FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
-------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number
0-21560
----------------------
CNL Income Fund XI, Ltd.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-3078854
--------------------------- -------------------
(State or other juris- (I.R.S. Employer
diction of incorporation Identification No.)
or organization)
400 E. South Street, #500
Orlando, Florida 32801
- ------------------------- ------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
--------------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
-------- --------
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8-11
Part II
Other Information 12
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
ASSETS 1997 1996
----------- ------------
Land and buildings on operating
leases, less accumulated
depreciation of $2,225,799 and
$1,996,469 $23,790,347 $24,019,677
Net investment in direct financing
leases 6,652,190 6,686,367
Investment in joint ventures 2,565,694 1,537,430
Cash and cash equivalents 1,199,667 1,225,860
Restricted cash - 1,047,822
Receivables, less allowance for
doubtful accounts of $14,936 and
$14,746 46,109 92,546
Prepaid expenses 17,590 13,227
Organization costs, less accumulated
amortization of $10,000 and $9,411 - 589
Accrued rental income 1,405,020 1,257,503
Other assets 122,024 122,024
----------- -----------
$35,798,641 $36,003,045
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 2,722 $ 2,202
Escrowed real estate taxes payable 21,807 21,573
Distributions payable 875,006 915,006
Due to related parties 4,841 2,121
Rents paid in advance and deposits 64,996 61,196
----------- -----------
Total liabilities 969,372 1,002,098
Commitment (Note 4)
Minority interests 493,273 487,770
Partners' capital 34,335,996 34,513,177
----------- -----------
$35,798,641 $36,003,045
=========== ===========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---------- ---------- ---------- -------
<S> <C>
Revenues:
Rental income from
operating leases $ 675,491 $ 698,136 $1,351,185 $1,390,982
Earned income from direct
financing leases 208,934 210,962 420,751 422,623
Contingent rental income 44,440 51,400 69,083 74,378
Interest and other income 12,001 24,324 27,456 41,548
---------- ---------- ---------- ----------
940,866 984,822 1,868,475 1,929,531
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 40,998 47,111 74,858 89,484
Professional services 10,946 3,897 17,405 15,201
Management fees to
related parties 8,249 9,360 18,248 18,184
State and other taxes 2,056 6,367 25,779 25,973
Depreciation and
amortization 114,754 120,307 229,919 240,613
---------- ---------- ---------- ----------
177,003 187,042 366,209 389,455
---------- ---------- ---------- ----------
Income Before Minority
Interests in Income of
Consolidated Joint
Ventures and Equity in
Earnings of Unconsoli-
dated Joint Ventures 763,863 797,780 1,502,266 1,540,076
Minority Interests in
Income of Consolidated
Joint Ventures (17,396) (17,271) (34,598) (34,437)
Equity in Earnings of
Unconsolidated Joint
Ventures 58,359 30,524 105,163 56,598
---------- ---------- ---------- ----------
Net Income $ 804,826 $ 811,033 $1,572,831 $1,562,237
========== ========== ========== ==========
Allocation of Net Income:
General partners $ 8,048 $ 8,110 $ 15,728 $ 15,622
Limited partners 796,778 802,923 1,557,103 1,546,615
---------- ---------- ---------- ----------
$ 804,826 $ 811,033 $1,572,831 $1,562,237
========== ========== ========== ==========
Net Income Per Limited
Partner Unit $ 0.20 $ 0.20 $ 0.39 $ 0.39
========== ========== ========== ==========
Weighted Average Number
of Limited Partner Units
Outstanding 4,000,000 4,000,000 4,000,000 4,000,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
1997 1996
---------------- ------------
General partners:
Beginning balance $ 143,281 $ 109,925
Net income 15,728 33,356
----------- -----------
159,009 143,281
----------- -----------
Limited partners:
Beginning balance 34,369,896 34,478,571
Net income 1,557,103 3,431,349
Distributions ($0.44 and $0.89
per limited partner unit,
respectively) (1,750,012) (3,540,024)
----------- -----------
34,176,987 34,369,896
----------- -----------
Total partners' capital $34,335,996 $34,513,177
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1997 1996
----------- -----------
Increase (Decrease) in Cash and
Cash Equivalents:
Net Cash Provided by Operating
Activities $ 1,792,914 $ 1,811,310
----------- -----------
Cash Flows from Investing
Activities:
Investment in joint ventures (1,044,750) -
Decrease in restricted cash 1,044,750 -
----------- ----------
Net cash provided by
investing activities - -
----------- ----------
Cash Flows from Financing
Activities:
Distributions to limited
partners (1,790,012) (1,790,012)
Distributions to holders
of minority interests (29,095) (27,839)
----------- -----------
Net cash used in
financing activities (1,819,107) (1,817,851)
----------- -----------
Net Decrease in Cash and Cash
Equivalents (26,193) (6,541)
Cash and Cash Equivalents at
Beginning of Period 1,225,860 1,222,888
----------- -----------
Cash and Cash Equivalents at
End of Period $ 1,199,667 $ 1,216,347
=========== ===========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and
unpaid at end of period $ 875,006 $ 875,006
=========== ===========
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1997 and 1996
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 1997, may not be indicative
of the results that may be expected for the year ending December 31,
1997. Amounts as of December 31, 1996, included in the financial
statements, have been derived from audited financial statements as of
that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund XI, Ltd. (the "Partnership") for the year ended December
31, 1996.
The Partnership accounts for its 85 percent interest in Denver Joint
Venture and its 77.33% interest in CNL/Airport Joint Venture using the
consolidation method. Minority interests represent the minority joint
venture partners' proportionate share of equity in the Partnership's
consolidated joint ventures. All significant intercompany accounts and
transactions have been eliminated.
2. Investment in Joint Ventures:
In January 1997, the Partnership acquired a 72.5% interest in a
Black-eyed Pea property in Corpus Christi, Texas, as tenants-in-common
with an affiliate of the general partners. The Partnership accounts for
its investment in this property using the equity method since the
Partnership shares control with an affiliate, and amounts relating to
its investment are included in investment in joint ventures.
5
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
2. Investment in Joint Ventures:
The following presents the combined, condensed financial information
for all of the Partnership's investments in joint ventures at:
June 30, December 31,
1997 1996
----------- ------------
Land and buildings on
operating leases,
less accumulated
depreciation $3,553,419 $2,152,524
Cash 9,323 722
Prepaid expenses 3,591 6,606
Accrued rental income 78,680 59,917
Liabilities 9,830 343
Partners' capital 3,635,183 2,219,426
Revenues 198,768 239,454
Net income 147,640 169,376
The Partnership recognized income totalling $105,163 and $56,598 for
the six months ended June 30, 1997 and 1996, respectively, from these
joint ventures, $58,359 and $30,524 of which was earned during the
quarters ended June 30, 1997 and 1996, respectively.
3. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees, each representing more than ten percent of the
Partnership's total rental and earned income (including the
Partnership's share of rental and earned income from the unconsolidated
joint ventures), for the quarters ended June 30:
1997 1996
-------- ------
Flagstar Enterprises, Inc.,
Denny's, Inc. and Quincy's
Restaurants, Inc. $395,171 $386,789
Foodmaker, Inc. 384,016 384,016
Burger King Corporation and
BK Acquisition, Inc. 356,167 356,167
Golden Corral Corporation 244,426 248,107
DenAmerica Corp. 239,706 184,909
6
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
3. 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 the unconsolidated joint ventures), for the quarters ended June
30:
1997 1996
-------- ------
Burger King $569,693 $617,609
Denny's 422,203 368,207
Jack in the Box 384,016 384,016
Golden Corral Family
Steakhouse Restaurants 244,426 248,107
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. However, the general partners believe that the risk
of such a default is reduced due to the essential or important nature
of these properties for the on-going operations of the lessees.
4. Commitment:
During 1996, the Partnership entered into an agreement with an
unrelated third party to sell the Burger King property in Nashua, New
Hampshire. The general partners believe that the anticipated sales
price exceeds the Partnership's cost attributable to the property. As
of July 31, 1997, the sale had not occurred.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CNL Income Fund XI, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 20, 1991, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, 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 leases
are triple-net leases, with the lessees responsible for all repairs and
maintenance, property taxes, insurance and utilities. As of June 30, 1997, the
Partnership owned 39 Properties, including four Properties owned by joint
ventures in which the Partnership is a co-venturer and one Property owned with
an affiliate as tenants-in-common.
Liquidity and Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 1997 and 1996, was cash from operations (which includes cash received
from tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $1,792,914 and
$1,811,310 for the six months ended June 30, 1997 and 1996, respectively. The
decrease in cash from operations for the six months ended June 30, 1997, is
primarily a result of changes in the Partnership's working capital.
In January 1997, the Partnership reinvested the net sales proceeds it
received from the sale, in November 1996, of the Property in Philadelphia,
Pennsylvania, in a Black-eyed Pea Property located in Corpus Christi, Texas,
with an affiliate of the general partners as tenants-in-common. In connection
therewith, the Partnership and the affiliate 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 June 30, 1997, the
Partnership owned a 72.5% interest in this Property.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At June 30, 1997, the Partnership had $1,199,667
invested in such short-term investments, as compared to $1,225,860 at December
31, 1996. The funds remaining at June 30, 1997, after payment of distributions
and other liabilities, will be used to meet the Partnership's working capital
and other needs.
8
<PAGE>
Liquidity and Capital Resources - Continued
Total liabilities of the Partnership, including distributions payable,
decreased to $969,372 at June 30, 1997, from $1,002,098 at December 31, 1996.
The general partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.
During 1996, the Partnership entered into an agreement with an
unrelated third party to sell the Burger King Property in Nashua, New Hampshire.
The sale of the Property had not closed as of July 31, 1997.
Based primarily on cash from operations, the Partnership declared
distributions to the limited partners of $1,750,012 for each of the six months
ended June 30, 1997 and 1996 ($875,006 for each of the quarters ended June 30,
1997 and 1996). This represents distributions for each applicable six months of
$0.44 per unit ($0.22 per unit for each applicable quarter). No distributions
were made to the general partners for the quarters and six months ended June 30,
1997 and 1996. No amounts distributed or to be distributed to the limited
partners for the six months ended June 30, 1997 and 1996, are required to be or
have been treated by the Partnership as a return of capital for purposes of
calculating the limited partners' return on their adjusted capital
contributions. The Partnership intends to continue to make distributions of cash
available for distribution to the limited partners on a quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who meet specified
financial standards minimizes the Partnership's operating expenses. The general
partners believe that the leases will continue to generate cash flow in excess
of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
Results of Operations
During the six months ended June 30, 1996, the Partnership and its
consolidated joint ventures, Denver Joint Venture and CNL/Airport Joint Venture,
owned and leased 37 wholly owned Properties and during the six months ended June
30, 1997, the Partnership and its consolidated joint ventures owned and leased
36 wholly owned Properties to operators of fast-food and family-style restaurant
chains. In connection therewith, during the six months ended June 30, 1997 and
1996, the Partnership, Denver Joint Venture and CNL/Airport Joint Venture earned
$1,771,936 and $1,813,605, respectively, in rental income from operating leases
and earned income from direct financing leases, $884,425 and $909,098 of which
was earned during the quarters ended June 30, 1997 and 1996, respectively. The
decrease in rental and earned income during the quarter and six months ended
June 30, 1997, as compared to the
9
<PAGE>
Results of Operations - Continued
quarter and six months ended June 30, 1996, is primarily attributable to a
decrease of approximately $18,400 and $36,800, during the quarter and six months
ended June 30, 1997, respectively, as a result of the sale of the Property in
Philadelphia, Pennsylvania, in November 1996. In January 1997, the Partnership
reinvested the net sales proceeds in a Property in Corpus Christi, Texas, with
an affiliate of the general partners, as discussed above in "Liquidity and
Capital Resources."
In addition, during the six months ended June 30, 1997 and 1996, the
Partnership earned $69,083 and $74,378, respectively, in contingent rental
income, $44,440 and $51,400 of which was earned during the quarters ended June
30, 1997 and 1996, respectively. The decrease in contingent rental income during
the quarter and six months ended June 30, 1997, as compared to the quarter and
six months ended June 30, 1996, is primarily due to a decrease of approximately
$9,900 and $16,000, respectively, as a result of the sale of the Property in
Philadelphia, Pennsylvania, in November 1996.
The decrease in contingent rental income for the six months ended June
30, 1997 was offset by an increase in contingent rental income of approximately
$8,700 due to the subleasing in July 1996, of the Property in Lynchburg,
Virginia. This Property had been previously closed and its sublease requires the
payment of contingent rental income.
In addition, for the six months ended June 30, 1997 and 1996, the
Partnership owned and leased two Properties indirectly through other joint
venture arrangements and during the six months ended June 30, 1997, the
Partnership owned and leased one Property with an affiliate as
tenants-in-common. In connection therewith, during the six months ended June 30,
1997 and 1996, the Partnership earned $105,163 and $56,598, respectively,
attributable to net income earned by unconsolidated joint ventures, $58,359 and
$30,524 of which was earned during the quarters ended June 30, 1997 and 1996,
respectively. The increase in net income earned by joint ventures during the
quarter and six months ended June 30, 1997, is primarily due to the fact that in
January 1997, the Partnership reinvested the net sales proceeds it received from
the sale, in November 1996, of the Property in Philadelphia, Pennsylvania, in a
Black-eyed Pea in Corpus Christi, Texas, with an affiliate of the general
partners as tenants-in-common.
During the six months ended June 30, 1997, five of the Partnership's
lessees (or groups of affiliated lessees), (i) Flagstar Enterprises, Inc.,
Denny's Inc., and Quincy's Restaurants, Inc. (which are affiliated entities
under common control of Flagstar Corporation) (hereinafter referred to as
Flagstar Corporation), (ii) Foodmaker, Inc., (iii) Burger King Corporation and
BK Acquisition, Inc. (which are affiliated entities under common control)
(hereinafter referred to as Burger King Corp.) , (iv) Golden Corral Corporation
and (v) DenAmerica Corp., each contributed more than ten percent of the
Partnership's total rental
10
<PAGE>
Results of Operations - Continued
income (including the Partnership's share of rental income from four Properties
owned by joint ventures in which the Partnership is a co-venturer and one
Property owned with an affiliate as tenants-in-common). As of June 30, 1997,
Flagstar Corporation was the lessee under leases relating to nine restaurants,
Foodmaker, Inc. was the lessee under leases relating to seven restaurants,
Burger King Corp. was the lessee under leases relating to seven restaurants,
Golden Corral Corporation was the lessee under leases relating to three
restaurants and DenAmerica Corp. was the lessee under leases relating to four
restaurants and one restaurant owned with an affiliate as tenants-in-common. It
is anticipated that, based on the minimum rental payments required by the
leases, these five lessees or groups of affiliated lessees each will continue to
contribute more than ten percent of the Partnership's total rental income during
the remainder of 1997 and subsequent years. In addition, during the six months
ended June 30, 1997, four restaurant chains, Burger King, Jack in the Box,
Denny's and Golden Corral, each accounted for more than ten percent of the
Partnership's total rental income (including the Partnership's share of the
rental income from four Properties owned by joint ventures in which the
Partnership is a co-venturer and one Property owned with an affiliate as
tenants-in-common). During the remainder of 1997 and subsequent years, it is
anticipated that these four restaurant chains each will continue to account for
more than ten percent of the total rental income to which the Partnership is
entitled under the terms of its leases. Any failure of these lessees or
restaurant chains could materially affect the Partnership's income.
Operating expenses, including depreciation and amortization expense,
were $366,209 and $389,455 for the six months ended June 30, 1997 and 1996,
respectively, of which $177,003 and $187,042 were incurred for the quarters
ended June 30, 1997 and 1996, respectively. The decrease in operating expenses
during the quarter and six months ended June 30, 1997, as compared to the
quarter and six months ended June 30, 1996, is partially attributable to a
decrease in accounting and administrative expenses associated with operating the
Partnership and its Properties. The decrease in operating expenses is also
partially attributable to a decrease in depreciation expense as a result of the
sale of the Property in Philadelphia, Pennsylvania, in November 1996.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the
quarter ended June 30, 1997.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 7th day of August, 1997.
CNL INCOME FUND XI, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-----------------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
------------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet of CNL Income Fund XI, Ltd. at June 30, 1997, and its
statement of income for the six months then ended and is qualified in its
entirety by reference to the Form 10Q of CNL Income Fund XI, Ltd. for the
six months ended June 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,199,667
<SECURITIES> 0
<RECEIVABLES> 61,045
<ALLOWANCES> 14,936
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 26,016,146
<DEPRECIATION> 2,225,799
<TOTAL-ASSETS> 35,798,641
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 34,335,996
<TOTAL-LIABILITY-AND-EQUITY> 35,798,641
<SALES> 0
<TOTAL-REVENUES> 1,868,475
<CGS> 0
<TOTAL-COSTS> 366,209
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,572,831
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,572,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,572,831
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund XI, Ltd. has an
unclassified balance sheet, therefore, no values are shown above for
current assets and current liabilities.
</FN>
</TABLE>
