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 September 30, 1996
-----------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number
0-21558
----------------------
CNL Income Fund XII, Ltd.
- ------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-3078856
- ---------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street, #500
Orlando, Florida 32801
- ---------------------------- -------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
-------------------------------
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
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CONTENTS
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Part I Page
----
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 7-10
Part II
Other Information 11
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
ASSETS 1996 1995
------------- ------------
Land and buildings on operating
leases, less accumulated
depreciation of $1,064,571 and
$939,415 $21,161,596 $22,308,784
Net investment in direct financing
leases 13,819,743 14,652,991
Investment in joint ventures 2,493,142 841,822
Cash and cash equivalents 1,813,951 1,716,203
Receivables, less allowance for
doubtful accounts of $27,757 and
$39,791 188,772 259,320
Prepaid expenses 12,262 1,924
Organization costs, less accumu-
lated amortization of $7,965
and $6,465 2,035 3,535
Accrued rental income 1,833,430 1,444,553
----------- -----------
$41,324,931 $41,229,132
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 6,705 $ 7,655
Accrued and escrowed real
estate taxes payable 19,405 7,609
Distributions payable 956,252 1,001,252
Due to related parties 9,189 7,250
Rents paid in advance 88,324 33,295
----------- -----------
Total liabilities 1,079,875 1,057,061
Partners' capital 40,245,056 40,172,071
----------- -----------
$41,324,931 $41,229,132
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Revenues:
Rental income from
operating leases $ 607,197 $ 648,600 $1,867,682 $1,951,060
Earned income from
direct financing
leases 415,545 429,610 1,274,730 1,301,700
Contingent rental
income 15,586 14,908 37,804 47,839
Interest and other
income 21,037 20,589 99,560 65,681
---------- ---------- ---------- ----------
1,059,365 1,113,707 3,279,776 3,366,280
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 44,014 34,562 134,228 94,754
Professional services 11,615 8,010 27,547 21,111
Management fees to
related parties 9,431 10,205 29,518 30,642
Real estate taxes 1,521 - 7,327 -
State and other taxes - - 18,472 18,679
Depreciation and
amortization 79,271 81,949 235,691 245,847
---------- ---------- ---------- ----------
145,852 134,726 452,783 411,033
---------- ---------- ---------- ----------
Income Before Equity
in Earnings of Joint
Ventures and Loss on Sale
of Land and Building 913,513 978,981 2,826,993 2,955,247
Equity in Earnings of
Joint Ventures 74,806 20,453 130,103 61,120
Loss on Sale of Land and
Building - - (15,355) -
---------- ---------- ---------- ----------
Net Income $ 988,319 $ 999,434 $2,941,741 $3,016,367
========== ========== ========== ==========
Allocation of Net Income:
General partners $ 9,883 $ 9,995 $ 29,520 $ 30,164
Limited partners 978,436 989,439 2,912,221 2,986,203
---------- ---------- ---------- ----------
$ 988,319 $ 999,434 $2,941,741 $3,016,367
========== ========== ========== ==========
Net Income Per Limited
Partner Unit $ 0.22 $ 0.22 $ 0.65 $ 0.66
========== ========== ========== ==========
Weighted Average Number
of Limited Partner
Units Outstanding 4,500,000 4,500,000 4,500,000 4,500,000
========== ========== ========== ==========
See accompanying notes to condensed financial statements.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
1996 1995
----------------- ------------
General partners:
Beginning balance $ 113,356 $ 73,212
Net income 29,520 40,144
----------- -----------
142,876 113,356
----------- -----------
Limited partners:
Beginning balance 40,058,715 39,954,494
Net income 2,912,221 3,974,228
Distributions ($0.64 and
$0.86 per limited
partner unit,
respectively (2,868,756) (3,870,007)
----------- -----------
40,102,180 40,058,715
----------- -----------
Total partners' capital $40,245,056 $40,172,071
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1996 1995
----------- -----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 3,010,795 $ 2,874,899
----------- -----------
Cash Flows From Investing Activities:
Proceeds from sale of land
and building 1,640,000 -
Investment in joint venture (1,645,024) -
Collections on loan to tenant
of joint venture 5,733 5,190
----------- -----------
Net cash provided by investing
activities 709 5,190
----------- -----------
Cash Flows From Financing
Activities:
Distributions to limited partners (2,913,756) (2,868,756)
----------- -----------
Net cash used in financing
activities (2,913,756) (2,868,756)
----------- -----------
Net Increase in Cash and Cash Equivalents 97,748 11,333
Cash and Cash Equivalents at Beginning of
Period 1,716,203 1,714,840
----------- -----------
Cash and Cash Equivalents at End of
Period $ 1,813,951 $ 1,726,173
=========== ===========
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Net investment in direct financing
lease reclassified to land and
building on operating lease as a
result of lease termination $ 742,358 $ -
=========== ===========
Distributions declared and unpaid at
end of period $ 956,252 $ 956,252
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1996 and 1995
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 nine months ended September 30, 1996, may not be
indicative of the results that may be expected for the year ending
December 31, 1996. Amounts as of December 31, 1995, 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 XII, Ltd. (the "Partnership") for the year ended December
31, 1995.
Effective January 1, 1996, the Partnership adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The
Statement requires that an entity review long-lived assets and certain
identifiable intangibles, to be held and used, for impairment whenever
events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. Adoption of this standard had no
material effect on the Partnership's financial position or results of
operations.
2. Land and Buildings:
------------------
In April 1996, the Partnership sold its property in Houston, Texas, to
an unrelated third party for $1,640,000. As a result of this
transaction, the Partnership recognized a loss of $15,355 for financial
reporting purposes primarily due to acquisition fees and miscellaneous
acquisition expenses the Partnership had allocated to this property.
3. Investment in Joint Ventures:
----------------------------
In May 1996, the Partnership entered into a joint venture arrangement,
Middleburg Joint Venture, with an affiliate of the Partnership which has
the same general partners to hold one restaurant property. As of
September 30, 1996, the Partnership and its co-venture partner had
contributed $1,645,024 and $234,059, respectively, to the joint venture
to acquire the restaurant property. As of September 30, 1996, the
Partnership and its co-venture partner owned approximately an 88 percent
and 12 percent interest, respectively, in the profits and losses of the
joint venture. The Partnership accounts for its investment in this
joint venture under the equity method since the Partnership shares
control with the affiliate.
The following presents the combined, condensed financial information for
all of the Partnership's investments in joint ventures at:
September 30, December 31,
1996 1995
------------- ------------
Land and building on
operating leases,
less accumulated
depreciation $1,801,623 $1,299,844
Net investment in
direct financing
leases 2,470,557 1,120,930
Cash 559 6,373
Accrued rental income 88,731 61,805
Other assets 1,261 119
Liabilities 662 6,330
Partners' capital 4,362,069 2,482,741
Revenues 280,891 268,393
Net income 255,724 236,811
The Partnership recognized income totalling $130,103 and $61,120 for the
nine months ended September 30, 1996 and 1995, respectively, from these
joint ventures, $74,806 and $20,453 of which was earned during the
quarters ended September 30, 1996 and 1995, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CNL Income Fund XII, 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 triple-net leases, with the lessees generally responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of
September 30, 1996, the Partnership owned 48 Properties, including interests
in four Properties owned by joint ventures in which the Partnership is a co-
venturer.
Liquidity and Capital Resources
- -------------------------------
The Partnership's primary source of capital for the nine months ended
September 30, 1996 and 1995, 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
$3,010,795 and $2,874,899 for the nine months ended September 30, 1996 and
1995, respectively. The increase in cash from operations for the nine months
ended September 30, 1996, as compared to the nine months ended September 30,
1995, is primarily a result of changes in the Partnership's working capital.
Other sources and uses of capital included the following during the nine
months ended September 30, 1996.
In April 1996, the Partnership sold its Property in Houston, Texas, to
an unrelated third party for $1,640,000. As a result of this transaction, the
Partnership recognized a loss of $15,355 for financial reporting purposes
primarily due to acquisition fees and miscellaneous acquisition expenses the
Partnership had allocated to this property. In May 1996, the Partnership
reinvested the sales proceeds from this sale, along with additional funds, in
Middleburg Joint Venture. The Partnership has an approximate 88 percent
interest in the profits and losses of Middleburg Joint Venture and the
remaining interest in this joint venture is held by an affiliate of the
Partnership which has the same general partners.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments
pending the Partnership's use of such funds to pay Partnership expenses or to
make distributions to the partners. At September 30, 1996, the Partnership
had $1,813,951 invested in such short-term investments as compared to
$1,716,203 at December 31, 1995. The funds remaining at September 30, 1996,
after payment of distributions and other liabilities, will be used to meet the
Partnership's working capital and other needs.
Total liabilities of the Partnership increased to $1,079,875 at
September 30, 1996, from $1,057,061 at December 31, 1995, primarily as the
result of an increase in rents paid in advance during the nine months ended
September 30, 1996. The increase in total liabilities was partially offset as
the result of the Partnership's accruing a special distribution payable to the
limited partners of $45,000 at December 31, 1995, which was paid in January
1996 from cumulative excess operating reserves. The general partners believe
that the Partnership has sufficient cash on hand to meet its current working
capital needs.
Based on cash from operations, the Partnership declared distributions to
the limited partners of $2,868,756 for each of the nine months ended September
30, 1996 and 1995 ($956,252 for each of the quarters ended September 30, 1996
and 1995). This represents distributions of $0.64 per unit for each of the
nine months ended September 30, 1996 and 1995 ($0.21 per unit for each of the
quarters ended September 30, 1996 and 1995). No distributions were made to
the general partners for the quarters and nine months ended September 30, 1996
and 1995. No amounts distributed or to be distributed to the limited partners
for the nine months ended September 30, 1996 and 1995, are required to be or
have been treated by the Partnership as a return of capital for purposes of
calculating the limited partners' return on their adjusted capital
contributions. The Partnership intends to continue to make distributions of
cash available for distribution to the limited partners on a quarterly basis.
The 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.
Results of Operations
- ---------------------
During the nine months ended September 30, 1996 and 1995, the
Partnership owned and leased 45 wholly owned Properties (including one
Property in Houston, Texas, which was sold in April 1996) to operators of
fast-food and family-style restaurant chains. In connection therewith, during
the nine months ended September 30, 1996 and 1995, the Partnership earned
$3,142,412 and $3,252,760, respectively, in rental income from operating
leases and earned income from direct financing leases from these Properties,
$1,022,742 and $1,078,210 of which was earned during the quarters ended
September 30, 1996 and 1995, respectively. The decrease in rental and earned
income is primarily attributable to a decrease of approximately $47,100 and
$89,400 during the quarter and nine months ended September 30, 1996,
respectively, as a result of the sale of the Property in Houston, Texas, in
April 1996 as discussed above in "Liquidity and Capital Resources".
Rental and earned income also decreased approximately $15,100 and
$22,300 during the quarter and nine months ended September 30, 1996,
respectively, as a result of the fact that the tenant of the Sizzler's
Property in Tempe, Arizona, declared bankruptcy and ceased operations of the
restaurant business located on the Property in June 1996. The Partnership is
currently seeking a replacement tenant for this Property, however, rental
income amounts are expected to be reduced until such time as a replacement
tenant can be located. As a result of the termination of this lease, during
the nine months ended September 30, 1996, the Partnership reclassified this
lease from a direct financing lease to an operating lease.
During the nine months ended September 30, 1996 and 1995, the
Partnership also earned $37,804 and $47,839, respectively, in contingent
rental income, $15,586 and $14,908 of which was earned during the quarters
ended September 30, 1996 and 1995, respectively. The decrease in contingent
rental income during the nine months ended September 30, 1996, is primarily
attributable to a change in the contingent rent formula in accordance with the
terms of the leases of two Properties.
Interest and other income was $99,560 and $65,681 for the nine months
ended September 30, 1996 and 1995, respectively, of which $21,037 and $20,589
was earned for the quarters ended September 30, 1996 and 1995, respectively.
The increase in interest and other income is primarily attributable to the
Partnership granting certain easement rights to the owner of the property
adjacent to the Partnership's Property in Black Mountain, North Carolina, in
exchange for $25,000 during the nine months ended September 30, 1996.
For the nine months ended September 30, 1996 and 1995, the Partnership
owned and leased four and three Properties, respectively, indirectly through
joint venture arrangements. In connection therewith, during the nine months
ended September 30, 1996 and 1995, the Partnership earned $130,103 and
$61,120, respectively, attributable to net income earned by these joint
ventures, $74,806 and $20,453 of which was earned during the quarters ended
September 30, 1996 and 1995, respectively. The increase in net income earned
by joint ventures is primarily due to the fact that the Partnership invested
in Middleburg Joint Venture in May 1996, as described above in "Liquidity and
Capital Resources".
Operating expenses, including depreciation and amortization expense,
were $452,783 and $411,033 for the nine months ended September 30, 1996 and
1995, respectively, of which $145,852 and $134,726 were incurred for the
quarters ended September 30, 1996 and 1995, respectively. The increase in
operating expenses during the quarter and nine months ended September 30,
1996, as compared to the quarter and nine months ended September 30, 1995, is
primarily attributable to an increase in accounting and administrative
expenses associated with operating the Partnership and its Properties.
Operating expenses also increased during the nine months ended September 30,
1996, as compared to the nine months ended September 30, 1995, as a result of
an increase in insurance expense as a result of the general partners'
obtaining contingent liability and property coverage for the Partnership,
effective May 1995. This insurance policy is intended to reduce the
Partnership's exposure in the unlikely event a tenant's insurance policy
lapses or is insufficient to cover a claim relating to the Property. The
increase in operating expenses during the quarter and nine months ended
September 30, 1996, was partially offset by a decrease in depreciation expense
during the quarter and nine months ended September 30, 1996, as a result of
the sale of the Property located in Houston, Texas, in April 1996, as
described above in "Liquidity and Capital Resources".
Operating expenses also increased during the quarter and nine months
ended September 30, 1996, as a result of the Partnership recording current and
past due real estate taxes relating to the Property in Tempe, Arizona. The
Partnership expects to continue to incur certain expenses, such as real estate
taxes, insurance and maintenance until a replacement tenant is located. The
Partnership is currently seeking a replacement tenant for this Property.
As a result of the sale of the Property in Houston, Texas, as described
above in "Liquidity and Capital Resources," the Partnership recognized a loss
of $15,355 for financial reporting purposes for the quarter and nine months
ended September 30, 1996. No Properties were sold during the nine months
ended September 30, 1995.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
-----------------
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 - None.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
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 4th day of November, 1996.
CNL INCOME FUND XII, 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 XII, Ltd. at September 30, 1996, and its statement of
income for the nine months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Income Fund XII, Ltd. for the nine months
ended September 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,813,951
<SECURITIES> 0
<RECEIVABLES> 216,529
<ALLOWANCES> 27,757
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 22,226,167
<DEPRECIATION> 1,064,571
<TOTAL-ASSETS> 41,324,931
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 40,245,056
<TOTAL-LIABILITY-AND-EQUITY> 41,324,931
<SALES> 0
<TOTAL-REVENUES> 3,279,776
<CGS> 0
<TOTAL-COSTS> 452,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,941,741
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,941,741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,941,741
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund XII, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
