UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 650-1000
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of
the Act:
Units of limited partnership interest ($10 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 4,500,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $10 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
PART I
Item 1. Business
CNL Income Fund XII, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 20, 1991. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on September 29, 1992, the
Partnership offered for sale up to $45,000,000 of limited partnership interests
(the "Units") (4,500,000 Units at $10 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
March 12, 1992. The offering terminated on March 15, 1993, at which date the
maximum offering proceeds of $45,000,000 had been received from investors who
were admitted to the Partnership as limited partners ("Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of national and regional fast-food and family-style restaurant chains
(the "Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totalled
$39,615,456, and were used to acquire 48 Properties, including interests in
three Properties owned by joint ventures in which the Partnership is a
co-venturer, to loan $208,855 to the tenant of Kingsville Real Estate Joint
Venture (as described in Note 6 to the financial statements in Item 8 of this
report) and to establish a working capital reserve for Partnership purposes.
During the year ended December 31, 1996, the Partnership sold its Property in
Houston, Texas and reinvested the sales proceeds, along with additional funds,
in Middleburg Joint Venture. During the year ended December 31, 1998, the
Partnership entered into a joint venture arrangement, Columbus Joint Venture,
with affiliates of the General Partners, to construct and hold one restaurant
Property. In addition, during 1998, the Partnership sold the Property in Monroe,
North Carolina. As a result of the above transactions, the Partnership currently
owns 48 Properties, including interests in five Properties owned by joint
ventures in which the Partnership is co-venturer. The Partnership leases the
Properties on a triple-net basis with the lessees responsible for all repairs
and maintenance, property taxes, insurance and utilities.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. APF has agreed to issue shares of its
common stock, par value $0.01 per share (the "APF Shares"), as consideration for
the Merger. At a special meeting of the partners that is expected to be held in
the third quarter of 1999, Limited Partners holding in excess of 50% of the
Partnership's outstanding limited partnership interests must approve the Merger
prior to consummation of the transaction. If the Limited Partners at the special
meeting approve the Merger, APF will own the Properties and other assets of the
Partnership. See Item 8. Financial Statements and Supplementary Data -- Note 11.
Subsequent Event.
In the event that the Limited Partners vote against the Merger, the
Partnership will hold its Properties until the General Partners determine that
the sale or other disposition of the Properties is advantageous in view of the
Partnership's investment objectives. In deciding whether to sell Properties, the
General Partners will consider factors such as potential capital appreciation,
net cash flow and federal income tax considerations. Certain lessees also have
been granted options to purchase Properties, generally at the Property's then
fair market value after a specified portion of the lease term has elapsed. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property purchase options
granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The Properties owned by the Partnership and the joint
ventures in which the Partnership is a co-venturer provide for initial terms
ranging from 14 to 20 years (the average being 19 years), and expire between
2007 and 2018. The leases are generally on a triple-net basis, with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities. The leases of the Properties provide for minimum base annual rental
payments (payable in monthly installments) ranging from approximately $48,000 to
$213,800. The majority of the leases provide for percentage rent, based on sales
in excess of a specified amount. In addition, some of the leases provide that,
commencing in specified lease years (generally the sixth lease year), the annual
base rent required under the terms of the lease will increase.
Generally, the leases of the Properties provide for two to four
five-year renewal options subject to the same terms and conditions as the
initial lease. Certain lessees also have been granted options to purchase
Properties at the Property's then fair market value after a specified portion of
the lease term has elapsed. Under the terms of certain leases, the option
purchase price may equal the Partnership's original cost to purchase the
Property (including acquisition costs), plus a specified percentage from the
date of the lease or a specified percentage of the Partnership's purchase price,
if that amount is greater than the Property's fair market value at the time the
purchase option is exercised.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership first must
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
In June 1998, a tenant, Long John Silver's, Inc., filed for bankruptcy
and rejected the leases relating to three of its eight leases and ceased making
rental payments to the Partnership under these rejected leases. In December
1998, the Partnership sold one of the vacant Properties and intends to reinvest
the net sales proceeds from the sale of this Property in an additional Property.
The Partnership will not recognize rental and earned income from the two
remaining vacant Properties until new tenants for these Properties are located
or until the Properties are sold and the proceeds from such sales are reinvested
in additional Properties. As of March 11, 1999, the Partnership has received
rental payments on the five leases that were not rejected. While Long John
Silver's, Inc. has not rejected or affirmed the remaining five leases, there can
be no assurance that some or all of the leases will not be rejected in the
future. The lost revenues resulting from the two vacant Properties, as described
above, and the possible rejection of the remaining five leases could have an
adverse effect on the results of operations of the Partnership, if the
Partnership is not able to re-lease these Properties in a timely manner. The
General Partners are currently seeking either new tenants or purchasers for the
two remaining vacant Properties.
During 1994, the leases relating to the Properties in Columbus,
Georgia, and Amherst, Ohio were amended to provide for the payment of reduced
annual base rent with no scheduled rent increases. However, the lease amendments
provided for lower percentage rent breakpoints, as compared to the original
lease agreements, a change that was designed to result in higher percentage rent
payments at any time that percentage rent became payable. In accordance with a
provision in the amendments, as a result of the former tenant assigning the
leases to a new tenant during 1998, the rents under the assigned leases reverted
back to those required under the original lease agreements.
In August 1998, the Partnership entered into a joint venture
arrangement, Columbus Joint Venture, with affiliates of the General Partners, to
construct and hold one restaurant Property. The lease terms for this Property
are substantially the same as the Partnership's other leases as described above
in the first two paragraphs of this section.
During 1998, the tenant of the Property in Kingsville Real Estate Joint
Venture experienced financial difficulties and ceased payment of rents under the
terms of its lease agreement. In January 1999, Kingsville Real Estate Joint
Venture entered into a new lease with a new tenant. The lease terms are
substantially the same as the Partnership's other leases as described above.
Major Tenants
During 1998, four lessees (or groups of affiliated lessees) of the
Partnership, (i) Long John Silver's, Inc., (ii) Denny's, Inc. and Quincy's, Inc.
(which are affiliated entities under common control of Advantica Restaurant
Group, Inc.) (hereinafter referred to as "Advantica Restaurant Group, Inc."),
(iii) Foodmaker, Inc., and (iv) Flagstar Enterprises, Inc., each contributed
more than ten percent of the Partnership's total rental income (including the
Partnership's share of rental income from five Properties owned by joint
ventures). As of December 31, 1998, Long John Silver's, Inc. was the lessee
under leases relating to five restaurants, (excluding the three leases rejected
by this tenant, as described above), Foodmaker, Inc. was the lessee under leases
relating to ten restaurants, Advantica Restaurant Group, Inc. was the lessee
under leases relating to four restaurants, and Flagstar Enterprises, Inc. was
the lessee under leases relating to 11 restaurants. During 1998, Long John
Silver's, Inc. filed for bankruptcy. It is anticipated that based on the minimum
rental payments required by the leases, Advantica Restaurant Group, Inc.,
Foodmaker, Inc., and Flagstar Enterprises, Inc., each will continue to
contribute more than ten percent of the Partnership's total rental income in
1999. In addition, four Restaurant Chains, Long John Silver's, Hardee's, Jack in
the Box, and Denny's, each accounted for more than ten percent of the
Partnership's total rental income during 1998 (including the Partnership's share
of rental income from five Properties owned by joint ventures). In 1999, it is
anticipated that Jack in the Box, Denny's, and Hardee's each will continue to
account for more than ten percent of the Partnership's total rental income to
which the Partnership is entitled under the terms of the leases. Any failure of
these lessees or Restaurant Chains could materially affect the Partnership's
income if the Partnership is not able to re-lease these Properties in a timely
manner. As of December 31, 1998, Foodmaker, Inc. leased Properties with an
aggregate carrying value, excluding acquisition fees and certain acquisition
expenses, in excess of 20 percent of the total assets of the Partnership.
Joint Venture Arrangements
As of December 31, 1997, the Partnership had entered into four separate
joint venture arrangements, Williston Real Estate Joint Venture, Des Moines Real
Estate Joint Venture, Middleburg Joint Venture, and Kingsville Real Estate Joint
Venture, with affiliates of the General Partners to hold four Properties. In
August 1998, the Partnership entered into a joint venture arrangement, Columbus
Joint Venture, with affiliates of the General Partners to construct and hold one
restaurant Property.
The joint venture arrangements provide for the Partnership and its
joint venture partners to share in all costs and benefits associated with the
joint ventures in accordance with their respective percentage interests in the
joint ventures. The Partnership and its joint venture partners are also jointly
and severally liable for all debts, obligations and other liabilities of the
joint ventures.
Each joint venture has an initial term of 20 years and, after the
expiration of the initial term, continues in existence from year to year unless
terminated at the option of any of the joint venturers or by an event of
dissolution. Events of dissolution include the bankruptcy, insolvency or
termination of any joint venturer, sale of the Property owned by the joint
venture and mutual agreement of the Partnership and its joint venture partners
to dissolve the joint venture.
The Partnership shares management control equally with affiliates of
the General Partners for each joint venture. The joint venture agreements
restrict each venturer's ability to sell, transfer or assign its joint venture
interest without first offering it for sale to its joint venture partners,
either upon such terms and conditions as to which the venturers may agree or, in
the event the venturers cannot agree, on the same terms and conditions as any
offer from a third party to purchase such joint venture interest.
Net cash flow from operations of Williston Real Estate Joint Venture,
Des Moines Real Estate Joint Venture, Kingsville Real Estate Joint Venture,
Middleburg Joint Venture, and Columbus Joint Venture is distributed 59.05%,
18.61%, 31.13%, 87.54%, and 27.72%, respectively, to the Partnership and the
balance is distributed to each of the joint venture partners in accordance with
its respective percentage interest in the joint venture. Any liquidation
proceeds, after paying joint venture debts and liabilities and funding reserves
for contingent liabilities, will be distributed first to the joint venture
partners with positive capital account balances in proportion to such balances
until such balances equal zero, and thereafter in proportion to each joint
venture partner's percentage interest in the joint venture.
Certain Management Services
CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership. Under this agreement,
CNL Fund Advisors, Inc. is responsible for collecting rental payments,
inspecting the Properties and the tenants' books and records, assisting the
Partnership in responding to tenant inquiries and notices and providing
information to the Partnership about the status of the leases and the
Properties. CNL Fund Advisors, Inc. also assists the General Partners in
negotiating the leases. For these services, the Partnership has agreed to pay
CNL Fund Advisors, Inc. an annual fee of one percent of the sum of gross rental
revenues from Properties wholly owned by the Partnership plus the Partnership's
allocable share of gross revenues of joint ventures in which the Partnership is
a co-venturer, but not in excess of competitive fees for comparable services.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who may
also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 1998, the Partnership owned, either directly or
through joint venture arrangements, 48 Properties, located in 15 states.
Reference is made to the Schedule of Real Estate and Accumulated Depreciation
filed with this report for a listing of the Properties and their respective
costs, including acquisition fees and certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 9,200
to 467,400 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The buildings
generally are rectangular and are constructed from various combinations of
stucco, steel, wood, brick and tile. Building sizes range from approximately
2,100 to 11,400 square feet. All buildings on Properties are freestanding and
surrounded by paved parking areas. Buildings are suitable for conversion to
various uses, although modifications may be required prior to use for other than
restaurant operations.
Generally, a lessee is required, under the terms of its lease
agreement, to make such capital expenditures as may be reasonably necessary to
refurbish buildings, premises, signs and equipment so as to comply with the
lessee's obligations, if applicable, under the franchise agreement to reflect
the current commercial image of its Restaurant Chain. These capital expenditures
are required to be paid by the lessee during the term of the lease.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 1998 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
<PAGE>
Flagstar Enterprises, Inc. leases 11 Hardee's restaurants. The initial
term of each lease is 20 years (expiring between 2012 and 2013) and the average
minimum base annual rent is approximately $74,300 (ranging from approximately
$54,900 to $93,300).
Long John Silver's, Inc. leases five Long John Silver's restaurants.
The initial term of each lease is 20 years (expiring in 2013) and the average
minimum base annual rent is approximately $78,000 (ranging from approximately
$68,900 to $86,800).
Advantica Restaurant Group, Inc. leases three Denny's restaurants and
one Quincy's restaurant. The initial term of each lease is 20 years (expiring in
2012) and the average minimum base annual rent is approximately $111,600
(ranging from approximately $76,800 to $144,200).
Foodmaker, Inc. leases ten Jack in the Box restaurants. The initial
term of each lease is 18 years (expiring between 2010 and 2011) and the average
minimum base annual rent is approximately $107,600 (ranging from approximately
$83,500 to $135,300).
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of March 11, 1999, there were 3,453 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. Limited Partners who wish to sell
their Units may offer the Units for sale pursuant to the Partnership's
distribution reinvestment plan (the "Plan"), and Limited Partners who wish to
have their distributions used to acquire additional Units (to the extent Units
are available for purchase), may do so pursuant to such Plan. The General
Partners have the right to prohibit transfers of Units. From inception through
December 31, 1998, the price paid for any Unit transferred pursuant to the Plan
was $9.50 per Unit. The price paid for any Unit transferred other than pursuant
to the Plan was subject to negotiation by the purchaser and the selling Limited
Partner. The Partnership will not redeem or repurchase Units.
<PAGE>
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 1998 and 1997 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
1998 (1) 1997 (1)
------------------------------------ ----------------------------------
High Low Average High Low Average
--------- ------- ---------- -------- -------- ----------
<S> <C>
First Quarter $10.00 $5.79 $8.60 $9.50 $9.00 $9.30
Second Quarter 10.00 8.17 9.04 9.51 8.00 9.13
Third Quarter 9.50 8.15 9.31 (2) (2) (2)
Fourth Quarter 8.91 8.65 8.78 7.51 7.51 7.51
</TABLE>
(1) A total of 31,077 and 14,443 Units were transferred other than pursuant
to the Plan for the years ended December 31, 1998 and 1997,
respectively.
(2) No transfer of Units took place during the quarter other than pursuant
to the Plan.
The capital contribution per Unit was $10. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For the years ended December 31, 1998 and 1997, the Partnership
declared cash distributions of $3,960,008 and $3,825,008, respectively, to the
Limited Partners. During the quarter ended December 31, 1998, the Partnership
declared a special distribution to the Limited Partners of $135,000 which
represented cumulative excess operating reserves. No amounts distributed to
partners for the years ended December 31, 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. No distributions have been made to the General Partners to date.
As indicated in the chart below, these distributions were declared at the close
of each of the Partnership's calendar quarters. This amount includes monthly
distributions made in arrears for the Limited Partners electing to receive such
distributions on this basis.
Quarter Ended 1998 1997
----------------------- ------------- -------------
March 31 $ 956,252 $ 956,252
June 30 956,252 956,252
September 30 956,252 956,252
December 31 1,091,252 956,252
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although some Limited Partners, in accordance with their election, receive
monthly distributions, for an annual fee.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------------- ---------------- --------------- ---------------- ---------------
<S> <C>
Year ended December 31:
Revenues (1) $ 4,051,192 $ 4,522,216 $ 4,553,058 $ 4,570,571 $ 4,548,580
Net income (2) 2,933,537 3,952,214 3,943,043 4,014,372 4,027,834
Cash distributions
declared (3) 3,960,008 3,825,008 3,825,008 3,870,007 3,825,006
Net income per Unit (2) 0.65 0.87 0.87 0.88 0.89
Cash distributions declared
per Unit (3) 0.88 0.85 0.85 0.86 0.85
At December 31:
Total assets $40,634,898 $41,430,990 $ 41,343,138 $ 41,229,132 $ 41,127,173
Partners' capital 39,390,841 40,417,312 40,290,106 40,172,071 40,027,706
</TABLE>
(1) Revenues include equity in earnings of joint ventures and adjustments
to accrued rental income due to the tenant of certain Properties filing
for bankruptcy.
(2) Net income for the years ended December 31, 1998 and 1996, includes
$104,374 and $15,355, respectively, from a loss on sale of land and
building. Net income for the year ended December 31, 1998, includes
$206,535 for a provision for loss on building.
(3) Distributions for the years ended December 31, 1998 and 1995, include a
special distribution to the Limited Partners of $135,000 and $45,000,
respectively, which represented cumulative excess operating reserves.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership was organized on August 20, 1991, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurant
Properties were to be constructed, which are leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains. The
leases are generally triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 1998, the Partnership owned 48 Properties, either directly or through joint
venture arrangements.
Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 1998, 1997, and 1996, was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest received,
less cash paid for expenses). Cash from operations was $4,116,780, $3,806,988,
and $3,951,689 for the years ended December 31, 1998, 1997, and 1996,
respectively. The increase in cash from operations during 1998, as compared to
1997, is primarily a result of changes in the Partnership's working capital, and
the decrease in cash from operations during 1997, as compared to 1996, is
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital during each
of the respective years.
Other sources and uses of capital included the following during the
years ended December 31, 1998, 1997 and 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 that
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 87.54% 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.
In March 1997, the Partnership entered into a new lease for the
Property in Tempe, Arizona. In connection therewith, the Partnership incurred
$55,000 in renovation costs which were completed in May 1997.
In August 1998, the Partnership entered into a joint venture
arrangement, Columbus Joint Venture, with affiliates of the general partners, to
construct and hold one restaurant Property. As of December 31, 1998, the
Partnership had contributed approximately $115,000 to purchase land and pay for
construction costs relating to the joint venture and owned a 27.72% interest in
the profits and losses of this joint venture. When funding is completed, the
Partnership expects to have an approximate 28 percent interest in the profits
and losses of the joint venture.
<PAGE>
In December 1998, the Partnership sold its Property in Monroe, North
Carolina, to an unrelated third party, and received net sales proceeds of
$483,549. As a result of this transaction, the Partnership recognized a loss of
$104,374 for financial reporting purposes. The Partnership intends to reinvest
these net sales proceeds in an additional Property.
None of the Properties owned by the Partnership or the joint ventures
in which the Partnership owns an interest is or may be encumbered. Subject to
certain restrictions on borrowing, however, the Partnership may borrow funds but
will not encumber any of the Properties in connection with any such borrowing.
The Partnership will not borrow for the purpose of returning capital to the
Limited Partners. The Partnership will not borrow under arrangements that would
make the Limited Partners liable to creditors of the Partnership. The General
Partners further have represented that they will use their reasonable efforts to
structure any borrowing so that it will not constitute "acquisition
indebtedness" for federal income tax purposes and also will limit the
Partnership's outstanding indebtedness to three percent of the aggregate
adjusted tax basis of its Properties. Affiliates of the General Partners from
time to time incur certain operating expenses on behalf of the Partnership for
which the Partnership reimburses the affiliates without interest.
Currently, rental income from the Partnership's Properties 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 partners. At December 31, 1998, the Partnership had $2,362,980
invested in such short-term investments as compared to $1,706,415 at December
31, 1997. The increase in cash and cash equivalents during 1998, is primarily
due to the receipt of $483,549 in net sales proceeds from the 1998 sale of the
Property in Monroe, North Carolina. The funds remaining at December 31, 1998,
after payment of distributions and other liabilities, will be used to meet the
Partnership's working capital and other needs.
During 1998, 1997, and 1996, affiliates of the General Partners
incurred on behalf of the Partnership $130,847, $97,078, and $118,929,
respectively, for certain operating expenses. As of December 31, 1998 and 1997,
the Partnership owed $24,025 and $6,887, respectively, to affiliates for such
amounts and accounting and administrative services. As of March 11, 1999, the
Partnership had reimbursed the affiliates all such amounts. Other liabilities
including distributions payable increased to $1,220,032 at December 31, 1998,
from $1,006,791 at December 31, 1997, primarily as the result of the
Partnership's accruing a special distribution of accumulated, excess operating
reserves payable to the Limited Partners of $135,000 at December 31, 1998. The
increase was also partially a result of an increase in rents paid in advance at
December 31, 1998. 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 $3,960,008 for the year ended December 31, 1998, and
$3,825,008 for each of the years ended December 31, 1997 and 1996. This
represents a distribution of $0.88 per Unit for the year ended December 31,
1998, and $0.85 per Unit for each of the years ended December 31, 1997 and 1996.
No amounts distributed or to be distributed to the Limited Partners for the
years ended December 31, 1998, 1997, and 1996, 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 General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
Due to low operating expenses and ongoing cash flow, the General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition, because all leases of the Partnership's Properties are
on a triple-net basis, it is not anticipated that a permanent reserve for
maintenance and repairs will be established at this time. To the extent,
however, that the Partnership has insufficient funds for such purposes, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. As consideration for the Merger, APF has agreed to
issue 4,768,496 APF Shares which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the price paid
by APF investors in APF's most recent public offering. In order to assist the
General Partners in evaluating the proposed merger consideration, the General
Partners retained Valuation Associates, a nationally recognized real estate
appraisal firm, to appraise the Partnership's restaurant property portfolio.
Based on Valuation Associates' appraisal, the Partnership's property portfolio
and other assets were valued on a going concern basis (meaning the Partnership
continues unchanged) at $46,951,127 as of December 31, 1998. Legg Mason Wood
Walker, Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a financial point
of view. The APF Shares are expected to be listed for trading on the New York
Stock Exchange concurrently with the consummation of the Merger, and, therefore,
would be freely tradable at the option of the former Limited Partners. At a
special meeting of the partners that is expected to be held in the third quarter
of 1999, Limited Partners holding in excess of 50% of the Partnership's
outstanding limited partnership interests must approve the Merger prior to
consummation of the transaction. The General Partners intend to recommend that
the Limited Partners of the Partnership approve the Merger. In connection with
their recommendation, the General Partners will solicit the consent of the
Limited Partners at the special meeting.
Results of Operations
During the years ended December 31, 1996, the Partnership owned and
leased 45 wholly owned Properties (including one Property in Houston, Texas,
which was sold in April 1996). During 1998 and 1997, the Partnership owned and
leased 44 wholly owned Properties (including one Property in Monroe, North
Carolina, which was sold in December 1998). During 1996 and 1997, the
Partnership was a co-venturer in four separate joint ventures that each owned
and leased one Property, and during 1998, the Partnership was a co-venturer in
five separate joint ventures that each owned and leased one Property. As of
December 31, 1998, the Partnership owned, either directly or through joint
venture arrangements, 48 Properties which are, in general, subject to long-term,
triple-net leases. The leases of the Properties provide for minimum base annual
rental payments (payable in monthly installments) ranging from approximately
$48,000 to $213,800. The majority of the leases provide for percentage rent
based on sales in excess of a specified amount. In addition, some of the leases
provide that, commencing in specified lease years (generally the sixth lease
year), the annual base rent required under the terms of the lease will increase.
For further description of the Partnership's leases and Properties, see Item 1.
Business - Leases and Item 2. Properties, respectively.
During the years ended December 31, 1998, 1997, and 1996, the
Partnership earned $3,862,390, $4,102,842, and $4,165,640, respectively, in
rental income from operating leases (net of adjustments to accrued rental
income) and earned income from direct financing leases from Properties wholly
owned by the Partnership. Rental and earned income decreased approximately
$136,300 during 1998, as compared to 1997, primarily due to the fact that in
June 1998, Long John Silver's, Inc., filed for bankruptcy and rejected the
leases relating to three of its eight leases. As a result, the tenant ceased
making rental payments on the three rejected leases. As of March 11, 1999, the
Partnership has continued receiving rental payments relating to the five leases
not rejected by the tenant. In conjunction with the three rejected leases,
during 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). In December 1998, the Partnership sold one of
the vacant Properties, as described above in "Liquidity and Capital Resources,"
and intends to reinvest the net sales proceeds from the sale of this Property in
an additional Property. The Partnership will not recognize any rental and earned
income from these two vacant Properties until new tenants for these Properties
are located, or until the Properties are sold and the proceeds from such sales
are reinvested in additional Properties. While Long John Silver's, Inc. has not
rejected or affirmed the remaining five leases, there can be no assurance that
some or all of the leases will not be rejected in the future. The lost revenues
resulting from the two vacant Properties, as described above, and the possible
rejection of the remaining five leases could have an adverse effect on the
results of operations of the Partnership, if the Partnership is not able to
re-lease these Properties in a timely manner. The General Partners are currently
seeking either new tenants or buyers for the two remaining, vacant Properties.
The decrease in rental and earned income during 1997, as compared to
1996, is primarily attributable to a decrease of approximately $51,800 during
the year ended December 31, 1997 as a result of the sale of the Property in
Houston, Texas, in April 1996, as discussed above in "Liquidity and Capital
Resources."
In addition, rental and earned income also decreased approximately
$23,500 during 1997 as a result of the fact that the tenant of the Property in
Tempe, Arizona, declared bankruptcy and ceased operations of the restaurant
business located on the Property in June 1996. As a result of the termination of
this lease, during the year ended December 31, 1996, the Partnership
reclassified this lease from a direct financing lease to an operating lease. In
March 1997, the Partnership entered into a new lease for the Property in Tempe,
Arizona with a new tenant to operate the Property for which rental payments
commenced in July 1997. The decrease in rental and earned income during 1997, as
compared to 1996, was partially offset by an increase in rental income earned
from the new tenant during 1997.
During the years ended December 31, 1998, 1997, and 1996, the
Partnership also earned $23,433, $54,330, and $67,652, respectively, in
contingent rental income. The decrease in contingent rental income during 1998
and 1997, each as compared to the previous year, is primarily attributable to
decreased gross sales of certain restaurant Properties requiring the payments of
contingent rental income.
In addition, for the years ended December 31, 1998, 1997, and 1996, the
Partnership earned $95,142, $277,325, and $200,499, respectively, attributable
to net income earned by joint ventures in which the Partnership is a
co-venturer. The decrease in net income earned by joint ventures during 1998, as
compared to 1997, 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 $116,700 during 1998. The tenant of this Property experienced
financial difficulties and ceased payment of rents under the terms of their
lease agreement. No such allowance was established during the year ended
December 31, 1997. In addition, during 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 December 31,
1998 and the estimated net realizable value of the Property. In January 1999,
Kingsville Real Estate Joint Venture entered into a new lease for this Property
with a new tenant. The increase in net income earned by joint ventures during
1997, as compared to 1996, 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."
During the year ended December 31, 1998, four of the Partnership's
lessees (or group of affiliated lessees), (i) Long John Silver's, Inc., (ii)
Foodmaker, Inc., (iii) Denny's Inc. and Quincy's, Inc. (which are affiliated
under common control of Advantica Restaurant Group, Inc.), and (iv) Flagstar
Enterprises, Inc., each contributed more than ten percent of the Partnership's
total rental income (including the Partnership's share of rental income from
five Properties owned by joint ventures). As of December 31, 1998, Long John
Silver's, Inc. was the lessee under leases relating to five restaurants
(excluding the three leases rejected by the tenant, as described above),
Foodmaker, Inc. was the lessee under leases relating to ten restaurants,
Advantica Restaurant Group, Inc. was the lessee under leases relating to four
restaurants, and Flagstar Enterprises, Inc. was the lessee under leases relating
to 11 restaurants. It is anticipated that based on the minimum rental payments
required by the leases, Foodmaker, Inc., Advantica Restaurant Group, Inc., and
Flagstar Enterprises, Inc. each will continue to contribute more than ten
percent of the Partnership's total rental income during 1999. In addition,
during the year ended December 31, 1998, four Restaurant Chains, Long John
Silver's, Hardee's, Jack in the Box, and Denny's, each accounted for more than
ten percent of the Partnership's total rental income (including the
Partnership's share of rental income from five Properties owned by joint
ventures). During 1998, Long John Silver's Inc. filed for bankruptcy, as
described above. In 1999, it is anticipated that Jack in the Box, Denny's, and
Hardee's each will continue to account for more than ten percent of the
Partnership's total rental income to which the Partnership is entitled under the
terms of the leases. Any failure of these lessees or Restaurant Chains could
materially affect the Partnership's income if the Partnership is not able to
re-lease the Properties in a timely manner.
<PAGE>
During the years ended December 31, 1998, 1997, and 1996, the
Partnership also earned $70,227, $87,719, and $119,267, respectively, in
interest and other income. The decrease in interest and other income during
1998, as compared to 1997, is primarily a result of the Partnership establishing
an allowance for doubtful accounts during 1998, of approximately $17,300 for
past due accrued interest income amounts that relate to the loan with the tenant
of the Property in Kingsville Real Estate Joint Venture due to financial
difficulties the tenant is experiencing. In January 1999, Kingsville Real Estate
Joint Venture entered into a new lease with a new tenant, and in conjunction
therewith, the General Partners agreed to cease collection efforts on the past
due amounts. The decrease in interest and other income during 1997, as compared
to 1996, is primarily attributable to the Partnership granting certain easement
rights during 1996, to the owner of the Property adjacent to the Partnership's
Property in Black Mountain, North Carolina, in exchange for $25,000. In
addition, the decrease in interest and other income during 1997, as compared to
1996, is offset by an increase attributable to the Partnership recognizing
approximately $7,900 in other income due to the fact that the former tenant of
the Property in Tempe, Arizona, paid past due real estate taxes relating to the
Property and the Partnership reversed such amounts during 1997 that it had
previously accrued as payable during 1996.
Operating expenses, including depreciation and amortization expense,
were $806,746, $570,002, and $594,660, for the years ended December 31, 1998,
1997, and 1996, respectively. The increase in operating expenses during 1998, as
compared to 1997, is primarily attributable to the fact that the Partnership
recorded bad debt expense for past due principal and interest amounts relating
to the loan with the tenant of the Property in Kingsville Real Estate Joint
Venture due to financial difficulties the tenant is experiencing. In January
1999, Kingsville Real Estate Joint Venture entered into a new lease with a new
tenant, and the General Partners ceased collection efforts on the past due
amounts.
In addition, the increase in operating expenses during 1998, is
partially attributable to the fact that the Partnership accrued insurance and
real estate tax expenses as a result of Long John Silver's, Inc. filing for
bankruptcy and rejecting the leases relating to three of its eight leased
Properties in June 1998, as described above. In addition, the increase in
operating expenses during 1998, is partially attributable to an increase in
depreciation expense due to the fact that during 1998, the Partnership
reclassified these assets from net investment in direct financing leases to land
and buildings on operating leases. In December 1998, the Partnership sold one of
the vacant Properties and intends to reinvest the net sales proceeds it received
from the sale of this Property in an additional Property. The Partnership will
continue to incur certain expenses, such as real estate taxes, insurance, and
maintenance relating to the two remaining, vacant Properties until new tenants
or buyers are located. The Partnership is currently seeking either new tenants
or purchasers for these two Properties.
In addition, the increase in operating expenses during 1998, is
partially a result of the Partnership incurring $24,282 in transaction costs
relating to the General Partners retaining financial and legal advisors to
assist them in evaluating and negotiating the proposed Merger with APF, as
described above in "Liquidity and Capital Resources." If the Limited Partners
reject the Merger, the Partnership will bear the portion of the transaction
costs based upon the percentage of "For" votes and the General Partners will
bear the portion of such transaction costs based upon the percentage of
"Against" votes and abstentions.
The decrease in operating expenses during 1997, as compared to 1996, is
partially attributable to the fact that during 1996, the Partnership recorded
current and past due real estate taxes relating to the Property in Tempe,
Arizona, due to financial difficulties the tenant was experiencing. As described
above, the amounts accrued during 1996 were reversed and recorded as other
income during 1997. No real estate taxes were recorded during 1997 relating to
the Property in Tempe, Arizona, due to the fact that the new tenant is
responsible for the real estate taxes under the terms of the new lease.
In addition, the decrease in operating expenses during 1997, as
compared to 1996, is partially attributable to a decrease in accounting and
administrative expenses associated with operating the Partnership and its
Properties. In addition, the decrease in operating expenses during 1997, is
partially attributable to the Partnership incurring certain expenses, such as
insurance and legal fees during 1996, due to the former tenant of the Property
in Tempe, Arizona declaring bankruptcy during 1996.
As a result of the sales of the Properties in Monroe, North Carolina
and Houston, Texas, as described above in "Liquidity and Capital Resources," the
Partnership recognized losses of $104,374 and $15,355 for financial reporting
purposes for the years ended December 31, 1998 and 1996, respectively. No
Properties were sold during 1997.
During the year ended December 31, 1998, the Partnership recorded a
provision for loss on building in the amount of $206,535 for financial reporting
purposes relating to the Long John Silver's Property in Morganton, North
Carolina. The tenant of this Property filed for bankruptcy and ceased payment of
rents under the terms of its lease agreement, as described above. The allowance
represents the difference between the carrying value of the Property at December
31, 1998 and the estimated net realizable value for this Property.
The Partnership's leases as of December 31, 1998, are, in general,
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Management expects that increases in restaurant
sales volumes due to inflation and real sales growth should result in an
increase in rental income over time. Continued inflation also may cause capital
appreciation of the Partnership's Properties. Inflation and changing prices,
however, also may have an adverse impact on the sales of the restaurants and on
potential capital appreciation of the Properties.
Year 2000
The Year 2000 problem is the result of information technology systems
and embedded systems (products which are made with microprocessor (computer)
chips such as HVAC systems, physical security systems and elevators) using a
two-digit format, as opposed to four digits, to indicate the year. Such
information technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.
The Partnership currently does not have any information technology
systems. Affiliates of the General Partners provide all services requiring the
use of information technology systems pursuant to a management agreement with
the Partnership. The maintenance of embedded systems, if any, at the
Partnership's Properties is the responsibility of the tenants of the Properties
in accordance with the terms of the Partnership's leases. The General Partners
and affiliates have established a team dedicated to reviewing the internal
information technology systems used in the operation of the Partnership, and the
information technology and embedded systems and the Year 2000 compliance plans
of the Partnership's tenants, significant suppliers, financial institutions and
transfer agent.
The information technology infrastructure of the affiliates of the
General Partners consists of a network of personal computers and servers that
were obtained from major suppliers. The affiliates utilize various
administrative and financial software applications on that infrastructure to
perform the business functions of the Partnership. The inability of the General
Partners and affiliates to identify and timely correct material Year 2000
deficiencies in the software and/or infrastructure could result in an
interruption in, or failure of, certain of the Partnership's business activities
or operations. Accordingly, the General Partners and affiliates have requested
and are evaluating documentation from the suppliers of the software and
infrastructure of the affiliates regarding the Year 2000 compliance of their
products that are used in the business activities or operations of the
Partnership. The General Partners and affiliates have not yet received
sufficient certifications to be assured that the suppliers have fully considered
and mitigated any potential material impact of the Year 2000 deficiencies. The
costs expected to be incurred by the General Partners and affiliates to become
Year 2000 compliant will be incurred by the General Partners and affiliates;
therefore, these costs will have no impact on the Partnership's financial
position or results of operations.
The Partnership has material third party relationships with its
tenants, financial institutions and transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. If any of these third parties are unable to meet their obligations
to the Partnership because of the Year 2000 deficiencies, such a failure may
have a material impact on the Partnership. Accordingly, the General Partners
have requested and are evaluating documentation from the Partnership's tenants,
financial institutions, and transfer agent relating to their Year 2000
compliance plans. The General Partners have not yet received sufficient
certifications to be assured that the tenants, financial institutions, and
transfer agent have fully considered and mitigated any potential material impact
of the Year 2000 deficiencies. Therefore, the General Partners do not, at this
time, know of the potential costs to the Partnership of any adverse impact or
effect of any Year 2000 deficiencies by these third parties.
The General Partners currently expect that all year 2000 compliance
testing and any necessary remedial measures on the information technology
systems used in the business activities and operations of the Partnership will
be completed prior to June 30, 1999. Based on the progress the General Partners
and affiliates have made in identifying and addressing the Partnership's Year
2000 issues and the plan and timeline to complete the compliance program, the
General Partners do not foresee significant risks associated with the
Partnership's Year 2000 compliance at this time. Because the General Partners
and affiliates are still evaluating the status of the information technology
systems used in business activities and operations of the Partnership and the
systems of the third parties with which the Partnership conducts its business,
the General Partners have not yet developed a comprehensive contingency plan and
are unable to identify "the most reasonably likely worst case scenario" at this
time. If the General Partners identify significant risks related to the
Partnership's Year 2000 compliance or if the Partnership's Year 2000 compliance
program's progress deviates substantially from the anticipated timeline, the
General Partners will develop appropriate contingency plans.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants
Financial Statements:
Balance Sheets
Statements of Income
Statements of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund XII, Ltd.
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Income Fund XII, Ltd. (a Florida limited partnership) at December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules listed in the index appearing under item 14(a)(2)
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related financial statements. These financial
statements and financial statement schedules are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Orlando, Florida
January 27, 1999, except for Note 11 for which the date is March 11, 1999
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------ -----------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation and allowance for
loss on building $20,703,333 $20,820,279
Net investment in direct financing leases 12,471,978 13,656,265
Investment in joint ventures 2,522,004 2,517,421
Cash and cash equivalents 2,362,980 1,706,415
Receivables, less allowance for doubtful
accounts of $214,633 and $7,482 16,862 202,472
Prepaid expenses 7,038 7,216
Lease costs, less accumulated amortization of
$3,256 and $1,307 26,297 24,746
Accrued rental income, less allowance for
doubtful accounts of $6,323 in 1998 2,524,406 2,496,176
------------------ -----------------
$40,634,898 $41,430,990
================== =================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 21,195 $ 10,558
Accrued and escrowed real estate taxes payable 10,137 3,244
Distributions payable 1,091,252 956,252
Due to related parties 24,025 6,887
Rents paid in advance and deposits 97,448 36,737
------------------ -----------------
Total liabilities 1,244,057 1,013,678
Partners' capital 39,390,841 40,417,312
------------------ -----------------
$40,634,898 $41,430,990
================== =================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C>
Revenues:
Rental income from operating leases $ 2,515,351 $ 2,455,312 $ 2,473,574
Adjustments to accrued rental income (224,867 ) -- --
Earned income from direct financing 1,571,906 1,647,530 1,692,066
leases
Contingent rental income 23,433 54,330 67,652
Interest and other income 70,227 87,719 119,267
-------------- -------------- --------------
3,956,050 4,244,891 4,352,559
-------------- -------------- --------------
Expenses:
General operating and administrative 148,427 162,593 173,614
Professional services 32,758 28,665 39,121
Bad debt expense 188,990 -- --
Management fees to related parties 41,537 40,218 40,244
Real estate taxes 8,989 -- 7,891
State and other taxes 17,653 18,496 18,471
Depreciation and amortization 344,110 320,030 315,319
Transaction costs 24,282 -- --
-------------- -------------- --------------
806,746 570,002 594,660
-------------- -------------- --------------
Income Before Equity in Earnings of Joint
Ventures, Loss on Sale of Land and
Buildings, and Provision for Loss on
Building 3,149,304 3,674,889 3,757,899
Equity in Earnings of Joint Ventures 95,142 277,325 200,499
Loss on Sale of Land and Buildings (104,374 ) -- (15,355)
Provision for Loss on Building (206,535 ) -- --
-------------- -------------- --------------
Net Income $ 2,933,537 $ 3,952,214 $ 3,943,043
============== ============== ==============
Allocation of Net Income:
General partners $ 30,894 $ 39,522 $ 39,533
Limited partners 2,902,643 3,912,692 3,903,510
-------------- -------------- --------------
$ 2,933,537 $ 3,952,214 $ 3,943,043
============== ============== ==============
Net Income Per Limited Partner Unit $ 0.65 $ 0.87 $ 0.87
============== ============== ==============
Weighted Average Number of
Limited Partner Units Outstanding 4,500,000 4,500,000 4,500,000
============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
General Partners Limited Partners
------------------------- ------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
------------- ----------- ------------- ------------- ------------- -------------- ------------
<S> <C>
Balance, December 31, 1995 $ 1,000 $ 112,356 $ 45,000,000 $ (10,690,019 ) $ 11,123,278 $ (5,374,544 ) $40,172,071
Distributions to limited
partners ($0.85 per
limited partner unit) -- -- -- (3,825,008 ) -- -- (3,825,008 )
Net income -- 39,533 -- -- 3,903,510 -- 3,943,043
------------ ------------ ------------ -------------- ------------- ------------- ------------
Balance, December 31, 1996 1,000 151,889 45,000,000 (14,515,027 ) 15,026,788 (5,374,544 ) 40,290,106
Distributions to limited
partners ($0.85 per
limited partner unit) -- -- -- (3,825,008 ) -- -- (3,825,008 )
Net income -- 39,522 -- -- 3,912,692 -- 3,952,214
------------ ------------ ------------ -------------- ------------- ------------- ------------
Balance, December 31, 1997 1,000 191,411 45,000,000 (18,340,035 ) 18,939,480 (5,374,544 ) 40,417,312
Distributions to limited
partners ($0.88 per
limited partner unit) -- -- -- (3,960,008 ) -- -- (3,960,008 )
Net income -- 30,894 -- -- 2,902,643 -- 2,933,537
------------ ------------ ------------ -------------- ------------- ------------- ------------
Balance, December 31, 1998 $ 1,000 $ 222,305 $ 45,000,000 $ (22,300,043 ) $ 21,842,123 $ (5,374,544 ) $39,390,841
============ ============ ============ ============== ============= ============= ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---------------- --------------- ---------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 4,094,016 $ 3,736,731 $ 3,951,047
Distributions from joint ventures 205,815 256,653 190,596
Cash paid for expenses (243,316 ) (252,145 ) (278,240)
Interest received 60,265 65,749 88,286
---------------- --------------- ---------------
Net cash provided by operating
activities 4,116,780 3,806,988 3,951,689
---------------- --------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of land and building 483,549 -- 1,640,000
Additions to land and buildings on --
operating leases -- (55,000 )
Investment in joint ventures (115,256 ) -- (1,645,024)
Collections on loan to tenant of joint
venture -- 4,886 7,741
Payment of lease costs (3,500 ) (26,052 ) --
---------------- --------------- ---------------
Net cash provided by (used in)
investing activities 364,793 (76,166 ) 2,717
---------------- --------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (3,825,008 ) (3,825,008 ) (3,870,008)
---------------- --------------- ---------------
Net cash used in financing activities (3,825,008 ) (3,825,008 ) (3,870,008)
---------------- --------------- ---------------
Net Increase (Decrease) in Cash and Cash
Equivalents 656,565 (94,186 ) 84,398
Cash and Cash Equivalents at Beginning of Year 1,706,415 1,800,601 1,716,203
---------------- --------------- ---------------
Cash and Cash Equivalents at End of Year $ 2,362,980 $ 1,706,415 $ 1,800,601
================ =============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
--------------- --------------- ----------------
<S> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $ 2,933,537 $ 3,952,214 $ 3,943,043
--------------- --------------- ----------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Bad debt expense 188,990 -- --
Depreciation 342,161 317,189 313,319
Amortization 1,949 2,841 2,000
Equity in earnings of joint venture,
net of distributions 110,673 (20,672 ) (9,903 )
Loss on sale of land and buildings 104,374 -- 15,355
Provision for loss on building 206,535 -- --
Decrease in net investment in direct
financing leases 164,614 132,771 121,597
Decrease (increase) in receivables (3,380) (4,450 ) 48,671
Decrease (increase) in prepaid expenses 178 (430 ) (4,862 )
Increase in accrued rental income (28,230) (533,121 ) (518,502 )
Increase (decrease) in accounts
payable and accrued expenses 17,530 (10,207 ) 8,745
Increase (decrease) in due to related
parties 17,138 3,906 (4,269 )
Increase (decrease) in rents paid in
advance and deposits 60,711 (33,053 ) 36,495
--------------- --------------- ----------------
Total adjustments 1,183,243 (145,226 ) 8,646
--------------- --------------- ----------------
Net Cash Provided by Operating Activities $ 4,116,780 $ 3,806,988 $ 3,951,689
=============== =============== ================
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid at
December 31 $ 1,091,252 $ 956,252 $ 956,252
=============== =============== ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund XII, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators or franchisees of
national and regional fast-food and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50 percent shareholders of
the Corporate General Partner. The general partners have responsibility
for managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
on a triple-net basis, whereby the tenant is generally responsible for
all operating expenses relating to the property, including property
taxes, insurance, maintenance and repairs. The leases are accounted for
using either the direct financing or the operating methods. Such
methods are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (Note 4). Unearned income is deferred and
amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Partnership's net
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date. Whenever a tenant defaults
under the terms of its lease, or events or changes in
circumstance indicate that the tenant will not lease the
property through the end of the lease term, the Partnership
either reserves or writes-off the cumulative accrued rental
income balance.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations. The
general partners determine whether an impairment in value has occurred
by comparing the estimated future undiscounted cash flows, including
the residual value of the property, with the carrying cost of the
individual property. If an impairment is indicated, the assets are
adjusted to their fair values. Although the general partners have made
their best estimate of these factors based on current conditions, it is
reasonably possible that changes could occur in the near term which
could adversely affect the general partners' estimate of net cash flows
expected to be generated from its properties and the need for asset
impairment write-downs.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
and to decrease rental or other income or increase bad debt expense for
the current period, although the Partnership continues to pursue
collection of such amounts. If amounts are subsequently determined to
be uncollectible, the corresponding receivable and allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership's investments in Des
Moines Real Estate Joint Venture, Williston Real Estate Joint Venture,
Kingsville Real Estate Joint Venture, Middleburg Joint Venture and
Columbus Joint Venture are accounted for using the equity method since
the Partnership shares control with affiliates which have the same
general partners.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts. The Partnership limits investment of
temporary cash investments to financial institutions with high credit
standing; therefore, the Partnership believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Lease Costs - Brokerage fees associated with negotiating a new lease
are amortized over the term of the new lease using the straight-line
method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
2. Leases:
The Partnership leases its land and buildings to operators of national
and regional fast-food and family-style restaurants. The leases are
accounted for under the provisions of Statement of Financial Accounting
Standards No. 13, "Accounting for Leases." Some of the leases have been
classified as operating leases and some of the leases have been
classified as direct financing leases. For the leases classified as
direct financing leases, the building portions of the property leases
are accounted for as direct financing leases while the land portions of
the majority of the leases are operating leases. Substantially all
leases are for 14 to 20 years and provide for minimum and contingent
rentals. In addition, the tenant pays all property taxes and
assessments, fully maintains the interior and exterior of the building
and carries insurance coverage for public liability, property damage,
fire and extended coverage. The lease options generally allow tenants
to renew the leases for two to four successive five-year periods
subject to the same terms and conditions as the initial lease. Most
leases also allow the tenant to purchase the property at fair market
value after a specified portion of the lease has elapsed.
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C>
Land $12,584,387 $12,837,754
Buildings 10,120,580 9,443,412
----------------- -----------------
22,704,967 22,281,166
Less accumulated depreciation (1,795,099 ) (1,460,887 )
----------------- -----------------
20,909,868 20,820,279
Less allowance for loss on
building (206,535 ) --
----------------- -----------------
$20,703,333 $20,820,279
================= =================
</TABLE>
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - Continued:
In March 1997, the Partnership entered into a new lease for the
property in Tempe, Arizona. In connection therewith, the Partnership
incurred $55,000 in renovation costs which were completed in May 1997.
In December 1998, the Partnership sold its property in Monroe, North
Carolina, and received net sales proceeds of $483,549, resulting in a
loss of $104,374 for financial reporting purposes.
Some leases provide for escalating guaranteed minimum rents throughout
the lease term. Income from these scheduled rent increases is
recognized on a straight-line basis over the terms of the leases. For
the years ended December 31, 1998, 1997 and 1996, the Partnership
recognized $28,230 (net of $6,323 in reserves and $224,867 in
write-offs), $533,121, and $518,502, respectively, of such rental
income.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 1998:
1999 $ 2,212,548
2000 2,214,984
2001 2,224,926
2002 2,244,948
2003 2,521,540
Thereafter 21,695,400
------------------
$33,114,346
==================
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - Continued:
During the year ended December 31, 1998, the Partnership established an
allowance for loss on building of $206,535, relating to the Long John
Silver's property in Morganton, North Carolina. The tenant of this
property filed for bankruptcy and ceased payment of rents under the
terms of its lease agreement. The allowance represents the difference
between the carrying value of the property at December 31, 1998, and
the current estimated net realizable value for this property.
4. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at December 31:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
<S> <C>
Minimum lease payments
receivable $ 24,790,776 $ 28,413,665
Estimated residual values 3,924,188 4,190,941
Less unearned income (16,242,986 ) (18,948,341)
------------------ ------------------
Net investment in direct financing
leases $ 12,471,978 $ 13,656,265
================== ==================
</TABLE>
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 1998:
1999 $1,678,170
2000 1,678,170
2001 1,678,170
2002 1,678,170
2003 1,731,030
Thereafter 16,347,066
-----------------
$24,790,776
=================
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 3).
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
4. Net Investment in Direct Financing Leases - Continued:
During the year ended December 31, 1998, three of the Partnership's
leases with Long John Silver's, Inc. were rejected in connection with
the tenant filing for bankruptcy. As a result, the Partnership
reclassified these assets from net investment in direct financing
leases to land and buildings on operating leases. In accordance with
Statement of Financial Accounting Standards No. 13, "Accounting for
Leases," the Partnership recorded the reclassified assets at the lower
of original cost, present fair value, or present carrying value. No
loss on termination of direct financing leases was recorded for
financial reporting purposes.
5. Investment in Joint Ventures:
As of December 31, 1998, the Partnership had a 59.05%, an 18.61%, a
31.13%, and an 87.54% interest in the profits and losses of Williston
Real Estate Joint Venture, Des Moines Real Estate Joint Venture,
Kingsville Real Estate Joint Venture, and Middleburg Joint Venture,
respectively. The remaining interests in these joint ventures are held
by affiliates of the Partnership which have the same general partners.
In August 1998, the Partnership entered into a joint venture agreement,
Columbus Joint Venture, with affiliates of the general partners, to
construct and hold one restaurant property. As of December 31, 1998,
the Partnership contributed amounts to purchase land and pay
construction costs relating to the joint venture. The Partnership has
agreed to contribute additional amounts to the joint venture for
construction costs. As of December 31, 1998 the Partnership owned a
27.72% interest in the profits and losses of this joint venture. When
funding is complete, the Partnership expects to have an approximate 28
percent interest 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 affiliates.
Williston Real Estate Joint Venture, Des Moines Real Estate Joint
Venture, Kingsville Real Estate Joint Venture, Middleburg Joint
Venture, and Columbus Joint Venture each own and lease one property to
an operator of national fast-food or family-style restaurants. The
following presents the joint ventures' combined, condensed financial
information at December 31:
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
5. Investment in Joint Ventures - Continued:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation and allowance for
loss on land $2,498,504 $1,768,636
Net investment in direct financing
leases, less allowance for
impairment in carrying value 2,219,798 2,446,688
Cash 5,671 6,893
Receivables -- 13,843
Accrued rental income 166,447 157,252
Other assets 283 443
Liabilities 483,138 7,673
Partners' capital 4,407,565 4,386,082
Revenues 337,881 481,085
Provision for loss on land and direct
financing lease (316,113 ) --
Net income (loss) (38,867 ) 446,047
</TABLE>
The Partnership recognized income totalling $95,142, $277,325, and
$200,499 for the years ended December 31, 1998, 1997, and 1996,
respectively, from these joint ventures.
6. Receivables:
During 1993, the Partnership loaned $208,855 to the tenant of the
property owned by Kingsville Real Estate Joint Venture in connection
with the purchase of equipment for the restaurant property. The loan,
which bore interest at a rate of ten percent, was payable over 84
months and was collateralized by the restaurant equipment. Receivables
at December 31, 1997, included $188,642 relating to this loan,
including accrued interest of $7,488. During the year ended December
31, 1998, the Partnership established an allowance for doubtful
accounts of $205,965, which represented the entire amount outstanding
under the loan plus accrued interest, due to the uncertainty of
collectibility of this note. No amounts relating to this loan are
included in receivables at December 31, 1998.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
7. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of properties, are allocated 99 percent
to the limited partners and one percent to the general partners.
Distributions of net cash flow are made 99 percent to the limited
partners and one percent to the general partners; provided, however,
that the one percent of net cash flow to be distributed to the general
partners is subordinated to receipt by the limited partners of an
aggregate, ten percent, cumulative, noncompounded annual return on
their invested capital contributions (the "Limited Partners' 10%
Return").
Generally, net sales proceeds from the sale of properties not in
liquidation of the Partnership, to the extent distributed, will be
distributed first to the limited partners in an amount sufficient to
provide them with their Limited Partners' 10% Return, plus the return
of their adjusted capital contributions. The general partners will then
receive, to the extent previously subordinated and unpaid, a one
percent interest in all prior distributions of net cash flow and a
return of their capital contributions. Any remaining sales proceeds
will be distributed 95 percent to the limited partners and five percent
to the general partners. Any gain from the sale of a property not in
liquidation of the Partnership is, in general, allocated in the same
manner as net sales proceeds are distributable. Any loss from the sale
of a property is, in general, allocated first, on a pro rata basis, to
partners with positive balances in their capital accounts; and
thereafter, 95 percent to the limited partners and five percent to the
general partners.
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: i) first to pay and discharge all
of the Partnership's liabilities to creditors, ii) second, to establish
reserves that may be deemed necessary for any anticipated or unforeseen
liabilities or obligations of the Partnership, iii) third, to pay all
of the Partnership's liabilities, if any, to the general and limited
partners, iv) fourth, after allocations of net income, gains and/or
losses, to distribute to the partners with positive capital accounts
balances, in proportion to such balances, up to amounts sufficient to
reduce such positive balances to zero, and v) thereafter, any funds
remaining shall then be distributed 95 percent to the limited partners
and five percent to the general partners.
During the year ended December 31, 1998, the Partnership declared
distributions to the limited partners of $3,960,008, and during each of
the years ended December 31, 1997 and 1996, the Partnership declared
distributions to the limited partners of $3,825,008. No distributions
have been made to the general partners to date.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
8. Income Taxes:
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C>
Net income for financial
reporting purposes $2,933,537 $3,952,214 $3,943,043
Depreciation for tax reporting
purposes in excess of
depreciation for financial
reporting purposes (224,652 ) (249,366 ) (259,752 )
Direct financing leases recorded as
operating leases for tax
reporting 164,614 132,771 121,597
purposes
Provision for loss on building 206,535 -- --
Loss on sale of land and buildings
for tax reporting purposes less
than
(in excess of) loss for financial 25,699 -- (26,151 )
reporting purposes
Capitalization of transaction costs
for 24,282 -- --
tax reporting purposes
Equity in earnings of joint ventures for tax reporting
purposes in excess of (less than) equity in earnings of
joint ventures for
financial reporting purposes 138,311 (51,481 ) (46,345 )
Allowance for doubtful accounts 207,151 (15,913 ) (16,396 )
Accrued rental income (28,230 ) (533,121 ) (518,502 )
Rents paid in advance 60,711 (39,303 ) 36,495
------------ ------------ -----------
Net income for federal income tax
purposes $3,507,958 $3,195,801 $3,233,989
============ ============ ===========
</TABLE>
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
9. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the majority stockholder
of CNL Fund Advisors, Inc. The other individual general partner, Robert
A. Bourne, serves as treasurer, director and vice chairman of the board
of CNL Fund Advisors. During the years ended December 31, 1998, 1997,
and 1996, CNL Fund Advisors, Inc. (hereinafter referred to as the
"Affiliate") performed certain services for the Partnership, as
described below.
During the years ended December 31, 1998, 1997, and 1996, the
Affiliates acted as manager of the Partnership's properties pursuant to
a management agreement with the Partnership. In connection therewith,
the Partnership agreed to pay the Affiliate a management fee of one
percent of the sum of gross revenues from properties owned by the
Partnership and the Partnership's allocable share of gross revenues
from joint ventures. The management fee, which will not exceed fees
which are competitive for similar services in the same geographic area,
may or may not be taken, in whole or in part as to any year, in the
sole discretion of the Affiliate. The Partnership incurred management
fees of $41,537, $40,218, and $40,244 for the years ended December 31,
1998, 1997, and 1996, respectively.
The Affiliate is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Affiliate provides a
substantial amount of services in connection with the sale. However, if
the net sales proceeds are reinvested in a replacement property, no
such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are
distributed. The payment of the real estate disposition fee is
subordinated to receipt by the limited partners of their aggregate 10%
Preferred Return, plus their adjusted capital contributions. No
deferred, subordinated real estate disposition fees have been incurred
since inception.
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $107,911, $92,866, and
$97,722 for the years ended December 31, 1998, 1997, and 1996,
respectively, for such services.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
9. Related Party Transactions - Continued:
The due to related parties at December 31, 1998 and 1997, totalled
$24,025 and $6,887, respectively.
10. Concentration of Credit Risk:
The following schedule presents rental and earned income from
individual lessees, or affiliated groups of lessees, each representing
more than ten percent of the Partnership's total rental and earned
income (including the Partnership's share of rental and earned income
from joint ventures) for each of the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C>
Foodmaker, Inc. $1,023,630 $1,024,667 $1,024,667
Flagstar Enterprises, Inc. (and
Denny's Inc. and Quincy's
Restaurants, Inc. for the years
ended December 31, 1997 and
1996) 784,922 1,216,908 1,224,953
Long John Silver's, Inc. 508,351 647,829 649,992
Advantica Restaurant Group,
Inc. (and Denny's, Inc. and
Quincy's Restaurants, Inc. for
the year ended December 31,
1998) 424,742 N/A N/A
</TABLE>
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than
ten percent of the Partnership's total rental and earned income
(including the Partnership's share of rental and earned income from
joint ventures) for each of the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ----------------
<S> <C>
Jack in the Box $1,023,630 $1,024,667 $1,024,667
Hardee's 784,922 787,260 791,998
Denny's 782,486 807,547 818,672
Long John Silver's 574,044 713,522 715,685
</TABLE>
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
10. Concentration of Credit Risk - Continued:
The information denoted by N/A indicates that for each period
presented, the tenant or group of affiliated tenants and the chain did
not represent more than ten percent of the Partnership's total rental
and earned income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
In June 1998, a tenant, Long John Silver's, Inc., filed for bankruptcy
and rejected the leases relating to three of its eight leases and
ceased making rental payments to the Partnership. In December 1998, the
Partnership sold one of the vacant properties and intends to reinvest
the net sales proceeds from the sale of this property in an additional
property. The Partnership will not recognize rental and earned income
from these two remaining properties until new tenants for these
properties are located or until the properties are sold and the
proceeds from such sales are reinvested in additional properties. While
Long John Silver's, Inc. has not rejected or affirmed the remaining
five leases, there can be no assurance that some or all of the leases
will not be rejected in the future. The lost revenues resulting from
the two remaining vacant properties, as described above, and the
possible rejection of the remaining five leases could have an adverse
effect on the results of operations of the Partnership, if the
Partnership is not able to re-lease these properties in a timely
manner. The general partners are currently seeking either new tenants
or purchasers for the two remaining vacant properties.
11. Subsequent Event:
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to
which the Partnership would be merged with and into a subsidiary of APF
(the "Merger"). As consideration for the Merger, APF has agreed to
issue 4,768,496 shares of its common stock, par value $0.01 per shares
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the
price paid by APF investors in APF's most recent public offering. In
order to assist the general partners in evaluating the proposed merger
consideration, the general partners retained Valuation Associates, a
nationally recognized real estate appraisal firm, to appraise the
Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other
assets were valued on a going concern basis (meaning the
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
11. Subsequent Event - Continued:
Partnership continues unchanged) at $46,951,127 as of December 31,
1998. Legg Mason Wood Walker, Incorporated has rendered a fairness
opinion that the APF Share consideration, payable by APF, is fair to
the Partnership from a financial point of view. The APF Shares are
expected to be listed for trading on the New York Stock Exchange
concurrently with the consummation of the Merger, and, therefore, would
be freely tradable at the option of the former limited partners. At a
special meeting of the partners that is expected to be held in the
third quarter of 1999, limited partners holding in excess of 50% of the
Partnership's outstanding limited partnership interests must approve
the Merger prior to consummation of the transaction. The general
partners intend to recommend that the limited partners of the
Partnership approve the Merger. In connection with their
recommendation, the general partners will solicit the consent of the
limited partners at the special meeting. If the limited partners reject
the Merger, the Partnership will bear the portion of the transaction
costs based upon the percentage of "For" votes and the general partners
will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 52, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, a director and Chief Executive Officer since its formation
in 1980. Mr. Seneff has been Chairman of the Board of Directors, director, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979. Mr.
Seneff also has held the position of Chairman of the Board of Directors, Chief
Executive Officer, President and director of CNL Management Company, a
registered investment advisor, since its formation in 1976, has served as Chief
Executive Officer, Chairman of the Board and a director of CNL Investment
Company, has served as Chief Executive Officer, a director and Chairman of the
Board of Directors of Commercial Net Lease Realty, Inc., a publicly-traded REIT,
listed on the NYSE, since 1992, served as Chief Executive Officer, a director
and Chairman of the Board of Directors of CNL Realty Advisors, Inc. from its
inception in May 1992 through December 1997, at which time such company merged
with Commercial Net Lease Realty, Inc., and has held the position of Chief
Executive Officer, Chairman of the Board and a director of CNL Institutional
Advisors, Inc., a registered investment advisor, since its inception in December
1990. Mr. Seneff has served as Chairman of the Board of Directors of CNL
American Properties Fund, Inc. since December 1994 and as a director and Chief
Executive Officer since May 1994. Mr. Seneff has served as Chairman of the
Board, Chief Executive Officer and a director of CNL Fund Advisors, Inc. since
March 1994. Mr. Seneff has served as Chairman of the Board, Chief Executive
Officer and a director of CNL Hospitality Properties, Inc. since June 1996 and
of CNL Hospitality Advisors, Inc. since January 1997. Mr. Seneff has also served
as Chairman of the Board, Chief Executive Officer and a director of CNL Health
Care Properties, Inc. since December 1997 and CNL Health Care Advisors, Inc.
since July 1997. Mr. Seneff previously served on the Florida State Commission on
Ethics and is a former member and past Chairman of the State of Florida
Investment Advisory Council, which advises the Florida Board of Administration
investments for various Florida employee retirement funds. The Florida Board of
Administration, Florida's principal investment advisory and money management
agency, oversees the investment of more then $60 billion of retirement funds.
Mr. Seneff has served as a member of the board of directors of First Union
National Bank of Florida since May 1998 and has served as a member of the
Orlando Advisory Board of First Union National Bank of Florida since March 1994.
Since 1971, Mr. Seneff has been active in the acquisition, development, and
management of real estate projects and, directly or through an affiliated
entity, has served as a general partner or joint venturer in over 100 real
estate ventures involved in the financing, acquisition, construction, and rental
of restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 65 privately
offered real estate limited partnerships in which Mr. Seneff, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund
III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund
VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund
IX, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund
XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund
XVI, Ltd., CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII, Ltd. (the "CNL
Income Fund Partnerships"), public real estate limited partnerships with
investment objectives similar to those of the Partnership, in which Mr. Seneff
serves as a general partner. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 51, is President and Treasurer of CNL Group,
Inc., President, Treasurer, a director, and a registered principal of CNL
Securities Corp., President, Treasurer, and a director of CNL Investment
Company, and Chief Investment Officer, a director and Treasurer of CNL
Institutional Advisors, Inc., a registered investment advisor. Mr. Bourne served
as President of CNL Institutional Advisor, Inc. from the date of its inception
through July 1997. Mr. Bourne served as President of Commercial Net Lease
Realty, Inc. from July 1992 through February 1996, served as Secretary and
Treasurer from February 1996 through December 1997, and has served as a director
since July 1992 and as Vice Chairman of the Board of Directors since February
1996. In addition, Mr. Bourne served as President of CNL Realty Advisors, Inc.
from May 1992 through February 1996, served as Treasurer from February 1996
through December 1997, served as a director from May 1992 through December 31,
1997 and served as Vice Chairman from February 1996 through December 1997, at
which time such company merged with Commercial Net Lease Realty, Inc. Mr. Bourne
has served as a Vice Chairman of the Board of Directors and Treasurer of CNL
American Properties Fund, Inc. since February 1999, has served as a director
since May 1994 and previously served as President from May 1994 through February
1999. Mr. Bourne has served as a director of CNL Fund Advisors, Inc. since March
1994, has served as Treasurer and Vice Chairman of the Board of Directors since
September 1997, and previously served as President from March 1994 through
September 1997. Mr. Bourne has served as President and a director of CNL
Hospitality Properties, Inc. since June 1996 and of CNL Hospitality Advisors,
Inc. since January 1997. Mr. Bourne has served as President and director of CNL
Health Care Properties, Inc. since December 1997 and CNL Health Care Advisors,
Inc. since July 1997. Mr. Bourne, who joined CNL Securities Corp. in 1979, has
participated as a general partner or joint venturer in over 100 real estate
ventures involved in the financing, acquisition, construction, and rental of
restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 64 privately
offered real estate limited partnerships in which Mr. Bourne, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are the CNL Income Fund Partnerships, public real estate limited
partnerships with investment objectives similar to those of the Partnership, in
which Mr. Bourne serves as a general partner. Mr. Bourne formerly was a
certified public accountant with Coopers & Lybrand and a partner in the firm of
Bourne & Rose, P.A. Mr. Bourne received a B.A. in Accounting, with honors, from
Florida State University in 1970.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL
Realty Corporation was organized to serve as the corporate general partner of
real estate limited partnerships, such as the Partnership, organized by one or
both of the individual General Partners. CNL Realty Corporation currently serves
as the corporate general partner of the CNL Income Fund Partnerships.
CNL Fund Advisors, Inc. provides certain management services in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation organized in 1994 under the laws of the State of Florida, and its
principal office is located at 400 East South Street, Orlando, Florida 32801.
CNL Fund Advisors, Inc. is a majority owned subsidiary of CNL Group, Inc., a
diversified real estate company, and was organized to perform property
acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Fund Advisors,
Inc., was organized in 1980 under the laws of the State of Florida. CNL Group,
Inc. is a diversified real estate company which provides a wide range of real
estate, development and financial services to companies in the United States
through the activities of its subsidiaries. These activities are primarily
focused on the franchised restaurant and hospitality industries. James M.
Seneff, Jr., an individual General Partner of the Partnership, is the Chairman
of the Board, Chief Executive Officer, and a director of CNL Group, Inc. Mr.
Seneff and his wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as members
of the Boards of Directors of those entities. The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.
Curtis B. McWilliams, age 43, joined CNL Group, Inc. in April 1997 and
currently serves as an Executive Vice President. In addition, Mr. McWilliams has
served as President of CNL Fund Advisors, Inc. and as President of the
Restaurant and Financial Services Groups within CNL Group, Inc. since April
1997. Mr. McWilliams has served as President of CNL American Properties Fund,
Inc. since February 1999 and previously served as Executive Vice President from
February 1998 through February 1999. From September 1983 through March 1997, Mr.
McWilliams was employed by Merrill Lynch & Co., most recently as Chairman of
Merrill Lynch's Private Advisory Services until March 1997. Mr. McWilliams
received a B.S.E. in Chemical Engineering from Princeton University in 1977 and
a Masters of Business Administration with a concentration in finance from the
University of Chicago in 1983.
John T. Walker, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since January 1996, as Chief Operating Officer
since March 1995, and previously served as Senior Vice President since December
1994. In addition, Mr. Walker has served as Executive Vice President of CNL Fund
Advisors, Inc. since January 1996, Chief Operating Officer since April 1995, and
previously served as Senior Vice President from November 1994 through January
1996. In addition, Mr. Walker previously served as Executive Vice President of
CNL Hospitality Properties, Inc. and CNL Hospitality Advisors, Inc. From May
1992 to May 1994, Mr. Walker, a certified public accountant, was Executive Vice
President for Finance and Administration and Chief Financial Officer of Z Music,
Inc., a cable television network (subsequently acquired by Gaylord
Entertainment), where he was responsible for overall financial and
administrative management and planning. From January 1990 through April 1992,
Mr. Walker was Chief Financial Officer of the First Baptist Church in Orlando,
Florida. From April 1984 through December 1989, he was a partner in the
accounting firm of Chastang, Ferrell & Walker, P.A., where he was the partner in
charge of audit and consulting services, and from 1981 to 1984, Mr. Walker was a
Senior Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a Cum Laude
graduate of Wake Forest University with a B.S. in Accountancy and is a certified
public accountant.
Lynn E. Rose, age 50, a certified public accountant, has served as
Secretary of CNL American Properties Fund, Inc. since December 1994 and served
as Treasurer from December 1994 through February 1999. Ms. Rose has served as a
director and Secretary of CNL Fund Advisors, Inc. since March 1994, and as
Treasurer from the date of its inception through June 30, 1997. Ms. Rose has
served as Secretary of CNL Group, Inc. since 1987, as Chief Financial Officer of
CNL Group, Inc. since December 1993, and served as Controller of CNL Group, Inc.
from 1987 until December 1993. In addition, Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has
served as Chief Operating Officer, Vice President and Secretary of CNL Corporate
Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial
Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in
1990, as Treasurer of CNL Realty Advisors, Inc. from 1991 to February 1996, and
as Secretary and a director of CNL Realty Advisors, Inc. since its inception in
1991 until December 31, 1997, at which time CNL Realty Advisors, Inc. merged
with Commercial Net Lease Realty, Inc. In addition, Ms. Rose served as Secretary
and Treasurer of Commercial Net Lease Realty, Inc. from 1992 to February 1996.
Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality Properties,
Inc. and CNL Health Care Properties, Inc. and as Secretary, Treasurer and a
director of CNL Hospitality Advisors, Inc. and CNL Health Care Advisors, Inc.
Ms. Rose also currently serves as Secretary for approximately 50 additional
corporations. Ms. Rose oversees the legal compliance, accounting, tenant
compliance, and reporting for over 250 corporations, partnerships and joint
ventures. Prior to joining CNL, Ms. Rose was a partner with Robert A. Bourne in
the accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Ms.
Rose holds a B.A. in Sociology from the University of Central Florida.
Jeanne A. Wall, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since December 1994. Ms. Wall has served as
Executive Vice President of CNL Fund Advisors, Inc. since November 1994, and
previously served as Vice President from March 1994 through November 1994. Ms.
Wall has served as Chief Operating Officer of CNL Investment Company and of CNL
Securities Corp. since November 1994 and has served as Executive Vice President
of CNL Investment Company since January 1991. Ms. Wall joined CNL Securities
Corp. in 1984. In 1985, Ms. Wall became Vice President of CNL Securities Corp.
In 1987, she became Senior Vice President and in July 1997 she became Executive
Vice President of CNL Securities Corp. In this capacity, Ms. Wall serves as
national marketing and sales director and oversees the national marketing plan
for the CNL investment programs. In addition, Ms. Wall oversees product
development, partnership administration and investor services for programs
offered through participating brokers and corporate communications for CNL
Group, Inc. and its affiliates. Ms. Wall also has served as Senior Vice
President of CNL Institutional Advisors, Inc., a registered investment advisor,
from 1990 to 1993, as Vice President of CNL Realty Advisors, Inc. since its
inception in 1991 until December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., and served as Vice President
of Commercial Net Lease Realty, Inc. from 1992 through December 31, 1997. In
addition, Ms. Wall serves as Executive Vice President of CNL Hospitality
Properties, Inc., CNL Hospitality Advisors, Inc., CNL Health Care Properties,
Inc. and CNL Health Care Advisors, Inc. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp. Ms. Wall currently serves as a trustee on the board of the
Investment Program Association and on the Direct Participation Program committee
for the National Association of Securities Dealers (NASD).
Steven D. Shackelford, age 35, a certified public accountant, has
served as Chief Financial Officer of CNL American Properties Fund, Inc. since
January 1997 and as Chief Financial Officer of CNL Fund Advisors, Inc. since
September 1996. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse where he was responsible for
advising foreign clients seeking to raise capital and a public listing in the
United States. From August 1992 to March 1995, he served as a manager in the
Price Waterhouse, Paris, France office serving several multinational clients.
Mr. Shackelford was an audit staff and audit senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a B.A. in
Accounting, with honors, and a Masters of Business Administration from Florida
State University.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 11, 1999, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 11, 1999, the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>
Title of Class Name of Partner Percent of Class
<S> <C>
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
-----
100%
</TABLE>
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above. On March 11, 1999, the
Registrant entered into an Agreement and Plan of Merger with CNL American
Properties Fund, Inc. ("APF") pursuant to which the Registrant would be merged
with and into a subsidiary of APF (the "Merger"). For further discussion, see
Item 8.
Financial Statements and Supplementary Data -- Note 11. Subsequent Event.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 1998, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
----------------------- --------------------- -----------------------
<S> <C>
Reimbursement to affiliates for Operating expenses are reimbursed Operating expenses
operating expenses at the lower of cost or 90 percent incurred on behalf of the
of the prevailing rate at which Partnership: $130,847
comparable services could have been
obtained in the same geographic Accounting and administrative
area. Affiliates of the General services: $107,911
Partners from time to time incur
certain operating expenses on
behalf of the Partnership for which
the Partnership reimburses the
affiliates without interest.
Annual management fee to affiliates One percent of the sum of gross $41,537
operating revenues from Properties
wholly owned by the Partnership
plus the Partnership's allocable
share of gross revenues of joint
ventures in which the Partnership
is a co-venturer. The management
fee, which will not exceed
competitive fees for comparable
services in the same geographic
area, may or may not be taken, in
whole or in part as to any year, in
the sole discretion of affiliates.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
----------------------- --------------------- -----------------------
<S> <C>
Deferred, subordinated real estate A deferred, subordinated real $ - 0 -
disposition fee payable to affiliates estate disposition fee, payable
upon sale of one or more
Properties, in an amount equal to
the lesser of (i) one-half of a
competitive real estate
commission, or (ii) three percent
of the sales price of such
Property or Properties. Payment of
such fee shall be made only if
affiliates of the General Partners
provide a substantial amount of
services in connection with the
sale of a Property or Properties
and shall be subordinated to
certain minimum returns to the
Limited Partners. However, if the
net sales proceeds are reinvested
in a replacement Property, no such
real estate disposition fee will
be incurred until such replacement
Property is sold and the net sales
proceeds are distributed.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to one percent of Partnership
cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to five percent of
sales proceeds from a sale or sales not Partnership distributions of such
in liquidation of the Partnership net sales proceeds, subordinated to
certain minimum returns to the
Limited Partners.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
----------------------- --------------------- -----------------------
<S> <C>
General Partners' share of Partnership Distributions of net sales proceeds $ - 0 -
net sales proceeds from a sale or sales from a sale or sales of
in liquidation of the Partnership substantially all of the
Partnership's assets will be
distributed in the following order
or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net
loss, gain and loss, in proportion
to such balances, up to amounts
sufficient to reduce such balances
to zero; and (iii) thereafter, 95%
to the Limited Partners and 5% to
the General Partners.
</TABLE>
As discussed above in Item 8. Financial Statements and Supplementary Data --
Note 11. Subsequent Event, the Registrant has entered into an Agreement and Plan
of Merger, dated March 11, 1999, with APF pursuant to which the Registrant would
be merged with and into a subsidiary of APF in exchange for the issuance of APF
Shares. The APF Shares are expected to be listed for trading on the New York
Stock Exchange concurrently with the consummation of the Merger. If the Merger
is approved by Limited Partners holding units greater than 50% of the
outstanding units of the Registrant, the General Partners of the Registrant
would receive certain benefits, including:
o With respect to their ownership in the Registrant, the General
Partners will be issued approximately 35,314 shares of APF
common stock, par value $0.01 per share.
o Following the Merger, James M. Seneff, Jr. and Robert A.
Bourne, the individual General Partners, will continue to
serve as directors of APF, with Mr. Seneff serving as Chairman
and Mr. Bourne serving as Vice Chairman. As APF directors,
they may also be entitled to receive stock options under any
stock option plan adopted by APF.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1998 and 1997
Statements of Income for the years ended December 31, 1998,
1997, and 1996
Statements of Partners' Capital for the years ended December
31, 1998, 1997, and 1996
Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1998, 1997, and 1996
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1998
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1998
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund XII, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278-01 on Form S-11
and incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund XII, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278-01 on Form S-11
and incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XII, 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 XII,
Ltd. and CNL Investment Company (Included as Exhibit
10.1 to Form 10-K filed with the Securities and
Exchange Commission on April 15, 1993, and
incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 31, 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) The Registrant filed no reports on Form 8-K during the period
October 1, 1998 through December 31, 1998.
(c) Not applicable.
(d) The Partnership is required to file audited financial
information of its tenant, Foodmaker, Inc., as a result of the
fact that this tenant leased more than 20 percent of the
Partnership's total assets for the year ended December 31,
1998. The summarized financial information presented for
Foodmaker, Inc. and Subsidiaries as of September 27, 1998 and
September 28, 1997, and for the fifty-two weeks ended
September 27, 1998, September 28, 1997, and September 29, 1996
was obtained from the Form 10-K filed by Foodmaker, Inc. and
Subsidiaries with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Foodmaker, Inc. and Subsidiaries
Selected Financial Data
(in Thousands)
<S> <C>
September 27, September 28,
Consolidated Balance Sheet Data: 1998 1997
-------------------------------- -------------------- --------------------
Current Assets $ 82,422 $ 100,162
Noncurrent Assets 661,166 581,596
Current Liabilities 225,745 193,213
Noncurrent Liabilities 380,863 400,666
Fifty-two Weeks Ended
Consolidated Statements of September 27, September 28, September 29,
Operations Data: 1998 1997 1996
--------------------- --------------------- ---------------------
Gross Revenues $ 1,224,056 $ 1,071,742 $ 1,062,822
Costs and Expenses (including
taxes) (1,153,003 ) (1,036,439) (1,042,771)
Extraordinary Item, net of taxes (4,378 ) (1,252) --
--------------------- --------------------- ---------------------
Net Earnings $ 66,675 $ 34,051 $ 20,051
===================== ===================== =====================
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 27th day of
March, 1999.
CNL INCOME FUND XII, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
----------------------------
JAMES M. SENEFF, JR.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C>
/s/ Robert A. Bourne President, Treasurer and Director March 27, 1999
- ---------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 27, 1999
- ---------------------------
James M. Seneff, Jr. (Principal Executive Officer)
</TABLE>
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Additions Deductions
------------------------------- --------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- --------- ----------------- ------------ ------------- -------------- ------------ ------------ -----------
<S> <C>
1996 Allowance for
doubtful
accounts (a) $ 39,791 $ -- $ 13,041 (b) $ 15,678 (c) $ 13,759 $ 23,395
============ ============= ============== ============ ============ ===========
1997 Allowance for
doubtful
accounts (a) $ 23,395 $ -- $ 1,586 (b) $ 8,538 (c) $ 8,961 $ 7,482
============ ============= ============== ============ ============ ===========
1998 Allowance for
doubtful
accounts (a) $ 7,482 $ 188,990 $ 36,045 (b) $ -- (c) $ 11,561 $ 220,956
============ ============= ============== ============ ============ ===========
</TABLE>
(a) Deducted from receivables and accrued rental income on the balance
sheet.
(b) Reduction of rental, earned, and other income.
(c) Amounts written off as uncollectible.
<PAGE>
<TABLE>
<CAPTION>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<S> <C>
Costs Capitalized
Subsequent to
Initial Cost Acquisition
--------------------------- ---------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
----------- ------------ ------------- ----------- --------
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurants:
Valdosta, Georgia - $238,891 $316,670 - -
Natchitoches, Louisiana - 152,329 - 489,366 -
Denny's Restaurants:
St. Ann, Missouri - 338,826 - - -
Phoenix, Arizona - 456,306 - - -
Black Mountain, North Carolina - 260,493 - - -
Blue Springs, Missouri - 497,604 - - -
Columbus, Georgia - 125,818 314,690 - -
Tempe, Arizona - 709,275 - - -
Golden Corral Family
Steakhouse Restaurants:
Arlington, Texas - 711,558 1,159,978 - -
Hardee's Restaurants:
Crossville, Tennessee - 290,136 334,350 - -
Toccoa, Georgia - 208,847 - - -
Columbia, Mississippi - 134,810 - - -
Pensacola, Florida - 277,236 - - -
Columbia, South Carolina - 325,674 - - -
Simpsonville, South Carolina - 239,494 - - -
Indian Trail, North Carolina - 298,938 - - -
Clarksville, Georgia - 160,478 415,540 - -
Jack in the Box Restaurants:
Spring, Texas - 564,164 510,639 - -
Houston, Texas - 360,617 659,805 - -
Arlington, Texas - 329,226 716,600 - -
Grapevine, Texas - 471,367 590,988 - -
Rialto, California - 524,251 595,226 - -
Phoenix, Arizona - 294,773 527,466 - -
Petaluma, California - 534,076 800,780 - -
Willis, Texas - 569,077 427,381 - -
Houston, Texas - 368,758 663,022 - -
KFC Restaurant:
Las Cruces, New Mexico - 175,905 - - -
Long John Silver's Restaurants:
Clarksville, Tennessee - 166,283 - - -
Morganton, North Carolina (m) - 321,675 342,524 - -
Statesville, North Carolina - 240,870 334,643 - -
El Paso, Texas - 314,270 - - -
Tucson, Arizona - 277,378 245,385 - -
Asheville, North Carolina - 213,536 - - -
Quincy's Restaurant:
Albany, Georgia - 378,547 - - -
Shoney's Restaurants:
Bradenton, Florida - 455,986 - - -
Winter Haven, Florida - 475,084 - - -
Sports Rock Cafe Restaurant:
Tempe, Arizona - 121,831 620,527 55,000 -
------------ ----------- ----------- --------
$12,584,387 $9,576,214 $544,366 -
============ =========== =========== ========
Property of Joint Venture in Which
the Partnership has an 18.61%
Interest and has Invested in Under
an Operating Lease:
Jack in the Box Restaurant:
Des Moines, Washington - $322,726 $791,658 - -
============ =========== =========== ========
Property of Joint Venture in Which
the Partnership has a 31.13%
Interest and has Invested in Under
an Operating Lease:
Denny's Restaurant:
Kingsville, Texas (j) - $171,061 - $99,128 -
============ =========== =========== ========
Property of Joint Venture in Which
the Partnership has a 87.54% Interest
and has Invested in Under an
Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Middleburg Heights, Ohio - $521,571 - - -
============ =========== =========== ========
Property of Joint Venture in
Which the Partnership has a
27.72% Interest in Under an
Operating Lease:
Arby's Restaurant:
Columbus, Ohio - $406,976 - $468,726 -
============ =========== =========== ========
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Denny's Restaurants:
Phoenix, Arizona - - - 467,545 -
St. Ann, Missouri - - - 324,340 -
Black Mountain, North Carolina - - 696,851 - -
Blue Springs, Missouri - - - 485,945 -
Cleveland, Tennessee - 158,300 510,479 - -
Tempe, Arizona - - - 491,258 -
Amherst, Ohio - 127,672 169,928 316,796 -
Hardee's Restaurants:
Toccoa, Georgia - - 437,938 - -
Fultondale, Alabama - 173,016 - 636,480 -
Poplarville, Mississippi - 138,020 - 444,485 -
Columbia, Mississippi - - 367,836 - -
Pensacola, Florida - - - 450,193 -
Columbia, South Carolina - - 452,333 - -
Simpsonville, South Carolina - - 517,680 - -
Indian Trail, North Carolina - - 496,110 - -
KFC Restaurant:
Las Cruces, New Mexico - - 224,790 - -
Long John Silver's Restaurants:
Murfreesboro, Tennessee - 174,746 555,186 - -
Clarksville, Tennessee - - 422,539 - -
El Paso, Texas - - - 371,286 -
Chattanooga, Tennessee - 142,627 584,320 - -
Asheville, North Carolina - - 493,303 - -
Quincy's Restaurant:
Albany, Georgia - - 880,338 - -
Shoney's Restaurants:
Bradenton, Florida - - - 596,374 -
Winter Haven, Florida - - - 758,986 -
------------ ----------- ----------- --------
$914,381 $6,809,631 $5,343,688 -
============ =========== =========== ========
Property of Joint Venture in Which
the Partnership has a 59.05%
Interest and has Invested in Under
a Direct Financing Lease:
Hardee's Restaurant:
Williston, Florida - $150,143 - $499,071 -
============ =========== =========== ========
Property of Joint Venture in Which
the Partnership has a 31.13%
Interest and has Invested in Under
a Direct Financing Lease:
Denny's Restaurant:
Kingsville, Texas - - - $535,489 -
============ =========== =========== ========
Property of Joint Venture in Which
the Partnership has an 87.54%
Interest and has Invested in Under
a Direct Financing Lease:
Golden Corral Family
Steakhouse Restaurant:
Middleburg Heights, Ohio - - $1,357,288 - -
============ =========== =========== ========
Gross Amount at Which Life on Which
Carried at Close of Period (c) Depreciation in
---------------------------------------- Date Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
------------ ------------ ------------ ----------- --------- -------- ------------
$238,891 $316,670 $555,561 $56,538 1990 08/92 (b)
152,329 489,366 641,695 94,298 1993 12/92 (b)
338,826 (f) 338,826 (f) 1993 11/92 (d)
456,306 (f) 456,306 (f) 1993 11/92 (d)
260,493 (f) 260,493 (f) 1992 12/92 (d)
497,604 (f) 497,604 (f) 1993 12/92 (d)
125,818 314,690 440,508 54,182 1980 01/93 (g)
709,275 (f) 709,275 (f) 1982 02/93 (d)
711,558 1,159,978 1,871,536 234,962 1992 12/92 (b)
290,136 334,350 624,486 67,145 1992 12/92 (b)
208,847 (f) 208,847 (f) 1992 12/92 (d)
134,810 (f) 134,810 (f) 1991 01/93 (d)
277,236 (f) 277,236 (f) 1993 03/93 (d)
325,674 (f) 325,674 (f) 1991 05/93 (d)
239,494 (f) 239,494 (f) 1992 06/93 (d)
298,938 (f) 298,938 (f) 1992 07/93 (d)
160,478 415,540 576,018 75,139 1992 07/93 (b)
564,164 510,639 1,074,803 101,475 1993 01/93 (b)
360,617 659,805 1,020,422 131,117 1993 01/93 (b)
329,226 716,600 1,045,826 142,404 1992 01/93 (b)
471,367 590,988 1,062,355 117,442 1992 01/93 (b)
524,251 595,226 1,119,477 118,284 1992 01/93 (b)
294,773 527,466 822,239 105,349 1992 01/93 (b)
534,076 800,780 1,334,856 159,132 1993 01/93 (b)
569,077 427,381 996,458 84,266 1993 02/93 (b)
368,758 663,022 1,031,780 130,727 1993 02/93 (b)
175,905 (f) 175,905 (f) 1990 03/93 (d)
166,283 (f) 166,283 (f) 1993 03/93 (d)
321,675 342,524 664,199 8,099 1993 04/93 (i)
240,870 334,643 575,513 7,877 1993 04/93 (i)
314,270 (f) 314,270 (f) 1993 06/93 (d)
277,378 245,385 522,763 44,864 1992 07/93 (b)
213,536 (f) 213,536 (f) 1993 08/93 (d)
378,547 (f) 378,547 (f) 1991 12/92 (d)
455,986 (f) 455,986 (f) 1993 12/92 (d)
475,084 (f) 475,084 (f) 1993 05/93 (d)
121,831 675,527 797,358 61,799 1988 04/93 (h)
- ---------- ------------ ------------ -----------
$12,584,387 $10,120,580 $22,704,967 $1,795,099
=========== ============ ============ ===========
$322,726 $791,658 $1,114,384 $163,895 1992 12/92 (b)
========== ============ ============ ===========
$270,189 (f) $270,189 (f) 1988 10/92 (d)
========== ============
$521,571 (f) $521,571 (f) 1995 05/96 (d)
========== ============
$406,976 $468,726 $875,702 (l) (k) 08/98 (l)
========== ============ ============
- (f) (f) (d) 1993 11/92 (d)
- (f) (f) (d) 1993 11/92 (d)
- (f) (f) (d) 1992 12/92 (d)
- (f) (f) (d) 1993 12/92 (d)
(f) (f) (f) (e) 1992 12/92 (e)
- (f) (f) (d) 1982 02/93 (d)
(f) (f) (f) (e) 1987 07/93 (e)
- (f) (f) (d) 1992 12/92 (d)
(f) (f) (f) (e) 1993 12/92 (e)
(f) (f) (f) (e) 1993 01/93 (e)
- (f) (f) (d) 1991 01/93 (d)
- (f) (f) (d) 1993 03/93 (d)
- (f) (f) (d) 1991 05/93 (d)
- (f) (f) (d) 1992 06/93 (d)
- (f) (f) (d) 1992 07/93 (d)
- (f) (f) (d) 1990 03/93 (d)
(f) (f) (f) (e) 1989 02/93 (e)
- (f) (f) (d) 1993 03/93 (d)
- (f) (f) (d) 1993 06/93 (d)
(f) (f) (f) (e) 1993 07/93 (e)
- (f) (f) (d) 1993 08/93 (d)
- (f) (f) (d) 1991 12/92 (d)
- (f) (f) (d) 1993 12/92 (d)
- (f) (f) (d) 1993 05/93 (d)
(f) (f) (f) (e) 1993 12/92 (e)
- (f) (f) (d) 1988 10/92 (d)
- (f) (f) (d) 1995 05/96 (d)
</TABLE>
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(a) Transactions in real estate and accumulated depreciation during
1998, 1997, and 1996, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
---------------- ---------------
<S> <C>
Properties the Partnership has Invested in Under
Operating Leases:
Balance, December 31, 1995 $ 23,248,199 $ 939,415
Disposition (1,764,391) (109,036 )
Reclassified to operating lease 742,358 --
Depreciation expense -- 313,319
---------------- ---------------
Balance, December 31, 1996 22,226,166 1,143,698
Additional costs capitalized 55,000 --
Depreciation expense -- 317,189
---------------- ---------------
Balance, December 31, 1997 22,281,166 1,460,887
Reclassified to operating lease 1,019,673 --
Dispositions (595,872) (7,949 )
Depreciation expense (m) -- 342,161
---------------- ---------------
Balance, December 31, 1998 $ 22,704,967 $ 1,795,099
================ ===============
Property of Joint Venture in Which the
Partnership has an 18.61%
Interest and has Invested in
Under an Operating Lease:
Balance, December 31, 1995 $ 1,114,384 $ 84,729
Depreciation expense -- 26,389
---------------- ---------------
Balance, December 31, 1996 1,114,384 111,118
Depreciation expense -- 26,390
---------------- ---------------
Balance, December 31, 1997 1,114,384 137,508
Depreciation expense -- 26,387
---------------- ---------------
Balance, December 31, 1998 $ 1,114,384 $ 163,895
================ ===============
</TABLE>
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
---------------- -----------------
<S> <C>
Property of Joint Venture in Which
the Partnership has a 27.72%
Interest and has Invested in
Under an Operating Lease:
Balance, December 31, 1997 $ -- $ --
Acquisition 875,502 --
Depreciation expense (l) -- --
---------------- -----------------
Balance, December 31, 1998 $ 875,702 $ --
================ =================
Property of Joint Venture in Which
the Partnership has a 31.13%
Interest and has Invested in Under
an Operating Lease:
Balance, December 31, 1995 $ 270,189 $ --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 1996 270,189 --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 1997 270,189 --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 1998 $ 270,189 $ --
================ =================
Property of Joint Venture in Which
the Partnership has an 87.54%
Interest and has Invested in Under
an Operating Lease:
Balance, December 31, 1995 $ -- $ --
Acquisition 521,571 --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 1996 521,571 --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 1997 521,571 --
Depreciation expense (d) -- --
----------------
-----------------
Balance, December 31, 1998 $ 521,571 $ --
================ =================
</TABLE>
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1998
(b) Depreciation expense is computed for buildings and improvements
based upon estimated lives of 30 years.
(c) As of December 31, 1998, the aggregate cost of the Properties owned
by the Partnership and joint ventures for federal income tax
purposes was $35,828,091 and $5,272,142, respectively. All of the
leases are treated as operating leases for federal income tax
purposes.
(d) For financial reporting purposes, the portion of the lease relating
to the building has been recorded as a direct financing lease. The
cost of the building has been included in net investment in direct
financing leases; therefore, depreciation is not applicable.
(e) For financial reporting purposes, the lease for the land and
building has been recorded as a direct financing lease. The cost of
the land and building has been included in net investment in direct
financing leases; therefore, depreciation is not applicable.
(f) For financial reporting purposes, certain components of the lease
relating to land and building have been recorded as a direct
financing lease. Accordingly, costs relating to these components of
this lease are not shown.
(g) Effective January 1994, the lease for this Property was amended,
resulting in the reclassification of the building portion of the
lease to an operating lease. The building was recorded at net book
value as of January 1, 1994, and depreciated over its remaining
estimated life of approximately 29 years.
(h) Effective July 1996, the lease for this Property terminated,
resulting in the lease being reclassified as an operating lease.
The land and building were recorded at net book value as of July 1,
1996, and the building is being depreciated over its remaining
estimated life of approximately 27 years.
(i) Effective June 1998, the lease for this property was amended,
resulting in a reclassification of the building portion of the
lease to an operating lease. The building was recorded at net book
value as of June 14, 1998, and depreciated over its remaining
estimated life of approximately 25 years.
(j) For financial reporting purposes, the undepreciated cost of the
Property in Kingsville, Florida, was written down to net realizable
value due to an anticipated impairment in value. The Partnership
recognized the impairment by recording an allowance for loss on
land and net investment in direct financing lease in the amount of
$316,113 during 1998. The impairment at December 31, 1998,
represents the difference between the Property's carrying value and
the estimated net realizable value of the Property. The cost of the
Property presented on this schedule is the gross amount at which
the Property was carried at December 31, 1998, excluding the
allowance for loss on land and building.
(k) Scheduled for completion in 1999.
(l) Property was not placed in service as of December 31, 1998;
therefore no depreciation was taken.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1998
(m) For financial reporting purposes the undepreciated cost of the
Property in Morganton, North Carolina, was written down to net
realizable value due to an impairment in value. The Partnership
recognized the impairment by recording an allowance for loss on
building in the amount of $206,535 at December 31, 1998. The tenant
of this Property filed for bankruptcy and ceased payment of rents
under the terms of its lease agreement. The impairment at December
31, 1998 represents the difference between the Property's carrying
value and the estimated net realizable value of the Property. The
cost of the Property presented on this schedule is the gross amount
at which the Property was carried at December 31, 1998, excluding
the allowance for loss on building.
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number
3.1 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XII, Ltd. (Included as Exhibit 3.2 to Registration
Statement No. 33-43278-01 on Form S-11 and incorporated herein
by reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XII, Ltd. (Included as Exhibit 3.2 to Registration
Statement No. 33-43278-01 on Form S-11 and incorporated herein
by reference.)
4.2 Amended and Restated Agreement of Limited Partnership of CNL
Income Fund XII, 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 XII, Ltd. and CNL
Investment Company (Included as Exhibit 10.1 to Form 10-K
filed with the Securities and Exchange Commission on April 15,
1993, and incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL Investment Company
to CNL Income Fund Advisors, Inc. (Included as Exhibit 10.2 to
Form 10-K filed with the Securities and Exchange Commission on
March 31, 1995, and incorporated herein by reference.)
10.3 Assignment of Management Agreement from CNL Income Fund
Advisors, Inc. to CNL Fund Advisors, Inc. (Included as Exhibit
10.3 to Form 10-K filed with the Securities and Exchange
Commission on April 1, 1996, and incorporated herein by
reference.)
27 Financial Data Schedule (Filed herewith.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund XII, Ltd. at December 31, 1998, and its statement of
income for the year then ended and is qualified in its entirety by reference to
the Form 10-K of CNL Income Fund XII, Ltd. for the year ended December 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,362,980
<SECURITIES> 0
<RECEIVABLES> 231,495
<ALLOWANCES> 214,633
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 22,498,432
<DEPRECIATION> 1,795,099
<TOTAL-ASSETS> 40,634,898
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 39,390,841
<TOTAL-LIABILITY-AND-EQUITY> 40,634,898
<SALES> 0
<TOTAL-REVENUES> 3,956,050
<CGS> 0
<TOTAL-COSTS> 617,756
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 188,990
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,933,537
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,933,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,933,537
<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>
