<PAGE>
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, 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
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)
450 South Orange Avenue
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
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 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. 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 Burger King Property in Yelm, Washington. In February 1999, the
Partnership invested a portion of 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. In October
1999, the Partnership invested the remaining net sales proceeds from the sale of
the Property in Nashua, New Hampshire in an IHOP Property in Round Rock, Texas
with an affiliate of the General Partners as tenants-in-common. As a result of
these transactions, as of December 31, 1999, the Partnership owned 41
Properties. The 41 Properties include five Properties owned by joint ventures
in which the Partnership is a co-venturer and two Properties owned with
affiliates of the General Partners as tenants-in-common. The Partnership leases
the Properties generally on a triple-net basis with the lessees responsible for
all repairs and maintenance, property taxes, insurance and utilities.
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.
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 "Termination
of 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. Under the Agreement and
Plan of Merger, APF was to issue shares of its common stock as consideration for
the Merger. On March 1, 2000, the General Partners and APF announced that they
had mutually agreed to terminate the Agreement and Plan of Merger. the agreement
to terminate the Agreement and Plan of Merger was based, in large part, on the
General Partners' concern that, in light of market conditions relating to
publicly traded real estate investment trusts, the value of the transaction had
diminished. As a result of such diminishment, the General partners; ability to
unequivocally recommend voting for the transaction, in the exercise of their
fiduciary duties, had become questionable.
1
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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 of the General Partners as tenants-in-common provide for
initial terms ranging from 14 to 20 years (the average being 18 years) and
expire between 2006 and 2019. All leases are generally 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 $200,100. 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.
Lessees of 29 of the Partnership's 41 Properties 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. Fair market value will be
determined through an appraisal by an independent appraisal firm. Under the
terms of certain leases, the option purchase price may equal the Partnership's
original cost to purchase the Property (including acquisition costs), plus a
specified percentage from the date of the lease or a specified percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised.
The leases also generally provide that, in the event the Partnership wishes
to sell the Property subject to that lease, the Partnership first must offer the
lessee the right to purchase the Property on the same terms and conditions, and
for the same price, as any offer which the Partnership has received for the sale
of the Property.
In 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.
In February 1999, the Partnership entered into a new 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 Partnership's other leases.
In October 1999, the Partnership reinvested a portion of the net sales
proceeds from the 1998 sale of the Property in Nashua, New Hampshire in a
Property in Round Rock, Texas as tenants-in-common with an affiliate of the
General Partners. The lease terms for this Property is substantially the same
as the Partnership's other leases.
Major Tenants
During 1999, five lessees (or group of affiliated lessees) of the
Partnership and its consolidated joint ventures, (i) Golden Corral Corporation,
(ii) Jack in the Box 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 (v) Phoenix Restaurant Group, Inc., each contributed more
than ten percent of the Partnership's total rental and earned income (including
rental and earned income from the Partnership's consolidated joint ventures, the
Partnership's share of rental and earned income from three Properties owned by
unconsolidated joint ventures and two Properties owned with affiliates of the
General Partners as tenants-in-common). As of December 31, 1999, Golden Corral
Corporation was the lessee under leases relating to three restaurants, Jack in
the Box 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 Phoenix Restaurant Group, Inc. 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 2000. 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
2
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income during 1999 (including rental income from the Partnership's consolidated
joint ventures, the Partnership's share of rental income from three Properties
owned by unconsolidated joint ventures and two Properties owned with affiliate
of the General Partners as tenants-in-common). In 2000, 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 in excess of 20 percent of the total assets of the Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into two separate joint venture arrangements:
Denver Joint Venture with an unaffiliated entity to purchase and hold one
Property and CNL/Airport Joint Venture with an unaffiliated entity to purchase
and hold one Property. In addition, the Partnership has entered into the
following separate joint venture arrangements: Ashland Joint Venture with CNL
Income Fund IX, Ltd. and CNL Income Fund X, Ltd., affiliates of the General
Partners, to purchase and hold one Property; and Des Moines Real Estate Joint
Venture with CNL Income Fund VII, Ltd. and CNL Income Fund XII, Ltd., affiliates
of the General Partners, to purchase and hold one Property. Each of the
affiliates is a limited partnership organized pursuant to the laws of the State
of Florida.
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 has an 85 percent interest in Denver Joint Venture, a
77.33% interest in CNL/Airport Joint Venture, a 62.16% interest in Ashland Joint
Venture, and a 76.6% interest in Des Moines Real Estate Joint Venture. 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 ventures 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, in February 1999, the Partnership entered into 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 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 42.8% interest in the profits and losses of 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 CNL Income Fund XVII, Ltd., an affiliate of the
3
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General Partners. In October 1999, the Partnership entered into an agreement to
hold an IHOP Property as tenants-in-common, with CNL Income Fund VI, Ltd., an
affiliate of the General Partners. The agreements provide for the Partnership
and the affiliates to share in the profits and losses of the Properties in
proportion to each co-tenant's percentage interest. The Partnership owns a
72.58% and 23 percent interest, respectively, in these Properties. Each of the
affiliates is a limited partnership organized pursuant to the laws of the State
of Florida. The tenancy in common agreement restricts each co-tenant's ability
to sell, transfer, or assign its interest in the tenancy in common's Property
without first offering it for sale to the remaining co-tenant.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
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.
Employees
The Partnership has no employees. The officers of CNL Realty Corporation
and the officers and employees of CNL American Properties Fund, Inc. ("APF"),
the parent company 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 Financial Group,
Inc. (formerly 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, 1999, the Partnership owned 41 Properties. Of the 41
Properties, 34 are owned by the Partnership in fee simple, five are owned
through joint venture arrangements and two are owned through a tenancy in common
arrangement. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation 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.
4
<PAGE>
The following table lists the Properties owned by the Partnership as of
December 31, 1999 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation.
<TABLE>
<CAPTION>
State Number of Properties
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<S> <C>
Alabama 2
Arizona 1
California 1
Colorado 2
Connecticut 2
Florida 2
Kansas 1
Louisiana 1
Massachusetts 1
Michigan 1
Mississippi 1
New Hampshire 1
New Mexico 2
North Carolina 2
Ohio 4
Oklahoma 2
South Carolina 2
Texas 9
Virginia 2
Washington 2
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TOTAL PROPERTIES 41
=========
</TABLE>
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. As of December 31, 1999, the Partnership had no plans for
renovation of the Properties. Depreciation expense is computed for buildings and
improvements using the straight line method using depreciable lives of 40 years
for federal income tax purposes. As of December 31, 1999, the aggregate cost of
the Properties owned by the Partnership (including its consolidated joint
venture) and the unconsolidated joint ventures (including the Property owned
through a tenancy in common arrangement) for federal income tax purposes was
$19,798,646 and $3,544,390, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 1999 by Restaurant Chain.
<TABLE>
<CAPTION>
Restaurant Chain Number of Properties
---------------- -----------------------
<S> <C>
Black-eyed Pea 1
Burger King 12
Denny's 7
Golden Corral 3
Hardee's 5
IHOP 1
Jack in the Box 8
KFC 1
Quincy's 2
Taco Bell 1
--------------
TOTAL PROPERTIES 41
==============
</TABLE>
5
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The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
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.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on
a long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. 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. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
At December 31, 1999, 1998, 1997, 1996, and 1995, all of the Properties
were occupied. The following is a schedule of the average rent per Property
for each of the years ended with December 31:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------------- --------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Rental Revenues (1) $4,087,385 $4,064,778 $4,071,074 $4,033,108 $3,975,403
Properties 41 38 39 38 39
Average Rent per Property $ 99,692 $ 106,968 $ 104,387 $ 106,134 $ 101,933
</TABLE>
(1) Rental income includes the Partnership's share of rental income from the
Properties owned through joint venture arrangements and the Properties
owned through tenancy in common arrangements. Rental revenues have been
adjusted, as applicable, for any amounts for which the Partnership has
established an allowance for doubtful accounts.
The following is a schedule of lease expirations for leases in place as of
December 31, 1999 for next the ten years and thereafter.
<TABLE>
<CAPTION>
Percentage of
Expiration Number Annual Rental Gross Annual
Year of Leases Revenues Rental Income
----------------------- --------------- -------------------- -----------------------
<S> <C> <C> <C>
2000 -- $ -- --
2001 -- -- --
2002 -- -- --
2003 -- -- --
2004 -- -- --
2005 -- -- --
2006 7 588,084 15.13%
2007 3 498,758 12.83%
2008 -- -- --
2009 -- -- --
Thereafter 31 2,806,936 72.04%
------------ -------------- ----------------
Total 41 $3,893,778 100.00%
============ ============== ================
</TABLE>
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 1999 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
6
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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).
Jack in the Box 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).
Phoenix Restaurant Group, Inc. 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 $65,200 to $153,800).
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.
Item 3. 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.
On September 23, 1999, Judge Lawrence Kirkwood entered an order
consolidating the two cases under the caption In re: CNL Income Funds
-----------------------
Litigation, Case No. 99-3561. Pursuant to this order, the plaintiffs in these
- ----------------------------
cases filed a consolidated and amended complaint on November 8, 1999. On
December 22, 1999, the General Partners and CNL Group, inc. filed motions to
dismiss and motions to strike. On December 28, 1999, APF and CNL Fund Advisors,
Inc. filed motions to dismiss. On March 6, 2000, all of the defendants filed a
Joint Notice of Filing Form 8-K Reports and Suggestion of Mootness.
7
<PAGE>
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
(a) As of March 15, 2000 there were 3,187 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. During 1999, Limited Partners who
wished to sell their Units may have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase) may have done so pursuant to such
Plan. The General Partners had the right to prohibit transfers of Units. From
inception through December 31, 1999, 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 1999 and 1998, other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
1999 (1) 1998 (1)
-------------------------------------------- --------------------------------------------
High Low Average High Low Average
----------- ----------- ------------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter (2) (2) (2) (2) (2) (2)
Second Quarter (2) (2) (2) $9.50 $8.27 $8.68
Third Quarter $8.37 $7.80 $8.14 9.20 7.98 8.79
Fourth Quarter 9.10 6.83 8.10 8.90 8.00 8.48
</TABLE>
(1) A total of 12,220 and 25,750 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1999 and 1998, 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, 1999 and 1998, the Partnership declared
cash distributions of $3,500,024, $3,660,024, 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,
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. 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.
<TABLE>
<CAPTION>
Quarter Ended 1999 1998
--------------------------------- ---------------- -----------------
<S> <C> <C>
March 31 $875,006 $915,006
June 30 875,006 875,006
September 30 875,006 875,006
December 31 875,006 995,006
</TABLE>
8
<PAGE>
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.
(b) Not applicable
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------------- ----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Year ended December 31:
Revenues (1) $ 4,037,268 $ 4,067,454 $ 3,998,538 $ 3,976,787 $ 3,920,528
Net income (2) 3,141,774 3,809,404 3,295,079 3,464,705 3,202,176
Cash distributions
declared (3) 3,500,024 3,660,024 3,500,024 3,540,024 3,540,023
Net income per Unit
(2) 0.78 0.94 0.82 0.86 0.79
Cash distributions
declared per Unit (3) 0.88 0.92 0.88 0.89 0.89
At December 31:
Total assets $35,792,092 $36,103,592 $35,785,538 $36,003,045 $36,086,683
Partners' capital 34,099,362 34,457,612 34,308,232 34,513,177 34,588,496
</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, includes
$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
years ended December 31, 1995 and 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, 1999, the Partnership owned 41 Properties, either directly or
through joint venture or tenancy in common arrangements.
Capital Resources
The Partnership's primary source of capital for the years ended December
31, 1999, 1998, and 1997, 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 $3,747,973, $3,894,062 and
$3,642,796 for the years ended December 31, 1999, 1998, and 1997, respectively.
The decrease during 1999, as compared to 1998, is primarily a result of changes
in income and expenses as described in "Results of Operations" below, and the
increase during 1998,
9
<PAGE>
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.
Other sources and uses of capital included the following during the years
ended December 31, 1999, 1998, and 1997.
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 distributed 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
$1,032,000. In addition, in February 1999, the Partnership reinvested
approximately $247,000 of the remaining net sales proceeds from the sale of the
Property in Nashua, New Hampshire in a joint venture arrangement, Portsmouth
Joint Venture, to purchase and hold one property. The Partnerships co-venture
partner is CNL Income Fund XVIII, Ltd., a Florida limited partnership and an
affiliate of the General Partners. The and had a 42.8% interest in the profits
and losses of the joint venture as of December 31, 1999.
In October 1999, the Partnership invested approximately $320,200 in an IHOP
Property located in Round Rock, Texas with CNL Income Fund VI, Ltd., a Florida
limited partnership and affiliate of the General Partners, as tenants-in-common.
In connection therewith, the Partnership and its 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,
1999, the Partnership owned a 23 percent interest in this Property.
None of the Properties owned by the Partnership, or the joint ventures or
tenancy in common arrangements 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 and net sales
proceeds from the sale of Properties pending reinvestment in addition
Properties, are invested in money market accounts or other short-term highly
liquid investments such as demand deposit accounts at commercial banks,
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 partners. At December 31, 1999, the
Partnership had $1,656,500 invested in such short-term investments as compared
to $1,559,240 at December 31, 1998. As of December 31, 1999, the average
interest rate earned by the Partnership on the rental income deposited in demand
deposit accounts at commercial banks was approximately 3 percent annually. The
funds remaining at December 31, 1999, after payment of distributions and other
liabilities, will be used to meet the Partnership's working capital and other
needs.
10
<PAGE>
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.
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
generally 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.
The Partnership generally distributes cash from operations remaining after
the payment of the 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 during the year ended December 31, 1998,
cumulative excess operating reserves, the Partnership declared distributions to
the Limited Partners of $3,500,024, $3,660,024 and $3,500,024 for the years
ended December 31, 1999, 1998, and 1997, respectively. This represents a
distribution of $0.88, $0.92 and $0.88 per Unit for the years ended December 31,
1999, 1998, and 1997, respectively. No amounts distributed to the Limited
Partners for the years ended December 31, 1999, 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. The Partnership intends to continue to make distributions of
cash available for distribution to the Limited Partners on a quarterly basis.
During 1999, 1998, and 1997, affiliates of the General Partners incurred
$172,624, $109,290 and $83,747, respectively, for certain operating expenses.
As of December 31, 1999 and 1998, the Partnership owed $70,600 and $25,446,
respectively, to affiliates for such amounts, accounting and administrative
services and management fees. As of March 15, 2000, the Partnership had
reimbursed the affiliates all such amounts. Other liabilities, including
distributions payable, decreased to $1,112,323 at December 31, 1999, from
$1,116,674 at December 31, 1998. 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 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, 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). During the year ended December 31,
1999, the Partnership and its consolidated joint ventures owned and leased 36
wholly owned Properties. During 1999, the Partnership and its consolidated
joint ventures, was a co-venturer in three separate joint ventures that each
owned and leased one Property, and the Partnership owned and leased two
Properties with affiliates of the General Partners, as tenants-in-common. In
addition, during 1998 and 1997, the Partnership and its consolidated joint
ventures, was a co-venturer in two separate joint ventures that each owned and
leased one Property, and the Partnership owned and leased one Property with an
affiliate as tenants-in-common. As of December 31, 1999, the Partnership owned,
either directly or through joint venture arrangements, 41 Properties which are,
in general, subject to long-term, triple-net leases. The
11
<PAGE>
leases of the Properties provide for minimum base annual rental amounts (payable
in monthly installments) ranging from approximately $45,600 to $200,100. 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, 1999, 1998, and 1997, the Partnership
and its consolidated joint ventures, earned $3,522,254, $3,537,605 and
$3,543,984, respectively, in rental income from operating leases and earned
income from direct financing leases. Rental and earned income decreased during
1999, as compared to 1998, primarily as a result of the Partnership establishing
an allowance for doubtful accounts of approximately $11,100 for past due rental
amounts relating to the Properties in Kent and Wadsworth, Ohio in accordance
with the Partnership's collection policy. The General Partners will continue to
pursue collection of past due rental amounts relating to these Properties and
will recognize such amounts as income if collected.
For the years ended December 31, 1999, 1998 and 1997, the Partnership also
earned $237,751, $243,115 and $225,888, respectively, in contingent rental
income. The increase in contingent rental income during 1998, as compared to
1997, was primarily due to an increase in gross sales of certain restaurant
Properties whose leases require the payment of contingent renal income.
In addition, for the years ended December 31, 1999, 1998 and 1997, the
Partnership earned $259,676, $215,501 and $236,103, respectively, attributable
to net income earned by unconsolidated joint ventures in which the Partnership
is a co-venturer. Net income earned by unconsolidated joint ventures increased
during 1999, as compared to 1998, as a result of the fact that in February and
October 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 and in an IHOP Property in Round Rock, Texas. In addition, net income
earned by joint ventures during 1998, was less than that earned during 1999 and
1997, partially due to the fact that Ashland Joint Venture adjusted estimated
contingent rental amounts accrued at December 31, 1997, to actual amounts due
during 1998.
During the year ended December 31, 1999, five lessees (or group of
affiliated lessees) of the Partnership and its consolidated joint ventures,
Golden Corral Corporation, Jack in the Box, Inc., Burger King Corporation,
Phoenix Restaurant Group, Inc., and Advantica Restaurant Group, Inc., each
contributed more than ten percent of the Partnership's total rental income
(including rental and earned income from the Partnership's consolidated joint
ventures, the Partnership's share of rental and earned income from three
Properties owned by unconsolidated joint ventures and two Properties owned with
affiliates of the General Partners as tenants-in-common). As of December 31,
1999, Golden Corral Corporation was the lessee under leases relating to three
restaurants, Jack in the Box 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 Phoenix Restaurant Group, Inc. 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 2000. In addition, during the year ended December 31, 1999, 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 and
earned income (including rental and earned income from the Partnership's
consolidated joint ventures and the Partnership's share of rental and earned
income from three Properties owned by unconsolidated joint ventures and two
Properties owned with affiliates of the General Partners as tenants-in-common).
In 2000, it is anticipated that these Restaurant Chains each will continue to
account for more than ten percent of the total rental and earned 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, 1999, 1998, and 1997, the
Partnership earned $84,648, $139,707 and $62,440, respectively, in interest and
other income. Interest and other income was higher during 1998, as compared to
1999 and 1997, primarily due 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
"Capital Resources."
12
<PAGE>
Operating expenses, including depreciation and amortization expense, were
$895,494, $719,911 and $703,459, for the years ended December 31, 1999, 1998,
and 1997, respectively. The increase in operating expenses during 1999 and
1998, each as compared to the previous year, was primarily a result of the
Partnership incurring $200,741 and $20,888 in transaction costs during 1999 and
1998, respectively, relating to the General Partners retaining financial and
legal advisors to assist them in evaluating and negotiating the proposed Merger
with APF, as in "Termination of Merger".
As a result of the sale of the Property in Nashua, New Hampshire, as
described above in "Capital Resources," the Partnership recognized a gain of
$461,861 for financial reporting purposes for the year ended December 31, 1998.
No Properties were sold during the year ended December 31, 1999 and 1997.
The Partnership's leases as of December 31, 1999, are, in general, 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.
Termination of 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. Under the Agreement and Plan of Merger, APF was to issue
shares of its common stock as consideration for the Merger. On March 1, 2000,
the General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger. The agreement to terminate the
Agreement and Plan of Merger was based, in large part, on the General Partners'
concern that, in light of market conditions relating to publicly traded real
estate investment trusts, the value of the transaction had diminished. As a
result of such diminishment, the General Partners' ability to unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become questionable.
Overview of Year 2000 Problem
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. The failure to accurately recognize the
year 2000 could result in a variety of problems from data miscalculations to the
failure of entire systems.
Status
The Partnership generally does not directly own information technology
systems. The General Partners and their affiliates generally provide all
services requiring the use of information and some non-information technology
systems. In early 1998, affiliates of the General Partners formed a year 2000
committee ("the Y2K Team") that assessed the readiness of any systems that are
date sensitive and completed upgrades for the hardware equipment and software
that was not year 2000 compliant, as necessary. The cost for these upgrades and
other remedial measures is the responsibility of the General Partners and their
affiliates. The General Partners and their affiliates do not expect that the
Partnership will incur any costs in connection with the year 2000 remedial
measures. In addition, the Y2K Team requested and received certifications of
compliance from other companies with which the General Partners, their
affiliates, and the Partnership have material third party relationships.
In assessing the risks presented by the year 2000 problem, the Y2K Team
identified potential worst case scenarios involving the future of the
information and non-information technology systems used by the Partnership's
transfer agent, financial institutions and tenants. As of January 14, 2000, the
General Partners and their affiliates have tested the information and non-
information technology systems used by the Partnership and have not experienced
material disruption or other significant problems. In addition, as of the same
date, the General Partners are not aware of any material year 2000 problems
relating to information and non-information technology systems of third parties
with which the Partnership maintains material relationships, including those of
the Partnership's transfer agent, financial institutions and tenants. In
13
<PAGE>
addition, in the Partnership's interactions with its transfer agent, financial
institutions and tenants, the systems of these third parties have functioned
normally. Until the Partnership's first distribution in 2000 and the delivery
of the information by the transfer agent to stockholders in early 2000, the
General Partners will continue to monitor the year 2000 compliance of the
transfer agent. In addition, the General Partners will continue to monitor the
systems used by the Partnership and to maintain contact with third parties with
which the Partnership has material relationships with respect to year 2000
compliance and any year 2000 issues that may arise at a later date. The General
Partners will develop contingency plans relating to ongoing year 2000 issues at
the time that such issues are identified and such plans are deemed necessary.
Based on the information provided to the Y2K Team, the upgrades and
remedial measures by the General Partners and their affiliates, and the normal
functioning to date of information and non-information technology systems used
by the Partnership and those third parties, the General Partners do not foresee
significant risks associated with its year 2000 compliance at this time. In
addition, the General Partners and their affiliates do not expect to incur any
additional costs in connection with the year 2000 remedial efforts. However,
there can be no assurance that the General Partners and their affiliates or any
third parties will not have ongoing year 2000 issues that may have adverse
effects on the Partnership.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
14
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONTENTS
--------
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Certified Public Accountants 16
Financial Statements:
Balance Sheets 17
Statements of Income 18
Statements of Partners' Capital 19
Statements of Cash Flows 20-21
Notes to Financial Statements 22-34
</TABLE>
15
<PAGE>
Report of Independent Certified Public 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, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. In addition, in our
opinion, the financial statement schedules listed in the index appearing under
item 14(a)(2) present fairly, in all material respects, the information set
forth therein when read in conjunction with the related financial statements.
These financial statements and financial statement schedules are the
responsibility of the Partnership's management; our responsibility is to express
an opinion on these financial statements and financial statement schedules based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States 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.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 4, 2000, except for Note 11 for which the date is March 1, 2000
16
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
1999 1998
------------------ ------------------
<S> <C> <C>
ASSETS
------
Land and buildings on operating leases, less
$ 21,595,007 $ 21,683,785
Net investment in direct financing leases 7,372,041 6,786,286
Investment in joint ventures 3,077,302 2,521,613
Cash and cash equivalents 1,656,500 1,559,240
Restricted cash -- 1,640,936
Receivables, less allowance for doubtful
accounts of $11,646 and $5,820,
respectively 175,500 132,311
Prepaid expenses 14,115 12,335
Accrued rental income 1,779,603 1,645,062
Other assets 122,024 122,024
------------------ ------------------
$ 35,792,092 $ 36,103,592
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable $ 121,191 $ 14,461
Accrued and escrowed real estate taxes
payable 13,646 15,138
Distributions payable 875,006 995,006
Due to related parties 70,600 25,446
Rents paid in advance and deposits 102,480 92,069
------------------ ------------------
Total liabilities 1,182,923 1,142,120
Minority interest 509,807 503,860
Partners' capital 34,099,362 34,457,612
------------------ ------------------
$ 35,792,092 $ 36,103,592
================== ==================
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
--------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Rental income from operating leases $2,575,492 $2,644,418 $2,702,558
Earned income from direct financing leases 946,762 893,187 841,426
Contingent rental income 237,751 243,115 225,888
Interest and other income 84,648 139,707 62,440
-------------- -------------- --------------
3,844,653 3,920,427 3,832,312
-------------- -------------- --------------
Expenses:
General operating and administrative 161,584 154,434 148,380
Professional services 35,021 34,140 32,077
Management fees to related parties 39,836 39,393 37,974
Real estate taxes -- 2,858 --
State and other taxes 31,728 24,262 25,779
Depreciation and amortization 426,584 443,936 459,249
Transaction costs 200,741 20,888 --
-------------- -------------- --------------
895,494 719,911 703,459
-------------- -------------- --------------
Income Before Minority Interest in Income
of Consolidated Joint Ventures, Equity in
Earnings of Unconsolidated Joint Ventures and
Gain on Sale of Land and Buildings 2,949,159 3,200,516 3,128,853
Minority Interest in Income of Consolidated
Joint Ventures (67,061) (68,474) (69,877)
Equity in Earnings of Unconsolidated Joint
Ventures 259,676 215,501 236,103
Gain on Sale of Land and Buildings -- 461,861 --
-------------- -------------- --------------
Net Income $3,141,774 $3,809,404 $3,295,079
============== ============== ==============
Allocation of Net Income
General partners $ 31,418 $ 34,815 $ 32,951
Limited partners 3,110,356 3,774,589 3,262,128
-------------- -------------- --------------
$3,141,774 $3,809,404 $3,295,079
============== ============== ==============
Net Income Per Limited Partner Unit $0.78 $0.94 $0.82
============== ============== ==============
Weighted Average Number of
Limited Partner Units Outstanding 4,000,000 4,000,000 4,000,000
============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
-------------------------------
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
General Partners Limited Partners
----------------------------------------------------------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 partner 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 partner 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
Distributions to limited
partners ($0.88 per
limited partner unit) -- -- -- (3,500,024) -- -- (3,500,024)
Net income -- 31,418 -- -- 3,110,356 -- 3,141,774
------------------------------------------------------------------------------------------------------
Balance, December 31,
1999 $1,000 $241,465 $40,000,000 $(25,715,158) $24,362,055 $(4,790,000) $34,099,362
======================================================================================================
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 3,724,492 $ 3,826,352 $ 3,585,979
Distributions from unconsolidated joint
ventures 271,442 262,843 250,497
Cash paid for expenses (322,962) (247,138) (237,312)
Interest received 75,001 52,005 43,632
----------------- ----------------- -----------------
Net cash provided by operating
activities 3,747,973 3,894,062 3,642,796
----------------- ----------------- -----------------
Cash Flows from Investing Activities:
Additions to land and buildings on
operating leases (337,806) -- --
Investment in direct financing leases (694,610) -- --
Proceeds from sale of land and buildings -- 1,630,296 --
Investment in joint ventures (567,455) (1,169) (1,044,750)
Decrease (increase) in restricted cash 1,630,296 (1,630,296) 1,044,750
----------------- ----------------- -----------------
Net cash provided by (used in) investing
activities 30,425 (1,169) --
----------------- ----------------- -----------------
Cash Flows from Financing Activities:
Distributions to limited partners (3,620,024) (3,540,024) (3,540,024)
Distributions to holders of minority interest (61,114) (66,015) (56,246)
----------------- ----------------- -----------------
Net cash used in financing activities (3,681,138) (3,606,039) (3,596,270)
----------------- ----------------- -----------------
Net Increase in Cash and Cash Equivalents 97,260 286,854 46,526
Cash and Cash Equivalents at Beginning of Year 1,559,240 1,272,386 1,225,860
----------------- ----------------- -----------------
Cash and Cash Equivalents at End of Year $ 1,656,500 $ 1,559,240 $ 1,272,386
================= ================= =================
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
--------------- ---------------- --------------
<S> <C> <C> <C>
Reconciliation of Net Income to Net Cash Provided
by Operating Activities:
Net Income $ 3,141,774 $ 3,809,404 $ 3,295,079
--------------- ---------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 426,584 443,936 458,660
Amortization -- -- 589
Gain on sale of land and buildings -- (461,861) --
Minority interests in income of
consolidated joint ventures 67,061 68,474 69,877
Equity in earnings of unconsolidated joint
ventures, net of distributions 11,766 47,342 14,394
Increase in receivables (32,549) (23,376) (23,957)
Decrease (increase) in prepaid expenses (1,780) 1,028 (136)
Decrease in net investment in direct
financing leases 108,855 90,236 74,706
Increase in accrued rental income (134,541) (127,336) (260,223)
Increase in accounts payable and accrued
expenses 105,238 3,681 2,143
Increase in due to related
parties 45,154 18,798 4,527
Increase in rents paid in
advance and deposits 10,411 23,736 7,137
--------------- ---------------- --------------
Total adjustments 606,199 84,658 347,717
--------------- ---------------- --------------
Net Cash Provided by Operating Activities $ 3,747,973 $ 3,894,062 $ 3,642,796
=============== ================ ==============
Supplemental Schedule of Non-Cash Investing and
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 $ 875,006 $ 995,006 $ 875,006
=============== ================ ==============
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Years Ended December 31, 1999, 1998, and 1997
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.
22
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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 reverses 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.
23
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
1. Significant Accounting Policies - Continued:
-------------------------------------------
The Partnership's investments in Ashland Joint Venture, Des Moines Real
Estate Joint Venture and Portsmouth Joint Venture and the properties in
Corpus Christi, Texas and Round Rock, Texas, for which the properties are
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.
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.
24
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
Land $11,945,232 $11,607,426
Buildings 12,666,144 12,666,144
------------------ ------------------
24,611,376 24,273,570
Less accumulated depreciation (3,016,369) (2,589,785)
------------------ ------------------
$21,595,007 $21,683,785
================== ==================
</TABLE>
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.
25
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
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.
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.
In January 1999, the Partnership reinvested approximately $1,032,400 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. 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.
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, 1999, 1998 and 1997, the Partnership recognized $134,541,
$127,336 and $260,233, 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, 1999:
<TABLE>
<S> <C>
2000 2,449,153
2001 2,458,158
2002 2,509,343
2003 2,667,353
2004 2,686,268
Thereafter 14,633,497
----------------
$27,403,772
================
</TABLE>
26
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
Since lease renewal periods are exercisable at the option of the tenant,
the above table only presents future minimum lease payments due during the
initial lease terms. In addition, this table does not include any amounts
for future contingent rentals which may be received on the leases based on
a percentage of the tenant's gross sales.
4. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at December 31:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Minimum lease payments
receivable $14,452,917 $13,985,977
Estimated residual values 2,439,551 2,210,329
Less unearned income (9,520,427) (9,410,020)
--------------- ---------------
Net investment in direct
financing leases $ 7,372,041 $ 6,786,286
=============== ===============
</TABLE>
The following is a schedule of future minimum lease payments to be received
on the direct financing leases at December 31, 1999:
<TABLE>
<S> <C>
2000 $ 1,064,880
2001 1,064,880
2002 1,076,079
2003 1,096,183
2004 1,096,183
Thereafter 9,054,712
----------------
$14,452,917
================
</TABLE>
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).
27
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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. In
addition, the Partnership owns a Black-eyed Pea property in Corpus Christi,
Texas, as tenants-in-common with CNL Income Fund XVII, Ltd., a Florida
limited partnership and affiliate of the General Partners. As of
December 31, 1999, the Partnership owned a 72.58% interest in this
property.
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., a Florida limited partnership and an
affiliate of the General Partners, to purchase and hold one restaurant
property. As of December 31, 1999, the Partnership had contributed
approximately $247,300 to the joint venture and owned a 42.8% interest in
the profits and losses of this joint venture.
In October 1999, the Partnership used a portion of the net sales proceeds
from the 1998 sale of the property in Nashua, New Hampshire to invest in a
property in Round Rock, Texas, with CNL Income Fund VI, Ltd., a Florida
limited partnership and affiliate of the General Partners as tenants-in-
common. As of December 31, 1999, the Partnership had contributed
approximately $320,200 for a 23 percent interest in the property.
28
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
5. Investment in Joint Ventures - Continued:
----------------------------------------
Ashland Joint Venture, Des Moines Real Estate Joint Venture, Portsmouth
Joint Venture and the Partnership and affiliates, as tenants-in-common in
two separate tenants-in-common arrangements, 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:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Land and buildings on operating
leases, less accumulated
depreciation $4,985,690 $3,427,681
Net investment in direct financing
lease 320,961 --
Cash 12,029 1,109
Receivables 56,211 --
Prepaid expenses 4,921 8,290
Accrued rental income 173,367 130,585
Liabilities 17,300 --
Partners' capital 5,535,879 3,567,665
Revenues 503,686 399,305
Net income 402,007 300,036
</TABLE>
The Partnership recognized income totalling $259,676, $215,501 and
$236,103, for the years ended December 31, 1999, 1998, and 1997,
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 additional properties. In 1999,
the Partnership reinvested these proceeds in three properties, one of which
was wholly owned, one of which was through a joint venture arrangement and
one of which was as a tenancy-in-common with affiliates of the General
Partner (See Notes 3 and 5).
29
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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, 1999, 1998, and 1997, the Partnership
declared distributions to the limited partners of $3,500,024, $3,660,024
and $3,500,024, respectively. No distributions have been made to the
general partners to date.
30
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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>
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net income for financial reporting purposes $3,141,774 $3,809,404 $3,295,079
Depreciation for tax reporting purposes less than
(in excess of) depreciation for financial
reporting purposes (67,657) 2,899 (43,077)
Gain on sale of land and building for financial
reporting purposes in excess of gain for tax
reporting purposes 429,196 (461,861) --
Direct financing leases recorded as operating
leases for tax reporting purposes 108,856 90,236 74,706
Equity in earnings of unconsolidated joint
ventures for financial reporting purposes in
excess of equity in earnings of uncon-
solidated joint ventures for tax reporting
purposes (5,731) (5,906) (13,296)
Capitalization of transaction costs for tax
reporting purposes 200,741 20,888 --
Accrued rental income (134,541) (127,336) (260,223)
Rents paid in advance 10,411 23,236 22,436
Allowance for doubtful accounts 5,826 5,820 (14,746)
Minority interests in timing differences of
consolidated joint ventures 8,663 (44,316) 14,430
---------------- ---------------- ----------------
Net income for federal income tax purposes $3,697,538 $3,313,064 $3,075,309
================ ================ ================
</TABLE>
31
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
9. Related Party Transactions:
--------------------------
One of the individual general partners, James M. Seneff, Jr., is one of the
principal shareholders of CNL Holdings, Inc. The other individual general
partner, Robert A. Bourne, serves as President and Treasurer of CNL
Financial Group, Inc., a wholly owned subsidiary of CNL Holdings, Inc., CNL
Fund Advisors, Inc. (the "Advisor") was a majority owned subsidiary of CNL
Financial Group, Inc. until it merged with CNL American Properties Fund,
Inc. ("APF"), effective September 1, 1999. The individual general partners
are stockholders and directors of APF.
The Advisor provides certain services relating to management of the
Partnership and its properties pursuant to a management agreement with the
partnership. In connection therewith, the Partnership agreed to pay certain
Advisor 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 $39,836, $39,393, and $37,974, for the years ended
December 31, 1999, 1998, and 1997, respectively.
The Advisor 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 Advisor 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 the 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.
32
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
9. Related Party Transactions - Continued:
--------------------------------------
During the years ended December 31, 1999, 1998, and 1997, the Advisor and
it affiliates provided accounting and administrative services to the
Partnership on a day-to-day basis including services relating to the
proposed and terminated merger as described in Note 11. The Partnership
incurred $130,332, $101,423, and $88,667 for the years ended December 31,
1999, 1998, and 1997, respectively, for such services.
The due to related parties at December 31, 1999 and 1998, totalled $70,600
and $25,446, 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 properties held as tenants-in-common with affiliates of the General
Partners), for each of the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Foodmaker, Inc. $768,032 $768,032 $768,032
Burger King Corporation and
BK Acquisition, Inc. 621,726 695,427 733,620
Golden Corral Corporation 570,815 564,104 538,871
Phoenix Restaurant Group, Inc. 530,465 536,779 489,623
Advantica Restaurant Group,
Inc. (Denny's, Inc. and
Quincy's Restaurants. Inc.,
during the years ended
December 31, 1999 and
1998) 470,022 473,726 N/A
Flagstar Enterprises, Inc. (and
Denny's, Inc. and Quincy's
Restaurants, Inc. during the
year ended December 31,
1997) N/A N/A 780,502
</TABLE>
33
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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 properties held as tenants-in-common
with affiliates of the General Partners), for each of the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ---------------- ----------------
<S> <C> <C> <C>
Burger King $1,144,865 $1,144,250 $1,198,027
Denny's 889,658 898,908 854,141
Jack in the Box 768,032 768,032 768,032
Golden Corral Family
Steakhouse Restaurants 570,815 564,103 538,871
</TABLE>
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. Termination of 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. Under the Agreement and Plan of Merger, APF
was to issue shares of its common stock as consideration for the Merger. On
March 1, 2000, the General Partners and APF announced that they had
mutually agreed to terminate the Agreement and Plan of Merger. The
agreement to terminate the Agreement and Plan of Merger was based, in large
part, on the General Partners' concern that, in light of market conditions
relating to publicly traded real estate investment trusts, the value of the
transaction had diminished. As a result of such diminishment, the General
Partners' ability to unequivocally recommend voting for the transaction, in
the exercise of their fiduciary duties, had become questionable.
34
<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 Financial Group, Inc. and their affiliates, all of
which are affiliates of the General Partners.
James M. Seneff, Jr., age 53, 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 co-
venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff is a
principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial
Group, Inc. (formerly CNL Group, Inc.), a diversified real estate company, and
has served as a director, Chairman of the Board and Chief Executive Officer of
CNL Financial Group, Inc. since its formation in 1980. Mr. Seneff has served as
a director and Chairman of the Board since inception in 1994, and served as
Chief Executive Officer from 1994 through August 1999, of CNL American
Properties Fund, Inc., a public, unlisted real estate investment trust. He also
served as a director, Chairman of the Board and Chief Executive Officer of CNL
Fund Advisors, Inc., the advisor to CNL American Properties Fund, Inc. until it
merged with the company in September 1999. In addition, he serves as a
director, Chairman of the Board and Chief Executive Officer of CNL Health Care
Properties, Inc., as well as CNL Health Care Corp., the advisor to the company.
He also serves as director, Chairman of the Board and Chief Executive Officer of
CNL Hospitality Properties, Inc., a public, unlisted real estate investment
trust, as well as CNL Hospitality Corp., its advisor. Since 1992, Mr. Seneff
has served as Chairman of the Board and Chief Executive Officer of Commercial
Net Lease Realty, Inc., a public real estate investment trust that is listed on
the New York Stock Exchange. Mr. Seneff has also served as a director, Chairman
of the Board and Chief Executive Officer of the following affiliated companies
since formation: CNL Securities Corp., since 1979; CNL Investment Company, since
1990; and CNL Institutional Advisors, a registered investment advisor for
pension plans, since 1990. Mr. Seneff formerly served as a director of First
Union National Bank of Florida, N.A., and currently serves as the Chairman of
the Board of CNLBank. Mr. Seneff 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 recommends to the Florida Board of
Administration investments for various Florida employee retirement funds. The
Florida Board of Administration is Florida's principal investment advisory and
money management agency and oversees the investment of more than $60 billion of
retirement funds. Mr. Seneff received his degree in Business Administration
from Florida State University in 1968.
Robert A. Bourne, age 52, Since joining CNL Securities Corp. in 1979, Mr.
Bourne has participated as a general partner or co-venturer in over 100 real
estate ventures involved in the financing, acquisition, construction, and
leasing of restaurants, office buildings, apartment complexes, hotels, and other
real estate. Mr. Bourne is the President and Treasurer of CNL Financial Group,
Inc. (formerly CNL Group, Inc.). Mr. Bourne has served as a director since
inception in 1994, President from 1994 through February 1999, Treasurer from
February 1999 through August 1999, and Vice Chairman of the Board since February
1999 of CNL American Properties Fund, Inc., a public, unlisted real estate
investment trust. He also served in the following positions for CNL Fund
Advisors, Inc., the advisor to CNL American Properties Fund, Inc. prior to its
merger with CNL American Properties Fund, Inc.: director from 1994 through
August 1999, Treasurer from July 1998 through August 1999, President from 1994
through September 1997, and Vice Chairman of the Board from September 1997
through August 1999. Mr. Bourne is a director and President of CNL Health Care
Properties, Inc., as well as a director and President of CNL Health Care Corp.,
the advisor to the company. He is also a director, Vice Chairman of the Board
and President of CNL Hospitality Properties, Inc., a public, unlisted real
estate investment trust, as well as CNL Hospitality Corp., its advisor. Mr.
Bourne also serves as a director of CNLBank. He has served as a director since
1992, Vice Chairman of the Board since February 1996, Secretary and Treasurer
from February 1996 through 1997, and President from July 1992 through February
1996, of
35
<PAGE>
Commercial Net Lease Realty Inc., a public real estate investment trust listed
on the New York Stock Exchange. Mr. Bourne holds the following positions for
these affiliates of CNL Financial Group, Inc.: director, President and Treasurer
of CNL Investment Company; director, President, Treasurer, and Registered
Principal of CNL Securities Corp., a subsidiary of CNL Investment Company and
director, President, Treasurer, and Chief Investment Officer of CNL
Institutional Advisors, Inc., a registered investment advisor for pension plans.
Mr. Bourne began his career as a certified public accountant employed by Coopers
& Lybrand, Certified Public Accountants, from 1971 through 1978, where he
attained the position of tax manager in 1975. Mr. Bourne graduated from Florida
State University in 1970 where he received a B.A. in Accounting, with honors.
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 450 South Orange Avenue, Orlando, Florida 32801.
CNL Fund Advisors, Inc. was a majority owned subsidiary of CNL Financial Group,
Inc., until its merger effective September 1, 1999. On September 1, 1999, CNL
American Properties Fund, Inc. acquired CNL Fund Advisors, Inc. and was
organized to perform property acquisition, property management and other
services.
CNL Financial Group, Inc., which was the parent company of CNL Fund
Advisors, Inc. through August 1999, was organized in 1980 under the laws of the
State of Florida. CNL Financial 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 Financial Group, Inc. Mr. Seneff and
his wife own all of the outstanding shares of CNL Holdings, Inc., the Parent
company of CNL Financial Group, Inc.
The following persons serve as operating officers of CNL Financial 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 Financial Group, Inc. and its affiliated companies.
Curtis B. McWilliams, age 44, joined CNL Financial Group, Inc. in April
1997 and served as an Executive Vice President through August 1999. He serves
as Chief Executive Officer of CNL American Properties Fund, Inc. and CNL Fund
Advisors, Inc. In addition, Mr. McWilliams served as President of CNL Fund
Advisors, Inc. and as President of the Restaurant and Financial Services Groups
within CNL Financial Group, Inc. through August 1999. Mr. McWilliams served as
President of CNL American Properties Fund, Inc. from February 1999 through
August 1999 and previously served as Executive Vice President from February 1998
through February 1999. From September 1983 through March 1997, Mr. McWilliams
was employed by Merrill Lynch & Co., most recently as Chairman of Merrill
Lynch's Private Advisory Services until March 1997. Mr. McWilliams received a
B.S.E. in Chemical Engineering from Princeton University in 1977 and a Masters
of Business Administration with a concentration in finance from the University
of Chicago in 1983.
John T. Walker, age 41, serves as President and Chief Operating Officer of
CNL American Properties Fund, Inc. and CNL Fund Advisors, Inc. He served as
Executive Vice President of CNL American Properties Fund, Inc. from January 1996
through August 1999, as Chief Operating Officer since March 1995 through August
1999, and previously served as Senior Vice President from December 1994 through
August 1999. In addition, Mr. Walker has served as Executive Vice President of
CNL Fund Advisors, Inc. since January 1996 through August 1999, Chief Operating
Officer from April 1995 through August 1999, 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. As of September 1, 1999, Mr. Walker
serves as President for CNL American Properties Fund, 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.,
36
<PAGE>
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 51, Ms. Rose served as Secretary of CNL American
Properties Fund, Inc., a public, unlisted real estate investment trust, from
1994 through August 1999, and served as Treasurer from 1994 through February
1999. She also served as Treasurer of CNL Fund Advisors, Inc., from 1994
through July 1998, and served as Secretary and a director from 1994 through
August 1999, at which point it merged with CNL American Properties Fund, Inc.
In addition, she is Secretary and Treasurer of CNL Health Care Properties, Inc.,
and serves as Secretary of its subsidiaries. In addition, she serves as
Secretary, Treasurer and a director of CNL Health Care Corp., the advisor. to
the company. Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality
Properties, Inc., a public, unlisted real estate investment trust, as Secretary,
Treasurer and a director of CNL Hospitality Corp., its Advisor, and as Secretary
of the subsidiaries of the company. Ms. Rose served as Secretary and Treasurer
of Commercial Net Lease Realty, Inc., a public real estate investment trust
listed on the New York Stock Exchange, from 1992 to February 1996, and as
Secretary and a director of CNL Realty Advisors, Inc., its advisor, from its
inception in 1991 through 1997. She also served as Treasurer of CNL Realty
Advisors, Inc. from 1991 through February 1996. Ms. Rose, a certified public
accountant, has served as Secretary of CNL Financial Group, Inc. (formerly CNL
Group, Inc.) since 1987, served as Controller from 1987 to 1993 and has served
as Chief Financial Officer since 1993. She also serves as Secretary of the
subsidiaries of CNL Financial Group, Inc. and holds various other offices in the
subsidiaries. In addition, she serves as Secretary for approximately 50
additional corporations affiliated with CNL Financial Group, Inc. and its
subsidiaries. Ms. Rose oversees the tax and legal compliance for over 375
corporations, partnerships and joint ventures, and the accounting and financial
reporting for over 200 entities. 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. She was licensed as a certified public accountant in 1979.
Jeanne A. Wall, age 41, Ms. Wall served as Executive Vice President of CNL
American Properties Fund, Inc., a public, unlisted real estate investment trust,
from 1994 through August 1999, and as Executive Vice President of CNL Fund
Advisors, Inc., its advisor, from 1994 through August 1999, at which point it
merged with CNL American Properties Fund, Inc. Ms. Wall also serves as
Executive Vice President of CNL Health Care Properties, Inc. and CNL Health Care
Corp., the Advisor to the Company. Ms. Wall also serves as Executive Vice
President of CNL Hospitality Properties, Inc., a public, unlisted real estate
investment trust, and serves as Executive Vice President and a director of CNL
Hospitality Corp., its advisor. She also serves as a director for CNLBank. Ms.
Wall serves as Executive Vice President of CNL Financial Group, Inc. (formerly
CNL Group, Inc.). Ms. Wall has served as Chief Operating Officer of CNL
Investment Company and of CNL Securities Corp. since 1994 and has served as
Executive Vice President of CNL Investment Company since January 1991. In 1984,
Ms. Wall joined CNL Securities Corp. and in 1985, became Vice President. In
1987, she became a Senior Vice President and in July 1997, 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,
communications and investor services for programs offered through participating
brokers. Ms. Wall also served as Senior Vice President of CNL Institutional
Advisors Inc., a registered investment advisor, from 1990 to 1993. Ms. Wall
served as Vice President of Commercial Net Lease Realty, Inc., a public real
estate investment trust listed on the New York Stock Exchange, from 1992 through
1997, and served as Vice President of CNL Realty Advisors, Inc. from its
inception in 1991 through 1997. Ms. Wall currently serves as a trustee on the
Board of the Investment Program Association, is a member of the Corporate
Advisory Council for the International Association for Financial Planning and is
a member of IWF, International Women's Forum. In addition, she previously
served on the Direct Participation Program committee for the National
Association of Securities Dealers, Inc. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp.
Steven D. Shackelford, age 36, a certified public accountant, serves as
Senior Vice President, Chief Financial Officer, and Secretary of CNL American
Properties Fund, Inc. and CNL Fund Advisors, Inc. He served as Chief Financial
Officer of CNL American Properties Fund, Inc. from January 1997 and as Chief
Financial Officer of CNL Fund Advisors, Inc. since September 1996 through August
1999. From March 1995 to July 1996, Mr. Shackelford was
37
<PAGE>
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 15, 2000, 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> <C> <C>
Units of Limited Partnership Public School Retirement 205,234 5.13
Interest System of the City of St.
Louis
1 Mercantile Center,
Ste. 2607
St. Louis, MO 63101
</TABLE>
The following table sets forth, as of March 15, 2000, the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>
Percent
Title of Class Name of Partner of Class
------------------------------------ -------------------------- -------------
<S> <C> <C>
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.
38
<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, 1999, 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, 1999
--------------------------- ---------------------------------------- ---------------------------------
<S> <C> <C>
Reimbursement to affiliates for Operating expenses are reimbursed at Operating expenses incurred on
operating expenses the lower of cost or 90 percent of behalf of the Partnership:
the prevailing rate at which $172,624
comparable services could have been
obtained in the same geographic area. Accounting and administra-
Affiliates of the General Partners tive services: $130,332
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 One percent of the sum of gross $39,836
affiliates revenues from Properties wholly owned
by the Partnership plus the
Partnership's allocable share gross
revenues of joint ventures in which
the Partnership is co-venturer. The
management fee, which will not exceed
competitive fees for comparable 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.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1999
---------------------------- ---------------------------------------- ---------------------------------
<S> <C> <C>
Deferred, subordinated real A deferred, subordinated real estate $-0-
estate disposition fee disposition fee, payable upon sale of
payable to affiliates 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 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 equal $-0-
subordinated share of to one percent of Partnership
Partnership net cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Partnership net sales distributions of such net sales
proceeds from a sale or sales proceeds, subordinated to certain
not in liquidation of the minimum returns to the Limited
Partnership Partners.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
And Recipient Method of Computation Ended December 31, 1999
---------------------------- ---------------------------------------- ---------------------------------
<S> <C> <C>
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales from a sale or sales of substantially
proceeds from a sale or sales all of the Partnership's assets will
in liquidation of the be distributed in the following order
Partnership 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>
41
<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 Certified Public Accountants
Balance Sheets at December 31, 1999 and 1998
Statements of Income for the years ended December 31, 1999, 1998, and
1997
Statements of Partners' Capital for the years ended December 31, 1999,
1998, and 1997
Statements of Cash Flows for the years ended December 31, 1999, 1998,
and 1997
Notes to Financial Statements
2. Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation at December
31, 1999
Notes to Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1999
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.)
42
<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, 1999 through December 31, 1999.
43
<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 23rd day of
March, 2000.
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> <C>
President, Treasurer and Director March 23, 2000
/s/ Robert A. Bourne (Principal Financial and Accounting
- ------------------------------------ Officer)
Robert A. Bourne
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 23, 2000
- ------------------------------------ (Principal Executive Officer)
James M. Seneff, Jr.
</TABLE>
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent To
Initial Cost Acquisition
-------------------------------------- -----------------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
---------------- ----------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
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 (h) - 220,496 498,434 - -
Yelm, Washington - 337,806 - - -
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 - - -
<CAPTION>
Life on Which
Depreciation in
Gross Amount at Which Latest Income
Carried at Close of Period (c) Date Statement is
-----------------------------------------------
Buildings and Accumulated of Con-
Land Improvements Total Depreciation struction Acquired Computed
-------- ----------------- -------- -------------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurants:
Amesbury, Massachusetts $359,458 $791,913 $1,151,371 $198,231 1982 06/92 (b)
Bloomfield, Connecticut 266,685 555,656 822,341 139,091 1990 06/92 (b)
East Detroit, Michigan 305,813 508,386 814,199 127,258 1987 06/92 (b)
Gonzales, Louisiana 362,073 575,454 937,527 144,047 1989 06/92 (b)
Denver, Colorado 438,756 (f) 438,756 - 1992 06/92 (d)
Columbus, Ohio 399,679 363,795 763,474 88,938 1982 09/92 (b)
Dayton, Ohio 472,964 441,860 914,824 106,893 1987 09/92 (b)
Lawrence, Kansas 321,505 411,353 732,858 99,513 1982 09/92 (b)
Roswell, New Mexico 205,379 461,219 666,598 111,577 1986 09/92 (b)
Danbury, Connecticut (h) 220,496 498,434 718,930 26,244 1983 09/98 (b)
Yelm, Washington 337,806 (f) 337,806 - 1997 01/99 (d)
Denny's Restaurants:
Orlando, Florida 627,065 (f) 627,065 - 1992 06/92 (d)
Abilene, Texas 274,220 (f) 274,220 - 1992 07/92 (d)
Wadsworth, Ohio 187,368 (f) 187,368 - 1992 09/92 (d)
Avon, Colorado 755,815 569,297 1,325,112 131,484 1993 09/92 (b)
Ocean Springs, Mississippi 303,267 (f) 303,267 - 1992 09/92 (d)
Golden Corral Family
Steakhouse Restaurants:
McAllen, Texas 649,484 947,085 1,596,569 238,025 1992 06/92 (b)
Midwest City, Oklahoma 506,420 975,640 1,482,060 245,201 1992 06/92 (b)
Oklahoma City, Oklahoma 650,655 975,170 1,625,825 247,844 1992 05/92 (b)
Hardee's Restaurants:
Dothan, Alabama 275,791 (f) 275,791 - 1992 09/92 (d)
Huntersville, North Carolina 308,894 (f) 308,894 - 1992 09/92 (d)
North Augusta, South Carolina 201,056 (f) 201,056 - 1992 09/92 (d)
</TABLE>
F-1
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent To
Initial Cost Acquisition
------------------------------- ------------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
----------------- ---------- ------------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
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 - -
------------ -------------- ----------- -----------
$11,945,232 $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 - -
============ ============= =========== ===========
<CAPTION>
Life on Which
Depreciation in
Gross Amount at Which Latest Income
Carried at Close of Period (c) Date Statement is
-----------------------------------------------
Buildings and Accumulated of Con-
Land Improvements Total Depreciation struction Acquired Computed
-------- ----------------- -------- -------------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack in the Box Restaurants:
Houston, Texas 475,618 447,374 922,992 108,391 1992 09/92 (b)
Houston, Texas 350,115 607,530 957,645 147,194 1992 09/92 (b)
Houston, Texas 362,591 582,149 944,740 141,044 1992 09/92 (b)
Kingswood, Texas 373,894 544,539 918,433 131,932 1992 09/92 (b)
Rockwall, Texas 348,497 652,932 1,001,429 158,194 1992 09/92 (b)
Sacramento, California 500,623 524,823 1,025,446 127,155 1992 09/92 (b)
Show Low, Arizona 185,602 503,343 688,945 121,951 1992
KFC Restaurant:
Deming, New Mexico 150,455 (f) 150,455 - 1992 09/92 (b)
Quincy's Restaurants:
Lynchburg, Virginia 359,532 (f) 359,532 - 1992 09/92 (b)
Sebring, Florida 407,656 728,192 1,135,848 176,162 1992 09/92 (b)
------------ ------------- ------------- -----------
$11,945,232 $12,666,144 $24,611,376 $3,016,369
============ ============= ============= ===========
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 $ 1,114,384 $ 190,284 1992 10/92 (b)
============ ============= ============= ===========
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 $ 1,290,582 $ 241,034 1987 10/92 (b)
============ ============= ============= ===========
</TABLE>
F-2
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent To Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period (c)
------------------------ -------------------- -----------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
------- -------- ------------- --------- -------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 - - $715,052 $ 726,005 $1,441,057
======== ============= ========= ======== ======== ============= ==========
Property in Which the Partnership
has a 23% Interest as Tenants-
in-Common and has Invested in
Under an Operating Lease:
IHOP Restaurant
Round Rock, Texas - $685,578 $ 706,459 - - $685,578 $ 706,459 1,392,037
======== ============= ========= ======== ======== ============= ==========
Property of Joint Venture in Which
the Partnership has a 42.8%
Interest and has Invested in
Under an Operating Lease:
Taco Bell Restaurant
Portsmouth, Virginia - $254,045 - - - $254,045 (f)$ 254,045
======== ============= ========= ======== ======== ==========
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Burger King Restaurants:
Denver, Colorado - - - $ 403,692 - - (f) (f)
Yelm, Washington - - 694,610 - - - (f) (f)
Denny's Restaurants:
Orlando, Florida - - - 696,187 - - (f) (f)
Abilene, Texas - - - 534,519 - - (f) (f)
Kent, Ohio - 101,488 421,645 - - (f) (f) (f)
Cullman, Alabama - 191,016 577,043 - - (f) (f) (f)
Ocean Springs, Mississippi - - 324,225 - - - (f) (f)
Wadsworth, Ohio - - 264,861 - - - (f) (f)
<CAPTION>
Life on Which
Depreciation in
Latest Income
Accumulated Date of Date Statement is
Depreciation Construction Acquired Computed
------------ ------------ -------- ---------------
<S> <C> <C> <C> <C>
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 $ 70,850 1992 01/97 (b)
============
Property in Which the Partnership
has a 23% Interest as Tenants-
in-Common and has Invested in
Under an Operating Lease:
IHOP Restaurant
Round Rock, Texas $ 4,247 1998 10/99 (b)
============
Property of Joint Venture in Which
the Partnership has a 42.8%
Interest and has Invested in
Under an Operating Lease:
Taco Bell Restaurant
Portsmouth, Virginia (d) 1997 02/99 (d)
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Burger King Restaurants:
Denver, Colorado (d) 1992 06/92 (d)
Yelm, Washington (d) 1997 01/99 (d)
Denny's Restaurants:
Orlando, Florida (d) 1992 06/92 (d)
Abilene, Texas (d) 1992 07/92 (d)
Kent, Ohio (e) 1987 07/92 (e)
Cullman, Alabama (e) 1992 09/92 (e)
Ocean Springs, Mississippi (d) 1992 09/92 (d)
Wadsworth, Ohio (d) 1992 09/92 (d)
</TABLE>
F-3
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent To Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period (c)
------------------------ -------------------- -----------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
------- -------- ------------- ---------- -------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hardee's Restaurants:
Dothan, Alabama - - 407,368 - - - (f) (f)
Laurens, South Carolina (g) - 170,905 537,361 - - (f) (f) (f)
Huntersville, North Carolina - - 465,665 - - - (f) (f)
North Augusta, South Carolina - - 457,712 - - - (f) (f)
Old Fort, North Carolina - 100,413 457,747 - - (f) (f) (f)
KFC Restaurant:
Deming, New Mexico - - - 389,033 - - (f) (f)
Quincy's Restaurant:
Lynchburg, Virginia - - 648,972 - - - (f) (f)
-------- ------------- ---------- -------- --------
$563,822 $ 5,257,209 $2,023,431 - -
======== ============= ========== ======== ========
Property of Joint Venture in Which
the Partnership has a 42.8%
Interest and has Invested in
Under a Direct Financing Lease:
Taco Bell Restaurant:
Portsmouth, Virginia - - $ 323,725 - - (f) (f) (f)
======== ============= ========== ========
<CAPTION>
Life on Which
Depreciation in
Latest Income
Accumulated Date of Date Statement is
Depreciation Construction Acquired Computed
------------ ------------ -------- ---------------
<S> <C> <C> <C> <C>
Hardee's Restaurants:
Dothan, Alabama (d) 1992 09/92 (d)
Laurens, South Carolina (g) (e) 1992 09/92 (e)
Huntersville, North Carolina (d) 1992 09/92 (d)
North Augusta, South Carolina (d) 1992 09/92 (d)
Old Fort, North Carolina (e) 1992 09/92 (e)
KFC Restaurant:
Deming, New Mexico (d) 1993 09/92 (d)
Quincy's Restaurant:
Lynchburg, Virginia (d) 1992 09/92 (d)
Property of Joint Venture in Which
the Partnership has a 42.8%
Interest and has Invested in
Under a Direct Financing Lease:
Taco Bell Restaurant:
Portsmouth, Virginia (d) 1997 02/99 (d)
</TABLE>
F-4
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------------------
December 31, 1999
(a) Transactions in real estate and accumulated depreciation during 1999, 1998
and 1997, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
------------------- --------------------
<S> <C> <C>
Properties the Partnership has Invested
in Under Operating Leases:
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
Acquisitions 337,806 --
Depreciation expense -- 426,584
------------------- --------------------
Balance, December 31, 1999 $ 24,611,376 $ 3,016,369
=================== ====================
Property of Joint Venture in Which the Partnership has
a 76.6% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1996 $ 1,114,384 $ 111,117
Depreciation expense -- 26,389
------------------- --------------------
Balance, December 1997 1,114,384 137,506
Depreciation expense -- 26,389
------------------- --------------------
Balance, December 31, 1998 1,114,384 163,895
Depreciation expense -- 26,389
------------------- --------------------
Balance, December 31, 1999 $ 1,114,384 $ 190,284
=================== ====================
</TABLE>
F-5
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
---------------------------------------------------
DEPRECIATION - CONTINUED
------------------------
December 31, 1999
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
------------------------ ------------------------
<S> <C> <C>
Property of Joint Venture in Which the Partnership has
62.16% Interest and has Invested in Under Operating
Leases:
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
Depreciation expense -- 33,236
------------------------ ------------------------
Balance, December 31, 1999 $ 1,290,582 $ 241,034
======================== ========================
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
Depreciation expense -- 24,201
------------------------ ------------------------
Balance, December 31, 1999 $ 1,441,057 $ 70,850
======================== ========================
Property in Which the Partnership has a 23% Interest
as Tenants-in-Common and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisitions 1,392,037 --
Depreciation expense -- 4,247
------------------------ ------------------------
balance, December 31, 1999 $ 1,392,037 $ 4,247
======================== ========================
</TABLE>
F-6
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
---------------------------------------------------
DEPRECIATION - CONTINUED
------------------------
December 31, 1999
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
------------------------ ------------------------
<S> <C> <C>
Property of Joint Venture in Which the Partnership has
a 42.8% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisitions 254,045 --
Depreciation expense (d) -- --
------------------------ ------------------------
Balance, December 31, 1999 $ 254,045 $ --
======================== ========================
</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 $30,369,181 and
$7,971,532, respectively. All of the leases are treated as operating
leases for federal income tax purposes.
(d) For financial reporting purposes, the portion of the lease relating to the
building has been recorded as a direct financing lease. The cost of the
building has been included in net investment in direct financing leases;
therefore, depreciation is not applicable.
(e) For financial reporting purposes, the lease for the land and building has
been recorded as a direct financing lease. The cost of the land and
building has been included in net investment in direct financing leases;
therefore, depreciation is not applicable.
(f) For financial reporting purposes, certain components of the lease relating
to land and building have been recorded as a direct financing lease.
Accordingly, costs relating to these components of this lease are not
shown.
(g) 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.
F-7
<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>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund XI, Ltd. at December 31, 1999, 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, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,656,500
<SECURITIES> 0
<RECEIVABLES> 187,146
<ALLOWANCES> 11,646
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,611,376
<DEPRECIATION> 3,016,369
<TOTAL-ASSETS> 35,792,092
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 34,099,362
<TOTAL-LIABILITY-AND-EQUITY> 35,792,092
<SALES> 0
<TOTAL-REVENUES> 3,844,653
<CGS> 0
<TOTAL-COSTS> 895,494
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,141,774
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,141,774
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,141,774
<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>
