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, 1998
-------------------------
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
0-21558
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
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
<PAGE>
CONTENTS
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
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 6-9
Part II
Other Information 10
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
ASSETS 1998 1997
----------- -----------
Land and buildings on operating
leases, less accumulated
depreciation of $1,620,005 and
$1,460,887 $20,661,161 $20,820,279
Net investment in direct financing
leases 13,568,092 13,656,265
Investment in joint ventures 2,416,014 2,517,421
Cash and cash equivalents 1,973,617 1,706,415
Receivables, less allowance for
doubtful accounts of $120,958 and
$7,482 115,829 202,472
Prepaid expenses 15,879 7,216
Lease costs, less accumulated
amortization of $2,261 and $1,307 27,292 24,746
Accrued rental income 2,428,740 2,496,176
----------- -----------
$41,206,624 $41,430,990
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 3,816 $ 10,558
Accrued and escrowed real estate
taxes payable 16,888 3,244
Distributions payable 956,252 956,252
Due to related parties 5,567 6,887
Rents paid in advance and deposits 144,267 36,737
----------- -----------
Total liabilities 1,126,790 1,013,678
Partners' capital 40,079,834 40,417,312
----------- -----------
$41,206,624 $41,430,990
=========== ===========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- -------
<S> <C>
Revenues:
Rental income from
operating leases $ 658,592 $ 604,177 $1,285,138 $1,207,972
Adjustments to accrued
rental income (224,867) - (224,867) -
Earned income from direct
financing leases 390,877 410,956 798,551 821,923
Contingent rental income 6,295 20,546 13,717 25,963
Interest and other income 29,430 20,177 44,682 40,974
---------- ---------- ---------- ----------
860,327 1,055,856 1,917,221 2,096,832
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 31,541 42,054 66,006 80,776
Professional services - 5,505 12,986 12,162
Bad debt expense 75,699 - 84,667 -
Management fees to
related parties 10,971 10,051 21,551 19,964
Real estate taxes 1,152 - 1,152 1,410
State and other taxes 405 406 17,653 18,496
Depreciation and
amortization 80,078 80,102 160,072 159,551
---------- ---------- ---------- ----------
199,846 138,118 364,087 292,359
---------- ---------- ---------- ----------
Income Before Equity in
Earnings (Loss) of
Joint Ventures 660,481 917,738 1,553,134 1,804,473
Equity in Earnings (Loss)
of Joint Ventures (43,758) 70,949 21,892 141,356
---------- ---------- ---------- ----------
Net Income $ 616,723 $ 988,687 $1,575,026 $1,945,829
========== ========== ========== ==========
Allocation of Net Income:
General partners $ 6,167 $ 9,887 $ 15,750 $ 19,458
Limited partners 610,556 978,800 1,559,276 1,926,371
---------- ---------- ---------- ----------
$ 616,723 $ 988,687 $1,575,026 $1,945,829
========== ========== ========== ==========
Net Income Per Limited
Partner Unit $ 0.14 $ 0.22 $ 0.35 $ 0.43
========== ========== ========== ==========
Weighted Average Number
of Limited Partner
Units Outstanding 4,500,000 4,500,000 4,500,000 4,500,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
1998 1997
---------------- --------
General partners:
Beginning balance $ 192,411 $ 152,889
Net income 15,750 39,522
----------- -----------
208,161 192,411
----------- -----------
Limited partners:
Beginning balance 40,224,901 40,137,217
Net income 1,559,276 3,912,692
Distributions ($0.43 and $0.85
per limited partner unit,
respectively) (1,912,504) (3,825,008)
----------- -----------
39,871,673 40,224,901
----------- -----------
Total partners' capital $40,079,834 $40,417,312
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1998 1997
----------- ------------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 2,183,206 $ 1,931,238
----------- -----------
Cash Flows From Investing
Activities:
Additions to land and buildings
on operating leases - (55,000)
Collections on loan to tenant
of joint venture - 4,171
Payment of lease costs (3,500) (24,052)
----------- -----------
Net cash used in investing
activities (3,500) (74,881)
----------- -----------
Cash Flows From Financing
Activities:
Distributions to limited
partners (1,912,504) (1,912,504)
----------- -----------
Net cash used in
financing activities (1,912,504) (1,912,504)
----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents 267,202 (56,147)
Cash and Cash Equivalents at
Beginning of Period 1,706,415 1,800,601
----------- -----------
Cash and Cash Equivalents at End of
Period $ 1,973,617 $ 1,744,454
=========== ===========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid
at end of period $ 956,252 $ 956,252
=========== ===========
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1998 and 1997
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 six months ended June 30, 1998, may not be indicative of the
results that may be expected for the year ending December 31, 1998.
Amounts as of December 31, 1997, 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, 1997.
The general partners are in the process of analyzing the effects of the
consensus reached by the Financial Accounting Standards Board in EITF
98-9, entitled "Accounting for Contingent Rent in the Interim Financial
Periods," issued in May 1998. The general partners do not expect that
the conclusions reached in this consensus will have a material effect
on the Partnership's financial position or results of operations.
5
<PAGE>
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 June 30, 1998,
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 six months ended
June 30, 1998 and 1997, 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 $2,183,206 and
$1,931,238 for the six months ended June 30, 1998 and 1997, respectively. The
increase in cash from operations for the six months ended June 30, 1998, as
compared to the six months ended June 30, 1997, is primarily a result of changes
in the Partnership's working capital.
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 June 30, 1998, the Partnership had $1,973,617
invested in such short-term investments, as compared to $1,706,415 at December
31, 1997. The increase in cash and cash equivalents for the six months ended
June 30, 1998, is primarily attributable to an increase in rents paid in advance
at June 30, 1998, as compared to December 31, 1997. The funds remaining at June
30, 1998, 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 $1,126,790 at June
30, 1998, from $1,013,678 at December 31, 1997, primarily as the result of an
increase in rents paid in advance at June 30, 1998, as compared to December 31,
1997. 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 $1,912,504 for each of the six months ended June 30,
1998 and 1997 ($956,252 for each of the quarters ended June 30, 1998 and 1997).
This represents distributions for each applicable six months of $0.43 per unit
($0.21 per unit for each applicable quarter). No distributions were made to the
general partners for the quarters and six months
6
<PAGE>
Liquidity and Capital Resources - Continued
ended June 30, 1998 and 1997. No amounts distributed to the limited partners for
the six months ended June 30, 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.
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 six months ended June 30, 1998 and 1997, the Partnership
owned and leased 44 wholly owned Properties to operators of fast-food and
family-style restaurant chains. In connection therewith, during the six months
ended June 30, 1998 and 1997, the Partnership earned $1,858,822 and $2,029,895,
respectively, in rental income from operating leases (net of adjustments to
accrued rental income) and earned income from direct financing leases from these
Properties, $824,602 and $1,015,133 of which was earned during the quarters
ended June 30, 1998 and 1997, respectively. The decrease in rental and earned
income during the quarter and six months ended June 30, 1998, as compared to the
quarter and six months ended June 30, 1997, is primarily attributable to the
fact that in June 1998, the tenant of the Properties in Monroe, Statesville and
Morganton, North Carolina filed for bankruptcy and rejected the leases relating
to these Properties. As a result, during the quarter and six months ended June
30, 1998, the Partnership wrote off approximately $224,900 of accrued rental
income (non-cash accounting adjustments relating to the straight-lining of
future scheduled rent increases over the lease term in accordance with generally
accepted accounting principles). The Partnership also established an allowance
for doubtful accounts during the quarter and six months ended June 30, 1998, of
approximately $19,100 for rental and earned income due from this tenant due to
the fact that collection of such amounts is questionable. The general partners
are currently seeking either replacement tenants or purchasers for these
Properties. The Partnership will not recognize any rental and earned income from
these Properties until replacement tenants or purchasers for these Properties
are located.
7
<PAGE>
Results of Operations - Continued
The decrease in rental and earned income during the quarter and six
months ended June 30, 1998 was partially offset by an increase in rental and
earned income of approximately $77,500 as a result of the Partnership entering
into a new lease with a new tenant for the Property in Tempe, Arizona, for which
rental payments commenced in July 1997. No rental and earned income was earned
during the quarter and six months ended June 30, 1997 due to the former tenant
declaring bankruptcy in July 1996.
For the six months ended June 30, 1998 and 1997, the Partnership also
earned $13,717 and $25,963, respectively, in contingent rental income, $6,295
and $20,546 of which was earned during the quarters ended June 30, 1998 and
1997, respectively. The decrease in contingent rental income during the quarter
and six months ended June 30, 1998, as compared to the quarter and six months
ended June 30, 1997, is primarily attributable to a decrease in gross sales of
certain restaurant properties whose leases require the payment of contingent
rental income.
For the six months ended June 30, 1998 and 1997, the Partnership owned
and leased four Properties indirectly through joint venture arrangements. In
connection therewith, during the six months ended June 30, 1998 and 1997, the
Partnership earned $21,892 and $141,356, respectively, attributable to net
income earned by these joint ventures, including a loss of $43,758 and income of
$70,949 during the quarters ended June 30, 1998 and 1997, respectively. The
decrease in net income is primarily due to the fact that Kingsville Real Estate
Joint Venture (in which the Partnership owns a 31.13% interest in the profits
and losses of the joint venture) established an allowance for doubtful accounts
of approximately $50,800 and $65,900 during the quarter and six months ended
June 30, 1998, respectively, in accordance with its collection policy. No such
allowance was established during the quarter and six months ended June 30, 1997.
In addition, during the quarter and six months ended June 30, 1998, the joint
venture established an allowance for loss on land and net investment in the
direct financing lease for its Property in Kingsville, Texas of approximately
$316,000. The allowance represents the difference between the Property's
carrying value at June 30, 1998 and the estimated net realizable value of the
Property. Kingsville Real Estate Joint Venture is currently seeking either a
replacement tenant or purchaser for this Property.
Operating expenses, including depreciation and amortization expense,
were $364,087 and $292,359 for the six months ended June 30, 1998 and 1997,
respectively, of which $199,846 and $138,118 were incurred for the quarters
ended June 30, 1998 and 1997, respectively. The increase in operating expenses
during the quarter and six months ended June 30, 1998 is primarily attributable
to the fact that the Partnership recorded bad debt expense for past due
principal and interest amounts relating to the
8
<PAGE>
Results of Operations - Continued
loan with the tenant of the Property in Kingsville Real Estate Joint Venture in
accordance with its collection policy. The general partners are in the process
of negotiating an arrangement to collect past due amounts and will recognize any
such amounts as income if collected.
The general partners are in the process of analyzing the effects of the
consensus reached by the "Financial Accounting Standards Board in EITF 98-9,
entitled "Accounting for Contingent Rent in the Interim Financial Periods,"
issued in May 1998. The general partners do not expect that the conclusions
reached in this consensus will have a material effect on the Partnership's
financial position or results of operations.
9
<PAGE>
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 June 30, 1998.
10
<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 13th day of August, 1998.
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 June 30, 1998, and its statement of income
for the six months then ended and is qualified in its entirety by reference to
the Form 10Q of CNL Income Fund XII, Ltd. for the six months ended June 30,
1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,973,617
<SECURITIES> 0
<RECEIVABLES> 236,787
<ALLOWANCES> 120,958
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 22,281,166
<DEPRECIATION> 1,620,005
<TOTAL-ASSETS> 41,206,624
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 40,079,834
<TOTAL-LIABILITY-AND-EQUITY> 41,206,624
<SALES> 0
<TOTAL-REVENUES> 1,917,221
<CGS> 0
<TOTAL-COSTS> 279,420
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 84,667
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,575,026
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,575,026
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,575,026
<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>
