UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
Amendment No. 2
(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 0-26218
CNL INCOME FUND XVI, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3198891
(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 XVI, 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 XVI, 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 September 2, 1994, the
Partnership offered for sale up to $45,000,000 of limited partnership interests
(the "Units") (4,500,000 Units at $10 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
February 23, 1994. The offering terminated on June 12, 1995, at which date the
maximum offering proceeds of $45,000,000 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
$39,600,000 and were used to acquire 43 Properties, including seven Properties
consisting of land only. During the year ended December 31, 1996, the
Partnership sold a Property in Appleton, Wisconsin, and used the net sales
proceeds to acquire a Boston Market Property located in Fayetteville, North
Carolina, with an affiliate of the General Partners as tenants-in-common. In
addition, during the year ended December 31, 1997, the Partnership sold a
Property in Oviedo, Florida. As a result of the above transactions, as of
December 31, 1997, the Partnership owned 42 Properties. The 42 Properties
include six Properties consisting of land only and one Property owned with an
affiliate as tenants-in-common. The lessee of the six Properties consisting of
only land owns the buildings currently on the land and has the right, if not in
default under the lease, to remove the buildings from the land at the end of the
lease terms. In January 1998, the Partnership reinvested the net sales proceeds
from the sale of the Property in Oviedo, Florida in a Property in Memphis,
Tennessee, as tenants-in-common, with affiliates of the General Partners. The
Partnership leases the Properties on a triple-net basis with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities.
1
<PAGE>
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. In general, the General Partners plan to seek the sale of some of
the Properties commencing seven to 12 years after their acquisition. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property purchase options
granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties provide for initial terms
ranging from 15 to 20 years (the average being 19 years) and expire between 2009
and 2016. 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 $21,600 to $220,600. 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 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.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership first must
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
In January 1998, the Partnership reinvested the net sales proceeds from
the sale of the Property in Oviedo, Florida in an IHOP Property in Memphis,
Tennessee, as tenants-in-common with
2
<PAGE>
affiliates of the General Partners. The lease terms for this Property are
substantially the same as the Partnership's other leases as described above in
the first three paragraphs of this section.
Major Tenants
During 1997, three lessees of the Partnership, Golden Corral
Corporation, Foodmaker, Inc., and DenAmerica Corp. each contributed more than
ten percent of the Partnership's total rental income. As of December 31, 1997,
Golden Corral Corporation was the lessee under leases relating to six
restaurants, Foodmaker, Inc. was the lessee under leases relating to five
restaurants, and DenAmerica Corp. was the lessee under leases relating to eight
restaurants. It is anticipated that based on the minimum rental payments
required by the leases, these three lessees each will continue to contribute
more than ten percent of the Partnership's total rental income in 1998 and
subsequent years. In addition, three Restaurant Chains, Golden Corral Family
Steakhouse Restaurants ("Golden Corral"), Jack in the Box and Denny's, each
accounted for more than ten percent of the Partnership's total rental income
during 1997. In subsequent years, it is anticipated that these three Restaurant
Chains each will continue to contribute more than ten percent of the
Partnership's 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. As of December 31, 1997, Golden
Corral Corporation and DenAmerica Corp. each leased Properties with an aggregate
carrying value in excess of 20 percent of the total assets of the Partnership.
Tenancy in Common Arrangements
In October 1996, the Partnership entered into an agreement to hold a
Boston Market Property as tenants-in-common with CNL Income Fund XVII, Ltd., an
affiliate of the General Partners. The agreement provides for the Partnership
and the affiliate to share in the profits and losses of the Property and net
cash flow from the Property, in proportion to each co- tenant's percentage
interest. The Partnership owns an 80.27% interest in this Property.
In addition, in January 1998, the Partnership entered into an agreement
to hold an IHOP Property in Memphis, Tennessee, as tenants-in-common, with CNL
Income Fund II, Ltd. and CNL Income Fund VI, Ltd., affiliates of the General
Partners. The agreement provides for the Partnership and the affiliates to share
in the profits and losses of the Property and net cash flow from the Property,
in proportion to each co- tenant's percentage interest. The Partnership owns a
40.42% interest in this Property.
Each of the affiliates listed above is a limited partnership organized
pursuant to the laws of the State of Florida. The tenancy in common agreement
restricts each co-tenant's ability to sell, transfer, or assign its interest in
the tenancy in common's
3
<PAGE>
Property without first offering it for sale to the remaining co-tenant.
The use of 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
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
4
<PAGE>
affiliates, who may also perform certain services for the
Partnership.
Item 2. Properties
As of December 31, 1997, the Partnership owned 42 Properties. Of the 42
Properties, 41 are owned by the Partnership in fee simple and one 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 16,600
to 104,800 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.
5
<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
Arizona 1
California 2
Colorado 1
Washington D.C. 1
Florida 5
Georgia 1
Idaho 1
Indiana 1
Kansas 1
Minnesota 2
Missouri 4
North Carolina 3
New Mexico 3
Nevada 1
Ohio 3
Tennessee 2
Texas 9
Utah 1
------
TOTAL PROPERTIES: 42
======
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 seven Checkers Properties are owned by the tenant while
the land parcels are owned by the Partnership. The buildings generally are
6
<PAGE>
rectangular and are constructed from various combinations of stucco, steel,
wood, brick and tile. The sizes of the buildings owned by the Partnership range
from approximately 2,000 to 11,100 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
through tenancy in common arrangements for federal income tax purposes was
$38,151,418 and $775,000, respectively.
7
<PAGE>
The following table lists the Properties owned by the Partnership as of
December 31, 1997 by Restaurant Chain.
Restaurant Chain Number of Properties
Arby's 1
Boston Market 5
Checkers 6
Denny's 9
Golden Corral 6
IHOP 1
Jack in the Box 5
KFC 1
Long John Silver's 6
Shoney's 1
Wendy's 1
------
TOTAL PROPERTIES 42
======
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
leased. The following is a schedule of the average annual rent for each of the
years ended December 31:
<TABLE>
<CAPTION>
For the Year Ended December 31:
1997 1996 1995 1994 1993 (2)
------------- ----------- ----------- ---------- ----------
<S> <C>
Rental Revenues (1) $4,392,092 $4,357,033 $2,698,956 $130,720 -
Properties 42 43 41 22 -
Average Rent per Unit $104,574 $101,326 $65,828 $5,942 -
</TABLE>
(1) Rental revenues include the Partnership's share of rental revenues from
the 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) through December 31, 1993.
9
<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>
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
<S> <C>
1998 - - -
1999 - - -
2000 - - -
2001 - - -
2002 - - -
2003 - - -
2004 - - -
2005 - - -
2006 - - -
2007 - - -
Thereafter 42 4,345,910 100.00%
------- --------------- -------------
Totals 42 4,345,910 100.00%
======= =============== =============
</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.
Golden Corral Corporation leases six 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 $158,300 (ranging from
approximately $113,300 to $192,900).
Foodmaker, Inc. leases five Jack in the Box restaurants. The
initial term of each lease is 18 years (expiring between 2011 and
10
<PAGE>
2012) and the average minimum base annual rent is approximately $96,700 (ranging
from approximately $87,500 to $115,600).
DenAmerica Corp. leases eight Denny's restaurants. The initial term of
each lease is 20 years (expiring in 2015) and the average minimum base annual
rent is approximately $114,700 (ranging from approximately $64,800 to $220,600).
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.
11
<PAGE>
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 42 Properties, either directly or indirectly
through a tenancy in common arrangement.
Capital Resources
On September 2, 1994, the Partnership commenced an offering to the public
of up to 4,500,000 Units of limited partnership interest. The Partnership's
offering of Units terminated on June 12, 1995, at which time the maximum
proceeds of $45,000,000 (4,500,000 Units) had been received from investors. The
Partnership, therefore, will derive no additional capital resources from the
offering.
12
<PAGE>
Net proceeds to the Partnership from its offering of Units, after
deduction of organizational and offering expenses, totalled $39,600,000. As of
December 31, 1994, approximately $16,300,000 had been used to invest in 22
Properties (seven of which were undeveloped land on which restaurants were being
constructed as of December 31, 1994) and to pay acquisition fees and certain
acquisition expenses. During the year ended December 31, 1995, the Partnership
completed construction of the seven Properties acquired in 1994, and acquired 19
additional Properties at a cost of approximately $20,900,000 including
acquisition fees and miscellaneous acquisition expenses. As a result of the
above transactions, as of December 31, 1995, the Partnership had acquired 41
Properties and had paid acquisition fees totalling $2,475,000 to an affiliate of
the General Partners. During the year ended December 31, 1996, the Partnership
used its remaining net offering proceeds to acquire two additional Properties
(one of which was undeveloped land on which a restaurant was constructed), and
to establish a working capital reserve of approximately $60,000 for Partnership
purposes.
As a result of the Partnership's tenant selling its restaurant business
located on the Partnership's Property in Appleton, Wisconsin, in April 1996, the
Partnership sold its Property for $775,000, resulting in a gain for financial
reporting purposes of $124,305. This Property was originally acquired by the
Partnership in February 1995 and had a cost of approximately $595,100, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the Property for approximately $179,900 in excess of its
original purchase price. In October 1996, the Partnership reinvested the net
sales proceeds in a Boston Market Property in Fayetteville, North Carolina, as
tenants-in-common with an affiliate of the General Partners. In connection
therewith, the Partnership and its affiliate entered into an agreement whereby
each co-venturer will share in the profits and losses of the Property in
proportion to each co-venturer's interest. The Partnership owns an 80.27%
interest in the Property. The sale of the Property in Appleton, Wisconsin, was
structured to qualify as a like-kind exchange transaction in accordance with
Section 1031 of the Internal Revenue Code. As a result, no gain was recognized
for federal income tax purposes. Therefore, the Partnership was not required to
distribute any of the net sales proceeds from the sale of this Property to
Limited Partners for the purpose of paying federal and state income taxes.
In March 1997, the Partnership sold its Property in Oviedo, Florida, for
$620,000 and received net sales proceeds of $610,384, resulting in a gain of
$41,148 for financial reporting purposes. This Property was originally acquired
by the Partnership in November 1994 and had a cost of approximately $509,700,
excluding acquisition fees and miscellaneous acquisition expenses; therefore,
the Partnership sold the Property for approximately $100,700 in excess of its
original purchase price. In January 1998, the Partnership reinvested the net
sales proceeds in an IHOP Property in Memphis, Tennessee, as tenants-in-common
with affiliates of the General Partners. In connection therewith, the
Partnership and its affiliates entered
13
<PAGE>
into an agreement whereby each co-venturer will share in the profits and losses
of the Property in proportion to each co-venturer's interest. The Partnership
owns a 40.42% interest in the Property.
Currently, the Partnership's primary source of capital is cash from
operations (which includes cash received from tenants, distributions from the
joint venture and interest received, less cash paid for expenses). Cash from
operations was $3,780,424, $3,753,726 and $2,481,395 for the years ended
December 31, 1997, 1996 and 1995, respectively. The increase in cash from
operations during 1997 and 1996, each as compared to the previous year, is
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital.
None of the Properties owned by the Partnership or through the tenancy in
common arrangement 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. In addition, the
Partnership will not borrow unless it first obtains an opinion of counsel that
such borrowing will not constitute acquisition indebtedness. Affiliates of the
General Partners from time to time incur certain operating expenses on behalf of
the Partnership for which the Partnership reimburses the affiliates without
interest.
Currently, cash reserves , rental income from the Partnership's Properties
and net sales proceeds from the sale of Properties, pending reinvestment in
additional Properties, are invested in money market accounts or other
short-term, highly liquid investments such as demand deposit accounts at
commercial banks, CDs and money market accounts with less than a 30-day maturity
date, pending the Partnership's use of such funds to pay Partnership expenses or
to make distributions to partners. At December 31, 1997, the Partnership had
$1,673,869 invested in such short-term investments as compared to $1,546,203 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 $3,600,000, $3,543,751 and $2,437,832
for the years ended December 31, 1997, 1996 and 1995, respectively. This
represents distributions of $0.80, $0.79 and $0.61 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 to the Limited Partners for the years
ended December 31, 1997, 1996 and 1995, are required to be or have been treated
by the Partnership as a return of capital for purposes of calculating the
Limited Partners' return on their adjusted capital contributions. The
Partnership intends to continue to make distributions of cash available for
distribution to Limited Partners on a quarterly basis.
During 1995, affiliates of the General Partners incurred on behalf of
the Partnership $258,466 for certain organizational and offering expenses. In
addition, during 1996 and 1995, the
15
<PAGE>
affiliates incurred on behalf of the Partnership $9,356 and $97,589,
respectively, for certain acquisition expenses during the years ended December
31, 1997, 1996 and 1995, the affiliates incurred and $84,319, $105,144 and
$131,272, respectively, for certain operating expenses. As of December 31, 1997
and 1996, the Partnership owed $3,351 and $2,292, 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
$1,030,043 at December 31, 1997, from $1,108,751 at December 31, 1996, primarily
as a result of the payment during the year ended December 31, 1997, of
construction costs accrued for certain Properties at December 31, 1996. Other
liabilities also decreased due to a decrease in rents paid in advance at
December 31, 1997.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
The Partnership owned and leased 41 wholly owned Properties during 1995,
43 wholly owned Properties (including one Property in Appleton, Wisconsin, which
was sold in April 1996) during 1996, and 42 wholly owned Properties (including
one Property in Oviedo, Florida, which was sold in March 1997) during 1997. In
addition, during 1997 and 1996, the Partnership owned and leased one Property
with an affiliate, as tenants-in-common. As of December 31, 1997, the
Partnership owned, either directly or through a joint venture arrangement, 42
Properties which are subject to long-term, triple-net leases that provide for
minimum base annual rental amounts (payable in monthly installments) ranging
from approximately $21,600 to $220,600. 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 lease year), the annual base rent required under the terms of the lease
will increase. For a 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 $4,266,069, $4,297,558 and $2,698,956, respectively, in rental income
from operating leases and earned income from direct financing leases from
Properties wholly owned by the Partnership. The decrease in rental and earned
income during 1997, as compared to 1996, is primarily attributable to the sale
of the Property in Oviedo, Florida in March 1997 and the sale of the Property in
Appleton Wisconsin in April 1996. The decrease during 1997 as compared to 1996
is partially offset by the acquisition of two additional Properties in 1996 that
were operational for a full year in 1997, as compared to a partial year in 1996.
The increase in rental and earned income during 1996, as compared to 1995, is
primarily attributable to the
16
<PAGE>
acquisition of additional Properties in 1995, and the fact that, with the
exception of one Property sold in April 1996, 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 and 1996, the Partnership earned
$35,604 and $37,600 in contingent rental income as a result of the gross sales
of three restaurant Properties meeting the threshold during 1997 and 1996, under
the terms of their leases requiring payment of contingent rental income.
In addition, for the years ended December 31, 1997 and 1996, the
Partnership earned $73,507 and $19,668 attributable to net income earned by a
joint venture as a result of the Partnership reinvesting the net sales proceeds
it received from the sale of the Property in Appleton, Wisconsin, in a Property
in Fayetteville, North Carolina, in October 1996, with an affiliate, as
tenants-in-common. The increase in net income earned by this joint venture
during 1997, as compared to 1996, is primarily attributable to the fact that the
Property was operational for a full year in 1997, as compared to a partial year
in 1996.
During at least one of the years ended December 31, 1997, 1996 and 1995,
four lessees of the Partnership, Golden Corral Corporation, Foodmaker, Inc.,
Checkers Drive-In Restaurants, Inc. and DenAmerica Corp. each contributed more
than ten percent of the Partnership's total rental income (including the
Partnership's share of rental income from the Property owned with an affiliate
as tenants-in-common). As of December 31, 1997, Golden Corral Corporation was
the lessee under leases relating to six restaurants, Foodmaker, Inc. was the
lessee under leases relating to five restaurants, Checkers Drive-In Restaurants,
Inc. was the lessee under leases relating to seven restaurants, and DenAmerica
Corp. was the lessee under leases relating to eight restaurants. It is
anticipated that, based on the minimum rental payments required by the leases,
Golden Corral Corporation, Foodmaker, Inc. and DenAmerica Corp. 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, Golden
Corral, Jack in the Box, Checkers Drive-In Restaurants, Long John Silver's and
Denny's each accounted for more than ten percent of the Partnership's total
rental income (including the Partnership's share of rental income from the
Property owned with an affiliate as tenants-in-common). In subsequent years, it
is anticipated that Golden Corral, Jack in the Box and Denny's 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 $73,634, $75,160 and $321,137, respectively, in interest
income from investments in money market accounts or other short-term, highly
liquid investments. The
17
<PAGE>
decrease in interest income during 1996, as compared to 1995, is primarily
attributable to the decrease in the amount of funds invested in short-term
liquid investments as a result of the acquisition of additional Properties
during 1995 and the payment during 1996 of construction costs accrued for
certain Properties at December 31, 1995.
Operating expenses, including depreciation and amortization expense, were
$836,815, $814,325 and $592,800 for the years ended December 31, 1997, 1996 and
1995, respectively. The increase in operating expenses during 1997 and 1996,
each as compared to the previous year, is partially attributable to an increase
in depreciation expense as the result of the acquisition of additional
Properties during 1996 and 1995, and the fact that the Properties acquired
during 1996 and 1995 were operational for a full year in 1997 and 1996,
respectively, as compared to a partial year in 1996 and 1995, respectively.
Operating expenses also increased during 1997 and 1996, each as compared to the
previous year, as a result of the Partnership incurring additional taxes
relating to the filing of various state tax returns during 1997 and 1996.
As a result of the sale of the Property in Oviedo, Florida, as described
above in "Capital Resources," the Partnership recognized a gain of $41,148 for
financial reporting purposes, for the year ended December 31, 1997. As a result
of the sale of the Property in Appleton, Wisconsin, as described in "Capital
Resources," the Partnership recognized a gain for financial reporting purposes
of $124,305 for the year ended December 31, 1996. No Properties were sold during
1995.
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.
18
<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 XVI, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
---------------------------
JAMES M. SENEFF, JR.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C>
/s/ Robert A. Bourne President, Treasurer and Director July 29, 1999
- -------------------------- (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Oficer and Director July 29, 1999
- -------------------------- (Principal Executive Officer)
James M. Seneff, Jr.
</TABLE>
