UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
Amendment No. 1
(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, 1997
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)
Florida 59-3143094
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 422-1574
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 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>
The Form 10-K of CNL Income Fund XIII, Ltd. for the year ended December
31, 1997 is being amended to provide additional disclosure under Item 1.
Business, Item 2. Properties and Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Capital Resources, Short-Term
Liquidity and Long-Term Liquidity.
PART I
Item 1. Business
CNL Income Fund XIII, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on September 25, 1992. 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 March 31, 1993, the
Partnership offered for sale up to $40,000,000 of limited partnership interests
(the "Units") (4,000,000 Units at $10 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
March 17, 1993. The offering terminated on August 26, 1993, at which date the
maximum offering proceeds of $40,000,000 had been received from investors who
were admitted to the Partnership as limited partners (the "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
$35,324,831, and were used to acquire 47 Properties, including nine Properties
consisting of only land, two Properties owned by joint ventures in which the
Partnership is a co-venturer, and one Property acquired as tenants-in-common
with affiliates of the General Partners, to pay acquisition fees to an affiliate
of the General Partners totalling $2,200,000, to pay miscellaneous acquisition
expenses and to establish a working capital reserve for Partnership purposes.
During the year ended December 31, 1995, the tenant of the Property in Houston,
Texas, exercised its option in accordance with the lease agreement to substitute
another Property for the Houston, Texas Property. In connection therewith, the
Partnership sold the Houston, Texas Property to the tenant and used the net
sales proceeds, along with approximately $39,800 of cash reserves, to acquire a
Checkers Property in Lakeland, Florida, from the tenant. During the year ended
December 31, 1996, the Partnership sold its Property in Richmond, Virginia,
consisting of land only. During the year ended December 31, 1997, the
Partnership reinvested the net sales proceeds from the sale of the Property in
Richmond, Virginia, in a Burger King Property located in Akron, Ohio, with an
affiliate of the General Partners as tenants-in-common. In addition, during the
year ended December 31, 1997, the Partnership sold its Property in Orlando,
Florida, to a third party and reinvested the net sales proceeds in a Chevy's
Fresh Mex Property located in Miami, Florida, with an affiliate of the General
Partners as tenants-in-common. As a result of the above transactions, as of
December 31, 1997, the Partnership owned 47 Properties. The 47 Properties
include eight Properties consisting of land only, interests in two Properties
owned by joint ventures in which the Partnership is a co-venturer and three
Properties owned with affiliates as tenants-in-common. The lessee of the eight
Properties consisting of land only, owns the buildings currently on the land and
has the right, if not in default under the lease, to remove the buildings from
the land at the end of the lease terms. The Partnership 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. In general, the General Partners plan to seek the sale of some of
the Properties commencing seven to 12 years after their acquisition. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property purchase options
granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
joint ventures in which the Partnership is a co-venturer provide for initial
terms ranging from 6 to 20 years (the average being 19 years), and expire
between 2000 and 2016. All leases are 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 $27,400 to
$191,900. A majority of the leases provide for percentage rent, based on sales
in excess of a specified amount. In addition, the majority of the leases provide
that, commencing in specified lease years, the annual base rent required under
the terms of the lease will increase.
Generally, the leases of the Properties provide for two to five -year
renewal options subject to the same terms and conditions as the initial lease.
Certain lessees also have been granted options to purchase Properties at the
Property's then fair market value after a specified portion of the lease term
has elapsed. Under the terms of certain leases, the option purchase price may
equal the Partnership's original cost to purchase the Property (including
acquisition costs), plus a specified percentage from the date of the lease or a
specified percentage of the Partnership's purchase price, if that amount is
greater than the Property's fair market value at the time the purchase option is
exercised.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership first must
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
During 1997, the Partnership reinvested the net sales proceeds from the
sales of the Properties in Richmond, Virginia and Orlando, Florida, in a
Property located in Akron, Ohio and a Property in Miami, Florida, respectively,
with affiliates of the General Partners, as tenants-in-common, as described
below in "Joint Venture Arrangements." The lease terms for these Properties are
substantially the same as the Partnership's other leases, as described above in
the first three paragraphs of this section.
Major Tenants
During 1997, four lessees (or group of affiliated lessees) of the
Partnership, (i) Flagstar Enterprises, Inc. and Quincy's Restaurants, Inc.
(which are affiliated entities under common control of Flagstar Corporation)
(hereinafter referred to as Flagstar Corporation), (ii) Long John Silver's,
Inc., (iii) Golden Corral Corporation and (iv) Foodmaker, Inc., each contributed
more than ten percent of the Partnership's total rental income (including the
Partnership's share of rental income from two Properties owned by joint ventures
and three Properties owned with an affiliate as tenants-in-common). As of
December 31, 1997, Flagstar Corporation was the lessee under leases relating to
12 restaurants, Long John Silver's, Inc. was the lessee under leases relating to
eight restaurants, Golden Corral Corporation was the lessee under leases
relating to three restaurants and Foodmaker, Inc. was the lessee under leases
relating to five restaurants. It is anticipated that based on the minimum rental
payments required by the leases, these four lessees or groups of affiliated
lessees each will continue to contribute more than ten percent of the
Partnership's total rental income in 1998 and subsequent years. In addition,
five Restaurant Chains, Long John Silver's, Hardee's, Golden Corral Family
Steakhouse Restaurants ("Golden Corral"), Jack in the Box and Burger King, each
accounted for more than ten percent of the Partnership's total rental income
during 1997 (including the Partnership's share of rental income from two
Properties owned by joint ventures and three Properties owned with affiliates as
tenants-in-common). In subsequent years, it is anticipated that these five
Restaurant Chains 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. No single tenant or group of
affiliated tenants lease Properties with an aggregate carrying value in excess
of 20 percent of the total assets of the Partnership.
Joint Venture Arrangements and Tenancy in Common Arrangements
The Partnership has entered into two separate joint venture
arrangements: Attalla Joint Venture and Salem Joint Venture, with CNL Income
Fund XIV, Ltd., a limited partnership organized pursuant to the laws of the
State of Florida and an affiliate of the General Partners, to purchase and hold
two Properties. The joint venture arrangements provide for the Partnership and
its joint venture partner 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 50 percent interest in Attalla Joint
Venture and a 27.8% interest in Salem Joint Venture. The Partnership and its
joint venture partner are also jointly and severally liable for all debts,
obligations and other liabilities of the joint ventures.
Attalla Joint Venture and Salem Joint Venture have initial terms of 30
years and, after the expiration of the initial term, each joint venture
continues in existence from year to year unless terminated at the option of
either 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 an affiliate of
the General Partners for Attalla Joint Venture and Salem 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 partner, 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 Attalla Joint Venture and Salem Joint
Venture is distributed 50 percent and 27.8%, respectively, to the Partnership
and the balance is distributed to each other joint venture partner in accordance
with its 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.
In addition to the above joint venture agreements, the Partnership
entered into an agreement to hold a Property as tenants-in-common with CNL
Income Fund II, Ltd., an affiliate of the General Partners. The agreement
provides for the Partnership and the affiliate to share in the profits and
losses of the Property in proportion to each co- tenant's percentage interest.
The Partnership owns a 66.13% interest in this Property.
In addition, in 1997, the Partnership entered into an agreement to hold
a Burger King Property , as tenants-in-common , with CNL Income Fund XVII, Ltd.,
an affiliate of the General Partners, and entered into another agreement to hold
a Chevy's Fresh Mex Property, as tenants-in-common, with CNL Income Fund III,
Ltd., CNL Income Fund VII, Ltd. and CNL Income Fund X, Ltd., which are
affiliates of the General Partners. The agreements provide for the Partnership
and the affiliates to share in the profits and losses of the Properties in
proportion to each co-venturer's percentage interest. The Partnership owns a
63.03% and 47.83% interest in the Burger King Property and the Chevy's Fresh Mex
Property, respectively.
Each of the affiliates is a limited partnership organized pursuant to
the laws of the State of Florida. The tenancy in common agreement restricts each
co-tenant's ability to sell, transfer, or assign its interest in the tenancy in
common's Property without first offering it for sale to the remaining co-tenant.
The use of joint venture and tenancy in common 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 and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
1
<PAGE>
Certain Management Services
CNL Income Fund Advisors, Inc., an affiliate of the General Partners,
provided certain services relating to management of the Partnership and its
Properties pursuant to a management agreement with the Partnership through
September 30, 1995. Under this agreement, CNL Income Fund Advisors, Inc. was
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 Income Fund Advisors, Inc. also
assisted the General Partners in negotiating the leases. For these services, the
Partnership had agreed to pay CNL Income Fund Advisors, Inc. an annual fee of
one percent of the sum of gross rental revenues from Properties wholly owned by
the Partnership plus the Partnership's allocable share of gross revenues of
joint ventures in which the Partnership is a co-venturer and the Property held
as tenants-in-common with an affiliate, but not in excess of competitive fees
for comparable services.
Effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its
rights in, and its obligations under, the management agreement with the
Partnership to CNL Fund Advisors, Inc. All of the terms and conditions of the
management agreement, including the payment of fees, as described above, remain
unchanged.
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 Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who may
also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 1997, the Partnership owned 47 Properties. Of the 47
Properties, 42 are owned by the Partnership in fee simple, two are owned through
joint venture arrangements and three are owned through tenancy in common
arrangements. See Item 1. Business - Joint Venture and Tenancy in Common
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 filed with this report for a listing of
the Properties and their respective costs, including acquisition fees and
certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 19,900
to 145,400 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.
2
<PAGE>
The following table lists the Properties owned by the Partnership as of
December 31, 1997 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation filed with this report.
State Number of Properties
----- --------------------
Alabama 3
Arkansas 1
Arizona 2
California 1
Colorado 1
Florida 10
Georgia 1
Indiana 1
Kansas 1
Louisiana 1
Maryland 1
North Carolina 1
Ohio 4
Pennsylvania 3
South Carolina 2
Tennessee 5
Texas 9
-------
TOTAL PROPERTIES: 47
=======
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. However, the
buildings located on the eight Checkers Properties are owned by the tenant while
the land parcels are owned by the Partnership. The buildings generally are
rectangular and are constructed from various combinations of stucco, steel,
wood, brick and tile. The sizes of the building owned by the Partnership range
from approximately 1,900 to 11,500 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, 1997, 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,
1997, the aggregate cost basis of the Properties owned by the Partnership and
joint ventures (including Properties owned through tenancy in common
arrangements) for federal income tax purposes was $32,712,921 and $4,762,863,
respectively.
3
<PAGE>
The following table lists the Properties owned by the Partnership as of
December 31, 1997 by Restaurant Chain.
Restaurant Chain Number of Properties
---------------- --------------------
Arby's 1
Burger King 5
Checkers 8
Chevy's Fresh Mex 1
Denny's 3
Golden Corral 3
Hardee's 11
Jack in the Box 5
Long John Silver's 8
Quincy's 1
Wendy's 1
------
TOTAL PROPERTIES 47
======
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 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.
At December 31, 1997, 1996, 1995, 1994, and 1993, all of the Properties
were occupied. The following is a schedule of the average annual rent for each
of the five years ended December 31:
<TABLE>
<CAPTION>
<S> <C>
For the Year Ended December 31:
1997 1996 1995 1994 1993
--------------------------------------------------------------------------------
Rental Revenues (1) $3,822,053 $3,778,319 $3,923,423 $3,610,912 $960,781
Properties 47 46 47 46 35
Average Rent per Unit $81,320 $82,137 $83,477 $78,498 $27,451
</TABLE>
(1) Rental revenues include the Partnership's share of rental revenues from
the two Properties owned through joint venture arrangements and the
three properties owned through tenancy in common arrangements. Rental
revenues have been adjusted, as applicable, for any amounts for which
the Partnership has established an allowance for doubtful accounts.
5
<PAGE>
The following is a schedule of lease expirations for leases in place as
of December 31, 1997 for each of the ten years beginning with 1998 and
thereafter.
<TABLE>
<CAPTION>
<S> <C>
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
----------------------- ------------------ -------------------- ----------------
1998 - - -
1999 - - -
2000 1 34,800 0.96%
2001 - - -
2002 - - -
2003 1 34,260 0.94%
2004 - - -
2005 - - -
2006 - - -
2007 1 37,763 1.04%
Thereafter 44 3,529,811 97.06%
-------- -------------- --------------
Totals 47 3,636,634 100.00%
</TABLE>
Leases with Major Tenants. The terms of the leases with the
Partnership's major tenants as of December 31, 1997 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business -Leases.
Flagstar Corporation leases 11 Hardee's restaurants and one Quincy's
restaurant. The initial term of each lease is 20 years (expiring in 2013) and
the average minimum base annual rent is approximately $62,100 (ranging from
approximately $48,800 to $99,200).
Long John Silver's, Inc. leases eight Long John Silver's restaurants. The
initial term for seven of the leases is 20 years (expiring in 2013) and the
initial term of the eighth lease, which the Partnership assumed from an
unrelated, third party in connection with the acquisition of the related
Property, is six years (expiring in 2000). The average minimum base annual rent
is approximately $80,900 (ranging from approximately $34,800 to $115,800).
Golden Corral Corporation leases three Golden Corral restaurants. The
initial term of each lease is 15 years (expiring between 2008 and 2009) and the
average minimum base annual rent is approximately $177,900 (ranging from
approximately $168,600 to $186,200).
6
<PAGE>
Foodmaker, Inc. leases five 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 $81,000 (ranging from approximately
$59,100 to $91,800).
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.
At the time the Partnership elects to dispose of its Properties, other
than as a result of the exercise of tenant options to purchase Properties, the
Partnership will be in competition with other persons and entities to locate
purchasers for its Properties.
7
<PAGE>
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership was organized on September 25, 1992, 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 triple-net leases, with the lessee generally responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 1997, the Partnership owned 47 Properties, either directly or through joint
venture or tenancy in common arrangements.
Capital Resources
The Partnership's primary source of capital is 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
$3,204,420, $3,367,581 and $3,379,378 for the years ended December 31, 1997,
1996 and 1995, respectively. The decrease in cash from operations during 1997
and 1996, each as compared to the previous year, is primarily a result of
changes in income and expenses as described in "Results of Operations" below and
changes in the Partnership's working capital during each of the respective
years.
Other sources and uses of capital included the following during the years
ended December 31, 1997, 1996 and 1995.
8
<PAGE>
In January 1995, the Partnership received notice from the tenant of its
Property in Houston, Texas, of its intent to exercise its option in accordance
with its lease agreement, to substitute another Property for the Houston, Texas
Property. In April 1995, the Partnership sold its Property in Houston, Texas, to
the tenant for its original purchase price, excluding acquisition fees and
miscellaneous acquisition expenses. As a result of this transaction, the
Partnership recognized a loss for financial reporting purposes of approximately
$29,560 primarily due to acquisition fees and miscellaneous acquisition expenses
the Partnership had allocated to the Houston, Texas, Property and due to the
accrued rental income relating to future scheduled rent increases that the
Partnership had recorded and reversed at the time of sale. The Partnership used
the net sales proceeds, along with approximately $39,800 of cash reserves, to
acquire a Checkers Property in Lakeland, Florida, from the tenant.
In November 1996, the Partnership sold its Property in Richmond, Virginia,
to the tenant and received sales proceeds of $550,000, resulting in a gain of
$82,855 for financial reporting purposes. This Property was originally acquired
by the Partnership in March 1994, and had a cost of approximately $415,400,
excluding acquisition fees and miscellaneous acquisition expenses; therefore,
the Partnership sold the Property for approximately $134,600 in excess of its
original purchase price. As of December 31, 1996, the sales proceeds of
$550,000, plus accrued interest of $770, were being held in an interest-bearing
escrow account pending the release of funds by the escrow agent to acquire an
additional Property. In January 1997, the Partnership reinvested the net sales
proceeds in a Property located in Akron, Ohio, with an affiliate of the General
Partners as tenants-in-common. In connection therewith, the Partnership and the
affiliate entered into an agreement whereby each co-venturer will share in the
profits and losses of the Property in proportion to its applicable percentage
interest. As of December 31, 1997, the Partnership owned a 63.03% interest in
this Property. The sale of the Property in Richmond, Virginia, and the
reinvestment of the net sales proceeds in a Property in Akron, Ohio, were
structured to qualify as a like-kind exchange transaction in accordance with
Section 1031 of the Internal Revenue Code. As a result, no gain was recognized
for federal income tax purposes. Therefore, the Partnership was not required to
distribute any of the net sales proceeds from the sale of this Property to
Limited Partners for the purpose of paying federal and state income taxes.
In October 1997, the Partnership sold its Property in Orlando, Florida, to
a third party, for $953,371 and received net sales proceeds of $932,849,
resulting in a loss of $48,538 for financial reporting purposes. In December
1997, the Partnership reinvested the net sales proceeds in a Property located in
Miami, Florida, with affiliates of the General Partners as tenants-in-common. In
connection therewith, the Partnership and its affiliates entered into an
agreement whereby each co-venturer will share in the profits and losses of the
Property in proportion to its applicable percentage interest. As of December 31,
1997, the Partnership owned a 47.83% interest in this Property.
During the year ended December 31, 1997, the Partnership loaned $196,980
to the former tenant of the Denny's Property in Orlando, Florida. The
Partnership collected $127,843 of the amounts advanced and wrote off the balance
of $69,137.
None of the Properties owned by the Partnership, or the joint ventures or
tenancy in common arrangements 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, cash reserves and rental income from the Partnership
Properties and net sales proceeds from the sale of Properties, pending
reinvestment in additional Properties, are invested in money market accounts or
other short-term highly liquid investments such as demand deposit accounts at
commercial banks, CDs and money market accounts with less than a 30-day maturity
date, pending the Partnership's use of such funds to pay Partnership expenses or
to make distributions to partners. At December 31, 1997, the Partnership had
$907,980 invested in such short-term investments as compared to $1,103,568 at
December 31, 1996. The decrease in cash and cash equivalents during the year
ended December 31, 1997, is partially the result of the Partnership advancing
and not recovering $69,137 from the former tenant of the Denny's Property in
Orlando, Florida, as described above. In addition, the decrease was also
partially attributable to a decrease in rents paid in advance at December 31,
1997. As of December 31, 1997, the average interest rate earned on the rental
income deposited in demand deposit accounts at commercial banks was
approximately three percent annually. The funds remaining at December 31, 1997,
after payment of distributions and other liabilities, will be used to meet the
Partnership's working capital and other needs.
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 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 to cause the Partnership to maintain additional reserves if, in their
discretion, they determine such reserves are required to meet the Partnership's
working capital needs.
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
primarily on current and future anticipated cash from operations, the
Partnership declared distributions to the Limited Partners of $3,400,008 for
each of the years ended December 31, 1997 and 1996 and $3,375,011 for the year
ended December 31, 1995. This represents distributions of $0.85 per Unit for
each of the years ended December 31, 1997 and 1996 and $0.84 per Unit for the
year ended December 31, 1995. No amounts distributed or to be distributed to the
Limited Partners for the years ended December 31, 1997, 1996 and 1995, are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the Limited Partners' return on their adjusted
capital contributions. The Partnership intends to continue to make distributions
of cash available for distribution to the Limited Partners on a quarterly basis.
During 1997, 1996 and 1995, affiliates of the General Partners incurred on
behalf of the Partnership $87,870, $97,819 and $94,875, respectively, for
certain operating expenses. As of December 31, 1997 and 1996, the Partnership
owed $6,791 and $2,594, respectively, to related parties for such amounts,
accounting and administrative services and management fees. As of February 28,
1998, the Partnership had reimbursed the affiliates all such amounts. Other
liabilities, including distributions payable, decreased to $863,243 at December
31, 1997, from $924,539 at December 31, 1996, partially as the result of a
decrease in rents paid in advance and a decrease in accrued and escrowed real
estate taxes payable at December 31, 1997. The General Partners believe that the
Partnership has sufficient cash on hand to meet its current working capital
needs.
9
<PAGE>
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During 1995, the Partnership owned and leased 45 wholly owned Properties
(including one Property in Houston, Texas, which was sold in April 1995), during
1996, the Partnership owned and leased 44 wholly owned Properties (including one
Property in Richmond, Virginia, which was sold in November 1996) and during
1997, the Partnership owned and leased 43 wholly owned Properties (including one
Property in Orlando, Florida, which was sold in October 1997). During 1997, 1996
and 1995, the Partnership was a co-venturer in two separate joint ventures that
each owned and leased one Property. In addition, during 1995 and 1996, the
Partnership owned and leased one Property, and during 1997, owned and leased
three Properties, with affiliates of the General Partners as tenants-in-common.
As of December 31, 1997, the Partnership owned, either directly, as
tenants-in-common with affiliates or through joint venture arrangements, 47
Properties which are subject to long-term, triple-net leases. The leases of the
Properties provide for minimum base annual rental amounts (payable in monthly
installments) ranging from approximately $27,400 to $191,900. A majority of the
leases provide for percentage rent based on sales in excess of a specified
amount. In addition, the majority of the leases provide that, commencing in
specified lease years, 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, 1997, 1996 and 1995, the Partnership
earned $3,347,609, $3,376,286 and $3,509,773, respectively, in rental income
from operating leases and earned income from direct financing leases from
Properties wholly owned by the Partnership. The decrease in rental and earned
income during 1997, as compared to 1996, was partially attributable to a
decrease of approximately $116,200 as a result of the fact that in February
1997, the Partnership discontinued charging rent to the former tenant of the
Denny's Property in Orlando, Florida, as a result of the former tenant vacating
the Property. The decrease in rental and earned income during 1997, as compared
to 1996, was partially offset by, and the decrease during 1996, as compared to
1995, was partially attributable to the fact that the Partnership established an
allowance for doubtful accounts of approximately $15,300, $85,400 and $38,000
during 1997, 1996 and 1995, respectively, for past due rental amounts relating
to the Denny's Property in Orlando, Florida, due to financial difficulties the
tenant was experiencing. The decrease during 1997, as compared to 1996, was also
offset by, and the decrease during 1996, as compared to 1995, was also
attributable to the fact that during 1996, the Partnership established an
allowance for doubtful accounts of approximately $72,700 for accrued rental
income amounts previously recorded (due to the fact that future scheduled rent
increases are recognized on a straight-line basis over the term of the lease in
accordance with generally accepted accounting principles). The Partnership sold
this Property in October 1997, and reinvested the net sales proceeds in a
Property in Miami, Florida, as tenants-in-common, with affiliates of the General
Partners, as described above in "Capital Resources."
In addition, the decrease in rental and earned income for the years ended
1997 and 1996, each as compared to the previous year, is partially attributable
to a decrease of approximately $46,200 and $5,600, respectively, due to the fact
that the Partnership sold its Property in Richmond, Virginia, in November 1996.
The Partnership reinvested the net sales proceeds in a Property located in
Akron, Ohio, as tenants-in-common, with an affiliate of the General Partners, as
described above in "Capital Resources."
For the years ended December 31, 1997, 1996 and 1995, the Partnership also
earned $287,751, $299,495 and $293,749, respectively, in contingent rental
income. The decrease in contingent rental income during 1997, as compared to
1996, is primarily the result of the Partnership adjusting estimated contingent
rental amounts accrued at December 31, 1996, to actual amounts during the year
ended December 31, 1997. The increase in contingent rental income during 1996 as
compared to 1995, is primarily the result of increases in gross sales relating
to certain restaurant Properties during 1996.
In addition, for the years ended December 31, 1997, 1996 and 1995, the
Partnership earned $150,417, $60,654 and $98,520, respectively, attributable to
net income earned by joint ventures in which the Partnership is a co-venturer.
The increase in net income earned by joint ventures during 1997, as compared to
1996 is primarily attributable to the fact that in January 1997, the Partnership
reinvested the net sales proceeds from the sale of the Property in Richmond,
Virginia, in a Property in Akron, Ohio, with an affiliate of the General
Partners, as tenants-in-common as described above in "Capital Resources." The
increase was also attributable to the fact that in December 1997, the
Partnership reinvested the net sales proceeds from the sale of the Property in
Orlando, Florida, in a Property in Miami, Florida, with affiliates of the
General Partners, as tenants-in-common as described above in "Capital
Resources." The decrease in net income earned by joint ventures during 1996, as
compared to 1995, is primarily a result of the former tenant defaulting under
the terms of the lease agreement of the Kenny Rogers' Roasters Property owned
with an affiliate as tenants-in-common during 1996. The Partnership entered into
a new lease for this Property with a new tenant to operate the Property as an
Arby's restaurant. Rent commenced in December 1996, upon completion of the
renovations.
During at least one of the years ended December 31, 1997, 1996 and 1995,
five of the Partnership's lessees (or group of affiliated lessees), Flagstar
Corporation, Long John Silver's, Inc., Golden Corral Corporation, Foodmaker,
Inc. and Checkers Drive-In Restaurants, Inc. each contributed more than ten
percent of the Partnership's total rental income (including the Partnership's
share of rental income from two Properties owned by joint ventures and three
Properties owned with affiliates as tenants-in-common). As of December 31, 1997,
Flagstar Corporation was the lessee under leases relating to 12 restaurants,
Long John Silver's, Inc. was the lessee under leases relating to eight
restaurants, Golden Corral Corporation was the lessee under leases relating to
three restaurants, Foodmaker, Inc. was the lessee under leases relating to five
restaurants and Checkers was the lessee under leases relating to eight
restaurants. It is anticipated that based on the minimum rental payments
required by the leases, Flagstar Corporation, Long John Silver's, Inc., Golden
Corral Corporation and Foodmaker, Inc. each will continue to contribute more
than ten percent of the Partnership's total rental income during 1998 and
subsequent years. In addition, during at least one of the years ended December
31, 1997, 1996 and 1995, five Restaurant Chains, Long John Silver's, Hardee's,
Golden Corral, Jack in the Box and Burger King, each accounted for more than ten
percent of the Partnership's total rental income (including the Partnership's
share of rental income from two Properties owned by joint ventures and three
Properties owned with affiliates as tenants-in-common). In subsequent years, it
is anticipated that these five Restaurant Chains, each will continue to account
for more than ten percent of the total rental income to which the Partnership is
entitled under the terms of its leases. Any failure of these lessees or
Restaurant Chains could materially affect the Partnership's income.
Operating expenses, including depreciation and amortization expense, were
$748,305, $646,794 and $608,140 for the years ended December 31, 1997, 1996 and
1995, respectively. The increase in operating expenses during 1997, as compared
to 1996, is primarily the result of the fact that the Partnership recorded bad
debt expense of approximately $54,000 for rental amounts due from the former
tenant of the Denny's Property in Orlando, Florida, as a result of the
Partnership ceasing collection efforts on rental amounts not collected from the
tenant as of the time of the sale of the Property in October, 1997, as described
above in "Capital Resources." Operating expenses also increased as a result of
the fact that the Partnership recorded bad debt expense of approximately $69,100
relating to the advances made to the former tenant of the Denny's Property in
Orlando, Florida, that were not recovered from the former tenant, as described
above in "Capital Resources." The increase in operating expenses during 1997 is
partially offset by, and the increase during 1996 is partially attributable to,
the fact that during 1996, the Partnership recorded real estate tax expense
relating to this Property of approximately $10,700. No such real estate tax
expense was recorded by the Partnership during 1995 or 1997, due to the fact
that real estate taxes amounts were paid by the tenant and the purchaser of the
Property, respectively, for each of these years.
The increase in operating expenses during 1996, as compared to 1995, is
also partially the result of an increase in accounting and administrative
expenses associated with operating the Partnership and its Properties and an
increase in insurance expense as a result of the General Partners' obtaining
contingent liability and property coverage for the Partnership beginning in May
1995.
As a result of the sale of the Property in Orlando, Florida, as
described above in "Capital Resources," the Partnership recognized a loss for
financial reporting purposes of $48,538 for the year ended December 31, 1997. In
addition, as a result of the sale of the Property in Richmond, Virginia, as
described above in "Capital Resources," the Partnership recognized a gain of
$82,855 for financial reporting purposes for the year ended December 31, 1996.
In addition, as a result of the sale of the Property in Houston, Texas, as
described above in "Capital Resources," the Partnership recognized a loss for
financial reporting purposes of $29,560 for the year ended December 31, 1995.
The loss was primarily due to acquisition fees and miscellaneous acquisition
expenses the Partnership had allocated to this Property and due to accrued
rental income relating to future scheduled rent increases that the Partnership
had recorded and reversed at the time of sale.
The General Partners of the Partnership are in the process of assessing
and addressing the impact of the year 2000 on their company package software.
The hardware and built-in software are believed to be year 2000 compliant.
Accordingly, the General Partners do not expect this matter to materially impact
how the Partnership conducts business nor its current or future results of
operations or financial position.
The Partnership's leases as of December 31, 1997, are 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 based 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.
10
<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 29th day of
July, 1999.
CNL INCOME FUND XIII, 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.
Signature Title Date
--------- ----- ----
/s/ Robert A. Bourne President, Treasurer and July 29, 1999
- -------------------- Director (Principal Financial
Robert A. Bourne and Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer July 29, 1999
- ------------------------ and Director (Principal
James M. Seneff, Jr. Executive Officer)
