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 March 31, 1999
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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
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CNL Income Fund XIII, Ltd.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-3143094
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
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</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>
March 31, December 31,
1999 1998
------------------- -------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of
$2,210,970 and $2,107,624 and
allowance for loss on building
of $297,885 in 1999 and 1998 $ 22,842,012 $ 22,945,358
Net investment in direct financing leases 6,930,543 6,951,890
Investment in joint ventures 2,449,068 2,451,336
Cash and cash equivalents 687,717 766,859
Receivables, less allowance for doubtful
accounts of $817 and $532 69,067 121,119
Prepaid expenses 24,630 8,453
Lease costs, less accumulated
amortization of $436 in 1999 35,314 17,875
Accrued rental income 1,480,032 1,424,603
------------------- -------------------
$ 34,518,383 $ 34,687,493
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 38,589 $ 4,068
Accrued and escrowed real estate taxes payable 13,197 6,923
Distributions payable 850,002 850,002
Due to related party 20,964 22,529
Rents paid in advance and deposits 28,227 54,568
------------------- -------------------
Total liabilities 950,979 938,090
Commitment (Note 4)
Partners' capital 33,567,404 33,749,403
------------------- -------------------
$ 34,518,383 $ 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
March 31,
1999 1998
--------------- --------------
<S> <C>
Revenues:
Rental income from operating leases $ 596,445 $ 618,515
Earned income from direct financing leases 192,950 217,035
Contingent rental income 40,605 65,923
Interest and other income 6,768 20,195
--------------- --------------
836,768 921,668
--------------- --------------
Expenses:
General operating and administrative 41,519 30,094
Professional services 12,039 8,405
Management fees to related party 8,596 8,953
Real estate taxes 8,340 --
State and other taxes 21,476 15,953
Depreciation and amortization 103,841 98,418
Transaction costs 33,181 --
--------------- --------------
228,992 161,823
--------------- --------------
Income Before Equity in Earnings of Joint Ventures 607,776 759,845
Equity in Earnings of Joint Ventures 60,227 64,307
--------------- --------------
Net Income $ 668,003 $ 824,152
=============== ==============
Allocation of Net Income:
General partners $ 6,680 $ 8,242
Limited partners 661,323 815,910
--------------- --------------
$ 668,003 $ 824,152
=============== ==============
Net Income Per Limited Partner Unit $ 0.17 $ 0.20
=============== ==============
Weighted Average Number of Limited Partner
Units Outstanding 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>
Quarter Ended Year Ended
March 31, December 31,
1999 1998
------------------- ------------------
<S> <C>
General partners:
Beginning balance $ 163,874 $ 137,207
Net income 6,680 26,667
------------------- ------------------
170,554 163,874
------------------- ------------------
Limited partners:
Beginning balance 33,585,529 34,516,349
Net income 661,323 2,469,188
Distributions ($0.21 and $0.85 per
limited partner unit, respectively) (850,002 ) (3,400,008 )
------------------- ------------------
33,396,850 33,585,529
------------------- ------------------
Total partners' capital $ 33,567,404 $ 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>
Quarter Ended
March 31,
1999 1998
--------------- --------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 788,735 $ 989,648
--------------- --------------
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 (850,002 ) (850,002 )
--------------- --------------
Net cash used in financing activities (850,002 ) (850,002 )
--------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents (79,142 ) 139,646
Cash and Cash Equivalents at Beginning of Quarter 766,859 907,980
--------------- --------------
Cash and Cash Equivalents at End of Quarter $ 687,717 $1,047,626
=============== ==============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
quarter $ 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 Ended March 31, 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 ended March 31, 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. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees, each representing more than ten percent of the
Partnership's total rental and earned income (including the
Partnership's share of total rental and earned income from joint
ventures and the properties held as tenants-in-common with affiliates
of the general partners) for each of the quarters ended March 31:
<TABLE>
<CAPTION>
1999 1998
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<S> <C>
Flagstar Enterprises, Inc. (and Denny's
Inc. and Quincy's Inc. for the
quarter ended March 31, 1998 $ 162,021 $ 186,036
Golden Corral Corporation 130,435 133,150
Foodmaker, Inc. 113,223 113,418
Long John Silver's, Inc. 105,362 188,672
Checkers Drive-In Restaurants, Inc. 91,622 N/A
</TABLE>
<PAGE>
CNL INCOME FUND XIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
2. Concentration of Credit Risk - Continued:
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than
ten percent of the Partnership's total rental and earned income
(including the Partnership's share of total rental and earned income
from joint ventures and the properties held as tenants-in-common with
affiliates of the general partners) for each of the quarters ended
March 31:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C>
Hardee's $ 162,021 $ 162,498
Golden Corral Family Steakhouse
Restaurants 130,435 133,150
Jack in the Box 113,223 113,418
Long John Silver's 105,362 188,672
Burger King 100,140 120,595
Checkers Drive-In Restaurants 91,622 N/A
</TABLE>
The information denoted by N/A indicates that for each period
presented, the tenant or the chain did not represent more than ten
percent of the Partnership's total rental and earned income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
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 to the Partnership on the three
rejected leases. During 1998, the Partnership entered into new leases
for two of the three properties with new tenants, one for which rent
commenced in December 1998 and one for which rental income is expected
to commence subsequent to March 31, 1999, pending renovations to the
property by the tenant. In addition, in May 1999, the Partnership
re-leased the remaining rejected lease property to a new tenant (See
Note 5). While Long John Silver's, Inc. has not rejected or affirmed
the remaining five leases, there can be no assurance that some or all
of the leases will not be rejected in the future. The lost revenues
resulting from the possible rejection of the remaining five leases
could have an adverse effect on the results of operations of the
Partnership if the Partnership is not able to re-lease these properties
in a timely manner.
<PAGE>
CNL INCOME FUND XIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
3. Merger Transaction:
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 3,886,185 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 $10.00 per APF Share, the
price paid by APF investors 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. Legg Mason Wood
Walker, Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a
financial point of view. The APF Shares are expected to be listed for
trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and, therefore, would be freely tradable at
the option of the former limited partners. At a special meeting of the
partners that is expected to be held in the third quarter of 1999,
limited partners holding in excess of 50% of the Partnership's
outstanding limited partnership interests must approve the Merger prior
to consummation of the transaction. 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 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in
connection with the proposed Merger (see Part II - Item 1. Legal
Proceedings). The general partners and APF believe that the lawsuit is
without merit and intend to defend vigorously against the claims.
Because the lawsuit was so recently filed, it is premature to further
comment on the lawsuit at this time.
<PAGE>
CNL INCOME FUND XIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
4. Commitment:
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 therewith, the Partnership
agreed to pay up to $600,000 in renovation costs, none of which had
been incurred as of March 31, 1999.
5. Subsequent Event:
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 $975,000 in renovation costs.
<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 March
31, 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 as tenants-in-common.
Liquidity and Capital Resources
The Partnership's primary source of capital for the quarters ended
March 31, 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 $788,735 and
$989,648 for the quarters ended March 31, 1999 and 1998, respectively. The
decrease in cash from operations for the quarter ended March 31, 1999, as
compared to the quarter ended March 31, 1998, is primarily a result of changes
in the Partnership's working capital and changes in income and expenses as
described in "Results of Operations" below.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At March 31, 1999, the Partnership had $687,717
invested in such short-term investments, as compared to $766,859 at December 31,
1998. The funds remaining at March 31, 1999 will be used to pay distributions
and other liabilities.
Total liabilities of the Partnership, including distributions payable,
increased to $950,979 at March 31, 1999, from $938,090 at December 31, 1998.
Liabilities at March 31, 1999, to the extent they exceed cash and cash
equivalents at March 31, 1999, will be paid from 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.
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 therewith, the Partnership has agreed
to fund up to $600,000 in conversion costs associated with this Property. No
amounts have been incurred as of March 31, 1999. 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 $975,000 in renovation costs. The
Partnership anticipates funding these renovation costs by entering into
arrangements with affiliates of the general partners or third parties. Under the
arrangements, the affiliates of the general partners or third parties would
contribute the proceeds to pay for the renovation costs in exchange for
interests in the properties. As of May 13, 1999, the Partnership has not entered
into any such arrangements.
<PAGE>
Liquidity and Capital Resources - Continued
Based primarily on cash from operations, and for the quarter ended
March 31, 1999, anticipated future cash from operations, the Partnership
declared distributions to the limited partners of $850,002 for each of the
quarters ended March 31, 1999 and 1998. This represents distributions of $0.21
per unit for each applicable quarter. No distributions were made to the general
partners for the quarters ended March 31, 1999 and 1998. No amounts distributed
to the limited partners for the quarters ended March 31, 1999 and 1998, are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the limited partners' return on their adjusted
capital contributions. The Partnership intends to continue to make distributions
of cash available for distribution to the limited partners on a quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who 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.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF (the "Merger"). APF is a real estate investment trust
whose primary business is the ownership of restaurant properties leased on a
long-term, "triple-net" basis to operators of national and regional restaurant
chains. APF has agreed to issue shares of its common stock, par value $0.01 per
share (the "APF Shares"), as consideration for the Merger. APF has agreed to
issue 3,886,185 APF Shares which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the price paid
by APF investors in 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. Legg Mason Wood Walker,
Incorporated has rendered a fairness opinion that the APF Share consideration,
payable by APF, is fair to the Partnership from a financial point of view. The
APF Shares are expected to be listed for trading on the New York Stock Exchange
concurrently with the consummation of the Merger, and therefore, would be freely
tradable at the option of the former limited partners. At a special meeting of
the partners that is expected to be held in the third quarter of 1999, limited
partners holding in excess of 50% of the Partnership's outstanding limited
partnership interests must approve the Merger prior to consummation of the
transaction. 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.
<PAGE>
Liquidity and Capital Resources - Continued
On May 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in connection with
the proposed Merger (see Part II - Item 1. Legal Proceedings). The general
partners and APF believe that the lawsuit is without merit and intend to defend
vigorously against the claims. Because the lawsuit was so recently filed, it is
premature to further comment on the lawsuit at this time.
Results of Operations
During each of the quarters ended March 31, 1999 and 1998, the
Partnership owned and leased 42 wholly owned Properties to operators of
fast-food and family-style restaurant chains. In connection therewith, during
the quarters ended March 31, 1999 and 1998, the Partnership earned $789,395 and
$835,550, respectively, in rental income from operating leases and earned income
from direct financing leases from these Properties. The decrease in rental and
earned income is 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. The Partnership has continued to receive rental payments relating to the
leases not rejected by the tenant. During 1998, the Partnership re-leased two of
these Properties to new tenants. Rental payments commenced in December 1998 for
one lease and rental payments on the other lease are scheduled to commence
during the second quarter of 1999. In addition, in May 1999, the Partnership
released the remaining vacant Property to a new tenant, to renovate the Property
into an Arby's restaurant, as described above in "Liquidity and 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 resulting from the
possible rejection of the remaining five leases could have an adverse effect on
the results of operations of the Partnership if the Partnership is not able to
re-lease these Properties in a timely manner.
During the quarter ended March 31, 1999 and 1998, the Partnership also
earned $40,605 and $65,923, respectively, in contingent rental income. The
decrease in contingent rental income during the quarter ended March 31, 1999, as
compared to the quarter ended March 31, 1998, is primarily attributable to the
fact that during the quarter ended March 31, 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 quarters ended March 31, 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 quarters ended March 31,
1999 and 1998, the Partnership earned $60,227 and $64,307, respectively,
attributable to the net income earned by these joint ventures.
During the quarter ended March 31, 1999, five of the Partnership's
lessees, Flagstar Enterprises, Inc., Long John Silver's, Inc., Golden Corral
Corporation, Checkers Drive-In Restaurants, and Foodmaker, Inc. each contributed
more than ten percent of the Partnership's total rental income (including the
Partnership's share of rental income from Properties owned by joint ventures and
Properties owned with affiliates of the general partners as tenants-in-common).
As of March 31, 1999, Flagstar Enterprises, Inc. was the lessee under leases
relating to 11 restaurants, Long John Silver's, Inc. was the lessee under leases
relating to five restaurants
<PAGE>
Results of Operations - Continued
(which excludes the one vacant restaurant for which Long John Silver's, Inc.
rejected the lease as a result of filing for bankruptcy, as described above),
Golden Corral Corporation was the lessee under leases relating to three
restaurants, Checkers Drive-In Restaurants was the lessee under leases relating
to eight restaurants, and Foodmaker, inc. was the lessee under leases relating
to five restaurants. As a result of Long John Silver's Inc. filing for
bankruptcy in June 1998, as described above, it is anticipated that based on the
minimum rental payments required by the leases, Flagstar Enterprises, Inc.,
Golden Corral Corporation, Checkers Drive-In Restaurants, and Foodmaker, Inc.
each will continue to contribute more than ten percent of the Partnership's
total rental and earned income. In addition, during the quarter ended March 31,
1999, six restaurant chains, Long John Silver's, Hardee's, Golden Corral, Jack
in the Box, Checkers, 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 Properties owned by joint ventures and Properties owned with
affiliates as tenants-in-common). It is anticipated that Hardee's, Golden
Corral, Jack in the Box, Checkers, and Burger King, each will continue to
account for more than ten percent of the total rental income under the terms of
its leases. Any failure of these lessees or restaurant chains could materially
affect the Partnership's income if the Partnership is not able to re-lease the
Properties in a timely manner.
Operating expenses, including depreciation and amortization expense,
were $228,992 and $161,823 for the quarters ended March 31, 1999 and 1998,
respectively. The increase in operating expenses during the quarter ended March
31, 1999, as compared to the quarter ended March 31, 1998, is partially
attributable to an increase in insurance and real estate tax expenses as a
result of Long John Silver's, Inc. filing for bankruptcy and rejecting the
leases relating to three 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 to renovate the
Property into an Arby's restaurant, as described above in "Liquidity and Capital
Resources." In accordance with the lease agreement, the new tenant of the Lions
Choice Property became responsible for real estate taxes, insurance and
maintenance relating to this Property during 1998. The Partnership will continue
to incur these expenses relating to the Properties that are expected to be
converted into a Steak-N-Shake and an Arby's, until the conversion of each
Property is completed, at which point each tenant will be responsible for these
expenses under the terms of their individual leases. 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. In addition, the increase in operating expenses is partially due
to an increase in depreciation expense due to the fact that during 1998, the
Partnership reclassified these assets from net investment in direct financing
leases to land and building on operating leases.
In addition, the increase in operating expenses during the quarter
ended March 31, 1999, is partially due to the fact that the Partnership incurred
$33,181 in transaction costs related to the general partners retaining financial
and legal advisors to assist them in evaluating and negotiating the proposed
Merger with APF, as described above in "Liquidity and Capital Resources." If the
limited partners reject the Merger, the Partnership will bear the portion of the
transaction costs based upon the percentage of "For" votes and the general
partners will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
<PAGE>
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. The Partnership does not have any
information or non-information technology systems. The general partners and
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
committee (the "Y2K 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 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
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.
<PAGE>
Year 2000 Readiness Disclosure - Continued
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 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 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 would 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 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, they 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 5, 1999, four limited partners in several of the CNL
Income Funds filed a lawsuit, Jon Hale, Mary J. Hewitt,
Charles A. Hewitt, and Gretchen M. Hewitt v. James M. Seneff,
Jr., Robert A. Bourne, CNL Realty Corporation, and CNL
American Properties Fund, Inc., Case No. CIO-99-0003561, in
the Circuit Court of the Ninth Judicial Circuit of Orange
County, Florida, alleging that the Messrs. Seneff and Bourne
and CNL Realty Corporation, as general partners of the CNL
Income Funds, breached their fiduciary duties and violated the
provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed acquisition of the
CNL Income Funds by APF. The plaintiffs are seeking
unspecified damages and equitable relief. The general partners
and APF believe that the lawsuit is without merit and intend
to defend vigorously against such claims. Because the lawsuit
was so recently filed, it is premature to further comment on
the lawsuit at this time.
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.
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 (filed as
Appendix B to the Prospectus Supplement for the
Registrant, constituting a part of 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.)
<PAGE>
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
Current Report on Form 8-K dated March 11, 1999 and
filed March 12, 1999, describing the proposed merger
of the Partnership with and into a subsidiary of CNL
American Properties Fund, Inc.
<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 14th day of May, 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 March 31, 1999, and its statement of
income for the three months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund XIII, Ltd. for the three months
ended March 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 687,717
<SECURITIES> 0
<RECEIVABLES> 69,884
<ALLOWANCES> 817
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 25,052,982
<DEPRECIATION> 2,210,970
<TOTAL-ASSETS> 34,518,383
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 33,567,404
<TOTAL-LIABILITY-AND-EQUITY> 34,518,383
<SALES> 0
<TOTAL-REVENUES> 836,768
<CGS> 0
<TOTAL-COSTS> 228,992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 668,003
<INCOME-TAX> 0
<INCOME-CONTINUING> 668,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 668,003
<EPS-PRIMARY> 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>
