Land and Building and
Provision for Loss on Land, Building, and
Impairment in Carrying Value of Net
Investment in Direct Financing Lease 2,379,033 3,128,746 3,192,104
Minority Interest in Income of Consolidated Joint Venture (9,302 ) (8,522 ) (8,663 )
Equity in Earnings of Unconsolidated Joint Ventures 292,013 278,919 278,371
Gain on Sale of Land and Building 218,960 132,238 --
Provision for Loss on Land, Building, and Impairment in
Carrying Value of Net Investment in Direct Financing
Lease (1,001,846 ) -- --
-------------- -------------- -------------
Net Income $ 1,878,858 $ 3,531,381 $ 3,461,812
============== ============== =============
Allocation of Net Income:
General partners $ 21,016 $ 33,991 $ 34,618
Limited partners 1,857,842 3,497,390 3,427,194
-------------- -------------- -------------
$ 1,878,858 $ 3,531,381 $ 3,461,812
============== ============== =============
Net Income Per Limited Partner Unit $ 0.46 $ 0.87 $ 0.86
============== ============== =============
Weighted Average Number of Limited Partner Units
Outstanding 4,000,000 4,000,000 4,000,000
============== ============== =============
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1998, 1997, and 1996
General Partners Limited Partners
-------------------------- -------------------------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
-------------- ----------- ------------- ------------- ------------ ----------- --------------
Balance, December 31, 1995 $ 1,000 $ 139,100 $ 40,000,000 $(13,723,133) $13,773,889 $ (4,790,000 ) $35,400,856
Distributions to limited
partners ($0.91 per
limited partner unit) -- -- -- (3,640,003) -- -- (3,640,003 )
Net income -- 34,618 -- -- 3,427,194 -- 3,461,812
--------- ------------- -------------- ----------- ------------ ----------- -------------
Balance, December 31, 1996 1,000 173,718 40,000,000 (17,363,136) 17,201,083 (4,790,000 ) 35,222,665
Distributions to limited
partners ($0.90 per
limited partner unit) -- -- -- (3,600,003) -- -- (3,600,003 )
Net income -- 33,991 -- -- 3,497,390 -- 3,531,381
-------- -------------- -------------- ----------- ------------ ----------- -------------
Balance, December 31, 1997 1,000 207,709 40,000,000 (20,963,139) 20,698,473 (4,790,000 ) 35,154,043
Distributions to limited
partners ($0.92 per
limited partner unit) -- -- -- (3,680,004) -- -- (3,680,004 )
Net income -- 21,016 -- -- 1,857,842 -- 1,878,858
-------- -------------- -------------- ------------ ------------ ----------- -------------
Balance, December 31, 1998 $ 1,000 $ 228,725 $ 40,000,000 $(24,643,143) $ 22,556,315 $(4,790,000 ) $33,352,897
======== ============== ============== ============ ============ =========== =============
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1998 1997 1996
---------------- --------------- ---------------
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $3,382,562 $3,380,391 $ 3,491,064
Distributions from unconsolidated joint
ventures 373,004 353,207 354,648
Cash paid for expenses (221,284 ) (190,902 ) (211,345)
Interest received 70,156 53,721 61,435
---------------- --------------- ---------------
Net cash provided by operating
activities 3,604,438 3,596,417 3,695,802
---------------- --------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of land and building 1,591,794 1,363,805 --
Additions to land and buildings on
operating leases (1,020,329 ) (1,277,308 ) (978)
Investment in direct financing leases -- -- (1,542)
Investment in joint venture -- (130,404 ) (108,952)
Increase in restricted cash (237,758 ) (89,702 ) --
Other 3,006 -- --
---------------- --------------- ---------------
Net cash provided by (used in)
investing activities 336,713 (133,609 ) (111,472)
---------------- --------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (3,680,004 ) (3,640,002 ) (3,640,003)
Distributions to holder of minority interest (9,058 ) (8,406 ) (7,697)
---------------- --------------- ---------------
Net cash used in financing activities (3,689,062 ) (3,648,408 ) (3,647,700)
---------------- --------------- ---------------
Net Increase (Decrease) in Cash and Cash
Equivalents 252,089 (185,600 ) (63,370)
Cash and Cash Equivalents at Beginning of Year 1,583,883 1,769,483 1,832,853
---------------- --------------- ---------------
Cash and Cash Equivalents at End of Year $1,835,972 $1,583,883 $ 1,769,483
================ =============== ===============
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
1998 1997 1996
--------------- --------------- ----------------
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Net income $ 1,878,858 $3,531,381 $3,461,812
--------------- --------------- ----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Bad debt expense 5,887 -- --
Depreciation 259,866 214,468 206,497
Amortization -- -- 1,462
Minority interest in income of consolidated
joint venture 9,302 8,522 8,663
Equity in earnings of unconsolidated joint
ventures, net of distributions 80,991 74,288 75,898
Gain on sale of land and building (218,960 ) (132,238 ) --
Provision for loss on land, building, and
impairment in carrying value of net
investment in direct financing lease 1,001,846 -- --
Decrease (increase) in receivables 8,312 (71,222 ) 46,834
Decrease (increase) in prepaid expenses 648 (374 ) (3,852 )
Decrease in net investment in direct financing
leases 219,237 211,942 160,007
Decrease (increase) in accrued rental income 300,791 (201,022 ) (315,029 )
Increase in other assets (2,380 ) -- --
Increase (decrease) in accounts payable and
accrued expenses (3,996 ) (14,156 ) 14,318
Increase (decrease) in due to related parties 25,041 3,337 (5,395 )
Increase (decrease) in rents paid in advance
and deposits 38,995 (28,509 ) 44,587
--------------- --------------- ----------------
Total adjustments 1,725,580 65,036 233,990
--------------- --------------- ----------------
Net Cash Provided by Operating Activities $ 3,604,438 $3,596,417 $3,695,802
=============== =============== ================
Supplemental Schedule of Non-Cash Financing Activities:
Distributions declared and unpaid at December 31 $ 900,001 $ 900,001 $ 940,000
=============== =============== ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund X, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50 percent shareholders of
the Corporate General Partner. The general partners have responsibility
for managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
on a triple-net basis, whereby the tenant is generally responsible for
all operating expenses relating to the property, including property
taxes, insurance, maintenance and repairs. The leases are accounted for
using either the direct financing or the operating methods. Such
methods are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (Note 4). Unearned income is deferred and
amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Partnership's net
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date. Whenever a tenant defaults
under the terms of its lease, or events or changes in
circumstance indicate that the tenant will not lease the
property through the end of the lease term, the Partnership
either reserves or writes-off the cumulative accrued rental
income balance.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations. The
general partners determine whether an impairment in value has occurred
by comparing the estimated future undiscounted cash flows, including
the residual value of the property, with the carrying cost of the
individual property. Although the general partners have made their best
estimate of these factors based on current conditions, it is reasonably
possible that changes could occur in the near term which could
adversely affect the general partners' estimate of net cash flows
expected to be generated from its properties and the need for asset
impairment write-downs. If an impairment is indicated, the assets are
adjusted to their fair value.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
and to decrease rental or other income or increase bad debt expense for
the current period, although the Partnership continued to pursue
collection of such amounts. If amounts are subsequently determined to
be uncollectible, the corresponding receivable and allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership 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.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
The Partnership's investments in CNL Restaurant Investments III,
Williston Real Estate Joint Venture and Ashland Joint Venture, and the
property in Clinton, North Carolina, and the property in Miami,
Florida, for which each property is held as tenants-in-common with
affiliates, are accounted for using the equity method since the
Partnership shares control with affiliates which have the same general
partners.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts. The Partnership limits investment of
temporary cash investments to financial institutions with high credit
standing; therefore, the Partnership believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 1998 presentation.
These reclassifications had no effect on partners' capital or net
income.
2. Leases:
The Partnership leases its land and buildings to operators of national
and regional fast-food and family-style restaurants. The leases are
accounted for under the provisions of Statement of Financial Accounting
Standards No. 13, "Accounting for Leases." Some of the leases have been
classified as operating leases and some of the leases have been
classified as direct financing leases. For the leases classified as
direct financing leases, the building portions of the property leases
are accounted for as direct financing leases while the land portions of
the majority of these leases are operating leases. Substantially all
leases are for 15 to 20 years and provide for minimum and contingent
rentals. In addition, the tenant pays all property taxes and
assessments, fully maintains the interior and exterior of the building
and carries insurance coverage for public liability, property damage,
fire and extended coverage. The lease options generally allow tenants
to renew the leases for two to five successive five-year periods
subject to the same terms and conditions as the initial lease. Most
leases also allow the tenant to purchase the property at fair market
value after a specified portion of the lease has elapsed.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
1998 1997
--------------- ---------------
Land $ 9,741,686 $ 9,947,295
Buildings 8,588,903 6,875,851
Construction in process 592,943 --
--------------- ---------------
18,923,532 16,823,146
Less accumulated depreciation (1,329,832 ) (1,113,247 )
--------------- ---------------
17,593,700 15,709,899
Less allowance for loss on
land and building (908,518 ) --
--------------- ---------------
$16,685,182 $15,709,899
=============== ===============
During 1997, the Partnership sold its property in Fremont, California,
to the franchisor, for $1,420,000 and received net sales proceeds 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 in a Boston Market property located
in Homewood, Alabama.
In March 1998, a vacant parcel of land relating to the property in
Austin, Texas, was sold to a third party who had previously subleased
the land from the Partnership's lessee. In connection therewith, the
Partnership received net sales proceeds of $68,434 ($68,000 of which
had been received and recorded as a deposit in 1995), resulting in a
gain of $7,810 for financial reporting purposes.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - Continued:
During 1998, the Partnership sold two properties for a total of
$1,612,000 and received net sales proceeds totalling $1,591,360,
resulting in a total gain of $211,150 for financial reporting purposes.
These properties were originally acquired by the Partnership in 1991
and 1992 and had total costs of approximately $1,271,400, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the properties for approximately $320,000 in excess of
their original purchase prices. In November 1998, the Partnership
reinvested the majority of the net sales proceeds from the sale of its
property in Sacramento, California in a Jack in the Box property in San
Marcos, Texas.
During the year ended December 31, 1998, the Partnership recorded a
provision for loss on land and building totalling $908,518 for
financial reporting purposes relating to the Properties in Lancaster,
New York, Amherst, New York and Homewood, Alabama, respectively. The
tenants of these Properties filed for bankruptcy during 1998, and
rejected the leases related to two of these Properties. The allowance
represents the difference between the carrying value of the Properties
at December 31, 1998 and the estimated net realizable value for these
Properties.
Some leases provide for escalating guaranteed minimum rents throughout
the lease term. Income from these scheduled rent increases is
recognized on a straight-line basis over the terms of the leases. For
the year ended December 31, 1998, the Partnership recognized a loss of
$300,791 (net of $151,828 in reserves and $305,739 in write-offs) and
for the years ended December 31, 1997 and 1996, the Partnership
recognized income of $201,022 and $315,029, respectively, (net of
reserves of $28,812 and $88,781, respectively).
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 1998:
1999 $1,725,916
2000 1,737,475
2001 1,781,312
2002 1,896,469
2003 1,908,568
Thereafter 13,254,521
-----------------
$22,304,261
=================
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - Continued:
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales. These
amounts do not include minimum lease payments that will become due when
the property under development is completed.
4. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at December 31:
1998 1997
-------------- --------------
Minimum lease payments
receivable $ 18,740,085 $ 25,273,063
Estimated residual values 3,553,036 4,225,008
Less unearned income (11,486,793 ) (16,037,946 )
-------------- --------------
10,806,328 13,460,125
Less allowance for impairment in
carrying value (93,328 ) --
-------------- --------------
Net investment in direct financing
leases $ 10,713,000 $ 13,460,125
============== ==============
During 1997, the Partnership sold its property in Fremont, California,
for which the building portion had been classified as a direct
financing lease. In connection therewith, the gross investment (minimum
lease payment receivable and estimated residual value) and unearned
income relating to this property were removed from the accounts and the
gain from the sale relating to the land portion of the property was
reflected in income (Note 3).
During 1998, the Partnership sold a property, for which the building
portion had been classified as a direct financing lease. In connection
therewith, the gross investment (minimum lease payments receivable and
the estimated residual value) and unearned income relating to the
building were removed from the accounts and the gain from the sale of
the property was reflected in income (see Note 3).
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
4. Net Investment in Direct Financing Leases - Continued:
During 1998, three of the Partnership's leases were amended and one of
the Partnership's leases that was classified as a direct financing
lease was rejected in connection with the tenant filing for bankruptcy.
As a result, the Partnership reclassified the two of the three amended
leases and the rejected lease from direct financing leases to operating
leases. In accordance with the Statement of Financial Accounting
Standards #13, "Accounting for Leases," the Partnership recorded the
reclassified leases at the lower of original costs, present fair value,
or present carrying amount. No losses on the termination of direct
financing leases were recorded for financial reporting purposes.
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at December 31, 1998:
1999 $1,389,897
2000 1,391,381
2001 1,398,824
2002 1,429,020
2003 1,440,530
Thereafter 11,690,433
-----------------
$18,740,085
=================
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 3).
5. Investment in Joint Ventures:
The Partnership has a 50 percent, a 10.51%, a 40.95%, and a 13%
interest in the profits and losses of CNL Restaurant Investments III,
Ashland Joint Venture, Williston Real Estate Joint Venture and a
property in Clinton, North Carolina, held as tenants-in-common with
affiliates of the general partners. The remaining interests in these
joint ventures are held by affiliates of the Partnership which have the
same general partners.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
5. Investment in Joint Ventures - Continued:
In December 1997, the Partnership acquired and leased a property in
Miami, Florida, as tenants-in-common with affiliates of the general
partners. The Partnership accounts for its investment in this property
using the equity method since the Partnership shares control with
affiliates, and amounts relating to its investment are included in
investment in joint ventures. As of December 31, 1998, the Partnership
owned a 6.69% interest in this property.
CNL Restaurant Investments III owns and leases six properties to an
operator of national fast-food restaurants. Ashland Joint Venture,
Williston Real Estate Joint Venture and the Partnership and affiliates
as tenants-in-common in two separate tenancy-in-common arrangements,
each own and lease one property to an operator of national fast-food or
family-style restaurants. The following presents the joint ventures'
combined, condensed financial information at December 31:
1998 1997
--------------- -------------
Land and buildings on operating
leases, less accumulated
depreciation $ 9,340,944 $ 9,573,341
Net investment in direct financing
lease 657,426 661,991
Cash 2,935 8,197
Receivables 7,597 26,766
Prepaid expenses 24,337 22,852
Accrued rental income 19,880 --
Liabilities 3,119 7,415
Partners' capital 10,050,000 10,285,732
Revenues 1,115,856 930,470
Net income 843,914 695,878
The Partnership recognized income totalling $292,013, $278,919, and
$278,371 for the years ended December 31, 1998, 1997, and 1996,
respectively, from these joint ventures.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
6. Restricted Cash:
As of December 31, 1997, net sales proceeds of $89,702 from the sale of
the property in Fremont, California, plus accrued interest of $2,534,
were being held in an interest-bearing escrow account pending the
release of funds by the escrow agent to acquire an additional property.
The funds were released by the escrow agent in 1998 and were used to
acquire an additional property. (See Note 3).
As of December 31, 1998, the net sales proceeds of $359,990 from the
sale of a property, plus accrued interest of $1,413 were being held in
an interest-bearing escrow account pending the release of funds by the
escrow agent to acquire an additional property.
7. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of properties, are allocated 99 percent
to the limited partners and one percent to the general partners.
Distributions of net cash flow are made 99 percent to the limited
partners and one percent to the general partners; provided, however,
that the one percent of net cash flow to be distributed to the general
partners is subordinated to receipt by the limited partners of an
aggregate, ten percent, cumulative, noncompounded annual return on
their adjusted capital contributions (the "10% Preferred Return").
Generally, net sales proceeds from the sale of properties not in
liquidation of the Partnership, to the extent distributed, will be
distributed first to the limited partners in an amount sufficient to
provide them with their 10% Preferred Return, plus the return of their
adjusted capital contributions. The general partners will then receive,
to the extent previously subordinated and unpaid, a one percent
interest in all prior distributions of net cash flow and a return of
their capital contributions. Any remaining sales proceeds will be
distributed 95 percent to the limited partners and five percent to the
general partners. Any gain from the sale of a property not in
liquidation of the Partnership is, in general, allocated in the same
manner as net sales proceeds are distributable. Any loss from the sale
of a property is, in general, allocated first, on a pro rata basis, to
partners with positive balances in their capital accounts; and
thereafter, 95 percent to the limited partners and five percent to the
general partners.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
7. Allocations and Distributions - Continued:
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: i) first to pay and discharge all
of the Partnership's liabilities to creditors, ii) second, to establish
reserves that may be deemed necessary for any anticipated or unforeseen
liabilities or obligations of the Partnership, iii) third, to pay all
of the Partnership's liabilities, if any, to the general and limited
partners, iv) fourth, after allocations of net income, gains and/or
losses, to distribute to the partners with positive capital account
balances, in proportion to such balances, up to amounts sufficient to
reduce such positive balances to zero, and v) thereafter, any funds
remaining shall then be distributed 95 percent to the limited partners
and five percent to the general partners.
During the years ended December 31, 1998, 1997, and 1996, the
Partnership declared distributions to the limited partners of
$3,680,004, $3,600,003, and $3,640,003, respectively. No distributions
have been made to the general partners to date.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
8. Income Taxes:
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
<TABLE>
<CAPTION>
<S> <C>
1998 1997 1996
------------ ----------- ------------
Net income for financial reporting purposes $1,878,858 $3,531,381 $3,461,812
Depreciation for tax reporting purposes in
excess of depreciation for financial
reporting purposes (228,986 ) (289,098 ) (298,518 )
Direct financing leases recorded as
operating 219,237 211,942 160,007
leases for tax reporting purposes
Equity in earnings of unconsolidated
joint ventures for tax reporting purposes
in excess of equity in earnings of
unconsolidated joint ventures for
financial reporting purposes 12,612 15,294 10,839
Gain on sale of land and building for
financial reporting purposes less than
(in excess of) gain for tax reporting purposes 65,474 (42,996 ) --
Allowance for loss on land and building 1,001,846 -- --
Allowance for doubtful accounts 98,954 133,428 --
Accrued rental income 300,791 (201,022 ) (315,029 )
Rents paid in advance 38,995 (22,593 ) 45,447
Minority interest in timing differences of
consolidated joint venture 413 1,461 2,184
Capitalization of transaction costs for
tax reporting purposes 23,779 -- --
Other -- -- (7,738 )
------------ ----------- ------------
Net income for federal income tax purposes $3,411,973 $3,337,797 $3,059,004
============ =========== ============
</TABLE>
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
9. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the majority stockholder
of CNL Fund Advisors, Inc. The other individual general partner, Robert
A. Bourne, serves as treasurer, director and vice chairman of the board
of CNL Fund Advisors. During the years ended December 31, 1998, 1997,
and 1996, CNL Fund Advisors, Inc. (hereinafter referred to as the
"Affiliate") performed certain services for the Partnership, as
described below.
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
acted as manager of the Partnership's properties pursuant to a
management agreement with the Partnership. In connection therewith, the
Partnership agreed to pay the Affiliate an annual, noncumulative,
subordinated management fee of one percent of the sum of gross revenues
from properties wholly owned by the Partnership and the Partnership's
allocable share of gross revenues from joint ventures, but not in
excess of competitive fees for comparable services. These fees will be
incurred and will be payable only after the limited partners receive
their 10% Preferred Return. Due to the fact that these fees are
noncumulative, if the limited partners do not receive their 10%
Preferred Return in any particular year, no management fees will be due
or payable for such year. As a result of such threshold, no management
fees were incurred during the years ended December 31, 1998, 1997, and
1996.
The Affiliate is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Affiliate provides a
substantial amount of services in connection with the sale. However, if
the net sales proceeds are reinvested in a replacement property, no
such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are
distributed. In addition, the real estate disposition fee is
subordinated to receipt by the limited partners of their aggregate 10%
Preferred Return, plus their adjusted capital contributions. No
deferred, subordinated real estate disposition fees have been incurred
since inception.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
9. Related Party Transactions - Continued:
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $105,445, $87,967, and
$94,496 for the years ended December 31, 1998, 1997, and 1996,
respectively, for such services.
During 1997, the Partnership acquired a property for a purchase price
of $1,277,300 from CNL BB Corp., an affiliate of the general partners.
CNL BB Corp. had purchased and temporarily held title to this 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 CNL BB Corp. to acquire and carry the property,
including closing costs.
The due to related parties at December 31, 1998 and 1997, totalled
$29,987 and $4,946, respectively.
10. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees, or affiliated groups of lessees, each representing
more than ten percent of the Partnership's total rental and earned
income (including the Partnership's share of total rental and earned
income from unconsolidated joint ventures and the properties held as
tenants-in-common with affiliates), for each of the years ended
December 31:
1998 1997 1996
------------ ----------- -----------
Golden Corral Corporation $578,430 $548,399 $568,164
Foodmaker, Inc. 436,577 646,477 684,277
Flagstar Enterprises, Inc.
(and Denny's Inc. during
the years ended
December 31, 1997 and
1996) N/A 602,913 668,919
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
10. Concentration of Credit Risk - Continued:
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than
ten percent of the Partnership's total rental and earned income
(including the Partnership's share of total rental and earned income
from unconsolidated joint ventures and the properties held as
tenants-in-common with affiliates) for each of the years ended December
31:
1998 1997 1996
----------- ------------ -----------
Burger King $758,178 $777,378 $714,792
Golden Corral Family
Steakhouse Restaurants 578,430 548,399 568,164
Shoney's 440,333 441,052 439,330
Jack in the Box 436,577 646,477 684,277
Hardees 400,716 403,882 468,037
Perkins N/A N/A 393,046
The information denoted by N/A indicates that for each period
presented, the tenant and the chains did not represent more than ten
percent of the Partnership's total rental and earned income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
11. Subsequent Events:
In January 1999, the Partnership used the net proceeds from the sales
of properties during 1998 and 1997 to enter into a joint venture
arrangement, Ocean Shores Joint Venture, with an affiliate of the
general partners, to hold one restaurant property. The Partnership
contributed approximately $802,400 to acquire the restaurant property.
The Partnership owns a 69.06% interest in the profits and losses of the
joint venture. The Partnership will account for its investment in this
joint venture under the equity method since the Partnership will share
control with an affiliate.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
11. Subsequent Events - Continued:
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 shares
(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 APF's most recent public offering. 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. 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.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 52, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, a director and Chief Executive Officer since its formation
in 1980. Mr. Seneff has been Chairman of the Board of Directors, director, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979. Mr.
Seneff also has held the position of Chairman of the Board of Directors, Chief
Executive Officer, President and director of CNL Management Company, a
registered investment advisor, since its formation in 1976, has served as Chief
Executive Officer, Chairman of the Board and a director of CNL Investment
Company, has served as Chief Executive Officer, a director and Chairman of the
Board of Directors of Commercial Net Lease Realty, Inc., a publicly-traded REIT,
listed on the NYSE, since 1992, served as Chief Executive Officer, a director
and Chairman of the Board of Directors of CNL Realty Advisors, Inc. from its
inception in May 1992 through December 1997, at which time such company merged
with Commercial Net Lease Realty, Inc., and has held the position of Chief
Executive Officer, Chairman of the Board and a director of CNL Institutional
Advisors, Inc., a registered investment advisor, since its inception in December
1990. Mr. Seneff has served as Chairman of the Board of Directors of CNL
American Properties Fund, Inc. since December 1994 and as a director and Chief
Executive Officer since May 1994. Mr. Seneff has served as Chairman of the
Board, Chief Executive Officer and a director of CNL Fund Advisors, Inc. since
March 1994. Mr. Seneff has served as Chairman of the Board, Chief Executive
Officer and a director of CNL Hospitality Properties, Inc. since June 1996 and
of CNL Hospitality Advisors, Inc. since January 1997. Mr. Seneff has also served
as Chairman of the Board, Chief Executive Officer and a director of CNL Health
Care Properties, Inc. since December 1997 and CNL Health Care Advisors, Inc.
since July 1997. Mr. Seneff previously served on the Florida State Commission on
Ethics and is a former member and past Chairman of the State of Florida
Investment Advisory Council, which advises the Florida Board of Administration
investments for various Florida employee retirement funds. The Florida Board of
Administration, Florida's principal investment advisory and money management
agency, oversees the investment of more then $60 billion of retirement funds.
Mr. Seneff has served as a member of the board of directors of First Union
National Bank of Florida since May 1998 and has served as a member of the
Orlando Advisory Board of First Union National Bank of Florida since March 1994.
Since 1971, Mr. Seneff has been active in the acquisition, development, and
management of real estate projects and, directly or through an affiliated
entity, has served as a general partner or joint venturer in over 100 real
estate ventures involved in the financing, acquisition, construction, and rental
of restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 65 privately
offered real estate limited partnerships in which Mr. Seneff, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund
III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund
VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund
IX, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund
XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund
XVI, Ltd., CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII, Ltd. (the "CNL
Income Fund Partnerships"), public real estate limited partnerships with
investment objectives similar to those of the Partnership, in which Mr. Seneff
serves as a general partner. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 51, is President and Treasurer of CNL Group,
Inc., President, Treasurer, a director, and a registered principal of CNL
Securities Corp., President, Treasurer, and a director of CNL Investment
Company, and Chief Investment Officer, a director and Treasurer of CNL
Institutional Advisors, Inc., a registered investment advisor. Mr. Bourne served
as President of CNL Institutional Advisor, Inc. from the date of its inception
through July 1997. Mr. Bourne served as President of Commercial Net Lease
Realty, Inc. from July 1992 through February 1996, served as Secretary and
Treasurer from February 1996 through December 1997, and has served as a director
since July 1992 and as Vice Chairman of the Board of Directors since February
1996. In addition, Mr. Bourne served as President of CNL Realty Advisors, Inc.
from May 1992 through February 1996, served as Treasurer from February 1996
through December 1997, served as a director from May 1992 through December 31,
1997 and served as Vice Chairman from February 1996 through December 1997, at
which time such company merged with Commercial Net Lease Realty, Inc. Mr. Bourne
has served as a Vice Chairman of the Board of Directors and Treasurer of CNL
American Properties Fund, Inc. since February 1999, has served as a director
since May 1994 and previously served as President from May 1994 through February
1999. Mr. Bourne has served as a director of CNL Fund Advisors, Inc. since March
1994, has served as Treasurer and Vice Chairman of the Board of Directors since
September 1997, and previously served as President from March 1994 through
September 1997. Mr. Bourne has served as President and a director of CNL
Hospitality Properties, Inc. since June 1996 and of CNL Hospitality Advisors,
Inc. since January 1997. Mr. Bourne has served as President and director of CNL
Health Care Properties, Inc. since December 1997 and CNL Health Care Advisors,
Inc. since July 1997. Mr. Bourne, who joined CNL Securities Corp. in 1979, has
participated as a general partner or joint venturer in over 100 real estate
ventures involved in the financing, acquisition, construction, and rental of
restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 64 privately
offered real estate limited partnerships in which Mr. Bourne, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are the CNL Income Fund Partnerships, public real estate limited
partnerships with investment objectives similar to those of the Partnership, in
which Mr. Bourne serves as a general partner. Mr. Bourne formerly was a
certified public accountant with Coopers & Lybrand and a partner in the firm of
Bourne & Rose, P.A. Mr. Bourne received a B.A. in Accounting, with honors, from
Florida State University in 1970.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL
Realty Corporation was organized to serve as the corporate general partner of
real estate limited partnerships, such as the Partnership, organized by one or
both of the individual General Partners. CNL Realty Corporation currently serves
as the corporate general partner of the CNL Income Fund Partnerships.
CNL Fund Advisors, Inc. provides certain management services in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation organized in 1994 under the laws of the State of Florida, and its
principal office is located at 400 East South Street, Orlando, Florida 32801.
CNL Fund Advisors, Inc. is a majority owned subsidiary of CNL Group, Inc., a
diversified real estate company, and was organized to perform property
acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Fund Advisors,
Inc., was organized in 1980 under the laws of the State of Florida. CNL Group,
Inc. is a diversified real estate company which provides a wide range of real
estate, development and financial services to companies in the United States
through the activities of its subsidiaries. These activities are primarily
focused on the franchised restaurant and hospitality industries. James M.
Seneff, Jr., an individual General Partner of the Partnership, is the Chairman
of the Board, Chief Executive Officer, and a director of CNL Group, Inc. Mr.
Seneff and his wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as members
of the Boards of Directors of those entities. The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.
Curtis B. McWilliams, age 43, joined CNL Group, Inc. in April 1997 and
currently serves as an Executive Vice President. In addition, Mr. McWilliams has
served as President of CNL Fund Advisors, Inc. and as President of the
Restaurant and Financial Services Groups within CNL Group, Inc. since April
1997. Mr. McWilliams has served as President of CNL American Properties Fund,
Inc. since February 1999 and previously served as Executive Vice President from
February 1998 through February 1999. From September 1983 through March 1997, Mr.
McWilliams was employed by Merrill Lynch & Co., most recently as Chairman of
Merrill Lynch's Private Advisory Services until March 1997. Mr. McWilliams
received a B.S.E. in Chemical Engineering from Princeton University in 1977 and
a Masters of Business Administration with a concentration in finance from the
University of Chicago in 1983.
John T. Walker, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since January 1996, as Chief Operating Officer
since March 1995, and previously served as Senior Vice President since December
1994. In addition, Mr. Walker has served as Executive Vice President of CNL Fund
Advisors, Inc. since January 1996, Chief Operating Officer since April 1995, and
previously served as Senior Vice President from November 1994 through January
1996. In addition, Mr. Walker previously served as Executive Vice President of
CNL Hospitality Properties, Inc. and CNL Hospitality Advisors, Inc. From May
1992 to May 1994, Mr. Walker, a certified public accountant, was Executive Vice
President for Finance and Administration and Chief Financial Officer of Z Music,
Inc., a cable television network (subsequently acquired by Gaylord
Entertainment), where he was responsible for overall financial and
administrative management and planning. From January 1990 through April 1992,
Mr. Walker was Chief Financial Officer of the First Baptist Church in Orlando,
Florida. From April 1984 through December 1989, he was a partner in the
accounting firm of Chastang, Ferrell & Walker, P.A., where he was the partner in
charge of audit and consulting services, and from 1981 to 1984, Mr. Walker was a
Senior Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a Cum Laude
graduate of Wake Forest University with a B.S. in Accountancy and is a certified
public accountant.
Lynn E. Rose, age 50, a certified public accountant, has served as
Secretary of CNL American Properties Fund, Inc. since December 1994 and served
as Treasurer from December 1994 through February 1999. Ms. Rose has served as a
director and Secretary of CNL Fund Advisors, Inc. since March 1994, and as
Treasurer from the date of its inception through June 30, 1997. Ms. Rose has
served as Secretary of CNL Group, Inc. since 1987, as Chief Financial Officer of
CNL Group, Inc. since December 1993, and served as Controller of CNL Group, Inc.
from 1987 until December 1993. In addition, Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has
served as Chief Operating Officer, Vice President and Secretary of CNL Corporate
Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial
Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in
1990, as Treasurer of CNL Realty Advisors, Inc. from 1991 to February 1996, and
as Secretary and a director of CNL Realty Advisors, Inc. since its inception in
1991 until December 31, 1997, at which time CNL Realty Advisors, Inc. merged
with Commercial Net Lease Realty, Inc. In addition, Ms. Rose served as Secretary
and Treasurer of Commercial Net Lease Realty, Inc. from 1992 to February 1996.
Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality Properties,
Inc. and CNL Health Care Properties, Inc. and as Secretary, Treasurer and a
director of CNL Hospitality Advisors, Inc. and CNL Health Care Advisors, Inc.
Ms. Rose also currently serves as Secretary for approximately 50 additional
corporations. Ms. Rose oversees the legal compliance, accounting, tenant
compliance, and reporting for over 250 corporations, partnerships and joint
ventures. Prior to joining CNL, Ms. Rose was a partner with Robert A. Bourne in
the accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Ms.
Rose holds a B.A. in Sociology from the University of Central Florida.
Jeanne A. Wall, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since December 1994. Ms. Wall has served as
Executive Vice President of CNL Fund Advisors, Inc. since November 1994, and
previously served as Vice President from March 1994 through November 1994. Ms.
Wall has served as Chief Operating Officer of CNL Investment Company and of CNL
Securities Corp. since November 1994 and has served as Executive Vice President
of CNL Investment Company since January 1991. Ms. Wall joined CNL Securities
Corp. in 1984. In 1985, Ms. Wall became Vice President of CNL Securities Corp.
In 1987, she became Senior Vice President and in July 1997 she became Executive
Vice President of CNL Securities Corp. In this capacity, Ms. Wall serves as
national marketing and sales director and oversees the national marketing plan
for the CNL investment programs. In addition, Ms. Wall oversees product
development, partnership administration and investor services for programs
offered through participating brokers and corporate communications for CNL
Group, Inc. and its affiliates. Ms. Wall also has served as Senior Vice
President of CNL Institutional Advisors, Inc., a registered investment advisor,
from 1990 to 1993, as Vice President of CNL Realty Advisors, Inc. since its
inception in 1991 until December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., and served as Vice President
of Commercial Net Lease Realty, Inc. from 1992 through December 31, 1997. In
addition, Ms. Wall serves as Executive Vice President of CNL Hospitality
Properties, Inc., CNL Hospitality Advisors, Inc., CNL Health Care Properties,
Inc. and CNL Health Care Advisors, Inc. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp. Ms. Wall currently serves as a trustee on the board of the
Investment Program Association and on the Direct Participation Program committee
for the National Association of Securities Dealers (NASD).
Steven D. Shackelford, age 35, a certified public accountant, has
served as Chief Financial Officer of CNL American Properties Fund, Inc. since
January 1997 and as Chief Financial Officer of CNL Fund Advisors, Inc. since
September 1996. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse where he was responsible for
advising foreign clients seeking to raise capital and a public listing in the
United States. From August 1992 to March 1995, he served as a manager in the
Price Waterhouse, Paris, France office serving several multinational clients.
Mr. Shackelford was an audit staff and audit senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a B.A. in
Accounting, with honors, and a Masters of Business Administration from Florida
State University.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 11, 1999, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 11, 1999, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
-------------- --------------- ----------------
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
100%
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above. On March 11, 1999, the
Registrant entered into an Agreement and Plan of Merger with CNL American
Properties Fund, Inc. ("APF") pursuant to which the Registrant would be merged
with and into a subsidiary of APF (the "Merger"). For further discussion, see
Item 8. Financial Statements and Supplementary Data -- Note 11.
Subsequent Events.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 1998, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
<TABLE>
<CAPTION>
<S> <C>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
------------- --------------------- -----------------------
Reimbursement to affiliates for Operating expenses are reimbursed Operating expenses
operating expenses at the lower of cost or 90 percent incurred on behalf of the
of the prevailing rate at which Partnership: $125,405
comparable services could have been
obtained in the same geographic Accounting and administrative
area. Affiliates of the General services: $105,445
Partners from time to time incur
certain operating expenses on
behalf of the Partnership for which
the Partnership reimburses the
affiliates without interest.
Annual, subordinated management fee to One percent of the sum of gross $ - 0 -
affiliates operating revenues from Properties
wholly owned by the Partnership
plus the Partnership's allocable
share of gross revenues of joint
ventures in which the Partnership
is a co-venturer, subordinated to
certain minimum returns to the
Limited Partners. The management
fee will not exceed competitive
fees for comparable services. Due
to the fact that these fees are
non-cumulative, if the Limited
Partners have not received their
10% Preferred Return in any
particular year, no management
fees will be due or payable for
such year.
<PAGE>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
Deferred, subordinated real estate A deferred, subordinated real $ - 0 -
disposition fee payable to affiliates estate disposition fee, payable
upon sale of one or more
Properties, in an amount equal to
the lesser of (i) one-half of a
competitive real estate
commission, or (ii) three percent
of the sales price of such
Property or Properties. Payment of
such fee shall be made only if
affiliates of the General Partners
provide a substantial amount of
services in connection with the
sale of a Property or Properties
and shall be subordinated to
certain minimum returns to the
Limited Partners. However, if the
net sales proceeds are reinvested
in a replacement Property, no such
real estate disposition fee will
be incurred until such replacement
Property is sold and the net sales
proceeds are distributed.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to one percent of Partnership
cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to five percent of
sales proceeds from a sale or sales not Partnership distributions of such
in liquidation of the Partnership net sales proceeds, subordinated to
certain minimum returns to the
Limited Partners.
<PAGE>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
General Partners' share of Partnership Distributions of net sales proceeds $ - 0 -
net sales proceeds from a sale or sales from a sale or sales of
in liquidation of the Partnership substantially all of the
Partnership's assets will be
distributed in the following order
or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net
loss, gain and loss, in proportion
to such balances, up to amounts
sufficient to reduce such balances
to zero; and (iii) thereafter, 95%
to the Limited Partners and 5% to
the General Partners.
</TABLE>
As discussed above in Item 8. Financial Statements and Supplementary
Data - Note 11. Subsequent Events, the Registrant has entered into an Agreement
and Plan of Merger, dated March 11, 1999, with APF pursuant to which the
Registrant would be merged with and into a subsidiary of APF in exchange for the
issuance of APF Shares. The APF Shares are expected to be listed for trading on
the New York Stock Exchange concurrently with the consummation of the Merger. If
the Merger is approved by Limited Partners holding units greater than 50% of the
outstanding units of the Registrant, the General Partners of the Registrant
would receive certain benefits, including:
o With respect to their ownership in the Registrant, the General
Partners will be issued approximately 38,555 shares of APF
common stock, par value $0.01 per share.
o Following the Merger, James M. Seneff, Jr. and Robert A.
Bourne, the individual General Partners, will continue to
serve as directors of APF, with Mr. Seneff serving as Chairman
and Mr. Bourne serving as Vice Chairman. As APF directors,
they may also be entitled to receive stock options under any
stock option plan adopted by APF.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1998 and 1997
Statements of Income for the years ended December 31, 1998,
1997, and 1996
Statements of Partners' Capital for the years ended December
31, 1998, 1997, and 1996
Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996
Notes to Financial Statements
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1998, 1997, and 1996
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1998
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1998
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund 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) The Registrant filed no reports on Form 8-K during the period
October 1, 1998 through December 31, 1998.
<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 27th day of
March, 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C>
/s/ Robert A. Bourne President, Treasurer and Director March 27, 1999
Robert A. Bourne (Principal Financial and
Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 27, 1999
James M. Seneff, Jr. (Principal Executive Officer)
<PAGE>
</TABLE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
<S> <C>
Additions Deductions
------------------------------- -----------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
-------- ----------------- -------------- -------------- --------------- ------------- ------------ -----------
1996 Allowance for
doubtful
accounts (a) $ 12,167 $ -- $ 91,857 (b) $ 10,368 (c) $ 447 $ 93,209
============== ============== =============== ============= ============ ===========
1997 Allowance for
doubtful
accounts (a) $ 93,209 $ -- $ 192,212 (b) $ 5,083 (c) $ 24,889 $255,449
============== ============== =============== ============= ============ ===========
1998 Allowance for
doubtful
accounts (a) $ 255,449 $ -- $ 290,844 (b) $ 38,726 (c) $ 1,335 $506,232
============== ============== =============== ============= ============ ===========
(a) Deducted from receivables and accrued rental income on the balance
sheet.
(b) Reduction of rental, earned and other income.
(c) Amounts written off as uncollectible.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<S> <C>
Costs Capitalized
Subsequent to
Initial Cost Acquisition
-------------------------- -------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
----------- ---------- ------------- --------- -------
Properties the Partnership
has Invested in:
Burger King Restaurant:
San Antonio, Texas - $373,095 $384,458 - -
Checkers Drive-In Restaurants:
Fayetteville, Georgia - 338,735 - - -
Atlanta, Georgia - 317,128 - - -
Denny's Restaurants:
Casper, Wyoming - 184,285 415,181 - -
Rock Springs, Wyoming - 217,448 488,991 - -
Golden Corral Family
Steakhouse Restaurants:
Tomball, Texas - 311,019 529,759 22,330 -
Pineville, Louisiana (e) - 187,961 503,435 - -
Hueytown, Alabama - 258,084 513,853 - -
Nederland, Texas - 327,473 520,701 - -
Columbia, Missouri - 384,911 163,164 - -
Jack in the Box Restaurant:
Lubbock, Texas - 229,198 408,702 - -
KFC Restaurants:
Jacksonville, Florida - 198,735 266,200 - -
Eagan, Minnesota - 202,084 370,247 31,976 -
Bay City, Texas - 162,783 - 305,154 -
Lonestar Steakhouse &
Saloon Restaurant:
Sterling Heights, Michigan (f) - 430,281 - 648,736 -
Pizza Hut Restaurants:
Clayton, New Mexico - 54,093 200,141 - -
Santa Rosa, New Mexico - 75,963 168,204 - -
Childress, Texas - 71,512 145,191 - -
Coleman, Texas - 70,208 141,004 - -
Ponderosa Steakhouse Restaurant:
Scottsburg, Indiana - 208,781 - 518,884 -
Popeyes Famous Fried
Chicken Restaurants:
Altamonte Springs, Florida - 197,959 255,965 - -
Ocala, Florida - 184,512 274,991 - -
Sanford, Florida - 237,243 359,865 - -
Apopka, Florida - 155,041 - 417,209 -
Wendy's Old Fashioned
Hamburger Restaurants:
Gainesville, Texas - 166,302 449,914 - -
Vail, Colorado - 782,609 - 550,346 -
Other:
Oxford, Alabama (g) - 152,567 355,990 - -
Littleton, Colorado (h) - 42,873 310,832 - -
Lombard, Illinois (i) - 85,517 96,207 40,633 -
------------ ----------- ------------ -------
$6,608,400 $7,322,995 $2,535,268 -
============ =========== ============ =======
Property of Joint Venture in Which
the Partnership has a 50% Interest and
has Invested in Under an Operating Lease:
Pizza Hut Restaurant:
Orlando, Florida - $330,568 $220,588 - -
============ =========== ============ =======
Property of Joint Venture in Which the
Partnership has a 49% Interest and has
Invested in Under an Operating Lease:
Denny's Restaurant:
Holland, Michigan - $295,987 - $780,451 -
============ =========== ============ =======
Property of Joint Venture in Which the
Partnership has a 64% Interest and has
Invested in Under an Operating Lease:
Darryl's Restaurant:
Greensboro, North Carolina - $261,013 - - -
============ =========== ============ =======
Property in Which the Partnership
has a 33.87% Interest as Tenants-
In-Common and has Invested
in Under an Operating Lease
Arby's Restaurant:
Arvada, Colorado (m) - $260,439 $545,126 - -
============ =========== ============ =======
Property in Which the Partnership has
a 57.9129% Interest as Tenants-in-Common
and has Invested in Under an Operating Lease:
Boston Market Restaurant:
Mesa, Arizona (l) - $440,843 $650,622 - -
============ =========== ============ =======
Property in Which the Partnership has a 47%
Interest as Tenants- In Common and
has Invested in Under an Operating Lease:
Golden Corral Restaurant:
Smithfield, North Carolina - $264,272 $1,155,018 - -
============ =========== ============ =======
Property in Which the Partnership has a
37.01% Interest as Tenants-in-Common
and has Invested in Under an Operating Lease:
Chevy's Fresh Mex Restaurant:
Vancouver, Washington - $875,659 $1,389,366 - -
============ =========== ============ =======
Property of in Which the Partnership has
a 13.38% Interest as Tenants- In-Common
and has Invested in Under an Operating Lease:
IHOP Restaurant
Memphis, Tennessee - $678,890 $825,076 - -
============ =========== ============ =======
Property of Joint Venture in
Which the Parnership has a
64% Interest has Invested in
Under a Direct Financing Lease:
Darryl's Restaurant:
Greensboro, North Carolina - - $521,400 - -
============ =========== ============ =======
Property in Which the Partnership has a
39.39% Interest as Tenants- In-Common and
has Invested in Under a Direct Financing Lease:
IHOP Restaurant
Overland Park, Kansas - $335,374 $1,273,134 - -
============ =========== ============ =======
Gross Amount at Which Life on Which
Carried at Close of Period (c) Depreciation in
------------------------------------- Date Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
--------- ------------ ----------- ----------- --------- -------- ------------
$373,095 $384,458 $757,553 $147,376 1987 07/87 (b)
338,735 - 338,735 (d) - 12/94 (d)
317,128 - 317,128 (d) - 12/94 (d)
184,285 415,181 599,466 156,846 1983 09/87 (b)
217,448 488,991 706,439 184,730 1983 09/87 (b)
311,019 552,089 863,108 213,488 1987 05/87 (b)
187,961 503,435 691,396 194,382 1987 06/87 (b)
258,084 513,853 771,937 198,405 1987 06/87 (b)
327,473 520,701 848,174 198,156 1987 08/87 (b)
384,911 163,164 548,075 60,734 1987 11/87 (b)
229,198 408,702 637,900 74,014 1993 07/93 (b)
198,735 266,200 464,935 100,564 1983 09/87 (b)
202,084 402,223 604,307 150,834 1987 10/87 (b)
162,783 305,154 467,937 112,737 1987 12/87 (b)
430,281 648,736 1,079,017 234,266 1988 08/87 (b)
54,093 200,141 254,234 76,165 1986 08/87 (b)
75,963 168,204 244,167 64,011 1986 08/87 (b)
71,512 145,191 216,703 55,253 1974 08/87 (b)
70,208 141,004 211,212 52,093 1977 12/87 (b)
208,781 518,884 727,665 187,375 1988 10/87 (b)
197,959 255,965 453,924 101,675 1987 02/87 (b)
184,512 274,991 459,503 109,233 1987 02/87 (b)
237,243 359,865 597,108 138,948 1987 06/87 (b)
155,041 417,209 572,250 152,398 1988 09/87 (b)
166,302 449,914 616,216 172,467 1986 07/87 (b)
782,609 550,346 1,332,955 209,437 1987 08/87 (b)
152,567 355,990 508,557 129,040 1987 02/88 (b)
42,873 310,832 353,705 116,562 1973 10/87 (b)
85,517 136,840 222,357 40,170 1973 10/87 (b)
- ---------- ------------ ------------ -----------
$6,608,400 $9,858,263 $16,466,663 $3,631,359
========== ============ ============ ===========
$330,568 $220,588 $551,156 $82,415 1987 10/87 (b)
========== ============ ============ ===========
$295,987 $780,451 $1,076,438 $264,486 1988 10/87 (b)
========== ============ ============ ===========
$261,013 (k) $261,013 - 1987 07/87 (j)
========== ============ ===========
$260,439 $545,126 $805,565 $77,712 1994 09/94 (b)
========== ============ ============ ===========
$440,843 $650,622 $1,091,465 $25,836 1997 10/97 (b)
========== ============ ============ ===========
$264,272 $1,155,018 $1,419,290 $39,450 1996 12/97 (b)
========== ============ ============ ===========
$875,659 $1,389,366 $2,265,025 $46,437 1994 12/97 (b)
========== ============ ============ ===========
$678,890 $825,076 $1,503,966 $26,642 1997 01/98 (b)
========== ============ ============ ===========
(k) (k) (j) 1974 06/97 (j)
==========
- (k) (k) (j) 1997 01/98 (j)
==========
</TABLE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(a) Transactions in real estate and accumulated depreciation during 1998,
1997 and 1996, are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Accumulated
Cost Depreciation
----------------- ---------------
Properties the Partnership has Invested
in Under Operating Leases:
Balance, December 31, 1995 $ 15,555,248 $ 692,282
Reclassified to operating lease 567,923 --
Depreciation expense -- 206,497
----------------- ---------------
Balance, December 31, 1996 16,123,171 898,779
Acquisitions 1,277,307 --
Dispositions (577,332 ) --
Depreciation expense -- 214,468
----------------- ---------------
Balance, December 31, 1997 16,823,146 1,113,247
Acquisitions 1,020,329 --
Dispositions (833,323 ) (43,281 )
Reclass to operating lease 1,913,380 --
Depreciation expense (m)(n)(o) -- 259,866
----------------- ---------------
Balance, December 31, 1998 $ 18,923,532 $ 1,329,832
================= ===============
Properties of Joint Venture in Which
the Partnership has a 50% Interest
and has Invested in Under Operating
Leases:
Balance, December 31, 1995 $ 6,565,262 $ 541,467
Depreciation expense -- 144,050
----------------- ---------------
Balance, December 31, 1996 6,565,262 685,517
Depreciation expense -- 144,047
----------------- ---------------
Balance, December 31, 1997 6,565,262 829,564
Depreciation expense -- 144,050
----------------- ---------------
Balance, December 31, 1998 $ 6,565,262 $ 973,614
================= ===============
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1998
Accumulated
Cost Depreciation
--------------- --------------
Property of Joint Venture in Which the
Partnership has a 10.51% Interest and
has Invested in Under Operating
Leases:
Balance, December 31, 1995 $ 1,290,582 $ 108,088
Depreciation expense -- 33,237
--------------- --------------
Balance, December 31, 1996 1,290,582 141,325
Depreciation expense -- 33,147
--------------- --------------
Balance, December 31, 1997 1,290,582 174,472
Depreciation expense -- 33,327
--------------- --------------
Balance, December 31, 1998 $ 1,290,582 $ 207,799
=============== ==============
Property in Which the Partnership has
a 13% Interest as Tenants-in-Common
and has Invested in Under an Operating
Lease:
Balance, December 31, 1995 $ -- $ --
Acquisition 814,970 --
Depreciation expense -- 21,168
--------------- --------------
Balance, December 31, 1996 814,970 21,168
Depreciation expense -- 22,553
--------------- --------------
Balance, December 31, 1997 814,970 43,721
Depreciation expense -- 22,553
--------------- --------------
Balance, December 31, 1998 $ 814,970 $ 66,274
=============== ==============
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1998
Accumulated
Cost Depreciation
--------------- --------------
Property in Which the Partnership has a
6.69% Interest as Tenants-in-Common
and has Invested in Under an Operating
Lease:
Balance, December 31, 1996 $ -- $ --
Acquisition 1,950,373 --
Depreciation expense -- 89
--------------- --------------
Balance, December 31, 1997 1,950,373 89
Depreciation expense -- 32,467
--------------- --------------
Balance, December 31, 1998 $ 1,950,373 $ 32,556
=============== ==============
</TABLE>
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 1998, the aggregate cost of the Properties owned
by the Partnership and its consolidated joint venture, and the
unconsolidated joint ventures for federal income tax purposes was
$29,957,164 and $11,270,400, respectively. All of the leases are
treated as operating leases for federal income tax purposes.
(d) For financial reporting purposes, the portion of the lease relating
to the building has been recorded as a direct financing lease. The
cost of the building has been included in net investment in direct
financing leases; therefore, depreciation is not applicable.
(e) For financial reporting purposes, the lease for the land and building
has been recorded as a direct financing lease. The cost of the land
and building has been included in net investment in direct financing
leases; therefore, depreciation is not applicable.
(f) For financial reporting purposes, certain components of the lease
relating to land and building have been recorded as a direct
financing lease. Accordingly, costs relating to these components of
this lease are not shown.
(g) Effective January 1, 1994, the lease for this Property was amended,
resulting in the reclassification of the building portion of the
lease to an operating lease. The building was recorded at net book
value as of January 1, 1994, and depreciated over its remaining
estimated life of approximately 28 years.
(h) Effective March 1, 1996, the lease for this Property was amended,
resulting in the reclassification of the building portion of the
lease to an operating lease. The building was recorded at net book
value as of March 1, 1996, and depreciated over its remaining
estimated life of approximately 26 years.
<PAGE>
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1998
(i) Effective October 1, 1998, the lease for this property was terminated
resulting in the reclassification of the building portion of the lease
to an operating lease. The building was recorded at net book value and
depreciated over its remaining useful life of approximately 23 years.
(j) Effective August 1, 1998 the lease for this property was amended,
resulting in the reclassification of the building portion of the lease
as an operating lease. The building was recorded at net book value as
of August 1, 1998, and depreciated over its remaining estimated life of
approximately 23 years.
(k) Scheduled for completion in 1999.
(l) Property was not place in service as of December 31, 1998; therefore no
depreciation was taken.
(m) For financial reporting purposes the undepreciated cost of the Property
in Lancaster, New York, was written down to net realizable value to an
impairment in value. The tenant of this Property filed for bankruptcy
and rejected the lease relating to this Property. The Partnership
recognized the impairment by recording an allowance for loss on
building in the amount of $387,202 at December 31, 1998. The impairment
at December 31, 1998 represents the difference between the Property's
carrying value and the net realizable value of the Property. The cost
of the Property presented on this schedule is the gross amount at which
the Property was carried at December 31, 1998, excluding the allowance
for loss on building.
(n) For financial reporting purposes, the undepreciated cost of the
Property in Homewood, Alabama, was written down to net realizable value
due to an impairment in value. The tenant of this Property filed for
bankruptcy and rejected the lease relating to this Property. The
Partnership recognized the impairment by recording an allowance for
loss on land and building in the amount of $521,316 at December 31,
1998. The impairment at December 31, 1998, represents the difference
between the Property's carrying value and the estimated net realizable
value of the Property. The cost of the Property presented on this
schedule is the gross amount at which the Property was carried at
December 31, 1998, excluding the allowance for loss on land and
building.
(o) For financial reporting purposes, the undepreciated cost of the
Property in Amherst, New York, was written down to net realizable value
due to an impairment in value. The tenant of this Property filed for
bankruptcy in 1998. The Partnership recognized the impairment by
recording an allowance for loss on the building in the amount of
$93,328 at December 31, 1998. The impairment at December 31, 1998,
represents the difference between the Property's carrying value and the
estimated net realizable value of the Property. The cost of the
Property presented on this schedule is the gross amount at which the
Property was carried at December 31, 1998, excluding the allowance for
loss on the building.
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number
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.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund X, Ltd. at December 31, 1998, and its statement of
income for the year then ended and is qualified in its entirety by reference to
the Form 10-K of CNL Income Fund X, Ltd. for the year ended December 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 2,197,375
<SECURITIES> 0
<RECEIVABLES> 317,910
<ALLOWANCES> 236,810
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 18,015,014
<DEPRECIATION> 1,329,832
<TOTAL-ASSETS> 34,480,865
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 33,352,897
<TOTAL-LIABILITY-AND-EQUITY> 34,480,865
<SALES> 0
<TOTAL-REVENUES> 2,886,782
<CGS> 0
<TOTAL-COSTS> 501,862
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,887
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,878,858
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,878,858
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,878,858
<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>
