<PAGE>
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, 1999
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
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
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
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. During 1998, the Partnership sold the Property in Monroe, North
Carolina. During 1999, the Partnership sold the Property in Morganton, North
Carolina and reinvested the majority of the net sales proceeds, along with the
net sales proceeds from 1998 sale of the Property in Monroe, North Carolina, in
a joint venture arrangement, Bossier City Joint Venture, with CNL Income Fund
VIII, Ltd. and CNL Income Fund XIV, Ltd., both Florida limited partnerships and
affiliates of the General Partners, to purchase and hold one restaurant
Property. As a result of the above transactions, as of December 31, 1999, the
Partnership owned 48 Properties. The 48 properties include six Properties owned
by joint ventures in which the Partnership is co-venturer. In March 2000, the
Partnership sold its Property in Cleveland, Tennessee to an unrelated third
party and intends to reinvest the proceeds in an additional Property. The
Partnership generally leases the Properties on a triple-net basis with the
lessees responsible for all repairs and maintenance, property taxes, insurance
and utilities.
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.
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 "Termination
of 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. Under the Agreement and
Plan of Merger, APF was to issue shares of its common stock as consideration for
the Merger. On March 1, 2000, the General Partners and APF announced that they
had mutually agreed to terminate the Agreement and Plan of Merger. the agreement
to terminate the Agreement and Plan of Merger was based, in large part, on the
General Partners' concern that, in light of market conditions relating to
publicly traded real estate investment trusts, the value of the transaction had
diminished. As a result of such diminishment, the General partners; ability to
unequivocally recommend voting for the transaction, in the exercise of their
fiduciary duties, had become questionable.
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 leases of the Properties owned by the Partnership and
the joint ventures in which the Partnership is a co-venturer provide for initial
terms ranging from 5 to 20 years (the average being 18 years), and expire
between 2004 and 2019. 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
1
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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.
Lessees of 36 of the Partnership's 48 Properties 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. Fair market value will be
determined through an appraisal by an independent appraisal firm. 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.
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 June 1998, a tenant, Long John Silver's, Inc., filed for bankruptcy and
rejected the leases relating to three of its eight Properties and ceased making
rental payments to the Partnership under these rejected leases. Between December
1998, and May 1999, the Partnership sold two of the vacant Properties and
reinvested a majority of the net sales proceeds in a joint venture arrangement
as described below. In July 1999, the Partnership entered into a new lease with
a new tenant for the remaining vacant Property, the lease terms for which are
substantially the same as the Partnership's other leases as described above. In
August 1999, Long John Silver's, Inc. assumed and affirmed its five remaining
leases, and the Partnership has continued receiving rental payments relating to
these five leases.
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.
During 1998, the tenant of the Property owned by 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 five year lease with a new tenant.
In November 1999, the Partnership used the majority of the net sales
proceeds from the sales of its Properties in Monroe and Morganton, North
Carolina to enter into a joint venture arrangement, Bossier City Joint Venture,
with affiliates of the General Partners, to purchase 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 August 1999, the tenant of the Property in Tucson, Arizona was
experiencing financial difficulties, and negotiated to defer a portion of its
1999 rental payments to a future period. In addition, due to the financial
difficulties Long John Silver's, Inc. was experiencing, as described above,
effective October 1, 1999, three of its remaining five leases were amended to
reflect rent reductions. As of December 31, 1999, one of these amended leases
had been assigned to another tenant.
Major Tenants
During 1999, two lessees of the Partnership, Jack in the Box Inc. and
Flagstar Enterprises, Inc., each contributed more than ten percent of the
Partnership's total rental, earned and mortgage interest income (including the
Partnership's share of rental and earned income from six Properties owned by
joint ventures). As of December 31, 1999, Jack in the Box Inc. was the lessee
under leases relating to ten 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, these two lessees each will
continue to contribute more than ten percent of the Partnership's total rental
income in 2000. In addition, five Restaurant Chains, Long John Silver's,
Hardee's, Jack in the Box, Denny's, and Golden Corral, each accounted for more
than ten percent of the Partnership's total rental, earned, and mortgage
interest income during 1999 (including the
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Partnership's share of rental and earned income from six Properties owned by
joint ventures). In 2000, it is anticipated that Jack in the Box, Denny's,
Hardee's and Long John Silver'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, 1999, Jack in the Box Inc. leased Properties with an aggregate
carrying value in excess of 20 percent of the total assets of the Partnership.
Joint Venture Arrangements
The Partnership has entered into the following separate joint venture
arrangements: Williston Real Estate Joint Venture with CNL Income Fund X, Ltd.;
Des Moines Real Estate Joint Venture with CNL Income Fund VII, Ltd. and CNL
Income Fund XI, Ltd.; Kingsville Real Estate Joint Venture with CNL Income Fund
IV, Ltd.; Middleburg Joint Venture with CNL Income Fund VIII, Ltd.; Columbus
Joint Venture with CNL Income Fund XVI, Ltd. and CNL Income Fund XVIII, Ltd.;
and Bossier City Joint Venture with CNL Income Fund VIII, Ltd. and CNL Income
Fund XIV, Ltd. Each of the CNL Income Funds is a limited partnership organized
pursuant to the laws of the State of Florida and an affiliate of the General
Partners. Each of the joint ventures was formed to purchase or 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 has a 59.05% interest in Williston Real Estate Joint
Venture, an 18.61% interest in Des Moines Real Estate Joint Venture, a 31.13%
interest in Kingsville Real Estate Joint Venture, an 87.54% interest in
Middleburg Joint Venture, a 27.72% interest in Columbus Joint Venture, and a 55
percent interest in Bossier City Joint Venture. 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, Columbus Joint Venture, and Bossier City Joint Venture
is distributed 59.05%, 18.61%, 31.13%, 87.54%, 27.72%, and 55 percent,
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.
The use of joint venture arrangements allows the Partnership to fully
invest its available funds at times at which it would not have sufficient funds
to purchase an additional property, or at times when a suitable opportunity to
purchase an additional property is not available. The use of joint venture
arrangements also provides the Partnership with increased diversification of its
portfolio among a greater number of properties.
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
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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.
Employees
The Partnership has no employees. The officers of CNL Realty Corporation
and the officers and employees of CNL American Properties Fund, Inc. ("APF"),
the parent company 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 Financial Group,
Inc. (formerly 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, 1999, the Partnership owned 48 Properties. Of the 48
Properties, 42 are owned by the Partnership in fee simple and six are owned
through joint venture arrangements. See Item 1. Business - Joint Venture
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation 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.
4
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The following table lists the Properties owned by the Partnership as of
December 31, 1999 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation for the year ended December 31, 1999.
State Number of Properties
----- --------------------
Alabama 1
Arizona 5
California 2
Florida 4
Georgia 5
Louisiana 2
Missouri 2
Mississippi 2
North Carolina 4
New Mexico 1
Ohio 3
South Carolina 2
Tennessee 5
Texas 9
Washington 1
---
TOTAL PROPERTIES 48
===
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. As of December 31, 1999, the Partnership had no plans for
renovation of the Properties. Depreciation expense is computed for buildings and
improvements using the straight-line method using a depreciable life of 40 years
for federal income tax purposes. As of December 31, 1999, the aggregate cost of
the Properties owned by the Partnership and joint ventures for federal income
tax purposes was $21,999,589 and $4,497,033, respectively.
The following table lists the Properties owned by the Partnership as of December
31, 1999 by Restaurant Chain.
Restaurant Chain Number of Properties
---------------- --------------------
Arby's 1
Burger King 2
Denny's 9
Golden Corral 2
Hardee's 11
IHOP 1
Jack in the Box 10
KFC 1
Long John Silver's 6
Quincy's 1
Shoney's 2
Sports Rock Cafe 1
Other 1
---
TOTAL PROPERTIES: 48
===
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
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
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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.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. 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. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
As of December 31, 1999, 1998, 1997, 1996 and 1995 the Properties were
100%, 96%, 100%, 98%, and 100% occupied, respectively. The following is a
schedule of the average rent per property for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Rental Income (1) $4,299,590 $4,247,369 $4,443,606 $4,442,092 $4,489,250
Properties 48 48 48 48 48
Average Per Property $ 89,575 $ 88,487 $ 92,575 $ 92,544 $ 93,526
</TABLE>
(1) Rental income includes the Partnership's share of rental income from the
Properties owned through joint venture arrangements. Rental revenues have
been adjusted, as applicable, for any amounts for which the Partnership has
established an allowance for doubtful accounts.
The following is a schedule of lease expirations for leases in place as of
December 31, 1999 for the next ten years and thereafter.
<TABLE>
<CAPTION>
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
-------------- --------- ------------- --------------
<S> <C> <C> <C>
2000 -- $ -- --
2001 -- -- --
2002 -- -- --
2003 -- -- --
2004 1 16,187 .37%
2005 -- -- --
2006 -- -- --
2007 2 257,662 5.93%
2008 -- -- --
2009 1 20,072 .46%
Thereafter 44 4,046,372 93.24%
---- ---------- ------
Total 48 $4,340,293 100.00%
==== ========== ======
</TABLE>
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 1999 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business -Leases.
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 $68,600 (ranging from approximately
$51,400 to $83,300).
Jack in the Box 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 $98,200 (ranging from approximately
$75,900 to $123,400).
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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.
Item 3. Legal Proceedings
On May 11, 1999, four limited partners in several CNL Income Funds served a
derivative and purported class action lawsuit filed April 22, 1999 against the
general partners and APF in the Circuit Court of the Ninth Judicial Circuit of
Orange County, Florida, alleging that the general partners breached their
fiduciary duties and violated provisions of certain of the CNL Income Fund
partnership agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8, 1999, the
plaintiffs filed an amended complaint which, in addition to naming three
additional plaintiffs, includes allegations of aiding and abetting and
conspiring to breach fiduciary duties, negligence and breach of duty of good
faith against certain of the defendants and seeks additional equitable relief.
As amended, the caption of the case is Jon Hale, Mary J. Hewitt, Charles A.
-------------------------------------
Hewitt, Gretchen M. Hewitt, Bernard J. Schulte, Edward M. and Margaret Berol
- ----------------------------------------------------------------------------
Trust, and Vicky Berol v. James M. Seneff, Jr., Robert A. Bourne, CNL Realty
- ----------------------------------------------------------------------------
Corporation, and CNL American Properties Fund, Inc., Case No. CIO-99-0003561.
- ----------------------------------------------------
On June 22, 1999, a limited partner of several CNL Income Funds served a
purported class action lawsuit filed April 29, 1999 against the general partners
and APF, Ira Gaines, individually and on behalf of a class of persons similarly
----------------------------------------------------------------------
situated, v. CNL American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
- --------------------------------------------------------------------------------
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc., CNL Financial
- ----------------------------------------------------------------------
Corporation a/k/a CNL Financial Corp., CNL Financial Services, Inc. and CNL
- ---------------------------------------------------------------------------
Group, Inc., Case NO. CIO-99-3796, in the Circuit Court of the Ninth Judicial
- -----------
Circuit of Orange County, Florida, alleging that the general partners breached
their fiduciary duties and that APF aided and abetted their breach of fiduciary
duties in connection with the proposed Merger. The plaintiff is seeking
unspecified damages and equitable relief.
On September 23, 1999, Judge Lawrence Kirkwood entered an order
consolidating the two cases under the caption In re: CNL Income Funds
-----------------------
Litigation, Case No. 99-3561. Pursuant to this order, the plaintiffs in these
- ----------------------------
cases filed a consolidated and amended complaint on November 8, 1999. On
December 22, 1999, the General Partners and CNL Group, inc. filed motions to
dismiss and motions to strike. On December 28, 1999, APF and CNL Fund Advisors,
Inc. filed motions to dismiss. On March 6, 2000, all of the defendants filed a
Joint Notice of Filing Form 8-K Reports and Suggestion of Mootness.
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
(a) As of March 15, 2000, there were 3,459 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. During 1999, Limited Partners who
wished to sell their Units may have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase), may have done so pursuant to such
Plan. The General Partners had the right to prohibit transfers of Units. From
inception through December 31, 1999, the price 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.
The following table reflects, for each calendar quarter, the high, low and
average sales prices for transfers of Units during 1999 and 1998 other than
pursuant to the Plan, net of commissions.
7
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<TABLE>
<CAPTION>
1999 (1) 1998 (1)
------------------------------------ ----------------------------------
High Low Average High Low Average
---- --- ------- ---- --- -------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 9.05 $ 7.60 $ 8.33 $10.00 $ 5.79 $ 8.60
Second Quarter 9.50 9.33 9.40 10.00 8.17 9.04
Third Quarter 9.50 8.22 9.00 9.50 8.15 9.31
Fourth Quarter 10.00 7.83 8.91 8.91 8.65 8.78
</TABLE>
(1) A total of 33,260 and 31,077 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1999 and 1998, respectively.
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, 1999 and 1998, the Partnership declared
cash distributions of $3,825,008 and $3,960,008, respectively, to the Limited
Partners. During the year 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, 1999 and 1998, 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 1999 1998
------------- ---- ----
March 31 $ 956,252 $ 956,252
June 30 956,252 956,252
September 30 956,252 956,252
December 31 956,252 1,091,252
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.
(b) Not applicable
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Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Year ended December 31:
Revenues (1) $ 4,423,599 $ 4,051,192 $ 4,522,216 $ 4,553,058 $ 4,570,571
Net income (2) 3,645,043 2,933,537 3,952,214 3,943,043 4,014,372
Cash distributions
declared (3) 3,825,008 3,960,008 3,825,008 3,825,008 3,870,007
Net income per Unit (2) 0.80 0.65 0.87 0.87 0.88
Cash distributions
declared per Unit (3) 0.85 0.88 0.85 0.85 0.86
At December 31:
Total assets $40,440,927 $40,634,898 $41,430,990 $41,343,138 $41,229,132
Partners' capital 39,210,876 39,390,841 40,417,312 40,290,106 40,172,071
</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, 1999, includes $74,714 from
gains on sales of land and building. 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, 1999, the Partnership owned 48 Properties, either directly or through joint
venture arrangements.
Capital Resources
The Partnership's primary source of capital for the years ended December
31, 1999, 1998, and 1997, 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 $3,920,030, $4,116,780, and
$3,806,988 for the years ended December 31, 1999, 1998, and 1997, respectively.
The decrease in cash from operations during 1999, as compared to 1998, and the
increase in cash from operations during 1998, as compared to 1997, was primarily
a result of changes in the Partnership's working capital.
Other sources and uses of capital included the following during the years
ended December 31, 1999, 1998 and 1997.
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,
own and lease one restaurant Property. As of December 31, 1999, the Partnership
9
<PAGE>
had contributed approximately $251,100, of which approximately $135,800 was
contributed during 1999, to the joint venture. As of December 31, 1999, the
Partnership owned a 27.72% interest in the profits and losses of this joint
venture.
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. In November 1999, the Partnership
reinvested these net sales proceeds in Bossier City Joint Venture, as described
below.
In May 1999, the Partnership sold its Property in Morganton, North
Carolina, to an unrelated third party for $550,000, received $467,300 in cash
and accepted the remaining sales proceeds in the form of a promissory note in
the principal sum of $55,000. The Partnership had recorded an allowance for loss
on building relating to this Property of $206,535 at December 31, 1998 due to
the tenant filing for bankruptcy. The allowance represented the difference
between the carrying value of the Property at December 31, 1998 and the
estimated net realizable value for this Property. During 1999, the Partnership
recorded a gain relating to the sale of this Property of $74,714 for financial
reporting purposes, resulting in an overall net loss relating to the sale of
this Property of approximately $131,800. The promissory note is collateralized
by a mortgage on the Property, bears interest at a rate of 10.25% per annum and
is being collected in 60 monthly installments of principal and interest. The net
proceeds of $467,300 received in cash were used to invest in Bossier City Joint
Venture, as described below. The Partnership distributed amounts sufficient to
enable the Limited Partners to pay federal and state income taxes, if any (at a
level reasonably assumed by the General Partners), resulting from the sale.
In July 1999, the Partnership entered into a new lease for the Property in
Statesville, North Carolina. In connection therewith, the Partnership incurred
$30,000 in renovation costs which were completed in August 1999.
In November 1999, the Partnership reinvested the majority of the proceeds
from the 1998 sale of the Property in Monroe, North Carolina, plus proceeds from
the 1999 sale of the Property in Morganton, North Carolina in a joint venture,
Bossier City Joint Venture, with CNL Income Fund VIII, Ltd. and CNL Income Fund
XIV, Ltd., both Florida limited partnerships and affiliates of the General
Partners, to purchase and hold one restaurant Property. The Partnership owns a
55 percent interest in the profits and losses of the joint venture.
In March 2000, the Partnership sold its Property in Cleveland, Tennessee to an
unrelated third party for $806,459 and received net sales proceeds of $797,227,
resulting in a gain of approximately $147,600 for financial reporting purposes.
The Partnership intends on reinvesting these 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 and net sales
proceeds from the sale of Properties are invested in money market accounts or
other short-term highly liquid investments such as demand deposit accounts at
commercial banks, certificates of deposit and money market accounts with less
than a 30-day maturity date, pending the Partnership's use of such funds to pay
Partnership expenses, to make distributions to partners or to reinvest in
additional Properties. At December 31, 1999, the Partnership had $1,870,366
invested in such short-term investments as compared to $2,362,980 at December
31, 1998. The decrease in cash and cash equivalents at December 31, 1999, was
primarily due to the reinvestment of the net sales proceeds from the 1998 sale
of the Property in Monroe, North Carolina that were held by the Partnership at
December 31, 1998. As of December 31, 1999, the average interest rate earned on
the rental income deposited in demand deposit accounts at commercial banks was
approximately two percent annually. The funds remaining at December 31, 1999,
after payment of distributions and other liabilities, will be used to invest in
an additional Property and to meet the Partnership's commitment, working
capital, and other needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily of
the operating expenses of the Partnership.
10
<PAGE>
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.
The Partnership generally distributes cash from operations remaining after
the payment of the operating expenses of the Partnership, to the extent that the
General Partners determine that such funds are available for distribution. Based
on cash from operations, the Partnership declared distributions to the Limited
Partners of $3,825,008, $3,960,008, and $3,825,008 for years ended December 31,
1999, 1998 and 1997, respectively. This represents a distribution of $0.85,
$0.88, and $0.85 per Unit for the years ended December 31, 1999, 1998, and 1997,
respectively. No amounts distributed to the Limited Partners for the years ended
December 31, 1999, 1998, and 1997, are required to be or have been treated by
the Partnership as a return of capital for purposes of calculating the Limited
Partners' return on their adjusted capital contributions. The Partnership
intends to continue to make distributions of cash available for distribution to
the Limited Partners on a quarterly basis.
During 1999, 1998, and 1997, affiliates of the General Partners incurred on
behalf of the Partnership $188,602, $130,847, and $97,078, respectively, for
certain operating expenses. As of December 31, 1999 and 1998, the Partnership
owed $74,909 and $24,025 respectively, to affiliates for such amounts and
accounting and administrative services. As of March 15, 2000, the Partnership
had reimbursed the affiliates all such amounts. Other liabilities including
distributions payable decreased to $1,155,142 at December 31, 1999, from
$1,220,032 at December 31, 1998, primarily as the result of the fact that during
1999 the Partnership's paid to the Limited Partners a special distribution of
$135,000, which represented accumulated, excess operating reserves. The decrease
was partially offset by an increase in liabilities at December 31, 1999, due to
the Partnership accruing transaction costs relating to the proposed Merger with
APF, as described in "Termination of Merger". The General Partners believe that
the Partnership has sufficient cash on hand to meet its current working capital
needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During 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 1999, the Partnership owned and leased 43 wholly owned
Properties (including one Property in Morganton, North Carolina, which was sold
in 1999). In addition, during 1997, the Partnership was a co-venturer in four
separate joint ventures that each owned and leased one Property, during 1998,
the Partnership was a co-venturer in five separate joint ventures that each
owned and leased one Property, and during 1999, the Partnership was a co-
venturer in six separate joint ventures that each owned and leased one Property.
As of December 31, 1999, 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, 1999, 1998, and 1997, the Partnership
earned $3,964,818, $3,862,390, and $4,102,842, respectively, in rental income
from operating leases (net of adjustments to accrued rental income) and earned
income from direct financing leases from its wholly owned Properties. Rental and
earned income was lower during 1998, as compared to 1999 and 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 the eight Properties it leased. As a
result, the tenant ceased making rental
11
<PAGE>
payments on the three rejected leases, and in addition, during 1998, the
Partnership wrote off $224,867 in 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)
relating to these Properties. No amounts were written off during 1999 and 1997.
The effect of the write off of accrued rental income was partially offset by the
fact that the Partnership recorded rental and earned income during 1998 prior to
the tenant vacating the Properties in June 1998. In December 1998 and May 1999,
the Partnership sold two of the vacant Properties and reinvested the majority of
the net sales proceeds in Bossier City Joint Venture, as described in "Capital
Resources." In July 1999, the Partnership entered into a lease with a new tenant
for the remaining vacant Property. In connection with the lease, the Partnership
agreed to pay up to $30,000 of the construction costs necessary to convert the
Property into a new concept. Conversion of this Property was completed in August
1999, at which time rental payments commenced, causing a slight increase in
rental and earned income during 1999. In August 1999, Long John Silver's, Inc.
assumed and affirmed its five remaining leases, and the Partnership has
continued receiving rental payments relating to these five leases.
During the years ended December 31, 1999, 1998, and 1997, the Partnership
also earned $16,994, $23,433, and $54,330, respectively, in contingent rental
income. The decrease in contingent rental income during 1999 and 1998, each as
compared to the previous year, was 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, 1999, 1998, and 1997, the
Partnership earned $344,964, $95,142, and $277,325, respectively, attributable
to net income earned by joint ventures in which the Partnership is a co-
venturer. Net income earned by joint ventures was lower during 1998, as compared
to 1999 and 1997, 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 $87,800 during 1998, in accordance with its collection policy. No
such allowance was established during 1999 and 1997. In addition, during 1998,
Kingsville Real Estate Joint Venture established a provision for loss on land
and net investment in direct financing lease for its Property in Kingsville,
Texas for approximately $316,000. The allowance represented 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 and the
General Partners ceased collection efforts on the past due amounts. The increase
in net income earned by joint ventures during 1999, as compared to 1998, was
also partially due to the fact that Columbus Joint Venture was operational for a
full year during 1999, as compared to a partial year during 1998. In addition,
the increase during 1999 was partially attributable to the Partnership investing
in Bossier City Joint Venture, as described in "Capital Resources."
During the year ended December 31, 1999, two of the Partnership's lessees
Jack in the Box Inc. and Flagstar Enterprises, Inc., each contributed more than
ten percent of the Partnership's total rental earned and mortgage interest
income (including the Partnership's share of rental and earned income from six
Properties owned by joint ventures). As of December 31, 1999, Jack in the Box
Inc. was the lessee under leases relating to ten 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,
that these tenants will each continue to contribute more than ten percent of the
Partnership's total rental, earned and mortgage interest income during 2000. In
addition, during the year ended December 31, 1999, five Restaurant Chains, Long
John Silver's, Hardee's, Jack in the Box, Golden Corral, and Denny's, each
accounted for more than ten percent of the Partnership's total rental, earned
and mortgage interest income (including the Partnership's share of rental and
earned income from six Properties owned by joint ventures). During 1998, Long
John Silver's Inc. filed for bankruptcy, as described above. In 2000, it is
anticipated that Jack in the Box, Denny's, Long John Silver's, and Hardee's each
will continue to account for more than ten percent of the Partnership's total
rental earned and mortgage interest 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.
During the years ended December 31, 1999, 1998, and 1997, the Partnership
also earned $96,823, $70,227, and $87,719, respectively, in interest and other
income. Interest and other income was lower during 1998, as compared to 1999 and
1997, primarily as 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
was 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.
Operating expenses, including depreciation and amortization expense, were
$853,270, $806,746, and $570,002 for the years ended December 31, 1999, 1998,
and 1997, respectively. The increase in operating expenses during 1999, and
1998, each as compared to the previous year, was partially due to the
Partnership incurring $218,853 and $24,282 in
12
<PAGE>
transaction costs during 1999 and 1998, respectively, relating to the General
Partners retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed Merger with APF, as described in "Termination of
Merger."
In addition, in 1999 and 1998, the Partnership incurred legal, insurance
and real estate tax expenses on the Properties for which the leases were
rejected and which were vacant during the 1999 and 1998, as a result of Long
John Silver's, Inc. filing for bankruptcy, as described above. The Partnership
sold two of the vacant Properties in December 1998 and May 1999, and the
Partnership entered into a long-term triple net lease with a new tenant for the
remaining vacant Property in July 1999. The new tenant is responsible for real
estate taxes, insurance and maintenance; therefore, the General Partners do not
anticipate that the Partnership will continue to incur these expenses. Due to
the fact that Long John Silver's, Inc. assumed and affirmed its remaining
leases, as described above, Long John Silver's, Inc. will be responsible for
such expenses relating to these Properties; therefore, the General Partners do
not anticipate that the Partnership will incur these expenses for these
Properties in the future.
Operating expenses were higher during 1998, as compared to 1999 and 1997,
due to the fact that during 1998, the Partnership recorded bad debt expense of
$188,990 for past due principal and interest amounts relating to a loan with the
tenant of the Property in Kingsville Real Estate Joint Venture due to financial
difficulties the tenant experienced. 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 rental amounts.
As a result of the sales of the Properties in Morganton, North Carolina and
Monroe, North Carolina, as described above in "Capital Resources," the
Partnership recognized a gain of $74,714 and a loss of $104,374 for financial
reporting purposes for the years ended December 31, 1999 and 1998, 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
represented 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, 1999, 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.
Termination of Merger
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. Under the Agreement and Plan of Merger, APF was to
issue shares of its common stock as consideration for the Merger. On March 1,
2000, the General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger. The agreement to terminate the
Agreement and Plan of Merger was based, in large part, on the General Partners'
concern that, in light of market conditions relating to publicly traded real
estate investment trusts, the value of the transaction had diminished. As a
result of such diminishment, the General Partners' ability to unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become questionable.
Interest Rate Risk
The Partnership has provided a fixed rate mortgage note to a borrower. The
General Partners believe that the estimated fair value of the mortgage note at
December 31, 1999, approximated the outstanding principal amount. The
Partnership is exposed to equity loss in the event of changes in interest rates.
The following table presents the expected cash flows of principals that are
sensitive to these changes.
13
<PAGE>
Mortgage Notes
Fixed Rates
--------------
2000 $10,165
2001 10,433
2002 11,554
2003 12,796
2004 5,728
Thereafter --
--------------
$50,676
==============
Overview of Year 2000 Problem
The year 2000 problem concerns the inability of information and non-
information technology systems to properly recognize and process date-sensitive
information beyond January 1, 2000. The failure to accurately recognize the year
2000 could result in a variety of problems from data miscalculations to the
failure of entire systems.
Status
The Partnership generally does not directly own information technology
systems. The General Partners and their affiliates generally provide all
services requiring the use of information and some non-information technology
systems. In early 1998, affiliates of the General Partners formed a year 2000
committee ("the Y2K Team") that assessed the readiness of any systems that are
date sensitive and completed upgrades for the hardware equipment and software
that was not year 2000 compliant, as necessary. The cost for these upgrades and
other remedial measures is the responsibility of the General Partners and their
affiliates. The General Partners and their affiliates do not expect that the
Partnership will incur any costs in connection with the year 2000 remedial
measures. In addition, the Y2K Team requested and received certifications of
compliance from other companies with which the General Partners, their
affiliates, and the Partnership have material third party relationships.
In assessing the risks presented by the year 2000 problem, the Y2K Team
identified potential worst case scenarios involving the future of the
information and non-information technology systems used by the Partnership's
transfer agent, financial institutions and tenants. As of January 14, 2000, the
General Partners and their affiliates have tested the information and non-
information technology systems used by the Partnership and have not experienced
material disruption or other significant problems. In addition, as of the same
date, the General Partners are not aware of any material year 2000 problems
relating to information and non-information technology systems of third parties
with which the Partnership maintains material relationships, including those of
the Partnership's transfer agent, financial institutions and tenants. In
addition, in the Partnership's interactions with its transfer agent, financial
institutions and tenants, the systems of these third parties have functioned
normally. Until the Partnership's first distribution in 2000 and the delivery of
the information by the transfer agent to stockholders in early 2000, the General
Partners will continue to monitor the year 2000 compliance of the transfer
agent. In addition, the General Partners will continue to monitor the systems
used by the Partnership and to maintain contact with third parties with which
the Partnership has material relationships with respect to year 2000 compliance
and any year 2000 issues that may arise at a later date. The General Partners
will develop contingency plans relating to ongoing year 2000 issues at the time
that such issues are identified and such plans are deemed necessary.
Based on the information provided to the Y2K Team, the upgrades and
remedial measures by the General Partners and their affiliates, and the normal
functioning to date of information and non-information technology systems used
by the Partnership and those third parties, the General Partners do not foresee
significant risks associated with its year 2000 compliance at this time. In
addition, the General Partners and their affiliates do not expect to incur any
additional costs in connection with the year 2000 remedial efforts. However,
there can be no assurance that the General Partners and their affiliates or any
third parties will not have ongoing year 2000 issues that may have adverse
effects on the Partnership.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information is described above in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations Interest Rate Risk.
Item 8. Financial Statements and Supplementary Data
14
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONTENTS
--------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants 17
Financial Statements:
Balance Sheets 18
Statements of Income 19
Statements of Partners' Capital 20
Statements of Cash Flows 21
Notes to Financial Statements 23
</TABLE>
15
<PAGE>
Report of Independent Certified Public 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,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States 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.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 4, 2000, except for Note 11 for which the date is March 1, 2000.
16
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
1999 1998
------------- --------------
ASSETS
------
<S> <C> <C>
Land and buildings on operating leases, less
accumulated depreciation and allowance
for loss on building $20,780,828 $20,703,333
Net investment in direct financing leases 11,441,924 12,471,978
Investment in joint ventures 3,415,888 2,522,004
Mortgage note receivable 51,301 --
Cash and cash equivalents 1,870,366 2,362,980
Receivables, less allowance for doubtful
accounts of $14,491, and $214,633,
respectively 80,791 16,862
Due from related parties 5,222 --
Prepaid expenses 13,552 7,038
Lease costs, less accumulated amortization
of $6,142 and $3,256, respectively 56,281 26,297
Accrued rental income, less allowance for
doubtful accounts of $6,323 2,724,774 2,524,406
------------- --------------
$40,440,927 $40,634,898
============= ==============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable $ 136,006 $ 21,195
Accrued and escrowed real estate taxes
payable 11,897 10,137
Distributions payable 956,252 1,091,252
Due to related parties 74,909 24,025
Rents paid in advance and deposits 50,987 97,448
------------- --------------
Total liabilities 1,230,051 1,244,057
Partners' capital 39,210,876 39,390,841
------------- --------------
$40,440,927 $40,634,898
============= ==============
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
--------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income from operating leases $2,518,075 $2,515,351 $2,455,312
Adjustments to accrued rental income -- (224,867) --
Earned income from direct financing leases 1,446,743 1,571,906 1,647,530
Contingent rental income 16,994 23,433 54,330
Interest and other income 96,823 70,227 87,719
---------- ---------- ----------
4,078,635 3,956,050 4,244,891
---------- ---------- ----------
Expenses:
General operating and administrative 172,205 148,427 162,593
Professional services 46,920 32,758 28,665
Bad debt expense -- 188,990 --
Management fees to related parties 42,710 41,537 40,218
Real estate taxes 4,099 8,989 --
State and other taxes 22,880 17,653 18,496
Depreciation and amortization 345,603 344,110 320,030
Transaction costs 218,853 24,282 --
---------- ---------- ----------
853,270 806,746 570,002
---------- ---------- ----------
Income Before Equity in Earnings of Joint
Ventures, Gain (Loss) on Sale of Land and
Buildings, and Provision for Loss on
Building 3,225,365 3,149,304 3,674,889
Equity in Earnings of Joint Ventures 344,964 95,142 277,325
Gain (Loss) on Sale of Land and Buildings 74,714 (104,374) --
Provision for Loss on Building -- (206,535) --
---------- ---------- ----------
Net Income $3,645,043 $2,933,537 $3,952,214
========== ========== ==========
Allocation of Net Income:
General partners $ 35,804 $ 30,894 $ 39,522
Limited partners 3,609,239 2,902,643 3,912,692
---------- ---------- ----------
$3,645,043 $2,933,537 $3,952,214
========== ========== ==========
Net Income Per Limited Partner Unit $ 0.80 $ 0.65 $ 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.
18
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
-------------------------------
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
General Partners Limited Partners
---------------------------- ---------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
------------- ------------ ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Distributions to limited
partners ($0.85 per
limited partner unit) -- -- -- (3,825,008) -- -- (3,825,008)
Net income -- 35,804 -- -- 3,609,239 -- 3,645,043
-------- ---------- ------------- ------------ ----------- ----------- -----------
Balance, December 31, 1999 $ 1,000 $ 258,109 $ 45,000,000 $(26,125,051) $25,451,362 $(5,374,544) $39,210,876
======== ========== ============= ============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 3,865,771 $ 4,094,016 $ 3,736,731
Distributions from joint ventures 312,470 205,815 256,653
Cash paid for expenses (344,114) (243,316) (252,145)
Interest received 85,903 60,265 65,749
----------- ----------- -----------
Net cash provided by operating activities 3,920,030 4,116,780 3,806,988
----------- ----------- -----------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 467,300 483,549 --
Additions to land and buildings on operating
leases (30,000) -- (55,000)
Investment in joint ventures (861,390) (115,256) --
Collections on loan to tenant of joint venture -- -- 4,886
Collection on mortgage note receivable 4,324 -- --
Payment of lease costs (32,870) (3,500) (26,052)
----------- ----------- -----------
Net cash provided by (used in) investing
activities (452,636) 364,793 (76,166)
----------- ----------- -----------
Cash Flows from Financing Activities:
Distributions to limited partners (3,960,008) (3,825,008) (3,825,008)
----------- ----------- -----------
Net cash used in financing activities (3,960,008) (3,825,008) (3,825,008)
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (492,614) 656,565 (94,186)
Cash and Cash Equivalents at Beginning of Year 2,362,980 1,706,415 1,800,601
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 1,870,366 $ 2,362,980 $ 1,706,415
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Net income $3,645,043 $2,933,537 $3,952,214
---------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 342,717 342,161 317,189
Amortization 2,886 1,949 2,841
Equity in earnings of joint ventures, net of
distributions (32,494) 110,673 (20,672)
Loss (gain) on sale of land and buildings (74,714) 104,374 --
Provisions for loss on building -- 206,535 --
Bad debt expense -- 188,990 --
Decrease in net investment in direct financing
leases 192,256 164,614 132,771
Increase in receivables (64,554) (3,380) (4,450)
Decrease (increase) in prepaid expenses (6,514) 178 (430)
Increase in accrued rental income (200,368) (28,230) (533,121)
Increase (decrease) in accounts payable and accrued
expenses 116,571 17,530 (10,207)
Increase in due to related parties 50,884 17,138 3,906
Decrease in due from related parties (5,222) -- --
Increase (decrease) in rents paid in advance and
deposits (46,461) 60,711 (33,053)
---------- ---------- ----------
Total adjustments 274,987 1,183,243 (145,226)
---------- ---------- ----------
Net Cash Provided by Operating Activities $3,920,030 $4,116,780 $3,806,988
========== ========== ==========
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at December 31 $ 956,252 $1,091,252 $ 956,252
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Years Ended December 31, 1999, 1998, and 1997
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.
22
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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
reverses 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 continued 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, Columbus Joint Venture
and Bossier City Joint Venture are accounted for using the equity method
since the Partnership shares control with affiliates which have the same
general partners.
23
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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.
24
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
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 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>
1999 1998
----------- -----------
<S> <C> <C>
Land $12,262,712 $12,584,387
Buildings 10,645,853 10,120,580
----------- -----------
22,908,565 22,704,967
Less accumulated depreciation (2,127,737) (1,795,099)
----------- -----------
20,780,828 20,909,868
Less allowance for loss -- (206,535)
----------- -----------
$20,780,828 $20,703,333
=========== ===========
</TABLE>
25
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
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.
In 1998, the Partnership recorded an allowance for loss on building of
$206,535 relating to the property in Morganton, North Carolina, due to the
tenant filing for bankruptcy. The allowance represented the difference
between the carrying value of the property at December 31, 1998 and the
estimated net realizable value for the property. In May 1999, the
Partnership sold the property to an unrelated third party for $550,000,
received $467,300 in cash and accepted the remaining net sales proceeds in
the form of a promissory note (see Note 7), resulting in a gain of $74,714
for financial reporting purposes. This gain, when netted against the
allowance recorded at December 31, 1998, resulted in a total net loss of
approximately $131,800. The Partnership reinvested the majority of the
remaining net sales proceeds in Bossier City Joint Venture (see Note 5).
In July 1999, the Partnership entered into a new lease for the property in
Statesville, North Carolina. In connection therewith, the Partnership
incurred $30,000 in renovation costs which were completed in August 1999.
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, 1999, 1998 and 1997, the Partnership recognized $200,368,
$28,230 (net of $6,323 in reserves and $224,867 in reversals, and $533,121,
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, 1999:
2000 $ 2,363,848
2001 2,373,789
2002 2,393,812
2003 2,668,809
2004 2,715,539
Thereafter 20,161,474
-----------
$32,677,271
===========
26
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
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.
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>
1999 1998
------------ ------------
<S> <C> <C>
Minimum lease payments receivable $ 21,395,698 $ 24,790,776
Estimated residual values 3,695,228 3,924,188
Less unearned income (13,649,002) (16,242,986)
------------ ------------
Net investment in direct financing leases $ 11,441,924 $ 12,471,978
============ ============
</TABLE>
The following is a schedule of future minimum lease payments to be received
on the direct financing leases at December 31, 1999:
2000 $ 1,551,873
2001 1,551,873
2002 1,551,873
2003 1,598,727
2004 1,614,624
Thereafter 1,526,728
-----------
$21,395,698
===========
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).
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,
27
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
4. Net Investment in Direct Financing Leases - Continued:
-----------------------------------------------------
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, 1999, the Partnership had a 59.05%, an 18.61%, a 31.13%,
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, 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, 1999, the
Partnership contributed approximately $251,100 to purchase land and pay
construction costs relating to the joint venture. As of December 31, 1999,
the Partnership owned a 27.72% interest in the profits and losses of this
joint venture.
In November 1999, the Partnership used the proceeds from the sales of the
properties in Monroe and Morganton, North Carolina, to enter into a joint
venture arrangement, Bossier City Joint Venture, with CNL Income Fund VIII,
Ltd. and CNL Income Fund XIV, Ltd., both Florida limited partnerships and
affiliates of the general partners, to purchase and hold one restaurant
property. As of December 31, 1999, the Partnership had contributed
approximately $730,000 to the joint venture and owned a 55 percent
interest in the profits and losses of the joint venture.
Williston Real Estate Joint Venture, Des Moines Real Estate Joint Venture,
Kingsville Real Estate Joint Venture, Middleburg Joint Venture, Columbus
Joint Venture, and Bossier City Joint Venture each own and lease one
property to an operator of national fast-food or family-style restaurants.
28
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
5. Investment in Joint Ventures - Continued:
----------------------------------------
The following presents the joint ventures' combined, condensed financial
information at December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Land and buildings on operating
leases, less accumulated
depreciation and allowance
for loss on land $4,030,064 $2,498,504
Net investment in direct financing
leases, less allowance for
impairment in carrying value 1,953,200 2,219,798
Cash 40,636 5,671
Receivables 34,276 --
Accrued rental income 219,436 166,447
Other assets 732 283
Liabilities 40,517 483,138
Partners' capital 6,237,827 4,407,565
Revenues 645,168 337,881
Provision for loss on land
and direct financing lease -- (316,113)
Net income (loss) 568,191 (38,867)
</TABLE>
The Partnership recognized income totaling $344,964, and $95,142 and
$277,325 for the years Ended December 31, 1999, 1998, and 1997,
respectively, from these joint ventures.
6. Mortgage Note Receivable:
------------------------
In connection with the sale of the property in Morganton, North Carolina,
in May 1999, the Partnership accepted a promissory note in the principal
sum of $55,000 collateralized by a mortgage on the property. The
promissory note bears interest at a rate of 10.25% per annum and is being
collected in 60 monthly installments of principal and interest. The
mortgage note receivable consisted of outstanding principal of $50,676 and
accrued interest receivable of $625 as of December 31, 1999.
29
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
6. Mortgage Note Receivable-Continued:
----------------------------------
The general partners believe that the estimated fair value of mortgage
notes receivable at December 31, 1999, approximated the outstanding
principal amount based on estimated current rates at which similar loans
would be made to borrowers with similar credit and for similar maturities.
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.
30
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
7. Allocations and Distributions Continued:
----------------------------------------
During the years ended December 31, 1999, 1998, and 1997 the Partnership
declared distributions to the limited partners of $3,825,008, $3,960,008,
and $3,825,008, respectively. No distributions have been made to the
general partners to date.
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>
1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Net income for financial reporting purposes $3,645,043 $2,933,537 $3,952,214
Depreciation for tax reporting purposes in
excess of depreciation for financial
reporting purposes (210,176) (224,652) (249,366)
Direct financing leases recorded as
operating leases for tax reporting
purposes 192,255 164,614 132,771
Provision for loss on building -- 206,535 --
Loss (gain) on sale of land and buildings for
tax reporting purposes less than
(in excess of) loss (gain) for financial reporting
purposes (181,362) 25,699 --
Capitalization of transaction costs for
tax reporting purposes 218,853 24,282 --
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 (126,086) 138,311 (51,481)
Allowance for doubtful accounts (200,142) 207,151 (15,913)
Accrued rental income (200,368) (28,230) (533,121)
Rents paid in advance (47,461) 60,711 (39,303)
---------- ---------- ----------
Net income for federal income tax purposes $3,090,556 $3,507,958 $3,195,801
========== ========== ==========
</TABLE>
31
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
9. Related Party Transactions:
--------------------------
One of the individual general partners, James M. Seneff, Jr., is one of the
principal shareholders of CNL Holdings, Inc. The other individual general
partner, Robert A. Bourne, serves as President and Treasurer of CNL
Financial Group, Inc., a wholly owned subsidiary of CNL Holdings, Inc., CNL
Fund Advisors, Inc. (the "Advisor") was a majority owned subsidiary of CNL
Financial Group, Inc. until it merged with CNL American Properties Fund,
Inc. ("APF"), effective September 1, 1999. The individual general partners
are stockholders and directors of APF.
The Advisor provides certain services relating to management of the
Partnership and its properties pursuant to a management agreement with the
Partnership. In connection therewith, the Partnership agreed to pay the
Advisor 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 not be taken, in whole or in part as to any year,
in the sole discretion of the Advisor. The Partnership incurred management
fees of $42,710, $41,537, and $40,218, for the years ended December 31,
1999, 1998, and 1997, respectively.
The Advisor 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 Advisor 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, 1999, 1998, and 1997, the Advisor and
its affiliates provided accounting and administrative services to the
Partnership on a day-to-day basis including services relating to the
proposed and terminated merger as described in Note 11. The Partnership
incurred $139,857, $107,911 and $92,866 for the years ended December 31,
1999, 1998, and 1997, respectively, for such services.
32
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
9. Related Party Transactions - Continued:
--------------------------------------
The due to related parties at December 31, 1999 and 1998, totaled $74,909
and $24,025, respectively.
10. Concentration of Credit Risk:
----------------------------
The following schedule presents rental, earned, and mortgage interest
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>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Jack in the Box Inc. (formerly
Foodmaker Inc.) $1,024,667 $1,023,630 $1,024,667
Flagstar Enterprises, Inc. (and
Denny's, Inc. and Quincy's
Restaurants, Inc. for the year
ended December 31, 1997) 775,075 784,922 1,216,908
Long John Silver's, Inc. N/A 508,351 647,829
Advantica Restaurant Group,
Inc. (and Denny's, Inc. and
Quincy's Restaurants, Inc.
for the years ended
December 31, 1999 and 1998) N/A 424,742 N/A
</TABLE>
33
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
10. Concentration of Credit Risk - Continued:
----------------------------------------
In addition, the following schedule presents total rental, earned, and
mortgage interest 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>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Jack in the Box $1,024,667 $1,023,630 $1,024,667
Denny's 799,567 782,486 807,547
Hardee's 775,075 784,922 787,260
Long John Silver's 479,814 574,044 713,522
Golden Corral 446,595 N/A N/A
</TABLE>
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.
In June 1998, Long John Silver's, Inc. filed for bankruptcy and rejected
the leases relating to three of its eight Properties and ceased making
rental payments to the Partnership on the three rejected leases. In
December 1998 and May 1999, the Partnership sold two of the vacant
properties. In July 1999, the Partnership entered into a new ease with a
new tenant for the remaining vacant property for which rental payments
commenced in August of 1999. In August 1999, Long John Silver's, Inc.
assumed and affirmed its five remaining leases.
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 one 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.
11. Termination of Merger
---------------------
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. Under the Agreement and Plan of Merger, APF
was to issue shares of its common stock as consideration for the Merger.
34
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
11. Termination of Merger-Continued:
-------------------------------
On March 1, 2000, the General Partners and APF announced that they had
mutually agreed to terminate the Agreement and Plan of Merger. The
agreement to terminate the Agreement and Plan of Merger was based, in large
part, on the General Partners' concern that, in light of market conditions
relating to publicly traded real estate investment trusts, the value of the
transaction had diminished. As a result of such diminishment, the General
Partners' ability to unequivocally recommend voting for the transaction, in
the exercise of their fiduciary duties, had become questionable.
12. Subsequent Event
----------------
In March 2000, the Partnership sold its property in Cleveland, Tennessee to
an unrelated third party for $806,459 and received net sales proceeds of
$797,227, resulting in a gain of approximately $147,600 for financial
reporting purposes.
35
<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 Financial Group, Inc. and their affiliates, all of
which are affiliates of the General Partners.
James M. Seneff, Jr., age 53, 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 co-
venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff is a
principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial
Group, Inc. (formerly CNL Group, Inc.), a diversified real estate company, and
has served as a director, Chairman of the Board and Chief Executive Officer of
CNL Financial Group, Inc. since its formation in 1980. Mr. Seneff has served as
a director and Chairman of the Board since inception in 1994, and served as
Chief Executive Officer from 1994 through August 1999, of CNL American
Properties Fund, Inc., a public, unlisted real estate investment trust. He also
served as a director, Chairman of the Board and Chief Executive Officer of CNL
Fund Advisors, Inc., the advisor to CNL American Properties Fund, Inc. until it
merged with the company in September 1999. In addition, he serves as a
director, Chairman of the Board and Chief Executive Officer of CNL Health Care
Properties, Inc., as well as CNL Health Care Corp., the advisor to the company.
He also serves as director, Chairman of the Board and Chief Executive Officer of
CNL Hospitality Properties, Inc., a public, unlisted real estate investment
trust, as well as CNL Hospitality Corp., its advisor. Since 1992, Mr. Seneff
has served as Chairman of the Board and Chief Executive Officer of Commercial
Net Lease Realty, Inc., a public real estate investment trust that is listed on
the New York Stock Exchange. Mr. Seneff has also served as a director, Chairman
of the Board and Chief Executive Officer of the following affiliated companies
since formation: CNL Securities Corp., since 1979; CNL Investment Company, since
1990; and CNL Institutional Advisors, a registered investment advisor for
pension plans, since 1990. Mr. Seneff formerly served as a director of First
Union National Bank of Florida, N.A., and currently serves as the Chairman of
the Board of CNLBank. Mr. Seneff 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 recommends to the Florida Board of
Administration investments for various Florida employee retirement funds. The
Florida Board of Administration is Florida's principal investment advisory and
money management agency and oversees the investment of more than $60 billion of
retirement funds. Mr. Seneff received his degree in Business Administration
from Florida State University in 1968.
Robert A. Bourne, age 52, Since joining CNL Securities Corp. in 1979, Mr.
Bourne has participated as a general partner or co-venturer in over 100 real
estate ventures involved in the financing, acquisition, construction, and
leasing of restaurants, office buildings, apartment complexes, hotels, and other
real estate. Mr. Bourne is the President and Treasurer of CNL Financial Group,
Inc. (formerly CNL Group, Inc.). Mr. Bourne has served as a director since
inception in 1994, President from 1994 through February 1999, Treasurer from
February 1999 through August 1999, and Vice Chairman of the Board since February
1999 of CNL American Properties Fund, Inc., a public, unlisted real estate
investment trust. He also served in the following positions for CNL Fund
Advisors, Inc., the advisor to CNL American Properties Fund, Inc. prior to its
merger with CNL American Properties Fund, Inc.: director from 1994 through
August 1999, Treasurer from July 1998 through August 1999, President from 1994
through September 1997, and Vice Chairman of the Board from September 1997
through August 1999. Mr. Bourne is a director and President of CNL Health Care
Properties, Inc., as well as a director and President of CNL Health Care Corp.,
the advisor to the company. He is also a director, Vice Chairman of the Board
and President of CNL Hospitality Properties, Inc., a public, unlisted real
estate investment trust, as well as CNL Hospitality Corp., its advisor. Mr.
Bourne also serves as a
36
<PAGE>
director of CNLBank. He has served as a director since 1992, Vice Chairman of
the Board since February 1996, Secretary and Treasurer from February 1996
through 1997, and President from July 1992 through February 1996, of Commercial
Net Lease Realty Inc., a public real estate investment trust listed on the New
York Stock Exchange. Mr. Bourne holds the following positions for these
affiliates of CNL Financial Group, Inc.: director, President and Treasurer of
CNL Investment Company; director, President, Treasurer, and Registered Principal
of CNL Securities Corp., a subsidiary of CNL Investment Company and director,
President, Treasurer, and Chief Investment Officer of CNL Institutional
Advisors, Inc., a registered investment advisor for pension plans. Mr. Bourne
began his career as a certified public accountant employed by Coopers & Lybrand,
Certified Public Accountants, from 1971 through 1978, where he attained the
position of tax manager in 1975. Mr. Bourne graduated from Florida State
University in 1970 where he received a B.A. in Accounting, with honors.
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 450 South Orange Avenue, Orlando, Florida 32801.
CNL Fund Advisors, Inc. was a majority owned subsidiary of CNL Financial Group,
Inc., until its merger effective September 1, 1999. On September 1, 1999, CNL
American Properties Fund, Inc. acquired CNL Fund Advisors, Inc. and was
organized to perform property acquisition, property management and other
services.
CNL Financial Group, Inc., which was the parent company of CNL Fund
Advisors, Inc. through August 1999, was organized in 1980 under the laws of the
State of Florida. CNL Financial 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 Financial Group, Inc. Mr. Seneff and
his wife own all of the outstanding shares of CNL Holdings, Inc., the Parent
company of CNL Financial Group, Inc.
The following persons serve as operating officers of CNL Financial 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 Financial Group, Inc. and its affiliated companies.
Curtis B. McWilliams, age 44, joined CNL Financial Group, Inc. in April
1997 and served as an Executive Vice President through August 1999. He serves
as Chief Executive Officer of CNL American Properties Fund, Inc. and CNL Fund
Advisors, Inc. In addition, Mr. McWilliams served as President of CNL Fund
Advisors, Inc. and as President of the Restaurant and Financial Services Groups
within CNL Financial Group, Inc. through August 1999. Mr. McWilliams served as
President of CNL American Properties Fund, Inc. from February 1999 through
August 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 41, serves as President and Chief Operating Officer of
CNL American Properties Fund, Inc. and CNL Fund Advisors, Inc. He served as
Executive Vice President of CNL American Properties Fund, Inc. from January 1996
through August 1999, as Chief Operating Officer since March 1995 through August
1999, and previously served as Senior Vice President from December 1994 through
August 1999. In addition, Mr. Walker has served as Executive Vice President of
CNL Fund Advisors, Inc. since January 1996 through August 1999, Chief Operating
Officer from April 1995 through August 1999, 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. As of September 1, 1999, Mr. Walker
serves as President for CNL American Properties Fund, 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.,
37
<PAGE>
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 51, Ms. Rose served as Secretary of CNL American
Properties Fund, Inc., a public, unlisted real estate investment trust, from
1994 through August 1999, and served as Treasurer from 1994 through February
1999. She also served as Treasurer of CNL Fund Advisors, Inc., from 1994
through July 1998, and served as Secretary and a director from 1994 through
August 1999, at which point it merged with CNL American Properties Fund, Inc.
In addition, she is Secretary and Treasurer of CNL Health Care Properties, Inc.,
and serves as Secretary of its subsidiaries. In addition, she serves as
Secretary, Treasurer and a director of CNL Health Care Corp., the advisor. to
the company. Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality
Properties, Inc., a public, unlisted real estate investment trust, as Secretary,
Treasurer and a director of CNL Hospitality Corp., its Advisor, and as Secretary
of the subsidiaries of the company. Ms. Rose served as Secretary and Treasurer
of Commercial Net Lease Realty, Inc., a public real estate investment trust
listed on the New York Stock Exchange, from 1992 to February 1996, and as
Secretary and a director of CNL Realty Advisors, Inc., its advisor, from its
inception in 1991 through 1997. She also served as Treasurer of CNL Realty
Advisors, Inc. from 1991 through February 1996. Ms. Rose, a certified public
accountant, has served as Secretary of CNL Financial Group, Inc. (formerly CNL
Group, Inc.) since 1987, served as Controller from 1987 to 1993 and has served
as Chief Financial Officer since 1993. She also serves as Secretary of the
subsidiaries of CNL Financial Group, Inc. and holds various other offices in the
subsidiaries. In addition, she serves as Secretary for approximately 50
additional corporations affiliated with CNL Financial Group, Inc. and its
subsidiaries. Ms. Rose oversees the tax and legal compliance for over 375
corporations, partnerships and joint ventures, and the accounting and financial
reporting for over 200 entities. 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. She was licensed as a certified public accountant in 1979.
Jeanne A. Wall, age 41, Ms. Wall served as Executive Vice President of CNL
American Properties Fund, Inc., a public, unlisted real estate investment trust,
from 1994 through August 1999, and as Executive Vice President of CNL Fund
Advisors, Inc., its advisor, from 1994 through August 1999, at which point it
merged with CNL American Properties Fund, Inc. Ms. Wall also serves as
Executive Vice President of CNL Health Care Properties, Inc. and CNL Health Care
Corp., the Advisor to the Company. Ms. Wall also serves as Executive Vice
President of CNL Hospitality Properties, Inc., a public, unlisted real estate
investment trust, and serves as Executive Vice President and a director of CNL
Hospitality Corp., its advisor. She also serves as a director for CNLBank. Ms.
Wall serves as Executive Vice President of CNL Financial Group, Inc. (formerly
CNL Group, Inc.). Ms. Wall has served as Chief Operating Officer of CNL
Investment Company and of CNL Securities Corp. since 1994 and has served as
Executive Vice President of CNL Investment Company since January 1991. In 1984,
Ms. Wall joined CNL Securities Corp. and in 1985, became Vice President. In
1987, she became a Senior Vice President and in July 1997, 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,
communications and investor services for programs offered through participating
brokers. Ms. Wall also served as Senior Vice President of CNL Institutional
Advisors Inc., a registered investment advisor, from 1990 to 1993. Ms. Wall
served as Vice President of Commercial Net Lease Realty, Inc., a public real
estate investment trust listed on the New York Stock Exchange, from 1992 through
1997, and served as Vice President of CNL Realty Advisors, Inc. from its
inception in 1991 through 1997. Ms. Wall currently serves as a trustee on the
Board of the Investment Program Association, is a member of the Corporate
Advisory Council for the International Association for Financial Planning and is
a member of IWF, International Women's Forum. In addition, she previously
served on the Direct Participation Program committee for the National
Association of Securities Dealers, Inc. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp.
Steven D. Shackelford, age 36, a certified public accountant, serves as
Senior Vice President, Chief Financial Officer, and Secretary of CNL American
Properties Fund, Inc. and CNL Fund Advisors, Inc. He served as Chief Financial
Officer of CNL American Properties Fund, Inc. from January 1997 and as Chief
Financial Officer of CNL Fund Advisors, Inc. since September 1996 through August
1999. 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
38
<PAGE>
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 15, 2000, 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 15, 2000, the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>
Title of Class Name of Partner Percent of Class
-------------- --------------- ----------------
<S> <C> <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 affilates own any interest
in the Registrant, except as noted above.
39
<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, 1999, 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, 1999
- -------------------------------- -------------------------------------- -------------------------------
<S> <C> <C>
Reimbursement to affiliates for Operating expenses are reimbursed at Operating expenses incurred on
operating expenses the lower of cost or 90 percent of behalf of the Partnership:
the prevailing rate at which $188,602
comparable services could have been
obtained in the same geographic area. Accounting and administrative
Affiliates of the General Partners services: $139,857
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 One percent of the sum of gross $42,710
to affiliates 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>
40
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1999
- ------------------------------- -------------------------------------- -------------------------------
<S> <C> <C>
Deferred, subordinated real A deferred, subordinated real estate $-0-
estate disposition fee disposition fee, payable upon sale of
payable to affiliates 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 equal $-0-
subordinated share of to one percent of Partnership
Partnership net cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Partnership net sales distributions of such net sales
proceeds from a sale or sales proceeds, subordinated to certain
not in liquidation of the minimum returns to the Limited
Partnership Partners.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
And Recipient Method of Computation Ended December 31, 1999
- ------------------------------- -------------------------------------- -------------------------------
<S> <C> <C>
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales from a sale or sales of substantially
proceeds from a sale or sales all of the Partnership's assets will
in liquidation of the be distributed in the following order
Partnership 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>
42
<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 Certified Public Accountants
Balance Sheets at December 31, 1999 and 1998
Statements of Income for the years ended December 31, 1999,
1998, and 1997
Statements of Partners' Capital for the years ended December 31,
1999, 1998, and 1997
Statements of Cash Flows for the years ended December 31, 1999,
1998, and 1997
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II -Valuation and Qualifying Accounts for the years
ended December 31, 1999, 1998 and 1997
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1999
Notes to Schedule III - Real Estate and Accumulated Depreciation
at December 31, 1999
Schedule IV - Mortgage Loan on Real Estate at December 31, 1999
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.)
43
<PAGE>
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,
1999 through December 31, 1999.
(c) Not applicable.
(d) The Partnership is required to file audited financial information of its
tenant, Jack in the Box Inc. (formerly Foodmaker, Inc.), and subsidiaries
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, 1999. The
summarized financial information presented for Jack in the Box Inc.
(formerly Foodmaker, Inc.) and Subsidiaries as of October 3, 1999 and
September 27, 1998, and for the fifty-three weeks ended October 3, 1999 and
for the fifty-two weeks ended September 27, 1998, was obtained from the
Form 10-K filed by Jack in the Box Inc., (formerly Foodmaker, Inc.), and
Subsidiaries, with the Securities and Exchange Commission.
Jack in the Box Inc. and Subsidiaries
Selected Financial Data
(in Thousands)
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data: October 3, 1999 September 27, 1998
- -------------------------------- ---------------- ------------------
<S> <C> <C>
Current Assets $ 97,234 $ 82,422
Noncurrent Assets 736,410 661,166
Current Liabilities 229,026 225,745
Noncurrent Liabilities 386,781 380,863
</TABLE>
<TABLE>
<CAPTION>
Fifty-three Weeks Ended Fifty-two Weeks Ended
Consolidated Statements of
- --------------------------
Operations Data: October 3 , 1999 September 27, 1998 September 28, 1997
- --------------- ---------------- ------------------ ------------------
<S> <C> <C> <C>
Gross Revenues $ 1,456,899 $ 1,224,056 $ 1,071,742
Costs and Expenses (including taxes) (1,380,441) (1,153,003) (1,036,439)
Extraordinary Item, net of taxes -- (4,378) (1,252)
---------------- ------------------ ------------------
Net Earnings $ 76,458 $ 66,675 $ 34,051
================ ================== ==================
</TABLE>
44
<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, 2000.
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> <C>
/s/ Robert A. Bourne President, Treasurer and Director March 27, 2000
- -----------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 27, 2000
- -----------------------------
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, 1999, 1998, and 1997
<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> <C> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ========== =========
1999 Allowance for
doubtful
accounts (a) $ 220,956 $ -- $ 14,490 (b) $ 208,727 (c) $ 5,905 $ 20,814
========== ========== ========== ========== ========== =========
</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.
F-1
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period(c)
-------- ------------- -------- --------- ------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
-------- -------- ------------- -------- --------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurants:
Valdosta, Georgia - $238,891 $ 316,670 - - $238,891 $ 316,670 $ 555,561
Natchitoches, Louisiana - 152,329 - 489,366 - 152,329 489,366 641,695
Denny's Restaurants:
St. Ann, Missouri - 338,826 - - - 338,826 (f) 338,826
Phoenix, Arizona - 456,306 - - - 456,306 (f) 456,306
Black Mountain, North Carolina - 260,493 - - - 260,493 (f) 260,493
Blue Springs, Missouri - 497,604 - - - 497,604 (f) 497,604
Columbus, Georgia - 125,818 314,690 - - 125,818 314,690 440,508
Tempe, Arizona - 709,275 - - - 709,275 (f) 709,275
Golden Corral Family
Steakhouse Restaurants:
Arlington, Texas - 711,558 1,159,978 - - 711,558 1,159,978 1,871,536
Hardee's Restaurants:
Crossville, Tennessee - 290,136 334,350 - - 290,136 334,350 624,486
Toccoa, Georgia - 208,847 - - - 208,847 (f) 208,847
Columbia, Mississippi - 134,810 - - - 134,810 (f) 134,810
Pensacola, Florida - 277,236 - - - 277,236 (f) 277,236
Columbia, South Carolina - 325,674 - - - 325,674 (f) 325,674
Simpsonville, South Carolina - 239,494 - - - 239,494 (f) 239,494
Indian Trail, North Carolina - 298,938 - - - 298,938 (f) 298,938
Clarksville, Georgia - 160,478 415,540 - - 160,478 415,540 576,018
Jack in the Box Restaurants:
Spring, Texas - 564,164 510,639 - - 564,164 510,639 1,074,803
Houston, Texas - 360,617 659,805 - - 360,617 659,805 1,020,422
Arlington, Texas - 329,226 716,600 - - 329,226 716,600 1,045,826
Grapevine, Texas - 471,367 590,988 - - 471,367 590,988 1,062,355
Rialto, California - 524,251 595,226 - - 524,251 595,226 1,119,477
Phoenix, Arizona - 294,773 527,466 - - 294,773 527,466 822,239
Petaluma, California - 534,076 800,780 - - 534,076 800,780 1,334,856
Willis, Texas - 569,077 427,381 - - 569,077 427,381 996,458
Houston, Texas - 368,758 663,022 - - 368,758 663,022 1,031,780
KFC Restaurant:
Las Cruces, New Mexico - 175,905 - - - 175,905 (f) 175,905
<CAPTION>
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Depreciation struction Acquired Computed
--------------- ---------- ----------- -----------------
<S> <C> <C> <C> <C>
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurants:
Valdosta, Georgia $ 67,093 1990 08/92 (b)
Natchitoches, Louisiana 110,610 1993 12/92 (b)
Denny's Restaurants:
St. Ann, Missouri (f) 1993 11/92 (d)
Phoenix, Arizona (f) 1993 11/92 (d)
Black Mountain, North Carolina (f) 1992 12/92 (d)
Blue Springs, Missouri (f) 1993 12/92 (d)
Columbus, Georgia 65,019 1980 01/93 (g)
Tempe, Arizona (f) 1982 02/93 (d)
Golden Corral Family
Steakhouse Restaurants:
Arlington, Texas 273,628 1992 12/92 (b)
Hardee's Restaurants:
Crossville, Tennessee 78,290 1992 12/92 (b)
Toccoa, Georgia (f) 1992 12/92 (d)
Columbia, Mississippi (f) 1991 01/93 (d)
Pensacola, Florida (f) 1993 03/93 (d)
Columbia, South Carolina (f) 1991 05/93 (d)
Simpsonville, South Carolina (f) 1992 06/93 (d)
Indian Trail, North Carolina (f) 1992 07/93 (d)
Clarksville, Georgia 88,990 1992 07/93 (b)
Jack in the Box Restaurants:
Spring, Texas 118,496 1993 01/93 (b)
Houston, Texas 153,111 1993 01/93 (b)
Arlington, Texas 166,290 1992 01/93 (b)
Grapevine, Texas 137,141 1992 01/93 (b)
Rialto, California 138,125 1992 01/93 (b)
Phoenix, Arizona 122,931 1992 01/93 (b)
Petaluma, California 185,825 1993 01/93 (b)
Willis, Texas 98,512 1993 02/93 (b)
Houston, Texas 152,828 1993 02/93 (b)
KFC Restaurant:
Las Cruces, New Mexico (f) 1990 03/93 (d)
</TABLE>
F-2
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period (c)
----------- ------------- ------------------ ----------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
--------- ----------- ------------- -------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long John Silver's Restaurants:
Clarksville, Tennessee (l) - 166,283 384,574 - - 166,283 384,574 550,857
El Paso, Texas - 314,270 - - - 314,270 (f) 314,270
Tucson, Arizona - 277,378 245,385 - - 277,378 245,385 522,763
Asheville, North Carolina - 213,536 453,223 - - 213,536 453,223 666,759
Quincy's Restaurant:
Albany, Georgia - 378,547 - - - 378,547 (f) 378,547
Shoney's Restaurants:
Bradenton, Florida - 455,986 - - - 455,986 (f) 455,986
Winter Haven, Florida - 475,084 - - - 475,084 (f) 475,084
Sports Rock Cafe Restaurant:
Tempe, Arizona - 121,831 620,527 55,000 - 121,831 675,527 797,358
Other:
Statesville, North Carolina - 240,870 334,643 30,000 - 240,870 364,643 605,513
------------ ----------- --------- ------ ----------- ----------- -----------
$ 12,262,712 $10,071,487 $ 574,366 - $12,262,712 $10,645,853 $22,908,565
============ =========== ========= ====== =========== =========== ===========
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 - - $ 322,726 $ 791,658 $ 1,114,384
============ =========== ========= ======= =========== =========== ===========
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 $ 243,326 $ 99,128 - $ 270,189 $ 243,326 $ 513,515
============ =========== ========= ======= =========== =========== ===========
<CAPTION>
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Depreciation struction Acquired Computed
-------------- ---------- -------- ---------------
<S> <C> <C> <C> <C>
Long John Silver's Restaurants:
Clarksville, Tennessee (l) 4,112 1993 03/93 (l)
El Paso, Texas (f) 1993 06/93 (d)
Tucson, Arizona 53,044 1992 07/93 (b)
Asheville, North Carolina 4,737 1993 08/93 (m)
Quincy's Restaurant:
Albany, Georgia (f) 1991 12/92 (d)
Shoney's Restaurants:
Bradenton, Florida (f) 1993 12/92 (d)
Winter Haven, Florida (f) 1993 05/93 (d)
Sports Rock Cafe Restaurant:
Tempe, Arizona 87,423 1988 04/93 (h)
Other:
Statesville, North Carolina 21,532 1993 04/93 (i)
-----------
$ 2,127,737
===========
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 $ 190,284 1992 12/92 (b)
===========
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) $ 12,807 1988 10/92 (j)
===========
</TABLE>
F-3
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period (c)
----------- ------------- ------------------- -----------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
--------- ----------- ------------- --------- -------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 - - - $ 521,571 (f) $ 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 - $ 407,096 - $ 498,684 - $ 407,096 $ 498,684 $ 905,780)
=========== ========== ========= ======== ========== ========== ==========
Property of Joint Venture in
Which the Partnership has a
55% Interest in Under an
Operating Lease:
IHOP Restaurant:
Bossier City, Louisiana - $ 453,016 866,192 - - $ 453,016 $ 866,192 $1,319,208
=========== ========== ========= ======== ========== ========== ==========
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Denny's Restaurants:
Phoenix, Arizona - - - 467,545 - - (f) (f)
St. Ann, Missouri - - - 324,340 - - (f) (f)
Black Mountain, North Carolina - - 696,851 - - - (f) (f)
Blue Springs, Missouri - - - 485,945 - - (f) (f)
Cleveland, Tennessee - 158,300 510,479 - - (f) (f) (f)
Tempe, Arizona - - - 491,258 - - (f) (f)
Amherst, Ohio - 127,672 169,928 316,796 - (f) (f) (f)
<CAPTION>
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Depreciation struction Acquired Computed
------------ --------- -------- ----------------
<S> <C> <C> <C> <C>
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 (f) 1995 05/96 (d)
Property of Joint Venture in
Which the Partnership has a
27.72% Interest in Under an
Operating Lease:
Arby's Restaurant:
Columbus, Ohio $ 17,315 1998 08/98 (b)
==========
Property of Joint Venture in
Which the Partnership has a
55% Interest in Under an
Operating Lease:
IHOP Restaurant:
Bossier City, Louisiana $ 4,541 1998 11/99 (b)
==========
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Denny's Restaurants:
Phoenix, Arizona (d) 1993 11/92 (d)
St. Ann, Missouri (d) 1993 11/92 (d)
Black Mountain, North Carolina (d) 1992 12/92 (d)
Blue Springs, Missouri (d) 1993 12/92 (d)
Cleveland, Tennessee (e) 1992 12/92 (e)
Tempe, Arizona (d) 1982 02/93 (d)
Amherst, Ohio (e) 1987 07/93 (e)
</TABLE>
F-4
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period (c)
----------- --------------- ------------------- ------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements
------------ ----------- --------------- --------- -------- -------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hardee's Restaurants:
Toccoa, Georgia - - 437,938 - - - (f)
Fultondale, Alabama - 173,016 - 636,480 - (f) (f)
Poplarville, Mississippi - 138,020 - 444,485 - (f) (f)
Columbia, Mississippi - - 367,836 - - - (f)
Pensacola, Florida - - - 450,193 - - (f)
Columbia, South Carolina - - 452,333 - - - (f)
Simpsonville, South Carolina - - 517,680 - - - (f)
Indian Trail, North Carolina - - 496,110 - - - (f)
KFC Restaurant:
Las Cruces, New Mexico - - 224,790 - - - (f)
Long John Silver's Restaurants:
Murfreesboro, Tennessee - 174,746 555,186 - - (f) (f)
El Paso, Texas - - - 371,286 - - (f)
Chattanooga, Tennessee - 142,627 584,320 - - (f) (f)
Quincy's Restaurant:
Albany, Georgia - - 880,338 - - - (f)
Shoney's Restaurants:
Bradenton, Florida - - - 596,374 - - (f)
Winter Haven, Florida - - - 758,986 - - (f)
------------------ -------------- --------- ------
$914,381 $5,893,789 $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 - (f) (f)
================== ============== ========= ======
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 - - - (f)
================== ============== ========= ======
<CAPTION>
Life on Which
Depreciation in
Latest Income
Accumulated Date Date Statement is
Total Depreciation of Construction Acquired Computed
----- ------------ --------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Hardee's Restaurants:
Toccoa, Georgia (f) (d) 1992 12/92 (d)
Fultondale, Alabama (f) (e) 1993 12/92 (e)
Poplarville, Mississippi (f) (e) 1993 01/93 (e)
Columbia, Mississippi (f) (d) 1991 01/93 (d)
Pensacola, Florida (f) (d) 1993 03/93 (d)
Columbia, South Carolina (f) (d) 1991 05/93 (d)
Simpsonville, South Carolina (f) (d) 1992 06/93 (d)
Indian Trail, North Carolina (f) (d) 1992 07/93 (d)
KFC Restaurant:
Las Cruces, New Mexico (f) (d) 1990 03/93 (d)
Long John Silver's Restaurants:
Murfreesboro, Tennessee (f) (e) 1989 02/93 (e)
El Paso, Texas (f) (d) 1993 06/93 (d)
Chattanooga, Tennessee (f) (e) 1993 07/93 (e)
Quincy's Restaurant:
Albany, Georgia (f) (d) 1991 12/92 (d)
Shoney's Restaurants:
Bradenton, Florida (f) (d) 1993 12/92 (d)
Winter Haven, Florida (f) (d) 1993 05/93 (d)
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 (f) (e) 1993 12/92 (e)
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 (f) (d) 1995 05/96 (d)
</TABLE>
F-5
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------------------
December 31, 1999
(a) Transactions in real estate and accumulated depreciation during 1999, 1998,
and 1997, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
---------------- ------------------
<S> <C> <C>
Properties the Partnership has Invested in Under Operating
Leases:
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 as operating lease 1,019,673 --
Dispositions (595,872) (7,949)
Depreciation expense (k) -- 342,161
---------------- ------------------
Balance, December 31, 1998 22,704,967 1,795,099
Deposition (664,199) (10,079)
Additional costs capitalized 30,000 --
Reclassified to operating lease 837,797 --
Depreciation expense -- 342,717
---------------- ------------------
Balance, December 31, 1999 $22,908,565 $2,127,737
================ ==================
Property of Joint Venture in Which the Partnership has
a 18.61% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1996 $ 1,114,384 $ 111,118
Depreciation expense -- 26,390
---------------- ------------------
Balance, December 1997 1,114,384 137,508
Depreciation expense -- 26,387
---------------- ------------------
Balance, December 31, 1998 1,114,384 163,895
Depreciation expense -- 26,389
---------------- ------------------
Balance, December 31, 1999 $ 1,114,384 $ 190,284
================ ==================
</TABLE>
F-6
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
---------------------------------------------------
DEPRECIATION - CONTINUED
------------------------
December 31, 1999
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
----------------- ------------------
<S> <C> <C>
Property of Joint Venture in Which the Partnership has 27.72%
Interest and has Invested in Under Operating Leases:
Balance, December 31, 1997 $ -- $ --
Acquisition 875,702 --
Depreciation expense -- --
----------------- ------------------
Balance, December 31, 1998 875,702 --
Acquisition 30,078 --
Depreciation expense -- 17,315
----------------- ------------------
Balance, December 31, 1999 $ 905,780 $ 17,315
================= ==================
Property of Joint Venture in Which the Partnership has a 31.13%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1996 $ 270,189 $ --
Depreciation expense (d) -- --
----------------- ------------------
Balance, December 31, 1997 270,189 --
Depreciation Expense (d) -- --
----------------- ------------------
Balance, December 31, 1998 270,189 --
Reclassification to operating lease 243,326 --
Depreciation expense (j) -- 12,807
----------------- ------------------
Balance, December 31, 1999 $ 513,515 $ 12,807
================= ==================
</TABLE>
F-7
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
---------------------------------------------------
DEPRECIATION - CONTINUED
------------------------
December 31, 1999
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
------------ --------------
<S> <C> <C>
Property of Joint Venture in Which the Partnership has
a 87.54% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1996 $ 521,571 --
Depreciation expense (d) --
------------- --------------
Balance, December 31, 1997 521,571 --
Depreciation expense (d) -- --
------------- ---------------
Balance, December 31, 1998 521,571 --
Depreciation expense (d) -- --
------------- ---------------
Balance, December 31, 1999 $ 521,571 $ --
============= ===============
Property of Joint Venture in Which the Partnership
has a 55% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisition 1,319,208
Depreciation expense -- 4,541
------------- ---------------
Balance, December 31, 1999 $ 1,319,208 $ 4,541
============= ===============
</TABLE>
F-8
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
----------------------------------------------------
DEPRECIATION - CONTINUED
------------------------
December 31, 1999
(b) Depreciation expense is computed for buildings and improvements based upon
estimated lives of 30 years.
(c) As of December 31, 1999, the aggregate cost of the Properties owned by the
Partnership and joint ventures for federal income tax purposes was
$35,176,682 and $6,620,430, 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 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 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 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 reduced to its estimated 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. During 1999, the joint venture re-leased the Property to a new
tenant, resulting in the reclassification of the building portion of the
lease as an operating lease. The building was recorded at net book value
and depreciated over the remaining life of approximately 19 years. The cost
of the Property presented on this schedule is the gross amount at which the
Property was carried at December 31, 1999, excluding the allowance for loss
on land and building.
F-9
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
-----------------------------------------------------
DEPRECIATION - CONTINUED
------------------------
December 31, 1999
(k) For financial reporting purposes the undepreciated cost of the Property in
Morganton, North Carolina, was reduced to its estimated 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 represented the difference
between the Property's carrying value and the estimated net realizable
value of the Property.
(l) Effective October 1999, the lease for this Property was amended, resulting
in the reclassification of the building portion of the lease as an
operating lease. The building was recorded at net book value and
depreciated over its remaining estimated life of approximately 23 years.
(m) Effective October 1999, the lease for this Property was amended, resulting
in the reclassification of the building portion of the lease as an
operating lease. The building was recorded at net book value and
depreciated over its remaining estimated life of approximately 24 years.
F-10
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
-------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Principal
Amount
of Loans
Subject to
Carrying Delinquent
Final Periodic Face Amount of Principal or
Interest Maturity Payment Prior Amount of Mortgages Description
Rate Date Terms Liens Mortgages (1) Interest
-------- -------- -------- ----- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Long John Silver
Morganton, NC
First Mortgage 10.25% May 2004 (2) $ -- $ 55,000 $ 51,301 $ --
===== ========= ========= ===========
</TABLE>
(1) The tax carrying value of the note is $51,301.
(2) Monthly payments of $1,175 consisting of principal and interest
at an annual rate of 10.25%.
F-11
<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>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund XII, Ltd. at December 31, 1999, and its statement of
income for the twelve months then ended and is qualified in its entirety by
reference to the Form 10-K of CNL Income Fund XII, Ltd. for the twelve months
ended December 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,870,366
<SECURITIES> 0
<RECEIVABLES> 95,282
<ALLOWANCES> 14,491
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 22,908,565
<DEPRECIATION> 2,127,737
<TOTAL-ASSETS> 40,440,927
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 39,210,876
<TOTAL-LIABILITY-AND-EQUITY> 40,440,927
<SALES> 0
<TOTAL-REVENUES> 4,078,635
<CGS> 0
<TOTAL-COSTS> 853,270
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,645,043
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,645,043
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,645,043
<EPS-BASIC> 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>
