FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 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
0-23968
---------------------------------------
CNL Income Fund XIII, Ltd.
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-3143094
- ------------------------------------------------------ ------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
- ------------------------------------------------------ ------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
------------------------------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets
Condensed Statements of Income
Condensed Statements of Partners' Capital
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Part II
Other Information
<PAGE>
CNL INCOME FUND XIII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- -------------------
<S> <C>
ASSETS
Landand buildings on operating leases, less
accumulated depreciation of $2,299,486 and
$2,107,624, respectively, and allowance for loss
on building of $297,885 in 1999 and 1998 $ 22,393,406 $ 22,945,358
Net investment in direct financing leases 7,508,202 6,951,890
Investment in joint ventures 2,447,615 2,451,336
Cash and cash equivalents 682,240 766,859
Receivables, less allowance for doubtful
accounts of $1,734 and $532, respectively 78,930 121,119
Prepaid expenses 16,322 8,453
Lease costs, less accumulated
amortization of $887 in 1999 34,863 17,875
Accrued rental income 1,532,130 1,424,603
------------------- -------------------
$ 34,693,708 $ 34,687,493
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 88,908 $ 4,068
Accrued construction costs payable 600,000 --
Accrued and escrowed real estate taxes payable 8,229 6,923
Distributions payable 850,002 850,002
Due to related parties 48,066 22,529
Rents paid in advance and deposits 34,318 54,568
------------------- -------------------
Total liabilities 1,629,523 938,090
Commitments and Contingencies (Note 3)
Partners' capital 33,064,185 33,749,403
------------------- -------------------
$ 34,693,708 $ 34,687,493
=================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------ -------------
<S> <C>
Revenues:
Rental income from operating leases $ 600,198 $ 613,911 $1,196,643 $ 1,232,426
Adjustments to accrued rental income -- (311,118 ) -- (311,118 )
Earned income from direct financing leases 196,996 198,185 389,946 415,220
Contingent rental income 69,638 75,085 110,243 141,008
Interest and other income 6,225 12,991 12,993 33,186
------------ ------------ ------------ -------------
873,057 589,054 1,709,825 1,510,722
------------ ------------ ------------ -------------
Expenses:
General operating and administrative 33,055 40,490 74,574 70,584
Professional services 8,954 6,230 20,993 14,635
Bad debt expense 615 -- 615 --
Management fees to related party 9,181 8,821 17,777 17,774
Real estate taxes 4,979 2,888 13,319 2,888
State and other taxes -- 231 21,476 16,184
Depreciation and amortization 96,830 97,995 200,671 196,413
Transaction costs 80,702 -- 113,883 --
------------ ------------ ------------ -------------
234,316 156,655 463,308 318,478
------------ ------------ ------------ -------------
Income Before Equity in Earnings of Joint
Ventures and Loss on Demolition of Building 638,741 432,399 1,246,517 1,192,244
Equity in Earnings of Joint Ventures 60,327 57,175 120,554 121,482
Loss on Demolition of Building (352,285 ) -- (352,285 ) --
------------ ------------ ------------ -------------
Net Income $ 346,783 $ 489,574 $1,014,786 $ 1,313,726
============ ============ ============ =============
Allocation of Net Income:
General partners $ 5,348 $ 4,895 $ 12,028 $ 13,137
Limited partners 341,435 484,679 1,002,758 1,300,589
------------ ------------ ------------ -------------
$ 346,783 $ 489,574 $1,014,786 $ 1,313,726
============ ============ ============ =============
Net Income Per Limited Partner Unit $ 0.09 $ 0.12 $ 0.25 $ 0.33
============ ============ ============ =============
Weighted Average Number of Limited Partner
Units Outstanding 4,000,000 4,000,000 4,000,000 4,000,000
============ ============ ============ =============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1999 1998
----------------------- ----------------------
<S> <C>
General partners:
Beginning balance $ 163,874 $ 137,207
Net income 12,028 26,667
----------------------- ----------------------
175,902 163,874
----------------------- ----------------------
Limited partners:
Beginning balance 33,585,529 34,516,349
Net income 1,002,758 2,469,188
Distributions ($0.43 and $0.85 per
limited partner unit, respectively) (1,700,004 ) (3,400,008 )
----------------------- ----------------------
32,888,283 33,585,529
----------------------- ----------------------
Total partners' capital $ 33,064,185 $ 33,749,403
======================= ======================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
---------------- ---------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $1,633,260 $1,733,901
---------------- ---------------
Cash Flows from Investing Activities:
Payment of lease costs (17,875 ) --
---------------- ---------------
Net cash used in investing activities (17,875 ) --
---------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,700,004 ) (1,700,004 )
---------------- ---------------
Net cash used in financing activities (1,700,004 ) (1,700,004 )
---------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents (84,619 ) 33,897
Cash and Cash Equivalents at Beginning of Period 766,859 907,980
---------------- ---------------
Cash and Cash Equivalents at End of Period $ 682,240 $ 941,877
================ ===============
Supplemental Schedule of Non-Cash Investing
and Non-Cash Financing Activities:
Construction costs incurred and unpaid at end of
period $ 600,000 $ --
================ ===============
Distributions declared and unpaid at end of
period $ 850,002 $ 850,002
================ ===============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 1999, may not be indicative
of the results that may be expected for the year ending December 31,
1999. Amounts as of December 31, 1998, included in the financial
statements, have been derived from audited financial statements as of
that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund XIII, Ltd. (the "Partnership") for the year ended December
31, 1998.
2. Land and Buildings:
In November 1998, the Partnership entered into a new lease for the
property in Tampa, Florida with a new tenant to operate the property as
a Steak-N-Shake restaurant. In connection with the new lease agreement,
during the six months ended June 30, 1999, the building located on the
Partnership's property was demolished. As a result, the undepreciated
cost of the building of $352,285 was charged to net income for
financial reporting purposes.
3. Commitments and Contingencies:
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to
which the Partnership would be merged with and into a subsidiary of APF
(the "Merger"). As consideration for the Merger, APF has agreed to
issue 1,943,093 shares of its common stock, par value $0.01 per share
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $20.00 per APF Share, the
price paid by APF investors (after an adjustment for a one for two
reverse stock split effective on June 3, 1999) in three previous public
offerings, the most recent of which was completed in December 1998. In
order to assist the general partners in evaluating the proposed merger
consideration, the general partners retained Valuation Associates, a
nationally recognized real estate appraisal firm, to appraise the
Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other
assets were valued on a going concern basis (meaning the Partnership
continues unchanged) at $38,283,180 as of December 31, 1998. The APF
Shares are expected to be listed for trading on the New York Stock
Exchange concurrently with the consummation
<PAGE>
CNL INCOME FUND XIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
3. Commitments and Contingencies - Continued:
of the Merger, and therefore, would be freely tradable at the option of
the former limited partners. At a special meeting of the partners that
is expected to be held in the fourth quarter of 1999, limited partners
holding in excess of 50% of the Partnership's outstanding limited
partnership interests must approve the Merger prior to consummation of
the transaction. If the limited partners at the special meeting approve
the Merger, APF will own the properties and other assets of the
Partnership. The general partners intend to recommend that the limited
partners of the Partnership approve the Merger. In connection with
their recommendation, the general partners will solicit the consent of
the limited partners at the special meeting. If the limited partners
reject the Merger, the Partnership will bear the portion of the
transaction costs based upon the percentage of "For" votes and the
general partners will bear the portion of such transaction costs based
upon the percentage of "Against" votes and abstentions.
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in
connection with the proposed Merger. On July 8, 1999, the plaintiffs
amended the complaint to add three additional limited partners as
plaintiffs. Additionally, on June 22, 1999, a limited partner in
certain of the CNL Income Funds served a lawsuit against the general
partners, APF and CNL Fund Advisors, Inc. and certain of its affiliates
in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend
vigorously against the claims. See Part II - Item 1. Legal Proceedings.
In May 1999, the Partnership entered into a new lease for the property
in Philadelphia, Pennsylvania, with a new tenant to operate the
property as an Arby's restaurant. In connection therewith, the
Partnership agreed to pay up to $433,000 in renovation costs, none of
which have been incurred as of June 30, 1999.
4. Subsequent Event:
In July 1999, the Partnership sold its property in Houston, Texas, to a
third party for $1,073,887 and received net sales proceeds of
$1,063,318, resulting in a gain of $176,159 for financial reporting
purposes.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund XIII, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on September 25, 1992, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurants, as well as properties upon which restaurants were to
be constructed (the "Properties"), which are leased primarily to operators of
national and regional fast-food and family-style restaurant chains. The leases
are generally triple-net leases, with the lessees generally responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of June 30,
1999, the Partnership owned 47 Properties, which included interests in two
Properties owned by joint ventures in which the Partnership is a co-venturer and
three Properties owned with affiliates of the general partners as
tenants-in-common.
Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 1999 and 1998 was cash from operations (which includes cash received
from tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $1,633,260 and
$1,733,901 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in cash from operations for the six months ended June 30, 1999, as
compared to the six months ended June 30, 1998, is primarily a result of changes
in the Partnership's working capital.
In November 1998, the Partnership entered into a new lease for the
Property located in Tampa, Florida with a new tenant to operate the Property as
a Steak-N-Shake restaurant. In connection with the new lease agreement, during
the six months ended June 30, 1999, the building located on the Partnership's
Property was demolished. As a result, the undepreciated cost of the building of
$352,285 was charged to net income for financial reporting purposes. As of June
30, 1999, a new building had been constructed and became operational. The
Partnership will use a portion of the net sales proceeds from the sale of the
Property in Houston, Texas, to pay such costs, as described below.
In May 1999, the Partnership entered into a new lease for the Property
in Philadelphia, Pennsylvania, with a new tenant to operate the property as an
Arby's restaurant. In connection with the lease the Partnership agreed to pay up
to $433,000 in renovation costs relating to this Property. No such amounts have
been incurred as of June 30, 1999. The Partnership intends to use a portion of
the net sales proceeds from the sale of the Property in Houston, Texas, to pay
such costs, as described below.
In July 1999, the Partnership sold its Property in Houston, Texas, to a
third party for $1,073,887 and received net sales proceeds of $1,063,318,
resulting in a gain of $176,159 for financial reporting purposes. The
Partnership intends to use the net sales proceeds to pay for the renovation
costs described above.
Currently, rental income from the Partnership's Properties and any net
sales proceeds from the sale of Properties, pending the use of such proceeds to
pay construction and renovation costs as described above, are invested in money
market accounts or other short-term, highly liquid investments such as demand
deposits at commercial banks, certificates of deposit, and money markets with
less than a 30-day maturity date. At June 30, 1999, the Partnership had
<PAGE>
$682,240 invested in such short-term investments, as compared to $766,859 at
December 31, 1998. The funds remaining at June 30, 1999 will be used to pay
distributions and other liabilities.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who meet specified
financial standards minimizes the Partnership's operating expenses. The general
partners believe that the leases will continue to generate cash flow in excess
of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and future anticipated cash from operations, the Partnership
declared distributions to the limited partners of $1,700,004 for each of the six
months ended June 30, 1999 and 1998 ($850,002 for each applicable quarter). This
represents distributions of $0.43 per unit for each applicable six months ($0.21
per unit for each applicable quarter). No distributions were made to the general
partners for the quarters and six months ended June 30, 1999 and 1998. No
amounts distributed to the limited partners for the six months ended June 30,
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. The Partnership intends to continue to
make distributions of cash available for distribution to the limited partners on
a quarterly basis.
Total liabilities of the Partnership, including distributions payable,
increased to $1,629,523 at June 30, 1999, from $938,090 at December 31, 1998,
primarily as a result of the Partnership accruing construction costs relating to
the Steak-N-Shake Property described above. Liabilities at June 30, 1999, to the
extent they exceed cash and cash equivalents at June 30, 1999, will be paid from
net sales proceeds from the sale of a Property, as described above, future cash
from operations, or in the event the general partners elect to make capital
contributions or loans, from future general partner contributions or loans.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During each of the six months ended June 30, 1999 and 1998, the
Partnership owned and leased 42 wholly owned Properties to operators of
fast-food and family-style restaurant chains. During the six months ended June
30, 1999 and 1998, the Partnership earned $1,586,589 and $1,336,528,
respectively, in rental income from operating leases (net of adjustments to
accrued rental income) and earned income from direct financing leases from these
Properties, $797,194
<PAGE>
and $500,978 of which was earned during the quarters ended June 30, 1999 and
1998, respectively. Rental and earned income was lower during the quarter and
six months ended June 30, 1998, as compared to the quarter and six months ended
June 30, 1999, 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 and ceased making rental payments on the three rejected leases. As a
result, during the quarter and six months ended June 30, 1998, the Partnership
wrote off 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 the quarter and six months ended
June 30, 1999. The effect from the write-off of accrued rental income was
partially offset by the fact that the Partnership recorded rental and earned
income during the quarter and six months ended June 30, 1998, prior to the
tenant vacating the Properties in June 1998. No rental and earned income was
recognized during the quarter and six months ended June 30, 1999 from the former
tenant. The Partnership has continued to receive rental payments relating to the
leases not rejected by the tenant.
Rental and earned income increased during the quarter and six months
ended June 30, 1999, by approximately $46,500 and $85,000, respectively, due to
the fact that the Partnership re-leased two of these Properties to new tenants
with rental payments commencing in December 1998 for one lease and June 1999 for
the other lease. In May 1999, the Partnership released the remaining vacant
Property to a new tenant, and intends to renovate the Property into an Arby's
restaurant, as described above in "Capital Resources." While Long John Silver's,
Inc. has not rejected or affirmed the remaining five leases, there can be no
assurance that some or all of the leases will not be rejected in the future. The
lost revenues that would result in the event the remaining five leases are
rejected could have an adverse effect on the results of operations of the
Partnership if the Partnership is not able to re-lease these Properties in a
timely manner.
During the six months ended June 30, 1999 and 1998, the Partnership
also earned $110,243 and $141,008, respectively, in contingent rental income,
$69,638 and $75,085 of which was earned during the quarters ended June 30, 1999
and 1998, respectively. Contingent rental income was higher during the quarter
and six months ended June 30, 1998, as compared to the quarter and six months
ended June 30, 1999, due to the fact that during the quarter and six months
ended June 30, 1998, the Partnership recorded additional contingent rental
amounts as a result of adjusting estimated contingent rental amounts accrued at
December 31, 1997, to actual amounts.
During the six months ended June 30, 1999 and 1998, the Partnership
also owned and leased two Properties indirectly through joint venture
arrangements and three Properties with affiliates of the general partners as
tenants-in-common. In connection therewith, during the six months ended June 30,
1999 and 1998, the Partnership earned $120,554 and $121,482, respectively,
$60,327 and $57,175 of which was earned during the quarters ended June 30, 1999
and 1998, respectively.
Operating expenses, including depreciation and amortization expense,
were $463,308 and $318,478 for the six months ended June 30, 1999 and 1998,
respectively, of which $234,316 and $156,655 were incurred for the quarters
ended June 30, 1999 and 1998, respectively. The increase in operating expenses
during the quarter and six months ended June 30, 1999, is primarily due to the
fact that the Partnership incurred $80,702 and $113,883, during the quarter and
six months ended June 30, 1999, respectively, in transaction costs related to
the general
<PAGE>
partners retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed Merger with APF, as described below. If the limited
partners reject the Merger, the Partnership will bear the portion of the
transaction costs based upon the percentage of "For" votes and the general
partners will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
In addition, the increase in operating expenses during the six months
ended June 30, 1999, as compared to the six months ended June 30, 1998, is
partially attributable to an increase in insurance, legal fees and real estate
tax expenses as a result of Long John Silver's, Inc. filing for bankruptcy and
rejecting the leases relating to three Properties in June 1998, as described
above. During 1998, the Partnership entered into two leases, each with a new
tenant for two of the three vacant Properties, to operate the Properties as a
Lions Choice restaurant and a Steak-N-Shake restaurant. In addition, in May
1999, the Partnership re-leased the remaining Property to a new tenant and
intends to renovate the Property into an Arby's restaurant, as described above
in "Capital Resources." In accordance with the lease agreements, the new tenant
of the Lions Choice Property became responsible for real estate taxes, insurance
and maintenance relating to this Property during 1998 and the new tenant of the
Arby's Property became responsible for these expenses in May 1999. The
Partnership will continue to incur these expenses relating to the Property that
is expected to be converted into a Steak-N-Shake until the conversion of this
Property is completed, at which point this tenant will be responsible for these
expenses under the terms of its lease. The Partnership will also incur
additional insurance and real estate tax expenses if one or more of the leases
relating to the five Properties still leased by Long John Silver's, Inc. are
rejected.
Proposed Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger"). As
consideration for the Merger, APF has agreed to issue 1,943,093 shares of its
common stock, par value $0.01 per share (the "APF Shares") which, for the
purposes of valuing the merger consideration, have been valued by APF at $20.00
per APF Share, the price paid by APF investors (after an adjustment for a one
for two reverse stock split effective June 3, 1999) in three previous public
offerings, the most recent of which was completed in December 1998. In order to
assist the general partners in evaluating the proposed merger consideration, the
general partners retained Valuation Associates, a nationally recognized real
estate appraisal firm, to appraise the Partnership's restaurant property
portfolio. Based on Valuation Associates' appraisal, the Partnership's property
portfolio and other assets were valued on a going concern basis (meaning the
Partnership continues unchanged) at $38,283,180 as of December 31, 1998. The APF
Shares are expected to be listed for trading on the New York Stock Exchange
concurrently with the consummation of the Merger, and therefore, would be freely
tradable at the option of the former limited partners. At a special meeting of
the partners that is expected to be held in the fourth quarter of 1999, limited
partners holding in excess of 50% of the Partnership's outstanding limited
partnership interests must approve the Merger prior to consummation of the
transaction. If the limited partners at the special meeting approve the Merger,
APF will own the properties and other assets of the Partnership. The general
partners intend to recommend that the limited partners of the Partnership
approve the Merger. In connection with their recommendation, the general
partners will solicit the consent of the limited partners at the special
meeting. If the limited partners reject
<PAGE>
the Merger, the Partnership will bear the portion of the transaction costs based
upon the percentage of "For" votes and the general partners will bear the
portion of such transaction costs based upon the percentage of "Against" votes
and abstentions.
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in connection with
the proposed Merger. On July 8, 1999, the plaintiffs amended the complaint to
add three additional limited partners as plaintiffs. Additionally, on June 22,
1999, a limited partner in certain of the CNL Income Funds served a lawsuit
against the general partners, APF and CNL Fund Advisors, Inc. and certain of its
affiliates in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend vigorously
against the claims. See Part II - Item 1. Legal Proceedings.
Year 2000 Readiness Disclosure
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. As of June 30, 1999 the
Partnership did not have any information or non-information technology systems.
The general partners and certain of the affiliates of the general partners
provide all services requiring the use of information and non-information
technology systems pursuant to a management agreement with the Partnership. The
information technology system of the affiliates of the general partners consists
of a network of personal computers and servers built using hardware and software
from mainstream suppliers. The non-information technology systems of the
affiliates of the general partners are primarily facility related and include
building security systems, elevators, fire suppressions, HVAC, electrical
systems and other utilities. The affiliates of the general partners have no
internally generated programmed software coding to correct because substantially
all of the software utilized by the general partners and affiliates is purchased
or licensed from external providers. The maintenance of non-information
technology systems at the Partnership's Properties is the responsibility of the
tenants of the Properties in accordance with the terms of the Partnership's
leases.
In early 1998, the general partners and affiliates formed a Year 2000
team, for the purpose of identifying, understanding and addressing the various
issues associated with the Year 2000 problem. The Y2K Team consists of the
general partners and members from certain of the affiliates of the general
partners, including representatives from senior management, information systems,
telecommunications, legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have potential Year 2000 problems. The Y2K Team is in the
process of conducting inspections, interviews and tests to identify which of the
Partnership's systems could have a potential Year 2000 problem.
The information system of the affiliates of the general partners is
comprised of hardware and software applications from mainstream suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and manufacturers to verify the Year 2000 compliance of their products. In
addition, the Y2K Team has also requested and is evaluating documentation from
other companies with which the Partnership has a material third party
relationship, including the Partnership's tenants, vendors, financial
institutions and the Partnership's transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
<PAGE>
information. The Y2K Team has also requested and is evaluating documentation
from the non-information technology systems providers of the affiliates of the
general partners. Although the general partners continue to receive positive
responses from the companies with which the Partnership has third party
relationships regarding their Year 2000 compliance, the general partners cannot
be assured that the tenants, financial institutions, transfer agent, other
vendors and system providers have adequately considered the impact of the Year
2000. The general partners are not able to measure the effect on the operations
of the Partnership of any third party's failure to adequately address the impact
of the Year 2000.
The general partners and their affiliates have identified and have
implemented upgrades for certain hardware equipment. In addition, the general
partners and their affiliates have identified certain software applications
which will require upgrades to become Year 2000 compliant. The general partners
expect that all of these upgrades, as well as any other necessary remedial
measures on the information technology systems used in the business activities
and operations of the Partnership, to be completed by September 30, 1999,
although, the general partners cannot be assured that the upgrade solutions
provided by the vendors have addressed all possible Year 2000 issues. The
general partners do not expect the aggregate cost of the Year 2000 remedial
measures to be material to the results of operations of the Partnership.
The general partners and their affiliates have received certification
from the Partnership's transfer agent of its Year 2000 compliance. Due to the
material relationship of the Partnership with its transfer agent, the Y2K Team
is evaluating the Year 2000 compliance of the systems of the transfer agent and
expects to have the evaluation completed by September 30, 1999. Despite the
positive response from the transfer agent and the evaluation of the transfer
agent's system by the Y2K Team, the general partners cannot be assured that the
transfer agent has addressed all possible Year 2000 issues. In the event that
the systems of the transfer agent are not Year 2000 compliant, the general
partners and their affiliates will have to allocate resources to internally
perform the functions of the transfer agent. The general partners do not
anticipate that the additional cost of these resources would have a material
impact on the Partnership.
Based upon the progress the general partners and their affiliates have
made in addressing the Year 2000 issues and their plan and timeline to complete
the compliance program, the general partners do not foresee significant risks
associated with Year 2000 compliance at this time. The general partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership being affected by them; therefore, we have not developed a
comprehensive contingency plan. However, if the general partners and their
affiliates identify significant risks related to their Year 2000 compliance, or
if their progress deviates from the anticipated timeline, the general partners
and their affiliates will develop contingency plans as deemed necessary at that
time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8,
1999, the plaintiffs filed an amended complaint which, in addition
to naming three additional plaintiffs, includes allegations of
aiding and abetting and conspiring to breach fiduciary duties,
negligence and breach of duty of good faith against certain of the
defendants and seeks additional equitable relief. As amended, the
caption of the case is Jon Hale, Mary J. Hewitt, Charles A. Hewitt,
Gretchen M. Hewitt Bernard J. Schulte, Edward M. and Margaret Berol
Trust, and Vicky Berol v. James M. Seneff, Jr., Robert A. Bourne,
CNL Realty Corporation, and CNL American Properties Fund, Inc., Case
No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999 against
the general partners and APF, Ira Gaines, individually and on behalf
of a class of persons similarly situated, v. CNL American Properties
Fund, Inc., James M. Seneff, Jr., Robert A. Bourne, CNL Realty
Corporation, CNL Fund Advisors, Inc., CNL Financial Corporation
a/k/a CNL Financial Corp., CNL Financial Services, Inc. and CNL
Group, Inc., Case NO. CIO-99-3796, in the Circuit Court of the Ninth
Judicial Circuit of Orange County, Florida, alleging that the
general partners breached their fiduciary duties and that APF aided
and abetted their breach of fiduciary duties in connection with the
proposed Merger. The plaintiff is seeking unspecified damages and
equitable relief.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger by and between the
Registrant and CNL American Properties Fund,
Inc. ("APF") dated March 11, 1999 and as amended
June 4, 1999 (Filed as Appendix B to the
Prospectus Supplement for the Registrant,
constituting a part of Amendment No. 1 to the
Registration Statement of APF on Form S-4, File
No. 74329.)
3.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund XIII, Ltd. (Included as
Exhibit 3.1 to Registration Statement No.
33-53672 on Form S-11 and incorporated herein by
reference.)
4.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund XIII, Ltd. (Included as
Exhibit 3.1 to Registration Statement No.
33-53672 on Form S-11 and incorporated herein by
reference.)
4.2 Amended and Restated Agreement of Limited
Partnership of CNL Income Fund XIII, Ltd.
(Included as Exhibit 4.2 to Form 10-K filed with
the Securities and Exchange Commission on March
31, 1994, and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund
XIII, Ltd. and CNL Investment Company (Included
as Exhibit 10.1 to Form 10-K filed with the
Securities and Exchange Commission on March 31,
1994, 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 30, 1995, and incorporated
herein by reference.)
10.3 Assignment of Management Agreement from CNL
Income Fund Advisors, Inc. to CNL Fund Advisors,
Inc. (Included as Exhibit 10.5 to Form 10-K
filed with the Securities and Exchange
Commission on April 1, 1996, and incorporated
herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended June 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 11th day of August, 1999.
By: CNL INCOME FUND XIII, LTD.
General Partner
By: /s/ James M. Seneff, Jr.
-----------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund XIII, Ltd. at June 30, 1999, and its statement of
income for the six months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Income Fund XIII, Ltd. for the six months
ended June 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 682,240
<SECURITIES> 0
<RECEIVABLES> 80,664
<ALLOWANCES> 1,734
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,692,892
<DEPRECIATION> 2,299,486
<TOTAL-ASSETS> 34,693,708
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 33,064,185
<TOTAL-LIABILITY-AND-EQUITY> 34,693,708
<SALES> 0
<TOTAL-REVENUES> 1,709,825
<CGS> 0
<TOTAL-COSTS> 462,693
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 615
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,014,786
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,014,786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,014,786
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund XIII, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
