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 0-26216
CNL INCOME FUND XV, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3198888
(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 XV, 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 XV, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on September 2, 1993. 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 February 23, 1994, the
Partnership offered for sale up to $40,000,000 of limited partnership interests
(the "Units") (4,000,000 Units at $10 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
February 23, 1994. The offering terminated on September 1, 1994, at which date
the maximum offering proceeds of $40,000,000 had been received from investors
who were admitted to the Partnership as limited partners (the "Limited
Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of national and regional fast-food and family-style restaurant chains
(the "Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totalled
$35,200,000 and were used to acquire 45 Properties, including 15 Properties
consisting of only land and two Properties owned by a joint venture in which the
Partnership is a co-venturer, to pay acquisition fees totalling $2,200,000 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 two
Checkers Properties in Knoxville, Tennessee, and one Checkers Property in
Leavenworth, Kansas, which consisted of land only, exercised its option in
accordance with the lease agreements to substitute other Properties for these
three Properties. The Partnership sold the two Properties in Knoxville,
Tennessee, and the Property in Leavenworth, Kansas, and used the net sales
proceeds to acquire two Checkers Properties, consisting of land only, located in
Orlando and Bradenton, Florida. During the year ended December 31, 1996, the
Partnership acquired a Property in Clinton, North Carolina, with affiliates of
the General Partners as tenants-in-common. 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 Property in Murfreesboro, Tennessee is owned by the tenant.
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 49 Properties. The
49 Properties include 14 wholly owned Properties consisting of only land, six
Properties owned by a joint venture in which the Partnership is a co-venturer
and one Property owned with an affiliate as tenants-in-common. The lessee of the
14 wholly owned Properties consisting of only land 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 terms. 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.
1
<PAGE>
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
the joint venture in which the Partnership is a co-venturer provide for initial
terms ranging from 15 to 20 years (the average being 19 years) and expire
between 2009 and 2015. All leases are on a triple-net basis, with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities. The leases of the Properties provide for minimum base annual rental
payments (payable in monthly installments) ranging from approximately $22,500 to
$190,600. 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.
Generally, the leases of the Properties provide for two to five -year
renewal options subject to the same terms and conditions as the initial lease.
Certain lessees also have been granted options to purchase Properties at the
Property's then fair market value after a specified portion of the lease term
has elapsed. Under the terms of certain leases, the option purchase price may
equal the Partnership's original cost to purchase the Property (including
acquisition costs), plus a specified percentage from the date of the lease or a
specified percentage of the Partnership's purchase price, if that amount is
greater than the Property's fair market value at the time the purchase option is
exercised.
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.
Major Tenants
During 1997, five lessees (or group of affiliated lessees) of the
Partnership, (i) Flagstar Enterprises, Inc. and Quincy's Restaurants, Inc.
(which are affiliated entities under common control of Flagstar Corporation)
(hereinafter referred to as Flagstar Corporation), (ii) Checkers Drive-In
Restaurants, Inc., (iii) Long John Silver's, Inc., (iv) Foodmaker, 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 six Properties owned by a joint venture and one Property owned with
affiliates as tenants-in-common). As of December 31, 1997, Flagstar Corporation
was the lessee under leases relating to eight restaurants, Checkers Drive-In
Restaurants, Inc. was the lessee under leases relating to 14 restaurants, Long
John Silver's, Inc. was the lessee under leases relating to eight restaurants,
Foodmaker, Inc. was the lessee under leases relating to four restaurants and
Golden Corral Corporation was the lessee under leases relating to five
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, five Restaurant Chains,
Hardee's, Checkers Drive-In Restaurants, Long John Silver's, Golden Corral
Family Steakhouse Restaurants ("Golden Corral") and Jack in the Box, 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 six
Properties owned by a joint venture and one Property owned with affiliates as
tenants-in-common). In subsequent years, it is anticipated that these five
Restaurant Chains each will continue to account for more than ten percent of the
total rental income to which the Partnership is entitled under the terms of 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 Arrangement and Tenancy in Common Arrangements
In August 1994, the Partnership entered into a joint venture
arrangement, Wood-Ridge Real Estate Joint Venture, with CNL Income Fund XIV,
Ltd., a limited partnership organized pursuant to the laws of the State of
Florida, and an affiliate of the General Partners, to purchase and hold two
Properties. 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. The joint venture
arrangement provides for the Partnership and its joint venture partner to share
in all costs and benefits associated with the joint venture in accordance with
their respective percentage interests in the joint venture. The Partnership owns
a 50 percent interest in the joint venture. The Partnership and its joint
venture partner are also jointly and severally liable for all debts, obligations
and other liabilities of the joint venture.
Wood-Ridge Real Estate Joint Venture has an initial term of 30 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 partner to reinvest the sales proceeds in replacement
Properties, and by mutual agreement of the Partnership and its joint venture
partner to dissolve the joint venture.
2
<PAGE>
The Partnership shares management control equally with an affiliate of
the General Partners for Wood-Ridge Real Estate Joint Venture. The joint venture
agreement restricts 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 Wood-Ridge Real Estate Joint Venture
is distributed 50 percent to each joint venture partner. Any liquidation
proceeds, after paying joint venture debts and liabilities and funding reserves
for contingent liabilities, will be distributed first to the joint venture
partners with positive capital account balances in proportion to such balances
until such balances equal zero, and thereafter in proportion to each joint
venture partner's percentage interest in the joint venture.
In addition to the above joint venture agreement, in January 1996, the
Partnership entered into an agreement to hold a Golden Corral Property as
tenants-in-common with CNL Income Fund IV, Ltd., CNL Income Fund VI, Ltd. and
CNL Income Fund X, Ltd., each of which is a limited partnership organized
pursuant to the laws of the State of Florida and an affiliate of the General
Partners. The agreement provides for the Partnership and the affiliates to share
in the profits and losses of the Property in proportion to each co- tenant's
percentage interest. The Partnership owns a 15.02% interest in this Property.
The tenancy in common agreement restricts each co-tenant's ability to sell,
transfer, or assign its interest in the tenancy in common's Property without
first offering it for sale to the remaining co-tenant.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
Certain Management Services
CNL Income Fund Advisors, Inc., an affiliate of the General Partners,
provided certain services relating to management of the Partnership and its
Properties pursuant to a management agreement with the Partnership through
September 30, 1995. Under this agreement, CNL Income Fund Advisors, Inc. was
responsible for collecting rental payments, inspecting the Properties and the
tenants' books and records, assisting the Partnership in responding to tenant
inquiries and notices and providing information to the Partnership about the
status of the leases and the Properties. CNL Income Fund Advisors, Inc. also
assisted the General Partners in negotiating the leases. For these services, the
Partnership had agreed to pay CNL Income Fund Advisors, Inc. an annual fee of
one percent of the sum of gross rental revenues from Properties wholly owned by
the Partnership plus the Partnership's allocable share of gross revenues of
joint ventures in which the Partnership is a co-venturer, 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 49 Properties. Of the 49
Properties, 42 are owned by the Partnership in fee simple, six are owned through
one joint venture arrangement and one Property is owned through a tenancy in
common arrangement. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation filed with this report for a listing of
the Properties and their respective costs, including acquisition fees and
certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 15,600
to 137,700 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.
3
<PAGE>
The following table lists the Properties owned by the Partnership as of
December 31, 1997 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation filed with this report.
State Number of Properties
----- --------------------
Alabama 1
California 3
Florida 9
Georgia 4
Kentucky 1
Minnesota 1
Missouri 1
Mississippi 1
North Carolina 6
New Jersey 1
New Mexico 1
Ohio 2
Oklahoma 2
Pennsylvania 2
South Carolina 5
Tennessee 4
Texas 4
Virginia 1
-------
TOTAL PROPERTIES: 49
=======
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 14 Checkers Properties owned by the Partnership and one
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 1,500 to 11,000
square feet. All buildings on Properties are freestanding and surrounded by
paved parking areas. Buildings are suitable for conversion to various uses,
although modifications may be required prior to use for other than restaurant
operations. As of December 31, 1997, the Partnership had no plans for renovation
of the Properties. Depreciation expense is computed for buildings and
improvements using the straight line method using a depreciable life of 40 years
for federal income tax purposes. As of December 31, 1997, the aggregate cost
basis of the Properties owned by the Partnership and joint ventures (including
the Property owned through a tenancy in common arrangement) for federal income
tax purposes was $32,521,622 and $4,678,838, respectively.
4
<PAGE>
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
Checkers 14
Denny's 2
East Side Mario's 1
Golden Corral 5
Hardee's 7
Jack in the Box 4
Long John Silver's 9
Quincy's 1
Taco Bell 1
Wendy's 1
------
TOTAL PROPERTIES 49
======
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, and 1994, all of the Properties were
occupied. The following is a schedule of the average annual rent for each of the
years ended December 31:
<TABLE>
<CAPTION>
<S> <C>
For the Year Ended December 31:
1997 1996 1995 1994 1993 (2)
------------------------------------------------------------------------------------
Rental Revenues (1) $3,906,700 $3,905,897 $3,838,766 $1,140,187 -
Properties 49 48 44 43 -
Average Rent per Unit $79,729 $81,373 $87,245 $26,516 -
</TABLE>
(1) Rental revenues include the Partnership's share of rental revenues from
the six Properties owned through joint venture arrangements and the one
property owned through a tenancy in common arrangement. Rental revenues
have been adjusted, as applicable, for any amounts for which the
Partnership has established an allowance for doubtful accounts.
(2) The date for 1993 represents the period September 2, 1993 (date of
inception) to December 31, 1993.
6
<PAGE>
The following is a schedule of lease expirations for leases in place as
of December 31, 1997 for each of the ten years beginning with 1998 and
thereafter.
<TABLE>
<CAPTION>
<S> <C>
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
----------------------- ------------------ -------------------- --------------
1998 - - -
1999 - - -
2000 - - -
2001 - - -
2002 - - -
2003 - - -
2004 - - -
2005 - - -
2006 - - -
2007 - - -
Thereafter 49 3,902,021 100.00%
------- --------------- --------------
Totals 49 3,902,021 100.00%
======= =============== ==============
</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 one Quincy's
restaurant. The initial term of each lease is 20 years (expiring between 2013
and 2014) and the average minimum base annual rent is approximately $76,700
(ranging from approximately $62,900 to $97,100).
Checkers Drive-In Restaurants, Inc. leases 14 Checkers Drive-In
Restaurants ("Checkers"). The initial term of each of its leases is 20 years
(expiring between 2014 and 2015) and the average minimum base annual rent is
approximately $42,900 (ranging from approximately $22,500 to $63,100). The
leases for the 14 Checkers Properties consist of only land. The tenant 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 term.
Long John Silver's, Inc. leases eight Long John Silver's restaurants with
an initial term of 20 years (expiring in 2014) and the average minimum base
annual rent is approximately $75,600 (ranging from approximately $58,600 to
$92,900).
Foodmaker, Inc. leases four Jack in the Box restaurants. This initial term
of each lease is 18 years (expiring in 2012) and the average minimum base annual
rent is approximately $91,100 (ranging from approximately $71,000 to $102,200).
In addition, Golden Corral Corporation leases five Golden Corral
restaurants. The initial term of each lease is 15 years (expiring between 2009
and 2011) and the average minimum base annual rent is approximately $137,400
(ranging from approximately $88,000 to $190,600).
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
At the time the Partnership elects to dispose of its Properties, other
than as a result of the exercise of tenant options to purchase Properties, the
Partnership will be in competition with other persons and entities to locate
purchasers for its Properties.
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership was organized on September 2, 1993, 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 lessees generally responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 1997, the Partnership owned 49 Properties, either directly or through joint
venture or tenancy in common arrangements.
Capital Resources
Net proceeds to the Partnership from its offering of Units, after
deduction of organizational and offering expenses, totalled $35,200,000. As of
December 31, 1994, approximately $32,088,000 had been used to invest, either
directly or through joint venture arrangements, in 43 Properties (three of which
were under construction at December 31, 1994) and to pay acquisition fees to an
affiliate of the General Partners totalling $2,200,000 and to pay certain
acquisition expenses. During 1995, the Partnership completed construction of the
three Properties acquired in 1994 and acquired two additional Properties. In
addition, in January 1995, the Partnership received notice from the tenant of
two of its Properties in Knoxville, Tennessee, and one Property in Leavenworth,
Kansas, of the tenant's intention to exercise its options, in accordance with
its lease agreements, to substitute other Properties for these three Properties.
In March 1995, the Partnership sold its two Properties in Knoxville, Tennessee,
and one Property in Leavenworth, Kansas, to the tenant for their original
purchase prices, excluding acquisition fees and miscellaneous acquisition
expenses and received net sales proceeds totalling $811,706. The Partnership
used the majority of the net sales proceeds to acquire two Checkers Properties
in Orlando and Bradenton, Florida, from the tenant. As a result of these
transactions, the Partnership recognized a loss of $71,023 for financial
reporting purposes primarily due to acquisition fees and miscellaneous
acquisition expenses the Partnership had allocated to the two Properties in
Knoxville, Tennessee, and the Property in Leavenworth, Kansas, and due to the
accrued rental income relating to future scheduled rent increases for these
Properties that the Partnership had recorded and reversed at the time of the
sale. As a result of the above transactions, as of December 31, 1995,
approximately $34,781,000 had been used to invest, either directly or through
joint venture arrangements in 44 Properties and to pay acquisition fees and
certain acquisition expenses.
In January 1996, the Partnership invested $122,439 in a Golden Corral
Property located in Clinton, North Carolina, with affiliates of the General
Partners as tenants-in-common. In connection therewith, the Partnership and its
affiliates entered into an agreement whereby each co-venturer will share in the
profits and losses of the Property in proportion to its applicable percentage
interest. As of December 31, 1996, the Partnership owned a 15.02% interest in
this Property. Upon completion of the Partnership's acquisitions in January
1996, the remaining net offering proceeds of approximately $220,000 were
reserved for Partnership purposes.
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. As of
December 31, 1997, the Partnership had received approximately $52,000,
representing its pro-rata share of the uninvested net sales proceeds.
Currently, the Partnership's primary source of capital is cash from
operations (which includes cash received from tenants, distributions from joint
ventures and interest received, less cash paid for expenses). Cash from
operations was $3,306,595, $3,434,682 and $3,239,370 for the years ended
December 31, 1997, 1996 and 1995, respectively. The decrease in cash from
operations during 1997, as compared to 1996, and the increase during 1996, as
compared to 1995, is primarily a result of changes in income and expenses as
described in "Results of Operations" below and changes in the Partnership's
working capital.
None of the Properties owned by the Partnership, or the joint ventures or
tenancy in common arrangements in which the Partnership owns an interest, is or
may be encumbered. Subject to certain restrictions on borrowing, however, the
Partnership may borrow funds but will not encumber any of the Properties in
connection with any such borrowing. The Partnership will not borrow for the
purpose of returning capital to the Limited Partners. The Partnership will not
borrow under arrangements that would make the Limited Partners liable to
creditors of the Partnership. The General Partners further have represented that
they will use their reasonable efforts to structure any borrowing so that it
will not constitute "acquisition indebtedness" for federal income tax purposes
and also will limit the Partnership's outstanding indebtedness to three percent
of the aggregate adjusted tax basis of its Properties. Affiliates of the General
Partners from time to time incur certain operating expenses on behalf of the
Partnership for which the Partnership reimburses the affiliates without
interest.
Currently, cash reserves and rental income from the Partnership's
Properties and net sales proceeds received 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
$1,614,708 invested in such short-term investments as compared to $1,536,163 at
December 31, 1996. As of December 31, 1997, the average interest rate earned on
the rental income deposited in demand deposit accounts at commercial banks was
approximately three percent annually. The funds remaining at December 31, 1997,
after payment of distributions and other liabilities, will be used to meet the
Partnership's working capital and other needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily of
the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash and
leasing them under triple-net leases to operators who generally meet specified
financial standards minimizes the Partnership's operating expenses. The General
Partners believe that the leases will continue to generate cash flow in excess
of operating expenses.
Due to low operating expenses and ongoing cash flow, the General Partners
believe that the Partnership has sufficient working capital reserves at this
time. In addition, because all leases of the Partnership's Properties are on a
triple-net basis, it is not anticipated that a permanent reserve for maintenance
and repairs will be established at this time. To the extent, however, that the
Partnership has insufficient funds for such purposes, the General Partners will
contribute to the Partnership an aggregate amount of up to one percent of the
offering proceeds for maintenance and repairs. The General Partners have the
right to cause the Partnership to maintain additional reserves if, in their
discretion, they determine such reserves are required to meet the Partnership's
working capital needs.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining after
the payment of the operating expenses of the Partnership, to the extent that the
General Partners determine that such funds are available for distribution. Based
on cash from operations, the Partnership declared distributions to the Limited
Partners of $3,200,000, $3,280,000 and $2,900,001 for the years ended December
31, 1997, 1996 and 1995, respectively. This represents distributions of $0.80,
$0.82 and $0.73 per Unit for the years ended December 31, 1997, 1996 and 1995,
respectively. The General Partners anticipate that the Partnership will declare
a special distribution to the Limited Partners during the quarter ending March
31, 1998, representing cumulative excess operating reserves. No amounts
distributed or to be distributed to the Limited Partners for the years ended
December 31, 1997, 1996 or 1995 are required to be or have been treated by the
Partnership as a return of capital for purposes of calculating the Limited
Partners' return on their adjusted capital contributions. The Partnership
intends to continue to make distributions of cash available for distribution to
the Limited Partners on a quarterly basis.
During 1997, 1996 and 1995, the affiliates incurred on behalf of the
Partnership $78,821, $86,714 and $94,991, respectively, for certain operating
expenses. In addition, during 1995, affiliates of the General Partners incurred
on behalf of the Partnership $2,274 for certain acquisition expenses. As of
December 31, 1997 and 1996, the Partnership owed $4,311 and $1,355,
respectively, to related parties for such amounts, accounting and administrative
services and management fees. As of February 28, 1998, the Partnership had
reimbursed the affiliates all such amounts. Other liabilities, including
distributions payable, decreased to $818,009 at December 31, 1997, from $946,825
at December 31, 1996, partially as a result of the Partnership accruing a
special distribution payable to the Limited Partners of $80,000 at December 31,
1996, which was paid in January 1997 from cumulative excess operating reserves.
Total liabilities also decreased 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 45 wholly owned Properties during 1995
(including two Properties in Knoxville, Tennessee, and one Property in
Leavenworth, Kansas, which were sold in March 1995), and during 1996 and 1997,
owned and leased 42 wholly owned Properties. In addition, during 1995, the
Partnership was a co- venturer in one joint venture that owned two Properties,
and during 1996, the Partnership was a co-venturer in one joint venture that
owned and leased seven Properties (including two Properties in Wood-Ridge Real
Estate Joint Venture, which were sold in September 1996) and the Partnership
owned and leased one Property with affiliates, as tenants-in-common. During
1997, the Partnership was a co-venturer in one joint venture that owned and
leased six Properties and owned and leased one Property with affiliates as
tenants-in-common. As of December 31, 1997, the Partnership owned, either
directly or through joint venture arrangements 49 Properties, which are subject
to long-term, triple-net leases. The leases of the Properties provide for
minimum base annual rental payments (payable in monthly installments) ranging
from approximately $22,500 to $190,600. 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 from
the sixth or the 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 $3,586,791, $3,596,466 and $3,446,745 respectively, in rental income from
operating leases and earned income from direct financing leases from Properties
wholly owned by the Partnership. The increase in rental and earned income during
1996, as compared to 1995, is primarily attributable to the acquisition of
additional Properties in 1995, and the fact that, with the exception of the
three Properties sold in March 1995, the Properties owned at December 31, 1995,
were operational for a full year in 1996, as compared to a partial year in 1995.
During the years ended December 31, 1997, 1996 and 1995, the Partnership
also earned $25,791, $23,318 and $97,539, respectively, in contingent rental
income. Contingent rental income for the year ended December 31, 1996, as
compared to 1995, decreased primarily as a result of decreased gross sales of
certain restaurant Properties that are subject to leases requiring payment of
contingent rental income.
In addition, for the years ended December 31, 1997, 1996 and 1995, the
Partnership earned $239,249, $392,862 and $280,606, 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, is primarily attributable to, 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." Due to the fact that the joint venture
reinvested the majority of the net sales proceeds in five Properties in October
1996 and one Property in January 1997, the Partnership does not anticipate that
the sale of the two Properties will have a material adverse effect on
operations.
During at least one of the years ended December 31, 1997, 1996 and 1995,
five lessees (or group of affiliated lessees) of the Partnership, Flagstar
Corporation, Checkers Drive-In Restaurants, Inc., Long John Silver's, Inc.,
Foodmaker, 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 six Properties owned by a joint venture and one
Property owned with affiliates as tenants-in-common). As of December 31, 1997,
Flagstar Corporation was the lessee under leases relating to eight restaurants,
Checkers Drive-In Restaurants, Inc. was the lessee under leases relating to 14
restaurants, Long John Silver's, Inc. was the lessee under leases relating to
eight restaurants, Foodmaker, Inc. was the lessee under leases relating to four
restaurants and Golden Corral Corporation was lessee under leases relating to
five 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 and 1995, five Restaurant Chains,
Hardee's, Checkers Drive-In Restaurants, Long John Silver's, Golden Corral and
Jack in the Box, each accounted for more than ten percent of the Partnership's
total rental income (including the Partnership's share of rental income from six
Properties owned by a joint venture and one Property owned with affiliates as
tenants-in-common). In subsequent years, it is anticipated that these five
Restaurant Chains each will continue to account for more than ten percent of the
total rental income to which the Partnership is entitled under the terms of the
leases. Any failure of these lessees or Restaurant Chains could materially
affect the Partnership's income.
During the years ended December 31, 1997, 1996 and 1995, the Partnership
also earned $56,183, $55,964, and $90,095, respectively, in interest and other
income. The decrease in interest and other income during 1996, as compared to
1995, is primarily attributable to a decrease in the amount of funds invested in
short-term, liquid investments due to the acquisition of Properties during 1995.
Operating expenses, including depreciation and amortization expense,
were $473,109, $483,551 and $471,494 for the years ended December 31, 1997, 1996
and 1995, respectively. The decrease in operating expenses during 1997, as
compared to 1996, is primarily attributable to a decrease in accounting and
administrative expenses associated with operating the Partnership and its
Properties. The increase in operating expenses during 1996, as compared to 1995,
is primarily a result of the Partnership incurring additional taxes relating to
the filing of various state tax returns during 1996.
As a result of the sale of the two Properties in Knoxville, Tennessee, and
the Property in Leavenworth, Kansas, as described above in "Capital Resources,"
the Partnership recognized a loss for financial reporting purposes of $71,023
during the year ended December 31, 1995. The loss was primarily due to
acquisition fees and miscellaneous acquisition expenses the Partnership had
allocated to these Properties and due to accrued rental income relating to
future scheduled rent increases that the Partnership had recorded and wrote off
at the time of sale. No Properties were sold during the years ended December 31,
1996 and 1997.
The General Partners of the Partnership are in the process of assessing
and addressing the impact of the year 2000 on their 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 or future results of
operations or financial position.
The Partnership's leases as of December 31, 1997, are triple-net leases
and contain provisions that the General Partners believe mitigate the adverse
effect of inflation. Such provisions include clauses requiring the payment of
percentage rent based on certain restaurant sales above a specified level and/or
automatic increases in 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.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 29th day of
July, 1999.
CNL INCOME FUND XV, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
--------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
--------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
------------------------
JAMES M. SENEFF, JR.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert A. Bourne President, Treasurer and July 29, 1999
- -------------------- Director (Principal Financial
Robert A. Bourne and Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer July 29, 1999
- ------------------------ and Director (Principal
James M. Seneff, Jr. Executive Officer)
<PAGE>
