FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended March 31, 1999
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from _____________________ to _____________________
Commission file number
0-26218
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CNL Income Fund XVI, Ltd.
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(Exact name of registrant as specified in its charter)
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<CAPTION>
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Florida 59-3198891
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
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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 XVI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
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<CAPTION>
March 31, December 31,
1999 1998
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ASSETS
Landand buildings on operating leases,
less accumulated depreciation of
$2,085,596 and $1,942,192 and allowance
for loss on building
of $266,257 in 1999 and 1998 $ 30,852,599 $ 30,215,549
Net investment in direct financing leases 4,570,303 5,361,848
Investment in joint ventures 1,647,270 1,504,465
Cash and cash equivalents 1,405,552 1,603,589
Receivables, less allowance for doubtful accounts
of $111,931 and $89,822 31,749 63,214
Prepaid expenses 15,748 13,745
Organization costs, less accumulated amortization
of $10,000 and $8,550 -- 1,450
Accrued rental income 1,510,250 1,424,781
------------------ -------------------
$ 40,033,471 $ 40,188,641
================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 31,275 $ 1,816
Accrued and escrowed real estate taxes payable 23,462 7,163
Distributions payable 900,000 900,000
Due to related party 10,797 26,476
Rents paid in advance and deposits 70,617 61,262
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Total liabilities 1,036,151 996,717
Commitment (Note 4)
Partners' capital 38,997,320 39,191,924
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$ 40,033,471 $ 40,188,641
================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
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<CAPTION>
Quarter Ended
March 31,
1999 1998
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Revenues:
Rental income from operating leases $ 798,369 $ 888,095
Earned income from direct financing leases 133,545 175,047
Interest and other income 19,953 14,761
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951,867 1,077,903
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Expenses:
General operating and administrative 47,619 33,021
Professional services 9,327 9,440
Management fees to related party 9,001 9,963
Real estate taxes 17,153 --
State and other taxes 23,165 19,302
Depreciation and amortization 144,854 140,916
Transaction costs 33,158 --
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284,277 212,642
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Income Before Equity in Earnings of Joint Ventures 667,590 865,261
Equity in Earnings of Joint Ventures 37,806 31,434
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Net Income $ 705,396 $ 896,695
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Allocation of Net Income:
General partners $ 7,054 $ 8,967
Limited partners 698,342 887,728
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$ 705,396 $ 896,695
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Net Income Per Limited Partner Unit $ 0.16 $ 0.20
============== ===============
Weighted Average Number of Limited Partner
Units Outstanding 4,500,000 4,500,000
============== ===============
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See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
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<CAPTION>
Quarter Ended Year Ended
March 31, December 31,
1999 1998
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General partners:
Beginning balance $ 131,300 $ 99,615
Net income 7,054 31,685
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138,354 131,300
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Limited partners:
Beginning balance 39,060,624 39,805,311
Net income 698,342 2,945,313
Distributions ($0.20 and $0.82 per
limited partner unit, respectively) (900,000 ) (3,690,000 )
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38,858,966 39,060,624
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Total partners' capital $ 38,997,320 $ 39,191,924
=================== =================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
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<CAPTION>
Quarter Ended
March 31,
1999 1998
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Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 847,198 $1,091,044
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Cash Flows from Investing Activities:
Investment in joint ventures (145,235 ) (607,896 )
Decrease in restricted cash -- 610,410
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Net cash provided by (used in)
investing activities (145,235 ) 2,514
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Cash Flows from Financing Activities:
Distributions to limited partners (900,000 ) (900,000 )
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Net cash used in financing activities (900,000 ) (900,000 )
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Net Increase (Decrease) in Cash and Cash Equivalents (198,037 ) 193,558
Cash and Cash Equivalents at Beginning of Quarter 1,603,589 1,673,869
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Cash and Cash Equivalents at End of Quarter $1,405,552 $1,867,427
=============== ==============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
quarter $ 900,000 $ 990,000
=============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter ended March 31, 1999, may not be indicative of the results
that may be expected for the year ending December 31, 1999. Amounts as
of December 31, 1998, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund XVI, Ltd. (the "Partnership") for the year ended December
31, 1998.
Effective January 1, 1999, the Partnership adopted Statement of
Position 98-5 "Reporting on the Costs of Start-Up Activities." The
Statement requires that an entity expense the costs of start-up
activities and organization costs as they are incurred. Adoption of
this statement did not have a material effect on the Partnership's
financial position or results of operations.
2. Investment in Direct Financing Leases:
During the quarter ended March 31, 1999, a tenant, L.C. West, L.L.C.
terminated its lease and ceased making rental payments to the
Partnership due to financial difficulties the tenant experienced. As a
result, the Partnership reclassified the asset from net investment in
direct financing leases to land and buildings on operating leases. In
accordance with Statement of Financial Accounting Standards No. 13,
"Accounting for Leases," the Partnership recorded the reclassified
asset at the lower of original cost, present fair value, or present
carrying amount. No loss on termination of direct financing leases was
recorded for financial reporting purposes.
<PAGE>
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1999 and 1998
3. Merger Transaction:
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to
which the Partnership would be merged with and into a subsidiary of APF
(the "Merger"). As consideration for the Merger, APF has agreed to
issue 4,320,947 shares of its common stock, par value $0.01 per share
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the
price paid by APF investors in three previous public offerings, the
most recent of which was 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
$42,519,005 as of December 31, 1998. Legg Mason Wood Walker,
Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a
financial point of view. The APF Shares are expected to be listed for
trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and, therefore, would be freely tradable at
the option of the former limited partners. At a special meeting of the
partners that is expected to be held in the third quarter of 1999,
limited partners holding in excess of 50% of the Partnership's
outstanding limited partnership interests must approve the Merger prior
to consummation of the transaction. If the limited partners at the
special meeting approve the Merger, APF will own the Properties and
other assets of the Partnership. The general partners intend to
recommend that the limited partners of the Partnership approve the
Merger. In connection with their recommendation, the general partners
will solicit the consent of the limited partners at the special
meeting. If the limited partners reject the Merger, the Partnership
will bear the portion of the transaction costs based upon the
percentage of "For" votes and the general partners will bear the
portion of such transaction costs based upon the percentage of
"Against" votes and abstentions.
On May 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in
connection with the proposed Merger (see Part II - Item 1. Legal
Proceedings). The general partners and APF believe that the lawsuit is
without merit and intend to defend vigorously against the claims.
Because the lawsuit was so recently filed, it is premature to further
comment on the lawsuit at this time.
<PAGE>
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1999 and 1998
4. Commitment:
In February 1999, the Partnership entered into a new lease for the
property in Las Vegas, Nevada, with a new tenant to operate the
property as a Big Boy restaurant. In connection therewith, the
Partnership has agreed to pay up to $150,000 in renovation costs, none
of which were incurred as of March 31, 1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CNL Income Fund XVI, Ltd. (the "Partnership") is a Florida limited
partnership that 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 restaurants were to
be constructed (the "Properties"), which are leased primarily to operators of
national and regional fast-food and family-style restaurant chains. The leases
are generally triple-net leases, with the lessee responsible for all repairs and
maintenance, property taxes, insurance and utilities. As of March 31, 1999, the
Partnership owned 44 Properties, which included interests in one Property owned
through a joint venture arrangement in which the Partnership is a co-venturer
and two Properties owned with affiliates as tenants-in-common.
Liquidity and Capital Resources
The Partnership's primary source of capital for the quarters ended
March 31, 1999 and 1998, was cash from operations (which includes cash received
from tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $847,198 and
$1,091,044 for the quarters ended March 31, 1999 and 1998, respectively. The
decrease in cash from operations for the quarter ended March 31, 1999, as
compared to the quarter ended March 31, 1998, is primarily a result of changes
in income and expenses as described in "Results of Operations" below and changes
in the Partnership's working capital.
Other sources and uses of capital included the following during the
quarter ended March 31, 1999.
In August 1998, the Partnership entered into a joint venture
arrangement, Columbus Joint Venture, with affiliates of the general partners, to
construct and hold one restaurant Property. As of March 31, 1999, the
Partnership had contributed approximately $279,800, of which approximately
$145,200 was contributed during the quarter ended March 31, 1999, to purchase
land and pay for construction costs relating to the joint venture. As of March
31, 1999, the Partnership owned an approximate 32 percent interest in the
profits and losses of the joint venture.
Currently, cash reserves and rental income from the Partnership's
Properties are invested in money market accounts or other short-term, highly
liquid investments pending the Partnership's use of such funds to pay
Partnership expenses or to make distributions to the partners. At March 31,
1999, the Partnership had $1,405,552 invested in such short-term investments, as
compared to $1,603,589 at December 31, 1998. Cash and cash equivalents decreased
during the quarter ended March 31, 1999, primarily as a result of the
Partnership funding additional amounts to Columbus Joint Venture to pay for
construction costs relating to the joint venture. The funds remaining at March
31, 1999, after payment of distributions and other liabilities, will be used to
meet the Partnership's working capital, commitment, and other needs.
<PAGE>
Liquidity and Capital Resources - Continued
Total liabilities of the Partnership, including distributions payable,
increased to $1,036,151 at March 31, 1999, from $996,717 at December 31, 1998.
The increase in liabilities at March 31, 1999 is partially a result of the
Partnership accruing real estate taxes due to the fact that the tenants of
certain Long John Silver's and Boston Market Properties filed for bankruptcy as
described below in "Results of Operations." In addition, the increase in
liabilities at March 31, 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.
In February 1999, the Partnership entered into a new lease for the
Property located in Las Vegas, Nevada, with a new tenant to operate the Property
as a Big Boy restaurant. In connection therewith, the Partnership has agreed to
fund up to $150,000 in conversion costs associated with this Property. No
amounts had been incurred as of March 31, 1999.
Based on current and future cash from operations, and for the quarter
ended March 31, 1998, accumulated excess operating reserves, the Partnership
declared distributions to limited partners of $900,000 and $990,000 for the
quarters ended March 31, 1999 and 1998, respectively. This represents
distributions of $0.20 and $0.22 per unit for the quarters ended March 31, 1999
and 1998, respectively. No distributions were made to the general partners for
the quarters ended March 31, 1999 and 1998. No amounts distributed to the
limited partners for the quarters ended March 31, 1999 and 1998, are required to
be or have been treated by the Partnership as a return of capital for purposes
of calculating the limited partners' return on their adjusted capital
contributions. The Partnership intends to continue to make distributions of cash
available for distribution to the limited partners on a quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who 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.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF (the "Merger"). APF is a real estate investment trust
whose primary business is the ownership of restaurant properties leased on a
long-term, "triple-net" basis to operators of national and regional restaurant
chains. APF has agreed to issue shares of its common stock, par value $0.01 per
share (the "APF Shares"), as consideration for the Merger. APF has agreed to
issue 4,320,947 APF Shares which, for the purposes of valuing the merger
consideration, have been
<PAGE>
Liquidity and Capital Resources - Continued
valued by APF at $10.00 per APF Share, the price paid by APF investors in three
previous public offerings, the most recent of which was 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 $42,519,005 as of December 31,
1998. Legg Mason Wood Walker, Incorporated has rendered a fairness opinion that
the APF Share consideration, payable by APF, is fair to the Partnership from a
financial point of view. The APF Shares are expected to be listed for trading on
the New York Stock Exchange concurrently with the consummation of the Merger,
and, therefore, would be freely tradable at the option of the former limited
partners. At a special meeting of the partners that is expected to be held in
the third quarter of 1999, limited partners holding in excess of 50% of the
Partnership's outstanding limited partnership interests must approve the Merger
prior to consummation of the transaction. If the limited partners at the special
meeting approve the Merger, APF will own the Properties and other assets of the
Partnership. The general partners intend to recommend that the limited partners
of the Partnership approve the Merger. In connection with their recommendation,
the general partners will solicit the consent of the limited partners at the
special meeting. If the limited partners reject the Merger, the Partnership will
bear the portion of the transaction costs based upon the percentage of "For"
votes and the general partners will bear the portion of such transaction costs
based upon the percentage of "Against" votes and abstentions.
On May 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in connection with
the proposed Merger (see Part II - Item 1. Legal Proceedings). The general
partners and APF believe that the lawsuit is without merit and intend to defend
vigorously against the claims. Because the lawsuit was so recently filed, it is
premature to further comment on the lawsuit at this time.
Results of Operations
During the quarters ended March 31, 1999 and 1998, the Partnership
owned and leased 41 wholly owned Properties, to operators of fast-food and
family-style restaurant chains. In connection therewith, during the quarters
ended March 31, 1999 and 1998, the Partnership earned $931,914 and $1,063,142,
respectively, in rental income from operating leases and earned income from
direct financing leases from these Properties. Rental and earned income
decreased approximately $87,000 during the quarter ended March 31, 1999, as
compared to the quarter ended March 31, 1998, as a result of the fact that in
1998, three tenants, Long John Silver's, Inc., Finest Foodservice, L.L.C., and
Boston Chicken, Inc., filed for bankruptcy and rejected the leases relating to
four of the seven Properties leased by these tenants. As a result, these tenants
ceased making rental payments on the four rejected leases. The Partnership has
continued receiving rental payments relating to the leases not rejected by the
tenants. In March 1999, the Partnership entered into a new lease with a new
tenant for one of the vacant Properties for which
<PAGE>
Results of Operations - Continued
rental payments commenced in April 1999. The general partners are currently
seeking either new tenants or purchasers for the three remaining rejected and
vacant Properties. The Partnership will not recognize any rental and earned
income from these vacant Properties until new tenants for these Properties are
located or until the Properties are sold and the proceeds from such sales are
reinvested in additional Properties. While the tenants have not rejected or
affirmed the remaining three 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 three rejected and vacant Properties and the possible rejection of the
three remaining leases could have an adverse effect on the results of operations
of the Partnership if the Partnership is not able to re-lease the Properties in
a timely manner.
In addition, rental and earned income decreased during the quarter
ended March 31, 1999 by approximately $38,900, partially as a result of the fact
that in July 1998, the tenant of the Shoney's Property in Las Vegas, Nevada
vacated the Property and ceased making rental payments on this Property. The
Partnership established an allowance for doubtful accounts during the quarter
ended March 31, 1999 of approximately $20,700 for rental and earned income
amounts due from this tenant due to the fact that collection of such amounts is
questionable. The general partners are pursuing collection of past due amounts
from the former tenant, and will recognize such amounts as income if collected.
In February 1999, the Partnership entered into a new lease with a new tenant for
this Property for which rental payments are expected to commence during the
second quarter of 1999.
During the quarters ended March 31, 1999 and 1998, the Partnership
owned and leased two Properties with affiliates of the general partners as
tenants-in-common and during the quarter ended March 31, 1999, the Partnership
owned and leased one additional Property indirectly through a joint venture
arrangement. In connection therewith, during the quarters ended March 31, 1999
and 1998, the Partnership earned $37,806 and $31,434, respectively, attributable
to net income earned by these joint ventures. The increase in net income earned
by joint ventures was primarily attributable to the fact that in August 1998,
the Partnership invested in Columbus Joint Venture with affiliates of the
general partners.
Operating expenses, including depreciation and amortization expense,
were $284,277 and $212,642 for the quarters ended March 31, 1999 and 1998,
respectively. The increase in operating expenses during the quarter ended March
31, 1999, as compared to March 31, 1998, is partially due to the fact that the
Partnership incurred $33,158 in transaction costs relating to the general
partners retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed Merger with APF, as described above in "Liquidity and
Capital Resources." If the limited partners reject the Merger, the Partnership
will bear the portion of the transaction costs based upon the percentage of
"For" votes and the general partners will bear the portion of such transaction
costs based upon the percentage of "Against" votes and abstentions.
<PAGE>
Results of Operations - Continued
In addition, the increase in operating expenses during the quarter
ended March 31, 1999, is partially due to the fact that the Partnership incurred
certain expenses, such as real estate taxes, insurance, and maintenance relating
to a Shoney's Property, two Boston Market Properties and two Long John Silver's
Properties which became vacant during the second and third quarters of 1998, due
to financial difficulties or bankruptcies, as described above. In February and
March 1999, the Partnership entered into new leases with new tenants, for the
Shoney's Property in Las Vegas, Nevada and a Long John Silver's Property in
Celina, Ohio, respectively. The new tenants are responsible for real estate
taxes, insurance, and maintenance relating to the respective Properties;
therefore, the general partners do not anticipate that the Partnership will
incur these expenses for these two Properties in the future. However, the
Partnership will continue to incur certain expenses, such as real estate taxes,
insurance, and maintenance related to the three remaining vacant Properties
until new tenants for these Properties are located or until the Properties are
sold. The Partnership is currently seeking new tenants or buyers for these
Properties. In addition, the Partnership will incur certain expenses such as
real estate taxes, insurance, and maintenance relating to one or more of the
three Properties still leased by Long John Silver's, Inc., Finest Foodservice,
L.L.C., and Boston Chicken, Inc., if one or more of the leases are rejected.
Year 2000 Readiness Disclosure
The Year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. The Partnership does not have any
information or non-information technology systems. The general partners and
affiliates of the general partners provide all services requiring the use of
information and non-information technology systems pursuant to a management
agreement with the Partnership. The information technology system of the
affiliates of the general partners consists of a network of personal computers
and servers built using hardware and software from mainstream suppliers. The
non-information technology systems of the affiliates of the general partners are
primarily facility related and include building security systems, elevators,
fire suppressions, HVAC, electrical systems and other utilities. The affiliates
of the general partners have no internally generated programmed software coding
to correct, because substantially all of the software utilized by the general
partners and affiliates is purchased or licensed from external providers. The
maintenance of non-information technology systems at the Partnership's
Properties is the responsibility of the tenants of the Properties in accordance
with the terms of the Partnership's leases.
In early 1998, the general partners and affiliates formed a Year 2000
committee (the "Y2K Team") for the purpose of identifying, understanding and
addressing the various issues associated with the Year 2000 problem. The Y2K
Team consists of the general partners and members from the affiliates of the
general partners, including representatives from senior management, information
systems, telecommunications, legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have
<PAGE>
Year 2000 Readiness Disclosure - Continued
potential Year 2000 problems. The Y2K Team is in the process of conducting
inspections, interviews and tests to identify which of the Partnership's systems
could have a potential Year 2000 problem.
The information system of the affiliates of the general partners is
comprised of hardware and software applications from mainstream suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and manufacturers to verify the Year 2000 compliance of their products. In
addition, the Y2K Team has also requested and is evaluating documentation from
other companies with which the Partnership has a material third party
relationship, including the Partnership's tenants, vendors, financial
institutions and the Partnership's transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. The Y2K Team has also requested and is evaluating documentation
from the non-information technology systems providers of the affiliates of the
general partners. Although the general partners continue to receive positive
responses from the Companies with which the Partnership has third party
relationships regarding their Year 2000 compliance, the general partners cannot
be assured that the tenants, financial institutions, transfer agent, other
vendors and system providers have adequately considered the impact of the Year
2000. The general partners are not able to measure the effect on the operations
of the Partnership of any third party's failure to adequately address the impact
of the Year 2000.
The general partners and their affiliates have identified and have
implemented upgrades for certain hardware equipment. In addition, the general
partners and their affiliates have identified certain software applications
which will require upgrades to become Year 2000 compliant. The general partners
expect all of these upgrades, as well as any other necessary remedial measures
on the information technology systems used in the business activities and
operations of the Partnership, to be completed by September 30, 1999, although,
the general partners cannot be assured that the upgrade solutions provided by
the vendors have addressed all possible Year 2000 issues. The general partners
do not expect the aggregate cost of the Year 2000 remedial measures to be
material to the results of operations of the Partnership.
The general partners and affiliates have received certification from
the Partnership's transfer agent of its Year 2000 compliance. Due to the
material relationship of the Partnership with its transfer agent, the Y2K Team
is evaluating the Year 2000 compliance of the systems of the transfer agent and
expects to have the evaluation completed by September 30, 1999. Despite the
positive response from the transfer agent and the evaluation of the transfer
agent's system by the Y2K Team, the general partners cannot be assured that the
transfer agent has addressed all possible Year 2000 issues. In the event that
the systems of the transfer agent are not Year 2000 compliant, the general
partners and their affiliates would have to allocate resources to internally
perform the functions of the transfer agent. The general partners do not
anticipate that the additional cost of these resources would have a material
impact on the Partnership.
<PAGE>
Year 2000 Readiness Disclosure - Continued
Based upon the progress the general partners and affiliates have made
in addressing the Year 2000 issues and their plan and timeline to complete the
compliance program, the general partners do not foresee significant risks
associated with Year 2000 compliance at this time. The general partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership being affected by them; therefore, they have not developed a
comprehensive contingency plan. However, if the general partners and their
affiliates identify significant risks related to their Year 2000 compliance, or
if their progress deviates from the anticipated timeline, the general partners
and their affiliates will develop contingency plans as deemed necessary at that
time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 5, 1999, four limited partners in several of the CNL
Income Funds filed a lawsuit, Jon Hale, Mary J. Hewitt,
Charles A. Hewitt, and Gretchen M. Hewitt v. James M. Seneff,
Jr., Robert A. Bourne, CNL Realty Corporation, and CNL
American Properties Fund, Inc., Case No. CIO-99-0003561, in
the Circuit Court of the Ninth Judicial Circuit of Orange
County, Florida, alleging that the Messrs. Seneff and Bourne
and CNL Realty Corporation, as general partners of the CNL
Income Funds, breached their fiduciary duties and violated the
provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed acquisition of the
CNL Income Funds by APF. The plaintiffs are seeking
unspecified damages and equitable relief. The general partners
and APF believe that the lawsuit is without merit and intend
to defend vigorously against such claims. Because the lawsuit
was so recently filed, it is premature to further comment on
the lawsuit at this time.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger by and between the
Registrant and CNL American Properties Fund,
Inc. ("APF") dated March 11, 1999 (filed as
Appendix B to the Prospectus Supplement for the
Registrant, constituting a part of the
Registration Statement of APF on Form S-4, File
No. 74329.)
3.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund XVI, Ltd. (Included as
Exhibit 3.2 to Registration Statement No.
33-69968-01 on Form S-11 and incorporated herein
by reference.)
4.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund XVI, Ltd. (Included as
Exhibit 3.2 to Registration Statement No.
33-69968-01 on Form S-11 and incorporated herein
by reference.)
<PAGE>
4.2 Amended and Restated Agreement of Limited
Partnership of CNL Income Fund XVI, Ltd.
(Included as Exhibit 4.2 to Form 10-K filed with
the Securities and Exchange Commission on March
30, 1995, and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund
XVI, Ltd. and CNL Investment Company (Included
as Exhibit 10.1 to Form 10-K filed with the
Securities and Exchange Commission on March 30,
1995, 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.)
(b) Reports on Form 8-K
Current Report on Form 8-K dated March 11, 1999 and
filed March 12, 1999, describing the proposed Merger
of the Partnership with and into a subsidiary of CNL
American Properties Fund, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 14th day of May, 1999.
CNL INCOME FUND XVI, 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 XVI, Ltd. at March 31, 1999, and its statement of
income for the three months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund XVI, Ltd. for the three months
ended March 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,405,552
<SECURITIES> 0
<RECEIVABLES> 143,680
<ALLOWANCES> 111,931
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 32,938,195
<DEPRECIATION> 2,085,596
<TOTAL-ASSETS> 40,033,471
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 38,997,320
<TOTAL-LIABILITY-AND-EQUITY> 40,033,471
<SALES> 0
<TOTAL-REVENUES> 951,867
<CGS> 0
<TOTAL-COSTS> 284,277
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 705,396
<INCOME-TAX> 0
<INCOME-CONTINUING> 705,396
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 705,396
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund XVI, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
