FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 2000
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from _____________________ to ______________________
Commission file number
0-21560
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CNL Income Fund XI, Ltd.
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(Exact name of registrant as specified in its charter)
Florida 59-3078854
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801-3336
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
<PAGE>
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Inc 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 9
Part II.
Other Information 10-11
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------------- -------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $3,229,661 and
$3,016,369, respectively $ 21,381,715 $ 21,595,007
Net investment in direct financing leases 7,311,931 7,372,041
Investment in joint ventures 3,078,425 3,077,302
Cash and cash equivalents 1,608,796 1,656,500
Receivables, less allowance for doubtful accounts
of $44,815 and $11,646, respectively 112,259 175,500
Prepaid expenses 14,659 14,115
Accrued rental income 1,684,270 1,779,603
Other assets 122,024 122,024
------------------- -------------------
$ 35,314,079 $ 35,792,092
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 31,811 $ 121,191
Accrued and escrowed real estate taxes payable 19,585 13,646
Distributions payable 875,006 875,006
Due to related parties 150,206 70,600
Rents paid in advance and deposits 82,062 102,480
------------------- -------------------
Total liabilities 1,158,670 1,182,923
Minority interests 509,466 509,807
Partners' capital 33,645,943 34,099,362
------------------- -------------------
$ 35,314,079 $ 35,792,092
=================== ===================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------- -------------
Revenues:
Rental income from operating leases $628,851 $ 646,271 $1,258,088 $ 1,289,771
Adjustments to accrued rental income (163,178 ) -- (163,178 ) --
Earned income from direct financing leases 264,567 239,569 474,521 475,098
Contingent rental income 35,561 34,651 54,988 54,893
Interest and other income 12,956 21,121 51,880 42,055
------------ ------------ ------------- -------------
778,757 941,612 1,676,299 1,861,817
------------ ------------ ------------- -------------
Expenses:
General operating and administrative 54,904 29,589 100,192 71,949
Professional services 6,136 11,634 20,419 22,472
Management fees to related party 9,919 9,724 19,030 19,200
Real estate taxes 7,141 -- 7,141 --
State and other taxes 4,985 157 49,778 28,346
Depreciation 106,646 106,646 213,292 213,292
Transaction costs 28,451 85,130 68,951 120,097
------------ ------------ ------------- -------------
218,182 242,880 478,803 475,356
------------ ------------ ------------- -------------
Income Before Minority Interests in Income of
Consolidated Joint Ventures and Equity in
Earnings of Unconsolidated Joint Ventures 560,575 698,732 1,197,496 1,386,461
Minority Interests in Income of Consolidated
Joint Ventures (16,596 ) (16,797 ) (33,888 ) (33,206 )
Equity in Earnings of Unconsolidated Joint
Ventures 73,057 65,134 132,985 123,135
------------ ------------ ------------- -------------
Net Income $ 617,036 $ 747,069 $ 1,296,593 $ 1,476,390
============ ============ ============= =============
Allocation of Net Income:
General partners $ 6,170 $ 7,471 $ 12,966 $ 14,764
Limited partners 610,866 739,598 1,283,627 1,461,626
------------ ------------ ------------- -------------
$ 617,036 $ 747,069 $ 1,296,593 $ 1,476,390
============ ============ ============= =============
Net Income Per Limited Partner Unit $ 0.15 $ 0.18 $ 0.32 $ 0.37
============ ============ ============= =============
Weighted Average Number of Limited Partner
Units Outstanding 4,000,000 4,000,000 4,000,000 4,000,000
============ ============ ============= =============
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
2000 1999
----------------------- ------------------
General partners:
Beginning balance $ 242,465 $ 211,047
Net income 12,966 31,418
----------------------- ------------------
255,431 242,465
----------------------- ------------------
Limited partners:
Beginning balance 33,856,897 34,246,565
Net income 1,283,627 3,110,356
Distributions ($0.44 and $0.88 per
limited partner unit, respectively) (1,750,012 ) (3,500,024 )
----------------------- ------------------
33,390,512 33,856,897
----------------------- ------------------
Total partners' capital $ 33,645,943 $ 34,099,362
======================= ==================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2000 1999
-------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $1,736,537 $1,797,730
-------------- ---------------
Cash Flows from Investing Activities:
Additions to land and buildings on operating
leases -- (337,806 )
Investment in direct financing leases -- (694,610 )
Investment in joint ventures -- (247,286 )
Decrease in restricted cash -- 1,630,296
-------------- ---------------
Net cash provided by investing activities -- 350,594
-------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,750,012 ) (1,870,012 )
Distributions to holders of minority interests (34,229 ) (32,562 )
-------------- ---------------
Net cash used in financing activities (1,784,241 ) (1,902,574 )
-------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents (47,704 ) 245,750
Cash and Cash Equivalents at Beginning of Period 1,656,500 1,559,240
-------------- ---------------
Cash and Cash Equivalents at End of Period $1,608,796 $1,804,990
============== ===============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
quarter $ 875,006 $ 875,006
============== ===============
See accompanying notes to condensed financial statements.
</TABLE>
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. The financial statements reflect all
adjustments, consisting of normal recurring adjustments, which are, in the
opinion of management, necessary to a fair statement of the results for the
interim periods presented. Operating results for the quarter and six months
ended June 30, 2000 may not be indicative of the results that may be
expected for the year ending December 31, 2000. Amounts as of December 31,
1999, included in the financial statements, have been derived from audited
financial statements as of that date.
These unaudited financial statements should be read in conjunction with the
financial statements and notes thereto included in Form 10-K of CNL Income
Fund XI, Ltd. (the "Partnership") for the year ended December 31, 1999.
The Partnership accounts for its 85 percent interest in Denver Joint
Venture and its 77.33% interest in CNL/Airport Joint Venture using the
consolidation method. Minority interests represent the minority joint
venture partners' proportionate share of the equity in the Partnership's
consolidated joint ventures. All significant intercompany accounts and
transactions have been eliminated.
2. Termination of Merger:
On March 1, 2000, the general partners and CNL American Properties Fund,
Inc. ("APF") mutually agreed to terminate the Agreement and Plan of Merger
entered into in March 1999. The general partners are continuing to evaluate
strategic alternatives for the Partnership, including alternatives to
provide liquidity to the limited partners.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund XI, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 20, 1991 to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as properties upon which restaurants were to be
constructed (the "Properties"), which are leased primarily to operators of
national and regional fast-food and family-style restaurant chains. The leases
are, in general, triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance, and utilities. As of June 30, 2000,
the Partnership owned 41 Properties, which included interests in five Properties
owned by joint ventures in which the Partnership is a co-venturer and two
Properties owned with affiliates as tenants-in-common.
Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 2000 and 1999 was cash from operations (which includes cash received
from tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $1,736,537 and
$1,797,730 for the six months ended June 30, 2000 and 1999, respectively. The
decrease in cash from operations for the six months ended June 30, 2000 was
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital.
Currently, rental income from the Partnership's 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 the
partners. At June 30, 2000, the Partnership had $1,608,796 invested in such
short-term investments, as compared to $1,656,500 at December 31, 1999. The
funds remaining at June 30, 2000, after payment of distributions and other
liabilities, will be used to meet the Partnership's working capital needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
Total liabilities of the Partnership, including distributions
payable, decreased to $1,158,670 at June 30, 2000 from $1,182,923 at December
31, 1999, primarily as a result of a decrease in rents paid in advance at June
30, 2000, as compared to December 31, 1999. The general partners believe that
the Partnership has sufficient cash on hand to meet its current working capital
needs.
The Partnership generally distributes cash from operations
remaining after the payment of operating expenses of the Partnership, to the
extent that the general partners determine that such funds are available for
distribution. Based primarily on cash from operations, the Partnership declared
distributions to limited partners of $1,750,012 for each of the six months ended
June 30, 2000 and 1999 ($875,006 for each of the quarters ended June 30, 2000
and 1999). This represents distributions of $0.44 per unit for each of the six
months ended June 30, 2000 and 1999 ($0.22 per unit for each applicable
quarter). No distributions were made to the general partners for the quarters
and six months ended June 30, 2000 and 1999. No amounts distributed to the
limited partners for the six months ended June 30, 2000 and 1999 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.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the six months ended June 30, 2000 and 1999, the Partnership and
its consolidated joint ventures, Denver Joint Venture and CNL/Airport Joint
Venture, owned and leased 36 wholly owned Properties to operators of fast-food
and family-style restaurant chains. In connection therewith, during the six
months ended June 30, 2000 and 1999, the Partnership, Denver Joint Venture and
CNL/Airport Joint Venture earned $1,595,498 and $1,764,869, respectively, in
rental income from operating leases (net of adjustments to accrued rental
income) and earned income from direct financing leases, $756,307 and $885,840 of
which was earned during the quarters ended June 30, 2000 and 1999, respectively.
In addition, during the quarters and six months ended June 30, 2000 and 1999,
the Partnership earned $54,988 and $54,893, respectively, in contingent rental
income, $35,561 and $34,651 of which was earned during the quarters ended June
30, 2000 and 1999, respectively. Rental and earned income decreased during the
quarter and six months ended June 30, 2000, as compared to the quarter and six
months ended June 30, 1999, primarily as a result of the fact that during the
quarter ended June 30, 2000, the tenant of the Property in Sebring, Florida
defaulted under the terms of its lease and discontinued the operations of the
restaurant. As a result, the Partnership established an allowance for doubtful
accounts of approximately $21,700 for past due rental amounts during the quarter
and six months ended June 30, 2000. In addition, during the quarter and six
months ended June 30, 2000, the Partnership reversed approximately $137,100 of
accrued rental income. The accrued rental income was the accumulated amount of
non-cash accounting adjustments previously recorded in order to recognize future
scheduled rent increases as income evenly over the term of the lease. The
general partners will continue to pursue collection of rental amounts relating
to this Property and will recognize such amounts as income if collected.
In addition, rental and earned income decreased during the six months
ended June 30, 2000, as compared to the six months ended June 30, 1999, as a
result of the Partnership establishing an allowance for doubtful accounts during
the six months ended June 30, 2000, of approximately $21,500 for past due rental
amounts relating to two Properties in Abilene, Texas and Avon, Colorado, in
accordance with the Partnership's policy. The general partners are continuing to
pursue collection of these amounts and will recognize such amounts as income if
collected.
The decrease in rental and earned income during the quarter and six
months ended June 30, 2000, as compared to the quarter and six months ended June
30, 1999, was partially offset by an increase of approximately $33,200 and
$11,100, respectively, due to the fact that the Partnership collected and
recognized as income past due rental amounts for which the Partnership had
previously established an allowance for doubtful accounts relating to a Property
in Wadsworth, Ohio, and Kent, Ohio.
During the six months ended June 30, 1999, the Partnership owned and
leased three Properties indirectly through other joint venture arrangements and
owned and leased one Property with an affiliate as tenants-in-common. During the
six months ended June 30, 2000, the Partnership owned and leased three
Properties indirectly through other joint venture arrangements and owned and
leased two Properties with affiliates as tenants-in-common. In connection
therewith, during the six months ended June 30, 2000 and 1999, the Partnership
earned $132,985 and $123,135, respectively, attributable to net income earned by
the unconsolidated joint ventures, $73,057 and $65,134 of which was earned
during the quarters ended June 30, 2000 and 1999, respectively. Net income
earned by unconsolidated joint ventures increased during the quarter and six
months ended June 30, 2000, as compared to the quarter and six months ended June
30, 1999, as a result of the fact that the Partnership reinvested a portion of
the net sales proceeds from the 1998 sale of the Property in Nashua, New
Hampshire in an interest in an IHOP Property in Round Rock, Texas, in October
1999.
Operating expenses, including depreciation and amortization expense,
were $478,803 and $475,356 for the six months ended June 30, 2000 and 1999,
respectively, $218,182 and $242,880 of which were incurred during the quarters
ended June 30, 2000 and 1999, respectively. The increase in operating expenses
during the six months ended June 30, 2000, as compared to the six months ended
June 30, 1999, was primarily attributable to an increase in (i) administrative
expenses for servicing the Partnership and its Properties, (ii) state tax
expense and (iii) real estate tax expense due to the default by the tenant of
the Property in Sebring, Florida, as described above.
The increase in operating expenses during the six months ended June 30,
2000, was partially offset by, and the decrease during the quarter ended June
30, 2000, was primarily attributable to, the fact that the Partnership incurred
less in transaction costs relating to the general partners retaining financial
and legal advisors to assist them in evaluating and negotiating the proposed
merger with CNL American Properties Fund, Inc. ("APF"), due to the termination
of the proposed merger as described below in "Termination of Merger".
Termination of Merger
On March 1, 2000, the general partners and APF mutually agreed to
terminate the Agreement and Plan of Merger (the "Merger") entered into in March
1999. The general partners are continuing to evaluate strategic alternatives for
the Partnership, including alternatives to provide liquidity to the limited
partners.
Dismissal of Legal Action
As described in greater detail in Part II, Item 1 "Legal Proceedings",
in 1999, two groups of limited partners in several CNL Income Funds filed
purported class action suits against the general partners and APF alleging,
among other things, that the general partners had breached their fiduciary
duties in connection with the proposed Merger. These actions were later
consolidated into one action. On April 25, 2000, the judge in the consolidated
action issued an order dismissing the action without prejudice, with each party
to bear its own costs and attorneys' fees.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed merger. The plaintiffs
sought unspecified damages and equitable relief. On July 8, 1999,
the plaintiffs filed an amended complaint which, in addition to
naming three additional plaintiffs, included 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 sought additional equitable relief. As amended, the caption of
the case was 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 sought 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.
On April 25, 2000, Judge Kirkwood issued a Stipulated Final Order
of Dismissal of Consolidated Action, dismissing the action without
prejudice, with each party to bear its own costs and attorneys'
fees.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund XI, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278 on Form S-11 and
incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund XI, Ltd. (Included Exhibit 3.2 to
Registration Statement 33-43278 on Form S-11 and
incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XI, Ltd. (Included as Exhibit 4.2
to Form 10-K filed with the Securities and Exchange
Commission on April 15, 1993, and incorporated herein
by reference.)
10.1 Management Agreement between CNL Income Fund XI, Ltd.
and CNL Investment Company (Included as Exhibit 10.1
to Form 10-K filed with the Securities and Exchange
Commission on April 15, 1993, and incorporated herein
by reference.)
10.2 Assignment of Management Agreement from CNL Investment
Company to CNL Fund Advisors, Inc. (Included as
Exhibit 10.2 to Form 10-K filed with the Securities
and Exchange Commission on March 30, 1995, and
incorporated herein by reference.)
10.3 Assignment of Management Agreement from CNL Income
Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on April 1, 1996,
and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 8th day of August, 2000.
CNL INCOME FUND XI, LTD.
By: CNL REALTY CORPORATION
General Partner
By:/s/ James M. Seneff, Jr.
----------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
