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 0-23974
CNL INCOME FUND XIV, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3143096
(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 XIV, 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 XIV, 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 August 27, 1993, the
Partnership offered for sale up to $45,000,000 of limited partnership interests
(the "Units") (4,500,000 Units at $10 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
March 17, 1993. The offering terminated on February 22, 1994, at which date the
maximum proceeds of $45,000,000 had been received from investors who were
admitted to the Partnership as limited partners ("Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of national and regional fast-food and family-style restaurant chains
(the "Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totalled
$39,606,055 and were used to acquire 54 Properties, including 18 Properties
consisting of land only and four Properties owned by joint ventures in which the
Partnership is a co-venturer, to pay acquisition fees totalling $2,475,000 to an
affiliate of the General Partners and to establish a working capital reserve for
Partnership purposes. During the year ended December 31, 1995, the tenant of the
Checkers Property in Knoxville, Tennessee, and the Checkers Property in Dallas,
Texas, exercised its option in accordance with the lease agreements to
substitute two other Properties for the Knoxville, Tennessee and Dallas, Texas
Properties. The Partnership sold the Knoxville and Dallas Properties to the
tenant and used the net sales proceeds to acquire two Checkers Properties in
Coral Springs and St. Petersburg, Florida. In addition, during the year ended
December 31, 1996, Wood-Ridge Real Estate Joint Venture, a joint venture in
which the Partnership is a co-venturer with an affiliate of the General
Partners, sold its two Properties to the tenant. The joint venture reinvested
the majority of the net sales proceeds in four Boston Market Properties (one of
which consisted of only land) and one Golden Corral Property. The building
portion of the Boston Market in Murfreesboro, Tennessee, is owned by the tenant.
In addition, during the year ended December 31, 1997, the Port of Palm Bay took
possession of the Property in Riviera
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Beach, Florida through a total right of way taking. In addition, during
the year ended December 31, 1997, Wood Ridge Real Estate Joint Venture
reinvested the remaining proceeds from the sales of the two Properties in 1996,
in a Taco Bell Property in Anniston, Alabama. As a result of the above
transactions, as of December 31, 1997, the Partnership owned 58 Properties. The
58 Properties include 17 wholly owned Properties consisting of land only and
interests in nine Properties owned by joint ventures in which the Partnership is
a co-venturer. The lessee of the 17 wholly owned Properties consisting of only
land 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. In January 1998, the Partnership sold two Properties, one in
Madison, Alabama and one in Richmond, Virginia (Checkers #458). The Partnership
intends to reinvest the net proceeds from each of the sales in additional
Properties. The Properties are leased 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. Substantially all of the leases of the Properties owned by
the Partnership and the joint ventures in which the Partnership is a co-venturer
provide for initial terms ranging from 15 to 20 years (the average being
approximately 19 years) and expire between 2007 and 2017. The leases are, in
general, 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 $18,900 to $203,600. The 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 (generally the sixth or ninth lease year), the annual base
rent required under the terms of the lease will increase.
Generally, the leases of the Properties provide for two to five -year
renewal options subject to the same terms and
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<PAGE>
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 for the 17 wholly owned Properties consisting of only land
are substantially the same as those described above except that the leases
relate solely to the land associated with the Property, with the tenant owning
the buildings currently on the land and having the right, if not in default
under the lease, to remove the buildings from the land at the end of the lease
term.
During 1994, a temporary operator assumed operations of the restaurant
business located at the Property in Akron, Ohio Property and paid the
Partnership rent on a month-to-month basis. During 1995, a new temporary
operator assumed operations of the restaurant business for this Property and was
paying the Partnership rent on a month-to-month basis. During 1997, the
Partnership entered into a long-term, triple-net lease with the operator of an
Arlington Big Boy restaurant. The lease terms for this Property are
substantially the same as the Partnership's other leases as described above in
the first two paragraphs of this section.
In January 1997, Wood-Ridge Real Estate Joint Venture reinvested the
majority of the remaining net sales proceeds from the 1996 sale of its two
Properties in a Taco Bell Property located in Anniston, Alabama. The lease terms
for this Property are substantially the same as the Partnership's other leases
as described above in the first two paragraphs of this section.
In September 1997, the Partnership entered into a joint venture
arrangement, CNL Kingston Joint Venture, with an affiliate of the Partnership
which has the same General Partners, to construct and hold one restaurant
Property. As of December 31, 1997, the Partnership and its co-venture partner
had contributed $121,855 and $183,241, respectively, to purchase land and
building relating to the joint venture. The Partnership and its co-venture
partner have agreed to contribute approximately $85,600 and $128,700,
respectively, in additional construction costs to the joint venture. The lease
terms for this Property are substantially the same as the Partnership's other
leases as described above in the first two paragraphs of this section.
Major Tenants
During 1997, five lessees (or group of affiliated lessees) of the
Partnership, (i) Flagstar Enterprises, Inc. and Denny's, Inc. (which are
affiliated entities under common control of Flagstar Corporation) (hereinafter
referred to as Flagstar Corporation), (ii) Foodmaker, Inc., (iii) Long John
Silver's,
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Inc., (iv) Checkers Drive-In Restaurants, Inc. and (v) Golden Corral
Corporation, each contributed more than ten percent of the Partnership's total
rental income (including the Partnership's share of rental income from nine
Properties owned by joint ventures). As of December 31, 1997, Flagstar
Corporation was the lessee under leases relating to 11 restaurants, Foodmaker,
Inc. was the lessee under leases relating to six restaurants, Long John
Silver's, Inc. was the lessee under leases relating to nine restaurants,
Checkers Drive-In Restaurants, Inc. was the lessee under leases relating to 17
restaurants and Golden Corral Corporation was the lessee under leases relating
to four restaurants. It is anticipated that, based on the minimum rental
payments required by the leases, these five lessees (or group 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, six
Restaurant Chains, Hardee's, Denny's, Jack in the Box, Long John Silver's,
Checkers and Golden Corral Family Steakhouse Restaurants ("Golden Corral"), 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 nine
Properties owned by joint ventures). In subsequent years, it is anticipated that
these six Restaurant Chains each will account for more than ten percent of the
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
The Partnership entered into two separate joint venture arrangements:
Attalla Joint Venture and Salem Joint Venture, with CNL Income Fund XIII, Ltd.,
an affiliate of the General Partners, each to purchase and hold one Property. In
August 1994, the Partnership entered into a joint venture arrangement,
Wood-Ridge Real Estate Joint Venture, with CNL Income Fund XV, Ltd., an
affiliate of the General Partners, to purchase and hold two Properties. In
September 1996, Wood-Ridge Real Estate Joint Venture sold its two Properties to
the tenant, and as of December 31, 1997, had reinvested the majority of the net
sales proceeds in six replacement Properties. The joint venture distributed the
remaining net sales proceeds to the Partnership and its co-venture partner on a
pro rata basis during 1997. In September 1997, the Partnership entered into a
joint venture arrangement, CNL Kingston Joint Venture, with CNL Income Fund
XVII, Ltd., an affiliate of the General Partners , to construct and hold one
restaurant Property. The affiliates are limited partnerships organized pursuant
to the laws of the State of Florida.
The joint venture arrangements provide for the Partnership and its
joint venture partners to share in all costs and benefits associated with the
joint ventures in accordance with their respective percentage interests in the
joint ventures. The Partnership has a 50 percent interest in Attalla Joint
Venture, a 72.2% interest in Salem Joint Venture, a 50 percent interest in
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Wood-Ridge Real Estate Joint Venture and a 39.94% interest in CNL Kingston Joint
Venture. The Partnership and its joint venture partners are also jointly and
severally liable for all debts, obligations and other liabilities of the joint
ventures.
Wood Ridge Real Estate Joint Venture, Attalla Joint Venture and Salem
Joint Venture each have an initial term of 30 years and CNL Kingston Joint
Venture has an initial term of 20 years and, after the expiration of the initial
term, continues in existence from year to year unless terminated at the option
of 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 unless agreed to by
mutual agreement of the Partnership and its joint venture partners to reinvest
the sales proceeds in replacement Properties, and by 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, Wood-Ridge Real Estate Joint
Venture, Salem Joint Venture and CNL Kingston 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, Wood-Ridge Real
Estate Joint Venture, Salem Joint Venture and CNL Kingston Joint Venture is
distributed 50 percent, 50 percent, 72.2% and 39.94%, respectively, to the
Partnership and the balance is distributed to each of the other joint venture
partners. Any liquidation proceeds, after paying joint venture debts and
liabilities and funding reserves for contingent liabilities, will be distributed
first to the joint venture partners with positive capital account balances in
proportion to such balances until such balances equal zero, and thereafter in
proportion to each joint venture partner's percentage interest in the joint
venture.
The use of joint venture arrangements allows the Partnership to fully
invest its available funds at times at which it would not have sufficient funds
to purchase an additional property, or at times when a suitable opportunity to
purchase an additional property is not available. The use of joint venture
arrangements also provides the Partnership with increased diversification of its
portfolio among a greater number of properties.
Certain Management Services
CNL 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
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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, 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 58 Properties. Of the 58
Properties, 49 are owned by the Partnership in fee simple and nine are owned
through joint venture arrangements. See Item 1. Business - Joint Venture
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation 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 15,900
to 100,100 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.
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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 5
Arizona 3
Colorado 1
Florida 8
Georgia 5
Kansas 2
Louisiana 1
Minnesota 1
Missouri 1
Mississippi 1
North Carolina 7
Nevada 1
Ohio 5
South Carolina 1
Tennessee 5
Texas 9
Virginia 2
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TOTAL PROPERTIES: 58
=======
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 17 Checkers Properties owned by the Partnership and the
Boston Market Property owned by Wood-Ridge Real Estate Joint Venture are owned
by the tenants. The buildings generally are rectangular and are constructed from
various combinations of stucco, steel, wood, brick and tile. The sizes of the
buildings owned by the Partnership range from approximately 2,100 to 11,400
square feet. All buildings on Properties are freestanding and surrounded by
paved parking areas. Buildings are suitable for conversion to various uses,
although modifications may be required prior to use for other than restaurant
operations. As of December 31, 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 for federal
income tax purposes was $35,881,317 and $6,203,624, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 1997 by Restaurant Chain.
Restaurant Chain Number of Properties
Boston Market 4
Burger King 1
Checkers 17
Denny's 6
East Side Mario's 1
Golden Corral 4
Hardee's 7
Jack in the Box 6
Long John Silver's 9
Shoney's 1
Taco Bell 2
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TOTAL PROPERTIES 58
=======
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>
For the Year Ended December 31:
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- -----------
<S> <C>
Rental Revenues (1) $4,283,030 $4,347,586 $4,376,790 $3,178,699 $225,613
Properties 58 57 54 53 21
Average Rent per Unit $73,845 $76,273 $81,052 $59,975 $10,743
</TABLE>
(1) Rental revenues include the Partnership's share of rental revenues from the
nine Properties owned through joint venture arrangements. Rental revenues
have been adjusted, as applicable, for any amounts for which the Partnership
has established an allowance for doubtful accounts.
The following is a schedule of lease expirations for leases in place as
of December 31, 1997 for each of the ten years beginning with 1998 and
thereafter.
<TABLE>
<CAPTION>
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
<S> <C>
1998 - - -
1999 - - -
2000 - - -
2001 - - -
2002 - - -
2003 - - -
2004 - - -
2005 - - -
2006 - - -
2007 1 38,031 0.88%
Thereafter 57 4,260,172 99.12%
-------- --------------- ---------------
Totals 58 4,298,203 100.00%
======== =============== ===============
</TABLE>
Leases with Major Tenants. The terms of each 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 seven Hardee's restaurants and four Denny's
restaurants. The initial term of each lease is 20 years (expiring in 2013) and
the average minimum base annual rent is approximately $76,500 (ranging from
approximately $59,100 to $100,900).
Foodmaker, Inc. leases six Jack in the Box restaurants. The initial
term of each lease is 18 years (expiring in 2011) and the average minimum base
annual rent is approximately $83,600 (ranging from approximately $62,200 to
$99,900).
Long John Silver's, Inc. leases nine Long John Silver's restaurants. The
initial term of each lease is 20 years (expiring in 2014) and the average
minimum base annual rent is approximately $81,100 (ranging from approximately
$50,500 to $117,500).
Checkers Drive-In Restaurants, Inc. leases 17 Checkers restaurants. The
initial term of each lease is 20 years (expiring between 2014 and 2015) and the
average minimum base annual rent is approximately $34,400 (ranging from
approximately $18,900 to $54,500). The tenant owns the buildings currently on
the land and has the right, if not in default under the leases, to remove the
buildings from the land at the end of the lease term.
In addition, Golden Corral Corporation leases four Golden Corral
restaurants. The initial term of each lease is 15 years (expiring between 2008
and 2011) and the average minimum base annual rent is approximately $143,500
(ranging from approximately $110,200 to $203,600).
Competition
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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.
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 58 Properties, either directly or through joint
venture arrangements.
Capital Resources
The Partnership's primary source of capital for the years ended December
31, 1997, 1996 and 1995, was cash from operations (which includes cash received
from tenants, distributions from joint ventures and interest received, less cash
paid for expenses). Cash from operations was $3,606,190, $3,706,296 and
$3,709,844 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
discussed in "Results of Operations" below and changes in the Partnership's
working capital during each of the respective years.
Other sources and used of capital included the following during the years
ended December 31, 1997, 1996 and 1995.
The Partnership received notice in January 1995, from the tenant of two of
its Properties located in Knoxville, Tennessee, and Dallas, Texas, of the
tenant's intention to exercise its option, in accordance with its lease
agreement, to substitute other properties for these two Properties. In March
1995, the Partnership sold its two Properties in Knoxville, Tennessee and
Dallas, Texas, to the tenant for their original purchase prices,
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excluding acquisition fees and miscellaneous acquisition expenses, and received
net sales proceeds totalling $696,012. The Partnership used the net sales
proceeds, along with other uninvested offering proceeds, to acquire two Checkers
Properties in Coral Springs and St. Petersburg, Florida, from the tenant. As a
result of these transactions, the Partnership recognized a loss of $66,518 for
financial reporting purposes primarily due to acquisition fees and miscellaneous
acquisition expenses that the Partnership had allocated to the Knoxville,
Tennessee, and Dallas, Texas Properties, and due to the accrued rental income
relating to future scheduled rent increases that the Partnership had previously
recorded and wrote off at the time of sale.
In September 1996, Wood-Ridge Real Estate Joint Venture, a joint venture
in which the Partnership owns a 50 percent interest, sold its two Properties to
the tenant for $5,020,878 and received net sales proceeds of $5,001,180,
resulting in a gain to the joint venture of approximately $261,100 for financial
reporting purposes. These Properties were originally acquired by Wood-Ridge Real
Estate Joint Venture in September 1994 and had a combined, total cost of
approximately $4,302,500, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the joint venture sold these properties for
approximately $698,700 in excess of their original purchase price. In October
1996, Wood-Ridge Real Estate Joint Venture reinvested $4,404,046 of the net
sales proceeds in five Properties. In January 1997, the joint venture reinvested
$502,598 of the remaining net sales proceeds in an additional Property. During
1997, the Partnership and the other joint venture partner each received
approximately $52,000, representing a return of capital, for the remaining
uninvested net sales proceeds.
In September 1997, the Partnership entered into a joint venture
arrangement, CNL Kingston Joint Venture, with an affiliate of the Partnership
which has the same General Partners, to construct and hold one restaurant
Property. As of December 31, 1997, the Partnership and its co-venture partner
had contributed $121,855 and $183,241, respectively, to the joint venture to
fund construction costs relating to the Property owned by the joint venture. The
Partnership and its co-venture partner have agreed to contribute approximately
$85,600 and $128,700, respectively, in additional construction costs to the
joint venture. When construction is completed, the Partnership and its
co-venture partner expect to have an approximate 40 and 60 percent interest,
respectively, in the profits and losses of the joint venture.
During 1997, the Partnership entered into an agreement with the tenant of
the Checkers #486 Property in Richmond, Virginia, to sell the Property. The
General Partners believe that the anticipated sales price exceeds the
Partnership's cost attributable to the Property. As of February 28, 1998, the
sale had not occurred.
During 1997, the Partnership entered into an agreement with a third party
to sell the Property in Marietta, Georgia. The General Partners believe that the
anticipated sales price exceeds
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the Partnership's cost attributable to the Property. As of
February 28, 1998, the sale had not occurred.
In December 1997, the Port of Palm Bay deposited $660,000 in the
registry of the court on behalf of the Partnership and the tenant in exchange
for taking possession of the Property located in Riviera Beach, Florida, through
a total right of way taking. The Partnership owned the land and the tenant owned
the building relating to this Property. The General Partners of the Partnership
and the tenant are in the process of negotiating the allocation of the $660,000.
The General Partners anticipate that the Partnership will be entitled to receive
at least $330,000, but the General Partners intend to pursue a larger allocation
of this amount. As of December 31, 1997, the Partnership had removed the
carrying value of the land in the amount of $318,592 from its accounts due to
the fact that the Port of Palm Bay had taken possession of this Property, and in
exchange, the Partnership recorded restricted cash in the amount of $318,592.
The General Partners anticipate that the Partnership will recognize a gain as a
result of the taking of this Property and will recognize such gain when the
final proceeds are determined. As of February 28, 1998, the final amount of
proceeds to be received had not been determined.
In January 1998, the Partnership sold its Property in Madison, Alabama, to
a third party for $740,000 and received net sales proceeds of $700,950. Due to
the fact that the Partnership had recognized accrued rental income since the
inception of the lease relating to the straight lining of future scheduled rent
increases in accordance with generally accepted accounting principles, the
Partnership wrote off $13,314 of such accrued rental income at December 31,
1997. Due to the fact that the Partnership recorded the write off at December
31, 1997, no gain or loss will be recorded in 1998 for financial reporting
purposes relating to the sale. The Partnership intends to reinvest the net sales
proceeds in an additional Property. The General Partners believe that the
transaction, or a portion thereof, relating to the sale of this Property and the
reinvestment of the proceeds will be structured to qualify as a like-kind
exchange transaction for federal income tax purposes.
In January 1998, the Partnership sold its Property in Richmond, Virginia
(#548), to a third party for $512,462 and received net sales proceeds in that
amount, resulting in a gain of $70,798 for financial reporting purposes. The
Partnership intends to reinvest the net sales proceeds in an additional
Property. The General Partners believe that the transaction, or a portion
thereof, relating to the sale of this Property and the reinvestment of the
proceeds will be structured to qualify as a like-kind exchange transaction for
federal income tax purposes.
None of the Properties owned by the Partnership or the joint ventures in
which the Partnership owns an interest, is or may be encumbered. Subject to
certain restrictions on borrowing, however, the Partnership may borrow funds but
will not encumber any of the Properties in connection with any such borrowing.
The Partnership will not borrow for the purpose of returning capital to the
Limited Partners. The Partnership will not borrow under
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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 , rental income from the Partnership's 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
make distributions to partners. At December 31, 1997, the Partnership had
$1,285,777 invested in such short-term investments as compared to $1,462,012 at
December 31, 1996. The decrease in cash is primarily attributable to the
Partnership investing in CNL Kingston Joint Venture in September 1997, as
described above. 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 the 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 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
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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 cash from operations, the Partnership declared
distributions to the Limited Partners of $3,712,520, $3,712,522 and $3,628,130
for the years ended December 31, 1997, 1996 and 1995, respectively. This
represents distributions of $0.83 per Unit for each of the years ended December
31, 1997 and 1996 and $0.81 per Unit for the year ended December 31, 1995. No
amounts distributed or to be distributed to the Limited Partners for the years
ended 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 of 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, the affiliates incurred on behalf of the
Partnership $87,695, $94,152 and $104,433, respectively, for certain operating
expenses. In addition, during 1995, affiliates of the General Partners incurred
on behalf of the Partnership $577 for certain acquisition expenses. At December
31, 1997 and 1996, the Partnership owed $7,853 and $1,651, respectively, to
affiliates for such amounts and 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 $987,614 at December 31, 1997, from $1,008,461 at December 31,
1996, primarily as a result of a decrease in rents paid in advance at December
31, 1997. The General Partners believe that the Partnership has sufficient cash
on hand to meet its current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
The Partnership owned and leased 52 wholly owned Properties during 1995
(including one Property in Knoxville, Tennessee, and one Property in Dallas,
Texas, which were sold in March 1995) and 50 wholly owned Properties during 1996
and 1997 (including one Property in Riviera Beach, Florida which was condemned
through a total right of way taking in December 1997). In addition, during 1995,
the Partnership was a co-venturer in three separate joint ventures that owned
and leased a total of four Properties, during 1996, the Partnership was a
co-venturer in three joint ventures that owned and leased nine Properties
(including two Properties in Wood-Ridge Real Estate Joint Venture, which were
sold in September 1996), and during 1997, the Partnership was a
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<PAGE>
co-venture in four separate joint ventures that owned and leased a total of nine
Properties. As of December 31, 1997, the Partnership owned, either directly or
through joint venture arrangements, 58 Properties which are, in general, 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 $18,900 to $203,600. All 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 (generally the
sixth or ninth lease year), the annual base rent required under the terms of the
lease will increase. For further description of the Partnership's leases and
Properties, see Item 1. Business - Leases and Item 2. Properties, respectively.
During the years ended December 31, 1997, 1996 and 1995, the Partnership
earned $3,911,527, $3,987,525 and $4,015,564, 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 1996, as compared to 1995, was primarily attributable to the fact
that during 1994, the Partnership's former tenant of the Property in Akron,
Ohio, ceased operating the restaurant located on the Property. The Partnership
subsequently leased this Property to various temporary operators who assumed the
restaurant operations and paid the Partnership rent on a month-to-month basis.
The decrease in rental and earned income during 1997, as compared to 1996, was
primarily attributable to the fact that during May 1997, the temporary operator
of the Property in Akron, Ohio, ceased restaurant operations and vacated the
Property. The Partnership ceased recording rental income and wrote off the
related allowance for doubtful accounts. The Partnership entered into a
long-term, triple-net lease for this Property with the operator of an Arlington
Big Boy in September 1997, and rental income commenced in December, 1997.
In addition, the decrease in rental and earned income during 1997 as
compared to 1996, was partially due to the fact that the Partnership wrote off
accrued rent relating to the Property in Madison, Alabama to adjust the carrying
value of the asset to the net proceeds received from the sale of this Property
in January 1998.
In addition, for the years ended December 31, 1997, 1996 and 1995, the
Partnership earned $309,879, $459,137 and $338,717, respectively, attributable
to net income earned by joint ventures in which the Partnership is a
co-venturer. The decrease in net income earned by joint ventures during 1997 as
compared to 1996, and the increase during 1996 as compared to 1995, is primarily
attributable to the fact that in September 1996, Wood-Ridge Real Estate Joint
Venture, in which the Partnership owns a 50 percent interest, recognized a gain
of approximately $261,100 for financial reporting purposes as a result of the
sale of its Properties in September 1996, as described above in "Capital
Resources."
During at least one of the years ended December 31, 1997, 1996 and 1995,
five lessees (or group of affiliated lessees) of the
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Partnership, Flagstar Corporation, Foodmaker, Inc., Long John Silver's, Inc.,
Checkers Drive-In Restaurants, Inc. and Golden Corral Corporation, each
contributed more than ten percent of the Partnership's total rental income
(including the Partnership's share of rental income from nine Properties owned
by joint ventures). As of December 31, 1997, Flagstar Corporation was the lessee
under leases relating to 11 restaurants, Foodmaker, Inc. was the lessee under
leases relating to six restaurants, Long John Silver's, Inc. was the lessee
under leases relating to nine restaurants, Checkers Drive-In Restaurants, Inc.
was the lessee under leases relating to 17 restaurants and Golden Corral
Corporation was the lessee under leases relating to four restaurants. It is
anticipated that based on the minimum rental payments required by the leases,
these five lessees (or group 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, during at least one of the years ended
December 31, 1997, 1996 or 1995, six Restaurant Chains, Hardee's, Denny's, Jack
in the Box, Long John Silver's, Checkers and Golden Corral, each accounted for
more than ten percent of the Partnership's total rental income (including the
Partnership's share of rental income from nine Properties owned by joint
ventures). In subsequent years, it is anticipated that these six Restaurant
Chains each will account for more than ten percent of the 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.
Operating expenses, including depreciation and amortization expense, were
$602,753, $586,710 and $588,952 for the years ended December 31, 1997, 1996 and
1995, respectively. The increase in operating expenses during 1997 as compared
to 1996 was primarily attributable to the fact that the Partnership recorded bad
debt expense of $10,500 during 1997 relating to the Property in Akron, Ohio. Due
to the fact that the temporary operator ceased operating the Property in May,
1997, as described above in " Capital Resources," the General Partners ceased
further collection efforts of these past due amounts.
As a result of the former tenant of the Property in Akron, Ohio,
defaulting under the terms of its lease during 1994 and the Partnership leasing
the Property to temporary operators who subsequently ceased operating the
Property, the Partnership incurred real estate taxes during the years ended
December 31, 1997, 1996 and 1995. The Partnership entered into a long-term,
triple-net lease for this Property with the operator of an Arlington Big Boy in
September 1997, and rental income commenced in December 1997. The new tenant is
responsible for real estate taxes; therefore, the General Partners do not
anticipate the Partnership will incur these expenses in the future.
As a result of the 1995 sales of the Properties in Knoxville, Tennessee,
and Dallas, Texas, as described above in "Capital Resources," the Partnership
recognized a loss for financial reporting purposes of $66,518 for the year ended
December 31, 1995. The loss was primarily due to acquisition fees and
miscellaneous acquisition expenses the Partnership had allocated
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to these Properties and due to accrued rental income relating to straight lining
future scheduled rent increases that the Partnership had recorded and wrote off
at the time of the sale. No Properties were sold during 1996 and 1997.
The General Partners of the Partnership are in the process of assessing
and addressing the impact of the year 2000 on its computer 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 and future results of
operations or financial position.
The Partnership's leases as of December 31, 1997, are, in general,
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Management expects that increases in restaurant
sales volumes due to inflation and real sales growth should result in an
increase in rental income over time. Continued inflation also may cause capital
appreciation of the Partnership's Properties. Inflation and changing prices,
however, also may have an adverse impact on the sales of the restaurants and on
potential capital appreciation of the Properties.
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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 XIV, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
---------------------------
JAMES M. SENEFF, JR.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C>
/s/ Robert A. Bourne President, Treasurer and Director July 29, 1999
- -------------------------- (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Oficer and Director July 29, 1999
- -------------------------- (Principal Executive Officer)
James M. Seneff, Jr.
</TABLE>
