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 0-21560
CNL INCOME FUND XI, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3078854
(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 XI, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 20, 1991. 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 March 18, 1992, 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 12, 1992. The offering terminated on September 28, 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 39 Properties, including interests in four
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, 1996, the Partnership sold its Property in Philadelphia,
Pennsylvania. During January 1997, the Partnership reinvested the net sales
proceeds from the sale 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. During 1998, the Partnership sold its
Property in Nashua, New Hampshire. As a result of these transactions, as of
December 31, 1998, the Partnership owned 38 Properties, including interest in
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. In
January 1999, the Partnership reinvested a portion of the net sales proceeds
from the sale of the Property in Nashua, New Hampshire in a Property in Yelm,
Washington. In February 1999, the Partnership invested the remaining net sales
proceeds from the sale of the Property in Nashua, New Hampshire in a joint
venture arrangement, Portsmouth Joint Venture, with an affiliate of the General
Partners. 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
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 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. The leases of the Properties owned by the Partnership, the
joint ventures in which the Partnership is a co-venturer and the property owned
with an affiliate as tenants-in-common 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 lessees 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 $45,600 to $191,900. The majority of
the leases provide for percentage rent, based on sales in excess of a specified
amount. In addition, some of the leases provide that, commencing in specified
lease years (generally 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.
During 1994, the leases relating to the Properties in Wadsworth and
Kent, Ohio were amended to provide for the payment of reduced annual base rent
with no scheduled rent increases. However, the lease amendments provided for
lower percentage rent breakpoints, as compared to the original lease agreements,
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
amendments, as a result of the former tenant assigning the leases to a new
tenant during 1998, the rents under the assigned leases reverted back to those
required under the original lease agreements.
In January 1999, the Partnership reinvested the net sales proceeds from
the sale of the Property in Nashua, New Hampshire in a Burger King Property
located in Yelm, Washington. The lease terms for this Property are substantially
the same as the Partnership's other leases, as described above in the first
three paragraphs of this section.
In addition, in February 1999, the Partnership invested the remaining
net sales proceeds from the sale of the Property in Nashua, New Hampshire in a
joint venture arrangement, Portsmouth Joint Venture, with an affiliate of the
General Partners, to purchase and hold one restaurant Property. The lease terms
for this Property are substantially the same as the Partnerships other leases as
described above, in the first three paragraphs of this section.
Major Tenants
During 1998, five lessees (or group of affiliated lessees) of the
Partnership and its consolidated joint ventures, (i) Golden Corral 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 Corporation), (iv) Denny's, Inc. and Quincy's Restaurants, Inc.
(which are affiliated entities under common control of Advantica Restaurant
Group, Inc.) (hereinafter referred to as Advantica Restaurant Group, Inc.), and
DenAmerica Corporation each contributed more than ten percent of the
Partnership's total rental income (including rental income from the
Partnership's consolidated joint ventures, the Partnership's share of rental
income from two Properties owned by unconsolidated joint ventures and one
Property owned with an affiliate as tenants-in-common). As of December 31, 1998,
Golden Corral Corporation was the lessee under leases relating to three
restaurants, Foodmaker, Inc. was the lessee under leases relating to eight
restaurants, Burger King Corporation was the lessee under leases relating to
seven restaurants, Advantica Restaurant Group, Inc. was the lessee under leases
relating to five restaurants, and DenAmerica Corporation was the lessee under
leases relating to five restaurants. It is anticipated that, based on the
minimum rental payments required by the leases, these five lessees (or group of
affiliated lessees) each will continue to contribute more than ten percent of
the Partnership's total rental income in 1999. In addition, four Restaurant
Chains, Golden Corral Family Steakhouse Restaurants ("Golden Corral"), Jack in
the Box, Burger King, and Denny's, 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 ventures, the Partnership's share of rental
income from two Properties owned by unconsolidated joint ventures and one
Property owned with an affiliate as tenants-in-common). In 1999, it is
anticipated that these four 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 two separate joint venture
arrangements, Denver Joint Venture and CNL/Airport Joint Venture, with
unaffiliated entities to purchase and hold two Properties. In addition, the
Partnership has entered into two separate joint venture arrangements, Ashland
Joint Venture and Des Moines Real Estate Joint Venture, with affiliates of the
General Partners, to purchase and hold two 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/Airport Joint Venture, Denver Joint Venture, and Des Moines Real
Estate Joint Venture each have an initial term of 20 years and Ashland Joint
Venture has an initial term of 30 years and, after the expiration of the initial
term, continue 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 CNL/Airport Joint Venture and
Denver Joint Venture and shares management control equally with affiliates of
the General Partners for Ashland Joint Venture and Des Moines Real Estate 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/Airport Joint Venture, Denver
Joint Venture, Ashland Joint Venture, and Des Moines Real Estate Joint Venture
is distributed 77.33%, 85 percent, 62.16% and 76.6%, respectively, to the
Partnership and the balance is distributed to each of the joint venture partners
in accordance with its 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 1997, the
Partnership entered into an agreement to hold a Black-eyed Pea Property as
tenants-in-common with an affiliate of the General Partners. The agreement
provides for the Partnership and the affiliate to share in the profits and
losses of the Property in proportion to each co-venturer's percentage interest.
The Partnership owns a 72.58% interest in this Property.
In addition, in February 1999, the Partnership entered into a joint
venture arrangement, Portsmouth, Joint Venture, with an affiliate of the General
Partners, to purchase and hold one restaurant Property. The joint venture
agreement provides for the Partnership and its joint venture partner 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 an
approximate 43 percent interest 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.
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 offering 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.
Item 2. Properties
As of December 31, 1998, the Partnership owned, either directly or
through joint venture arrangements, 38 Properties, located in 20 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 18,000
to 329,000 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 includes 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
2,100 to 11,400 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 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 each 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 three Golden Corral restaurants with
an initial terms of 15 years (expiring in 2007) and average minimum base annual
rent of approximately $166,300 (ranging from approximately $157,300 to
$172,400).
Foodmaker, Inc. leases eight Jack in the Box restaurants with an
initial term of 18 years (expiring in 2010) and the average minimum base annual
rent is approximately $96,300 (ranging from approximately $70,000 to $113,800).
Burger King Corporation leases seven Burger King restaurants with an
initial term of 14 years (expiring in 2006) and average minimum base annual rent
of approximately $90,500 (ranging from approximately $73,200 to $121,900).
Advantica Restaurant Group, Inc. leases one Hardee's restaurant, two
Denny's restaurants and two Quincy's restaurants with an initial term of 20
years (expiring in 2012) and the average minimum base annual rent is
approximately $97,200 (ranging from approximately $71,800 to $129,900).
DenAmerica Corporation leases four Denny's restaurants and one
Black-eyed Pea restaurant with an initial term of 20 years (expiring between
2012 and 2016) and average minimum base annual rent of approximately $109,000
(ranging from approximately $67,500 to $153,800).
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.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of March 11, 1999 there were 3,181 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 through
December 31, 1998, the price paid 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 (2) (2) (2) $9.50 $8.10 $9.12
Second Quarter $9.50 $8.27 $8.68 9.50 8.17 8.89
Third Quarter 9.20 7.98 8.79 9.50 8.27 8.89
Fourth Quarter 8.90 8.00 8.48 (2) (2) (2)
</TABLE>
(1) A total of 25,750 and 23,250 Units were transferred other than pursuant
to the Plan for the years ended December 31, 1998 and 1997,
respectively.
(2) No transfer of Units took place during the quarter other than pursuant
to the Plan.
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 $3,660,024 and $3,500,024, respectively, to the
Limited Partners. During the quarters ended March 31 and December 31, 1998, the
Partnership declared a special distribution to the Limited Partners of $40,000
and $120,000, respectively, 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 $915,006 $875,006
June 30 875,006 875,006
September 30 875,006 875,006
December 31 995,006 875,006
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.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- -------------- -------------- --------------- --------------
<S> <C>
Year ended December 31:
Revenues (1) $4,067,454 $3,998,538 $3,976,787 $3,920,528 $3,933,435
Net income (2) 3,809,404 3,295,079 3,464,705 3,202,176 3,272,492
Cash distributions
declared (3) 3,660,024 3,500,024 3,540,024 3,540,023 3,425,007
Net income per Unit (2) 0.94 0.82 0.86 0.79 0.81
Cash distributions declared
per Unit (3) 0.92 0.88 0.89 0.89 0.86
At December 31:
Total assets $36,103,592 $35,785,538 $36,003,045 $36,086,683 $36,335,476
Partners' capital 34,457,612 34,308,232 34,513,177 34,588,496 34,926,343
</TABLE>
(1) Revenues include equity in earnings of unconsolidated joint ventures
and minority interest in income of consolidated joint ventures.
(2) Net income for the years ended December 31, 1998 and 1996, include
$461,861 and $213,685, respectively, from gains on sale of land and
buildings.
(3) Distributions for the year ended December 31, 1998, include special
distributions to the Limited Partners of $40,000 and $120,000, declared
during the quarters ended March 31, and December 31, respectively which
represented cumulative excess operating reserves. Distributions for the
year ended December 31, 1996, include a special distribution to the
Limited Partners of $40,000, 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 August 20, 1991, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurant
Properties were to be constructed, which are leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains. The
leases are triple-net leases, with the lessees generally responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 1998, the Partnership owned 38 Properties, either directly or 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 $3,894,062, $3,642,796,
and $3,601,714 for the years ended December 31, 1998, 1997, and 1996,
respectively. The increase during 1998, as compared to 1997, is primarily a
result of changes in the Partnership's working capital and changes in income and
expenses as described in "Results of Operations" below, and the increase 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.
Other sources and uses of capital included the following during the
years ended December 31, 1998, 1997, and 1996.
In November 1996, the Partnership sold its Property in Philadelphia,
Pennsylvania, for $1,050,000 and received net sales proceeds of $1,044,750,
resulting in a gain of $213,685 for financial reporting purposes. This Property
was originally acquired by the Partnership in September 1992, and had a cost of
approximately $877,900, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the Property for approximately
$166,900 in excess of its original purchase price. As of December 31, 1996, the
net sales proceeds of $1,044,750, plus accrued interest of $3,072, were being
held in an interest-bearing escrow account pending the release of funds by the
escrow agent to acquire an additional Property. The sale of this Property was
structured to qualify as a like-kind exchange transaction in accordance with
Section 1031 of the Internal Revenue Code. As a result, no gain was recognized
for federal income tax purposes. Therefore, the Partnership was not required to
distribute any of the net sales proceeds from the sale of this Property to
Limited Partners for the purpose of paying federal and state income taxes.
In January 1997, the Partnership reinvested the net sales proceeds from
the 1996 sale 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 December 31, 1998, the Partnership owned a 72.58% interest in
this Property.
In October 1998, the Partnership sold its Property in Nashua, New
Hampshire, for $1,748,000 and received net sales proceeds of $1,630,296,
resulting in a gain of $461,861 for financial reporting purposes. This Property
was originally acquired by the Partnership in 1992, and had a cost of
approximately $1,302,414, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $327,900 in excess of its original purchase price. As of December
31, 1998, the net sales proceeds of $1,630,296, plus accrued interest of
$10,640, were being held in an interest-bearing escrow account pending the
release of funds by the escrow agent to acquire an additional Property. The
Partnership anticipates that it 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 January 1999, the Partnership reinvested a portion of the net sales
proceeds it received from the sale of the property in Nashua, New Hampshire, in
a Burger King property located in Yelm, Washington, at an approximate cost of
$1,034,000. In addition, in February 1999, the Partnership reinvested the
remaining net sales proceeds it received from the sale of the property in
Nashua, New Hampshire, in a joint venture arrangement, Portsmouth Joint Venture,
with an affiliate of the General Partners, to purchase and hold one restaurant
property, at a total cost of approximately $584,100. The Partnership contributed
approximately $250,000 and has an approximate 43 percent interest in the profits
and losses of the joint venture.
<PAGE>
None of the Properties owned by the Partnership or the joint ventures
in which the Partnership owns an interest is or may be encumbered. Subject to
certain restrictions on borrowing, however, the Partnership may borrow funds but
will not encumber any of the Properties in connection with any such borrowing.
The Partnership will not borrow for the purpose of returning capital to the
Limited Partners. The Partnership will not borrow under arrangements that would
make the Limited Partners liable to creditors of the Partnership. The General
Partners further have represented that they will use their reasonable efforts to
structure any borrowing so that it will not constitute "acquisition
indebtedness" for federal income tax purposes and also will limit the
Partnership's outstanding indebtedness to three percent of the aggregate
adjusted tax basis of its Properties. 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 $1,559,240
invested in such short-term investments as compared to $1,272,386 at December
31, 1997. The funds remaining at December 31, 1998, after payment of
distributions and other liabilities, will be used to meet the Partnership's
working capital and other needs.
During 1998, 1997, and 1996, affiliates of the General Partners
incurred $109,290, $83,747, and $105,643, respectively, for certain operating
expenses. As of December 31, 1998 and 1997, the Partnership owed $25,446 and
$6,648, respectively, to affiliates for such amounts, accounting and
administrative services and management fees. As of March 11, 1999, the
Partnership had reimbursed the affiliates all such amounts. Other liabilities,
including distributions payable, increased to $1,116,674 at December 31, 1998,
from $969,257 at December 31, 1997, partially as the result of the Partnership's
accruing a special distribution payable to the Limited Partners of $120,000 at
December 31, 1998, which was paid in January 1999 and an increase 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 $3,660,024, $3,500,024, and $3,540,024
for the years ended December 31, 1998, 1997, and 1996, respectively. This
represents a distribution of $0.92, $0.88, and $0.89 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 purposes, 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 4,394,196 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 $43,333,961 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 the year ended December 31, 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). During the year
ended December 31, 1997, the Partnership and its consolidated joint ventures,
Denver Joint Venture and CNL/Airport Joint Venture, owned and leased 36 wholly
owned Properties, and during the year ended December 31, 1998, 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
Columbus, Ohio exchanged for one Property in Danbury, Connecticut and one
Property in Nashua, New Hampshire, which was sold in October 1998). In addition,
during 1998, 1997, and 1996, the Partnership and its consolidated joint
ventures, Denver Joint Venture and CNL/Airport Joint Venture, was a co-venturer
in two separate joint ventures that each owned and leased one Property, and
during 1998 and 1997, the Partnership owned and leased one Property with an
affiliate as tenants-in-common. As of December 31, 1998, the Partnership owned,
either directly or through joint venture arrangements, 38 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 $45,600 to $191,900. The majority of the leases provide for
percentage rent based on sales in excess of a specified amount. In addition,
some of the leases provide that, commencing in specified lease years (generally
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 ventures, Denver Joint Venture and
CNL/Airport Joint Venture, earned $3,537,605, $3,543,984, and $3,615,977,
respectively, in rental income from operating leases and earned income from
direct financing leases. The decrease in rental and earned income during 1997 as
compared to 1996, is primarily attributable to the sale of the Property in
Philadelphia, Pennsylvania in November 1996, as described above in "Liquidity
and Capital Resources." 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 described above in "Liquidity and Capital Resources."
For the years ended December 31, 1998, 1997, and 1996, the Partnership
also earned $243,115, $225,888, and $251,312, respectively, in contingent rental
income. The increase in contingent rental income during 1998, as compared to
1997, is primarily due to an increase in gross sales of certain restaurant
Properties whose leases require the payment of contingent renal income. The
decrease during 1997, as compared to 1996, is primarily due to the sale of the
Property in Philadelphia, Pennsylvania.
In addition, for the years ended December 31, 1998, 1997, and 1996, the
Partnership earned $215,501, $236,103, and $118,211, respectively, attributable
to net income earned by unconsolidated joint ventures in which the Partnership
is a co-venturer. The decrease in net income earned by joint ventures during
1998, as compared to 1997, is primarily due to Ashland Joint Venture adjusting
estimated contingent rental amounts accrued at December 31, 1997 to actual
amounts billed during 1998. The increase in net income earned by unconsolidated
joint ventures during 1997, as compared to 1996, is primarily attributable to
the Partnership investing in a Property in Corpus Christi, Texas, in January
1997, with an affiliate of the General Partners as tenants-in-common, as
described above in "Liquidity and Capital Resources."
During the year ended December 31, 1998, five lessees (or group of
affiliated lessees) of the Partnership and its consolidated joint ventures,
Golden Corral Corporation, Foodmaker, Inc., Burger King Corporation, DenAmerica,
and Advantica Restaurant Group, Inc., each contributed more than ten percent of
the Partnership's total rental income (including rental income from the
Partnership's consolidated joint ventures, the Partnership's share of rental
income from two Properties owned by unconsolidated joint ventures and one
Property owned with an affiliate as tenants-in-common). As of December 31, 1998,
Golden Corral Corporation was the lessee under leases relating to three
restaurants, Foodmaker, Inc. was the lessee under leases relating to eight
restaurants, Burger King Corporation was the lessee under leases relating to
seven restaurants, Advantica Restaurant Group, Inc. was the lessee under leases
relating to five restaurants, and DenAmerica Corporation was the lessee under
leases relating to five restaurants. It is anticipated that, based on the
minimum rental payments required by the leases, these five tenants each 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, four
Restaurant Chains, Golden Corral, Jack in the Box, Burger King, and Denny's,
each accounted for more than ten percent of the Partnership's total rental
income (including rental income from the Partnership's consolidated joint
ventures and the Partnership's share of rental income from two Properties owned
by unconsolidated joint ventures and one Property owned with an affiliate as
tenants-in-common). In 1999, it is anticipated that these 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 if the Partnership is not able to re-lease the Properties in a timely
manner.
In addition, for the years ended December 31, 1998, 1997, and 1996, the
Partnership earned $139,707, $62,440, and $61,403, respectively, in interest and
other income. The increase in interest and other income during 1998, as compared
to 1997, was primarily attributable to the Partnership collecting and
recognizing $60,000 in other income in May 1998, as a result of executing an
amendment to a purchase and sale agreement with a third party to extend the
closing date for the Burger King Property located in Nashua, New Hampshire. In
accordance with the terms of the amendment, the Partnership was deemed to have
earned the $60,000 upon execution of the amendment to extend the closing date of
this Property. This Property was sold in October 1998, as described above in
"Liquidity and Capital Resources."
Operating expenses, including depreciation and amortization expense,
were $719,911, $703,459, and $725,767 for the years ended December 31, 1998,
1997, and 1996, respectively. The increase in operating expenses during 1998, as
compared to 1997, is primarily a result of the Partnership incurring $20,888 in
transaction costs relating 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.
The decrease in operating expenses during 1997, as compared to 1996, is
primarily attributable to a decrease in depreciation expense as a result of the
sale of the Property in Philadelphia, Pennsylvania.
As a result of the sale of the Property in Nashua, New Hampshire, as
described above in "Liquidity and Capital Resources," the Partnership recognized
a gain of $461,861 for financial reporting purposes for the year ended December
31, 1998. In addition, as a result of the sale of the Property in Philadelphia,
Pennsylvania, as described above in "Liquidity and Capital Resources," the
Partnership recognized a gain of $213,685 for financial reporting purposes for
the year ended December 31, 1996. No Properties were sold during the year ended
December 31, 1997.
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.
<PAGE>
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.
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
----
Report of Independent Accountants
Financial Statements:
Balance Sheets
Statements of Income
Statements of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund XI, 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 XI, 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 schedule listed in the index appearing under item 14(a)(2) presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and the financial statement schedule are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule 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
February 1, 1999, except for the second paragraph of Note 11 for which the date
is March 11, 1999.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
1998 1997
----------------- ----------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation $21,683,785 $23,561,017
Net investment in direct financing leases 6,786,286 6,611,661
Investment in joint ventures 2,521,613 2,567,786
Cash and cash equivalents 1,559,240 1,272,386
Restricted cash 1,640,936 --
Receivables, less allowance for doubtful
accounts $5,820 in 1998 132,311 119,575
Prepaid expenses 12,335 13,363
Accrued rental income 1,645,062 1,517,726
Other assets 122,024 122,024
----------------- ----------------
$36,103,592 $35,785,538
================= ================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 14,461 $ 6,508
Accrued and escrowed real estate
taxes payable 15,138 19,410
Distributions payable 995,006 875,006
Due to related parties 25,446 6,648
Rents paid in advance and deposits 92,069 68,333
----------------- ----------------
Total liabilities 1,142,120 975,905
Minority interests 503,860 501,401
Partners' capital 34,457,612 34,308,232
----------------- ----------------
$36,103,592 $35,785,538
================= ================
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
--------------------
Year Ended December 31,
1998 1997 1996
-------------- -------------- --------------
Revenues:
Rental income from operating leases $ 2,644,418 $ 2,702,558 $ 2,765,327
Earned income from direct financing
leases 893,187 841,426 850,650
Contingent rental income 243,115 225,888 251,312
Interest and other income 139,707 62,440 61,403
-------------- -------------- --------------
3,920,427 3,832,312 3,928,692
-------------- -------------- --------------
Expenses:
General operating and administrative 154,434 148,380 164,642
Professional services 34,140 32,077 30,984
Management fees to related parties 39,393 37,974 37,293
Real estate taxes 2,858 -- --
State and other taxes 24,262 25,779 14,650
Depreciation and amortization 443,936 459,249 478,198
Transaction costs 20,888 -- --
-------------- -------------- --------------
719,911 703,459 725,767
-------------- -------------- --------------
Income Before Minority Interests in
Income of Consolidated Joint
Ventures, Equity in Earnings of
Unconsolidated Joint Ventures and
Gain on Sale of Land and Buildings 3,200,516 3,128,853 3,202,925
Minority Interests in Income of
Consolidated Joint Ventures (68,474 ) (69,877 ) (70,116)
Equity in Earnings of Unconsolidated
Joint Ventures 215,501 236,103 118,211
Gain on Sale of Land and Buildings 461,861 -- 213,685
-------------- -------------- --------------
Net Income $ 3,809,404 $ 3,295,079 $ 3,464,705
============== ============== ==============
Allocation of Net Income:
General partners $ 34,815 $ 32,951 $ 33,356
Limited partners 3,774,589 3,262,128 3,431,349
-------------- -------------- --------------
$ 3,809,404 $ 3,295,079 $ 3,464,705
============== ============== ==============
Net Income Per Limited Partner Unit $ 0.94 $ 0.82 $ 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 XI, 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 $108,925 $40,000,000 $(11,515,062) $10,783,633 $(4,790,000) $ 34,588,496
Distributions to limited
partners ($0.89 per
limited partners unit) -- -- -- (3,540,024) -- -- (3,540,024)
Net income -- 33,356 -- -- 3,431,349 -- 3,464,705
----------- ---------- ----------- ------------ ----------- ---------- ------------
Balance, December 31, 1996 1,000 142,281 40,000,000 (15,055,086) 14,214,982 4,790,000) 34,513,177
Distributions to limited
partners ($0.88 per
limited partners unit) -- -- -- (3,500,024) -- -- (3,500,024)
Net income -- 32,951 -- -- 3,262,128 -- 3,295,079
----------- ---------- ----------- ------------ ----------- ---------- ------------
Balance, December 31, 1997 1,000 175,232 40,000,000 (18,555,110) 17,477,110 (4,790,000) 34,308,232
Distributions to limited
partners ($0.92 per
limited partners unit) -- -- -- (3,660,024) -- -- (3,660,024)
Net income -- 34,815 -- -- 3,774,589 -- 3,809,404
----------- ---------- ----------- ------------- ----------- ----------- -----------
Balance, December 31, 1998 $ 1,000 $ 210,047 $40,000,000 $(22,215,134) $21,251,699 $(4,790,000) $ 34,457,612
=========== ========== =========== ============ =========== =========== ============
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND XI, 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 $3,826,352 $3,585,979 $3,657,138
Distributions from unconsolidated joint
ventures 262,843 250,497 148,375
Cash paid for expenses (247,138 ) (237,312 ) (251,408 )
Interest received 52,005 43,632 47,609
---------------- ---------------- --------------
Net cash provided by operating
activities 3,894,062 3,642,796 3,601,714
---------------- ---------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 1,630,296 -- 1,044,750
Investment in joint ventures (1,169 ) (1,044,750 ) --
Decrease (increase) in restricted cash (1,630,296 ) 1,044,750 (1,044,750 )
---------------- ---------------- --------------
Net cash used in investing activities (1,169 ) -- --
---------------- ---------------- --------------
Cash Flows From Financing Activities:
Distributions to limited partners (3,540,024 ) (3,540,024 ) (3,540,024 )
Distributions to holders of minority
interests (66,015 ) (56,246 ) (58,718 )
---------------- ---------------- --------------
Net cash used in financing activities (3,606,039 ) (3,596,270 ) (3,598,742 )
---------------- ---------------- --------------
Net Increase in Cash and Cash Equivalents 286,854 46,526 2,972
Cash and Cash Equivalents at Beginning of Year 1,272,386 1,225,860 1,222,888
---------------- ---------------- --------------
Cash and Cash Equivalents at End of Year $1,559,240 $1,272,386 $1,225,860
================ ================ ==============
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND XI, 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 $3,809,404 $3,295,079 $3,464,705
--------------- --------------- ----------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 443,936 458,660 476,198
Amortization -- 589 2,000
Gain on sale of land and buildings (461,861 ) -- (213,685 )
Minority interests in income of
consolidated joint ventures 68,474 69,877 70,116
Equity in earnings of unconsolidated
joint ventures, net of distributions 47,342 14,394 30,164
Decrease (increase) in receivables (23,376 ) (23,957 ) 25,855
Decrease (increase) in prepaid
expenses 1,028 (136 ) 151
Decrease in net investment in direct
financing leases 90,236 74,706 62,366
Increase in accrued rental income (127,336 ) (260,223 ) (296,439 )
Increase in accounts payable and
accrued expenses 3,681 2,143 4,280
Increase (decrease) in due to related
parties 18,798 4,527 (4,386 )
Increase (decrease) in rents paid in
advance and deposits 23,736 7,137 (19,611 )
--------------- --------------- ----------------
Total adjustments 84,658 347,717 137,009
--------------- --------------- ----------------
Net Cash Provided by Operating Activities $3,894,062 $3,642,796 $3,601,714
=============== =============== ================
Supplemental Schedule of Non-Cash
Financing Activities:
Land and building under operating lease
exchanged for land and building under
operating lease $ 718,930 $ -- $ --
=============== =============== ================
Distributions declared and unpaid at
December 31 $ 995,006 $ 875,006 $ 915,006
=============== =============== ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND XI, 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 XI, 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 XI, 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. If an impairment is indicated, the assets are
adjusted to the fair value. 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.
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 accrued rental income, and to decrease rental or other income or
increase bad debt expense for the current period, although the
Partnership continues 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 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.
The Partnership's investments in Ashland Joint Venture and Des Moines
Real Estate Joint Venture, and a property in Corpus Christi, Texas, for
which the property is held as tenants-in-common, are accounted for
using the equity method since the Partnership shares control with
affiliates which have the same General Partners.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
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 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 XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
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 are
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 14 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.
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
1998 1997
-------------- ---------------
Land $ 11,607,426 $ 12,269,964
Buildings 12,666,144 13,746,182
-------------- ---------------
24,273,570 26,016,146
Less accumulated depreciation (2,589,785 ) (2,455,129)
-------------- ---------------
$ 21,683,785 $ 23,561,017
============== ===============
In September 1998, the tenant of the property in Columbus, Ohio,
exercised its option under the terms of its lease agreement, to
exchange one existing property with a replacement property. In
conjunction therewith, the Partnership exchanged the Burger King
property in Columbus, Ohio, for a Burger King property in Danbury,
Connecticut. The lease for the property in Columbus, Ohio, was amended
to allow the property in Danbury, Connecticut to continue under the
terms of the original lease. All closing costs were paid by the tenant.
The Partnership accounted for this as a nonmonetary exchange of similar
assets and recorded the acquisition of the property in Danbury,
Connecticut at the net book value of the property in Columbus, Ohio. No
gain or loss was recognized due to this being accounted for as a
nonmonetary exchange of similar assets.
<PAGE>
CNL INCOME FUND XI, 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:
In October 1998, the Partnership sold its property in Nashua, New
Hampshire, to a third party for $1,748,000, and received net sales
proceeds of $1,630,296, resulting in a gain of $461,861 for financial
reporting purposes. This property was originally acquired by the
Partnership in 1992 at a cost of approximately $1,302,400, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold this property for a total of approximately $327,900 in
excess of its original purchase price.
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 years ended December 31, 1998, 1997, and 1996, the Partnership
recognized $127,336, $260,233 and $296,439, respectively, of such
rental income.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 1998:
1999 $2,426,198
2000 2,426,198
2001 2,435,203
2002 2,486,388
2003 2,644,398
Thereafter 16,656,009
-----------------
$29,074,394
=================
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.
<PAGE>
CNL INCOME FUND XI, 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:
The following lists the components of the net investment in direct
financing leases at December 31:
1998 1997
-------------- -------------
Minimum lease payments
receivable $13,985,977 $13,834,907
Estimated residual values 2,210,329 2,144,114
Less unearned income (9,410,020) (9,367,360)
------------- ------------
Net investment in direct financing
leases $6,786,286 $6,611,661
============= ============
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at December 31, 1998:
1999 $ 988,575
2000 988,575
2001 988,575
2002 999,775
2003 1,019,879
Thereafter 9,000,598
-----------------
$13,985,977
=================
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 62.16% and a 76.6% interest in the profits and
losses of Ashland Joint Venture and Des Moines Real Estate Joint
Venture, respectively. The remaining interests in these joint ventures
are held by affiliates of the Partnership which have the same general
partners.
<PAGE>
CNL INCOME FUND XI, 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 January 1997, the Partnership acquired a 72.58% 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.
Ashland Joint Venture, Des Moines Real Estate Joint Venture and the
Partnership and affiliate, as tenants-in-common, each own and lease one
property to an operator of national fast-food 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 $3,427,681 $3,511,507
Cash 1,109 621
Receivables -- 21,638
Prepaid expenses 8,290 6,939
Accrued rental income 130,585 99,429
Liabilities -- 466
Partners' capital 3,567,665 3,639,668
Revenues 399,305 430,923
Net income 300,036 334,962
The Partnership recognized income totalling $215,501, $236,103, and
$118,211 for the years ended December 31, 1998, 1997, and 1996,
respectively, from these joint ventures.
6. Restricted Cash:
As of December 31, 1998, the net sales proceeds of $1,630,296 from the
sale of the property in Nashua, New Hampshire, plus accrued interest of
$10,640, were being held in an interest-bearing escrow account pending
the release of funds by the escrow agent to acquire an additional
property (See Note 11).
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
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 invested capital contributions (the "Limited Partners' 10%
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 Limited Partners' 10% 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.
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 accounts
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
$3,660,024, $3,500,024 and $3,540,024, respectively. No distributions
have been made to the general partners to date.
<PAGE>
CNL INCOME FUND XI, 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>
1998 1997 1996
-------------- ------------- -------------
<S> <C>
Net income for financial reporting purposes $3,809,404 $3,295,079 $3,464,705
Depreciation for tax reporting purposes less
than (in excess of) depreciation for
financial reporting purposes 2,899 (43,077 ) (39,035 )
Gain on sale of land and building for
financial reporting purposes in excess of
gain for tax reporting purposes (461,861 ) -- (213,685 )
Direct financing leases recorded as operating
leases for tax reporting purposes 90,236 74,706 62,366
Equity in earnings of unconsolidated joint
ventures for financial reporting purposes
in excess of equity in earnings of
unconsolidated joint ventures for tax
reporting purposes (5,906 ) (13,296 ) (606 )
Capitalization of transaction costs for tax
reporting purposes 20,888 -- --
Accrued rental income (127,336 ) (260,223 ) (296,439 )
Rents paid in advance 23,236 22,436 (19,611 )
Allowance for doubtful accounts 5,820 (14,746 ) (8,114 )
Minority interests in timing differences of
consolidated joint ventures (44,316 ) 14,430 15,933
-------------- ------------- -------------
Net income for federal income tax purposes $3,313,064 $3,075,309 $2,965,514
============== ============= =============
</TABLE>
<PAGE>
CNL INCOME FUND XI, 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, Inc. 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 a 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. The management fee, which will not exceed fees
which are competitive for similar services in the same geographic area,
may or may not be taken, in whole or in part as to any year, in the
sole discretion of the Affiliate. The Partnership incurred management
fees of $39,393, $37,974, and $37,293 for the years ended December 31,
1998, 1997, and 1996, respectively.
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 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. The
payment of 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.
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 $101,423, $88,667, and
$95,845 for the years ended December 31, 1998, 1997, and 1996,
respectively, for such services.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
9. Related Party Transactions - Continued:
During 1997, the Partnership and an affiliate of the general partners
acquired a property as tenants-in-common for a purchase price of
$1,441,057 (of which the Partnership contributed $1,044,750 or 72.50%)
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 and the
affiliate. The purchase price paid by the Partnership and the affiliate
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
$25,446 and $6,648, respectively.
10. 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 and the property held as tenants-in-common with an
affiliate of the general partners), for each of the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------- -------------- -------------
<S> <C>
Foodmaker, Inc. $ 768,032 $ 768,032 $ 768,032
Burger King Corporation
and BK Acquisition, Inc. 695,427 733,620 712,334
Golden Corral Corporation 564,104 538,871 538,355
DenAmerica Corporation 536,779 489,623 N/A
Advantica Restaurant Group,
Inc. (Denny's, Inc. and
Quincy's Restaurants, Inc.,
during the year ended
December 31, 1998) 473,726 N/A N/A
Flagstar Enterprises, Inc. (and
Denny's, Inc. and Quincy's Restaurants,
Inc. during the years ended December
31, 1997 and 1996)
N/A 780,502 774,347
</TABLE>
<PAGE>
CNL INCOME FUND XI, 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 the unconsolidated joint ventures and the property held as
tenants-in-common with an affiliate of the general partners), for each
of the years ended December 31:
1998 1997 1996
---------- ---------- ----------
Burger King $1,144,250 $1,198,027 $1,271,606
Denny's 898,908 854,141 747,341
Jack in the Box 768,032 768,032 768,032
Golden Corral Family
Steakhouse Restaurants 564,103 538,871 538,355
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 reinvested a portion of the net sales
proceeds it received from the sale of the property in Nashua, New
Hampshire, in a Burger King property located in Yelm, Washington, at an
approximate cost of $1,034,000. In connection therewith, the
Partnership entered into a long term, triple-net lease with terms
substantially the same as its other leases.
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 4,394,196 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
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
11. Subsequent Events- Continued:
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 $43,333,961 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 X, 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.
<PAGE>
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
The following table sets forth, as of March 11, 1999, the beneficial
ownership interest of each person known to the Registrant to be a beneficial
owner of more than five percent of the Units.
<TABLE>
<CAPTION>
Name and Address of Number of Percent
Title of Class Beneficial Owner Units of Class
--------------------- -------------------------------- ---------------- ------------
<S> <C>
Units of Limited Public School Retirement 210,290 5.26%
Partnership System of the City of St. Louis
Interest 1 Mercantile Center,
Ste. 2607
St. Louis, MO 63101
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%
</TABLE>
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>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
----------------------- --------------------- -----------------------
<S> <C>
Reimbursement to affiliates for Operating expenses are reimbursed Operating expenses incurred on
operating expenses at the lower of cost or 90 percent behalf of the Partnership:
of the prevailing rate at which $109,290
comparable services could have been
obtained in the same geographic Accounting and administrative
area. Affiliates of the General services: $101,423
Partners from time to time incur
certain operating expenses on
behalf of the Partnership for which
the Partnership reimburses the
affiliates without interest.
Annual management fee to affiliates One percent of the sum of gross $39,393
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. The management
fee, which will not exceed
competitive fees for comparable
services in the same geographic
area, may or may not be taken, in
whole or in part as to any year, in
the sole discretion of affiliates.
<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 41,846 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 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 XI, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278 on Form S-11 and
incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund XI, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278 on Form S-11 and
incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XI, Ltd. (Included as Exhibit 4.2
to Form 10-K filed with the Securities and Exchange
Commission on April 15, 1993, and incorporated herein
by reference.)
10.1 Management Agreement between CNL Income Fund XI, Ltd.
and CNL Investment Company (Included as Exhibit 10.1
to Form 10-K filed with the Securities and Exchange
Commission on April 15, 1993, 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.)
<PAGE>
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 XI, 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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CNL INCOME FUND XI, 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 Under
Operating Leases:
Burger King Restaurants:
Amesbury, Massachusetts - $359,458 $791,913 - -
Bloomfield, Connecticut - 266,685 555,656 - -
East Detroit, Michigan - 305,813 508,386 - -
Gonzales, Louisiana - 362,073 575,454 - -
Denver, Colorado - 438,756 - - -
Columbus, Ohio - 399,679 363,795 - -
Dayton, Ohio - 472,964 441,860 - -
Lawrence, Kansas - 321,505 411,353 - -
Roswell, New Mexico - 205,379 461,219 - -
Danbury, Connecticut (d) - 220,496 498,434 - -
Denny's Restaurants:
Orlando, Florida - 627,065 - - -
Abilene, Texas - 274,220 - - -
Wadsworth, Ohio - 187,368 - - -
Avon, Colorado - 755,815 - 569,297 -
Ocean Springs, Mississippi - 303,267 - - -
Golden Corral Family
Steakhouse Restaurants:
McAllen, Texas - 649,484 947,085 - -
Midwest City, Oklahoma - 506,420 975,640 - -
Oklahoma City, Oklahoma - 650,655 975,170 - -
Hardee's Restaurants:
Dothan, Alabama - 275,791 - - -
Huntersville, North Carolina - 308,894 - - -
North Augusta, South Carolina - 201,056 - - -
Jack in the Box Restaurants:
Houston, Texas - 475,618 447,374 - -
Houston, Texas - 350,115 607,530 - -
Houston, Texas - 362,591 582,149 - -
Kingswood, Texas - 373,894 544,539 - -
Rockwall, Texas - 348,497 652,932 - -
Sacramento, California - 500,623 524,823 - -
Show Low, Arizona - 185,602 503,343 - -
KFC Restaurant:
Deming, New Mexico - 150,455 - - -
Quincy's Restaurants:
Lynchburg, Virginia - 359,532 - - -
Sebring, Florida - 407,656 728,192 - -
------------ ------------ ------------ ------- -
$11,607,426 $12,096,847 $569,297 -
============ ============ ============ ======= =
Property of Joint Venture in Which
the Partnership has a 76.6%
Interest and has Invested in
Under an Operating Lease:
Jack in the Box Restaurant:
Des Moines, Washington - $322,726 $791,658 - -
============ ============ ============ ======= =
Property of Joint Venture in Which
the Partnership has a 62.16% Interest
and has Invested in Under an Operating
Lease:
Burger King Restaurant:
Ashland, New Hampshire - $293,478 $997,104 - -
============ ============ ============ ======= =
Property in Which the Partnership has
a 72.58% Interest as Tenants-in-Common
and has Invested in Under an Operating
Lease:
Black-eyed Pea Restaurant:
Corpus Christi, Texas - $715,052 $726,005 - -
============ ============ ============ ======= =
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Burger King Restaurant:
Denver, Colorado - - - $403,692 -
Denny's Restaurants:
Orlando, Florida - - - 696,187 -
Abilene, Texas - - - 534,519 -
Kent, Ohio - 101,488 421,645 - -
Cullman, Alabama - 191,016 577,043 - -
Ocean Springs, Mississippi - - 324,225 - -
Wadsworth, Ohio - - 264,861 - -
Hardee's Restaurants:
Dothan, Alabama - - 407,368 - -
Laurens, South Carolina (g) - 170,905 537,361 - -
Huntersville, North Carolina - - 465,665 - -
North Augusta, South Carolina - - 457,712 - -
Old Fort, North Carolina - 100,413 457,747 - -
KFC Restaurant:
Deming, New Mexico - - - 389,033 -
Quincy's Restaurant:
Lynchburg, Virginia - - 648,972 - -
------------ ------------ ----------- --------
$563,822 $4,562,599 $2,023,431 -
============ ============ =========== ========
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
------------ ------------ ------------ ----------- --------- -------- --------------
$359,458 $791,913 $1,151,371 $171,834 1982 06/92 (b)
266,685 555,656 822,341 120,569 1990 06/92 (b)
305,813 508,386 814,199 110,312 1987 06/92 (b)
362,073 575,454 937,527 124,865 1989 06/92 (b)
438,756 (f) 438,756 - 1992 06/92 (d)
399,679 363,795 763,474 76,812 1982 09/92 (b)
472,964 441,860 914,824 92,165 1987 09/92 (b)
321,505 411,353 732,858 85,802 1982 09/92 (b)
205,379 461,219 666,598 96,203 1986 09/92 (b)
220,496 498,434 718,930 5,249 1983 09/98 (b)
627,065 (f) 627,065 - 1992 06/92 (d)
274,220 (f) 274,220 - 1992 07/92 (d)
187,368 (f) 187,368 - 1992 09/92 (d)
755,815 569,297 1,325,112 112,507 1993 09/92 (b)
303,267 (f) 303,267 - 1992 09/92 (d)
649,484 947,085 1,596,569 206,455 1992 06/92 (b)
506,420 975,640 1,482,060 212,680 1992 06/92 (b)
650,655 975,170 1,625,825 215,338 1992 05/92 (b)
275,791 (f) 275,791 - 1992 09/92 (d)
308,894 (f) 308,894 - 1992 09/92 (d)
201,056 (f) 201,056 - 1992 09/92 (d)
475,618 447,374 922,992 93,478 1992 09/92 (b)
350,115 607,530 957,645 126,943 1992 09/92 (b)
362,591 582,149 944,740 121,639 1992 09/92 (b)
373,894 544,539 918,433 113,781 1992 09/92 (b)
348,497 652,932 1,001,429 136,429 1992 09/92 (b)
500,623 524,823 1,025,446 109,661 1992 09/92 (b)
185,602 503,343 688,945 105,173 1992 09/92 (b)
150,455 (f) 150,455 - 1993 09/92 (d)
359,532 (f) 359,532 - 1992 09/92 (d)
407,656 728,192 1,135,848 151,890 1992 09/92 (b)
- ----------- ------------ ------------ -----------
$11,607,426 $12,666,144 $24,273,570 $2,589,785
=========== ============ ============ ===========
$322,726 $791,658 $1,114,384 $163,895 1992 10/92 (b)
=========== ============ ============ ===========
$293,478 $997,104 $1,290,582 $207,798 1987 10/92 (b)
=========== ============ ============ ===========
$715,052 $726,005 $1,441,057 $46,649 1992 01/97 (b)
=========== ============ ============ ===========
- (f) (f) (d) 1992 06/92 (d)
- (f) (f) (d) 1992 06/92 (d)
- (f) (f) (d) 1992 07/92 (d)
(f) (f) (f) (e) 1987 07/92 (e)
(f) (f) (f) (e) 1992 09/92 (e)
- (f) (f) (d) 1992 09/92 (d)
- (f) (f) (d) 1992 09/92 (d)
- (f) (f) (d) 1992 09/92 (d)
(f) (f) (f) (e) 1992 09/92 (e)
- (f) (f) (d) 1992 09/92 (d)
- (f) (f) (d) 1992 09/92 (d)
(f) (f) (f) (e) 1992 09/92 (e)
- (f) (f) (d) 1993 09/92 (d)
- (f) (f) (d) 1992 09/92 (d)
- ------------
-
============
</TABLE>
<PAGE>
CNL INCOME FUND XI, 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>
Accumulated
Cost Depreciation
---------------- -------------
<S> <C>
Properties the Partnership has Invested
in Under Operating Leases:
Balance, December 31, 1995 $ 26,955,605 $ 1,604,799
Dispositions (939,459 ) (84,528 )
Depreciation expense -- 476,198
---------------- ---------------
Balance, December 31, 1996 26,016,146 1,996,469
Depreciation expense -- 458,660
---------------- ---------------
Balance, December 31, 1997 26,016,146 2,455,129
Dispositions (2,461,506 ) (309,280 )
Acquisitions 718,930 --
Depreciation expense -- 443,936
---------------- ---------------
Balance, December 31, 1998 $ 24,273,570 $ 2,589,785
================ ===============
Property of Joint Venture in Which the
Partnership has a 76.6% Interest and has
Invested in Under an Operating Lease:
Balance, December 31, 1995 $ 1,114,384 $ 84,729
Depreciation expense -- 26,388
---------------- ---------------
Balance, December 31, 1996 1,114,384 111,117
Depreciation expense -- 26,389
---------------- ---------------
Balance, December 31, 1997 1,114,384 137,506
Depreciation expense -- 26,389
---------------- ---------------
Balance, December 31, 1998 $ 1,114,384 $ 163,895
================ ===============
<PAGE>
CNL INCOME FUND XI, 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 62.16% Interest and has
Invested in Under an Operating Lease:
Balance, December 31, 1995 $ 1,290,582 $ 108,088
Depreciation expense -- 33,237
-------------- -----------------
Balance, December 31, 1996 1,290,582 141,325
Depreciation expense -- 33,237
-------------- -----------------
Balance, December 31, 1997 1,290,582 174,562
Depreciation expense -- 33,236
-------------- -----------------
Balance, December 31, 1998 $ 1,290,582 $ 207,798
============== =================
Property in Which the Partnership has a
72.58% Interest as Tenants-in-common
and has Invested in Under an Operating Lease:
Balance, December 31, 1996 $ -- $ --
Acquisitions 1,441,057 --
Depreciation Expense -- 22,448
-------------- -----------------
Balance, December 31, 1997 1,441,057 22,448
Depreciation expense -- 24,201
-------------- -----------------
Balance, December 31, 1998 $ 1,441,057 $ 46,649
============== =================
</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 ventures, and the
unconsolidated joint ventures for federal income tax purposes was
$31,502,465 and $3,846,023, 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.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
---------------------------------------------------
DEPRECIATION - CONTINUED
------------------------
December 31, 1998
(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) The restaurant on this Property was converted from a Denny's
restaurant to a Hardee's restaurant during 1994.
(h) This Property was exchanged for a Burger King Property previously
owned and located in Columbus, Ohio during 1998.
<PAGE>
EXHIBITS
--------
<PAGE>
EXHIBIT INDEX
Exhibit Number
--------------
3.1 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XI, Ltd. (Included as Exhibit 3.2 to Registration
Statement No. 33-43278 on Form S-11 and incorporated herein by
reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XI, Ltd. (Included as Exhibit 3.2 to Registration
Statement No. 33-43278 on Form S-11 and incorporated herein by
reference.)
4.2 Amended and Restated Agreement of Limited Partnership of CNL
Income Fund XI, Ltd. (Included as Exhibit 4.2 to Form 10-K
filed with the Securities and Exchange Commission on April 15,
1993, and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund XI, Ltd. and CNL
Investment Company (Included as Exhibit 10.1 to Form 10-K
filed with the Securities and Exchange Commission on April 15,
1993, 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 XI, 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 XI, 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> 3,200,176 <F2>
<SECURITIES> 0
<RECEIVABLES> 138,131
<ALLOWANCES> 5,820
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 24,273,570
<DEPRECIATION> 2,589,785
<TOTAL-ASSETS> 36,103,592
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 34,457,612
<TOTAL-LIABILITY-AND-EQUITY> 36,103,592
<SALES> 0
<TOTAL-REVENUES> 3,920,427
<CGS> 0
<TOTAL-COSTS> 719,911
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,809,404
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,809,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,809,404
<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.
<F2>Includes 1,640,936 in restricted cash.
</FN>
</TABLE>
