FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 1999
--------------------------------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from _____________________ to _____________________
Commission file number
0-23974
---------------------------------------
CNL Income Fund XIV, Ltd.
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-3143096
- ------------------------------------------------------ ------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
- ------------------------------------------------------ ------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
------------------------------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets
Condensed Statements of Income
Condensed Statements of Partners' Capital
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II
Other Information
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- -------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation and allowance
for loss on building $ 24,871,707 $ 26,509,264
Net investment in direct financing leases 7,813,800 7,300,102
Investment in joint ventures 3,850,463 3,813,175
Cash and cash equivalents 1,458,499 949,056
Receivables, less allowance for doubtful accounts
of $1,105 in 1999 and 1998 56,816 62,824
Prepaid expenses 18,407 8,389
Lease costs, less accumulated amortization of
$1,898 in 1999 31,102 --
Accrued rental income, less allowance for doubtful
accounts of $12,622 in 1999 and 1998 2,068,192 1,895,349
------------------- -------------------
$ 40,168,986 $ 40,538,159
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 88,637 $ 2,577
Accrued and escrowed real estate taxes payable 5,152 18,198
Distributions payable 928,130 928,130
Due to related party 47,290 25,432
Rents paid in advance and deposits 68,013 88,098
------------------- -------------------
Total liabilities 1,137,222 1,062,435
Commitments and Contingencies (Note 3)
Partners' capital 39,031,764 39,475,724
------------------- -------------------
$ 40,168,986 $ 40,538,159
=================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------- -------------- --------------
<S> <C>
Revenues:
Rental income from operating leases $ 730,510 $ 707,601 $ 1,437,315 $ 1,424,878
Adjustments to accrued rental income -- (262,969 ) -- (262,969 )
Earned income from direct financing leases 222,341 218,056 421,507 460,275
Interest and other income 6,960 25,483 17,480 46,462
------------ ------------- -------------- --------------
959,811 688,171 1,876,302 1,668,646
------------ ------------- -------------- --------------
Expenses:
General operating and administrative 32,840 42,628 81,183 78,931
Professional services 9,792 10,695 17,576 16,877
Management fees to related party 9,928 9,280 19,472 18,786
Real estate taxes 457 1,276 5,331 4,726
State and other taxes 334 40 30,688 21,036
Depreciation and amortization 94,346 85,053 198,272 170,106
Transaction costs 85,038 -- 118,213 --
------------ ------------- -------------- --------------
232,735 148,972 470,735 310,462
------------ ------------- -------------- --------------
Income Before Equity in Earnings of Joint
Ventures, Gain (Loss) on Sale of Land and
Buildings and Provision for Loss on Building 727,076 539,199 1,405,567 1,358,184
Equity in Earnings of Joint Ventures 95,136 82,126 188,822 164,631
Gain (Loss) on Sale of Land and Buildings (60,882 ) 41,408 (60,882 ) 112,206
Provision for Loss on Building (60,325 ) -- (121,207 ) --
------------ ------------- -------------- --------------
Net Income $ 701,005 $ 662,733 $ 1,412,300 $ 1,635,021
============ ============= ============== ==============
Allocation of Net Income:
General partners $ 7,695 $ 6,214 $ 15,163 $ 15,228
Limited partners 693,310 656,519 1,397,137 1,619,793
------------ ------------- -------------- --------------
$ 701,005 $ 662,733 $ 1,412,300 $ 1,635,021
============ ============= ============== ==============
Net Income Per Limited Partner Unit $ 0.15 $ 0.15 $ 0.31 $ 0.36
============ ============= ============== ==============
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 condensed financial statements.
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1999 1998
------------------------ -----------------------
<S> <C>
General partners:
Beginning balance $ 177,733 $ 146,640
Net income 15,163 31,093
------------------------ -----------------------
192,896 177,733
------------------------ -----------------------
Limited partners:
Beginning balance 39,297,991 39,842,517
Net income 1,397,137 3,167,994
Distributions ($0.41 and $0.83 per
limited partner unit, respectively) (1,856,260 ) (3,712,520 )
------------------------ -----------------------
38,838,868 39,297,991
------------------------ -----------------------
Total partners' capital $ 39,031,764 $ 39,475,724
======================== =======================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
---------------- ---------------
<S> <C>
Increase (Decrease ) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $1,746,523 $1,845,728
---------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 696,300 1,250,140
Investment in joint ventures (44,120 ) (310,097 )
Increase in restricted cash -- (193,654 )
Payment of lease costs (33,000 ) --
---------------- ---------------
Net cash provided by investing activities 619,180 746,389
---------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,856,260 ) (1,856,260 )
---------------- ---------------
Net cash used in financing activities (1,856,260 ) (1,856,260 )
---------------- ---------------
Net Increase in Cash and Cash Equivalents 509,443 735,857
Cash and Cash Equivalents at Beginning of Period 949,056 1,285,777
---------------- ---------------
Cash and Cash Equivalents at End of Period $1,458,499 $2,021,634
================ ===============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
period $ 928,130 $ 928,130
================ ===============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 1999, may not be indicative
of the results that may be expected for the year ending December 31,
1999. Amounts as of December 31, 1998, included in the financial
statements, have been derived from audited financial statements as of
that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund XIV, Ltd. (the "Partnership") for the year ended December
31, 1998.
Certain items in the prior year's financial statements have been
reclassified to conform to 1999 presentation. These reclassifications
had no effect on partners' capital or net income.
2. Land and Building on Operating Leases:
Land and buildings on operating leases consisted of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------------- --------------------
<S> <C>
Land $ 15,900,097 $ 16,195,936
Buildings 10,966,349 12,024,577
--------------------- --------------------
26,866,446 28,220,513
Less accumulated
depreciation (1,836,377 ) (1,674,094 )
--------------------- --------------------
25,030,069 26,546,419
Less allowance for
loss on building (158,362 ) (37,155 )
--------------------- --------------------
$ 24,871,707 $ 26,509,264
===================== ====================
</TABLE>
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
2. Land and Building on Operating Leases - Continued:
As of December 31, 1998, the Partnership recorded a provision for loss
on building in the amount of $37,155 for financial reporting purposes
relating to the Long John Silver's property in Shelby, North Carolina.
The tenant of this property filed for bankruptcy and ceased payment of
rents under the terms of its lease agreement. The allowance represented
the difference between the carrying value of the property at December
31, 1998 and the estimated net realizable value for the property.
During the six months ended June 30, 1999, the Partnership increased
the allowance by $121,207 to a total of $158,362. The adjusted
allowance represented the difference between the carrying value of the
property at June 30, 1999 and the estimated net sales proceeds from the
sale of the property based on a sales contract with an unrelated third
party.
In May 1999, the Partnership sold its property in Stockbridge, Georgia
to a third party for $700,000, and received net sales proceeds of
$696,300, resulting in a loss of $60,882 for financial reporting
purposes.
3. Commitments and Contingencies:
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to
which the Partnership would be merged with and into a subsidiary of APF
(the "Merger"). As consideration for the Merger, APF has agreed to
issue 2,156,521 shares of its common stock, par value $0.01 per share
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $20.00 per APF Share, the
price paid by APF investors (after an adjustment for a one for two
reverse stock split effective June 3, 1999) in three previous public
offerings, the most recent of which was completed in December 1998. In
order to assist the general partners in evaluating the proposed merger
consideration, the general partners retained Valuation Associates, a
nationally recognized real estate appraisal firm, to appraise the
Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other
assets were valued on a going concern basis (meaning the Partnership
continues unchanged) at $42,435,559 as of December 31, 1998. The APF
Shares are expected to be listed for trading on the New York Stock
Exchange concurrently with the consummation of the Merger, and
therefore, would be freely tradable at the option of the former limited
partners. At a special meeting of the partners that is expected to be
held in the fourth quarter of 1999, limited partners holding in excess
of 50% of the Partnership's outstanding limited partnership interests
must approve the Merger prior to consummation of the transaction. If
the limited partners at the special meeting approve the Merger, APF
will own the properties and other assets of the Partnership. The
general partners intend to
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
3. Commitments and Contingencies - Continued:
recommend that the limited partners of the Partnership approve the
Merger. In connection with their recommendation, the general partners
will solicit the consent of the limited partners at the special
meeting. If the limited partners reject the Merger, the Partnership
will bear the portion of the transaction costs based upon the
percentage of "For" votes and the general partners will bear the
portion of such transaction costs based upon the percentage of
"Against" votes and abstentions.
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in
connection with the proposed Merger. On July 8, 1999, the plaintiffs
amended the complaint to add three additional limited partners as
plaintiffs. Additionally, on June 22, 1999, a limited partner in
certain of the CNL Income Funds served a lawsuit against the general
partners, APF, CNL Fund Advisors, Inc. and certain of its affiliates in
connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend
vigorously against the claims. See Part II - Item 1. Legal Proceedings.
In May 1999, the Partnership entered into an agreement with an
unrelated third party to sell the Long John Silver's property in
Shelby, North Carolina. At June 30, 1999, the Partnership established a
provision for loss on building related to the anticipated sale of this
property (see Note 2). As of August 9, 1999, the sale had not occurred.
<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 land 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
generally are triple-net leases, with the lessee responsible for all repairs and
maintenance, property taxes, insurance and utilities. As of June 30 1999, the
Partnership owned 56 Properties, which included interests in ten Properties
owned by joint ventures in which the Partnership is a co-venturer.
Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 1999 and 1998 was cash from operations (which includes cash received
from tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $1,746,523 and
$1,845,728 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in cash from operations for the six months ended June 30, 1999, as
compared to the six months ended June 30, 1998, is primarily a result of changes
in the Partnership's working capital.
Other sources and uses of capital included the following during the six
months ended June 30, 1999.
In April 1998, the Partnership reinvested a portion of the net sales
proceeds from the 1998 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. As of June 30, 1999,
the Partnership had contributed approximately $539,100, of which approximately
$44,100 was contributed during the six months ended June 30, 1999, to the joint
venture to purchase land and pay for construction costs relating to the joint
venture. As of June 30, 1999, the Partnership owned a 50 percent interest in the
profits and losses of the joint venture.
In May 1999, the Partnership sold its Property in Stockbridge, Georgia,
to an unrelated third party for $700,000 and received net sales proceeds of
$696,300. As a result of this transaction, the Partnership recognized a loss of
$60,882 for financial reporting purposes. The Partnership intends to reinvest
these net sales proceeds in an additional Property.
In May 1999, the Partnership entered into an agreement with an
unrelated third party to sell the Long John Silver's property in Shelby, North
Carolina. At June 30, 1999, the Partnership established a provision for loss on
building related to the anticipated sale of this property (see Note 2). As of
August 9, 1999, the sale had not occurred.
Currently, rental income from the Partnership's Properties and any net
sales proceeds held by the Partnership, 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,
certificates of deposit, and money market accounts with less than a 30-day
maturity date, pending the Partnership's use of such funds to pay Partnership
expenses or to make distributions to the partners. At June 30, 1999, the
Partnership had $1,458,499 invested in such short-term investments, as compared
to $949,056 at December 31, 1998. The increase in cash and cash equivalents
during the six months ended June 30, 1999, is primarily due to the receipt of
$696,300 in net sales proceeds from the sale of the Property in Stockbridge,
Georgia. The funds remaining at June 30, 1999, after payment of distributions
and other liabilities, will be used to acquire an additional Property and 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.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and anticipated future cash from operations, the Partnership
declared distributions to the limited partners of $1,856,260 for each of the six
months ended June 30, 1999 and 1998 ($928,130 for each of the quarters ended
June 30, 1999 and 1998). This represents distributions for each applicable six
months of $0.41 per unit ($0.21 per unit for each applicable quarter). No
distributions were made to the general partners for the quarters and six months
ended June 30, 1999 and 1998. No amounts distributed to the limited partners for
the six months ended June 30, 1999 and 1998 are required to be or have been
treated by the Partnership as a return of capital for purposes of calculating
the limited partners' return on their adjusted capital contribution. The
Partnership intends to continue to make distributions of cash available for
distribution to the limited partners on a quarterly basis.
Total liabilities of the Partnership, including distributions payable,
increased to $1,137,222 at June 30, 1999, from $1,062,435 at December 31, 1998.
The increase in liabilities at June 30, 1999 is partially a result of the
Partnership accruing transaction costs relating to the proposed merger with CNL
American Properties Fund, Inc. ("APF"), as described below. 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.
<PAGE>
Results of Operations
During the six months ended June 30, 1998, the Partnership owned and
leased 49 wholly owned Properties (which included three Properties which were
sold during 1998), and during the six months ended June 30, 1999, the
Partnership owned and leased 47 wholly owned Properties (which included one
Property which was sold during 1999), to operators of fast-food and family-style
restaurant chains. During the six months ended June 30, 1999 and 1998, the
Partnership earned $1,858,822 and $1,622,184, respectively, in rental income
from operating leases (net of adjustments to accrued rental income) and earned
income from direct financing leases from these Properties, $952,851 and $662,688
of which was earned during the quarters ended June 30, 1999 and 1998,
respectively.
Rental and earned income was lower during the quarter and six months
ended June 30, 1998, as compared to the quarter and six months ended June 30,
1999, primarily due to the fact that in June 1998 Long John Silver's, Inc. filed
for bankruptcy and rejected the leases relating to four of the nine Properties
it leased. As a result, this tenant ceased making rental payments on the four
rejected leases. In connection with the four rejected leases, during the six
months ended June 30, 1998, the Partnership wrote off approximately $263,000 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 Partnership has continued to receive rental payments relating to
the five leases not rejected by the tenant. The Partnership has entered into new
leases, each with a new tenant, for two of the four vacant Properties. In
connection with the new leases, the tenant for each Property has agreed to pay
for all costs necessary to convert these Properties into different restaurant
concepts. Conversion of both Properties was completed in March 1999, at which
time rental payments commenced. In May 1999, the Partnership sold one of the
vacant Properties and intends to reinvest the net sales proceeds in an
additional Property. The Partnership will not recognize any rental and earned
income from the remaining vacant Property until a replacement tenant for this
Property is located, or until the Property is sold and the proceeds from the
sale are reinvested in an additional Property. While Long John Silver's, Inc.
has not rejected or affirmed the remaining five leases, there can be no
assurance that some or all of these leases will not be rejected in the future.
The lost revenues resulting from the remaining vacant Property, as described
above, and the possible rejection of the remaining five leases, could have an
adverse effect on the results of operations of the Partnership, if the
Partnership was not able to re-lease these Properties in a timely manner.
The increase in rental and earned income during the quarter and six
months ended June 30, 1999, as compared to the quarter and six months ended June
30, 1998, was partially offset by a decrease in rental and earned income during
the quarter and six months ended June 30, 1999, as a result of the 1998 sales of
the Properties in Madison, Alabama and Richmond, Virginia. This decrease in
rental and earned income was partially offset by the fact in October 1998 the
Partnership reinvested the majority of the net sales proceeds from the sale of
the above Properties in a Property in Fayetteville, North Carolina. The
Partnership reinvested the remaining net sales proceeds in Melbourne Joint
Venture, as described below.
<PAGE>
During the six months ended June 30, 1999 and 1998, the Partnership
also owned and leased ten and nine Properties respectively, indirectly through
joint venture arrangements. In connection therewith, during the six months ended
June 30, 1999 and 1998, the Partnership earned $188,822 and $164,631,
respectively, $95,136 and $82,126 of which was earned during the quarters ended
June 30, 1999 and 1998, respectively. The increase in net income earned by joint
ventures during the quarter and six months ended June 30, 1999, as compared to
the quarter and six months ended June 30, 1998, is primarily attributable to the
Partnership investing in Melbourne Joint Venture in April 1998.
In addition, during the six months ended June 30, 1999 and 1998, the
Partnership earned $17,480 and $46,462, respectively, in interest and other
income, $6,960 and $25,483 of which was earned during the quarters ended June
30, 1999 and 1998, respectively. Interest and other income was higher during the
quarter and six months ended June 30, 1998 than that earned during the quarter
and six months ended June 30, 1999, primarily due to the fact that the
Partnership earned interest on the net sales proceeds relating to the sales of
two Properties during 1998, as described above, pending reinvestment in
additional Properties. These net sales proceeds were reinvested in October 1998.
Operating expenses, including depreciation and amortization expense,
were $470,735 and $310,462 for the six months ended June 30, 1999 and 1998,
respectively, of which $232,735 and $148,972 were incurred during the quarters
ended June 30, 1999 and 1998, respectively. The increase in operating expenses
during the quarter and six months ended June 30, 1999, as compared to the
quarter and six months ended June 30, 1998, was primarily due to the fact that
during the quarter and six months ended June 30, 1999, the Partnership incurred
$85,038 and $118,213, respectively, in transaction costs related to the general
partners retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed Merger with APF, as described below. If the limited
partners reject the Merger, the Partnership will bear the portion of the
transaction costs based upon the percentage of "For" votes and the general
partners will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
The increase in operating expenses during the six months ended June 30,
1999, as compared to the six months ended June 30, 1998, was also partially
attributable to an increase in depreciation expense due to the fact that during
the six months ended June 30, 1998, Long John Silver's, Inc. filed for
bankruptcy and rejected the leases relating to four Properties, as described
above. In conjunction therewith, the Partnership reclassified these assets from
net investment in direct financing leases to land and buildings on operating
leases.
During the six months ended June 30, 1999 and 1998, the Partnership
incurred certain expenses, such as real estate taxes, insurance and maintenance
relating to the four Properties whose leases were rejected by the tenant, as
described above. The Partnership has entered into new leases, each with a new
tenant, for two of the four rejected Properties. The new tenants are responsible
for real estate taxes, insurance, and maintenance relating to the respective
Properties and the Partnership also sold one of the vacant Properties, as
described above; therefore, the general partners do not anticipate the
Partnership will incur these expenses for these three Properties in the future.
However, the Partnership will continue to incur certain expenses, such as real
estate taxes, insurance and maintenance relating to the remaining, vacant
Property until a new tenant or purchaser is located. The Partnership is
currently seeking either a new tenant or purchaser for this Property. In
addition, the Partnership will incur certain expenses such as real estate taxes,
insurance, and maintenance relating to one or more of the five Properties still
leased by Long John Silver's, Inc. if one or more of the leases are rejected.
As a result of the sale of the Property in Stockbridge, Georgia, as
described above in "Capital Resources," the Partnership recognized a loss of
$60,882 for financial reporting purposes during the quarter and six months ended
June 30, 1999. As a result of the sale of the Property in Richmond, Virginia
during the six months ended June 30, 1998, and the receipt of proceeds from the
right of way taking of the Property in Riviera Beach, Florida, during the
quarter and six months ended June 30, 1998, the Partnership recognized gains of
$41,408 and $112,206, respectively, for financial reporting purposes.
At June 30, 1999, the Partnership recorded a provision for loss on
building in the amount of $121,207 for financial reporting purposes relating to
a Long John Silver's Property in Shelby, North Carolina the lease for which was
rejected by the tenant, as described above. The tenant of this Property filed
for bankruptcy and ceased payment of rents under the terms of its lease
agreement. The allowance represents the difference between the carrying value of
the Property at June 30, 1999 and the estimated net sales proceeds from the sale
of the Property based on a sales contract with an unrelated third party.
Proposed Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF (the "Merger"). As consideration for the Merger, APF
has agreed to issue 2,156,521 shares of its common stock, par value $0.01 per
share (the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $20.00 per APF Share, the price paid
by APF investors (after an adjustment for a one for two reverse stock split
effective June 3, 1999) in three previous public offerings, the most recent of
which was completed in December 1998. In order to assist the general partners in
evaluating the proposed merger consideration, the general partners retained
Valuation Associates, a nationally recognized real estate appraisal firm, to
appraise the Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other assets
were valued on a going concern basis (meaning the Partnership continues
unchanged) at $42,435,559 as of December 31, 1998. The APF Shares are expected
to be listed for trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and therefore, would be freely tradable at the
option of the former limited partners. At a special meeting of the partners that
is expected to be held in the fourth quarter of 1999, limited partners holding
in excess of 50% of the Partnership's outstanding limited partnership interests
must approve the Merger prior to consummation of the transaction. If the limited
partners at the special meeting approve the Merger, APF will own the properties
and other assets of the Partnership. The general partners intend to recommend
that the limited partners of the Partnership approve the Merger. In connection
with their recommendation, the general partners will solicit the consent of the
limited partners at the special meeting. If the limited partners reject the
Merger, the Partnership will bear the portion of the transaction costs based
upon the percentage of "For" votes and the general partners will bear the
portion of such transaction costs based upon the percentage of "Against" votes
and abstentions.
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in connection with
the proposed Merger. On July 8, 1999, the plaintiffs amended the complaint to
add three additional limited partners as plaintiffs. Additionally, on June 22,
1999, a limited partner in certain of the CNL Income Funds served a lawsuit
against the general partners, APF, CNL Fund Advisors, Inc. and certain of its
affiliates in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend vigorously
against the claims. See Part II - Item 1.
Legal Proceedings.
Year 2000 Readiness Disclosure
The Year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. As of June 30, 1999 the
Partnership did not have any information or non-information technology systems.
The general partners and certain of the affiliates of the general partners
provide all services requiring the use of information and non-information
technology systems pursuant to a management agreement with the Partnership. The
information technology system of the affiliates of the general partners consists
of a network of personal computers and servers built using hardware and software
from mainstream suppliers. The non-information technology systems of the
affiliates of the general partners are primarily facility related and include
building security systems, elevators, fire suppressions, HVAC, electrical
systems and other utilities. The affiliates of the general partners have no
internally generated programmed software coding to correct because substantially
all of the software utilized by the general partners and affiliates is purchased
or licensed from external providers. The maintenance of non-information
technology systems at the Partnership's Properties is the responsibility of the
tenants of the Properties in accordance with the terms of the Partnership's
leases.
In early 1998, the general partners and affiliates formed a Year 2000
team, for the purpose of identifying, understanding and addressing the various
issues associated with the Year 2000 problem. The Y2K Team consists of the
general partners and members from certain of the affiliates of the general
partners, including representatives from senior management, information systems,
telecommunications, legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have potential Year 2000 problems. The Y2K Team is in the
process of conducting inspections, interviews and tests to identify which of the
Partnership's systems could have a potential Year 2000 problem.
The information system of the affiliates of the general partners is
comprised of hardware and software applications from mainstream suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and manufacturers to verify the Year 2000 compliance of their products. In
addition, the Y2K Team has requested and is evaluating documentation from other
companies with which the Partnership has a material third party relationship,
including the Partnership's tenants, vendors, financial institutions and the
Partnership's transfer agent. The Partnership depends on its tenants for rents
and cash flows, its financial institutions for availability of cash and its
transfer agent to maintain and track investor information. The Y2K Team has also
requested and is evaluating documentation from the non-information technology
systems providers of the affiliates of the general partners. Although the
general partners continue to receive positive responses from the companies with
which the Partnership has third party relationships regarding their Year 2000
compliance, the general partners cannot be assured that the tenants, financial
institutions, transfer agent, other vendors and system providers have adequately
considered the impact of the Year 2000. The general partners are not able to
measure the effect on the operations of the Partnership of any third party's
failure to adequately address the impact of the Year 2000.
The general partners and their affiliates have identified and have
implemented upgrades for certain hardware equipment. In addition, the general
partners and their affiliates have identified certain software applications
which will require upgrades to become Year 2000 compliant. The general partners
expect that all of these upgrades, as well as any other necessary remedial
measures on the information technology systems used in the business activities
and operations of the Partnership, to be completed by September 30, 1999,
although, the general partners cannot be assured that the upgrade solutions
provided by the vendors have addressed all possible Year 2000 issues. The
general partners do not expect the aggregate cost of the Year 2000 remedial
measures to be material to the results of operations of the Partnership.
The general partners and their affiliates have received certification
from the Partnership's transfer agent of its Year 2000 compliance. Due to the
material relationship of the Partnership with its transfer agent, the Y2K Team
is evaluating the Year 2000 compliance of the systems of the transfer agent and
expects to have the evaluation completed by September 30, 1999. Despite the
positive response from the transfer agent and the evaluation of the transfer
agent's system by the Y2K Team, the general partners cannot be assured that the
transfer agent has addressed all possible Year 2000 issues. In the event that
the systems of the transfer agent are not Year 2000 compliant, the general
partners and their affiliates will have to allocate resources to internally
perform the functions of the transfer agent. The general partners do not
anticipate that the additional cost of these resources would have a material
impact on the Partnership.
Based upon the progress the general partners and their affiliates have
made in addressing the Year 2000 issues and their plan and timeline to complete
the compliance program, the general partners do not foresee significant risks
associated with Year 2000 compliance at this time. The general partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership being affected by them; therefore, we have not developed a
comprehensive contingency plan. However, if the general partners and their
affiliates identify significant risks related to their Year 2000 compliance, or
if their progress deviates from the anticipated timeline, the general partners
and their affiliates will develop contingency plans as deemed necessary at that
time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8,
1999, the plaintiffs filed an amended complaint which, in addition
to naming three additional plaintiffs, includes allegations of
aiding and abetting and conspiring to breach fiduciary duties,
negligence and breach of duty of good faith against certain of the
defendants and seeks additional equitable relief. As amended, the
caption of the case is Jon Hale, Mary J. Hewitt, Charles A. Hewitt,
Gretchen M. Hewitt Bernard J. Schulte, Edward M. and Margaret Berol
Trust, and Vicky Berol v. James M. Seneff, Jr., Robert A. Bourne,
CNL Realty Corporation, and CNL American Properties Fund, Inc., Case
No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999 against
the general partners and APF, Ira Gaines, individually and on behalf
of a class of persons similarly situated, v. CNL American Properties
Fund, Inc., James M. Seneff, Jr., Robert A. Bourne, CNL Realty
Corporation, CNL Fund Advisors, Inc., CNL Financial Corporation
a/k/a CNL Financial Corp., CNL Financial Services, Inc. and CNL
Group, Inc., Case NO. CIO-99-3796, in the Circuit Court of the Ninth
Judicial Circuit of Orange County, Florida, alleging that the
general partners breached their fiduciary duties and that APF aided
and abetted their breach of fiduciary duties in connection with the
proposed Merger. The plaintiff is seeking unspecified damages and
equitable relief.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger by and between the
Registrant and CNL American Properties Fund,
Inc. ("APF") dated March 11, 1999 and as amended
June 4, 1999 (Filed as Appendix B to the
Prospectus Supplement for the Registrant,
constituting a part of Amendment No. 1 to the
Registration Statement of APF on Form S-4, File
No. 74329.)
3.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund XIV, Ltd. (Included as
Exhibit 3.2 to Registration Statement No.
33-53672-01 on Form S-11 and incorporated herein
by reference.)
4.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund XIV, Ltd. (Included as
Exhibit 3.2 to Registration Statement No.
33-53672-01 on Form S-11 and incorporated herein
by reference.)
4.2 Amended and Restated Agreement of Limited
Partnership of CNL Income Fund XIV, Ltd.
(Included as Exhibit 4.2 to Form 10-K filed with
the Securities and Exchange Commission on April
13, 1994, and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund
XIV, Ltd. and CNL Investment Company (Included
as Exhibit 10.1 to Form 10-K filed with the
Securities and Exchange Commission on April 13,
1994, and incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL
Investment Company to CNL Income Fund Advisors,
Inc. (Included as Exhibit 10.2 to Form 10-K
filed with the Securities and Exchange
Commission on March 30, 1995, and incorporated
herein by reference.)
10.3 Assignment of Management Agreement from CNL
Income Fund Advisors, Inc. to CNL Fund Advisors,
Inc. (Included as Exhibit 10.3 to Form 10-K
filed with the Securities and Exchange
Commission on April 1, 1996, and incorporated
herein by reference.)
27 Financial Data Schedule (Filed herewith.)
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June
30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 9th day of August, 1999
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 June 30, 1999, and its statement of income
for the six months then ended and is qualified in its entirey by reference to
the Form 10-Q of CNL Income Fund XIV, Ltd. for the six months ended June 30,
1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,458,499
<SECURITIES> 0
<RECEIVABLES> 57,921
<ALLOWANCES> 1,105
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 26,708,084
<DEPRECIATION> 1,836,377
<TOTAL-ASSETS> 40,168,986
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 39,031,764
<TOTAL-LIABILITY-AND-EQUITY> 40,768,986
<SALES> 0
<TOTAL-REVENUES> 1,876,302
<CGS> 0
<TOTAL-COSTS> 470,735
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,412,300
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,412,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,412,300
<EPS-BASIC> 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
asset and current liabilities.
</FN>
</TABLE>
