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 March 31, 2000
--------------------------------------------------------------------------
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
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- ----------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
-----------------------------
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
Condensed Statements of Income
Condensed Statements of Partners' Capital
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II.
Other Information
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------------- -------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $3,123,015 and
$3,016,369, respectively $ 21,488,361 $ 21,595,007
Net investment in direct financing leases 7,342,464 7,372,041
Investment in joint ventures 3,073,607 3,077,302
Cash and cash equivalents 1,590,518 1,656,500
Receivables, less allowance for doubtful accounts
of $58,042 and $11,646, respectively 99,445 175,500
Prepaid expenses 7,664 14,115
Accrued rental income 1,813,526 1,779,603
Other assets 122,024 122,024
------------------- -------------------
$ 35,537,609 $ 35,792,092
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 44,547 $ 121,191
Escrowed real estate taxes payable 13,126 13,646
Distributions payable 875,006 875,006
Due to related parties 89,465 70,600
Rents paid in advance and deposits 98,670 102,480
------------------- -------------------
Total liabilities 1,120,814 1,182,923
Minority interests 512,882 509,807
Partners' capital 33,903,913 34,099,362
------------------- -------------------
$ 35,537,609 $ 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
March 31,
2000 1999
--------------- --------------
Revenues:
Rental income from operating leases $ 629,237 $ 643,500
Earned income from direct financing leases 209,954 235,529
Contingent rental income 19,427 20,242
Interest and other income 38,924 20,934
--------------- --------------
897,542 920,205
--------------- --------------
Expenses:
General operating and administrative 45,288 42,360
Professional services 14,283 10,838
Management fees to related party 9,111 9,476
State and other taxes 44,793 28,189
Depreciation and amortization 106,646 106,646
Transaction costs 40,500 34,967
--------------- --------------
260,621 232,476
--------------- --------------
Income Before Minority Interests in Income of Consolidated
Joint Ventures and Equity in Earnings of Unconsolidated
Joint Ventures 636,921 687,729
Minority Interests in Income of Consolidated
Joint Ventures (17,292 ) (16,409 )
Equity in Earnings of Unconsolidated Joint Ventures 59,928 58,001
--------------- --------------
Net Income $ 679,557 $ 729,321
=============== ==============
Allocation of Net Income:
General partners $ 6,796 $ 7,293
Limited partners 672,761 722,028
--------------- --------------
$ 679,557 $ 729,321
=============== ==============
Net Income Per Limited Partner Unit $ 0.17 $ 0.18
=============== ==============
Weighted Average Number of Limited Partner
Units Outstanding 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
Quarter Ended Year Ended
March 31, December 31,
2000 1999
------------------- ------------------
General partners:
Beginning balance $ 242,465 $ 211,047
Net income 6,796 31,418
------------------- ------------------
249,261 242,465
------------------- ------------------
Limited partners:
Beginning balance 33,856,897 34,246,565
Net income 672,761 3,110,356
Distributions ($0.22 and $0.88 per
limited partner unit, respectively) (875,006 ) (3,500,024 )
------------------- ------------------
33,654,652 33,856,897
------------------- ------------------
Total partners' capital $ 33,903,913 $ 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
Quarter Ended
March 31,
2000 1999
-------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 823,241 $ 974,168
-------------- ---------------
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 (875,006 ) (995,006 )
Distributions to holders of minority interests (14,217 ) (16,366 )
-------------- ---------------
Net cash used in financing activities (889,223 ) (1,011,372 )
-------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents (65,982 ) 313,390
Cash and Cash Equivalents at Beginning of Quarter 1,656,500 1,559,240
-------------- ---------------
Cash and Cash Equivalents at End of Quarter $1,590,518 $1,872,630
============== ===============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
quarter $ 875,006 $ 875,006
============== ===============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 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 ended March 31, 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 March 31, 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 quarters ended
March 31, 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 $823,241 and
$974,168 for the quarters ended March 31, 2000 and 1999, respectively. The
decrease in cash from operations for the quarter ended March 31, 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 and net
sales proceeds held by the Partnership 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, to reinvest in an additional property or to make
distributions to the partners. At March 31, 2000, the Partnership had $1,590,518
invested in such short-term investments, as compared to $1,656,500 at December
31, 1999. The funds remaining at March 31, 2000, after payment of distributions
and other liabilities, will be used to invest in an additional Property and 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.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on cash from operations, the Partnership declared distributions to limited
partners of $875,006 for each of the quarters ended March 31, 2000 and 1999.
This represents distributions of $0.22 per unit for each applicable quarter. No
distributions were made to the general partners for the quarters ended March 31,
2000 and 1999. No amounts distributed to the limited partners for the quarters
ended March 31, 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.
Total liabilities of the Partnership, including distributions payable,
decreased to $1,120,814 at March 31, 2000 from $1,182,923 at December 31, 1999,
primarily as a result of a decrease in accounts payable at March 31, 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.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the quarters ended March 31, 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 quarters
ended March 31, 2000 and 1999, the Partnership, Denver Joint Venture and
CNL/Airport Joint Venture earned $839,191 and $879,029, respectively, in rental
income from operating leases and earned income from direct financing leases.
Rental and earned income decreased during the quarter ended March 31, 2000, as
compared to the quarter ended March 31, 1999, primarily as a result of the
Partnership establishing an allowance for doubtful accounts of approximately
$43,700 for past due rental amounts relating to four Properties in accordance
with the Partnership's 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. In addition, during the quarters
ended March 31, 2000 and 1999, the Partnership earned $19,427 and $20,242,
respectively, in contingent rental income.
In addition, during the quarter ended March 31, 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 quarter ended March 31, 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 quarters ended March 31, 2000 and 1999, the
Partnership earned $59,928 and $58,001, respectively, attributable to net income
earned by unconsolidated joint ventures.
Operating expenses, including depreciation and amortization expense,
were $260,621 and $232,476 for the quarters ended March 31, 2000 and 1999,
respectively.
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.
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 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8,
1999, the plaintiffs filed an amended complaint which, in addition
to naming three additional plaintiffs, includes allegations of
aiding and abetting and conspiring to breach fiduciary duties,
negligence and breach of duty of good faith against certain of the
defendants and seeks additional equitable relief. As amended, the
caption of the case is Jon Hale, Mary J. Hewitt, Charles A.
Hewitt, Gretchen M. Hewitt, Bernard J. Schulte, Edward M. and
Margaret Berol Trust, and Vicky Berol v. James M. Seneff, Jr.,
Robert A. Bourne, CNL Realty Corporation, and CNL American
Properties Fund, Inc., Case No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999
against the general partners and APF, Ira Gaines, individually and
on behalf of a class of persons similarly situated, v. CNL
American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc., CNL
Financial Corporation a/k/a CNL Financial Corp., CNL Financial
Services, Inc. and CNL Group, Inc., Case NO. CIO-99-3796, in the
Circuit Court of the Ninth Judicial Circuit of Orange County,
Florida, alleging that the general partners breached their
fiduciary duties and that APF aided and abetted their breach of
fiduciary duties in connection with the proposed Merger. The
plaintiff is seeking unspecified damages and equitable relief.
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
A Current Report on Form 8-K dated February 23, 2000 was
filed on March 1, 2000 describing the termination of the
proposed merger of the Partnership with and into a subsidiary
of CNL American Properties Fund, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 9th day of May, 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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund XI, Ltd. at March 31, 2000, and its statement of income
for the three months then ended and is qualified in its entirety by reference to
the Form 10-Q of CNL Income Fund XI, Ltd. for the three months ended March 31,
2000.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,590,518
<SECURITIES> 0
<RECEIVABLES> 157,487
<ALLOWANCES> 58,042
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,611,376
<DEPRECIATION> 3,123,015
<TOTAL-ASSETS> 35,537,609
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 33,903,913
<TOTAL-LIABILITY-AND-EQUITY> 35,537,609
<SALES> 0
<TOTAL-REVENUES> 897,542
<CGS> 0
<TOTAL-COSTS> 260,621
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 679,557
<INCOME-TAX> 0
<INCOME-CONTINUING> 679,557
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 679,557
<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>
