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 September 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
September 30, December 31,
ASSETS 1997 1996
------------- -----------
Land and buildings on operating
leases, less accumulated
depreciation of $2,340,464 and
$1,996,469 $23,675,682 $24,019,677
Net investment in direct financing
leases 6,634,295 6,686,367
Investment in joint ventures 2,560,118 1,537,430
Cash and cash equivalents 1,262,101 1,225,860
Restricted cash - 1,047,822
Receivables, less allowance for
doubtful accounts of $16,364 and
$14,746 33,682 92,546
Prepaid expenses 15,757 13,227
Organization costs, less accumulated
amortization of $10,000 and $9,411 - 589
Accrued rental income 1,471,351 1,257,503
Other assets 122,024 122,024
----------- -----------
$35,775,010 $36,003,045
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 4,704 $ 2,202
Escrowed real estate taxes payable 27,258 21,573
Distributions payable 875,006 915,006
Due to related parties 9,789 2,121
Rents paid in advance and deposits 68,817 61,196
----------- -----------
Total liabilities 985,574 1,002,098
Commitment (Note 4)
Minority interests 498,213 487,770
Partners' capital 34,291,223 34,513,177
----------- -----------
$35,775,010 $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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C>
Revenues:
Rental income from
operating leases $ 675,491 $ 691,100 $2,026,676 $2,082,082
Earned income from direct
financing leases 208,391 215,739 629,142 638,362
Contingent rental income 46,040 59,465 115,123 133,843
Interest and other income 25,999 14,196 53,455 55,744
---------- ---------- ---------- ----------
955,921 980,500 2,824,396 2,910,031
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 36,804 40,236 111,662 129,720
Professional services 6,046 5,948 23,451 21,149
Management fees to
related parties 9,327 9,318 27,575 27,502
State and other taxes - - 25,779 25,973
Depreciation and
amortization 114,665 120,306 344,584 360,919
---------- ---------- ---------- ----------
166,842 175,808 533,051 565,263
---------- ---------- ---------- ----------
Income Before Minority
Interests in Income of
Consolidated Joint
Ventures and Equity in
Earnings of Unconsoli-
dated Joint Ventures 789,079 804,692 2,291,345 2,344,768
Minority Interests in
Income of Consolidated
Joint Ventures (17,628) (17,654) (52,226) (52,091)
Equity in Earnings of
Unconsolidated Joint
Ventures 58,782 30,777 163,945 87,375
---------- ---------- ---------- ----------
Net Income $ 830,233 $ 817,815 $2,403,064 $2,380,052
========== ========== ========== ==========
Allocation of Net Income:
General partners $ 8,303 $ 8,178 $ 24,031 $ 23,801
Limited partners 821,930 809,637 2,379,033 2,356,251
---------- ---------- ---------- ----------
$ 830,233 $ 817,815 $2,403,064 $2,380,052
========== ========== ========== ==========
Net Income Per Limited
Partner Unit $ 0.21 $ 0.20 $ 0.59 $ 0.59
========== ========== ========== ==========
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
Nine Months Ended Year Ended
September 30, December 31,
1997 1996
----------------- ----------
General partners:
Beginning balance $ 143,281 $ 109,925
Net income 24,031 33,356
----------- -----------
167,312 143,281
----------- -----------
Limited partners:
Beginning balance 34,369,896 34,478,571
Net income 2,379,033 3,431,349
Distributions ($0.66 and $0.89
per limited partner unit,
respectively) (2,625,018) (3,540,024)
----------- -----------
34,123,911 34,369,896
----------- -----------
Total partners' capital $34,291,223 $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
Nine Months Ended
September 30,
1997 1996
----------- -----------
Increase (Decrease) in Cash and
Cash Equivalents:
Net Cash Provided by Operating
Activities $ 2,743,042 $ 2,713,459
----------- -----------
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 (2,665,018) (2,665,018)
Distributions to holders
of minority interests (41,783) (43,455)
----------- ------------
Net cash used in
financing activities (2,706,801) (2,708,473)
----------- -----------
Net Increase in Cash and Cash
Equivalents 36,241 4,986
Cash and Cash Equivalents at
Beginning of Period 1,225,860 1,222,888
----------- -----------
Cash and Cash Equivalents at
End of Period $ 1,262,101 $ 1,227,874
=========== ===========
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 Nine Months Ended September 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 nine months ended September 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 Nine Months Ended September 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:
September 30, December 31,
1997 1996
Land and buildings on
operating leases,
less accumulated
depreciation $3,532,463 $2,152,524
Cash 9,021 722
Prepaid expenses 5,230 6,606
Accrued rental income 89,055 59,917
Liabilities 9,010 343
Partners' capital 3,626,759 2,219,426
Revenues 303,917 239,454
Net income 230,533 169,376
The Partnership recognized income totalling $163,945 and $87,375 for
the nine months ended September 30, 1997 and 1996, respectively, from
these joint ventures, $58,782 and $30,777 of which was earned during
the quarters ended September 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 September 30:
1997 1996
-------- ------
Flagstar Enterprises, Inc.,
Denny's, Inc. and Quincy's
Restaurants, Inc. $588,016 $580,695
Foodmaker, Inc. 576,024 576,024
Burger King Corporation and
BK Acquisition, Inc. 534,305 534,251
Golden Corral Corporation 369,115 372,797
DenAmerica Corp. 364,725 277,544
6
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
3. Concentration of Credit Risk - Continued:
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
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 will exceed the Partnership's cost attributable to the property;
however, as of October 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 September 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 nine months ended
September 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
$2,743,042 and $2,713,459 for the nine months ended September 30, 1997 and 1996,
respectively. The increase in cash from operations for the nine months ended
September 30, 1997, is primarily a result of changes in income and expense as
discussed in "Results of Operations" below and changes in the Partnership's
working capital.
In January 1997, the Partnership reinvested the net sales proceeds of
$1,044,750 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 September
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 September 30, 1997, the Partnership had
$1,262,101 invested in such short-term investments, as compared to $1,225,860 at
December 31, 1996. The funds remaining at September 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 $985,574 at September 30, 1997, from $1,002,098 at December 31,
1996, primarily as a result of the Partnership's accruing a special distribution
payable to the limited partners of $40,000 at December 31, 1996, which was paid
in January 1997 from cumulative excess operating reserves. The decrease was
partially offset by an increase in rents paid in advance and due to related
parties at September 30, 1997. 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 general partners believe that the anticipated sales price will exceed the
Partnership's cost attributable to the Property; however, as of October 31,
1997, the sale had not occurred.
Based primarily on cash from operations, the Partnership declared
distributions to the limited partners of $2,625,018 for each of the nine months
ended September 30, 1997 and 1996 ($875,006 for each of the quarters ended
September 30, 1997 and 1996). This represents distributions for each applicable
nine months of $0.66 per unit ($0.22 per unit for each applicable quarter). No
distributions were made to the general partners for the quarters and nine months
ended September 30, 1997 and 1996. No amounts distributed or to be distributed
to the limited partners for the nine months ended September 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 nine months ended September 30, 1996, the Partnership and
its consolidated joint ventures, Denver Joint Venture and CNL/Airport Joint
Venture, owned and leased 37 wholly owned Properties (including one Property in
Philadelphia, Pennsylvania, which was sold in November 1996) and during the nine
9
<PAGE>
Results of Operations - Continued
months ended September 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 nine
months ended September 30, 1997 and 1996, the Partnership, Denver Joint Venture
and CNL/Airport Joint Venture earned $2,655,818 and $2,720,444, respectively, in
rental income from operating leases and earned income from direct financing
leases, $883,882 and $906,839 of which was earned during the quarters ended
September 30, 1997 and 1996, respectively. The decrease in rental and earned
income during the quarter and nine months ended September 30, 1997, as compared
to the quarter and nine months ended September 30, 1996, is primarily
attributable to a decrease of approximately $18,400 and $55,100, during the
quarter and nine months ended September 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 nine months ended September 30, 1997 and 1996,
the Partnership earned $115,123 and $133,843, respectively, in contingent rental
income, $46,040 and $59,465 of which was earned during the quarters ended
September 30, 1997 and 1996, respectively. The decrease in contingent rental
income during the quarter and nine months ended September 30, 1997, as compared
to the quarter and nine months ended September 30, 1996, is primarily due to a
decrease of approximately $8,700 and $24,700, respectively, as a result of the
sale of the Property in Philadelphia, Pennsylvania, in November 1996.
The decrease in contingent rental income for the nine months ended
September 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 nine months ended September 30, 1997 and 1996, the
Partnership owned and leased two Properties indirectly through other joint
venture arrangements and during the nine months ended September 30, 1997, the
Partnership owned and leased one Property with an affiliate as
tenants-in-common. In connection therewith, during the nine months ended
September 30, 1997 and 1996, the Partnership earned $163,945 and $87,375,
respectively, attributable to net income earned by unconsolidated joint
ventures, $58,782 and $30,777 of which was earned during the quarters ended
September 30, 1997 and 1996, respectively. The increase in net income earned by
joint ventures during the quarter and nine months ended September 30, 1997, is
primarily due to the fact that in
10
<PAGE>
Results of Operations - Continued
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 nine months ended September 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 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 September 30, 1997, Flagstar Corporation was the
lessee under leases relating to nine restaurants, Foodmaker, Inc. was the lessee
under leases relating to eight restaurants, Burger King Corp. was the lessee
under leases relating to eight 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. Any failure of these lessees could materially affect the Partnership's
income.
Operating expenses, including depreciation and amortization expense,
were $533,051 and $565,263 for the nine months ended September 30, 1997 and
1996, respectively, of which $166,842 and $175,808 were incurred for the
quarters ended September 30, 1997 and 1996, respectively. The decrease in
operating expenses during the quarter and nine months ended September 30, 1997,
as compared to the quarter and nine months ended September 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 September 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 6th day of November, 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 September 30, 1997, and its statement of
income for the nine months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund XI, Ltd. for the nine months ended
September 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,262,101
<SECURITIES> 0
<RECEIVABLES> 50,046
<ALLOWANCES> 16,364
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 26,016,146
<DEPRECIATION> 2,340,464
<TOTAL-ASSETS> 35,775,010
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 34,291,223
<TOTAL-LIABILITY-AND-EQUITY> 35,775,010
<SALES> 0
<TOTAL-REVENUES> 2,824,396
<CGS> 0
<TOTAL-COSTS> 533,051
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,403,064
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,403,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,403,064
<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>
