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 September 30, 1998
-------------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------------------------------------------
Commission file number
0-23974
----------------------------
CNL Income Fund XIV, Ltd.
-------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-3143096
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 E. South Street
Orlando, Florida 32801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
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 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9-15
Part II
Other Information 16
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------------- ------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $1,571,136
and $1,295,713 $26,043,665 $25,217,725
Net investment in direct financing leases 6,392,118 9,041,485
Investment in joint ventures 3,633,822 3,271,739
Cash and cash equivalents 2,293,184 1,285,777
Restricted cash 398,539 318,592
Receivables, less allowance for doubtful
accounts of $5,013 in 1998 -- 19,912
Prepaid expenses 13,689 7,915
Organization costs, less accumulated
amortization of $10,000 and $8,599 -- 1,401
Accrued rental income, less allowance for
doubtful accounts of $11,040 and $6,295 1,795,945 1,820,078
----------------- -----------------
$40,570,962 $40,984,624
================= =================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 1,234 $ 10,258
Accrued and escrowed real estate
taxes payable 42,751 19,570
Distributions payable 928,130 928,130
Due to related parties 5,929 7,853
Rents paid in advance 35,561 29,656
----------------- -----------------
Total liabilities 1,013,605 995,467
Partners' capital 39,557,357 39,989,157
----------------- -----------------
$40,570,962 $40,984,624
================= =================
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------- ------------ ----------- -----------
<S> <C>
Revenues:
Rental income from operating
leases $ 682,180 $ 723,524 $2,107,058 $2,170,802
Adjustment to accrued rental income (14,350 ) -- (277,319 ) --
Earned income from direct
financing leases 184,522 254,117 644,797 764,122
Interest and other income 26,585 12,765 73,047 43,367
------------ ------------ ------------ ------------
878,937 990,406 2,547,583 2,978,291
------------ ------------ ------------ ------------
Expenses:
General operating and
administrative 51,444 35,386 130,375 111,792
Professional services 5,632 7,006 22,509 18,590
Bad debt expense -- -- -- 14,000
Management fees to related parties 8,842 9,573 27,628 28,863
Real estate taxes 41,562 1,384 46,288 7,192
State and other taxes 1,462 -- 22,498 21,874
Loss on termination of direct
financing lease 21,873 -- 21,873 --
Depreciation and amortization 107,492 85,053 277,598 255,108
------------ ------------ ------------ ------------
238,307 138,402 548,769 457,419
------------ ------------ ------------ ------------
Income Before Equity in Earnings
of Joint Ventures and Gain on Sale of
Land and Building 640,630 852,004 1,998,814 2,520,872
Equity in Earnings of Joint Ventures 76,939 78,381 241,570 231,204
Gain on Sale of Land and Building -- -- 112,206 --
------------ ------------ ------------ ------------
Net Income $ 717,569 $ 930,385 $2,352,590 $ 2,752,076
============ ============ ============ ============
Allocation of Net Income:
General partners $ 7,175 $ 9,304 $ 22,403 $ 27,521
Limited partners 710,394 921,081 2,330,187 2,724,555
------------ ------------ ------------ ------------
$ 717,569 $ 930,385 $2,352,590 $ 2,752,076
============ ============ ============ ============
Net Income Per Limited Partner Unit $ 0.16 $ 0.20 $ 0.52 $ 0.61
============ ============ ============ ============
Weighted Average Number of Limited
Partner Units Outstanding 4,500,000 4,500,000 4,500,000 4,500,000
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1998 1997
--------------------------- ----------------
<S> <C>
General partners:
Beginning balance $ 146,640 $ 109,981
Net income 22,403 36,659
---------------- ----------------
169,043 146,640
---------------- ----------------
Limited partners:
Beginning balance 39,842,517 39,925,756
Net income 2,330,187 3,629,281
Distributions ($0.62 and
$0.83 per limited partner
unit, respectively) (2,784,390 ) (3,712,520 )
---------------- ----------------
39,388,314 39,842,517
---------------- ----------------
Total partners' capital $39,557,357 $39,989,157
================ ================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
--------------- ---------------
<S> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating Activities $ 2,610,638 $ 2,782,288
---------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of land and building 1,648,110 --
Investment in joint venture (387,573 ) (77,277 )
Return of capital from joint venture -- 51,950
Increase in restricted cash (79,378 ) --
---------------- ---------------
Net cash provided by (used in)
investing activities 1,181,159 (25,327 )
---------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (2,784,390 ) (2,784,390 )
---------------- ---------------
Net cash used in financing
activities (2,784,390 ) (2,784,390 )
---------------- ---------------
Net Increase (Decrease) in Cash and Cash
Equivalents 1,007,407 (27,429 )
Cash and Cash Equivalents at Beginning
of Period 1,285,777 1,462,012
---------------- ---------------
Cash and Cash Equivalents at End of Period $ 2,293,184 $ 1,434,583
================ ===============
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Net investment in direct financing
leases reclassified to land and
buildings on operating leases as a
result of lease termination $ 2,084,141 $ --
================ ===============
Distributions declared and unpaid at
end of period $ 928,130 $ 928,130
================ ===============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1998 and 1997
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 nine months ended September 30, 1998, may not be indicative of the
results that may be expected for the year ending December 31, 1998.
Amounts as of December 31, 1997, 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 XIV, Ltd. (the "Partnership") for the year ended December
31, 1997.
In May 1998, the Financial Accounting Standards Board reached a
consensus in EITF 98-9, entitled "Accounting for Contingent Rent in the
Interim Financial Periods." Adoption of this consensus did not have a
material effect on the Partnership's financial position or results of
operations.
2. Land and Buildings on Operating Leases:
During the nine months ended September 30, 1998, the Partnership sold
its property in Madison, Alabama and two properties in Richmond,
Virginia, to third parties for a total of $1,667,462 and received net
sales proceeds of $1,606,702, resulting in a total gain of $70,798 for
financial reporting purposes. These properties were originally acquired
by the Partnership in 1993 and 1994, and had costs totalling
approximately $1,393,400, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold these properties
for a total of approximately $213,300 in excess of their original
purchase prices.
In addition, in April 1998, the Partnership reached an agreement to
accept $360,000 for the property in Riviera Beach, Florida, which was
taken through a right of way taking in December 1997. The Partnership
had received preliminary sales proceeds of $318,592 as of December 31,
1997. Upon agreement of the final sales price of $360,000, and receipt
of the remaining sales proceeds of $41,408, the Partnership recognized
a gain of $41,408 for financial reporting purposes. This property was
originally acquired by the Partnership in 1994 and had a cost of
approximately $276,400, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold this property for
a total of approximately $83,600 in excess of its original purchase
price.
5
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
3. Net Investment in Direct Financing Leases:
In January 1998, the Partnership sold its property in Madison, Alabama,
for which the building portion had been classified as a direct
financing lease. In connection therewith, the gross investment (minimum
lease payments receivable and the estimated residual value) and
unearned income relating to the building were removed from the accounts
(see Note 2).
During the nine months ended September 30, 1998, four of the
Partnership's leases with Long John Silver's Inc. were rejected in
connection with the tenant filing for bankruptcy. As a result, the
Partnership reclassified these assets from net investment in direct
financing leases to land and buildings on operating leases. In
accordance with Statement of Financial Accounting Standards #13,
"Accounting for Leases," the Partnership recorded the reclassified
assets at the lower of original cost, present fair value, or present
carrying amount, which resulted in a loss on termination of direct
financing lease of $21,873 for financial reporting purposes.
4. Investment in Joint Ventures:
In April 1998, the Partnership entered into a joint venture
arrangement, Melbourne Joint Venture, with an affiliate of the general
partners, to construct and hold one restaurant property, at a total
cost of $1,052,552. As of September 30, 1998, the Partnership had
contributed $314,011 to purchase land and pay for construction costs
relating to the joint venture. The Partnership has agreed to contribute
approximately $212,300 in additional construction costs to the joint
venture. The Partnership will have an approximate 50 percent interest
in the profits and losses of the joint venture. The Partnership
accounts for its investment in this joint venture under the equity
method since the Partnership shares control with an affiliate.
6
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
4. Investment in Joint Ventures - Continued:
As of September 30, 1998, Attalla Joint Venture, Salem Joint Venture,
Kingston Joint Venture and Melbourne Joint Venture, each owned and
leased one property, and WoodRidge Real Estate Joint Venture owned and
leased six properties, to operators of fast-food or family-style
restaurants. The following presents the combined, condensed financial
information for the joint ventures at:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------- -------------------
<S> <C>
Land and buildings on
operating leases, less
accumulated depreciation $6,673,070 $6,008,240
Net investment in direct
financing lease 361,764 364,479
Cash 2,783 13,842
Receivables 20,884 2,571
Accrued rental income 212,017 150,621
Other assets 1,153 1,257
Liabilities 195,521 231,061
Partners' capital 7,076,150 6,309,949
Revenues 582,901 712,004
Net income 467,698 588,835
</TABLE>
The Partnership recognized income totalling $241,570 and $231,204 for
the nine months ended September 30, 1998 and 1997, respectively, from
these joint ventures, $76,939 and $78,381 of which was earned for the
quarters ended September 30, 1998 and 1997, respectively.
5. Restricted Cash:
As of September 30, 1998, $397,970 in net sales proceeds from the sale
of one of the Properties in Richmond, Virginia, plus accrued interest
of $569, were being held in an interest-bearing escrow account pending
the release of funds by an escrow agent to acquire an additional
property.
7
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
6. Subsequent Event:
In October 1998, the Partnership reinvested approximately $1,533,100 of
the net sales proceeds it received from the sales of the properties in
Richmond, Virginia and the right of way taking of the property in
Riviera Beach, Florida, and a portion of the net sales proceeds it
received from the sale of the property in Madison, Alabama, in a
Bennigan's property located in Fayetteville, North Carolina. In
connection therewith, the Partnership entered into a long term,
triple-net lease with terms substantially the same as its other leases.
The Partnership acquired the Bennigan's property from an affiliate of
the general partners. The affiliate had purchased and temporarily held
title to the property in order to facilitate the acquisition of the
property by the Partnership. The purchase price paid by the Partnership
represented the costs incurred by the affiliate to acquire the
property, including closing costs.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund XIV, 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 triple-net leases, with the lessee responsible for all repairs and
maintenance, property taxes, insurance and utilities. As of September 30, 1998,
the Partnership owned 56 Properties, which included interests in ten Properties
owned by joint ventures in which the Partnership is a co-venturer.
Liquidity and Capital Resources
During the nine months ended September 30, 1998 and 1997, the
Partnership generated cash from operations (which includes cash received from
tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses) of $2,610,623 and $2,782,288,
respectively. The decrease in cash from operations for the nine months ended
September 30, 1998, as compared to the nine months ended September 30, 1997, is
primarily a result of changes in income and expenses as described below in
"Results of Operations" and changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
nine months ended September 30, 1998.
During the nine months ended September 30, 1998, the Partnership sold
its Property in Madison, Alabama and two Properties in Richmond, Virginia, to
third parties, for a total of $1,667,462 and received net sales proceeds of
$1,606,702, resulting in a total gain of $70,798 for financial reporting
purposes. These Properties were originally acquired by the Partnership in 1993
and 1994, and had costs totaling approximately $1,393,400, excluding acquisition
fees and miscellaneous acquisition expenses; therefore, the Partnership sold
these Properties for a total of approximately $213,300 in excess of their
original purchase prices. During the nine months ended September 30, 1998, the
Partnership reinvested a portion of the net sales proceeds from the sale of the
Property in Madison, Alabama in a joint venture arrangement, as described below.
The Partnership will distribute amounts sufficient to enable the limited
partners to pay federal and state income taxes, if any (at a level reasonably
assumed by the general partners), resulting from the sale.
In addition, in April 1998, the Partnership reached an agreement to
accept $360,000 for the Property in Riviera Beach, Florida, which was taken
through a right of way taking in December 1997. The Partnership had received
preliminary sales proceeds of $318,592 as of December 31, 1997. Upon agreement
of the final sales price of $360,000, and receipt of the remaining sales
proceeds of $41,408, the Partnership recognized a gain of $41,408 for financial
reporting purposes. This Property was originally acquired by the Partnership in
1994 and had a cost of approximately $276,400, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold this
Property for a total of approximately $83,600 in
9
<PAGE>
Liquidity and Capital Resources - Continued
excess of its original purchase price. In October 1998, the Partnership
reinvested the net sales proceeds from the right of way taking of the Property
in Riviera Beach, Florida in a Property in Fayetteville, North Carolina, as
described below.
In September 1997, the Partnership entered into a joint venture
arrangement, CNL Kingston Joint Venture, with an affiliate of the general
partners, to construct and hold one restaurant Property. Construction of the
restaurant was completed in January 1998. As of September 30, 1998, the
Partnership had contributed $206,848 to the joint venture and owned a 39.94%
interest in the profits and losses of the joint venture. In addition, in April
1998, the Partnership reinvested a portion of the net sales proceeds from the
sale of the Property in Madison, Alabama in a joint venture arrangement,
Melbourne Joint Venture, with an affiliate of the general partners, to construct
and hold one restaurant Property, at a total cost of $1,052,552. As of September
30, 1998, the Partnership had contributed $314,011 to purchase land and pay for
construction costs relating to the joint venture. The Partnership has agreed to
contribute approximately $212,300 in additional construction costs to the joint
venture. The Partnership will have an approximate 50 percent interest in the
profits and losses of the joint venture.
As of September 30, 1998, the net sales proceeds from the sale of one
of the Properties in Richmond, Virginia were being held in an interest bearing
escrow account pending the release of funds by the escrow agent to acquire an
additional Property. In October 1998, the Partnership reinvested these net sales
proceeds, along with additional funds, in a Property in Fayetteville, North
Carolina, as described below.
In October 1998, the Partnership reinvested approximately $1,533,100 of
the net sales proceeds it received from the sales of the Properties in Richmond,
Virginia and the right of way taking of the Property in Riviera Beach, Florida,
and a portion of the net sales proceeds it received from the sale of the
Property in Madison, Alabama, in a Bennigan's Property located in Fayetteville,
North Carolina. In connection therewith, the Partnership entered into a long
term, triple-net lease with terms substantially the same as its other leases.
The Partnership acquired the Bennigan's Property from an affiliate of the
general partners. The affiliate had purchased and temporarily held title to the
Property in order to facilitate the acquisition of the Property by the
Partnership. The purchase price paid by the Partnership represented the costs
incurred by the affiliate to acquire the Property, including closing costs.
Currently, cash reserves and rental income from the Partnership's
Properties is invested in money market accounts or other short-term, highly
liquid investments pending the use of such funds to pay Partnership expenses or
to make distributions to partners. At September 30, 1998, the Partnership had
$2,293,184 invested in such short-term investments, as compared to $1,285,777 at
December 31, 1997. The increase in cash is primarily attributable to the receipt
of net sales proceeds relating to the sales of one of the Properties in
Richmond, Virginia and the Property in Madison, Alabama, net of the amount
reinvested in Melbourne Joint Venture, as described above. In addition, the
increase in cash is partially attributable to the release of funds
10
<PAGE>
Liquidity and Capital Resources - Continued
held in escrow at December 31, 1997 relating to the right of way taking of the
Property in Riviera Beach, Florida, as described above. The funds remaining at
September 30, 1998, after payment of distributions and other liabilities, will
be used to meet the Partnership's working capital and other needs and to acquire
additional Properties.
Total liabilities of the Partnership, including distributions payable,
increased to $1,013,605 at September 30, 1998, from $995,467 at December 31,
1997. The general partners believe that the Partnership has sufficient cash on
hand to meet its current working capital needs.
Based on current and anticipated future cash from operations, the
Partnership declared distributions to the limited partners of $2,784,390 for
each of the nine months ended September 30, 1998 and 1997 ($928,130 for each of
the quarters ended September 30, 1998 and 1997). This represents distributions
for each applicable nine months of $0.62 per unit ($0.21 per unit for each
applicable quarter). No distributions were made to the general partners for the
quarters and nine months ended September 30, 1998 and 1997. No amounts
distributed to the limited partners for the nine months ended September 30, 1998
and 1997, are required to be or have been treated by the Partnership as a return
of capital for purposes of calculating the limited partners' return on their
adjusted capital contribution. The Partnership intends to continue to make
distributions of cash available for distribution to the limited partners on a
quarterly basis.
The general partners have been informed by CNL American Properties
Fund, Inc. ("APF"), an affiliate of the general partners, that it intends to
significantly increase its asset base by proposing to acquire affiliates of the
general partners which have similar restaurant property portfolios, including
the Partnership. 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. Accordingly, the
general partners anticipate that APF will make an offer to acquire the
Partnership in exchange for securities of APF. The general partners have
recently retained financial and legal advisors to assist them in evaluating and
negotiating any offer that may be proposed by APF. However, at this time, APF
has made no such offer. In the event that an offer is made, the general partners
will evaluate it and if the general partners believe that the offer is worth
pursuing, the general partners will promptly inform the limited partners. Any
agreement to sell the Partnership would be subject to the approval of the
limited partners in accordance with the terms of the partnership agreement.
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.
11
<PAGE>
Results of Operations
During the nine months ended September 30, 1997, the Partnership owned
and leased 50 wholly owned Properties (including one Property in Riviera Beach,
Florida, sold through a right of way taking in December 1997) and during the
nine months ended September 30, 1998, the Partnership owned and leased 49 wholly
owned Properties (including two Properties in Richmond, Virginia, and one
Property in Madison, Alabama, which were sold during 1998) to operators of
fast-food and family-style restaurant chains. In connection therewith, during
the nine months ended September 30, 1998 and 1997, the Partnership earned
$2,474,536 and $2,934,924, respectively, in rental income from operating leases
(net of adjustments to accrued rental income) and earned income from direct
financing leases from these Properties, $852,352 and $977,641 of which was
earned during the quarters ended September 30, 1998 and 1997, respectively. The
decrease in rental and earned income during the quarter and nine months ended
September 30, 1998, as compared to the quarter and nine months ended September
30, 1997, is primarily attributable to the fact that in June 1998, the
Partnership stopped receiving rental income from the tenant, Long John Silver's
Inc., which filed for bankruptcy and rejected the leases relating to four
Properties. In addition, during the nine months ended September 30, 1998, the
Partnership wrote off approximately $265,000 of accrued rental income (non-cash
accounting adjustments relating to the straight-lining of future scheduled rent
increases over the lease term in accordance with generally accepted accounting
principles) relating to these four Properties. The general partners are
currently seeking either replacement tenants or purchasers for these Properties.
The Partnership will not recognize any rental and earned income from these
Properties until replacement tenants for these Properties are located, or until
the Properties are sold and the proceeds from such sales are reinvested in
additional Properties.
In addition, the decrease in rental and earned income during the
quarter and nine months ended September 30, 1998, is partially attributable to a
decrease in rental and earned income as a result of the 1998 sales of the
Properties in Madison, Alabama and Richmond, Virginia and the 1997 right of way
taking of the Property in Riviera Beach, Florida. The decrease in rental and
earned income during the quarter and nine months ended September 30, 1998, is
also partially due to the fact that the Partnership wrote off approximately
$12,100 in accrued rental income (non-cash accounting adjustments relating to
the straight-lining of future scheduled rent increases over the lease term in
accordance with generally accepted accounting principles) relating to one of the
Properties in Richmond, Virginia to adjust the carrying value of the asset to
the net sales proceeds received from the sale of this Property. In October 1998,
the Partnership reinvested the majority of the net sales proceeds from these
Properties in a Property in Fayetteville, North Carolina, as described above in
"Liquidity and Capital Resources." Consequently, the Partnership expects the
decrease in rental and earned income relating to the sales of these Properties
to be partially offset by an increase in rental and earned income relating to
the acquisition of the Property in Fayetteville, North Carolina, during the
remainder of 1998 and in subsequent years.
12
<PAGE>
Results of Operations - Continued
In addition, during the nine months ended September 30, 1997, the
Partnership owned and leased nine Properties and during the nine months ended
September 30, 1998, the Partnership owned and leased ten Properties indirectly
through joint venture arrangements. In connection therewith, during the nine
months ended September 30, 1998 and 1997, the Partnership earned $241,570 and
$231,204, respectively, attributable to net income earned by these joint
ventures, $76,939 and $78,381 of which was earned during the quarters ended
September 30, 1998 and 1997, respectively. The increase in net income earned by
joint ventures during nine months ended September 30, 1998, as compared to the
nine months ended September 30, 1997, is primarily attributable to the
Partnership investing in Kingston Joint Venture in September 1997.
In addition, during the nine months ended September 30, 1998 and 1997,
the Partnership earned $73,047 and $43,367, respectively in interest and other
income, $26,585 and $12,765 of which was earned during the quarters ended
September 30, 1998 and 1997, respectively. The increase in interest and other
income for the quarter and nine months ended September 30, 1998 is primarily due
to an increase in interest income earned on net sales proceeds relating to the
sales of several Properties during 1998 described above, pending the
reinvestment of the net sales proceeds in additional Properties.
Operating expenses, including depreciation and amortization expense,
were $548,769 and $457,419 for the nine months ended September 30, 1998 and
1997, respectively, of which $238,307 and $138,402 were incurred for the
quarters ended September 30, 1998 and 1997, respectively. The increase in
operating expenses during the quarter and nine months ended September 30, 1998,
as compared to the quarter and nine months ended September 30, 1997, is
partially attributable to the fact that the Partnership accrued insurance and
real estate tax expenses as a result of Long John Silver's Inc. filing for
bankruptcy and rejecting the leases relating to four Properties in June 1998. In
connection with the bankruptcy, the Partnership reclassified these assets from
net investment in direct financing leases to land and buildings on operating
leases. In accordance with Statement of Financial Accounting Standards #13,
"Accounting for Leases," the Partnership recorded the reclassified assets at the
lower of original cost, present fair value, or present carrying amount, which
resulted in a loss on termination of direct financing lease of $21,873 for
financial reporting purposes during the quarter and nine months ended September
30, 1998. No such loss was recorded during the quarter and nine months ended
September 30, 1997. In addition, the increase in operating expenses during the
quarter and nine months ended September 30, 1998, is partially attributable to
an increase in depreciation expense due to the fact that during the quarter and
nine months ended September 30, 1998, the Partnership reclassified these assets
from net investment in direct financing leases to land and buildings on
operating leases. The Partnership will continue to incur certain expenses, such
as real estate taxes, insurance, and maintenance relating to these Properties
until new tenants or purchasers are located. The Partnership is currently
seeking either new tenants or purchasers for these Properties.
13
<PAGE>
Results of Operations - Continued
As a result of the sales of several Properties and the receipt of
proceeds from the right of way taking of the Property in Riviera Beach, Florida,
as described above in "Liquidity and Capital Resources," the Partnership
recognized gains totaling $112,206 for financial reporting purposes during the
nine months ended September 30, 1998. No Properties were sold during the nine
months ended September 30, 1997.
In May 1998, the Financial Accounting Standards Board reached a
consensus in EITF 98-9, entitled "Accounting for Contingent Rent in the Interim
Financial Periods." Adoption of this consensus did not have a material effect on
the Partnership's financial position or results of operations.
The Year 2000 problem is the result of information technology systems
and embedded systems (products which are made with microprocessor (computer)
chips such as HVAC systems, physical security systems and elevators) using a
two-digit format, as opposed to four digits, to indicate the year. Such
information technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.
The Partnership does not have any information technology systems.
Affiliates of the general partners provide all services requiring the use of
information technology systems pursuant to a management agreement with the
Partnership. The maintenance of embedded systems, if any, at the Partnership's
properties is the responsibility of the tenants of the properties in accordance
with the terms of the Partnership's leases. The general partners and affiliates
have established a team dedicated to reviewing the internal information
technology systems used in the operation of the Partnership, and the information
technology and embedded systems and the Year 2000 compliance plans of the
Partnership's tenants, significant suppliers, financial institutions and
transfer agent.
The information technology infrastructure of the affiliates of the
general partners consists of a network of personal computers and servers that
were obtained from major suppliers. The affiliates utilize various
administrative and financial software applications on that infrastructure to
perform the business functions of the Partnership. The inability of the general
partners and affiliates to identify and timely correct material Year 2000
deficiencies in the software and/or infrastructure could result in an
interruption in, or failure of, certain of the Partnership's business activities
or operations. Accordingly, the general partners and affiliates have requested
and are evaluating documentation from the suppliers of the affiliates regarding
the Year 2000 compliance of their products that are used in the business
activities or operations of the Partnership. The costs expected to be incurred
by the general partners and affiliates to become Year 2000 compliant will be
incurred by the general partners and affiliates; therefore, these costs will
have no impact on the Partnership's financial position or results of operations.
The Partnership has material third party relationships with its
tenants, financial institutions and transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. If any of these third parties are unable to meet their obligations
to the Partnership because of the Year 2000 deficiencies, such a failure may
have a material impact on
14
<PAGE>
Results of Operations - Continued
the Partnership. Accordingly, the general partners have requested and are
evaluating documentation from the Partnership's tenants, financial institutions,
and transfer agent relating to their Year 2000 compliance plans. At this time,
the general partners have not yet received sufficient certifications to be
assured that the tenants, financial institutions, and transfer agent have fully
considered and mitigated any potential material impact of the Year 2000
deficiencies. Therefore, the general partners do not, at this time, know of the
potential costs to the Partnership of any adverse impact or effect of any Year
2000 deficiencies by these third parties.
The general partners currently expect that all year 2000 compliance
testing and any necessary remedial measures on the information technology
systems used in the business activities and operations of the Partnership will
be completed prior to June 30, 1999. Based on the progress the general partners
and affiliates have made in identifying and addressing the Partnership's Year
2000 issues and the plan and timeline to complete the compliance program, the
general partners do not foresee significant risks associated with the
Partnership's Year 2000 compliance at this time. Because the general partners
and affiliates are still evaluating the status of the systems used in business
activities and operations of the Partnership and the systems of the third
parties with which the Partnership conducts its business, the general partners
have not yet developed a comprehensive contingency plan and are unable to
identify "the most reasonably likely worst case scenario" at this time. As the
general partners identify significant risks related to the Partnership's Year
2000 compliance or if the Partnership's Year 2000 compliance program's progress
deviates substantially from the anticipated timeline, the general partners will
develop appropriate contingency plans.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults 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 - None.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 11th day of November, 1998.
CNL INCOME FUND XIV, LTD.
By: CNL REALTY CORPORATION
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 XIV, Ltd. at September 30, 1998, and its statement of
income for the nine months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Income Fund XIV, Ltd. for the nine months
ended September 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,691,723<F2>
<SECURITIES> 0
<RECEIVABLES> 5,013
<ALLOWANCES> 5,013
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 27,614,801
<DEPRECIATION> 1,571,136
<TOTAL-ASSETS> 40,570,962
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 39,557,357
<TOTAL-LIABILITY-AND-EQUITY> 40,570,962
<SALES> 0
<TOTAL-REVENUES> 2,547,583
<CGS> 0
<TOTAL-COSTS> 548,769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,352,590
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,352,590
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,352,590
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund XIV, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
<F2>Includes $398,539 in restricted cash.
</FN>
</TABLE>
