FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the quarterly period ended June 30, 1999
-------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the transition period from _____________________ to _____________________
Commission file number
0-21560
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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
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
- ------------------------------------------ --------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
--------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _______
<PAGE>
CONTENTS
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Page
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Part I.
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 13
Part II.
Other Information 14-15
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------- ------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $2,803,077 and
$2,589,785, respectively $ 21,808,299 $ 21,683,785
Net investment in direct financing leases 7,428,455 6,786,286
Investment in joint ventures 2,772,561 2,521,613
Cash and cash equivalents 1,804,990 1,559,240
Restricted cash -- 1,640,936
Receivables, less allowance for doubtful accounts
of $562 and $5,820, respectively 82,368 132,311
Prepaid expenses 13,864 12,335
Accrued rental income 1,711,758 1,645,062
Other assets 122,024 122,024
------------------- -----------------
$ 35,744,319 $ 36,103,592
=================== =================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 89,097 $ 14,461
Accrued and escrowed real estate taxes payable 15,677 15,138
Distributions payable 875,006 995,006
Due to related party 24,887 25,446
Rents paid in advance and deposits 51,158 92,069
------------------- -----------------
Total liabilities 1,055,825 1,142,120
Commitments and Contingencies (Note 4)
Minority interest 504,504 503,860
Partners' capital 34,183,990 34,457,612
------------------- -----------------
$ 35,744,319 $ 36,103,592
=================== =================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------- ------------
Revenues:
Rental income from operating leases $ 646,271 $ 675,491 $ 1,289,771 $
1,350,982
Earned income from direct financing leases 239,569 206,345 475,098 413,405
Contingent rental income 34,651 42,996 54,893 62,764
Interest and other income 21,121 85,643 42,055 98,048
------------ ------------ ------------- ------------
941,612 1,010,475 1,861,817 1,925,199
------------ ------------ ------------- ------------
Expenses:
General operating and administrative 29,589 44,999 71,949 74,457
Professional services 11,634 9,241 22,472 14,193
Management fees to related party 9,724 9,710 19,200 19,052
State and other taxes 157 1,036 28,346 24,370
Depreciation and amortization 106,646 114,665 213,292 229,330
Transaction costs 85,130 -- 120,097 --
------------ ------------ ------------- ------------
242,880 179,651 475,356 361,402
------------ ------------ ------------- ------------
Income Before Minority Interests in Income of
Consolidated Joint Ventures and Equity in
Earnings of Unconsolidated Joint Ventures 698,732 830,824 1,386,461 1,563,797
Minority Interests in Income of Consolidated
Joint Ventures (16,797 ) (16,906 ) (33,206 ) (33,924 )
Equity in Earnings of Unconsolidated Joint
Ventures 65,134 57,604 123,135 97,605
------------ ------------ ------------- ------------
Net Income $ 747,069 $ 871,522 $ 1,476,390 $
1,627,478
============ ============ ============= ============
Allocation of Net Income:
General partners $ 7,471 $ 8,715 $ 14,764 $ 16,275
Limited partners 739,598 862,807 1,461,626 1,611,203
------------ ------------ ------------- ------------
$ 747,069 $ 871,522 $ 1,476,390 $
1,627,478
============ ============ ============= ============
Net Income Per Limited Partner Unit $ 0.18 $ 0.22 $ 0.37 $ 0.40
============ ============ ============= ============
Weighted Average Number of Limited Partner
Units Outstanding 4,000,000 4,000,000 4,000,000 4,000,000
============ ============ ============= ============
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
1999 1998
------------------ ------------------
General partners:
Beginning balance $ 211,047 $ 176,232
Net income 14,764 34,815
------------------ ------------------
225,811 211,047
------------------ ------------------
Limited partners:
Beginning balance 34,246,565 34,132,000
Net income 1,461,626 3,774,589
Distributions ($0.44 and $0.92 per
limited partner unit, respectively) (1,750,012 ) (3,660,024 )
------------------ ------------------
33,958,179 34,246,565
------------------ ------------------
Total partners' capital $ 34,183,990 $ 34,457,612
================== ==================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1999 1998
--------------- -------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $1,797,730 $2,038,262
--------------- -------------
Cash Flows from Investing Activities:
Additions to land and buildings on
operating leases (337,806 ) --
Investment in direct financing leases (694,610 ) --
Investment in joint venture (247,286 ) --
Decrease in restricted cash 1,630,296 --
--------------- -------------
Net cash provided by investing activities 350,594 --
--------------- -------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,870,012 ) (1,790,012 )
Distributions to holders of minority interests (32,562 ) (34,830 )
--------------- -------------
Net cash used in financing activities (1,902,574 ) (1,824,842 )
--------------- -------------
Net Increase in Cash and Cash Equivalents 245,750 213,420
Cash and Cash Equivalents at Beginning of Period 1,559,240 1,272,386
--------------- -------------
Cash and Cash Equivalents at End of Period $1,804,990 $1,485,806
=============== =============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
period $ 875,006 $ 875,006
=============== =============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 1999 may not be indicative of
the results that may be expected for the year ending December 31, 1999.
Amounts as of December 31, 1998, included in the financial statements,
have been derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund XI, Ltd. (the "Partnership") for the year ended December
31, 1998.
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 the equity in the
Partnership's consolidated joint ventures. All significant intercompany
accounts and transactions have been eliminated.
2. Land and Buildings on Operating Leases:
In January 1999, the Partnership reinvested a portion of the net sales
proceeds it received from the 1998 sale of the property in Nashua, New
Hampshire in a Burger King property located in Yelm, Washington, at an
approximate cost of $1,032,400. In accordance with Statement of
Financial Accounting Standards No. 13, "Accounting for Leases," the
land portion of this property was classified as an operating lease
while the building portion was classified as a capital lease.
3. Investment in Joint Ventures:
In February 1999, the Partnership reinvested a portion of the remaining
net sales proceeds it received from the 1998 sale of the property in
Nashua, New Hampshire in a joint venture arrangement, Portsmouth Joint
Venture, with CNL Income Fund XVIII, Ltd., an affiliate of the general
partners, to purchase and hold one restaurant property. As of June 30,
1999, the Partnership had contributed approximately $247,000 to the
joint venture and owned a 42.8% interest in the profits and losses of
this joint venture. The Partnership accounts for its investment in this
joint venture under the equity method since the Partnership shares
control with this affiliate.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
3. Investment in Joint Ventures - Continued:
The following presents the combined, condensed financial information
for the joint ventures and the property held as tenants-in-common with
an affiliate at:
June 30, December 31,
1999 1998
------------- -------------
Land and buildings on operating
leases, less accumulated
depreciation $ 3,639,814 $ 3,427,681
Net investment in direct
financing lease 322,625 --
Cash 2,009 1,109
Receivables 32,541 --
Prepaid expenses 3,246 8,290
Accrued rental income 149,398 130,585
Partners' capital 4,149,633 3,567,665
Revenues 232,703 399,305
Net income 181,750 300,036
The Partnership recognized income totalling $123,135 and $97,605 for
the six months ended June 30, 1999 and 1998, respectively, from these
joint ventures, $65,134 and $57,604 of which was earned during the
quarters ended June 30, 1999 and 1998, respectively.
4. Commitments and Contingencies:
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 2,197,098 shares of its common stock, par value $0.01 per share
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $20.00 per APF Share, the
price paid by APF investors (after an adjustment for a one for two
reverse stock split effective June 3, 1999) in three previous public
offerings, the most recent of which was completed in December 1998. In
order to assist the general partners in evaluating the proposed merger
consideration, the general partners retained Valuation Associates, a
nationally recognized real estate appraisal firm, to appraise the
Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
4. Commitments and Contingencies - Continued:
assets were valued on a going concern basis (meaning the Partnership
continues unchanged) at $43,333,961 as of December 31, 1998. 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 fourth quarter of 1999, limited partners holding in excess
of 50% of the Partnership's outstanding limited partnership interests
must approve the Merger prior to consummation of the transaction. If
the limited partners at the special meeting approve the Merger, APF
will own the properties and other assets of the Partnership. The
general partners intend to recommend that the limited partners of the
Partnership approve the Merger. In connection with their
recommendation, the general partners will solicit the consent of the
limited partners at the special meeting. If the limited partners reject
the Merger, the Partnership will bear the portion of the transaction
costs based upon the percentage of "For" votes and the general partners
will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in
connection with the proposed Merger. On July 8, 1999 the plaintiffs
amended the complaint to add three additional limited partners as
plaintiffs. Additionally, on June 22, 1999, a limited partner in
certain of the CNL Income Funds served a lawsuit against the general
partners, APF and CNL Fund Advisors, Inc. and certain of its affiliates
in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend
vigorously against the claims. See Part II - Item 1. Legal Proceedings.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund XI, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 20, 1991 to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as properties upon which restaurants were to be
constructed (the "Properties"), which are leased primarily to operators of
national and regional fast-food and family-style restaurant chains. The leases
are, in general, triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance, and utilities. As of June 30, 1999,
the Partnership owned 40 Properties, which included interests in five Properties
owned by joint ventures in which the Partnership is a co-venturer and one
Property owned with an affiliate of the general partners as tenants-in-common.
Capital Resources
- -----------------
The Partnership's primary source of capital for the six months ended
June 30, 1999 and 1998 was cash from operations (which includes cash received
from tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $1,797,730 and
$2,038,262 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in cash from operations for the six months ended June 30, 1999 is
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
quarter ended June 30, 1999.
In January 1999, the Partnership reinvested a portion of the net sales
proceeds it received from the 1998 sale of the Property in Nashua, New Hampshire
in a Burger King Property located in Yelm, Washington, at an approximate cost of
$1,032,400. In addition, in February 1999, the Partnership reinvested a portion
of the remaining net sales proceeds in a joint venture arrangement, Portsmouth
Joint Venture, with CNL Income Fund XVIII, Ltd., an affiliate of the general
partners, to purchase and hold one restaurant Property. The Partnership
contributed approximately $247,300 and had a 42.8% interest in the profits and
losses of the joint venture as of June 30, 1999. The Partnership intends to
invest the remaining net sales proceeds in an additional Property.
Currently, rental income from the Partnership's Properties and net
sales proceeds from the sale of a Property, pending reinvestment in an
additional Property, are invested in money market accounts or other short-term,
highly liquid investments such as demand deposit accounts, certificates of
deposit, and money market accounts with less than a 30-day maturity date,
pending the Partnership's use of such funds to pay Partnership expenses or to
make distributions to the partners. At June 30, 1999, the Partnership had
$1,804,990 invested in such short-term investments, as compared to $1,559,240 at
December 31, 1998. The increase in cash and cash equivalents during the six
months ended June 30, 1999, is primarily attributable to the release of a
portion of the funds held in escrow at December 31, 1998 relating to the sale of
the Property in Nashua, New Hampshire during 1998, net of reinvestment in
Properties, as described above. The funds remaining at June 30, 1999, after
payment of distributions and other liabilities, will be used to invest in an
additional Property and to meet the Partnership's working capital and other
needs.
Short-Term Liquidity:
- ---------------------
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on cash from operations, and for the six months ended June 30, 1998,
accumulated excess operating reserves, the Partnership declared distributions to
limited partners of $1,750,012 and $1,790,012 for the six months ended June 30,
1999 and 1998, respectively ($875,006 for each of the quarters ended June 30,
1999 and 1998). This represents distributions of $0.44 and $0.45 per unit for
the six months ended June 30, 1999 and 1998, respectively ($0.22 per unit for
each of the quarters ended June 30, 1999 and 1998). No distributions were made
to the general partners for the quarters and six months ended June 30, 1999 and
1998. No amounts distributed to the limited partners for the six months ended
June 30, 1999 and 1998 are required to be or have been treated by the
Partnership as a return of capital for purposes of calculating the limited
partners' return on their adjusted capital contributions. The Partnership
intends to continue to make distributions of cash available for distribution to
the limited partners on a quarterly basis.
Total liabilities of the Partnership, including distributions payable,
decreased to $1,055,825 at June 30, 1999 from $1,142,120 at December 31, 1998,
primarily as a result of the payment in January 1999 of a special distribution
accrued at December 31, 1998, of $120,000, representing cumulative excess
operating reserves. The general partners believe that the Partnership has
sufficient cash on hand to meet its current working capital needs.
Long-Term Liquidity:
- --------------------
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
- ---------------------
During the six months ended June 30, 1999 and 1998, the Partnership and
its consolidated joint ventures, Denver Joint Venture and CNL/Airport Joint
Venture, owned and leased 36 wholly owned Properties (which included one
Property in Nashua, New Hampshire, which was sold in October 1998) to operators
of fast-food and family-style restaurant chains. During the six months ended
June 30, 1999 and 1998, the Partnership, Denver Joint Venture and CNL/Airport
Joint Venture earned $1,764,869 and $1,764,387, respectively, in rental income
from operating leases and earned income from direct financing leases, $885,840
and $881,836 of which was earned during the quarters ended June 30, 1999 and
1998, respectively. In addition, during the six months ended June 30, 1999 and
1998, the Partnership earned $54,893 and $62,764, respectively, in contingent
rental income, $34,651 and $42,996 of which was earned during the quarters ended
June 30, 1999 and 1998, respectively.
In addition, during the six months ended June 30, 1998, the Partnership
owned and leased two Properties indirectly through other joint venture
arrangements and owned and leased one Property with an affiliate as
tenants-in-common. During the six months ended June 30, 1999 the Partnership
owned and leased three Properties indirectly through other joint venture
arrangements and owned and leased one Property with an affiliate as
tenants-in-common. In connection therewith, during the six months ended June 30,
1999 and 1998, the Partnership earned $123,135 and $97,605, respectively,
$65,134 and $57,604 of which was earned during the quarters ended June 30, 1999
and 1998, respectively. Net income earned by unconsolidated joint ventures
increased during the six months ended June 30, 1999, as compared to the six
months ended June 30, 1998, as a result of the fact that in February 1999, the
Partnership reinvested a portion of the net sales proceeds from the 1998 sale of
the Property in Nashua, New Hampshire, in Portsmouth Joint Venture, with CNL
Income Fund XVIII, Ltd., an affiliate of the general partners. In addition, net
income earned by joint ventures during the six months ended June 30, 1998 was
less than that earned during the six months ended June 30, 1999, partially due
to the fact that Ashland Joint Venture adjusted estimated contingent rental
amounts accrued at December 31, 1997 to actual amounts during the six months
ended June 30, 1998.
During the six months ended June 30, 1999 and 1998, the Partnership
earned $42,055 and $98,048, respectively, in interest and other income, $21,121
and $85,643 of which was earned during the quarters ended June 30, 1999 and
1998, respectively. Interest and other income earned during the quarter and six
months ended June 30, 1998, was more than that earned during the quarter and six
months ended June 30, 1999, primarily because the Partnership collected and
recognized $60,000 in other income in May 1998, as a result of the execution of
an amendment to a purchase and sale agreement with a third party to extend the
closing date for the sale of 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 for the sale of this Property. This Property was sold in October
1998.
Operating expenses, including depreciation and amortization expense,
were $475,356 and $361,402 for the six months ended June 30, 1999 and 1998,
respectively, $242,880 and $179,651 of which were incurred during the quarters
ended June 30, 1999 and 1998, respectively. The increase in operating expenses
during the quarter and six months ended June 30, 1999, as compared to 1998, is
primarily a result of the Partnership incurring $85,130 and $120,097,
respectively, 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 below. 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.
Proposed Merger
- ---------------
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 (the "Merger"). As consideration for the Merger, APF
has agreed to issue 2,197,098 shares of its common stock, par value $0.01 per
share (the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $20.00 per APF Share, the price paid
by APF investors (after an adjustment for a one for two reverse stock split
effective June 3, 1999) in three previous public offerings, the most recent of
which was completed in December 1998. In order to assist the general partners in
evaluating the proposed merger consideration, the general partners retained
Valuation Associates, a nationally recognized real estate appraisal firm, to
appraise the Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other assets
were valued on a going concern basis (meaning the Partnership continues
unchanged) at $43,333,961 as of December 31, 1998. 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 fourth quarter of 1999, limited partners holding
in excess of 50% of the Partnership's outstanding limited partnership interests
must approve the Merger prior to consummation of the transaction. If the limited
partners at the special meeting approve the Merger, APF will own the Properties
and other assets of the Partnership. The general partners intend to recommend
that the limited partners of the Partnership approve the Merger. In connection
with their recommendation, the general partners will solicit the consent of the
limited partners at the special meeting. If the limited partners reject the
Merger, the Partnership will bear the portion of the transaction costs based
upon the percentage of "For" votes and the general partners will bear the
portion of such transaction costs based upon the percentage of "Against" votes
and abstentions.
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in connection with
the proposed Merger. On July 8, 1999 the plaintiffs amended the complaint to add
three additional limited partners as plaintiffs. Additionally, on June 22, 1999,
a limited partner in certain of the CNL Income Funds served a lawsuit against
the general partners, APF and CNL Fund Advisors, Inc. and certain of its
affiliates, in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend vigorously
against the claims. See Part II - Item 1. Legal Proceedings.
Year 2000 Readiness Disclosure
- ------------------------------
The Year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. As of June 30, 1999 the
Partnership did not have any information or non-information technology systems.
The general partners and certain of the affiliates of the general partners
provide all services requiring the use of information and non-information
technology systems pursuant to a management agreement with the Partnership. The
information technology system of the affiliates of the general partners consists
of a network of personal computers and servers built using hardware and software
from mainstream suppliers. The non-information technology systems of the
affiliates of the general partners are primarily facility related and include
building security systems, elevators, fire suppressions, HVAC, electrical
systems and other utilities. The affiliates of the general partners have no
internally generated programmed software coding to correct because substantially
all of the software utilized by the general partners and affiliates is purchased
or licensed from external providers. The maintenance of non-information
technology systems at the Partnership's Properties is the responsibility of the
tenants of the Properties in accordance with the terms of the Partnership's
leases.
In early 1998, the general partners and affiliates formed a Year 2000
team, for the purpose of identifying, understanding and addressing the various
issues associated with the Year 2000 problem. The Y2K Team consists of the
general partners and members from certain of the affiliates of the general
partners, including representatives from senior management, information systems,
telecommunications, legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have potential Year 2000 problems. The Y2K Team is in the
process of conducting inspections, interviews and tests to identify which of the
Partnership's systems could have a potential Year 2000 problem.
The information system of the affiliates of the general partners is
comprised of hardware and software applications from mainstream suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and manufacturers to verify the Year 2000 compliance of their products. In
addition, the Y2K Team has also requested and is evaluating documentation from
other companies with which the Partnership has a material third party
relationship, including the Partnership's tenants, vendors, financial
institutions and the Partnership's transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. The Y2K Team has also requested and is evaluating documentation
from the non-information technology systems providers of the affiliates of the
general partners. Although the general partners continue to receive positive
responses from the companies with which the Partnership has third party
relationships regarding their Year 2000 compliance, the general partners cannot
be assured that the tenants, financial institutions, transfer agent, other
vendors and system providers have adequately considered the impact of the Year
2000. The general partners are not able to measure the effect on the operations
of the Partnership of any third party's failure to adequately address the impact
of the Year 2000.
The general partners and their affiliates have identified and have
implemented upgrades for certain hardware equipment. In addition, the general
partners and their affiliates have identified certain software applications
which will require upgrades to become Year 2000 compliant. The general partners
expect that all of these upgrades, as well as any other necessary remedial
measures on the information technology systems used in the business activities
and operations of the Partnership, to be completed by September 30, 1999,
although, the general partners cannot be assured that the upgrade solutions
provided by the vendors have addressed all possible Year 2000 issues. The
general partners do not expect the aggregate cost of the Year 2000 remedial
measures to be material to the results of operations of the Partnership.
The general partners and their affiliates have received certification
from the Partnership's transfer agent of its Year 2000 compliance. Due to the
material relationship of the Partnership with its transfer agent, the Y2K Team
is evaluating the Year 2000 compliance of the systems of the transfer agent and
expects to have the evaluation completed by September 30, 1999. Despite the
positive response from the transfer agent and the evaluation of the transfer
agent's system by the Y2K Team, the general partners cannot be assured that the
transfer agent has addressed all possible Year 2000 issues. In the event that
the systems of the transfer agent are not Year 2000 compliant, the general
partners and their affiliates will have to allocate resources to internally
perform the functions of the transfer agent. The general partners do not
anticipate that the additional cost of these resources would have a material
impact on the Partnership.
Based upon the progress the general partners and their affiliates have
made in addressing the Year 2000 issues and their plan and timeline to complete
the compliance program, the general partners do not foresee significant risks
associated with Year 2000 compliance at this time. The general partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership being affected by them; therefore, we have not developed a
comprehensive contingency plan. However, if the general partners and their
affiliates identify significant risks related to their Year 2000 compliance, or
if their progress deviates from the anticipated timeline, the general partners
and their affiliates will develop contingency plans as deemed necessary at that
time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8,
1999, the plaintiffs filed an amended complaint which, in addition
to naming three additional plaintiffs, includes allegations of
aiding and abetting and conspiring to breach fiduciary duties,
negligence and breach of duty of good faith against certain of the
defendants and seeks additional equitable relief. As amended, the
caption of the case is Jon Hale, Mary J. Hewitt, Charles A.
Hewitt, Gretchen M. Hewitt Bernard J. Schulte, Edward M. and
Margaret Berol Trust, and Vicky Berol v. James M. Seneff, Jr.,
Robert A. Bourne, CNL Realty Corporation, and CNL American
Properties Fund, Inc., Case No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999
against the general partners and APF, Ira Gaines, individually and
on behalf of a class of persons similarly situated, v. CNL
American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc., CNL
Financial Corporation a/k/a CNL Financial Corp., CNL Financial
Services, Inc. and CNL Group, Inc., Case NO. CIO-99-3796, in the
Circuit Court of the Ninth Judicial Circuit of Orange County,
Florida, alleging that the general partners breached their
fiduciary duties and that APF aided and abetted their breach of
fiduciary duties in connection with the proposed Merger. The
plaintiff is seeking unspecified damages and equitable relief.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger by and between the
Registrant and CNL American Properties Fund, Inc.
("APF") dated March 11, 1999 and as amended June 4,
1999 (Filed as Appendix B to the Prospectus
Supplement for the Registrant constituting a part of
Amendment No. 1 to the Registration Statement of APF
on Form S-4, File No. 74329.)
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 Exhibit 3.2 to
Registration Statement 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 Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 30, 1995,
and incorporated herein by reference.)
10.3 Assignment of Management Agreement from CNL Income
Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on April 1, 1996,
and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 9th day of August, 1999.
CNL INCOME FUND XI, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-----------------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-----------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund XI, Ltd. at June 30, 1999, and its statement of income
for the six months then ended and is qualified in its entirety by reference to
the Form 10-Q of CNL Income Fund XI, Ltd. for the six months ended June 30,
1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,804,990
<SECURITIES> 0
<RECEIVABLES> 82,930
<ALLOWANCES> 562
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,611,376
<DEPRECIATION> 2,803,077
<TOTAL-ASSETS> 35,744,319
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 34,183,990
<TOTAL-LIABILITY-AND-EQUITY> 35,744,319
<SALES> 0
<TOTAL-REVENUES> 1,861,817
<CGS> 0
<TOTAL-COSTS> 475,356
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,476,390
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,476,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,476,390
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund XI, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
