Registration No. 33-78790
As filed with the Securities and Exchange Commission on July 26, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. SIX
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
CNL AMERICAN PROPERTIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
400 East South Street, Suite 500
Orlando, Florida 32801
Telephone: (407) 422-1574
(Address of principal executive offices)
COPIES TO:
Thomas H. McCormick, ESQUIRE
EDMUND D. GRAFF, ESQUIRE
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
CNL American Porperties Fund, Inc.
Supplement No. 6, dated July 26, 1996
to the Prospectus, dated April 26, 1996
This Supplement is part of, and should be read in conjunction with, the
Prospectus dated April 26, 1996. This Supplement replaces all prior Supplements
to the Prospectus. Capitalized terms used in this Supplement have the same
meaning as in the Prospectus unless otherwise stated herein.
Information as to proposed properties for which the Company has received
initial commitments and as to the number and types of Properties acquired by the
Company is presented as of July 16, 1996, and all references to commitments or
Property acquisitions should be read in that context. Proposed properties for
which the Company receives initial commitments, as well as property acquisitions
that occur after July 16, 1996, will be reported in a subsequent Supplement.
THE OFFERING
As of July 16, 1996, the Company had received aggregate subscription
proceeds of $80,598,079 (8,059,808 Shares) from 4,663 stockholders, including
$243,167 (24,317 Shares) issued pursuant to the Reinvestment Plan. As of July
16, 1996, the Company had invested or committed for investment approximately
$66,000,000 of such proceeds in 72 Properties (including one Property through a
joint venture arrangement which consists of land and building, five Properties
which consist of building only, 33 Properties which consist of land only and 33
Properties which consist of land and building), in providing mortgage financing
to the tenants of the 33 Properties consisting of land only and to pay
Acquisition Fees and Acquisition Expenses, leaving approximately $4,200,000 in
offering proceeds available for investment in Properties and Mortgage Loans. As
of July 16, 1996, the Company had incurred $3,626,914 in Acquisition Fees to the
Advisor.
BUSINESS
PROPERTY ACQUISITIONS
Between April 10, 1996 and July 16, 1996, the Company acquired 24
Properties, including two Properties consisting of building only, 12 Properties
consisting of land and building and ten Properties consisting of land only. The
Properties are one TGI Friday's Property (in Hamden, Connecticut), three Wendy's
Properties (one in each of Knoxville and Sevierville, Tennessee, and Camarillo,
California), one Golden Corral Property (in Port Richey, Florida), two Denny's
Properties (one in each of Hillsboro and McKinney, Texas), four Boston Market
Properties (one in each of Ellisville, Missouri; Golden Valley, Minnesota;
Corvallis, Oregon; and Rockwall, Texas), two Jack in the Box Properties (in
Humble and Houston, Texas), one Arby's (in Kendallville, Indiana) and ten Pizza
Hut Properties (one in each of Beaver, Bluefield, Huntington, Hurricane, Milton,
Ronceverte, Beckley, Belle and Cross Lanes, West Virginia, and Marietta, Ohio)
(hereinafter referred to as the "Ten Pizza Hut Properties"). For information
regarding the 48 Properties acquired by the Company prior to April 10, 1996, see
the Prospectus dated April 26, 1996.
The Denny's Property in McKinney, Texas, was acquired from an Affiliate of
the Company. The Affiliate had purchased and temporarily held title to the
Property in order to facilitate the acquisition of the Property by the Company.
The Property was acquired by the Company for a purchase price of $977,256 from
an Affiliate of the Company. The Property was acquired at a cost equal to the
cost of the Property to the Affiliate (including carrying costs) due to the fact
that these amounts were less than the Property's appraised value.
In connection with the purchase of the TGI Friday's and the Wendy's
Properties in Hamden, Connecticut, and Sevierville, Tennessee, respectively,
which are building only, the Company, as lessor, entered into long-term lease
agreements with unaffiliated lessees. The general terms of the lease agreements
are described in the section of the Prospectus entitled "Business - Description
of Property Leases." In connection with the purchase of these Properties, which
a r e to be constructed, the Company has entered into development and
indemnification and put agreements with the lessees. The general terms of these
agreements are described in the section of the Prospectus entitled "Business -
Site Selection and Acquisition of Properties - Construction and Renovation." In
connection with these acquisitions, the Company has also entered into tri-party
agreements with the lessees and the owners of the land. The tri-party
agreements provide that the ground lessees are responsible for all obligations
under the ground leases and provide certain rights to the Company relating to
the maintenance of its interests in the buildings in the event of a default by
the lessees under the terms of the ground leases.
In connection with the purchase of the Wendy's Properties in Knoxville,
Tennessee, and Camarillo, California, the Golden Corral Property, the Denny's
Properties, the Boston Market Properties, the Jack in the Box Properties and the
Arby's Property, which are land and building, the Company, as lessor entered
into long-term lease agreements with unaffiliated lessees. The general terms of
the lease agreements are described in the section of the Prospectus entitled
"Business - Description of Property Leases." For the Properties that are to be
constructed, the Company has entered into development and indemnification and
put agreements with the lessees. The general terms of these agreements are
described in the section of the Prospectus entitled "Business - Site Selection
and Acquisition of Properties - Construction and Renovation."
In connection with the Ten Pizza Hut Properties, which are land only, the
Company acquired the land and is leasing these ten parcels to the lessee, Castle
Hill Holdings VI, L.L.C. ("Castle Hill"), pursuant to a master lease agreement
(the "Master Lease Agreement"). Castle Hill has subleased the Ten Pizza Hut
Properties to one of its affiliates, Midland Food Services L.L.C., which is the
operator of the restaurants. The general terms of the Master Lease Agreement
are similar to those described in the section of the Prospectus entitled
"Business - Description of Property Leases." If the lessee does not exercise
its option to purchase the Properties upon termination of the Master Lease
Agreement, the sublessee and lessee will surrender possession of the Properties
to the Company, together with any improvements on such Properties. The lessee
owns the buildings located on the Ten Pizza Hut Properties. In connection with
the acquisition of the Ten Pizza Hut Properties, the Company provided mortgage
financing of $3,888,000 to the lessee pursuant to a Mortgage Loan evidenced by a
master mortgage note (the "Master Mortgage Note") which is collateralized by the
building improvements on the Ten Pizza Hut Properties. The Master Mortgage Note
bears interest at a rate of 10.75% per annum and principal and interest are due
in equal monthly installments over 20 years starting July 1, 1996. The Master
Mortgage Note equals approximately 85 percent of the appraised value of the
related buildings. Management believes that, due to the fact that the Company
owns the underlying land relating to the Ten Pizza Hut Properties and due to
other underwriting criteria, the Company has sufficient collateral for the
Master Mortgage Note.
As of July 16, 1996, the Company had initial commitments to acquire 14
properties, including two properties which consist of building only and 12
properties which consist of land and building. The acquisition of each of these
properties is subject to the fulfillment of certain conditions, including, but
not limited to, a satisfactory environmental survey and property appraisal.
There can be no assurance that any or all of the conditions will be satisfied
or, if satisfied, that one or more of these properties will be acquired by the
Company. If acquired, the leases of all 14 of these properties are expected to
be entered into on substantially the same terms described in the Prospectus in
the section entitled "Business - Description of Property Leases," except as
described below.
In connection with the Golden Corral and the Wendy's properties in
Brooklyn, Ohio, and San Diego, California, respectively, the Company anticipates
owning only the buildings and not the underlying land. However, the Company
anticipates entering into tri-party agreements with the lessees and the
landlords of the land in order to provide the Company with certain rights with
respect to the land on which the buildings are located.
Set forth below are summarized terms expected to apply to the leases for
each of the properties. More detailed information relating to a property and
its related lease will be provided at such time, if any, as the property is
acquired.
<TABLE>
<CAPTION>
Lease Term and
Property Renewal Options Minimum Annual Rent Percentage Rent Option to Purchase
<S> <C> <C> <C> <C>
Golden Corral (2) 14 years; no renewal 14.214% of the for each lease year, upon the expiration
Brooklyn, OH options Company's total cost (i) 4% of annual of the lease (4)
Existing restaurant to purchase the gross sales minus
building; increases by (ii) the minimum
10% after the fifth annual rent for such
lease year and after lease year (3)
every five years
thereafter during the
lease term
Applebee's 20 years; two five-year 11% of Total Cost (1); for each lease year, at any time after
Montclair, CA renewal options increases by 10% after (i) 5% of annual the fifth lease
Restaurant to be the fifth lease year gross sales minus year (5)
constructed and after every five (ii) the minimum
years thereafter annual rent for such
during the lease term lease year
Boston Market 15 years; five five-year 10.38% of Total Cost for each lease year at any time after
Richmond, VA renewal options (1); increases by 10% after the fifth lease the fifth lease
Existing restaurant after the fifth lease year, (i) 5% of year
year and after every annual gross sales
five years thereafter minus (ii) the
during the lease term minimum annual rent
for such lease year
Ryan's Family Steak 20 years; two five-year 10.875% of Total Cost for each lease year, at any time after
House renewal options (1); increases by 12% (i) 5% of annual the tenth lease
Spring Hill, FL after the fifth lease gross sales minus year
Restaurant to be year and after every (ii) the minimum
constructed five years thereafter annual rent for such
during the lease term lease year
Boston Market 15 years; five five-year 10.38% of Total Cost for each lease year at any time after
Atlanta, GA renewal options (1); increases by 10% after the fifth lease the fifth lease
Restaurant to be after the fifth lease year, (i) 5% of year
constructed year and after every annual gross sales
five years thereafter minus (ii) the
during the lease term minimum annual rent
for such lease year
Boston Market 15 years; five five-year 10.38% of Total Cost for each lease year at any time after
Merced, CA renewal options (1); increases by 10% after the fifth lease the fifth lease
Restaurant to be after the fifth lease year (i) 5% of annual year
constructed year and after every gross sales minus
five years thereafter (ii) the minimum
during the lease term annual rent for such
lease year
Jack in the Box 18 years; four five-year 10.75% of Total Cost for each lease year, at any time after
Houston, TX (#2) renewal options (1); increases by 8% (i) 5% of annual the seventh lease
Restaurant to be after the fifth lease gross sales minus year
constructed year and by 10% after (ii) the minimum
every five years annual rent for such
thereafter during the lease year
lease term
Jack in the Box 18 years; four five-year 10.75% of Total Cost for each lease year, at any time after
Humble, TX (#2) renewal options (1); increases by 8% (i) 5% of annual the seventh lease
Restaurant to be after the fifth lease gross sales minus year
constructed year and by 10% after (ii) the minimum
every five years annual rent for such
thereafter during the lease year
lease term
Shoney's 20 years; two five-year 11.75% of Total Cost for each lease year, at any time after
Fort Myers, FL renewal options (1); increases by 10% (i) 6% of annual the seventh lease
Restaurant to be after the fifth lease gross sales minus year
constructed year and after every (ii) the minimum
five years thereafter annual rent for such
during the lease term lease year
Wendy's 20 years; two five-year 10.25% of Total Cost for each lease year, at any time after
Madisonville, TN renewal options (1); increases to (i) 6% of annual the seventh lease
Restaurant to be 10.76% of Total Cost gross sales minus year
constructed during the fourth (ii) the minimum
through sixth lease annual rent for such
years, 11.95% of Total lease year
Cost during the
seventh through tenth
lease years, 12.70% of
Total Cost during the
eleventh through
fifteenth lease years,
and 13.97% of Total
Cost during the
sixteenth through
twentieth lease years
Wendy's (2) 15 years; three five- 13.26% of Total Cost for each lease year, upon the expiration
San Diego, CA year renewal options (1); increases by 8% (i) 6% of annual of the initial term
Restaurant to be after the fifth lease gross sales times the of the lease and
constructed year and after every Building Overage during any renewal
five years thereafter Multiplier (6) minus period thereafter
during the lease term (ii) the minimum (4)
annual rent for such
lease year
Burger King 20 years; two five-year 11% of Total Cost (1) for each lease year, None
Chattanooga, TN renewal options (i) 8.5% of annual
Restaurant to be gross sales minus
constructed (ii) the minimum
annual rent for such
lease year
Burger King 20 years; two five-year 11% of Total Cost (1) for each lease year, None
Chicago, IL renewal options (i) 8.5% of annual
Restaurant to be gross sales minus
constructed (ii) the minimum
annual rent for such
lease year
Boston Market 15 years; five five-year 10.38% of Total Cost for each lease year at any time after
Upland, CA renewal options (1); increases by 10% after the fifth lease the fifth lease
Restaurant to be after the fifth lease year (i) 5% of annual year
constructed year and after every gross sales minus
five years thereafter (ii) the minimum
during the lease term annual rent for such
lease year
<FN>
FOOTNOTES:
(1) The "Total Cost" is equal to the sum of (i) the purchase price of the
property, (ii) closing costs, and (iii) actual development costs incurred
under the development agreement.
(2) The Company anticipates owning the building only for this property. The
C o mpany will not own the underlying land; although, the Company
anticipates entering into a tri-party agreement with the lessee and the
landlord of the land in order to provide the Company with certain rights
with respect to the land on which the building is located.
(3) Percentage rent shall be calculated on a calendar year basis (January 1 to
December 31).
(4) In the event that the aggregate amount of percentage rent paid by the
lessee to the Company over the term of the lease shall equal or exceed 15%
of the purchase price paid by the Company, then the option purchase price
shall equal one dollar. In the event that the aggregate percentage rent
paid shall be less than 15% of the purchase price paid by the Company,
then the option purchase price shall equal the difference of 15% of the
purchase price, less the aggregate percentage rent paid to the landlord by
the lessee under the lease.
(5) The lessee also has the option to purchase the property after the
seller/lessee operates at least five Applebee's restaurants owned by the
Company.
(6) The "Building Overage Multiplier" is calculated as follows:
B u ilding Overage Multiplier = (purchase price of the
building)/[purchase price of the building + (annual rent due under
the land lease/land lease cap rate)]
</TABLE>
The following table sets forth the location of the 24 Properties acquired
by the Company, including the Ten Pizza Hut Properties in which the Company
acquired the land only, 12 Properties in which the Company acquired the land and
building and the two Properties in which the Company acquired the building only,
from April 10, 1996 through July 16, 1996, a description of the competition, and
a summary of the principal terms of the acquisition and lease of each Property.
<TABLE>
PROPERTY ACQUISITIONS
From April 10, 1996 through July 16, 1996
<CAPTION>
Lease
Date Expira- Minimum Option
Property Location and Purchase Acquired tion and Annual Rent (2) Percentage To Purchase
Competition Price Renewal Rent
(1) Options
<S> <C> <C> <C> <C> <C> <C>
TGI FRIDAY'S (3) 04/24/96 09/2008; no 15.043% of Total Cost None at any time
(the "Hamden Property") (3) renewal (4); increases by 10% after the
Restaurant to be constructed options after the fifth lease third lease
year and after every year (5)
The Hamden Property is located five years thereafter
at the southeast quadrant of during the lease term
Skiff Street and Route 10 in
Hamden, New Haven County,
Connecticut, in an area of
mixed retail, commercial, and
residential development.
Other fast-food and family-
style restaurants located in
proximity to the Hamden
Property include a China
Buffet, a Chili's, a Red
Lobster, a McDonald's, a
Wendy's, and several local
restaurants.
WENDY'S (14) $322,292 05/08/96 05/2016; two 10.25% of Total Cost; for each at any
(the "Knoxville Property") (excluding five-year increases to 10.76% of lease year, time
Restaurant to be constructed closing renewal Total Cost during the (i) 6% of after the
and options fourth through sixth annual gross seventh
The Knoxville Property is development lease years, increases sales minus lease
located on the north side of costs) to 11.95% of Total (ii) the year
Western Avenue in Knoxville, (3) Cost during the minimum
Knox County, Tennessee, in an seventh through tenth annual rent
area of mixed retail, lease years, increases for such
commercial, and residential to 12.70% of Total lease year
development. Other fast-food Cost during the
and family-style restaurants eleventh through
located in proximity to the fifteenth lease years
Knoxville Property include a and increases to
KFC, a McDonald's, a Taco 13.97% of Total Cost
Bell, a Kenny Rogers Roasters, during the sixteenth
a Long John Silver's, a through twentieth
Krystal, a Hardee's, a lease years (4)
Shoney's, and several local
restaurants.
GOLDEN CORRAL $586,687 05/08/96 10/2011; two 11.25% of Total Cost for each during the
(the "Port Richey Property") (excluding five-year (4); increases by 8% lease year, eighth and
Restaurant to be constructed closing renewal after the fifth lease commencing ninth lease
and options year and after every in the years only
The Port Richey Property is development five years thereafter second lease (7)
located on the southeast costs) during the lease term year (i) 5%
quadrant of the intersection (3) of annual
of U.S. 19 and Stone Road, gross sales
Port Richey, Pasco County, minus (ii)
Florida, in an area of mixed the minimum
retail, commercial, and annual rent
residential development. for such
Other fast-food and family- lease year
style restaurants located in (6)
proximity to the Port Richey
Property include a Boston
Market, a Morrison's, a Burger
King, a Checkers, a Bob Evans,
a Wendy's, a KFC, a Chili's,
and several local restaurants.
TEN PIZZA HUT PROPERTIES - $1,512,000 05/17/96 05/2016; two $166,320; increases by None at any
Land only - (8)(10) located in ten-year 10% after the fifth time
Beaver, West Virginia (the (excluding renewal and tenth lease years after the
"Beaver Property"), Bluefield, closing options and 12% after the seventh
West Virginia (the "Bluefield costs) fifteenth lease year lease
Property"), Huntington, West (9) year
Virginia (the"Hunting- ton
Property"), Hurricane, West
Virginia (the "Hurricane
Property"), Milton, West
Virginia (the "Milton
Property"), Ronceverte, West
Virginia (the "Ronceverte
Property"), Beckley, West
Virginia (the "Beckley
Property"), Belle, West
Virginia (the "Belle
Property"), Cross Lanes, West
Virginia (the "Cross Lanes
Property") and Marietta, Ohio
(the "Marietta Property").
The Beaver Property is located
on the north side of U.S.
Route 19 in Beaver, Raleigh
County, West Virginia, in an
area of mixed retail,
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Beaver Property include a
McDonald's, a Hardee's, a
Wendy's, and a Long John
Silver's.
The Bluefield Property is
located on the north side of
Bluefield Avenue in Bluefield,
Mercer County, West Virginia,
in an area of mixed retail,
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Bluefield Property include a
McDonald's, a Hardee's, a
Captain D's, and a Shoney's.
(11)
The Huntington Property is
located on the south side of
Madison Avenue in Huntington,
Cabell County, West Virginia,
in an area of mixed retail,
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Huntington Property include an
Arby's, three Burger Kings, a
Chi Chi's, two Dairy Queens, a
Hardee's, a KFC, a Long John
Silver's, two McDonald's, a
Papa John's, a Rax, a Red
Lobster, a Steak & Ale, a Taco
Bell, and several local
restaurants.
The Hurricane Property is
located on the southwest side
of Hurricane Creek Road in
Hurricane, Putnam County, West
Virginia, in an area of mixed
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in
proximity to the Hurricane
Property include a McDonald's,
a Subway Sandwich Shop, and
several local restaurants.
(11)
The Milton Property is located
on the northeast corner of
East Main Street and Brickyard
Avenue in Milton, Cabell
County, West Virginia, in an
area of mixed retail,
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Milton Property include a
McDonald's, a Subway Sandwich
Shop, a Dairy Queen, and
several local restaurants.
The Ronceverte Property is
located on the north side of
Seneca Trail in Ronceverte,
Greenbrier County, West
Virginia, in an area of mixed
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in
proximity to the Ronceverte
Property include a KFC, a Long
John Silver's, a Subway
Sandwich Shop, and several
local restaurants.
The Beckley Property is
located on the north side of
Harper Road in Beckley,
Raleigh County, West Virginia,
in an area of mixed retail,
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Beckley Property include a
McDonald's, a Long John
Silver's, a Wendy's, a
Shoney's, a Bob Evans, a
Subway Sandwich Shop, a
Hardee's, and several local
restaurants.
The Belle Property is located
on the southwest side of
Dupont Avenue in Belle,
Kanawha County, West Virginia,
in an area of mixed retail,
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Belle Property include
several local restaurants.
The Cross Lanes Property is
located on the northwest side
of Goff Mountain Road in Cross
Lanes, Kanawha County, West
Virginia, in an area of mixed
retail, commercial, and
residential development.
Other fast-food and family-
style restaurants located in
proximity to the Cross Lanes
Property include a Hardee's, a
Papa John's, a Captain D's, a
McDonald's, a Taco Bell, a Bob
Evans, a Wendy's, a Shoney's a
KFC, and several local
restaurants.
The Marietta Property is
located on the east side of
Acme Street in Marietta,
Washington County, Ohio, in an
area of mixed retail,
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Marietta Property include a
Burger King, a Captain D's, a
Dairy Queen, an Elby's Big
Boy, a KFC, a Long John
Silver's, a McDonald's, a Papa
John's, a Subway Sandwich
Shop, a Taco Bell, a Wendy's,
and several local restaurants.
(11)
DENNY'S $367,672 06/05/96 06/2016; two 10.625% of Total Cost for each during
(the "Hillsboro Property") (excluding five-year (4); increases by 11% lease year, the
Restaurant to be constructed closing renewal after the fifth lease (i) 5% of eighth,
and options year and after every annual gross tenth,
The Hillsboro Property is development five years thereafter sales minus and
located on the south side of costs) during the lease term (ii) the twelfth
Highway 22 in Hillsboro, Hill (3) minimum lease
County, Texas, in an area of annual rent years
mixed retail, commercial, and for such only
residential development. lease year
Other fast-food and family-
style restaurants located in
proximity to the Hillsboro
Property include a McDonald's,
an Arby's, a Whataburger, a
KFC, a Golden Corral, and a
Grandy's.
DENNY'S $977,256 06/05/96 12/2015; two $104,013; increases by for each during the
(the "McKinney Property") (excluding five-year 11% after the fifth lease year, eighth,
Existing restaurant closing renewal lease year and after (i) 5% of tenth, and
costs) options every five years annual gross twelfth
The McKinney Property is thereafter during the sales minus lease years
located at the southwest lease term (ii) the only
quadrant of the intersection minimum
of White Avenue and U.S. 75 in annual rent
McKinney, Collin County, for such
Texas, in an area of mixed lease year
retail, commercial, and (6)
residential development.
Other fast-food and family-
style restaurants located in
proximity to the McKinney
Property include an
Applebee's, an Arby's, a
Boston Market, a Jack in the
Box, a Chili's, a Dairy Queen,
an IHOP, a Golden Corral, a
Pizza Hut, and several local
restaurants.
WENDY'S (14) $586,143 06/05/96 06/2016; two 10.25% of Total Cost; for each at any
(the "Camarillo Property") (excluding five-year increases to 10.76% of lease year, time
Restaurant to be constructed closing renewal Total Cost during the (i) 6% of after the
and options fourth through sixth annual gross seventh
The Camarillo Property is development lease years, increases sales minus lease
located at the southwest costs) to 11.95% of Total (ii) the year
quadrant of Las Posas Road and (3) Cost during the minimum
the Ventura Freeway in seventh through tenth annual rent
Camarillo, Ventura County, lease years, increases for such
California, in an area of to 12.70% of Total lease year
mixed retail, commercial, and Cost during the
residential development. eleventh through
Other fast-food and family- fifteenth lease years
style restaurants located in and increases to
proximity to the Camarillo 13.97% of Total Cost
Property include an during the sixteenth
Applebee's, a Del Taco, a through twentieth
McDonald's, and several local lease years (4)
restaurants.
WENDY'S (14) $66,153 06/05/96 05/2015; two 12.204% of Total Cost for each upon the
(the "Sevierville Property") (excluding (3) five-year (4); increases by 8% lease year, expiration
Restaurant to be constructed closing renewal after the fifth lease (i) 6% of of the
and options year and after every annual gross initial term
The Sevierville Property is development followed by five years thereafter sales times of the lease
located on the west side of costs) one fifteen- during the lease term the Building and during
Highway 441 in Sevierville, (3) year renewal Overage any renewal
Sevier County, Tennessee, in option Multiplier period
an area of mixed retail, (12) minus thereafter
commercial, and residential (ii) the (13)
development. Other fast-food minimum
and family-style restaurants annual rent
located in proximity to the for such
Sevierville Property include a lease year
Damon's Ribs, an IHOP, a Ruby
Tuesday's, and several local
restaurants.
BOSTON MARKET (15) $408,879 06/18/96 06/2011; 10.40% of Total Cost for each at any
(the "Ellisville Property") (excluding five five- (4); increases by 10% lease year time
Restaurant to be constructed closing year renewal after the fifth lease after the after the
and options year and after every fifth lease fifth
The Ellisville Property is development five years thereafter year, (i) 5% lease
located on the north side of costs) during the lease term of annual year
Manchester Road, in (3) gross sales
Ellisville, St. Louis County, minus (ii)
Missouri, in an area of mixed the minimum
retail, commercial, and annual rent
residential development. for such
Other fast-food and family- lease year
style restaurants located in
proximity to the Ellisville
Property include a KFC, a
Burger King, a Ponderosa, a
Taco Bell, a McDonald's, a
Long John Silver's, a Pizza
Hut, a Hardee's, a Steak and
Shake, a Red Lobster, and
several local restaurants.
BOSTON MARKET (15) $603,386 06/19/96 06/2011; 10.40% of Total Cost for each at any time
(the "Golden Valley Property") (excluding five five- (4); increases by 10% lease year after the
Restaurant to be constructed closing year renewal after the fifth lease after the fifth lease
and options year and after every fifth lease year
The Golden Valley Property is development five years thereafter year, (i) 5%
located on the north side of costs) during the lease term of annual
Highway 55 at Rhode Island (3) gross sales
Avenue in Golden Valley, minus (ii)
Hennepin County, Minnesota, in the minimum
an area of mixed retail, annual rent
commercial, and residential for such
development. Other fast-food lease year
and family-style restaurants
located in proximity to the
Golden Valley Property include
a McDonald's, a Perkins, and
several local restaurants.
JACK IN THE BOX (16) $396,646 06/19/96 06/2014; 10.75% of Total Cost for each at any
(the "Humble #1 Property") (excluding four five- (4); increases by 8% lease year, time
Restaurant to be constructed closing year renewal after the fifth lease (i) 5% of after the
and options year and by 10% after annual gross seventh
The Humble #1 Property is development every five years sales minus lease
located at the north side of costs) thereafter during the (ii) the year
FM 1960 East in Humble, Harris (3) lease term minimum
County, Texas, in an area of annual rent
mixed retail, commercial, and for such
residential development. lease year
Other fast-food and family- (6)
style restaurants located in
proximity to the Humble
Property include a KFC, a
McDonald's, a Taco Bell, a
Wendy's, and a Burger King.
BOSTON MARKET $350,358 07/09/96 07/2011; 10.38% of Total Cost for each at any
(the "Corvallis Property") (excluding five five- (4); increases by 10% lease year time
Restaurant to be constructed closing year renewal after the fifth lease after the after the
and options year and after every fifth lease fifth
development five years thereafter year, (i) 5% lease
The Corvallis Property is costs) during the lease term of annual year
located at the southeast (3) gross sales
quadrant of the intersection minus (ii)
of Highway 99 and Northeast the minimum
Circle Boulevard in Corvallis, annual rent
Benton County, Oregon, in an for such
area of mixed retail, lease year
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Corvallis Property include a
KFC, a Wendy's, a Subway
Sandwich Shop, a Sizzler, a
McDonald's, a Burger King, a
Taco Bell, and several local
restaurants.
JACK IN THE BOX (16) $343,160 07/09/96 07/2014; 10.75% of Total Cost for each at any
(the "Houston #1 Property") (excluding four five- (4); increases by 8% lease year, time
Restaurant to be constructed closing year renewal after the fifth lease (i) 5% of after the
and options year and by 10% after annual gross seventh
The Houston #1 Property is development every five years sales minus lease
located on the east side of costs) thereafter during the (ii) the year
Veterans Memorial Drive with (3) lease term minimum
an access easement on Beltway annual rent
8 in Houston, Harris County, for such
Texas, in an area of mixed lease year
retail, commercial, and (6)
residential development.
Other fast-food and family-
style restaurants located in
proximity to the Houston #1
Property include a
Whataburger, an Arby's, a KFC,
a Burger King, and several
local restaurants.
ARBY'S $739,628 07/10/96 07/2016; two $75,812; increases by for each during
(the "Kendallville Property") (excluding five-year 4.14% after the third lease year, the
Existing restaurant g closing renewal lease year and after (i) 4% of seventh
costs) options every three years annual gross and tenth
The Kendallville Property is thereafter during the sales minus lease
located on the north side of lease term (ii) the years
West North Street in minimum only
Kendallville, Noble County, annual rent
Indiana, in an area of mixed for such
retail, commercial and lease year
residential development.
Other fast-food and family-
style restaurants located in
proximity to the Kendallville
Property include a KFC, a
McDonald's, a Wendy's, a Pizza
Hut, a Subway Sandwich Shop,
and several local restaurants
BOSTON MARKET $499,820 07/15/96 07/2011; 10.38% of Total Cost for each at any
(the "Rockwall Property") (excluding five five- (4); increases by 10% lease year time
Restaurant to be constructed closing year renewal after the fifth lease after the after the
and options year and after every fifth lease fifth
The Rockwall Property is development five years thereafter year, (i) 4% lease
located on the northeast costs) during the lease term of annual year
corner of FM 740 and the to be (3) gross sales
constructed Steger Town Drive minus (ii)
in Rockwall, Rockwall County, the minimum
Texas, in an area of mixed annual rent
retail, commercial, and for such
residential development. lease year
Other fast-food and family-
style restaurants located in
proximity to the Rockwall
Property include an Arby's, a
Jack in the Box, a Dairy
Queen, a KFC, a McDonald's, a
Pizza Hut, a Sonic Drive-In, a
Whataburger, a Wendy's, a
Chili's, a Taco Bell, and
several local restaurants.
<FN>
FOOTNOTES:
(1) The estimated federal income tax basis of the depreciable portion (the
building portion) of each of the Properties acquired, and for construction
Properties, once the buildings are constructed, is set forth below:
Property Federal Tax Basis Property Federal Tax Basis
Hamden Property $1,195,000 Ellisville Property 635,000
Knoxville Property 510,000 Golden Valley Property 529,000
Port Richey Property 1,208,000 Humble #1 Property 610,000
Hillsboro Property 742,000 Corvallis Property 624,000
McKinney Property 627,000 Houston #1 Property 620,000
Camarillo Property 672,000 Kendallville Property 304,000
Sevierville Property 519,000 Rockwall Property 422,000
(2) Minimum annual rent for each of the Properties became payable on the
effective date of the lease, except as indicated below. For the Hamden
and Port Richey Properties, minimum annual rent will become due and
payable on the earlier of (i) the date the certificate of occupancy for
the restaurant is issued, (ii) the date the restaurant opens for business
to the public or (iii) 150 days after execution of the lease. For the
Knoxville, Camarillo and Sevierville Properties, minimum annual rent will
become due and payable on (i) the date the certificate of occupancy for
the restaurant is issued, (ii) the date the restaurant opens for business
to the public, (iii) 120 days after execution of the lease or (iv) the
date the tenant receives from the landlord its final funding of the
construction costs. For the Hillsboro Property, minimum annual rent will
become due and payable on the earlier of (i) the date the certificate of
occupancy for the restaurant is issued, (ii) the date the restaurant opens
for business to the public or (iii) 180 days after execution of the lease.
For the Corvallis, Ellisville, Golden Valley and Rockwall Properties,
minimum annual rent will become due and payable on the earlier of (i) 180
days after execution of the lease or (ii) the date the tenant receives
from the landlord its final funding of the construction costs. For the
Humble #1 and Houston #1 Properties, minimum annual rent will become due
and payable on the earlier of (i) the date the restaurant opens for
business to the public or (ii) 180 days after the execution of the lease.
During the period commencing with the effective date of the lease to the
date minimum annual rent becomes payable for the Knoxville, Camarillo and
Sevierville Properties, as described above, the tenant shall pay monthly
"interim rent" equal to 10.25% per annum of the amount funded by the
C o mpany in connection with the purchase and construction of the
Properties. During the period commencing with the effective date of the
lease to the date minimum rent becomes payable for the Corvallis and
Rockwall Properties, as described above, the tenant shall pay monthly
"interim rent" equal to 10.38% per annum of the amount funded by the
C o mpany in connection with the purchase and construction of the
Properties. During the period commencing with the effective date of the
lease to the date minimum rent becomes payable for the Ellisville and
Golden Valley Properties, as described above, the tenant shall pay monthly
"interim rent" equal to 10.40% per annum of the amount funded by the
C o mpany in connection with the purchase and construction of the
Properties. During the period commencing with the effective date of the
lease to the date minimum annual rent becomes payable for the Humble #1
and Houston #1 Properties, as described above, the tenant shall pay
monthly "interim rent" equal to 10.75% per annum of the amount funded by
the Company in connection with the purchase and construction of the
Properties.
(3) The Company accepted an assignment of an interest in the ground lease
relating to the Hamden and Sevierville Properties effective April 24, 1996
and June 5, 1996, respectively, in consideration of its funding of certain
preliminary development costs and its agreement to fund remaining
development costs not in excess of the amounts specified below. The
development agreements for the Properties which are to be constructed
provide that construction must be completed no later than the dates set
forth below. The maximum cost to the Company, (including the purchase
price of the land (if applicable), development costs (if applicable), and
closing and acquisition costs) is not expected to, but may, exceed the
amounts set forth below:
Property Estimated Maximum Cost Estimated Final Completion Date
Hamden Property $1,200,972 September 21, 1996
Knoxville Property 830,966 September 5, 1996
Port Richey Property 1,675,000 October 5, 1996
Hillsboro Property 1,119,248 December 2, 1996
Camarillo Property 1,264,789 October 3, 1996
Sevierville Property 517,571 October 3, 1996
Ellisville Property 1,026,746 December 15, 1996
Golden Valley Property 1,128,899 December 16, 1996
Humble #1 Property 949,413 December 16, 1996
Corvallis Property 952,684 January 5, 1997
Houston #1 Property 926,397 January 5, 1997
Rockwall Property 795,087 January 11, 1997
(4) The "Total Cost" is equal to the sum of (i) the purchase price of the
Property, (ii) closing costs, and (iii) actual development costs incurred
under the development agreement, and in the case of the Hamden, Port
Richey and Hillsboro Properties, (iv) "construction financing costs"
during the development period.
(5) If the lessee exercises its purchase option after the third lease year and
before the eleventh lease year, the purchase price to be paid by the
lessee shall be equal to the net present value of the monthly lease rental
payments for the remainder of the lease term (including previous and
scheduled rent increases) discounted at the lesser of (i) 11% per annum,
or (ii) the then-current annual yield on 7-year Treasury securities plus
4.5%, plus the full amount of any late fees, default interest, enforcement
costs or other sums otherwise due or payable by the lessee under the
lease. If the lessee exercises its option after the tenth lease year, the
purchase price to be paid by the lessee shall be equal to the net present
value of the monthly lease payments for the remainder of the lease term
(based, however, for purposes hereof on the initial monthly installment
amount of annual rental and not including previous and scheduled
increases) discounted at 11% per annum, plus the full amount of any late
fees, default interest, enforcement costs or other sums otherwise due or
payable by the lessee under the lease.
(6) Percentage rent shall be calculated on a calendar year basis (January 1 to
December 31).
(7) If the Property is not producing percentage rent and the lessee
determines, in good faith, that the restaurant has become uneconomic and
unsuitable the lessee may elect, during the first through seventh and
again during the tenth through 15th lease years:
(i) to purchase the Property for a purchase price, net of closing costs,
equal to the greater of (a) the then fair-market value of the Property as
determined by an independent appraisal, or (b) 100% of the Company's
o r iginal cost for the Property if the Company is successful in
effectuating the lessee's purchase through a tax-free ``like-kind''
exchange, or 120% of the Company's original cost for the Property if a
tax-free, ``like-kind'' exchange is not effectuated; or
(ii) to sublet the Property as described in the section of the Prospectus
entitled ``Description of Property Leases - Assignment and Sublease;'' or
(iii) to substitute the Property for another Golden Corral restaurant
property on terms similar to those described in the section of the
Prospectus entitled ``Description of Property Leases - Substitution of
Properties.''
(8) The lease relating to this Property is a land lease only. The Company
entered into a Mortgage Loan evidenced by a Master Mortgage Note for
$3,888,000 collateralized by building improvements. The Master Mortgage
Note bears interest at a rate of 10.75% per annum and principal and
interest will be collected in equal monthly installments over 20 years
beginning in July 1996.
(9) If the lessee exercises one or both of its renewal options, minimum annual
rent will increase by 12% after the expiration of the original lease term
and after five years thereafter during any subsequent lease term.
(10) The Company entered into a Master Lease Agreement for the Beaver,
Bluefield, Huntington, Hurricane, Milton, Ronceverte, Beckley, Belle,
Cross Lanes and Marietta Properties.
(11) The Company and the lessee entered into remediation and indemnity
agreements on May 17, 1996, with the seller of the land and an adjacent
site owner/operator (the "Indemnitors") due to Phase I and Phase II
environmental testing results indicating that there were action levels of
environmental contamination on the Bluefield, Hurricane and Marrieta
Properties relating to underground gasoline storage tanks from one
property adjacent to the Hurricane Property and past use of the other two
P r operties. Under the remediation and indemnity agreements, the
Indemnitors have agreed to notify all applicable federal, state, or local
government agencies or authorities of the environmental contamination, to
undertake all remediation work on these sites at no expense to the Company
or lessee, and to indemnify, defend and hold harmless the Company, the
lessee and investors from losses arising out of or related to any claim,
action, proceeding, lawsuit, notice of violation or demand by any
(i) governmental authority in connection with the presence of any
environmental contamination, (ii) failure of the Indemnitors to notify any
applicable governmental authorities, (iii) remediation work, and (iv)
claim, action, proceeding, lawsuit, or demand by third parties who are not
the successors in interest of the indemnified parties and are not
affiliated with the indemnified parties. If as to any of the affected
sites, the remediation work is not satisfactorily completed within two
years after the effective date, such that the Company is willing, in its
discretion, to remain the owner of a particular affected site, the Company
may "put" the particular affected site back to the seller, and the seller
will purchase the Company's ownership interest in the affected site.
(12) The "Building Overage Multiplier" is calculated as follows:
B u ilding Overage Multiplier = (purchase price of the
building)/[purchase price of the building + (annual rent due under
the land lease/land lease cap rate)]
(13) In the event that the aggregate amount of percentage rent paid by the
lessee to the Company over the term of the lease shall equal or exceed 15%
of the purchase price paid by the Company, then the option purchase price
shall equal one dollar. In the event that the aggregate percentage rent
paid shall be less than 15% of the purchase price paid by the Company,
then the option purchase price shall equal the difference of 15% of the
purchase price, less the aggregate percentage rent paid to the landlord by
the lessee under the lease.
(14) The lessee of the Knoxville, Camarillo, and Sevierville Properties is the
same unaffiliated lessee.
(15) The lessee of the Ellisville and Golden Valley Properties is the same
unaffiliated lessee.
(16) The lessee of the Humble #1 and Houston #1 Properties is the same
unaffiliated lessee.
</TABLE>
BORROWING AND SECURED EQUIPMENT LEASES
Between April 10, 1996 and July 16, 1996, the Company obtained three
advances totaling $1,642,788 under its $15,000,000 Loan. The advances are fully
amortizing term loans repayable over six years and bear interest at a rate per
annum equal to 215 basis points above the Reserve Adjusted LIBOR Rate (as
defined in the Loan). The proceeds of the advances were used to acquire
Equipment for three restaurant properties at a cost of approximately $1,609,000
and to pay Secured Equipment Lease Servicing Fees of $32,175 to the Advisor. In
connection with the acquisition of the Equipment for one restaurant property,
the Company, as lessor, entered into a Secured Equipment Lease with an
unaffiliated lessee that leases the restaurant property from an Affiliate of the
Advisor. The following table sets forth a summary of the principal terms of the
acquisition and lease of the Equipment.
<TABLE>
SECURED EQUIPMENT LEASES
From April 10, 1996 through July 16, 1996
<CAPTION> Option
Description Purchase Price Date Acquired Lease Annual Rent (2) To Purchase
(1) Expiration
<S> <C> <C> <C> <C> <C>
EQUIPMENT FOR GOLDEN $538,790 06/14/96 06/2003 $109,617 (3)
CORRAL RESTAURANT IN (excluding
MIDDLEBURG HEIGHTS, OHIO closing costs
(5) and Secured
(The "Middleburg Heights Equipment
Secured Equipment Lease") Lease
Servicing Fee)
EQUIPMENT FOR GOLDEN $560,411 07/02/96 07/2003 $113,994 (3)
CORRAL RESTAURANT IN (excluding
BROOKLYN, closing costs
OHIO (5) (The "Brooklyn and Secured
Secured Equipment Lease") Equipment
Lease
Servicing Fee)
EQUIPMENT FOR TGI $509,573 07/15/96 07/2001 $132,664 (4)
FRIDAY'S (excluding
RESTAURANT IN HAZLET, NEW closing costs
JERSEY and Secured
(The "Hazlet Secured Equipment
Equipment Lease") Lease
Servicing Fee)
<FN>
(1) The Secured Equipment Lease is expected to be treated as a loan secured by
personal property for federal income tax purposes.
(2) Rental payments due under the Secured Equipment Lease are payable monthly,
commencing on the effective date of the lease.
(3) At the end of the lease term, if no event of default has occurred under
the terms of the Secured Equipment Lease, the lessee will have the option
to purchase the Equipment for $1.
(4) Lessee may purchase the Equipment prior to the expiration of the Secured
Equipment Lease, at the then present value of the remaining rental
payments, discounted at a rate of ten percent per annum.
(5) The lessee of the Middleburg Heights and Brooklyn Secured Equipment Leases
is the same unaffiliated lessee.
</TABLE>
MANAGEMENT COMPENSATION
FEES AND EXPENSES PAID TO THE
ADVISOR AND ITS AFFILIATES
SELLING COMMISSIONS AND MARKETING SUPPORT AND DUE DILIGENCE EXPENSE
REIMBURSEMENT FEE. In connection with the formation of the Company and the
offering of the Shares, the Managing Dealer will receive Selling Commissions of
7.5% (a maximum of $11,250,000 if 15,000,000 Shares are sold), and a marketing
support and due diligence expense reimbursement fee of 0.5% (a maximum of
$750,000 if 15,000,000 Shares are sold), of the total amount raised from the
sale of Shares, computed at $10.00 per Share sold ("Gross Proceeds"). The
Managing Dealer in turn may reallow Selling Commissions of up to 7% on Shares
sold, and all or a portion of the 0.5% marketing support and due diligence
expense reimbursement fee to certain Soliciting Dealers, who are not Affiliates
of the Company. As of March 31, 1996, the Company had incurred $4,128,141 for
S e lling Commissions due to the Managing Dealer, a substantial portion
($3,909,808) of which has been paid as commissions to other Soliciting Dealers.
In addition, as of March 31, 1996, the Company had incurred $275,210 in
marketing support and due diligence expense reimbursement fees due to the
Managing Dealer. A portion of these fees has been reallowed to other Soliciting
Dealers, and all due diligence expenses will be paid from such fees.
SOLICITING DEALER SERVICING FEE. The Company will incur a Soliciting
Dealer Servicing Fee in the amount of .20% of Invested Capital (a maximum of
$300,000 if 15,000,000 Shares are sold). The Soliciting Dealer Servicing Fee
will be payable on December 31 of each year, commencing on December 31 of the
year following the year in which the offering terminates, and generally will be
payable to the Managing Dealer, which in turn may reallow all or a portion of
such fee to Soliciting Dealers whose clients held Shares on such date. The
Company has determined, however, that the Company may pay the Soliciting Dealer
Servicing Fee directly to any Soliciting Dealer exempt from registration as a
broker-dealer and whose clients held Shares on such date. As of March 31, 1996,
no such fees had been incurred by the Company.
ACQUISITION FEES. The Advisor is entitled to receive acquisition fees for
services in identifying the Properties and structuring the terms of the
acquisition and leases of the Properties equal to 4.5% of Gross Proceeds,
payable by the Company as Acquisition Fees. As of March 31, 1996, the Company
had incurred $2,476,885 in such acquisition fees payable to the Advisor.
Acquisition fees incurred by the Company as of March 31, 1996, are included as
part of the cost of land and buildings on operating leases, net investment in
direct financing lease and other assets.
DEVELOPMENT/CONSTRUCTION MANAGEMENT FEES TO AFFILIATES OF THE COMPANY. In
connection with the acquisition of Properties that have been constructed or
renovated by Affiliates, the Company will incur development/construction
management fees of generally 5% to 10% of the cost of constructing or renovating
a Property, payable to Affiliates of the Company as Acquisition Fees. Such fees
will be included in the purchase price of Properties purchased from developers
that are Affiliates of the Company. See "Business - Site Selection and
Acquisition of Properties." Development/construction management fees, which are
based on the number of Properties purchased from developers that are Affiliates
of the Company, the cost of construction or renovation of such Properties and
the percentage amount of each development/construction management fee, are not
determinable at this time. As of March 31, 1996, no such fees had been incurred
by the Company.
CONSTRUCTION FINANCING FEES TO AFFILIATES OF THE COMPANY. In connection
with the acquisition of Properties from affiliated or unaffiliated developers,
to whom Affiliates of the Company have provided construction financing, the
Company will incur construction financing fees, payable to Affiliates of the
Company as Acquisition Fees. Such fees will be in an amount equal to generally
1% to 2% of the total amount of each loan plus the difference between the
Affiliate - lender's cost of funds and the amount of interest charged to the
developer with such difference determined by applying an annual percentage rate
of generally 1.5% to 3% throughout the duration of the loan to the outstanding
amount of the loan. Such fees will be included in the purchase price of
Properties purchased from developers that receive such loans. See "Business -
Site Selection and Acquisition of Properties." Construction loan fees, which
are based on the number of Properties for which Affiliates of the Company
provide construction financing, the amount and duration of such loans and the
amount of each construction financing fee, are not determinable at this time.
As of March 31, 1996, no such fees had been incurred by the Company.
The total of all Acquisition Fees and Acquisition Expenses shall be
reasonable and shall not exceed an amount equal to 6% of the Real Estate Asset
Value of a Property unless a majority of the Board of Directors, including a
majority of the Independent Directors, not otherwise interested in the
transaction approves fees in excess of these limits subject to a determination
that the transaction is commercially competitive, fair and reasonable to the
Company.
ASSET MANAGEMENT FEE. For managing the Properties, the Advisor will be
entitled to receive a monthly Asset Management Fee of one-twelfth of .60% of the
Company's Real Estate Asset Value (generally, the total amount invested in the
Properties, exclusive of Acquisition Fees and Acquisition Expenses) as of the
end of the preceding month. As of March 31, 1996, the Company had incurred
$61,239 of such fees, $6,266 of which has been capitalized as part of the cost
of building for Properties under construction.
MORTGAGE MANAGEMENT FEE. For managing mortgage loans, the Advisor will be
entitled to receive a monthly Mortgage Management Fee of one-twelfth of .60% of
the total principal amount of the Mortgage Loans as of the end of the preceding
month. As of March 31, 1996, the Company had incurred $8,475 of such fees.
SECURED EQUIPMENT LEASE SERVICING FEE. For negotiating Secured Equipment
Leases and supervising the Secured Equipment Lease program, the Advisor will be
entitled to receive from the Company a one-time Secured Equipment Lease
Servicing Fee of 2% of the purchase price of the Equipment that is the subject
of a Secured Equipment Lease. As of March 31, 1996, no such fees had been
incurred by the Company.
REAL ESTATE DISPOSITION FEE. Prior to Listing, the Advisor may receive a
real estate disposition fee of 3% of the gross sales price of one or more
Properties for providing substantial services in connection with the Sale, which
will be deferred and subordinated until the stockholders have received
Distributions equal to the sum of 100% of the stockholders' aggregate Invested
Capital plus an aggregate, annual, cumulative, noncompounded 8% return on their
Invested Capital, excluding Distributions attributable to proceeds of the Sale
of a Property (the "Stockholders' 8% Return"). Upon Listing, if the Advisor has
accrued but not been paid such real estate disposition fee, then for purposes of
d e t e rmining whether the subordination conditions have been satisfied,
stockholders will be deemed to have received a Distribution in an amount equal
to the product of the total number of Shares outstanding and the average closing
prices of the Shares over a period, beginning 180 days after Listing, of 30 days
during which the Shares are traded. See "The Advisor and The Advisory Agreement
- -The Advisory Agreement." As of March 31, 1996, no such fees had been incurred
by the Company.
SUBORDINATED SHARE OF NET SALES PROCEEDS. A subordinated share of Net
Sales Proceeds will be paid to the Advisor upon the Sale of one or more
Properties or Secured Equipment Leases in an amount equal to 10% of Net Sales
Proceeds. This amount will be subordinated and paid only after the stockholders
have received Distributions equal to the sum of 100% of the stockholders'
aggregate Invested Capital, plus the Stockholders' 8% Return. As of March 31,
1996, no such amounts had been incurred by the Company.
ADMINISTRATIVE AND OTHER EXPENSES. The Advisor provides accounting and
administrative services (including accounting and administrative services in
connection with the Offering of Shares) to the Company on a day-to-day basis.
As of March 31, 1996, the Company had incurred $942,218 of such costs that are
included in stock issuance costs and $142,048 of such costs that are included in
general and administrative expenses.
REIMBURSEMENT OF OUT-OF-POCKET EXPENSES. The Advisor and its Affiliates
are entitled to receive reimbursement, at cost, for expenses they incur for
Organizational and Offering Expenses, Acquisition Expenses and Operating
Expenses. As of March 31, 1996, the Advisor and its Affiliates had incurred
$2,830,495, $183,489, and $123,676 on behalf of the Company for Organizational
a n d O ffering Expenses, Acquisition Expenses, and Operating Expenses,
respectively.
SELECTED FINANCIAL DATA
The following table sets forth certain financial information for CNL
American Properties Fund, Inc., and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements included in Exhibit B to this
Prospectus Supplement and Exhibit B to the Prospectus.
May 2,
1994 (Date
Quarter Ended of Inception)
March 31, Year Ended through
1996 December 31, December 31,
(Unaudited) 1995 1994
Revenues $1,059,879 $ 659,131 $ -
Net earnings 744,588 368,779 -
Cash distributions declared (1) 768,133 638,618 -
Funds from operations (2) 840,123 470,592 -
Earnings per Share 0.16 0.19 -
Cash distributions declared
per Share 0.17 0.34 -
Funds from operations per Share(2) 0.18 0.25 -
Weighted average number of Shares
outstanding (3) 4,649,040 1,898,350 -
March 31,
1996 December 31, December 31,
(Unaudited) 1995 1994
Total assets $48,909,495 $33,603,084 $929,585
Long-term obligations 53,500 - -
Total equity 46,745,744 31,980,648 200,000
(1) Approximately ten percent and 40 percent of cash distributions
($0.02 and $0.14 per Share) for the quarter ended March 31, 1996 and
the year ended December 31, 1995, respectively, represents a return
o f capital in accordance with generally accepted accounting
principles ("GAAP"). Cash distributions treated as a return of
capital on a GAAP basis represent the amount of cash distributions
in excess of accumulated net earnings on a GAAP basis. The Company
has not treated such amount as a return of capital for purposes of
calculating the stockholders' Invested Capital and the Stockholders'
8% Return, as described in the Prospectus.
(2) Funds from operations are net earnings, excluding depreciation of
$94,530 and $100,318 and amortization expense of joint venture
capitalized costs of $1,005 and $1,495 for the quarter ended
March 31, 1996 and the year ended December 31, 1995, respectively.
Funds from operations are generally considered by industry analysts
to be the most appropriate measure of performance and do not
necessarily represent cash provided by operating activities in
accordance with generally accepted accounting principles and are not
necessarily indicative of cash available to meed cash needs.
(3) The weighted average number of Shares outstanding is based upon the
period the Company was operational.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is a Maryland corporation that was organized on May 2, 1994,
to acquire Properties, directly or indirectly through Joint Venture or co-
tenancy arrangements, to be leased on a long-term, "triple-net" basis to
operators of certain Restaurant Chains. In addition, the Company may provide
Mortgage Loans for the purchase of buildings, generally by tenants that lease
the underlying land from the Company. To a lesser extent, the Company intends
to offer Secured Equipment Leases to operators of Restaurant Chains. Secured
Equipment Leases will be funded from the proceeds of the Loan, in an amount up
to 10% of Gross Proceeds from the offering, which the Company has obtained.
As of March 31, 1996, the Company owned 43 Properties (including one
Property through a joint venture arrangement), four of which were under
construction at March 31, 1996. Of the 43 Properties, three consisted of
building only, 20 consisted of land only and 20 consisted of land and building.
LIQUIDITY AND CAPITAL RESOURCES
In April 1995, the Company commenced an offering of its Shares of common
stock. As of March 31, 1996, the Company had received subscription proceeds of
$55,041,881 (5,504,188 shares) from the offering, including $128,151 (12,815
shares) through the Reinvestment Plan.
As of March 31, 1996, net proceeds to the Company from its offering of
S h a res and capital contributions from the Advisor after deduction of
Selling Commissions, marketing support and due diligence expense reimbursement
fees and
Organizational and Offering Expenses, totalled $47,039,128. As of March 31,
1996, approximately $42,800,000 had been used to invest, or committed for
investment, in 43 Properties (four of which were undeveloped land on which a
restaurant was being constructed), including one Property owned by a Joint
Venture, three Properties consisting of building only and 20 Properties
consisting of land only, in providing mortgage financing of $8,475,000 to the
tenant of the 20 Properties consisting of land only and to pay Acquisition Fees
to the Advisor totalling $2,476,885 and certain Acquisition Expenses. The
Company acquired ten of the 43 Properties from Affiliates for purchase prices
t o t alling approximately $7,442,000. The Affiliates had purchased and
temporarily held title to these Properties in order to facilitate the
acquisition of the Properties by the Company. Each Property was acquired at a
cost no greater than the lesser of the cost of the Property to the Affiliate
(including carrying costs) or the Property's appraised value. The Company
expects to use Net Offering Proceeds from the sale of Shares to purchase
additional Properties, to fund construction costs relating to the Properties
under construction and to make Mortgage Loans. The Company expects to use the
proceeds of the Loan to fund the Secured Equipment Lease program, as described
above. The number of Properties to be acquired and Mortgage Loans to be entered
into will depend upon the amount of Net Offering Proceeds available to the
Company.
The Company has entered into various development agreements with tenants
which provide terms and specifications for the construction of buildings the
tenants have agreed to lease once construction is completed. The agreements
provide a maximum amount of development costs (including the purchase price of
the land and closing costs) to be paid by the Company. The aggregate maximum
development costs the Company had agreed to pay as of March 31, 1996, was
approximately $5,817,200, of which approximately $2,613,400 in land and other
costs had been incurred as of March 31, 1996. The buildings under construction
as of March 31, 1996, are expected to be operational by August 1996. In
connection with the purchase of each Property, the Company, as lessor, entered
into a long-term lease agreement.
During the period April 1, 1996 through July 16, 1996, the Company
acquired 29 additional Properties (two Properties consisting of land and
building, 14 Properties consisting of undeveloped land on which restaurants are
being constructed and 13 Properties consisting of land only) for cash at a total
cost of approximately $9,606,000, excluding development and closing costs. The
development costs (including the purchase of the land and closing costs) to be
paid by the Company relating to the 14 Properties under construction are
estimated to be approximately $14,874,000. The buildings under construction are
expected to be operational by January 1997. With regard to the 13 Properties
consisting of land only, the Company is leasing three of the parcels together
with 20 other land parcels to a single lessee pursuant to a master lease
agreement. The remaining ten parcels are also leased to a single lessee
pursuant to a master lease agreement. The lessees own the buildings located on
the 33 Properties.
In addition, during the period April 1, 1996 through July 16, 1996, the
Company entered into a Mortgage Loan in the principal sum of $3,888,000,
collateralized by a mortgage on the buildings relating to ten Pizza Hut
Properties. The Mortgage Loan bears interest at a rate of 10.75% per annum and
is being collected in 240 equal monthly installments of $39,472.
The Company presently is negotiating to acquire additional Properties or
invest in additional Mortgage Loans, but as of July 16, 1996, had not acquired
any such Properties or invested in any such Mortgage Loans.
As of July 16, 1996, the Company had received subscription proceeds of
$80,598,079 (8,059,808 Shares) from 4,663 stockholders, including $243,167
(24,317 Shares) issued pursuant to the Reinvestment Plan. As of July 16, 1996,
the Company had invested, or committed for investment, approximately $66,000,000
of such proceeds in 72 Properties, in providing mortgage financing to the
tenants of the 33 Properties consisting of land only through two Mortgage Loans,
and to pay Acquisition Fees and Acquisition Expenses, leaving approximately
$4,200,000 in Net Offering Proceeds available for investment in Properties and
Mortgage Loans. As of July 16, 1996, the Company had incurred $3,626,914 in
Acquisition Fees due to the Advisor.
On March 5, 1996, the Company entered into a line of credit and security
agreement (the "Loan") with a bank to be used by the Company to offer Secured
Equipment Leases. The Loan provides that the Company will be able to receive
advances of up to $15,000,000 until March 4, 1998. Generally, advances under
the Loan will be fully amortizing term loans repayable in terms equal to the
duration of the Secured Equipment Leases, but in no event greater than 72
months. In addition, advances for short-term needs (to acquire equipment to be
leased under Secured Equipment Leases) may be requested in an aggregate amount
which does not exceed the Revolving Sublimit (defined in the Loan as $1,000,000)
and such advances may be repaid and readvanced; provided, however, that advances
made pursuant to the Revolving Sublimit shall be converted to term loans the
earlier of (i) the end of each 60 day period following the closing date (defined
in the Loan as March 5, 1996), or (ii) when the aggregate amount outstanding
equals or exceeds $1,000,000. Interest on advances made pursuant to the
Revolving Sublimit shall be paid monthly in arrears. In addition, principal
amounts under advances pursuant to the Revolving Sublimit, if not sooner paid or
converted into term loans, shall be paid, together with any unpaid interest
relating to such advances, to the bank on March 5, 1998. Generally, all
advances under the Loan will bear interest at either (i) a rate per annum equal
to 215 basis points above the Reserve Adjusted LIBOR Rate (as defined in the
Loan) or (ii) a rate per annum equal to the bank's prime rate, whichever the
Company selects at the time advances are made. As a condition of obtaining the
Loan, the Company agreed to grant to the bank a first security interest in the
Secured Equipment Leases. In connection with the Loan, the Company incurred a
commitment fee, legal fees and closing costs of $53,500 relating to the Loan.
As of March 31, 1996, $53,500 had been advanced under the Loan to fund the
commitment fee, legal fees and closing costs related to the Loan. The Company
intends to limit advances under the Loan to 10% of Gross Proceeds of the
offering.
Between April 1, 1996 and July 16, 1996, the Company obtained three
advances totaling $1,642,788 under its $15,000,000 Loan. The advances are fully
amortizing term loans repayable over six years and bear interest at a rate per
annum equal to 215 basis points above the Reserve Adjusted LIBOR Rate (as
defined in the Loan). The proceeds of the advances were used to acquire
Equipment for three restaurant properties at a cost of approximately $1,609,000
and to pay Secured Equipment Lease Servicing Fees of $32,175 to the Advisor. In
connection with the acquisition of the Equipment for one restaurant property,
the Company, as lessor, entered into a Secured Equipment Lease with an
unaffiliated lessee that leases the restaurant property from an Affiliate of the
Advisor.
Properties are and will be leased on a triple-net basis, meaning that
tenants are generally required to pay all repairs and maintenance, property
taxes, insurance and utilities. Rental payments under the leases are expected
to exceed the Company's operating expenses. For these reasons, no short-term or
long-term liquidity problems currently are anticipated by management.
Until Properties are acquired, or Mortgage Loans are entered into, by the
Company, all offering proceeds are held in short-term, highly liquid investments
which management believes to have appropriate safety of principal. This
investment strategy provides high liquidity in order to facilitate the Company's
use of these funds to acquire Properties at such time as Properties suitable for
acquisition are located or to fund Mortgage Loans. At March 31, 1996, the
Company had $8,775,306 invested in such short-term investments as compared to
$11,508,445 at December 31, 1995. The decrease in the amount invested in short-
term investments reflects acquisition and lending activity during the quarter
ended March 31, 1996. These funds will be used primarily to purchase and
develop or renovate Properties (directly or indirectly through joint venture
arrangements), to make Mortgage Loans, to pay organization and offering and
acquisition costs, to pay Distributions to stockholders, to meet Company
expenses and, in management's discretion, to create cash reserves.
During the quarters ended March 31, 1996 and 1995, Affiliates of the
Company incurred on behalf of the Company $264,484 and $69,035, respectively,
for certain Organizational and Offering Expenses. In addition, during the
quarter ended March 31, 1996, Affiliates of the Company incurred on behalf of
the Company $51,860 for certain Acquisition Expenses and $69,442 for certain
Operating Expenses. As of March 31, 1996, the Company owed the Advisor $150,140
for such amounts and accounting and administrative expenses. In addition, as of
March 31, 1996, the Company owed the Advisor $143,485 and $20,515 for
Acquisition Fees and Asset Management Fees, respectively. As of April 30, 1996,
the Company had reimbursed all such amounts. The Advisor has agreed to pay or
reimburse to the Company all Organizational and Offering Expenses in excess of
three percent of gross offering proceeds. Other liabilities to unrelated
parties increased to $1,313,711 at March 31, 1996, from $1,173,776 at December
31, 1995, primarily as a result of the accrual of construction costs incurred
and unpaid as of March 31, 1996.
During the quarter ended March 31, 1996, the Company generated cash from
operations (which includes cash received from tenants and interest and other
income received, less cash paid for operating expenses) of $710,678. Based on
current and anticipated future cash from operations the Company declared
Distributions to the stockholders of $768,133 during the quarter ended March 31,
1996. No Distributions were paid or declared for the quarter ended March 31,
1995. On April 1, 1996, May 1, 1996 and June 1, 1996, the Company declared
Distributions to its stockholders totalling $323,748, $368,153 and $408,475,
respectively, payable in June 1996. In addition, on July 1, 1996, the Company
declared distributions to its stockholders totalling $458,646 payable in
September 1996. For the quarter ended March 31, 1996, approximately 90 percent
of the Distributions received by stockholders were considered to be ordinary
income and 10 percent were considered a return of capital for federal income tax
purposes. However, no amounts distributed or to be distributed to the
stockholders as of April 30, 1996, are required to be or have been treated by
the Company as a return of capital for purposes of calculating the stockholders'
return on their Invested Capital.
Management believes that the Properties are adequately covered by
insurance. During 1995, the Advisor obtained contingent liability and property
coverage for the Company. This insurance policy is intended to reduce the
Company's exposure in the unlikely event a tenant's insurance policy lapses or
is insufficient to cover a claim relating to the Property. The Company's
investment strategy of acquiring Properties for cash and leasing them under
triple-net leases to operators who meet specified financial standards is
expected to minimize the Company's Operating Expenses. Accordingly, management
believes that any anticipated decrease in the Company's liquidity in 1996, due
to its investment of available Net Offering Proceeds in Properties and Mortgage
Loans, will not have an adverse effect on the Company's operations. During the
operational stage, management believes that the leases will generate cash flow
in excess of Operating Expenses. Since the leases are expected generally to
have an initial term of 15 to 20 years, with two or more five-year renewal
options, and provide for specified percentage rent in addition to the annual
base rent and, in certain cases, increases in the base rent or the percentage
rent at specified times during the terms of the leases, it is anticipated that
rental income will increase over time.
Due to anticipated low Operating Expenses, rental income expected to be
obtained from Properties after they are acquired, and the fact that as of April
30, 1996, no significant amounts had been borrowed under the Loan for Secured
Equipment Leases and that the Company had not entered into any Secured Equipment
Leases, management does not believe that working capital reserves will be
necessary at this time. Management has the right to cause the Company to
maintain reserves if, in their discretion, they determine such reserves are
required to meet the Company's working capital needs.
Management expects that the cash generated from operations will be
adequate to pay Operating Expenses.
RESULTS OF OPERATIONS
No significant operations commenced until the Company received the minimum
offering proceeds of $1,500,000 on June 1, 1995.
As of March 31, 1996, the Company and its consolidated joint venture had
purchased 43 Properties (including one which is owned through a Joint Venture),
including three Properties consisting of building only, 20 Properties
consisting of land only, and 20 properties consisting of land and building, and
had entered into lease agreements relating to these Properties. The
leases provide for minimum base annual rental payments (payable in monthly
installments) ranging from approximately $89,700 to $413,700. In addition, the
leases generally provide for percentage rent based on sales in excess of a
specified amount. The majority of the leases also provide that, commencing in
generally the sixth lease year, the annual base rent required under the terms of
the leases will increase.
During the quarter ended March 31, 1996, the Company and its consolidated
joint venture, CNL/Corral South Joint Venture, earned $799,081 in rental income
from operating leases and earned income from the direct financing lease from 41
Properties (excluding two of the Properties under construction as of March 31,
1996). Because the Company did not commence significant operations until it
received the minimum offering proceeds on June 1, 1995, and has not yet acquired
all of its Properties, revenues for the quarter ended March 31, 1996, represent
only a portion of revenues which the Company is expected to earn during a full
quarter in which the Company's Properties are operational.
During the quarter ended March 31, 1996, five lessees of the Company,
Golden Corral Corporation, Corral South Store I, Inc., Castle Hill Holdings V,
LLC, Foodmaker, Inc. and Northstar Restaurants, Inc., each contributed more than
ten percent of the Company's total rental income. Golden Corral Corporation was
the lessee under leases relating to six restaurants, Corral South Store I, Inc.
was the lessee under a lease relating to one restaurant, Castle Hill Holdings V,
LLC was the lessee under leases relating to 20 restaurants, Foodmaker, Inc. was
the lessee under leases relating to two restaurants, and Northstar Restaurants,
Inc. was the lessee under leases relating to three restaurants. During the
quarter ended March 31, 1996, the Company also earned $184,949 in interest
income from a mortgage note receivable under which Castle Hill Holdings V, LLC
is the borrower. In addition, four Restaurant Chains, Golden Corral Family
Steakhouse, Pizza Hut, Jack in the Box and Boston Market, each accounted for
more than ten percent of the Company's total rental income during the quarter
ended March 31, 1996. Because the Company has not completed its acquisition of
Properties as yet, it is not possible to determine which lessees or Restaurant
Chains will contribute more than ten percent of the Company's rental income
during the remainder of 1996 and subsequent years. In the event that certain
lessees, borrowers or Restaurant Chains contribute more than ten percent of the
Company's total income in the current and future years, any failure of such
lessees, borrowers or Restaurants Chains could materially affect the Company's
income.
During the quarter ended March 31, 1996, the Company entered into a
Mortgage Loan in the principal sum of $8,475,000, collateralized by a mortgage
on the buildings relating to 20 Pizza Hut Properties and three additional Pizza
Hut buildings. The Mortgage Loan bears interest at a rate of 10.75% per annum
and is being collected in 240 equal monthly installments of $86,041. In
connection therewith, the Company earned $184,949 in interest income relating to
such Mortgage Loan during the quarter ended March 31, 1996. In addition, the
Company also earned $74,600 in interest income from investments in money market
accounts or other short-term, highly liquid investments. Interest income is
expected to increase as the Company invests subscription proceeds in highly
liquid investments pending the acquisition of Properties. However, as Net
Offering Proceeds are invested in Properties and used to make mortgage loans,
interest income from investments in money market accounts or other short-term,
highly liquid investments is expected to decrease.
Operating expenses, including depreciation and amortization expense, were
$300,539 for the quarter ended March 31, 1996. Operating expenses, including
depreciation and amortization expense, also represent only a portion of
operating expenses which the Company is expected to incur during a full quarter
in which the Company's Properties are operational. The dollar amount of
operating expenses is expected to increase as the Company acquires additional
Properties.
THE ADVISOR AND THE ADVISORY AGREEMENT
THE ADVISORY AGREEMENT
The Advisory Agreement was renewed for a period of one year with the
unanimous approval of the Board of Directors, including the Independent
Directors, and shall expire on April 19, 1997, subject to successive one-year
renewals upon mutual consent of the parties.
ADDENDUM TO
EXHIBIT B
FINANCIAL INFORMATION
The updated pro forma financial statements and the unaudited financial
statements of CNL American Properties Fund, Inc. contained in this addendum
should be read in conjunction with Exhibit B to the attached prospectus
dated April 26, 1996.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
INDEX TO UPDATED FINANCIAL STATEMENTS
Page
Pro Forma Consolidated Financial Information (unaudited):
Pro Forma Consolidated Balance Sheet as of March 31, 1996 B-2
Pro Forma Consolidated Statement of Earnings for the
quarter ended March 31, 1996 B-3
Pro Forma Consolidated Statement of Earnings for the
year ended December 31, 1995 B-4
Notes to Pro Forma Consolidated Financial Statements for
the quarter ended March 31, 1996 and the year ended
December 31, 1995 B-5
Updated Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of March 31,
1996 and December 31, 1995 B-9
Condensed Consolidated Statements of Earnings for the
quarters ended March 31, 1996 and 1995 B-10
Condensed Consolidated Statements of Stockholders'
Equity for the quarter ended March 31, 1996 and the
year ended December 31, 1995 B-11
Condensed Consolidated Statements of Cash Flows for
the quarters ended March 31, 1996 and 1995 B-12
Notes to Condensed Consolidated Financial Statements
for the quarters ended March 31, 1996 and 1995 B-14
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Consolidated Balance Sheet of the Company gives
effect to (i) property acquisition transactions from inception through March 31,
1996, including the receipt of $55,041,881 in gross offering proceeds from the
sale of 5,504,188 shares of common stock pursuant to a Form S-11 under the
Securities Act of 1933, as amended, effective March 29, 1995, and the
application of such proceeds to purchase 43 properties (including 19 properties
which consist of land and building, one property through a joint venture
arrangement which consists of land and building, three properties which consist
of building only and 20 properties consisting of land only), four of which were
under construction at March 31, 1996, to provide mortgage financing to the
lessee of the 20 properties consisting of land only, and to pay organizational
and offering expenses, acquisition fees and miscellaneous acquisition expenses,
(ii) the receipt of $25,556,198 in gross offering proceeds from the sale of
2,555,620 additional shares of common stock during the period April 1, 1996
through July 16, 1996, and (iii) the application of such funds and $3,897,309 of
cash and cash equivalents at March 31, 1996, to purchase 29 additional
properties acquired during the period April 1, 1996 through July 16, 1996 (two
of which are under construction and consist of building only, 12 of which are
under construction and consist of land and building, 13 properties which consist
of land only and two properties which consists of land and building), to pay
additional costs for the four properties under construction at March 31, 1996,
to provide mortgage financing to the lessee of ten properties consisting of land
only, and to pay offering expenses, acquisition fees and miscellaneous
acquisition expenses, all as reflected in the pro forma adjustments described in
the related notes. The Pro Forma Consolidated Balance Sheet as of March 31,
1996, includes the transactions described in (i) above from its historical
consolidated balance sheet, adjusted to give effect to the transactions in (ii)
and (iii) above, as if they had occurred on March 31, 1996.
The Pro Forma Consolidated Statements of Earnings for the quarter ended
March 31, 1996 and the year ended December 31, 1995, include the historical
operating results of the properties described in (i) above from the dates of
their acquisitions plus operating results for the seven of the 72 properties
that were owned by the Company as of July 16, 1996, and had a previous rental
history prior to the Company's acquisition of such properties, from (A) the
later of (1) the date the property became operational as a rental property by
the previous owner or (2) June 2, 1995 (the date the Company became
operational), to (B) the earlier of (1) the date the property was acquired by
the Company or (2) the end of the pro forma period presented. No pro forma
adjustments have been made to the Pro Forma Consolidated Statements of Earnings
for the remaining 65 properties owned by the Company as of July 16, 1996, due to
the fact that these properties did not have a previous rental history.
This pro forma consolidated financial information is presented for
informational purposes only and does not purport to be indicative of the
Company's financial results or condition if the various events and transactions
reflected therein had occurred on the dates, or been in effect during the
periods, indicated. This pro forma consolidated financial information should
not be viewed as predictive of the Company's financial results or conditions in
the future.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
Pro Forma
ASSETS Historical Adjustments Pro Forma
Land and buildings on operating
leases, less accumulated
depreciation $28,313,474 $16,059,451 (a) $44,372,925
Net investment in direct
financing leases (c) 1,360,414 6,264,957 (a) 7,625,371
Cash and cash equivalents 8,775,306 (3,707,897)(a)
(189,412)(b) 4,877,997
Receivables 462,110 462,110
Mortgage note receivable 8,540,712 3,888,000 (a) 12,428,712
Prepaid expenses 37,275 37,275
Organization costs, less accumulated
amortization 16,682 16,682
Loan costs, less accumulated
amortization 51,559 51,559
Accrued rental income 152,047 152,047
Other assets 1,199,916 14,886(a) 1,214,802
----------- ----------- -----------
$48,909,495 $22,329,985 $71,239,480
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable $ 53,659 $ 53,659
Accrued construction costs payable 1,197,682 $(1,005,913)(a)
(191,769)(b) -
Accounts payable and accrued expenses 106,333 106,333
Escrowed real estate taxes payable 9,696 9,696
Due to related parties 415,418 415,418
Deferred financing income 29,366 13,608 (a) 42,974
Rents paid in advance 58,268 58,268
----------- ----------- -----------
Total liabilities 1,870,422 (1,184,074) 686,348
----------- ----------- -----------
Minority interest 293,329 2,357 (b) 295,686
----------- ----------- -----------
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000
shares - -
Excess shares, $.01 par value per
share. Authorized and unissued
23,000,000 shares - -
Common stock, $.01 par value per share.
Authorized 20,000,000 shares; issued
and outstanding 5,524,188 shares;
issued and outstanding, as adjusted,
8,079,808 shares 55,242 25,556 (a) 80,798
Capital in excess of par value 46,983,886 23,486,146 (a) 70,470,032
Accumulated distributions in excess
of net earnings (293,384) (293,384)
----------- ----------- -----------
46,745,744 23,511,702 70,257,446
----------- ----------- -----------
$48,909,495 $22,329,985 $71,239,480
=========== ============ ===========
See accompanying notes to unaudited pro forma consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
MARCH 31, 1996
Pro Forma
Historical Adjustments Pro Forma
Revenues:
Rental income from
operating leases $ 763,155 $ 41,157 (1) $ 804,312
Earned income from
direct financing lease (2) 35,926 35,926
Interest and other income 260,798 (12,544)(3) 248,254
---------- ---------- ----------
1,059,879 28,613 1,088,492
---------- ---------- ----------
Expenses:
General operating and
administrative 128,948 128,948
Professional services 29,692 29,692
Asset and mortgage management
fees to related party 40,370 2,714 (4) 43,084
State and other taxes 2,898 1,129 (5) 4,027
Interest expense 159 159
Depreciation and amortization 98,472 3,300 (6) 101,772
---------- ---------- ----------
300,539 7,143 307,682
---------- ---------- ----------
Earnings Before Minority
Interest in Earnings of
Consolidated Joint Venture 759,340 21,470 780,810
Minority Interest in Earnings of
Consolidated Joint Venture (14,752) (14,752)
---------- ---------- ----------
Net Earnings $ 744,588 $ 21,470 $ 766,058
========== ========== ==========
Earnings Per Share of
Common Stock $ .16 $ .16
========== ==========
Weighted Average Number of
Shares of Common Stock
Outstanding 4,649,040 4,649,040
========== ==========
See accompanying notes to unaudited pro forma consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
Pro Forma
Historical Adjustments Pro Forma
Revenues:
Rental income from
operating leases $ 498,817 $ 96,945 (1) $ 595,762
Earned income from direct
financing leases (2) 28,935 28,935
Contingent rental income 12,024 12,024
Interest income 119,355 (29,664)(3) 89,691
--------- --------- ---------
659,131 67,281 726,412
--------- --------- ---------
Expenses:
General operating and
administrative 134,759 134,759
Professional services 8,119 8,119
Asset management fee to
related party 23,078 4,368 (4) 27,446
State taxes 20,189 1,769 (5) 21,958
Depreciation and amortization 104,131 14,700 (6) 118,831
--------- --------- ---------
290,276 20,837 311,113
--------- --------- ---------
Earnings Before Minority
Interest in Earnings of
Consolidated Joint Venture 368,855 46,444 415,299
Minority Interest in Earnings
of Consolidated Joint Venture (76) (76)
--------- --------- ---------
Net Earnings $ 368,779 $ 46,444 $ 415,223
========= ========== =========
Earnings Per Share of
Common Stock (7) $ .19 $ .22
========= =========
Weighted Average Number
of Shares of Common Stock
Outstanding (7) 1,898,350 1,905,970
========= =========
See accompanying notes to unaudited pro forma consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
Pro Forma Consolidated Balance Sheet:
(a) Represents gross proceeds of $25,556,198 from the issuance of 2,555,620
shares of common stock during the period April 1, 1996 through July 16,
1996, proceeds of $13,608 of deferred financing income (loan origination
and commitment fees, net of legal fees) from the $3,888,000 mortgage
financing described below, and $3,707,897 of cash and cash equivalents at
March 31, 1996, used (i) to acquire 29 properties for $18,104,131 (of
which 13 properties consist of land only, two properties consist of
building only and 14 properties consist of land and building), (ii) to
fund estimated construction costs of $4,091,047 ($1,005,913 of which was
accrued as construction costs payable at March 31, 1996) relating to four
wholly-owned properties under construction at March 31, 1996, (iii) to pay
acquisition fees of $1,150,029 ($1,135,143 of which was allocated to
properties and $14,886 of which was classified as other assets and will be
allocated to future properties), (iv) to pay selling commissions and
offering expenses (stock issuance costs) of $2,044,496, which have been
netted against capital in excess of par value and (v) to provide mortgage
financing in the amount of $3,888,000 to the lessee of ten properties
consisting of land only.
The pro forma adjustments to land and buildings on operating leases and
net investment in direct financing leases as a result of the above
transactions were as follows:
<TABLE>
Estimated
purchase price
(including con-
struction and Acquisition
closing costs) fees
and additional allocated
construction costs to property Total
<S> <C> <C> <C>
Three Pizza Huts (land only)
in Ohio $ 489,117 $ 26,203 $ 515,320
Burger King in Indian Head
Park, IL 1,272,725 68,182 1,340,907
Burger King in Highland, IN 1,212,558 64,958 1,277,516
TGI Friday's in Hamden, CT 1,134,628 60,784 1,195,412
Wendy's in Knoxville, TN 790,984 42,375 833,359
Golden Corral in Port Richey, FL 1,705,448 91,364 1,796,812
Ten Pizza Huts (land only)
in West Virginia and Ohio 1,487,000 79,661 1,566,661
Denny's in Hillsboro, TX 1,053,088 56,416 1,109,504
Denny's in McKinney, TX 978,944 52,443 1,031,387
Wendy's in Camarillo, CA 1,204,026 64,502 1,268,528
Wendy's in Sevierville, TN 492,636 26,391 519,027
Boston Market in Ellisville, MO 977,279 52,354 1,029,633
Boston Market in Golden Valley, MN 1,074,707 57,574 1,132,281
Jack in the Box in Humble, TX 933,868 50,029 983,897
Boston Market in Corvallis, OR 906,684 48,573 955,257
Jack in the Box in Houston, TX 893,681 47,876 941,557
Arby's in Kendallville, IN 738,326 39,553 777,879
Boston Market in Rockwall, TX 758,432 40,630 799,062
Four wholly owned properties
under construction at
March 31, 1996 3,085,134 165,275 3,250,409
----------- ----------- -----------
$21,189,265 $ 1,135,143 $22,324,408
=========== =========== ===========
Adjustment classified
as follows:
Land and buildings on
operating leases $16,059,451
Net investment in
direct financing
leases 6,264,957
-----------
$22,324,408
===========
</TABLE>
Pro Forma Consolidated Balance Sheet - Continued:
(b) Represents the use of $189,412 of the Company's net offering proceeds and
the assumed receipt of $2,357 in capital contributions from the Company's
co-venture partner in accordance with the joint venture agreement of
CNL/Corral South Joint Venture, to fund estimated construction costs of
$191,769 accrued as construction costs payable at March 31, 1996, relating
to the one property of the joint venture. The Company accounts for its
84.69% interest in the accounts of CNL/Corral South Joint Venture under
the full consolidation method. All significant intercompany accounts and
transactions have been eliminated.
(c) In accordance with generally accepted accounting principles, leases in
which the present value of future minimum lease payments equals or exceeds
90 percent of the value of the related properties are treated as direct
financing leases rather than as land and buildings. The categorization of
the leases has no effect on rental revenues received. The building
portions of eight of the properties have been classified as direct
financing leases.
Pro Forma Consolidated Statements of Earnings:
(1) Represents rental income from operating leases and earned income from
direct financing leases for the seven of the 72 properties acquired during
the period June 2, 1995 (the date the Company began operations) through
July 16, 1996 which had a previous rental history prior to the acquisition
of the property by the Company (the "Pro Forma Properties"), for the
period commencing (A) the later of (i) the date the Pro Forma Property
became operational as a rental property by the previous owner or (ii) June
2, 1995 (the date the Company became operational), to (B) the earlier of
(i) the date the Pro Forma Property was acquired by the Company or (ii)
the end of the pro forma period presented. Each of the seven Pro Forma
P r operties was acquired from an affiliate who had purchased and
temporarily held title to the property. The noncancellable leases for the
Pro Forma Properties in place during the period the affiliate owned the
properties were assigned to the Company at the time the Company acquired
the properties. The following presents the actual date the Pro Forma
Properties were acquired by the Company as compared to the date the Pro
Forma Properties were treated as becoming operational as a rental property
for purposes of the Pro Forma Consolidated Statements of Earnings.
Date Pro Forma
Date Placed Property Became
in Service Operational as
By the Company Rental Property
Jack in the Box in
Los Angeles, CA June 1995 June 1995
Kenny Rogers Roasters in
Grand Rapids, MI August 1995 June 1995
Kenny Rogers Roasters in
Franklin, TN August 1995 June 1995
Denny's in Pasadena, TX September 1995 August 1995
Denny's in Shawnee, OK September 1995 August 1995
Denny's in Grand Rapids, MI March 1996 September 1995
Denny's in McKinney, TX June 1996 December 1995
Pro Forma Consolidated Statements of Earnings - Continued:
In accordance with generally accepted accounting principles, lease revenue
from leases accounted for under the operating method is recognized over
the terms of the leases. For operating leases providing escalating
guaranteed minimum rents, income is reported on a straight-line basis over
the terms of the leases. For leases accounted for as direct financing
leases, future minimum lease payments are recorded as a receivable. The
difference between the receivable and the estimated residual values less
the cost of the properties is recorded as unearned income. The unearned
income is amortized over the lease terms to provide a constant rate of
return. Accordingly, pro forma rental income from operating leases and
earned income from direct financing leases does not necessarily represent
rental payments that would have been received if the properties had been
operational for the full pro forma period.
Generally, the leases provide for the payment of percentage rent in
addition to base rental income. However, due to the fact that no
percentage rent was due under the leases for the Pro Forma Properties
during the portion of 1996 and 1995 that the previous owners held the
properties, no pro forma adjustment was made for percentage rental income
for the quarter ended March 31, 1996 and the year ended December 31, 1995.
(2) See Note (c) under "Pro Forma Consolidated Balance Sheet" above for a
description of direct financing leases.
(3) Represents adjustment to interest income due to the decrease in the amount
of cash available for investment in interest bearing accounts during the
periods commencing (A) on the later of (i) the dates the Pro Forma
Properties became operational as rental properties by the previous owners
or (ii) June 2, 1995 (the date the Company became operational), through
(B) the earlier of (i) the actual dates of acquisition by the Company or
the end of the pro forma period presented, as described in Note (1) above.
The estimated pro forma adjustment is based upon the fact that interest
income on interest bearing accounts was earned at a rate of approximately
four percent per annum by the Company during the quarter ended March 31,
1996 and the year ended December 31, 1995.
(4) Represents incremental increase in asset management fees relating to the
Pro Forma Properties for the period commencing (A) on the later of (i) the
date the Pro Forma Properties became operational as rental properties by
the previous owners or (ii) June 2, 1995 (the date the Company became
operational), through (B) the earlier of (i) the date the Pro Forma
Properties were acquired by the Company or (ii) the end of the pro forma
period presented, as described in Note (1) above. Asset management fees
are equal to 0.60% of the Company's Real Estate Asset Value (estimated to
be approximately $6,219,000 and $5,241,000 for the Pro Forma Properties
for the quarter ended March 31, 1996 and the year ended December 31, 1995,
respectively), as defined in the Company's prospectus.
(5) Represents adjustment to state tax expense due to the incremental increase
in rental revenues of Pro Forma Properties. Estimated pro forma state tax
expense was calculated based on an analysis of state laws of the various
states in which the Company has acquired the Pro Forma Properties. The
estimated pro forma state taxes consist primarily of income and franchise
taxes ranging from zero to approximately five percent of the Company's pro
forma rental income of each Pro Forma Property. Due to the fact that the
Company's leases are triple net, the Company has not included any amounts
for real estate taxes in the pro forma statement of earnings.
Pro Forma Consolidated Statements of Earnings - Continued:
(6) Represents incremental increase in depreciation expense of the building
portions of the Pro Forma Properties accounted for as operating leases
using the straight-line method over an estimated useful life of 30 years.
(7) Historical earnings per share were calculated based upon the weighted
average number of shares of common stock outstanding during the quarter
ended March 31, 1996, and during the period the Company was operational,
June 2, 1995 (the date following when the Company received the minimum
offering proceeds and funds were released from escrow) through December
31, 1995.
As a result of three of the six Pro Forma Properties being treated in the
Pro Forma Consolidated Statement of Earnings for the year ended December
31, 1995, as placed in service on June 2, 1995 (the date the Company
became operational), the Company assumed approximately 347,100 shares of
common stock were sold, and the net offering proceeds were available for
investment, on June 2, 1996. Due to the fact that approximately 184,800
of these shares of common stock were actually sold subsequently, during
the period June 3, 1995 through June 20, 1995, the weighted average number
of shares outstanding for the pro forma period was adjusted. Pro forma
earnings per share were calculated based upon the weighted average number
of shares of common stock outstanding, as adjusted, during the period the
Company was operational, June 2, 1995 through December 31, 1995.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 1996 1995
Land and buildings on operating leases,
less accumulated depreciation $28,313,474 $19,723,726
Net investment in direct financing lease 1,360,414 1,373,882
Cash and cash equivalents 8,775,306 11,508,445
Receivables 462,110 113,613
Mortgage note receivable 8,540,712 -
Prepaid expenses 37,275 8,090
Organization costs, less accumulated
amortization of $3,318 and $2,318 16,682 17,682
Loan costs, less accumulated amorti-
zation of $1,941 at March 31, 1996 51,559 -
Accrued rental income 152,047 39,142
Other assets 1,199,916 818,504
----------- -----------
$48,909,495 $33,603,084
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $ 53,659 $ -
Accrued construction costs payable 1,197,682 1,058,825
Accounts payable and accrued expenses 106,333 79,904
Escrowed real estate taxes payable 9,696 9,696
Due to related parties 415,418 248,584
Deferred financing income 29,366 -
Rents paid in advance 58,268 25,351
----------- -----------
Total liabilities 1,870,422 1,422,360
----------- -----------
Minority interest 293,329 200,076
----------- -----------
Commitments (Note 13)
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000
shares - -
Excess shares, $.01 par value per share.
Authorized and unissued 23,000,000
shares - -
Common stock, $.01 par value per share.
Authorized 20,000,000 shares, issued
and outstanding 5,524,188 and 3,865,416,
respectively 55,242 38,654
Capital in excess of par value 46,983,886 32,211,833
Accumulated distributions in excess of
net earnings (293,384) (269,839)
----------- -----------
Total stockholders' equity 46,745,744 31,980,648
----------- -----------
$48,909,495 $33,603,084
=========== ===========
See accompanying notes to condensed consolidated
financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Quarter Ended
March 31,
1996 1995
---------- -----------
Revenues:
Rental income from operating
leases $ 763,155 $ -
Earned income from direct
financing lease 35,926 -
Interest and other income 260,798 -
---------- ----------
1,059,879 -
---------- ----------
Expenses:
General operating and
administrative 128,948 -
Professional services 29,692 -
Asset and mortgage manage-
ment fees to related party 40,370 -
State and other taxes 2,898 -
Interest expense 159 -
Depreciation and amorti-
zation 98,472 -
---------- ----------
300,539 -
---------- ----------
Earnings Before Minority Interest
in Income of Consolidated Joint
Venture 759,340 -
Minority Interest in Income of
Consolidated Joint Venture (14,752) -
---------- ----------
Net Earnings $ 744,588 $ -
========== ==========
Earnings Per Share of Common
Stock $ .16 $ -
========== ==========
Weighted Average Number of
Shares of Common Stock
Outstanding 4,649,040 -
========== ==========
See accompanying notes to condensed consolidated
financial statements.
<TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
QUARTER ENDED MARCH 31, 1996 AND
YEAR ENDED DECEMBER 31, 1995
Accumulated
distributions
Common stock Capital in in excess
Number Par excess of of net
of shares value par value earnings Total
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 20,000 $ 200 $ 199,800 $ - $ 200,000
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment plan 3,845,416 38,454 38,415,704 - 38,454,158
Stock issuance costs - - (6,403,671) - (6,403,671 )
Net earnings - - - 368,779 368,779
Distributions
declared ($.03
to $.06 per
share) - - - (638,618 ) (638,618 )
---------- ------- ----------- --------- -----------
Balance at
December 31, 1995 3,865,416 38,654 32,211,833 (269,839 ) 31,980,648
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment plan 1,658,772 16,588 16,571,135 - 16,587,723
Stock issuance costs - - (1,799,082) - (1,799,082 )
Net earnings - - - 744,588 744,588
Distributions
declared ($.06
per share) - - - (768,133 ) (768,133 )
---------- ------- ----------- --------- -----------
Balance at
March 31, 1996 5,524,188 $55,242 $46,983,886 $(293,384 ) $46,745,744
========== ======= =========== ========= ===========
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1996 1995
------------ ------------
Increase (Decrease) in Cash and Cash
Equivalents:
Net cash provided by operating
activities $ 710,678 $ -
------------ ------------
Cash Flows From Investing Activities:
Additions to land and buildings
on operating leases (8,886,922) -
Investment in direct financing
lease (10,000) -
Investment in mortgage note
receivable (8,475,000) -
Collection of deferred financing
income 29,663 -
Collection of mortgage note
payments 10,119 -
Increase in other assets (230,181)
-
------------ ------------
Net cash used in investing
activities (17,562,321) -
------------ ------------
Cash Flows From Financing Activities:
Reimbursement of acquisition and
stock issuance costs paid by
related parties on behalf of
the Company (265,491) -
Proceeds of borrowing on line
of credit 53,500 -
Payment of loan costs (53,500) -
Contribution from minority
interest of consolidated
joint venture 92,519 -
Subscriptions received from
stockholders 16,587,723 -
Distribution to minority interest (14,018) -
Distributions to stockholders (771,465) -
Payment of stock issuance costs (1,515,764) -
Other 5,000 -
------------ ------------
Net cash provided by
financing activities 14,118,504 -
------------ ------------
Net Decrease in Cash and Cash Equivalents (2,733,139) -
Cash and Cash Equivalents at Beginning
of Quarter 11,508,445 945
------------ ------------
Cash and Cash Equivalents at End
of Quarter $ 8,775,306 $ 945
============ ============
See accompanying notes to condensed consolidated
financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Quarter Ended
March 31,
1996 1995
------------ ------------
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain
acquisition, organization and
stock issuance costs on behalf
of the Company as follows:
Acquisition costs $ 51,860 $ -
Organization costs - 20,000
Stock issuance costs 264,484 49,035
------------ ------------
$ 316,344 $ 69,035
============ ============
Land, building and other costs
incurred and unpaid at end of
quarter $ 1,355,767 $ -
============ ============
Commissions, marketing support and
due diligence expense reimbursement
fee, and other stock issuance costs
incurred and unpaid at end of quarter $ 195,420 $ 525,439
============ ============
See accompanying notes to condensed consolidated
financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 1996 AND 1995
1. Organization and Nature of Business:
CNL American Properties Fund, Inc. (the "Company") was organized in
Maryland on May 2, 1994, for the purpose of acquiring, directly or
indirectly through joint venture or co-tenancy arrangements, restaurant
properties (the "Properties") to be leased on a long-term, triple-net
basis to operators of certain national and regional fast-food, family-
style and casual dining restaurant chains. To a lesser extent, the
Company intends to offer furniture, fixtures and equipment financing
("Secured Equipment Leases") to operators of restaurant chains. Secured
Equipment Leases will be funded from the proceeds of a loan of up to ten
percent of the gross offering proceeds.
2. Basis of Presentation:
The accompanying unaudited condensed consolidated 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, 1996, may not be indicative of the results that
may be expected for the year ending December 31, 1996. Amounts as of
December 31, 1995, 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 the Company's Form
10-K for the year ended December 31, 1995.
The Company was a development stage enterprise from May 2, 1994 through
June 1, 1995. Since operations had not begun, activities through June 1,
1995, were devoted to organization of the Company.
The Company accounts for its 84.69% interest in CNL/Corral South Joint
Venture using the consolidation method. Minority interest represents the
minority joint venture partner's proportionate share of the equity in the
Company's consolidated joint venture. All significant intercompany
accounts and transactions have been eliminated.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The Statement
requires that an entity review long-lived assets and certain identifiable
intangibles, to be held and used, for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. Adoption of this standard had no material effect
on the Company's financial position or results of operations.
3. Leases:
The Company leases its land and buildings primarily to operators or
franchisees of national and regional fast-food, family-style and casual
dining restaurants. The leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for
Leases." The leases relating to 42 of the Company's Properties have been
classified as operating leases (including the leases relating to four
properties under construction as of March 31, 1996) and the lease relating
to one Property has been classified as a direct financing lease.
4. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at:
March 31, December 31,
1996 1995
Land $14,872,121 $ 8,890,471
Buildings 12,705,708 10,049,032
----------- -----------
27,577,829 18,939,503
Less accumulated depreciation (194,849) (100,318)
----------- -----------
27,382,980 18,839,185
Construction in progress 930,494 884,541
----------- -----------
$28,313,474 $19,723,726
=========== ===========
Some leases provide for escalating guaranteed minimum rents throughout the
lease term. Income from these scheduled rent increases is recognized on a
straight-line basis over the terms of the leases. For the quarter ended
March 31, 1996, the Company recognized $112,905 of such rental income.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at March 31, 1996:
1996 $ 1,993,738
1997 2,711,955
1998 2,716,736
1999 2,723,430
2000 2,738,584
Thereafter 38,247,056
-----------
$51,131,499
===========
These amounts do not include minimum lease payments that will become due
when Properties under development are completed (See Note 13).
5. Net Investment in Direct Financing Lease:
The following lists the components of the net investment in direct
financing lease at:
March 31, December 31,
1996 1995
Minimum lease payments
receivable $ 2,480,522 $ 2,498,881
Estimated residual value - 343,740
Less unearned income (1,120,108) (1,468,739)
----------- -----------
Net investment in direct
financing lease $ 1,360,414 $ 1,373,882
=========== ===========
The following is a schedule of future minimum lease payments to be
received on the direct financing lease at March 31, 1996:
1996 $ 148,848
1997 198,463
1998 198,463
1999 198,463
2000 201,771
Thereafter 1,534,514
----------
$2,480,522
==========
6. Mortgage Note Receivable:
In January 1996, in connection with the acquisition of land for 20 Pizza
Hut restaurants in Ohio and Michigan, the Company accepted a promissory
note in the principal sum of $8,475,000, collateralized by a mortgage on
the buildings on 20 Pizza Hut Properties and three additional Pizza Hut
buildings. The promissory note bears interest at a rate of 10.75% per
annum and is being collected in 240 equal monthly installments of $86,041.
As of March 31, 1996, $8,540,712 was outstanding relating to this note,
including $75,831 in accrued interest.
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair
value of significant financial instruments. Management believes, based
upon the current terms, that the estimated fair value of the Company's
mortgage note receivable is $8,540,712, the same as its carrying value.
7. Other Assets:
Other assets consisted of the following at:
March 31, December 31,
1996 1995
Acquisition fees and miscel-
laneous acquisition expenses
to be allocated to future
properties $1,141,953 $ 806,504
Other 57,963 12,000
---------- ----------
$1,199,916 $ 818,504
========== ==========
8. Note Payable:
On March 5, 1996, the Company entered into a line of credit and security
agreement (the "Loan") with a bank to be used by the Company to offer
Secured Equipment Leases. The Loan provides that the Company will be able
to receive advances of up to $15,000,000 until March 4, 1998. Generally,
advances under the Loan will be fully amortizing term loans repayable in
terms equal to the duration of the Secured Equipment Leases, but in no
event greater than 72 months. In addition, advances for short-term needs
(to acquire equipment to be leased under Secured Equipment Leases) may be
requested in an aggregate amount which does not exceed the Revolving
Sublimit (defined in the Loan as $1,000,000) and such advances may be
repaid and readvanced; provided, however, that advances made pursuant to
the Revolving Sublimit shall be
converted to term loans the earlier of (i) the end of each 60 day period
following the closing date (defined in the Loan as March 5, 1996), or (ii)
when the aggregate amount outstanding equals or exceeds $1,000,000.
Interest on advances made pursuant to the Revolving Sublimit shall be paid
monthly in arrears. In addition, principal amounts under advances
pursuant to the Revolving Sublimit, if not sooner paid or converted into
term loans, shall be paid, together with any unpaid interest relating to
such advances, to the bank on March 5, 1998. Generally, all advances
under the Loan will bear interest at either (i) a rate per annum equal to
215 basis points above the Reserve Adjusted LIBOR Rate (as defined in the
Loan) or (ii) a rate per annum equal to the bank's prime rate, whichever
the Company selects at the time advances are made. As a condition of
obtaining the Loan, the Company agreed to grant to the bank a first
security interest in the Secured Equipment Leases. In connection with the
Loan, the Company incurred a commitment fee, legal fees and closing costs
of $53,500 relating to the Loan. As of March 31, 1996, the note payable
includes $53,500 which had been advanced under the Loan to fund the
commitment fee, legal fees and closing costs related to the Loan, plus
accrued interest of $159. The Company intends to limit advances under the
Loan to 10% of gross proceeds of the offering.
9. Stock Issuance Costs:
The Company has incurred certain expenses of its offering of shares,
including commissions, marketing support and due diligence expense
reimbursement fees, filing fees, legal, accounting, printing and escrow
fees, which have been deducted from the gross proceeds of the offering.
Preliminary costs incurred prior to raising capital were advanced by an
affiliate of the Company, CNL Fund Advisors, Inc. (the "Advisor"). The
Advisor has agreed to pay all organizational and offering expenses
(excluding commissions and marketing support and due diligence expense
reimbursement fees) which exceed three percent of the gross offering
proceeds received from the sale of shares of the Company.
As of March 31, 1996 and December 31, 1995, the Company had incurred a
total of $8,222,753 and $6,423,671, respectively, in organizational and
offering costs, including $4,403,350 and $3,076,333, respectively, in
commissions and marketing support and due diligence expense reimbursement
fees (see Note 11). Of these amounts $8,202,753 and $6,403,671,
respectively, has been treated as stock issuance costs and $20,000 has
been treated as organization costs. The stock issuance costs have been
charged to stockholders' equity subject to the three percent cap described
above.
10. Distributions:
Distributions declared for the quarter ended March 31, 1996, represent
approximately $690,000 of ordinary income and approximately $78,000 of
return of capital to stockholders for federal income tax purposes. No
amounts distributed to the stockholders for the quarter ended March 31,
1996, are required to be or have been treated by the Company as a return
of capital for purposes of calculating the stockholders' return on their
invested capital. The characterization for tax purposes of distributions
declared for the quarter ended March 31, 1996, may not be indicative of
the results that may be expected for the year ending December 31, 1996.
11. Related Party Transactions:
During the quarter ended March 31, 1996, the Company incurred $1,244,079
in selling commissions due to CNL Securities Corp. for services in
connection with the offering of shares. A substantial portion of this
amount ($1,227,505) was or will be paid as commissions to other broker-
dealers.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of the
total amount raised from the sale of shares, a portion of which may be
reallowed to other broker-dealers. During the quarter ended March 31,
1996, the Company incurred $82,939 of such fees.
The Advisor is entitled to receive acquisition fees for services in
identifying the Properties and structuring the terms of the acquisition
and leases of the Properties equal to 4.5% of the total amount raised from
the sale of shares. During the quarter ended March 31, 1996, the Company
incurred $746,448 of such fees.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor will receive a monthly asset management fee
of one-twelfth of 0.60% of the Company's real estate asset value
(generally, the total amount invested in the Properties as of the end of
the preceding month, exclusive of acquisition fees and acquisition
expenses). The asset management fee, which will not exceed fees which are
competitive for similar services in the same geographic area, may or may
not be taken, in whole or in part as to any year, in the sole discretion
of the Advisor. All or any portion of the management fee not taken as to
any fiscal year shall be deferred without interest and may be taken in
such other fiscal year as the Advisor shall determine. In addition, the
advisory agreement provides that the Advisor will receive a monthly
mortgage management fee of one-twelfth of .60% of the Company's total
principal amount of the mortgage loans as of the end of the preceding
month. As of March 31, 1996, the Company incurred $33,289 in asset
management fees, $1,394 of which was capitalized as part of the cost of
building for Properties under construction and $8,475 in mortgage
management fees.
The Advisor and its affiliates provide accounting and administrative
services to the Company (including accounting and administrative services
in connection with the offering of shares) on a day-to-day basis. For the
quarters ended March 31, 1996 and 1995, the expenses incurred for these
services were classified as follows:
1996 1995
Deferred offering costs $ - $ 43,410
Stock issuance costs 185,113 -
General operating and
administrative expenses 74,032 -
-------- --------
$259,145 $ 43,410
======== ========
During the quarter ended March 31, 1996, the Company acquired one Property
for approximately $820,625 from an affiliate of the Company. The
affiliate had purchased and temporarily held title to the Property in
order to facilitate the acquisition of the Property by the Company. The
Property was acquired at a cost no greater than the lesser of the cost of
the Property to the affiliate (including carrying costs) or the Property's
appraised value.
The due to related parties consisted of the following at:
March 31, December 31,
1996 1995
Due to the Advisor:
Expenditures incurred
on behalf of the
Company and accounting
and administrative
services $150,140 $108,316
Acquisition fees 143,485 45,118
Asset and mortgage
management fees 20,515 9,108
Distributions - 3,332
-------- --------
314,140 165,874
-------- --------
Due to CNL Securities Corp:
Commissions 94,947 75,197
Marketing support and due
diligence expense reim-
bursement fees 6,331 5,013
-------- --------
101,278 80,210
-------- --------
Other - 2,500
-------- --------
$415,418 $248,584
======== ========
12. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees, or affiliated groups of lessees, each representing
more than ten percent of the Company's total rental and earned income for
the quarter ended March 31, 1996:
Golden Corral Corporation $207,664
Corral South Store I, Inc. 102,779
Castle Hill Holdings V, LLC 97,576
Foodmaker, Inc. 82,633
Northstar Restaurants, Inc. 82,341
During the quarter ended March 31, 1996, the Company also earned $184,949
in interest income from a mortgage note receivable under which Castle Hill
Holdings V, LLC is the borrower.
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than ten
percent of the Company's total rental and earned income for the quarter
ended March 31, 1996:
Golden Corral Family Steakhouse
Restaurants $371,290
Pizza Hut 97,576
Jack in the Box 82,633
Boston Market 82,341
Although the Company's Properties are geographically diverse and the
Company's lessees operate a variety of restaurant concepts, failure of any
one of these restaurant chains or any lessee that contributes more than
ten percent of the Company's rental income could significantly impact the
results of operations of the Company. However, management believes that
the risk of such a default is reduced due to the essential or important
nature of these Properties for the on-going operations of the lessee.
It is expected that the percentage of total rental and earned income
contributed by these lessees and restaurant chains will decrease as
additional Properties are acquired and leased in 1996 and subsequent
years.
13. Commitments:
The Company has entered into various development agreements with tenants
which provide terms and specifications for the construction of buildings
the tenants have agreed to lease once construction is completed. The
agreements provide a maximum amount of development costs (including the
purchase price of the land and closing costs) to be paid by the Company.
The aggregate maximum development costs the Company has agreed to pay is
approximately $5,817,200, of which approximately $2,613,400 in land and
other costs had been incurred as of March 31, 1996. The buildings
currently under construction are expected to be operational by August
1996. In connection with the purchase of each Property, the Company, as
lessor, entered into a long-term lease agreement.
14. Subsequent Events:
During the period April 1, 1996 through May 9, 1996, the Company received
subscription proceeds for an additional 997,797 shares ($9,977,971) of
common stock.
On April 1, 1996 and May 1, 1996, the Company declared distributions of
$323,748 and $368,153, respectively, or $.0583 per share of common stock,
payable in June 1996, to stockholders of record on April 1, 1996 and May
1, 1996, respectively.
During the period April 1, 1996 through May 9, 1996, the Company acquired
eight Properties (five of which are undeveloped land on which restaurants
are being constructed and three of which are land only) for cash at a
total cost of approximately $2,755,000, excluding closing and development
costs. In connection with the purchase of each Property, the Company, as
lessor, entered into a long-term lease agreement. The development costs
(including the purchase of the land and closing costs) to be paid by the
Company relating to the five properties under construction are estimated
to be approximately $6,193,000. The buildings under construction are
expected to be operational by October 1996.
ADDENDUM TO
EXHIBIT E
PRO FORMA ESTIMATE OF TAXABLE INCOME
BEFORE DIVIDENDS PAID DEDUCTION
The pro forma estimate of taxable income contained in this addendum should
be read in conjunction with Exhibit E to the attached prospectus, dated
April 26, 1996.
PRO FORMA ESTIMATE OF TAXABLE INCOME BEFORE DIVIDENDS PAID DEDUCTION OF
CNL AMERICAN PROPERTIES FUND, INC.
GENERATED FROM THE OPERATIONS OF PROPERTIES ACQUIRED FROM APRIL 10, 1996
THROUGH JULY 16, 1996
FOR A 12-MONTH PERIOD (UNAUDITED)
The following schedule represents pro forma unaudited estimates of taxable
income before dividends paid deduction of each Property acquired by the Company
from April 10, 1996 through July 16, 1996, for the 12-month period commencing on
the date of the inception of the respective lease on such Property. The
schedule should be read in light of the accompanying footnotes.
These estimates do not purport to present actual or expected operations of
the Company for any period in the future. These estimates were prepared on the
basis described in the accompanying notes which should be read in conjunction
herewith. No single lessee or group of affiliated lessees lease Properties or
has borrowed funds from the Company with an aggregate purchase price in excess
of 20% of the expected total net offering proceeds of the Company.
<TABLE>
TGI Friday's Wendy's Golden Corral Ten Pizza
Hamden, CT (7) Knoxville, TN (7)(8) Port Richey, FL (7) Hut Properties
<S> <C> <C> <C> <C>
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $ 173,714 $ 81,898 $ 196,972 $ 166,320
Interest Income (2) - - - 415,686
---------- ---------- ---------- ----------
Total Revenues 173,714 81,898 196,972 582,006
---------- ---------- ---------- ----------
Asset Management Fees (3) (6,808) (4,746) (10,233) (8,922)
Mortgage Management Fee (4) - - - (23,167)
General and Administrative
Expenses (5) (10,770) (5,078) (12,212) (36,084)
---------- ---------- ---------- ----------
Total Operating Expenses (17,578) (9,824) (22,445) (68,173)
---------- ---------- ---------- ----------
Estimated Cash Available from
Operations 156,136 72,074 174,527 513,833
Depreciation and Amortization
Expense (6) (30,652) (13,081) (30,970) (10,498)
---------- ---------- ---------- ----------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 125,484 $ 58,993 $ 143,557 $ 503,335
========== ========== ========== ==========
See Footnotes
Denny's Denny's Wendy's Wendy's
Hillsboro, TX (7) McKinney, TX Camarillo, CA (7)(8) Sevierville, TN(7)(8)
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $ 114,346 $ 104,013 $ 124,655 $ 60,735
Interest Income (2) - - - -
---------- ---------- ---------- ----------
Total Revenues 114,346 104,013 124,655 60,735
---------- ---------- ---------- ----------
Asset Management Fees (3) (6,319) (5,874) (7,224 ) (2,956 )
Mortgage Management Fee (4) - - - -
General and Administrative
Expenses (5) (7,089) (6,449) (7,729 ) (3,766 )
---------- ---------- ---------- ----------
Total Operating Expenses (13,408) (12,323) (14,953 ) (6,722 )
---------- ---------- ---------- ----------
Estimated Cash Available from
Operations 100,938 91,690 109,702 54,013
Depreciation and Amortization
Expense (6) (19,022) (16,066) (17,220 ) (13,308 )
---------- ---------- ---------- ----------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 81,916 $ 75,624 $ 92,482 $ 40,705
========== ========== ========== ==========
See Footnotes
Boston Market Boston Market Jack in the Box Boston Market
Ellisville, MO (7)(9) Golden Valley, MN (7)(9) Humble #1, TX (7)(10) Corvallis, OR (7)
Pro Forma Estimate
of Taxable
Income Before Dividends
Paid Deduction:
Base Rent (1) $ 102,675 $ 112,890 $ 100,061 $ 95,085
Interest Income (2) - - - -
---------- ---------- ---------- ----------
Total Revenues 102,675 112,890 100,061 95,085
---------- ---------- ---------- ----------
Asset Management Fees (3) (5,864 ) (6,448 ) (5,603 ) (5,440 )
Mortgage Management Fee (4)
-
- - -
General and Administrative
Expenses (5) (6,366 ) (6,999 ) (6,204 ) (5,895 )
---------- ----------- ---------- ---------
Total Operating Expenses (12,230 ) (13,447 ) (11,807 ) (11,335 )
---------- ---------- ---------- ----------
Estimated Cash Available from
Operations 90,445 99,443 88,254 83,750
Depreciation and Amortization
Expense (6) (16,272 ) (13,561 ) (15,646
) (16,006 )
---------- ----------- ---------- ----------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 74,173 $ 85,882 $ 72,608 $ 67,744
========== ========== ========== ==========
See Footnotes
Jack in the Box Arby's Boston Market
Houston #1, TX (7) (10) Kendallville, IN Rockwall, TX (7) Total
Pro Forma Estimate
of Taxable
Income Before Dividends
Paid Deduction:
Base Rent (1) $ 95,757 $ 75,812 $ 79,356 $1,684,289
Interest Income (2) - - - 415,686
------------------------ ----------- ---------- ----------
Total Revenues 95,757 75,812 79,356 2,099,975
------------------------- ----------- ----------------- ----------
Asset Management Fees (3) (5,362 ) (4,430 ) (4,551 ) (90,780 )
Mortgage Management Fee (4) - - - (23,167 )
General and Administrative
Expenses (5) (5,937 ) (4,700 ) (4,920 ) (130,198 )
---------- ---------- --------- ----------------
Total Operating Expenses (11,299 ) (9,130 ) (9,471 ) (244,145 )
---------- ---------- ---------- ----------
Estimated Cash Available from
Operations 84,458 66,682 69,885 1,855,830
Depreciation and Amortization
Expense (6) (15,890 ) (7,794 ) (10,183 ) (246,799 )
---------- ---------- --------- ----------------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 68,568 $ 58,888 $ 59,072 $1,609,031
========== ========== ===========================
See Footnotes
<FN>
FOOTNOTES:
(1) Base rent does not include percentage rents which become due if specified
levels of gross receipts are achieved.
(2) The Company entered into a Master Mortgage Note agreement for $3,888,000,
collateralized by building improvements located on the Ten Pizza Hut
Properties. The Master Mortgage Note bears interest at a rate of 10.75%
per annum and principal and interest will be collected in equal monthly
installments over 20 years beginning in July 1996. Amount does not
include $19,440 of loan commitment fees and $19,440 in loan origination
fees collected by the Company at closing from the borrower.
(3) The Properties will be managed pursuant to an advisory agreement between
the Company and CNL Fund Advisors, Inc. (the "Advisor"), pursuant to which
the Advisor will receive monthly asset management fees in an amount equal
to one-twelfth of .60% of the Company's Real Estate Asset Value as of the
end of the preceding month as defined in such agreement. See "Management
Compensation."
(4) For managing the Mortgage Loans, the Advisor will be entitled to receive a
monthly mortgage management fee of one-twelfth of .60% of the total
principal amount of the Mortgage Loans as of the end of the preceding
month. See "Management Compensation."
(5) Estimated at 6.2% of gross rental income and interest income based on the
previous experience of Affiliates of the Advisor with 17 public limited
partnerships which own properties similar to those owned by the Company.
Amount does not include soliciting dealer servicing fee due to the fact
that such fee will not be incurred until December 31 of the year following
the year in which the offering terminates.
(6) The estimated federal tax basis of the depreciable portion (the building
portion) of the Properties has been depreciated on the straight-line
method over 39 years. In connection with the Ten Pizza Hut Properties,
acquisition fees allocated to the Master Mortgage Note have been amortized
on a straight-line basis over the life of the agreement (20 years).
(7) The Company accepted an assignment of an interest in the ground lease
relating to the Hamden and Sevierville Properties effective April 24, 1996
and June 5, 1996, respectively, in consideration of its funding of certain
preliminary development costs and its agreement to fund remaining
development. The development agreements for the Properties which are to
be constructed provide that construction must be completed no later than
the dates set forth below:
Property Estimated Final Completion Date Property Estimated Final Completion Date
Hamden Property September 21, 1996 Ellisville Property December 15, 1996
Knoxville Property September 5, 1996 Golden Valley Property December 16, 1996
Port Richey Property October 5, 1996 Humble #1 Property December 16, 1996
Hillsboro Property December 2, 1996 Corvallis Property January 5, 1997
Camarillo Property October 3, 1996 Houston #1 Property January 5, 1997
Sevierville Property October 3, 1996 Rockwall Property January 11, 1997
(8) The lessee of the Knoxville, Camarillo, and Sevierville Properties is the
same unaffiliated lessee.
(9) The lessee of the Ellisville and Golden Valley Properties is the same
unaffiliated lessee.
(10) The lessee of the Humble #1 and Houston #1 Properties is the same
unaffiliated lessee.
</TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
SHARES OF COMMON STOCK
Minimum Purchase 250 Shares ($2,500)
100 Shares ($1,000) for IRAs and Keogh and Pension Plans
(Minimum purchase may be higher in certain states)
CNL AMERICAN PROPERTIES FUND, INC. (the Company ) is a Maryland
corporation which intends to qualify and remain qualified for federal income tax
purposes as a real estate investment trust (a REIT ). THE COMPANY MAY SELL UP
TO 16,500,000 SHARES FOR A MAXIMUM OF $165,000,000. The Company has been formed
primarily to acquire restaurant properties (the Properties ) located across the
United States to be leased on a long-term, triple-net basis to creditworthy
operators of selected national and regional fast-food, family-style, and casual
dining restaurant chains (the Restaurant Chains ). Under the Company's triple-
net leases, the tenant will be responsible for property costs associated with
ongoing operations, including repairs, maintenance, property taxes, utilities,
and insurance. In addition, the leases will be structured to require the tenant
to pay (i) base annual rent, with automatic increases in the base rent, and (ii)
percentage rent based on certain restaurant sales above a specified level. The
Company may provide financing (the Mortgage Loans ) for the purchase of
buildings, generally by tenants that lease the underlying land from the Company.
To a lesser extent, the Company intends to offer furniture, fixture and
equipment financing ( Secured Equipment Leases ) to operators of Restaurant
Chains. Secured Equipment Leases will be funded from the proceeds of a loan in
an amount up to 10% of Gross Proceeds (the Loan ) which the Company has
obtained. The Company is not a mutual fund or other type of investment company
within the meaning of the Investment Company Act of 1940, and is not subject to
regulation thereunder. The Company is not affiliated with the United States
Government.
THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMPANY (SEE
RISK FACTORS ), INCLUDING THE FOLLOWING:
o Both the number of Properties that the Company will acquire and the
diversification of its investments will be reduced to the extent that the
total proceeds of the offering are less than $165,000,000. As of April 9,
1996, the total offering proceeds were $57,887,405.
o The Company will rely on CNL Fund Advisors, Inc. (the Advisor ) with respect
to all investment decisions subject to approval by the Board of Directors in
certain circumstances. The experience of the Advisor and Directors of the
Company with mortgage financing and equipment leasing is limited.
o The Advisor and its Affiliates are or will be engaged in other activities
that will result in potential conflicts of interest with the services that
the Advisor will provide to the Company.
o The Company owned, as of April 9, 1996, 48 Properties of the anticipated
total of 140 to 160 Properties, and investors, therefore, will not have the
opportunity to evaluate all the Properties that the Company eventually will
acquire.
o There is currently no public trading market for the Shares, and there is no
assurance that one will develop.
o If the Shares are not listed on a national securities exchange or over-the-
counter market ( Listing ) within ten years of commencement of the offering,
as to which there can be no assurance, the Company will commence orderly sale
of its assets and the distribution of the proceeds. Listing does not assure
liquidity.
o Market and economic conditions that the Company cannot control will have an
effect (either positive or negative) on the value of the Company's
investments and the amount of cash that the Company receives from tenants and
lessees.
o Prior to meeting certain conditions, the Company may incur debt, including
debt to make Distributions to stockholders, but will not encumber Properties.
THE COMPANY'S PRIMARY INVESTMENT OBJECTIVES are to preserve, protect, and
enhance the Company's assets while (i) making Distributions commencing in the
initial year of Company operations; (ii) obtaining fixed income through the
receipt of base rent, and increasing the Company's income (and Distributions)
and providing protection against inflation through automatic increases in base
rent and receipt of percentage rent, and obtaining fixed income through the
receipt of payments from Secured Equipment Leases; (iii) qualifying as a REIT
for federal income tax purposes; and (iv) providing stockholders of the Company
with liquidity of their investment within five to ten years after commencement
of the offering, either in whole or in part, through (a) Listing, or (b) the
commencement of orderly sales of the Company's assets and distribution of the
proceeds thereof (outside the ordinary course of business and consistent with
its objective of qualifying as a REIT). There can be no assurance that these
investment objectives will be met.
This Prospectus describes an investment in Shares of the Company. The
Company will use stockholders' funds to purchase the Properties and make
Mortgage Loans and will borrow money to fund Secured Equipment Leases. No
stockholder may hold more than 9.8% of the total Shares. Of the proceeds from
the sale of Shares, approximately 84% (in the event $150,000,000 or more is
raised) will be used to acquire Properties and make Mortgage Loans, and
approximately 9% will be paid in fees and expenses to Affiliates of the Company
for their services; the balance will be used to pay other expenses of the
offering. The Company has registered an offering of 16,500,000 Shares, with
1,500,000 of such Shares available only to stockholders purchasing Shares in
this initial public offering who receive a copy of this Prospectus and who elect
to participate in the Company's reinvestment plan (the Reinvestment Plan ).
Any participation in such plan by a person who becomes a stockholder otherwise
than by participating in this offering must be made pursuant to a solicitation
under a separate prospectus. See Summary of Reinvestment Plan. Prior
programs sponsored by Affiliates of the Company and the Advisor are in limited
partnership form. See Prior Performance Information.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
==============================================================================================================================
Price to Selling Proceeds to
Public Commissions(1) Company(2)
<S> <C> <C> <C>
Per Share . . . . . . . . . . . . . . . . . . . . .
$ 10.00 $ 0.75 $ 9.25
Total Minimum . . . . . . . . . . . . . . . . . . . .
$ 1,500,000 $ 112,500 $ 1,387,500
Total Maximum(3) . . . . . . . . . . . . . . . . . . .
$ 165,000,000 $ 12,375,000 $ 152,625,000
==============================================================================================================================
</TABLE>
(footnotes on following page)
(1) CNL Securities Corp. (the Managing Dealer ) will receive Selling
Commissions of 7.5% on sales of Shares, subject to reduction in
certain circumstances. The Managing Dealer, which is an Affiliate
of the Company, may engage other broker-dealers that are members of
the National Association of Securities Dealers, Inc. or other
entities exempt from broker-dealer registration (collectively, the
Soliciting Dealers ) to sell Shares and reallow to them commissions
of up to 7% with respect to Shares which they sell. The amounts
indicated for Selling Commissions assume that reduced Selling
Commissions are not paid in connection with the purchase of any
Shares and do not include a 0.5% marketing support and due diligence
expense reimbursement fee payable to the Managing Dealer, all or a
portion of which may be reallowed to certain Soliciting Dealers.
Such amounts also do not include a Soliciting Dealer Servicing Fee
payable to the Managing Dealer by the Company (see Management
Compensation ), all or a portion of which may be reallowed to
certain Soliciting Dealers. See The Offering Plan of
Distribution for a discussion of the circumstances under which
reduced Selling Commissions may be paid and a description of the
marketing support and due diligence expense reimbursement fee
payable to the Managing Dealer.
(2) Before deducting (i) organizational and offering expenses of the
Company estimated to be 3% of gross offering proceeds computed at
$10.00 per Share sold ( Gross Proceeds ) on the sale of 15,000,000
Shares and (ii) the marketing support and due diligence expense
reimbursement fee. Organizational and offering expenses exclude
Selling Commissions and the marketing support and due diligence
reimbursement fee. The Advisor will pay all organizational and
offering expenses which exceed 3% of the Gross Proceeds.
(3) Assumes that the Managing Dealer exercises its option to sell an
additional 5,000,000 Shares in the event the offering is
oversubscribed. Also includes 1,500,000 Shares which may be issued
pursuant to the Company's Reinvestment Plan. Those stockholders who
elect to participate in the Reinvestment Plan will have their
Distributions reinvested in additional Shares.
NEITHER THE ATTORNEY GENERAL OF THE STATE OF NEW YORK NOR THE
ATTORNEY GENERAL OF THE STATE OF NEW JERSEY OR THE BUREAU OF SECURITIES OF THE
STATE OF NEW JERSEY HAS PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
All subscription funds for Shares will be deposited in an interest-
bearing escrow account with SouthTrust Estate & Trust Company, Inc., which will
act as the escrow agent for this offering. As of June 1, 1995, the Company had
received aggregate subscription proceeds of $1,955,500, which exceeded the
minimum offering amount of $1,500,000, and $1,836,500 of the funds (excluding
funds received from Iowa, Minnesota, New York, Ohio and Pennsylvania investors)
were released from escrow. As of April 9, 1996, the Company had received
aggregate subscription proceeds of $57,887,405 (5,788,741 Shares) from 3,440
stockholders, including $128,151 (12,815 Shares) issued pursuant to the
Reinvestment Plan. The Company has elected to extend the offering of Shares
until a date no later than March 29, 1997 (two years after the initial date of
this Prospectus), in states that permit such extension.
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION
IN ANY STATE IN WHICH SUCH OFFER OR SALE WOULD BE UNLAWFUL, AND NO SUBSCRIPTION
WILL BE ACCEPTED FROM ANY PERSON WHO DOES NOT MEET THE SUITABILITY STANDARDS SET
FORTH HEREIN. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER
SHALL CREATE, UNDER ANY CIRCUMSTANCES, AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. IF, HOWEVER, ANY
MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED,
THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY
REPRESENTATIONS TO THE CONTRARY, AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE
WHICH MAY FLOW FROM AN INVESTMENT IN THIS COMPANY IS PROHIBITED.
TABLE OF CONTENTS
Page
SUMMARY OF THE OFFERING 1
RISK FACTORS 9
Investment Risks 9
Real Estate and Financing Risks 12
Tax Risks 15
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE 17
ESTIMATED USE OF PROCEEDS 19
MANAGEMENT COMPENSATION 20
CONFLICTS OF INTEREST 26
Prior and Future Programs 26
Acquisition of Properties 26
Sales of Properties 27
Joint Investment With An Affiliated Program 27
Competition for Management Time 27
Compensation of the Advisor 28
Relationship with Managing Dealer 28
Legal Representation 28
Certain Conflict Resolution Procedures 28
SUMMARY OF REINVESTMENT PLAN 30
REDEMPTION OF SHARES 32
BUSINESS 34
General 34
Property Acquisitions 37
Site Selection and Acquisition of Properties 70
Standards for Investment in Properties 73
Description of Properties 74
Description of Property Leases 75
Joint Venture Arrangements 78
Mortgage Loans 79
Management Services 80
Borrowing 80
Sale of Properties, Mortgage Loans, and Secured Equipment Leases 81
Franchise Regulation 82
Competition 82
Regulation of Mortgage Loans and Secured Equipment Leases 82
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
OF THE COMPANY 82
MANAGEMENT 87
General 87
Fiduciary Responsibility of the Board of Directors 87
Directors and Executive Officers 88
Independent Directors 90
Committees of the Board of Directors 90
Compensation of Directors and Executive Officers 91
Management Compensation 91
THE ADVISOR AND THE ADVISORY AGREEMENT 91
The Advisor 91
The Advisory Agreement 91
PRIOR PERFORMANCE INFORMATION 94
INVESTMENT OBJECTIVES AND POLICIES 98
General 98
Certain Investment Limitations 99
DISTRIBUTION POLICY 100
General 100
Distributions 101
SUMMARY OF THE ARTICLES OF INCORPORATION AND BYLAWS 101
General 101
Description of Capital Stock 102
Board of Directors 102
Stockholder Meetings 103
Advance Notice for Stockholder Nominations for
Directors and Proposals of New Business 103
Amendments to the Articles of Incorporation 103
Mergers, Combinations, and Sale of Assets 103
Termination of the Company and REIT Status 103
Restriction of Ownership 104
Responsibility of Directors 105
Limitation of Liability and Indemnification 105
Removal of Directors 106
Inspection of Books and Records 106
Restrictions on Roll-Up Transactions 106
FEDERAL INCOME TAX CONSIDERATIONS 107
Introduction 107
Taxation of the Company 107
Taxation of Stockholders 112
State and Local Taxes 115
Characterization of Property Leases 115
Characterization of Secured Equipment Leases 116
Investment in Joint Ventures 116
REPORTS TO STOCKHOLDERS 117
THE OFFERING 118
General 118
Plan of Distribution 118
Subscription Procedures 120
Escrow Arrangements 122
ERISA Considerations 122
Determination of Offering Price 124
SUPPLEMENTAL SALES MATERIAL 124
LEGAL OPINIONS 124
EXPERTS 124
ADDITIONAL INFORMATION 124
DEFINITIONS 125
Form of Amended Reinvestment Plan Exhibit A
Financial Information Exhibit B
Prior Performance Tables Exhibit C
Subscription Agreement Exhibit D
Pro Forma Estimate of Taxable Income Exhibit E
SUMMARY OF THE OFFERING
THIS SECTION SUMMARIZES CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS AND IS INTENDED FOR QUICK REFERENCE ONLY. THIS IS NOT A COMPLETE
DESCRIPTION OF THE INVESTMENT. POTENTIAL STOCKHOLDERS MUST READ AND EVALUATE
THE FULL TEXT OF THIS PROSPECTUS AND ALL SUPPORTING DOCUMENTS ATTACHED AS
EXHIBITS HERETO IN ORDER TO EVALUATE AN INVESTMENT IN THE COMPANY. THE
FOLLOWING SUMMARY THEREFORE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THIS PROSPECTUS AND THE SUPPORTING DOCUMENTS.
CNL AMERICAN PROPERTIES FUND, INC.
CNL American Properties Fund, Inc. (the Company) is a Maryland
corporation which intends to qualify and remain qualified for federal income tax
purposes as a real estate investment trust (a REIT ). The Company's address is
400 East South Street, Suite 500, Orlando, Florida 32801, telephone
(407) 422-1574 or toll free (800) 522-3863.
The Company has acquired and intends to continue to acquire restaurant
properties (the Properties ) located across the United States. The Properties
will be leased to creditworthy operators of selected national and regional
restaurant chains, primarily fast-food, family-style, and casual dining chains
(the Restaurant Chains ). The Company expects to structure its leases of the
Properties to provide for payment of base annual rents with automatic increases
and percentage rents based on gross sales. All leases will be on a long-term
(generally, 15 to 20 years, plus renewal options for an additional 10 to 20
years), triple-net basis, which means that the tenant will be responsible for
repairs, maintenance, property taxes, utilities, and insurance. The Company has
provided and intends to continue to provide financing (the Mortgage Loans ) for
the purchase of buildings, generally by tenants that lease the underlying land
from the Company. The Company expects that the economic effects of the Mortgage
Loans will be similar to those of its leases (generally with full repayment in
15 to 20 years). The Company also will offer furniture, fixtures and equipment
( Equipment ) financing to operators of Restaurant Chains pursuant to which the
Company will provide, through direct financing leases, the Equipment
(collectively, the Secured Equipment Leases ). No offering proceeds will be
used for the purpose of funding Secured Equipment Leases. The Company has
obtained a $15,000,000 line of credit (the Loan ) to be used by the Company to
fund Secured Equipment Leases. The Loan provides that the Company will be able
to receive advances under the line of credit until March 4, 1998. Generally,
advances under the Loan will be fully amortizing term loans repayable over
periods of time equal to the duration of the Secured Equipment Leases, but in no
event greater than 72 months. The Company intends to limit advances under the
Loan to 10% of Gross Proceeds of the offering. See Business for a description
of the types of Restaurant Chains that may be selected by the Advisor, the
Property selection and acquisition processes, the nature of the Mortgage Loans
and Secured Equipment Leases and a description of the Loan.
Under the Company's Articles of Incorporation, the Company automatically
will terminate and dissolve on December 31, 2005 unless the shares of Common
Stock of the Company, including the shares offered hereby (the Shares ), are
listed on a national securities exchange or over-the-counter market ( Listing ),
in which event the Company automatically will become a perpetual life entity.
If Listing does not occur within ten years after commencement of the offering,
the Company will undertake, outside the ordinary course of business and
consistent with its objective of qualifying as a REIT, the orderly Sale of the
Company's assets, the distribution of Net Sales Proceeds of such Sales to
stockholders and the limitation of its activities to those related to its
orderly liquidation, unless the stockholders owning a majority of the Shares
elect to amend the Articles of Incorporation to extend the duration of the
Company. See Risk Factors Real Estate and Financing Risks for a complete
discussion of risks relating to future disposition of the Company's assets. If
Listing occurs (which is not assured), then the Board of Directors may elect to
cause the Company to encumber any or all of the Company's Properties in
connection with any borrowing. The Board of Directors anticipates that such
borrowing, in the aggregate, will not exceed 50% of Real Estate Asset Value,
although the maximum amount the Company may borrow is 300% of Net Assets (an
amount which the Company anticipates will correspond to approximately 75% of
Real Estate Asset Value). In general, Net Assets are the Company's total assets
(other than intangibles), calculated at cost, less total liabilities. As a
perpetual life entity following Listing, the Company would not be required to
dissolve and return capital to stockholders. If Listing occurs, in order to
liquidate their investment stockholders would have to sell their Shares in the
market on which the Shares are traded. Listing is no assurance of liquidity.
See Risk Factors Investment Risks for a discussion of risks associated with
the lack of liquidity of the Shares and with borrowing. In addition, following
Listing the Company intends to reinvest proceeds from Sales of Properties rather
than distribute such proceeds to stockholders.
RISK FACTORS
The Risk Factors section discusses in detail the more important risks
associated with an investment in the Company, including risks associated with an
investment in a real estate investment trust such as the Company, risks
associated with an investment in real estate such as the Properties, risks
associated with the Mortgage Loans, risks associated with Secured Equipment
Leases, and tax risks. These risks include:
o Risks of reduced diversification in the Company's investments if the
Company does not raise $165,000,000 from sales of Shares.
o Risks of reliance on CNL Fund Advisors, Inc. (the Advisor ) and the Board
of Directors, which together will have responsibility for the management
of the Company and its investments, subject to the ability of the
stockholders to elect the Directors.
o Risks relating to the fact that the services to be performed by the
Advisor and its Affiliates for the Company in connection with the
offering, the selection and acquisition of the Properties, the making of
Mortgage Loans, the administration of the Secured Equipment Lease program
and the general operation of the Company will result in conflicts of
interest.
o Risks related to the fact that, because as of April 9, 1996, the Company
owned only 48 Properties of the anticipated total of 140 to 160
Properties, stockholders therefore will not have the opportunity to
evaluate all the Properties that the Company eventually will acquire.
o Risks that stockholders who must sell their Shares will not be able to
sell them quickly because it is not anticipated that there will be a
public market for the Shares in the near term, and there can be no
assurance that the Listing will occur.
o Market risks associated with investments in real estate, which means that
the amount of cash the Company will receive from tenants, lessees or
borrowers cannot be predicted.
o Risks that the Company, prior to meeting certain conditions, may incur
debt, including debt to make Distributions, but will not encumber
Properties.
o Risks of defaults by tenants, lessees or borrowers resulting in decreased
income.
o Risks relating to the fact that the vote of stockholders owning at least a
majority but less than all of the Shares will bind all of the stockholders
as to matters such as the election of Directors and amendment of the
Company's governing documents.
o Risks that restrictions on ownership of more than 9.8% of the shares of
the Company's Common Stock (the Common Stock ) by any single stockholder
or certain related stockholders may have the effect of inhibiting a change
in control of the Company even if such a change is in the interest of a
majority of the stockholders.
o Risks that the Company may not qualify or remain qualified as a REIT for
federal income tax purposes, which could result in subjecting the Company
to federal income tax on its taxable income at regular corporate rates
and, in turn, thereby reducing the amount of funds available for paying
Distributions to stockholders.
ESTIMATED USE OF PROCEEDS
The Company is using the proceeds of the sale of the Shares to acquire
Properties, to make Mortgage Loans, generally in connection with such
acquisitions, and to pay expenses relating to the organization of the Company
and the sale of the Shares. Management of the Company and the Advisor have
estimated an average purchase price of $800,000 to $900,000 per Property based
on their past experience in acquiring similar properties and in light of current
market conditions, although prices of Properties may be lower or higher. See
Business Property Acquisitions for a description of the Properties the
Company has acquired and the Mortgage Loan the Company has made as of April 9,
1996. Assuming CNL Securities Corp. (the Managing Dealer ) exercises its
option to increase the offering from 10,000,000 Shares ($100,000,000) to up to
15,000,000 Shares ($150,000,000) and 15,000,000 Shares are sold, the Company
will acquire approximately 140 to 160 Properties. In addition, the Company has
registered an offering of an additional 1,500,000 Shares ($15,000,000) available
only to stockholders who receive a copy of this Prospectus and who elect to
participate in the Company's reinvestment plan (the Reinvestment Plan ). See
Estimated Use of Proceeds and Business General for a more detailed
description of the anticipated use of offering proceeds. Secured Equipment
Leases will be funded solely from the proceeds of the Loan and the number of
Secured Equipment Leases will not depend on the amount raised in the offering.
CONFLICTS OF INTEREST
Certain officers and Directors of the Company who are also officers or
directors of the Advisor will experience conflicts of interest in their
management of the Company. These arise principally from their involvement in
other activities that will conflict with those of the Company and include
matters related to (i) allocation of properties and management time and services
between the Company and various partnerships and other entities, (ii) the timing
and terms of the sale of a Property, (iii) negotiation and funding of Mortgage
Loans, (iv) administration of the Secured Equipment Lease program,
(v) investments with Affiliates of the Advisor, (vi) compensation of the
Advisor, (vii) the Company's relationship with the Managing Dealer, which is an
Affiliate of the Company and the Advisor, and (viii) the fact that the Company's
securities and tax counsel also serves as securities and tax counsel for certain
Affiliates of the Company, and that neither the Company nor the stockholders
will have separate counsel.
The Directors of the Company who are independent of the Advisor (the
Independent Directors) are responsible for monitoring the activities of the
Advisor and must approve all of the Advisor's actions that involve a potential
conflict other than certain such actions specifically permitted by the Articles
of Incorporation. The Conflicts of Interest section discusses in more detail
the more significant of these potential conflicts of interest, as well as the
procedures that have been established to resolve a number of these potential
conflicts.
MANAGEMENT
The Company has retained the Advisor, pursuant to an advisory agreement,
to handle the day-to-day operations of the Company, to select the Company's real
estate investments, and to administer its Secured Equipment Lease program. The
five members of the Board of Directors will oversee the management of the
Company. Three of the Directors of the Company are independent of the Advisor
and have responsibility for reviewing its performance. The Directors are
elected to the Board of Directors annually by the stockholders.
All of the officers and directors of the Advisor also are officers or
Directors of the Company. The Advisor will have responsibility for
(i) selecting the Properties that the Company will acquire, formulating and
evaluating the terms of each proposed acquisition, and arranging for the
acquisition of the Property by the Company, (ii) identifying potential lessees
for the Properties and potential borrowers for the Mortgage Loans, and
formulating, evaluating, and negotiating the terms of each lease of a Property
and each Mortgage Loan, and (iii) locating and identifying potential lessees and
formulating, evaluating, and negotiating the terms of each Secured Equipment
Lease. All of the foregoing actions are subject to approval by the Board of
Directors. The Advisor also will have the authority, subject to approval by a
majority of the Board of Directors, including a majority of the Independent
Directors, to select Properties for Sale in keeping with the Company's
investment objectives and based on an analysis of economic conditions both
nationally and in the vicinity of the Property being considered for Sale.
The Company's Articles of Incorporation provide that, if Listing does not
occur within ten years from the commencement of this offering, the Company will
commence orderly Sales of its assets and distribute the proceeds thereof. In
that case, the Company will engage only in activities related to its orderly
liquidation unless the stockholders elect otherwise.
See Management and The Advisor and the Advisory Agreement for a
description of the business background of the individuals responsible for the
management of the Company and the Advisor, as well as for a description of the
services that the Advisor will provide.
MANAGEMENT COMPENSATION
The Advisor, the Managing Dealer, and other Affiliates of the Advisor will
receive compensation for services they will perform for the Company and also
will receive expense reimbursements from the Company for expenses they pay on
behalf of the Company. See Management Compensation for a description of
compensation paid to the Advisor and Affiliates as of December 31, 1995. The
following paragraphs summarize the more significant items of compensation.
In connection with the formation of the Company and the offering of the
Shares, the Managing Dealer will receive Selling Commissions of 7.5% (a maximum
of $11,250,000 if 15,000,000 Shares are sold), and a marketing support and due
diligence expense reimbursement fee of 0.5% (a maximum of $750,000 if 15,000,000
Shares are sold), of the total amount raised from the sale of Shares, computed
at $10.00 per Share sold ( Gross Proceeds ). The Managing Dealer in turn may
reallow Selling Commissions of up to 7% on Shares sold, and all or a portion of
the 0.5% marketing support and due diligence expense reimbursement fee to
certain Soliciting Dealers, who are not Affiliates of the Company. In addition,
the Company will incur a Soliciting Dealer Servicing Fee in the amount of .20%
of Invested Capital (as defined below) (a maximum of $300,000 if 15,000,000
Shares are sold). The Soliciting Dealer Servicing Fee will be payable on
December 31 of each year, commencing on December 31 of the year following the
year in which the offering terminates, and generally will be payable to the
Managing Dealer, which in turn may reallow all or a portion of such fee to
Soliciting Dealers whose clients held Shares on such date. The Company also may
pay the Soliciting Dealer Servicing Fee directly to any Soliciting Dealer exempt
from registration as a broker-dealer and whose clients held Shares on such date.
In general, the stockholders' investment in the Company ( Invested Capital ) is
the number of Shares they own, multiplied by $10.00 per Share, reduced by the
portion of all prior Distributions received by stockholders from the Sale of one
or more Properties and by any amounts paid by the Company to repurchase Shares
pursuant to the redemption plan.
For identifying the Properties and structuring the terms of the
acquisition and leases of the Properties, the Advisor will receive Acquisition
Fees equal to 4.5% of Gross Proceeds (a maximum of $6,750,000 if 15,000,000
Shares are sold) from the sale of Shares.
In connection with the acquisition of Properties that have been
constructed or renovated by Affiliates, subject in each case to the approval of
a majority of the Board of Directors including a majority of the Independent
Directors, the Company will incur Development/Construction Management Fees of
generally 5% to 10% of the cost of constructing or renovating a Property,
payable to Affiliates of the Company as Acquisition Fees. Such fees will be
included in the purchase price of Properties purchased from developers that are
Affiliates of the Company. See Business - Site Selection and Acquisition of
Properties. Development/Construction Management Fees, which are based on the
number of Properties purchased from developers that are Affiliates of the
Company, the cost of construction or renovation of such Properties, and the
percentage amount of each development/construction management fee, are not
determinable at this time.
In connection with the acquisition of Properties from affiliated or
unaffiliated developers, subject in each case to the approval of a majority of
the Board of Directors including a majority of the Independent Directors, to
whom Affiliates of the Company have provided construction financing, the Company
will incur Construction Financing Fees, payable to Affiliates of the Company as
Acquisition Fees. Such fees will be in an amount equal to generally 1% to 2% of
the total amount of each loan plus the difference between the Affiliate-lender's
cost of funds and the amount of interest charged to the developer, with such
difference determined by applying an annual percentage rate of generally 1.5% to
3% throughout the duration of the loan to the outstanding amount of the loan.
Such fees will be included in the purchase price of Properties purchased from
developers that receive such loans. See Business - Site Selection and
Acquisition of Properties. Construction Financing Fees, which are based on the
number of Properties for which Affiliates of the Company provide construction
financing, the amount and duration of such loans, and the amount of each
construction financing fee, are not determinable at this time.
The total of all Acquisition Fees and Acquisition Expenses shall be
reasonable and shall not exceed an amount equal to 6% of the Real Estate Asset
Value of a Property, or in the case of a Mortgage Loan, 6% of the funds
advanced, unless a majority of the Board of Directors, including a majority of
the Independent Directors, not otherwise interested in the transaction approves
fees in excess of these limits subject to a determination that the transaction
is commercially competitive, fair and reasonable to the Company.
For managing the Properties, the Advisor will be entitled to receive a
monthly Asset Management Fee of one-twelfth of .60% of the Company's Real Estate
Asset Value (generally, the total amount invested in the Properties, exclusive
of Acquisition Fees and Acquisition Expenses) as of the end of the preceding
month.
For managing the Mortgage Loans, the Advisor will be entitled to receive a
monthly Mortgage Management Fee of one-twelfth of .60% of the total principal
amount of the Mortgage Loans as of the end of the preceding month.
For negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program, the Advisor will be entitled to receive from the
Company a one-time Secured Equipment Lease Servicing Fee of 2% of the purchase
price of the Equipment that is the subject of a Secured Equipment Lease.
Prior to Listing, the Advisor may receive a real estate disposition fee of
3% of the gross sales price of one or more Properties for providing substantial
services in connection with the Sale, which will be deferred and subordinated
until the stockholders have received Distributions equal to the sum of 100% of
the stockholders' aggregate Invested Capital plus an aggregate, annual,
cumulative, noncompounded 8% return on their Invested Capital, excluding
Distributions attributable to proceeds of the Sale of a Property (the
Stockholders' 8% Return ). Upon Listing, if the Advisor has accrued but not
been paid such real estate disposition fee, then for purposes of determining
whether the subordination conditions have been satisfied, stockholders will be
deemed to have received a Distribution in an amount equal to the product of the
total number of Shares outstanding and the average closing prices of the Shares
over a period, beginning 180 days after Listing, of 30 days during which the
Shares are traded. See The Advisor and The Advisory Agreement The Advisory
Agreement.
A subordinated share of Net Sales Proceeds will be paid to the Advisor
upon the Sale of one or more Properties or Secured Equipment Leases in an amount
equal to 10% of Net Sales Proceeds. This amount will be subordinated and paid
only after the stockholders have received Distributions equal to the sum of 100%
of the stockholders' aggregate Invested Capital, plus the Stockholders' 8%
Return.
Payment of certain fees is subject to conditions and restrictions or to
change under certain specified circumstances. The Advisor and its Affiliates
also may receive reimbursement for out-of-pocket expenses that they incur on
behalf of the Company, subject to certain expense limitations, and a
subordinated incentive fee if Listing occurs.
SUMMARY OF REINVESTMENT PLAN
The Company has established the Reinvestment Plan pursuant to which
stockholders may elect to have their cash Distributions from the Company
automatically reinvested in Shares. See Summary of Reinvestment Plan,
Federal Income Tax Considerations Taxation of Stockholders, and the form of
Reinvestment Plan accompanying this Prospectus as Exhibit A for more specific
information about the Reinvestment Plan. Expenses incurred in connection with
the Reinvestment Plan, including Selling Commissions and marketing support and
due diligence expense reimbursement fees, will be paid by the Company. A person
who becomes a stockholder otherwise than by participating in this offering may
purchase Shares through the Reinvestment Plan only after receipt of a separate
prospectus relating solely to the Reinvestment Plan.
BUSINESS (PURCHASE AND SALE OF PROPERTIES AND OFFERING OF MORTGAGE LOANS AND
SECURED EQUIPMENT LEASES)
PROPERTIES AND MORTGAGE LOANS. The types of Properties which the Company
intends to purchase and lease to third parties, as well as a description of the
Properties acquired by the Company as of April 9, 1996, appears in the section
entitled Business. It is expected that the Company will invest in Properties
of selected national and regional restaurant chains, primarily fast-food,
family-style, and casual dining chains, the most rapidly growing segments of the
restaurant industry in recent years. Management intends to structure the
Company's investments to allow it to participate, to the maximum extent
possible, in any sales growth in these industry segments, as reflected in the
Properties that it owns. The Properties, which typically are or will be
freestanding and will be located across the United States, are or will be leased
on a triple-net basis to creditworthy operators of the Restaurant Chains to be
selected by the Advisor and approved by the Board of Directors. The Properties
may consist of both land and building, the land underlying the building with the
building owned by the tenant or a third party, or the building only with the
land owned by a third party. The Properties have been or will be purchased for
cash and will not be encumbered by any liens. If Listing occurs, however, the
Board of Directors may elect to cause the Company to borrow funds in connection
with the purchase of additional Properties or for other Company purposes and to
encumber any or all of the Company's Properties in connection with any such
borrowing. The Board of Directors anticipates that, in the aggregate, borrowing
will not exceed 50% of Real Estate Asset Value, although the maximum amount of
borrowing, in the absence of a satisfactory showing that a higher level of
borrowing is appropriate (as determined by a majority of the Independent
Directors), shall not exceed 300% of Net Assets (an amount which the Company
anticipates will correspond to approximately 75% of Real Estate Asset Value).
Management expects to acquire Properties in part with a view to diversification
among Restaurant Chains and the geographic location of the Properties. The
Company estimates that it will acquire at least 140 to 160 Properties if the
maximum of 15,000,000 Shares is sold, based on an estimated average purchase
price of $800,000 to $900,000 per Property.
To a lesser extent the Company will offer Mortgage Loans to finance the
purchase of buildings by operators of Restaurant Chains. In general, the
Company intends to offer Mortgage Loans in circumstances in which the Company
owns the land underlying the building to be financed and the borrower under the
Mortgage Loan also enters into a long-term ground lease for the underlying land.
Management believes that this combined leasing and financing structure provides
the benefit of allowing the Company to receive the return of its initial
investment plus interest on each financed building, which is generally a
depreciating asset, while retaining the ownership of the underlying land, which
is generally an appreciating asset. However, none of the prior programs
organized by Affiliates of the Company has offered Mortgage Loans and the
experience of the Advisor and Directors of the Company with mortgage financing
is limited. See Risk Factors - Investment Risks - Risks Associated With
Mortgage Loans.
As of April 9, 1996, the Company owned 48 Properties (including 21
Properties which consist of land and building, one Property through a joint
venture arrangement which consists of land and building, three Properties which
consist of a building only, and 23 Properties which consist of land only). In
addition, the Company had initial commitments to acquire 12 Properties
(including one Property which is land and building, one Property which is
building only, and 10 Properties which are land only). The acquisition of each
of these Properties is subject to the fulfillment of certain conditions.
Although the Company believes that there is a reasonable probability that the
Company will acquire these Properties, there can be no assurance that these
conditions will be satisfied or that the Company will purchase one or more of
these Properties. The Company has undertaken to supplement this Prospectus
during the offering period to describe the acquisition of Properties at such
time as the Company believes that a reasonable probability exists that a
Property will be acquired by the Company. Based upon the experience of
management of the Company and the Advisor and the proposed acquisition methods,
a reasonable probability that the Company will acquire a Property normally will
occur as of the date on which (i) a commitment letter is executed by a proposed
lessee, (ii) a satisfactory credit underwriting for the proposed lessee has been
completed, and (iii) a satisfactory site inspection has been completed. See
Business General.
In connection with the acquisition of the 23 Properties which are land
only, the Company has made a single Mortgage Loan secured by the buildings and
other improvements on such Properties.
In connection with the initial commitments with the ten Properties
consisting of land only, the Company anticipates providing mortgage financing to
the tenant which will be collateralized by the building improvements. If the
Mortgage Loan is executed, it is expected to be executed under substantially the
same terms described in Business - Mortgage Loans.
SECURED EQUIPMENT LEASES. The Secured Equipment Leases will be funded
solely from the proceeds of the Loan. The Company expects that the Secured
Equipment Leases will be structured so that they will be treated as loans
secured by personal property for federal income tax purposes. The Company has
neither identified any prospective operators of Restaurant Chains that will
participate in such financing arrangements nor negotiated any specific terms of
a Secured Equipment Lease. See Business General.
The Company has established certain conflict resolution procedures
relating to (i) transactions between the Company and the Advisor or its
Affiliates, (ii) certain future offerings, and (iii) allocation of restaurant
properties and Secured Equipment Leases among certain affiliated entities. See
Conflicts of Interest Certain Conflict Resolution Procedures.
For the first five to ten years after commencement of this offering, the
Company intends to reinvest in additional Properties and Mortgage Loans any
proceeds of the Sale of a Property or Mortgage Loan that are not required to be
distributed to stockholders in order to preserve the Company's status as a REIT
for federal income tax purposes. The proceeds from the Sale of Secured
Equipment Leases will be used to fund additional Secured Equipment Leases, or to
reduce the Company's outstanding indebtedness on the Loan. At or prior to the
end of the ten-year period, the Company intends to provide stockholders of the
Company with liquidity of their investment, either in whole or in part, through
Listing (although there is no assurance of such liquidity), or by commencing
orderly Sales of the Company's assets. If Listing occurs, the Company intends
to reinvest in additional Properties, Mortgage Loans, and Secured Equipment
Leases any Net Sales Proceeds not required to be distributed to stockholders in
order to preserve the Company's status as a REIT. See Business General and
Business Sale of Properties, Mortgage Loans, and Secured Equipment Leases.
INVESTMENT OBJECTIVES AND POLICIES
The Company's primary investment objectives are:
o to preserve, protect, and enhance the Company's assets.
o to make Distributions commencing in the initial year of Company
operations.
o to obtain fixed income through the receipt of base rent, as well as
to increase the Company's income (and Distributions) and provide
protection against inflation through automatic increases in base
rent and receipt of percentage rent, and to obtain fixed income
through the receipt of payments on Secured Equipment Leases.
o to qualify and remain qualified as a REIT for federal income tax
purposes.
o to provide stockholders of the Company with liquidity of their
investment within five to ten years after commencement of the
offering, although liquidity cannot be assured thereby, either
through (i) Listing or (ii) outside the ordinary course of business
and consistent with its objective of qualifying as a REIT, the
commencement of orderly Sales of the Company's assets and
distribution of the proceeds thereof.
The Company intends to meet these objectives by following certain
investment policies discussed herein, as summarized on the preceding pages. See
Business General, Business Site Selection and Acquisition of Properties,
Business Description of Leases, and Investment Objectives and Policies for
a more complete description of the manner in which the structure of the
Company's business will facilitate the Company's ability to meet its investment
objectives. There can be no assurance that these objectives will be met. The
Company's investment objectives are subject to review by the Independent
Directors and may not be changed without the approval of stockholders owning a
majority of the shares of outstanding Common Stock.
DESCRIPTION OF SHARES
A stockholder's investment will be recorded on the books of the Company.
The Company will provide, upon the request of any stockholder wishing to
transfer his or her Shares, a transfer form to be completed and executed by the
stockholder and returned to the Company. The Company will not issue share
certificates.
After the termination of the offering, any stockholder may request that
the Company redeem for cash all or a significant portion of such stockholder's
Shares. The sole source of funds for any such requested redemption will be the
net proceeds available from the sale of Shares pursuant to the Reinvestment
Plan. There can be no assurance that such net proceeds will be sufficient to
permit the Company to redeem all such Shares presented for redemption. See
Redemption of Shares.
An annual meeting of stockholders will be held each year for the election
of the Directors. Other business matters may be presented at the annual meeting
or at special stockholder meetings. Each Share is entitled to one vote on each
matter to be voted on by stockholders, including the election of the Directors.
Stockholders who do not vote with the majority of Shares entitled to vote on
questions presented nonetheless will be bound by the majority vote.
Stockholder approval is required under Maryland law and the Company's
Articles of Incorporation and Bylaws for certain types of transactions.
Generally, the Articles of Incorporation and Bylaws may be amended upon a
majority vote of stockholders. Stockholders holding a majority of the Shares
must approve a merger or a sale or other disposition of substantially all of the
Company's assets other than in the ordinary course of business. Stockholders
objecting to the terms of a merger, sale, or other disposition of substantially
all of the Company's assets have the right to petition a court for the appraisal
and payment of the fair value of their Shares in certain instances. The
affirmative vote of a majority of the Shares outstanding and entitled to vote is
required to approve the voluntary dissolution of the Company.
In order to facilitate compliance with certain restrictions imposed on
REITs by the Internal Revenue Code of 1986, as amended (the Code ), the
Articles of Incorporation generally restrict direct or indirect ownership
(applying certain attribution rules) of more than 9.8% of the outstanding shares
of Common Stock by one Person, as defined in the Articles of Incorporation. See
Summary of the Articles of Incorporation and Bylaws Restriction on
Ownership.
For a more complete description of the Shares and the capital structure of
the Company, please refer to the Summary of the Articles of Incorporation and
Bylaws Description of Capital Stock section of the Prospectus.
DISTRIBUTION POLICY
Consistent with the Company's objective of qualifying as a REIT, the
Company expects to calculate and declare Distributions monthly during the
offering period, and quarterly thereafter, and make Distributions quarterly.
Distributions were expected to commence not later than the close of the first
full calendar quarter after the first release of funds from escrow to the
Company, and in fact the Company declared Distributions in June 1995, and paid
such Distributions in July 1995. For the year ended December 31, 1995, the
Company declared and paid Distributions totalling $638,618. The Board of
Directors, in its discretion, will determine the amount of the Distributions
made by the Company, which amount will depend primarily on net cash from
operations. The Company intends to increase Distributions in accordance with
increases in net cash from operations. Consistent with the Company's objective
of qualifying as a REIT, the Company expects to distribute at least 95% of its
real estate investment trust taxable income, although the Board of Directors, in
its discretion, may increase that percentage as it deems appropriate. If the
cash available to the Company is insufficient to make Distributions, the Company
may obtain the needed cash by borrowing funds, issuing new securities, or
selling assets. These methods of obtaining cash could affect future
Distributions by increasing operating costs or reducing income. In such an
event, it is possible that the Company could pay Distributions in excess of its
earnings and profits and, accordingly, that such Distributions could constitute
a return of capital for federal income tax purposes, although such Distributions
would not reduce stockholders' aggregate Invested Capital. For the year ended
December 31, 1995, 59.82% of the Distributions declared and paid were
characterized as ordinary income and 40.18% as return of capital for federal
income tax basis. Due to the fact that the Company had not acquired all of its
Properties and was still in its offering period as of December 31, 1995, the
characterization of Distributions for federal income tax purposes is not
considered by management to be necessarily representative of the
characterization of Distributions in future years.
PRIOR PERFORMANCE OF AFFILIATES
The Prior Performance Information section of this Prospectus contains a
narrative discussion of the public and private real estate limited partnerships
sponsored by Affiliates of the Company and of the Advisor during the past ten
years, including 17 public limited partnerships formed to invest in restaurants
leased on a triple-net basis to operators of national and regional fast-food
and family-style restaurant chains. As of December 31, 1995, these
partnerships, which purchase properties similar to those to be acquired by the
Company, had purchased 628 fast-food and family-style restaurant properties.
Based on an analysis of the operating results of the 79 real estate limited
partnerships in which principals of the Company have served, individually or
with others, as general partners, the Company believes that each of such
partnerships has met, or currently is in the process of meeting, its principal
investment objectives. Certain statistical data relating to the public limited
partnerships with investment objectives similar to those of the Company are
contained in Exhibit C Prior Performance Tables.
TAX STATUS OF THE COMPANY
The Company has made the election under Section 856(c) of the Internal
Revenue Code of 1986, as amended (the Code ), to be taxed as a REIT under the
Code beginning with its taxable year ending December 31, 1995. As a REIT for
federal income tax purposes, the Company generally will not be subject to
federal income tax on income that it distributes to its stockholders. Under the
Code, REITs are subject to numerous organizational and operational requirements,
including a requirement that they distribute at least 95% of their taxable
income, as figured on an annual basis. If the Company fails to qualify for
taxation as a REIT in any taxable year, it will be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates and will not be permitted to qualify for treatment as a
REIT for federal income tax purposes for four years following the year during
which qualification is lost. See Risk Factors Tax Risks and Federal Income
Tax Considerations. Even if the Company qualifies as a REIT for federal income
tax purposes, it may be subject to certain federal, state, and local taxes on
its income and property and to federal income and excise taxes on its
undistributed income. See Federal Income Tax Considerations.
THE OFFERING
A maximum of 10,000,000 Shares ($100,000,000) in the Company are being
offered at a price of $10.00 per Share. If the Managing Dealer exercises its
option (in the event the offering is oversubscribed) to sell an additional
5,000,000 Shares, a maximum of 15,000,000 ($150,000,000) Shares in the Company
will be offered at a price of $10.00 per Share. The Company also has registered
an offering of an additional 1,500,000 Shares ($15,000,000) that are available
only to stockholders who receive a copy of this Prospectus and elect to
participate in the Reinvestment Plan. Any participation in such plan subsequent
to this offering must be made pursuant to solicitation under a separate
prospectus. See Summary of Reinvestment Plan.
The Shares are being offered by the Managing Dealer and other broker-
dealers that are members of the National Association of Securities Dealers, Inc.
or exempt from broker-dealer registration (the Soliciting Dealers ) on a best
efforts basis, which means that no one is guaranteeing that any minimum number
of Shares will be sold. Both the Company and the Advisor are Affiliates of the
Managing Dealer. See The Offering Plan of Distribution.
All subscription funds for Shares of the Company will be deposited in an
interest-bearing escrow account with SouthTrust Estate & Trust Company, Inc.
See The Offering for a description of the current status of the offering.
A minimum investment of 250 Shares ($2,500) is required. IRAs, Keogh
plans, and pension plans must make a minimum investment of at least 100 Shares
($1,000), except for Iowa tax-exempt stockholders who must make a minimum
investment of 250 Shares ($2,500). For Minnesota stockholders only, IRAs and
qualified plans must make a minimum investment of 200 Shares ($2,000). In
addition, Nebraska, New York, and North Carolina stockholders must make a
minimum investment of 500 Shares ($5,000). Following an initial subscription
for at least the required minimum investment, any stockholder may make
additional purchases in increments of one Share. Maine stockholders, however,
may not purchase additional Shares in amounts less than the applicable minimum
investment except with respect to Shares purchased pursuant to the Reinvestment
Plan. See The Offering General, The Offering Subscription Procedures,
and Summary of Reinvestment Plan.
DEFINITIONS
This Prospectus includes simplified terms and definitions to make the
Prospectus easier to understand. These simplified terms and definitions do not
include all of the details of the terms, however, and stockholders therefore
should review the Definitions section for a more complete understanding.
RISK FACTORS
The purchase of Shares involves significant risks and therefore is
suitable only for persons who understand the possible consequences of an
investment in the Company and who are able to bear the risk of loss of their
investment. Prospective stockholders should consider the following risks in
addition to other information describing an investment in the Shares set forth
elsewhere in this Prospectus.
INVESTMENT RISKS
POSSIBLE LACK OF DIVERSIFICATION. There can be no assurance that the
Company will sell the maximum number of Shares. The potential profitability of
the Company and its ability to diversify its investments, both geographically
and by type of restaurant Properties purchased, will be limited by the amount of
funds at its disposal.
RISKS OF RELIANCE ON MANAGEMENT. Stockholders will be relying entirely on
the management ability of the Advisor and on the oversight of the Board of
Directors. Stockholders have no right or power to take part in the management
of the Company, except through the exercise of their stockholder voting rights.
Thus, no prospective stockholder should purchase any of the Shares offered
hereby unless the prospective stockholder is willing to entrust all aspects of
the management of the Company to the Advisor and the Board of Directors. None
of the prior programs organized by Affiliates of the Company has offered
Mortgage Loans or Secured Equipment Leases. See Management for a discussion
of the experience of the directors of the Advisor and the Directors of the
Company in real estate investments and Equipment financing. Also see Conflicts
of Interests for a discussion of the potential for realization by the Advisor
and its Affiliates of substantial commissions, fees, compensation, and other
income and for a discussion of various other conflicts of interest.
RISKS OF RELIANCE ON ADVISOR. The Advisor, with approval from the Board
of Directors, will be responsible for the daily management of the Company,
including all acquisitions, dispositions, and financings. The Advisor may be
terminated by the Board of Directors, with or without cause, but only subject to
payment and release from all guarantees and other obligations incurred in
connection with its role as Advisor. See Management Compensation.
RISK ASSOCIATED WITH LEVERAGE. Other than the Loan or to preserve its
status as a REIT, the Company does not intend to borrow money and until Listing
occurs, the Company will not encumber Properties in connection with any
borrowing. At all times, the maximum amount the Company may borrow is 300% of
the Company's Net Assets, although the Board of Directors anticipates that the
aggregate amount of any borrowing by the Company will not exceed 50% of Real
Estate Asset Value. The use of borrowing may present an element of risk in the
event that the cash flow from lease payments on its Properties and payments on
Secured Equipment Leases are insufficient to meet its debt obligations. In
addition, lenders to the Company may seek to impose restrictions on future
borrowings, Distributions and operating policies of the Company.
CONFLICTS OF INTEREST. As discussed in detail in Conflicts of Interest,
the Company will be subject to conflicts of interest arising out of its
relationship to the Advisor and its Affiliates. Such conflicts include matters
related to (i) allocation of Properties and management time and services between
the Company and various partnerships and other entities as to each of which the
officers and directors of the Advisor and certain Directors and officers of the
Company have management responsibilities, (ii) the timing and terms of the sale
of a Property, (iii) negotiation and funding of Mortgage Loans, (iv) negotiation
and funding of Secured Equipment Leases, (v) investments with Affiliates of the
Advisor, (vi) compensation to the Advisor, (vii) the Company's relationship with
the Managing Dealer (which is an Affiliate of the Company and the Advisor), and
(viii) the fact that the Company's securities and tax counsel also serves as
securities and tax counsel for certain Affiliates of the Company and that
neither the Company nor the stockholders will have separate counsel. See
Conflicts of Interest.
LACK OF LIQUIDITY OF SHARES. Stockholders may not be able to sell their
Shares promptly at a desired price; therefore, the Shares should be considered
as a long-term investment only. Currently there is no public market for the
Shares. The Board of Directors, with or without the consent of the
stockholders, may apply for Listing if the Board of Directors (including a
majority of Independent Directors) determines Listing to be in the best
interests of the stockholders. There can be no assurance, however, that the
Company will apply for Listing, that any such application will be made before
the passage of a significant period of time, that any application will be
accepted or, even if accepted, that a public trading market will develop. In
any event, the Articles of Incorporation provide that the Company will not apply
for Listing before the completion or termination of the offering. In the event
Listing occurs, Shares may be sold only through the national securities exchange
or the over-the-counter market on which the Shares are listed.
RISKS ASSOCIATED WITH MANAGEMENT OF JOINT VENTURES. The Independent
Directors of the Company must approve all Joint Venture or general partnership
arrangements to which the Company is a party. Subject to such approval, the
Company may enter into a Joint Venture with an unaffiliated party to purchase a
Property, and the Joint Venture or general partnership agreement relating to
that Joint Venture or partnership may provide that the Company will share
management control of the Joint Venture with the unaffiliated party. In the
event the Joint Venture or general partnership agreement provides that the
Company will have sole management control of the Joint Venture, such agreement
may be ineffective as to a third party who has no notice of the agreement, and
the Company therefore may be unable to control fully the activities of such
Joint Venture. In the event that the Company enters into a Joint Venture with
another program sponsored by an Affiliate, it is anticipated that the Company
will not have sole management control of the Joint Venture.
LACK OF CONTROL OF PROPERTY MANAGEMENT. The Company uses triple-net
leases and, therefore, day-to-day management of the Properties will be the
responsibility of the tenants of the Properties. In general, the Company
intends to enter into leasing agreements only with tenants having substantial
prior experience in the restaurant industry, but there can be no assurance that
the Company will be able to make such arrangements because, as of April 9, 1996,
the Company had purchased only 48 Properties.
RISKS ASSOCIATED WITH MORTGAGE LOANS. None of the prior programs
organized by Affiliates of the Company has offered Mortgage Loans and the
experience of the Advisor and Directors of the Company with mortgage financing
is limited. In the event that a borrower defaults on a Mortgage Loan, the
Company may not be able to sell the real property which it holds as security for
the Mortgage Loan at a price that would enable the Company to recover the
balance of the Mortgage Loan. The Mortgage Loans may also be subject to
regulation by federal, state and local authorities and subject to various laws
and judicial and administrative decisions. The Company may determine not to
make Mortgage Loans in any jurisdiction in which it believes the Company has not
complied in all material respects with applicable requirements.
RISKS ASSOCIATED WITH SECURED EQUIPMENT LEASES. None of the prior
programs organized by Affiliates of the Company has offered Secured Equipment
Leases and the experience of the Advisor and Directors of the Company with
Equipment leasing is limited. In the event that a lessee defaults on a Secured
Equipment Lease, the Company may not be able to sell the subject Equipment at a
price that would enable the Company to recover its costs associated with such
Equipment. The Secured Equipment Lease program may also be subject to
regulation by federal, state and local authorities and subject to various laws
and judicial and administrative decisions. The Company may determine not to
operate the Secured Equipment Lease program in any jurisdiction in which it
believes the Company has not complied in all material respects with applicable
requirements. In addition, there are certain federal income tax risks
associated with the Secured Equipment Lease program. See Tax Risks.
BINDING NATURE OF MAJORITY STOCKHOLDER VOTE. Stockholders may take
certain actions, including approving most amendments to the Articles of
Incorporation and Bylaws, by a vote of a majority of the Shares outstanding and
entitled to vote. Certain provisions designed to preserve the Company's status
as a REIT cannot be amended without a supermajority vote of two-thirds of the
Shares entitled to vote. All actions taken, if approved by the holders of the
requisite number of Shares, would be binding on all stockholders. Certain of
these provisions may discourage or make it more difficult for another party to
acquire control of the Company or to effect a change in the operation of the
Company. The Board of Directors has the power to cause the issuance of
additional Shares without obtaining stockholder approval.
If Listing occurs, the business of the Company may continue indefinitely
without any specific time limitation by which the Company must distribute Net
Sales Proceeds to the stockholders. In that case, the stockholders would be
dependent upon the sale of their Shares for the return of their investment in
the Company. There can be no assurance that the price a stockholder would
receive in a sale on an exchange or in the over-the-counter market will be
representative of the value of the assets owned by the Company or that it will
equal or exceed the amount a stockholder paid for the Shares.
Under certain circumstances, the Company may prevent the ownership,
transfer, and/or accumulation of Shares in order to protect the status of the
Company as a REIT or, as otherwise deemed by the Board of Directors, to be in
the best interests of the stockholders. See Summary of the Articles of
Incorporation and Bylaws Restriction of Ownership.
RESTRICTIONS ON TRANSFER RELATING TO REIT STATUS. The Articles of
Incorporation generally restrict direct or indirect ownership (applying certain
attribution rules) of more than 9.8% of the outstanding Common Stock or 9.8% of
any series of outstanding Preferred Stock by one Person (as defined in the
Articles of Incorporation). See Summary of the Articles of Incorporation and
Bylaws Restriction of Ownership.
LIMITED LIABILITY OF OFFICERS AND DIRECTORS. The Articles of
Incorporation and Bylaws provide that an officer or Director's liability to the
Company, its stockholders, or third parties for monetary damages may be limited.
Generally, the Company is obligated under the Articles of Incorporation and the
Bylaws to indemnify its officers and Directors against certain liabilities
incurred in connection with their services in such capacities. The Company has
executed indemnification agreements with each officer and Director which will
indemnify the officer or Director for any such liabilities that he or she
incurs. Such indemnification agreements could limit the legal remedies
available to the Company and the stockholders against the Directors and Officers
of the Company. See Summary of the Articles of Incorporation and Bylaws
Limitation of Director and Officer Liability.
RISKS FOR RETIREMENT PLAN STOCKHOLDERS. The Company believes that the
assets of the Company will not be deemed, under ERISA, to be plan assets of
any Plan that invests in the Shares, although it has not requested an opinion of
Counsel to that effect. If the assets of the Company were deemed to be plan
assets under ERISA (i) it is not clear that the exemptions from the prohibited
transaction rules under ERISA would be available for the Company's
transactions, and (ii) the prudence standards of ERISA would apply to
investments made by the Company (and might not be met). ERISA makes plan
fiduciaries personally responsible for any losses resulting to the plan from any
breach of fiduciary duty and the Code imposes nondeductible excise taxes on
prohibited transactions.
RISK OF INSUFFICIENT WORKING CAPITAL. There can be no assurance that the
Company will have sufficient working capital. As of December 31, 1995, the
Company had stockholders' equity of $31,980,648.
USE OF LEVERAGE TO MAKE DISTRIBUTIONS. The Company may incur indebtedness
if necessary to satisfy the requirement that the Company distribute at least 95%
of its real estate investment trust taxable income or otherwise, as is necessary
or advisable to assure that the Company maintains its qualification as a REIT
for federal income tax purposes. In such an event, it is possible that the
Company could make Distributions in excess of its earnings and profits and,
accordingly, that such Distributions could constitute a return of capital for
federal income tax purposes, although such Distributions would not reduce
stockholders' aggregate Invested Capital.
REAL ESTATE AND FINANCING RISKS
RISKS RELATED TO AN UNSPECIFIED PROPERTY OFFERING. The Company has
established certain criteria for evaluating Restaurant Chains, particular
Properties, and the operators of the Properties proposed for investment by the
Company. See Business Standards for Investment and Business General for
a description of these criteria and the types of Properties in which the Company
intends to invest. Because the Company, as of April 9, 1996, had acquired only
48 Properties (see Business - Property Acquisitions for a description),
prospective investors have no information to assist them in evaluating the
merits of the additional 92 to 112 Properties expected to be purchased or
developed by the Company. There is no limit on the number of restaurant
Properties of a particular Restaurant Chain which the Company may acquire,
although the Board of Directors currently does not anticipate that the Company
will invest more than 25% of its Gross Proceeds in Properties of any one
Restaurant Chain.
No assurance can be given that the Company will be successful in obtaining
suitable investments on financially attractive terms or that, if investments are
made, the objectives of the Company will be achieved. There also can be no
assurance that all of the Properties will operate profitably or that defaults
will not occur. See Management and Prior Performance Information, however,
for a description of the prior real estate experience of the Affiliates of the
Company and the Advisor.
The Advisor or its Affiliates from time to time expect to acquire land or
restaurant properties on a temporary basis with the intention of subsequently
transferring the properties to one or more of the CNL Group, Inc. ( CNL )
programs, including the Company, although the Company has adopted guidelines to
minimize such conflicts. This practice could represent a risk to the Company
and result in increased potential conflicts of interest among the Company, the
Advisor, its Affiliates and prior or future programs formed by Affiliates of the
Advisor. See Conflicts of Interest Acquisition of Properties.
POSSIBLE DELAYS IN INVESTMENT. To the extent consistent with the
Company's objective of qualifying as a REIT, the offering proceeds may remain
uninvested for up to the later of two years from the initial date of this
Prospectus or one year after termination of the offering, although it is
expected that substantially all net offering proceeds will be invested prior to
the end of such period. See Prior Performance Information for a summary
description of the investment experience of Affiliates and the Advisor in prior
CNL programs, which is not necessarily indicative of the rate at which the
proceeds of this offering will be invested.
An extended offering period, the inability of the Advisor to find suitable
Properties, or the fact that a program formed by Affiliates of the Advisor
subsequent to the commencement of this offering currently is in the process of
acquiring fast-food and family-style restaurant properties to substantially
complete its acquisition program prior to the time that the Company has funds
available to invest in Properties may result in delays in investment of Company
funds in Properties and in the receipt of a return from real property
investments.
Revenues received by the Company pending investment in Properties or
making Mortgage Loans will be limited to the rates of return available on short-
term, highly liquid investments with appropriate safety of principal. These
rates of return, which affect the amount of cash available to make Distributions
to the stockholders, are expected to be lower than the Company would receive
under its Property leases or Mortgage Loans. Further, to the extent consistent
with the Company's objective of qualifying as a REIT, any funds of the Company
required to be invested in Properties and not so invested or reserved for
Company purposes within the later of two years from the initial date of this
Prospectus, or one year after the termination of the offering, will be
distributed pro rata to the then stockholders of the Company in accordance with
the Articles of Incorporation.
RISKS OF ACQUIRING PROPERTIES UNDER CONSTRUCTION. The Company intends to
acquire sites on which a particular restaurant to be owned by the Company is to
be built as well as existing restaurants (including restaurants which require
renovation). To the extent that the Company acquires property on which
improvements are to be constructed or completed or renovations are to be made,
the Company may be subject to certain risks in connection with the developer's
ability to control construction costs, and the timing of completion of
construction, or to build in conformity with plans, specifications, and
timetables. The Company's agreements with the developer will provide certain
safeguards designed to minimize these risks. Further, in the event of a default
by a developer, the Company generally will have the right to require the tenant
to repurchase the Property that is under development at a pre-established price
designed to reimburse the Company for all costs incurred by the Company in
connection with the acquisition and development of the Property. There can be
no assurance, however, that under such circumstances, the tenant will have
sufficient funds to fulfill its obligations. See Business Site Selection and
Acquisition Properties.
RISKS OF JOINT INVESTMENT IN PROPERTIES. In the event that the Company
enters into a Joint Venture with another program formed by Affiliates of the
Advisor, there will be a potential risk of impasse in certain joint venture
decisions since the approval of the Company and of each co-venturer is required
for certain decisions. In any Joint Venture with an affiliated program,
however, the Company will have the right to buy the other co-venturer's interest
or to sell its own interest on specified terms and conditions in the event of an
impasse regarding a Sale. Under such circumstances, it is possible that neither
party will have the funds necessary to consummate the transaction. See
Business Joint Venture Arrangements. In addition, the Company may
experience difficulty in locating a third party purchaser for its Joint Venture
interest and in obtaining a favorable sale price for such Joint Venture
interest.
Investments in Joint Ventures may involve the risk that the Company's co-
venturer may have economic or business interests or goals which, at a particular
time, are inconsistent with the interests or goals of the Company, that such co-
venturer may be in a position to take action contrary to the Company's
instructions, requests, policies or objectives, or that such co-venturer may
experience financial difficulties. Among other things, actions by a co-venturer
might subject property owned by the Joint Venture to liabilities in excess of
those contemplated by the terms of the joint venture agreement or to other
adverse consequences.
RISKS RELATING TO THE ABILITY OF THE COMPANY TO LIQUIDATE. The Company
intends, to the extent consistent with the its objective of qualifying as a
REIT, to reinvest Net Sales Proceeds from the Sale of Properties, Mortgage
Loans, and Secured Equipment Leases in additional Properties, Mortgage Loans,
and Secured Equipment Leases for the first five to ten years after commencement
of the offering. If Listing occurs, the proceeds from Sales may be reinvested
in other Properties, Mortgage Loans, or Secured Equipment Leases for an
indefinite period of time. Unless Listing occurs within ten years after
commencement of the offering, the Company will undertake, to the extent
consistent with the Company's objective of qualifying as a REIT, the orderly
Sale of the Company's assets, the distribution of the Net Sales Proceeds of such
Sales to stockholders, and will engage only in activities related to its orderly
liquidation unless the stockholders elect otherwise. Neither the Advisor nor
the Board of Directors may be able to control the timing of Sales due to market
conditions, and there can be no assurance that the Company will be able to sell
its assets so as to return stockholders' aggregate Invested Capital, to generate
a profit for the stockholders, or to fully satisfy its obligations under the
Loan. Invested Capital, in the aggregate, will be returned to stockholders upon
disposition of the Properties only if the Properties are sold for more than
their original purchase price, although return of capital, for federal income
tax purposes, is not necessarily limited to stockholder distributions following
Sales of Properties. See Federal Income Tax Considerations. In the event
that a purchase money obligation is taken in partial payment of the sales price
of a Property, the proceeds of the Sale will be realized over a period of years.
Further, entering into Mortgage Loans with terms of 15 to 20 years and Secured
Equipment Leases with terms of five to seven years may cause any intended
liquidation of the Company to be delayed beyond the time of disposition of the
Properties and until such time as the Mortgage Loans and Secured Equipment
Leases expire or are sold.
RISKS RELATING TO TENANT PURCHASE RIGHTS. Certain tenants are expected to
have the right to purchase the Property from the Company, commencing a specified
number of years after the date of the lease, which may lessen the ability of the
Advisor and the Board of Directors to freely control the Sale of the Property.
The leases also generally provide the tenant with a right of first refusal on
any proposed sale provisions. See Business Description of Leases Right of
Tenant to Purchase. A tenant will have no obligation to purchase the
restaurant it leases.
RISKS OF REAL PROPERTY INVESTMENTS. The value of leased Properties such
as those to be acquired by the Company, the ability of the tenants to pay rent
on a timely basis, and the amount of the rent, may be adversely affected by
certain changes in general or local economic or market conditions, increased
costs of energy or food products, increased costs and shortages of labor,
competitive factors, fuel shortages, quality of restaurant management, the
ability of a Restaurant Chain to fulfill any obligations to operators of its
restaurants, limited alternative uses for the building, changing consumer
habits, condemnation or uninsured losses, changing demographics, changing
traffic patterns, inability to remodel outmoded restaurants as required by the
franchise or lease agreement, voluntary termination by a tenant of its
obligations under a lease, and other factors. Neither the Company nor the Board
of Directors can control these factors.
Each Property will have a single tenant, and tenants may lease more than
one Property. Events such as the default or financial failure of a tenant
therefore could cause one or more Properties to become vacant under certain
circumstances. Vacancies would reduce the cash receipts of the Company and, at
least until the Company is able to re-lease any such Properties, could decrease
their ultimate resale value. The value of the Company's Properties will depend
principally upon the value of the leases of the Properties. Minor defaults by a
tenant may continue for some time before the Advisor or Board of Directors
determines that it is in the interest of the Company to evict that tenant.
If a Property becomes vacant, the Company may be unable either to re-lease
the Property for the rent due under the prior lease or to re-lease the Property
without incurring additional expenditures relating to the Property. The Company
could experience delays in enforcing its rights against, and collecting rents
(and, under certain circumstances, real estate taxes and insurance costs) due
from, a defaulting tenant.
The Company will not be a party to any franchise agreement between a
Restaurant Chain and a tenant, and such agreement could therefore be modified or
canceled without notice to, or the prior consent of, the Company. In that
event, the tenant could be required to cease its operations at a Property,
although the tenant's obligation to pay rent to the Company would continue.
Before operations at the Property could resume, however, the Company would be
required to locate a new tenant acceptable to a Restaurant Chain.
The inability of tenants to make lease payments or of borrowers to make
Mortgage Loan payments as a result of any of these factors could result in a
decrease in the amount of cash available to make Distributions to the
stockholders.
If the Company, as lessor, incurs any liability which is not fully covered
by insurance, the Company would be liable for such amounts, and returns to the
stockholders could be reduced. See Business Description of Leases
Insurance, Taxes, Maintenance, and Repairs for a description of the types of
insurance that the leases of the Properties will require the tenant to obtain.
RISKS OF ADVERSE TRENDS IN RESTAURANT INDUSTRY. The Properties in which
the Company intends to invest are expected to be operated by Restaurant Chains
within the fast-food, family-style, or casual dining segments of the restaurant
industry, and the Company does not intend to invest in other segments of the
restaurant industry. The success of the future operations of fast-food, family-
style, and casual dining segments will depend largely on their ability to adapt
to dominant trends in the restaurant industry, including greater competitive
pressures, increased consolidation of the leading fast-food chains, industry
overbuilding, dependence on consumer spending and dining patterns and changing
demographics, the introduction of new concepts and menu items, availability of
labor, levels of food prices, and general economic conditions. See Business
General for a description of the size and nature of the restaurant industry and
current trends in the industry. The success of a particular Restaurant Chain
concept, the Restaurant Chain's ability to fulfill any obligations to operators
of its restaurants, and trends in the fast-food, family-style, and casual dining
segments of the restaurant industry will affect the income that the Company
derives from restaurants which are part of such Restaurant Chain.
RISKS RESULTING FROM COMPETITION. The Company will compete with other
entities, including Affiliates, for the acquisition of restaurant sites and
completed restaurants. See Conflicts of Interest Prior and Future Programs.
In addition, the restaurant business is highly competitive, and it is
anticipated that any restaurant Property acquired by the Company will compete
with other restaurants in the vicinity. The extent to which the Company will be
entitled to receive rent, in the form of percentage rent, in excess of the base
rent (including automatic increases in the base rent) for the Properties will
depend in part on the ability of the tenants to compete successfully with other
restaurants in the vicinity. In addition, the Company will compete with other
financing sources for suitable tenants and properties.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal and state
environmental laws and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up certain hazardous or
toxic substances, asbestos-containing materials, or petroleum product releases
at the property, and may be held liable to a governmental entity or to third
parties for property damage and for investigation and cleanup costs incurred by
such parties in connection with the contamination. In addition, some
environmental laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
The presence of contamination or the failure to remediate contaminations may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral. The owner or operator of a site may be
liable under common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site.
All of the Properties will be acquired by the Company subject to
satisfactory Phase I environmental assessments or satisfactory Phase II
environmental assessments. A Phase I or Phase II environmental assessment may
be determined by the Board of Directors or the Advisor to be satisfactory if a
problem exists and has not been resolved at the time the Property is acquired
provided that the seller has agreed in writing to indemnify the Company. There
can be no assurance, however, that any seller will be able to pay under an
indemnity obtained by the Company. Further, no assurances can be given that all
environmental liabilities have been identified or that no prior owner, operator
or current occupant has created an environmental condition not known to the
Company. Moreover, no assurances can be given that (i) future laws, ordinances
or regulations will not impose any material environmental liability or (ii) the
current environmental condition of the Properties will not be affected by
tenants and occupants of the Properties, by the condition of land or operations
in the vicinity of the Properties (such as the presence of underground storage
tanks), or by third parties unrelated to the Company.
RISKS RELATING TO UNSPECIFIED SECURED EQUIPMENT LEASES. The Company, as
of the date of this Prospectus, has not entered into any arrangements that
create a reasonable probability that the Company will extend a Secured Equipment
Lease to a particular operator, and therefore prospective stockholders have no
information to assist them in evaluating the merits of the Secured Equipment
Lease program or of any Secured Equipment Lease. No assurance can be given that
the Company will be successful in identifying suitable operators or negotiating
Secured Equipment Leases on financially attractive terms or that lessees will
fulfill their obligations under Secured Equipment Leases.
TAX RISKS
EFFECT OF FAILURE TO QUALIFY AS A REIT. The Company intends to operate so
as to qualify and remain qualified as a REIT for federal income tax purposes,
commencing with its taxable year ending December 31, 1995. A qualified REIT
generally is not taxed at the corporate level on income it currently distributes
to its stockholders, so long as it distributes at least 95% of its real estate
investment trust taxable income. See Federal Income Tax Considerations
Taxation of the Company. The Company expects to have qualified as a REIT in
its taxable year ended December 31, 1995, but no assurance can be given that it
did so qualify or that it will continue to qualify in the future. In this
regard, based on certain representations and assumptions, the Company has
received an opinion of tax counsel to the Company ( Counsel ) to the effect that
the Company qualified as a REIT for the taxable year ended December 31, 1995,
that the Company is organized in conformity with the requirements for
qualification as a REIT, and that the Company's proposed method of operation
will enable it to meet the requirements for qualification as a REIT for federal
income tax purposes. Qualification as a REIT, however, involves the application
of highly technical and complex Code provisions as to which there are only
limited judicial and administrative interpretations. Certain facts and
circumstances which may be wholly or partially beyond the Company's control may
affect its ability to qualify on an ongoing basis as a REIT. In addition, no
assurance can be given that future legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
(or the application thereof) with respect to qualification as a REIT for federal
income tax purposes or the federal income tax consequences of such
qualification. The opinion of Counsel is not binding on the Internal Revenue
Service ( IRS ) or the courts.
RISKS RELATING TO THE SECURED EQUIPMENT LEASES. In order to qualify as a
REIT for federal income tax purposes, not more than 25% of the Company's total
assets may be represented by personal property, or loans secured by personal
property on certain testing dates. In addition, loans secured by personal
property made to each borrower must represent less than 5% of the Company's
total assets on such testing dates. Counsel is of the opinion, based on certain
assumptions, that the Secured Equipment Leases will be treated as loans secured
by personal property for federal income tax purposes. The Company believes that
the value of the Secured Equipment Leases together with any personal property
owned by the Company, will in the aggregate represent less than 25% of the
Company's total assets and that the value of the Secured Equipment Leases
entered into with any particular lessee will represent less than 5% of the
Company's total assets. Counsel has relied on the representations of the
Company regarding such values in rendering its opinion as to the qualification
of the Company as a REIT. If the Company fails to satisfy the 25% test or the
5% test either at the time of the offering or on any subsequent testing date,
the Company will fail to qualify (or cease to qualify, as the case may be) as a
REIT for federal income tax purposes. In addition, if, contrary to the opinion
of Counsel, the Secured Equipment Leases are not treated as loans, but are
instead treated as leases for federal income tax purposes, income from the
Secured Equipment Leases will generally not satisfy either the 95% or the 75%
gross income tests for REIT qualification. See Federal Income Tax
Considerations Taxation of the Company, and Characterization of the Secured
Equipment Leases.
EFFECT OF REIT DISQUALIFICATION. If, in any taxable year, the Company
were to fail to qualify as a REIT for federal income tax purposes, it would not
be allowed a deduction for dividends to stockholders in computing taxable income
and would be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. In addition,
unless entitled to relief under certain statutory provisions, the Company would
be disqualified from treatment as a REIT for federal income tax purposes for the
four taxable years following the year during which REIT qualification is lost.
The additional tax liability resulting from the failure to so qualify would
significantly reduce the amount of funds available to make Distributions to
stockholders. Distributions to stockholders generally would be taxable as
ordinary income to the extent of current and accumulated earnings and profits
and, subject to certain limitations, would be eligible for the corporate
dividends received deduction. Although the Company intends to operate in a
manner designed to permit it to qualify as a REIT for federal income tax
purposes, it is possible that future economic, market, legal, tax, or other
events or circumstances could cause it to fail to so qualify. See Federal
Income Tax Considerations Taxation of the Company.
EFFECT OF DISTRIBUTION REQUIREMENTS. The Company may be required, under
certain circumstances, to accrue as income for tax purposes interest, rent and
other items treated as earned for tax purposes but not yet received. In
addition, the Company may be required not to accrue as expenses for tax purposes
certain items which actually have been paid or certain of the Company's
deductions might be disallowed by the Service. In any such event, the Company
could have taxable income in excess of cash available for distribution. If the
Company has taxable income in excess of cash available for distribution, the
Company could be required to borrow funds or liquidate investments on
unfavorable terms in order to meet the distribution requirement applicable to a
REIT. See Federal Income Tax Considerations Taxation of the Company Dis-
tribution Requirements.
RESTRICTIONS ON MAXIMUM SHARE OWNERSHIP. In order for the Company to
qualify as a REIT, no more than 50% of the value of the outstanding equity
securities may be owned, directly or indirectly (applying certain attribution
rules), by five or fewer individuals (or certain entities) at any time during
the last half of the Company's taxable year. To ensure that the Company will
not fail to qualify as a REIT under this test, the Company's Articles of
Incorporation include certain provisions restricting the accumulation of Shares.
These restrictions may (i) discourage a change of control of the Company; (ii)
deter individuals and entities from making tender offers for Shares, which
offers may be attractive to stockholders; or (iii) limit the opportunity for
stockholders to receive a premium for their Shares in the event a stockholder is
making purchases of Shares in order to acquire a block of Shares.
OTHER TAX LIABILITIES. Even if the Company qualifies as a REIT for
federal income tax purposes, it may be subject to certain federal, state and
local taxes on its income and property. See Federal Income Tax Considerations
State and Local Taxes.
CHANGES IN TAX LAWS. The discussions of the federal income tax aspects of
the offering are based on current law, including the Code, the Regulations
issued thereunder, certain administrative interpretations thereof, and court
decisions. Consequently, future events that modify or otherwise affect those
provisions may result in treatment for federal income tax purposes of the
Company and the stockholders that is materially and adversely different from
that described in this Prospectus, both for taxable years arising before and
after such events. There is no assurance that future legislation and
administrative interpretations will not be retroactive in effect.
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE
SUITABILITY STANDARDS
The Shares offered hereby are suitable only as a long-term investment for
persons of adequate financial means who have no need for liquidity in this
investment. Initially, there is not expected to be any public market for the
Shares, which means that it may be difficult to sell Shares. See Summary of
the Articles of Incorporation and Bylaws Restrictions on Ownership for a
description of the transfer requirements. As a result, the Company has
established suitability standards which require investors to have either (i) a
net worth (exclusive of home, furnishings, and personal automobiles) of at least
$45,000 and an annual gross income of at least $45,000, or (ii) a net worth
(exclusive of home, furnishings, and personal automobiles) of at least $150,000.
Iowa, Maine, Missouri, New Hampshire, North Carolina, Pennsylvania and
Tennessee have established suitability standards different from those
established by the Company, and Shares will be sold only to investors in those
states who meet the special suitability standards set forth below.
IOWA, MISSOURI, NORTH CAROLINA AND TENNESSEE The investor has either (i)
a net worth (exclusive of home, furnishings, and personal automobiles) of at
least $60,000 and an annual gross income of at least $60,000, or (ii) a net
worth (exclusive of home, furnishings, and personal automobiles) of at least
$225,000.
MAINE The investor has either (i) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $50,000 and an annual gross
income of at least $50,000, or (ii) a net worth (exclusive of home, furnishings,
and personal automobiles) of at least $200,000.
NEW HAMPSHIRE The investor has either (i) a net worth (exclusive of
home, furnishings, and personal automobiles) of at least $125,000 and an annual
gross income of at least $50,000, or (ii) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $250,000.
PENNSYLVANIA The investor has (i) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least ten times the investor's
investment in the Company, and (ii) either (a) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $45,000 and an annual gross
income of at least $45,000, or (b) a net worth (exclusive of home, furnishings,
and personal automobiles) of at least $150,000. Because the minimum offering of
Shares of the Company is less than $16,500,000, Pennsylvania investors are
cautioned to evaluate carefully the Company's ability to fully accomplish its
stated objectives and to inquire as to the current dollar volume of the
Company's subscription proceeds.
The foregoing suitability standards must be met by the investor who
purchases the Shares. If the investment is being made for a fiduciary account
(such as an IRA, Keogh Plan, or corporate pension or profit-sharing plan), the
beneficiary, the fiduciary account, or any donor or grantor that is the
fiduciary of the account who directly or indirectly supplies the investment
funds must meet such suitability standards.
In addition, under the laws of certain states, investors may transfer
their Shares only to persons who meet similar standards, and the Company may
require certain assurances that such standards are met. Investors should read
carefully the requirements in connection with resales of Shares as set forth in
the Articles of Incorporation and as summarized under Summary of the Articles
of Incorporation and Bylaws Restrictions of Ownership.
In purchasing Shares, custodians or trustees of employee pension benefit
plans or IRAs may be subject to the fiduciary duties imposed by the Employee
Retirement Income Security Act of 1974 ( ERISA ) or other applicable laws and to
the prohibited transaction rules prescribed by ERISA and related provisions of
the Code. See Federal Income Tax Considerations Retirement Plan
Stockholders. In addition, prior to purchasing Shares, the trustee or
custodian of an employee pension benefit plan or an IRA should determine that
such an investment would be permissible under the governing instruments of such
plan or account and applicable law. For information regarding unrelated
business taxable income, see Federal Income Tax Considerations Taxation of
Stockholders Tax-Exempt Stockholders.
In order to insure adherence to the suitability standards described above,
requisite suitability standards must be met, as set forth in the Subscription
Agreement in one of the forms attached hereto as Exhibit D. In addition,
Soliciting Dealers who sell Shares have the responsibility to make every
reasonable effort to determine that the purchase of Shares is a suitable and
appropriate investment for an investor. In making this determination, the
Soliciting Dealers will rely on relevant information provided by the investor,
including information as to the investor's age, investment objectives,
investment experience, income, net worth, financial situation, other
investments, and any other pertinent information. See The Offering
Subscription Procedures. Executed Subscription Agreements will be maintained
in the Company's records for six years.
HOW TO SUBSCRIBE
An investor who meets the suitability standards described above may
subscribe for Shares by completing and executing the Subscription Agreement and
delivering it to a Soliciting Dealer, together with a check for the full
purchase price of the Shares subscribed for, payable to SouthTrust Estate &
Trust Company, Inc., Escrow Agent. See The Offering Subscription
Procedures. Certain Soliciting Dealers who have net capital, as defined in
the applicable federal securities regulations, of $250,000 or more may instruct
their customers to make their checks for Shares subscribed for payable directly
to the Soliciting Dealer. Care should be taken to ensure that the Subscription
Agreement is filled out correctly and completely. Partnerships, individual
fiduciaries signing on behalf of trusts, estates, and in other capacities, and
persons signing on behalf of corporations and corporate trustees may be required
to obtain additional documents from Soliciting Dealers. ANY SUBSCRIPTION MAY BE
REJECTED BY THE COMPANY IN WHOLE OR IN PART, REGARDLESS OF WHETHER THE
SUBSCRIBER MEETS THE MINIMUM SUITABILITY STANDARDS.
CERTAIN SOLICITING DEALERS MAY PERMIT INVESTORS WHO MEET THE SUITABILITY
STANDARDS DESCRIBED ABOVE TO SUBSCRIBE FOR SHARES BY TELEPHONIC ORDER TO THE
SOLICITING DEALER. THIS PROCEDURE MAY NOT BE AVAILABLE IN CERTAIN STATES. SEE
THE OFFERING SUBSCRIPTION PROCEDURES AND THE OFFERING PLAN OF
DISTRIBUTION.
A MINIMUM INVESTMENT OF 250 SHARES ($2,500) IS REQUIRED. IRAS, KEOGH
PLANS, AND PENSION PLANS MUST MAKE A MINIMUM INVESTMENT OF AT LEAST 100 SHARES
($1,000), EXCEPT FOR IOWA TAX-EXEMPT INVESTORS WHO MUST MAKE A MINIMUM
INVESTMENT OF 250 SHARES ($2,500). FOR MINNESOTA INVESTORS ONLY, IRAS AND
QUALIFIED PLANS MUST MAKE A MINIMUM INVESTMENT OF 200 SHARES ($2,000). IN
ADDITION, NEBRASKA, NEW YORK, AND NORTH CAROLINA INVESTORS MUST MAKE A MINIMUM
INVESTMENT OF 500 SHARES ($5,000). FOLLOWING AN INITIAL SUBSCRIPTION FOR AT
LEAST THE REQUIRED MINIMUM INVESTMENT, ANY INVESTOR MAY MAKE ADDITIONAL
PURCHASES IN INCREMENTS OF ONE SHARE. MAINE INVESTORS, HOWEVER, MAY NOT MAKE
ADDITIONAL PURCHASES IN AMOUNTS LESS THAN THE APPLICABLE MINIMUM INVESTMENT
EXCEPT WITH RESPECT TO SHARES PURCHASED PURSUANT TO THE REINVESTMENT PLAN. SEE
THE OFFERING GENERAL, THE OFFERING SUBSCRIPTION PROCEDURES, AND SUMMARY
OF REINVESTMENT PLAN.
ESTIMATED USE OF PROCEEDS
THE TABLE SET FORTH BELOW SUMMARIZES CERTAIN INFORMATION RELATING TO THE
ANTICIPATED USE OF OFFERING PROCEEDS BY THE COMPANY, ASSUMING THAT 15,000,000
SHARES (WHICH ASSUMES THAT THE MANAGING DEALER EXERCISES ITS OPTION, IF THE
OFFERING IS OVERSUBSCRIBED, TO SELL AN ADDITIONAL 5,000,000 SHARES) ARE SOLD
(5,775,926 SHARES HAD BEEN SOLD AS OF APRIL 9, 1996, EXCLUDING 12,815 SHARES
ISSUED PURSUANT TO THE REINVESTMENT PLAN). THE COMPANY ESTIMATES THAT 84% (IF
$150,000,000 OR MORE IS RAISED) OF GROSS PROCEEDS WILL BE AVAILABLE FOR THE
PURCHASE OF PROPERTIES AND THE MAKING OF MORTGAGE LOANS, AND APPROXIMATELY 9% OF
GROSS PROCEEDS WILL BE PAID IN FEES AND EXPENSES TO AFFILIATES OF THE COMPANY
FOR THEIR SERVICES. WHILE THE ESTIMATED USE OF PROCEEDS SET FORTH IN THE TABLE
BELOW IS BELIEVED TO BE REASONABLE, THIS TABLE SHOULD BE VIEWED ONLY AS AN
ESTIMATE OF THE USE OF PROCEEDS THAT MAY BE ACHIEVED.
<TABLE>
MAXIMUM OFFERING(1)(2)
AMOUNT PERCENT
<S> <C> <C>
GROSS PROCEEDS TO THE COMPANY (3) . . . . . . . . . . . . . . $150,000,000 100.0%
LESS:
SELLING COMMISSIONS TO CNL
SECURITIES CORP. (3) . . . . . . . . . . . . . . . . . . . 11,250,000 7.5%
MARKETING SUPPORT AND DUE DILIGENCE
EXPENSE REIMBURSEMENT FEE TO
CNL SECURITIES CORP. (3) . . . . . . . . . . . . . . . . . 750,000 0.5%
ORGANIZATIONAL AND OFFERING EXPENSES (4) . . . . . . . . . . . 4,500,000 3.0%
------------ ------
NET PROCEEDS TO THE COMPANY . . . . . . . . . . . . . . . . . . . 133,500,000 89.0%
LESS:
ACQUISITION FEES TO THE ADVISOR (5) . . . . . . . . . . . . . 6,750,000 4.5%
ACQUISITION EXPENSES (6) . . . . . . . . . . . . . . . . . . . 750,000 0.5%
INITIAL WORKING CAPITAL RESERVE . . . . . . . . . . . . . . . (7)
------------ ------
CASH PAYMENT FOR PURCHASE OF PROPERTIES
AND MAKING OF MORTGAGE LOANS BY THE COMPANY (8) . . . . . . . $126,000,000 84.0%
============ ======
<FN>
FOOTNOTES:
(1) EXCLUDES THE PURCHASE OF 20,000 SHARES BY THE ADVISOR IN EXCHANGE FOR ITS
$200,000 INVESTMENT IN THE COMPANY. THE ADVISOR MAY, BUT IS NOT REQUIRED
TO, PURCHASE ADDITIONAL SHARES OF THE COMPANY. ALSO EXCLUDES 1,500,000
SHARES THAT MAY BE SOLD PURSUANT TO THE REINVESTMENT PLAN.
(2) OFFERING PROCEEDS WILL EXCEED $100,000,000 ONLY IF THE MANAGING DEALER
EXERCISES ITS OPTION TO SELL AN ADDITIONAL 5,000,000 SHARES IF THE
OFFERING IS OVERSUBSCRIBED.
(3) GROSS PROCEEDS OF THE OFFERING ARE CALCULATED AS IF ALL SHARES ARE SOLD AT
$10.00 PER SHARE AND DO NOT TAKE INTO ACCOUNT ANY REDUCTION IN SELLING
COMMISSIONS. SEE THE OFFERING PLAN OF DISTRIBUTION FOR A DESCRIPTION
OF THE CIRCUMSTANCES UNDER WHICH SELLING COMMISSIONS MAY BE REDUCED,
INCLUDING COMMISSION DISCOUNTS AVAILABLE FOR PURCHASES BY REGISTERED
REPRESENTATIVES OR PRINCIPALS OF THE MANAGING DEALER OR SOLICITING
DEALERS, CERTAIN DIRECTORS AND OFFICERS AND CERTAIN INVESTMENT ADVISERS.
SELLING COMMISSIONS ARE CALCULATED ASSUMING THAT REDUCED COMMISSIONS ARE
NOT PAID IN CONNECTION WITH THE PURCHASE OF ANY SHARES. THE SHARES ARE
BEING OFFERED TO THE PUBLIC THROUGH CNL SECURITIES CORP., WHICH WILL
RECEIVE SELLING COMMISSIONS OF 7.5% ON ALL SALES OF SHARES AND WILL ACT AS
MANAGING DEALER. THE MANAGING DEALER IS AN AFFILIATE OF THE ADVISOR.
OTHER BROKER-DEALERS MAY BE ENGAGED AS SOLICITING DEALERS TO SELL SHARES
AND REALLOWED SELLING COMMISSIONS OF UP TO 7% WITH RESPECT TO SHARES WHICH
THEY SELL. IN ADDITION, ALL OR A PORTION OF THE MARKETING SUPPORT AND DUE
DILIGENCE EXPENSE REIMBURSEMENT FEE MAY BE REALLOWED TO CERTAIN SOLICITING
DEALERS FOR EXPENSES INCURRED BY THEM IN SELLING THE SHARES, INCLUDING
REIMBURSEMENT FOR BONA FIDE EXPENSES INCURRED IN CONNECTION WITH DUE
DILIGENCE ACTIVITIES. SEE THE OFFERING PLAN OF DISTRIBUTION FOR A
MORE COMPLETE DESCRIPTION OF THIS FEE.
(4) ORGANIZATIONAL AND OFFERING EXPENSES INCLUDE LEGAL, ACCOUNTING, PRINTING,
ESCROW, FILING, REGISTRATION, QUALIFICATION, AND OTHER EXPENSES OF THE
ORGANIZATION OF THE COMPANY AND THE OFFERING OF THE SHARES, BUT EXCLUDE
SELLING COMMISSIONS AND THE MARKETING SUPPORT AND DUE DILIGENCE EXPENSE
REIMBURSEMENT FEE. THE ADVISOR WILL PAY ALL ORGANIZATIONAL AND OFFERING
EXPENSES WHICH EXCEED 3% OF GROSS PROCEEDS.
(5) ACQUISITION FEES INCLUDE ALL FEES AND COMMISSIONS PAID BY THE COMPANY TO
ANY PERSON OR ENTITY IN CONNECTION WITH THE SELECTION OR ACQUISITION OF
ANY PROPERTY, INCLUDING DEVELOPMENT/CONSTRUCTION MANAGEMENT FEES TO
AFFILIATES, CONSTRUCTION FINANCING FEES TO AFFILIATES, AND OTHER
ACQUISITION FEES TO AFFILIATES OR NONAFFILIATES. ACQUISITION FEES DO NOT
INCLUDE ACQUISITION EXPENSES.
(6) REPRESENTS THAT PORTION OF ACQUISITION EXPENSES THAT ARE NEITHER
REIMBURSED TO THE COMPANY NOR INCLUDED IN THE PURCHASE PRICE OF THE
PROPERTIES, AND ON WHICH RENT IS NOT RECEIVED, BUT DOES NOT INCLUDE
CERTAIN ACQUISITION EXPENSES ASSOCIATED WITH PROPERTY ACQUISITIONS THAT
ARE PART OF THE PURCHASE PRICE OF THE PROPERTIES, THAT ARE INCLUDED IN THE
BASIS OF THE PROPERTIES, AND ON WHICH RENT IS RECEIVED. ACQUISITION
EXPENSES INCLUDE ANY AND ALL EXPENSES INCURRED BY THE COMPANY, THE
ADVISOR, OR ANY AFFILIATE OF THE ADVISOR IN CONNECTION WITH THE SELECTION
OR ACQUISITION OF ANY PROPERTY, WHETHER OR NOT ACQUIRED, INCLUDING,
WITHOUT LIMITATION, LEGAL FEES AND EXPENSES, TRAVEL AND COMMUNICATION
EXPENSES, COSTS OF APPRAISALS, NONREFUNDABLE OPTION PAYMENTS ON PROPERTY
NOT ACQUIRED, ACCOUNTING FEES AND EXPENSES, TAXES, AND TITLE INSURANCE,
BUT EXCLUDE ACQUISITION FEES. THE PORTION OF ACQUISITION EXPENSES THAT IS
ATTRIBUTABLE TO THE SELLER OF THE PROPERTIES AND PART OF THE PURCHASE
PRICE OF THE PROPERTIES IS ANTICIPATED TO RANGE BETWEEN 1% AND 2% OF GROSS
PROCEEDS.
(7) BECAUSE LEASES WILL BE ON A TRIPLE-NET BASIS, IT IS NOT ANTICIPATED THAT
A PERMANENT RESERVE FOR MAINTENANCE AND REPAIRS WILL BE ESTABLISHED.
HOWEVER, TO THE EXTENT THAT THE COMPANY HAS INSUFFICIENT FUNDS FOR SUCH
PURPOSES, THE ADVISOR MAY CONTRIBUTE TO THE COMPANY AN AGGREGATE AMOUNT OF
UP TO 1% OF THE NET OFFERING PROCEEDS AVAILABLE TO THE COMPANY FOR
MAINTENANCE AND REPAIRS. THE ADVISOR ALSO MAY, BUT IS NOT REQUIRED TO,
ESTABLISH RESERVES FROM OFFERING PROCEEDS, OPERATING FUNDS, AND THE
AVAILABLE PROCEEDS OF ANY SALES OF PROPERTIES.
(8) OFFERING PROCEEDS DESIGNATED FOR INVESTMENT IN PROPERTIES OR THE MAKING OF
MORTGAGE LOANS TEMPORARILY MAY BE INVESTED IN SHORT-TERM, HIGHLY LIQUID
INVESTMENTS WITH APPROPRIATE SAFETY OF PRINCIPAL.
</TABLE>
MANAGEMENT COMPENSATION
THE TABLE BELOW SUMMARIZES THE TYPES, RECIPIENTS, METHODS OF COMPUTATION,
AND ESTIMATED AMOUNTS OF ALL COMPENSATION, FEES, AND DISTRIBUTIONS TO BE PAID
DIRECTLY OR INDIRECTLY BY THE COMPANY TO THE ADVISOR AND ITS AFFILIATES,
EXCLUSIVE OF ANY DISTRIBUTIONS TO WHICH THE ADVISOR OR ITS AFFILIATES MAY BE
ENTITLED BY REASON OF THEIR PURCHASE AND OWNERSHIP OF SHARES. SEE THE ADVISOR
AND THE ADVISORY AGREEMENT. FOR INFORMATION CONCERNING COMPENSATION TO THE
DIRECTORS, SEE MANAGEMENT.
A MAXIMUM OF 10,000,000 SHARES ($100,000,000) MAY BE SOLD; HOWEVER, IF THE
MANAGING DEALER EXERCISES ITS OPTION (IN THE EVENT THE OFFERING IS
OVERSUBSCRIBED) TO SELL AN ADDITIONAL 5,000,000 SHARES, A MAXIMUM OF 15,000,000
SHARES ($150,000,000) MAY BE SOLD. AN ADDITIONAL 1,500,000 SHARES ($15,000,000)
MAY BE SOLD TO STOCKHOLDERS WHO RECEIVE A COPY OF THIS PROSPECTUS AND WHO
PURCHASE SHARES THROUGH THE REINVESTMENT PLAN.
THE FOLLOWING ARRANGEMENTS FOR COMPENSATION AND FEES TO THE ADVISOR AND
ITS AFFILIATES WERE NOT DETERMINED BY ARM'S-LENGTH NEGOTIATIONS. SEE CONFLICTS
OF INTEREST. THERE IS NO ITEM OF COMPENSATION AND NO FEE THAT CAN BE PAID TO
THE ADVISOR OR ITS AFFILIATES UNDER MORE THAN ONE CATEGORY.
<TABLE>
TYPE OF
COMPEN-
SATION
AND ESTIMATED
RECIPIENT METHOD OF COMPUTATION MAXIMUM AMOUNT
Organizational Stage
<S> <C> <C>
Selling Selling Commissions of 7.5% per Share on all $ 1 1 , 2 5 0,000 if
Commis- Shares sold, subject to reduction under certain 15,000,000 Shares are
sions to circumstances as described in The sold; $12,375,000 if
Managing Offering Plan of Distribution. Soliciting 1 6 , 500,000 Shares
Dealer and Dealers may be reallowed Selling Commissions of (including 1,500,000
Soliciting up to 7% with respect to Shares they sell. Shares offered pursuant
Dealers to the Reinvestment
Plan) are sold.
$2,884,062 at December
31, 1995, $2,682,303 of
which was reallowed to
unaffiliated Soliciting
Dealers.
Marketing Expense allowance of 0.5% of Gross Proceeds to $750,000 if 15,000,000
support the Managing Dealer, all or a portion of which Shares are sold;
and due may be reallowed to Soliciting Dealers. The $825,000 if 16,500,000
diligence Managing Dealer will pay all sums attributable to S h a res (including
expense bona fide due diligence expenses from this fee. 1,500,000 Shares offered
reimburse- pursuant to the
ment fee to Reinvestment Plan) are
Managing sold. $192,271 at
Dealer and December 31, 1995.
Soliciting
Dealers
Reimburse- Actual expenses incurred, except that the Advisor T o tal amount is not
ment to the will pay all such expenses in excess of 3% of determinable at this
Advisor Gross Proceeds. time, but will not
and its exceed 3% of Gross
Affiliates Proceeds. $4,500,000 if
for 15,000,000 Shares are
Organiza- sold; $4,950,000 if
tional and 1 6 , 500,000 Shares
Offering (including 1,500,000
Expenses Shares offered pursuant
to the Reinvestment
Plan) are sold. As of
December 31, 1995,
Affiliates had incurred
$ 2 , 5 4 6 , 011 in
O r ganizational and
Offering Expenses on
behalf of the Company.
Acquisition Stage
Acqui- 4.5% of Gross Proceeds from the sale of Shares, $6,750,000 if 15,000,000
sition payable to the Advisor as Acquisition Fees, plus Shares are sold;
Fees to reimbursement to the Advisor and its Affiliates $7,425,000 if 16,500,000
the for expenses actually incurred. The Acquisition S h a res (including
Advisor Fee shall be reduced to the extent that, and if 1,500,000 Shares offered
and necessary to limit, the total compensation paid pursuant to the
reimburse- to all persons involved in the acquisition of any Reinvestment Plan) are
ment of Property to the amount customarily charged in sold. $1,730,437 at
Acqui- arms-length transactions by other persons or December 31, 1995.
sition Ex- entities rendering similar services as an ongoing
penses to public activity in the same geographical location T h e total amount of
the Ad- and for comparable types of Properties, and to Acquisition Expenses,
visor and the extent that other acquisition fees, finder's which are based on a
its fees, real estate commissions, or other similar number of factors,
Affiliates fees or commissions are paid by any person in including the purchase
connection with the transaction. price of the Properties,
are not determinable at
t h i s time. As of
December 31, 1995,
Affiliates had incurred
$131,629 in Acquisition
Expenses on behalf of
the Company.
Development In connection with the acquisition of Properties The total amount of this
/ Con- that have been constructed or renovated by fee will depend on the
struction Affiliates, subject in each case to the approval number of Properties
Manage- of a majority of the Board of Directors including p u r c h a sed from
ment Fees a majority of the Independent Directors, the developers that are
to Company will incur Development/Construction Affiliates of the
Affiliates Management Fees of generally 5% to 10% of the Company, the cost of
cost of constructing or renovating a Property, c o n s t ruction or
p a y a ble to Affiliates of the Company as renovation of such
Acquisition Fees. Such fees will be included in Properties and the
the purchase price of Properties purchased from percentage amount of
developers that are Affiliates of the Company. e a c h D e velop-
See Business - Site Selection and Acquisition of m e n t / C o nstruction
Properties. M a nagement Fee. No
amounts had been paid or
accrued at December 31,
1995.
Construc- In connection with the acquisition of Properties The total amount of this
tion f r om affiliated or unaffiliated developers, fee will depend on the
Financing subject in each case to the approval of a number of Properties for
Fees to majority of the Board of Directors including a which Affiliates of the
Affiliates majority of the Independent Directors, to whom C o m p a ny provide
Affiliates of the Company have provided construction financing,
construction financing, the Company will incur the amount and duration
C o nstruction Financing Fees, payable to of such loans and the
Affiliates of the Company as Acquisition Fees. a m ount of each
Such fees will be in an amount equal to generally Construction Financing
1% to 2% of the total amount of each loan plus Fee. No amounts had
the difference between the Affiliate-lender's been paid or accrued at
cost of funds and the amount of interest charged December 31, 1995.
to the developer, with such difference determined
b y applying an annual percentage rate of
generally 1.5% to 3% throughout the duration of
the loan to the outstanding amount of the loan.
Such fees will be included in the purchase price
of Properties purchased from developers that
receive such loans. See Business - Site
Selection and Acquisition of Properties.
The total of all Acquisition Fees (including
Development/Construction Management Fees to
Affiliates and Construction Financing Fees to
Affiliates described above, but excluding
Development/Construction Management Fees paid to
any person or entity not affiliated with the
Advisor in connection with the actual development
and construction of any Property) and Acquisition
Expenses shall be reasonable and shall not exceed
an amount equal to 6% of the Real Estate Asset
Value of a Property, or in the case of a Mortgage
Loan, 6% of the funds advanced, unless a majority
of the Board of Directors, including a majority
of the Independent Directors, not otherwise
interested in the transaction approves fees in
excess of these limits subject to a determination
that the transaction is commercially competitive,
fair and reasonable to the Company.
Operational Stage
Asset A monthly Asset Management Fee in an amount equal T o tal amount is not
Management to one-twelfth of .60% of the Company's Real determinable at this
Fee to the Estate Asset Value as of the end of the preceding time. The amount of the
Advisor month. Specifically, Real Estate Asset Value Asset Management Fee
equals the amount invested in the Properties will depend upon, among
wholly owned by the Company, determined on the other things, the cost
basis of cost, plus, in the case of Properties of the Properties. As
owned by any Joint Venture or partnership in of December 31, 1995,
which the Company is a co-venturer or partner, the Company had incurred
the portion of the cost of such Properties paid $27,950 in asset
by the Company, exclusive of Acquisition Fees and management fees.
Expenses. The Asset Management Fee, which will
not exceed fees which are competitive for similar
services in the same geographic area, may or may
not be taken, in whole or in part as to any year,
in the sole discretion of the Advisor. All or
any portion of the Asset Management Fee not taken
as to any fiscal year shall be deferred without
interest and may be taken in such other fiscal
year as the Advisor shall determine.
Mortgage A monthly Mortgage Management Fee in an amount T o tal amount is not
Management equal to one-twelfth of .60% of the total determinable at this
Fee principal amount of the Mortgage Loans as of the time. The amount of the
end of the preceding month. Mortgage Management Fee
will depend upon, among
other things, the amount
and the duration of the
M o rtgage Loans. No
amounts had been paid or
accrued at December 31,
1995.
Reimburse- Operating Expenses (which, in general, are those T o tal amount is not
ment to the e x penses relating to administration of the determinable at this
Advisor Company on an ongoing basis) will be reimbursed time. As of December
and by the Company. To the extent that Operating 31, 1995, Affiliates had
Affiliates Expenses payable or reimbursable by the Company, incurred $54,234 in
for in any four consecutive fiscal quarters (the Operating Expenses on
operating Expense Year ), exceed (the Excess Amount ) the behalf of the Company.
expenses greater of 2% of Average Invested Assets or 25%
of Net Income (the 2%/25% Guidelines ) and the
Independent Directors determine that such excess
e x p e nses were justified based on unusual
nonrecurring factors which they deem sufficient,
the Excess Amount may be carried over and
included in Operating Expenses in subsequent
Expense Years, and reimbursed to the Advisor in
one or more of such years, but only to the extent
such reimbursement would not cause the Company's
Operating Expenses to exceed the 2%/25%
Guidelines in any Expense Year. Within 60 days
after the end of any fiscal quarter of the
Company for which total Operating Expenses (for
the Expense Year) exceed the 2%/25% Guidelines,
there shall be sent to the stockholders a written
d i sclosure of such fact, together with an
e x planation of the factors the Independent
Directors considered in arriving at the
c o n clusion that such excess expenses were
justified.
Soliciting An annual fee of .20% of Invested Capital on T o tal amount is not
Dealer December 31 of each year, commencing on December determinable at this
Servicing 31 of the year following the year in which the time. Until such time
Fee to offering terminates, generally payable to the as Properties are sold,
Managing Managing Dealer, which in turn may reallow all or the estimated amounts
Dealer a portion of such fee to Soliciting Dealers whose payable to the Managing
clients hold Shares on such date. The Company Dealer for each of the
has determined, however, that the Company may pay first three years
the Soliciting Dealer Servicing Fee directly to following year of
any Soliciting Dealer exempt from registration as termination of the
a broker-dealer and whose clients held Shares on offering are expected to
such date. In general, Invested Capital is the b e $300,000 if
amount of cash paid by the stockholders to the 15,000,000 Shares are
Company for their Shares, reduced by certain sold; and $330,000 if
prior Distributions to the stockholders from the 1 6 , 500,000 Shares
Sale of one or more Properties or Secured (including 1,500,000
E q u i pment Leases. The Soliciting Dealer Shares offered pursuant
Servicing Fee will terminate as of the beginning to the Reinvestment
of any year in which the Company is liquidated or Plan) are sold. No
in which Listing occurs, provided, however, that amounts had been paid or
any previously accrued but unpaid portion of the accrued at December 31,
Soliciting Dealer Servicing Fee may be paid in 1995.
such year or any subsequent year.
Deferred, A deferred, subordinated real estate disposition T o tal amount is not
subordi- fee, payable upon Sale of one or more Properties, determinable at this
nated real in an amount equal to the lesser of (i) one-half time. The amount of
estate of a Competitive Real Estate Commission, or (ii) this fee, if it becomes
disposi- 3% of the sales price of such Property or payable, will depend
tion fee Properties. Payment of such fee shall be made upon the price at which
payable to only if the Advisor provides a substantial amount Properties are sold. No
the of services in connection with the Sale of a amounts had been paid or
Advisor Property or Properties and shall be subordinated accrued at December 31,
from a to receipt by the stockholders of Distributions 1995.
Sale or e q u al to the sum of (i) their aggregate
Sales of a Stockholders' 8% Return and (ii) their aggregate
Property Invested Capital. If, at the time of a Sale,
not in payment of the disposition fee is deferred
liquida- because the subordination conditions have not
tion of the been satisfied, then the disposition fee shall be
Company paid at such later time as the subordination
conditions are satisfied. Upon Listing, if the
Advisor has accrued but not been paid such real
estate disposition fee, then for purposes of
determining whether the subordination conditions
have been satisfied, stockholders will be deemed
to have received a Distribution in the amount
equal to the product of the total number of
Shares outstanding and the average closing price
of the Shares over a period, beginning 180 days
after Listing, of 30 days during which the Shares
are traded.
Subordi- At such time, if any, as Listing occurs, the T o tal amount is not
nated Advisor shall be paid the Subordinated Incentive determinable at this
Incentive Fee in an amount equal to 10% of the amount by time. No amounts had
Fee which (i) the market value of the Company (as been paid or accrued at
payable to defined below) plus the total Distributions made December 31, 1995.
the to stockholders from the Company's inception
Advisor at until the date of Listing exceeds (ii) the sum of
such time, (A) 100% of Invested Capital and (B) the total
if any, as Distributions required to be made to the stock-
Listing holders in order to pay the Stockholders' 8%
occurs Return from inception through the date the market
value is determined. For purposes of calculating
the Subordinated Incentive Fee, the market value
of the Company shall be the average closing price
or average of bid and asked price, as the case
may be, over a period of 30 days during which the
Shares are traded with such period beginning 180
days after Listing. The Subordinated Incentive
Fee will be reduced by the amount of any prior
payment to the Advisor of a deferred,
subordinated share of Net Sales Proceeds from a
Sale or Sales of Property or Secured Equipment
Lease.
Deferred, A deferred, subordinated share equal to 10% of T o tal amount is not
subordi- Net Sales Proceeds from a Sale or Sales of a determinable at this
nated share Property or Secured Equipment Lease remaining time. No amounts had
of Net a f t er receipt by the stockholders of been paid or accrued at
Sales Distributions equal to the sum of (i) the December 31, 1995.
Proceeds Stockholders' 8% Return and (ii) 100% of Invested
from a Capital. Following Listing, no share of Net
Sale or Sales Proceeds will be paid to the Advisor.
Sales of a
Property
or Secured
Equipment
Lease not
in
liquida-
tion of the
Company
payable to
the
Advisor
Secured A fee paid to the Advisor out of the proceeds of T o tal amount is not
Equipment the Loan for negotiating Secured Equipment Leases determinable at this
Lease Ser- and supervising the Secured Equipment Lease time. No amounts had
vicing Fee program equal to 2% of the purchase price of the been paid or accrued at
to the Equipment subject to each Secured Equipment Lease December 31, 1995.
Advisor and paid upon entering into such lease.
Reimburse- Repayment by the Company of actual expenses Total amounts not
ment to the incurred. determinable at this
Advisor time. No amounts had
and been paid or accrued at
Affiliates December 31, 1995.
for
Mortgage
Loan and
Secured
Equipment
Lease
Servicing
expenses
Liquidation Stage
Deferred, A deferred, subordinated real estate disposition T o tal amount is not
subordi- fee, payable upon Sale of one or more Properties, determinable at this
nated real in an amount equal to the lesser of (i) one-half time. The amount of
estate of a Competitive Real Estate Commission, or (ii) this fee, if it becomes
disposi- 3% of the sales price of such Property or payable, will depend
tion fee Properties. Payment of such fee shall be made upon the price at which
payable to only if the Advisor provides a substantial amount Properties are sold.
the of services in connection with the Sale of a
Advisor Property or Properties and shall be subordinated
from a to receipt by the stockholders of Distributions
Sale or e q u al to the sum of (i) their aggregate
Sales in Stockholders' 8% Return and (ii) their aggregate
liquida- Invested Capital. If, at the time of a Sale,
tion of the payment of the disposition fee is deferred
Company because the subordination conditions have not
been satisfied, then the disposition fee shall be
paid at such later time as the subordination
conditions are satisfied.
Deferred, A deferred, subordinated share equal to 10% of T o tal amount is not
subordi- Net Sales Proceeds from a Sale or Sales of a determinable at this
nated share Property or Secured Equipment Lease remaining time.
of Net a f t er receipt by the stockholders of
Sales Distributions equal to the sum of (i) the
Proceeds Stockholders' 8% Return and (ii) 100% of Invested
from a Capital. Following Listing, no share of Net
Sale or Sales Proceeds will be paid to the Advisor.
Sales of a
Property
or Secured
Equipment
Lease in
liquida-
tion of the
Company
payable to
the
Advisor
</TABLE>
CONFLICTS OF INTEREST
The Company will be subject to various conflicts of interest arising out
of its relationship to the Advisor and its Affiliates, as described below.
The following chart indicates the relationship between the Advisor and
those Affiliates that will provide services to the Company.
|------------------------------| |-----------------------------|
| CNL AMERICAN PROPERTIES | | |
| | | CNL GROUP, INC. |
| FUND, INC. | | |
| (THE COMPANY) | | |
|-------------------------|----| |-----------------------------|
| |
| |
(ADVISORY AGREEMENT) 100%
| |
| ---------------------------------
| | |
|------------------------| |------------------|
|CNL FUND ADVISORS, INC. | | CNL SECURITIES |
| (ADVISOR TO COMPANY) | | CORP. |
|------------------------| |(MANAGING DEALER) |
|------------------|
PRIOR AND FUTURE PROGRAMS
In the past, Affiliates of the Advisor have organized over 100 other real
estate investments, currently have other real estate holdings, and in the future
expect to form, offer interests in, and manage other real estate programs in
addition to the Company, and make additional real estate investments. Some of
these (including 17 public partnerships) involve and will involve Affiliates of
the Advisor in the ownership, operation, leasing, and management of fast-food,
family-style and casual dining, including restaurants that may be suitable for
the Company.
Certain of these affiliated public or private real estate programs invest
or may invest solely in fast-food, casual dining, and family-style restaurants,
may purchase properties concurrently with the Company and may lease fast-food,
casual dining, and family-style restaurant properties to operators who also
lease or operate certain of the Company's Properties. These properties, if
located in the vicinity of, or adjacent to, Properties acquired by the Company
may affect the Properties' gross revenues. Additionally, such other programs
may offer financing to the same or similar entities as those targeted by the
Company, thereby affecting the Company's Secured Equipment Lease program. Such
conflicts between the Company and affiliated programs may affect the value of
the Company's investments as well as its Net Income. The Company believes that
the Advisor has established guidelines to minimize such conflicts. See Certain
Conflict Resolution Procedures below.
An Affiliate of the Advisor currently is purchasing properties for a
private program that was organized to purchase, lease and/or finance fast-food
and family-style restaurant facilities, including furniture, fixtures, equipment
and start-up costs associated therewith. Such program generally will purchase
restaurant properties or an interest therein only when furniture, fixtures,
equipment and start-up costs also will be supplied by the program. It is not
expected that the financing offered by such program will be segregable and,
therefore, the program will not compete with the Company for lessees. If the
equipment arrangement offered by such program becomes segregable, a conflict
could arise between such program and the Company for lessees.
ACQUISITION OF PROPERTIES
Affiliates of the Advisor regularly have opportunities to acquire
restaurant properties of a type suitable for acquisition by the Company as a
result of their existing relationships and past experience with various fast-
food, family-style and casual dining restaurant chains and their franchisees.
See Business General. A purchaser who wishes to acquire one or more of
these properties must do so within a relatively short period of time,
occasionally at a time when the Company (due to insufficient funds, for example)
may be unable to make the acquisition.
In an effort to address these situations and preserve the acquisition
opportunities for the Company (and other entities with which the Advisor or its
Affiliates are affiliated), Affiliates of the Advisor maintain lines of credit
which enable them to acquire restaurant properties on an interim basis.
Typically, no more than ten to 15 restaurant properties are temporarily owned by
Affiliates of the Advisor on this interim basis at any particular time. These
restaurant properties generally will be purchased from Affiliates of the
Advisor, at their cost, by one or more existing or future public or private
programs formed by Affiliates of the Advisor.
The Advisor could experience potential conflicts of interest in connection
with the negotiation of the purchase price and other terms of the acquisition of
a Property, as well as the terms of the lease of a Property, due to its
relationship with its Affiliates and the ongoing business relationship of its
Affiliates with operators of Restaurant Chains.
The Advisor or its Affiliates also may be subject to potential conflicts
of interest at such time as the Company wishes to acquire a property that also
would be suitable for acquisition by an Affiliate of CNL. Affiliates of the
Advisor serve as Directors of the Company and, in this capacity, have a
fiduciary obligation to act in the best interest of the stockholders of the
Company and, as general partners or directors of CNL Affiliates, to act in the
best interests of the stockholders in other programs with investments that may
be similar to those of the Company and will use their best efforts to assure
that the Company will be treated as favorably as any such other program. See
Management Fiduciary Responsibility of the Board of Directors. In addition,
the Company has developed procedures to resolve potential conflicts of interest
in the allocation of properties between the Company and certain of its
Affiliates. See Certain Conflict Resolution Procedures below. The Company
will supplement this Prospectus during the offering period to disclose the
acquisition of a Property at such time as the Advisor believes that a reasonable
probability exists that the Company will acquire the Property, including an
acquisition from the Advisor or its Affiliates. See Business - Property
Acquisitions for a description of the Properties that have been acquired by the
Company and the status of negotiations for additional Properties.
SALES OF PROPERTIES
A conflict also could arise in connection with the Advisor's determination
as to whether or not to sell a Property, since the interests of the Advisor and
the stockholders may differ as a result of their distinct financial and tax
positions and the compensation to which the Advisor or its Affiliates may be
entitled upon the Sale of a Property. See Compensation of the Advisor, below
for a description of these compensation arrangements. In order to resolve this
potential conflict, the Board of Directors will be required to approve each Sale
of a Property. In the unlikely event that the Company and another CNL program
attempted to sell similar properties at the same time, a conflict could arise
since the two programs potentially could compete with each other for a suitable
purchaser. In order to resolve this potential conflict, the Advisor has agreed
not to approve the sale of any of the Company's Properties contemporaneously
with the sale of a property owned by another CNL program if the two properties
are part of the same Restaurant Chain and are within a three-mile radius of each
other, unless the Advisor and the principals of the other CNL program are able
to locate a suitable purchaser for each property.
JOINT INVESTMENT WITH AN AFFILIATED PROGRAM
The Company may invest in Joint Ventures with another program sponsored by
the Advisor or its Affiliates if a majority of the Directors, including a
majority of the Independent Directors, not otherwise interested in the
transaction, determine that the investment in the Joint Venture is fair and
reasonable to the Company and on substantially the same terms and conditions as
those to be received by the co-venturer or co-venturers.
COMPETITION FOR MANAGEMENT TIME
The officers and directors of the Advisor and certain Directors and
officers of the Company currently are engaged, and in the future will engage, in
the management of other business entities and properties and in other business
activities. They will devote only as much of their time to the business of the
Company as they, in their judgment, determine is reasonably required, which will
be substantially less than their full time. These officers and Directors of the
Company and officers and directors of the Advisor may experience conflicts of
interest in allocating management time, services, and functions among the
Company and the various partnerships, stockholder programs (public or private),
and any other business ventures in which any of them are or may become involved.
COMPENSATION OF THE ADVISOR
The Advisor has been and will be engaged to perform various services for
the Company and has and will receive fees and compensation for such services.
None of the agreements for such services were the result of arm's-length
negotiations. All such agreements, including the Advisory Agreement, require
approval by a majority of the Board of Directors, including a majority of the
Independent Directors, not otherwise interested in such transactions, as being
fair and reasonable to the Company and on terms and conditions no less favorable
than those which could be obtained from unaffiliated entities. The timing and
nature of fees and compensation to the Advisor could create a conflict between
the interests of the Advisor and those of the stockholders. A transaction
involving the purchase, lease, and sale of any Property, or the entering into of
a Mortgage Loan or a Secured Equipment Lease by the Company may result in the
immediate realization by the Advisor and its Affiliates of substantial
commissions, fees, compensation, and other income. Although the Advisory
Agreement authorizes the Advisor to take primary responsibility for all
decisions relating to any such transaction, the Board of Directors must approve
all of the Company's acquisitions and Sales of Properties and the entering into
and Sales of Mortgage Loans or Secured Equipment Leases. Potential conflicts
may arise in connection with the determination by the Advisor on behalf of the
Company of whether to hold or sell a Property, Mortgage Loan, or Secured
Equipment Lease as such determination could impact the timing and amount of fees
payable to the Advisor. See The Advisor and the Advisory Agreement.
RELATIONSHIP WITH MANAGING DEALER
The Managing Dealer is CNL Securities Corp., an Affiliate of the Company.
Certain of the officers and Directors of the Company are also officers,
directors, and registered principals of the Managing Dealer. This relationship
may create conflicts in connection with the fulfillment by the Managing Dealer
of its due diligence obligations under the federal securities laws. Although
the Managing Dealer will examine the information in the Prospectus for accuracy
and completeness, the Managing Dealer is an Affiliate of the Company and will
not make an independent review of the Company and the offering. Accordingly,
the investors do not have the benefit of such independent review. Certain of
the Soliciting Dealers have made, or are expected to make, their own independent
due diligence investigations. The Managing Dealer is not prohibited from acting
in any capacity in connection with the offer and sale of securities offered by
entities that may have some or all investment objectives similar to those of the
Company and is expected to participate in other offerings sponsored by one or
more of the officers or Directors of the Company.
LEGAL REPRESENTATION
Shaw, Pittman, Potts & Trowbridge, which serves as securities and tax
counsel to the Company in this offering, also serves as securities and tax
counsel for certain of its Affiliates, including other real estate programs, in
connection with other matters. In addition, certain members of the firm of
Shaw, Pittman, Potts & Trowbridge have invested as limited partners in prior
programs sponsored by Affiliates of the Advisor in aggregate amounts which do
not exceed one percent of the amounts sold by any of these programs, and members
of the firm also may invest in the Company. Neither the Company nor the
stockholders will have separate counsel. In the event any controversy arises
following the termination of this offering in which the interests of the Company
appear to be in conflict with those of the Advisor or its Affiliates, other
counsel may be retained for one or both parties.
CERTAIN CONFLICT RESOLUTION PROCEDURES
In order to reduce or eliminate certain potential conflicts of interest,
the Articles of Incorporation contain a number of restrictions relating to (i)
transactions between the Company and the Advisor or its Affiliates, (ii) certain
future offerings, and (iii) allocation of restaurant properties and Secured
Equipment Leases among certain affiliated entities. These restrictions include,
among others, the following:
1. No goods or services will be provided by the Advisor or its Affiliates
to the Company except for transactions in which the Advisor or its Affiliates
provide goods or services to the Company in accordance with the Articles of
Incorporation which provides that a majority of the Directors (including a
majority of the Independent Directors) not otherwise interested in such
transactions must approve such transactions as fair and reasonable to the
Company and on terms and conditions not less favorable to the Company than those
available from unaffiliated third parties and not less favorable than those
available from the Advisor or its Affiliates in transactions with unaffiliated
third parties.
2. The Company will not purchase or lease Properties in which the Advisor
or its Affiliates has an interest without the determination, by a majority of
the Directors (including a majority of the Independent Directors) not otherwise
interested in such transaction, that such transaction is competitive and
commercially reasonable to the Company and at a price to the Company no greater
than the cost of the asset to the Advisor or its Affiliate unless there is
substantial justification for any amount that exceeds such cost and such excess
amount is determined to be reasonable. In no event shall the Company acquire
any such asset at an amount in excess of its appraised value. The Company will
not sell or lease Properties to the Advisor or its Affiliates unless a majority
of the Directors (including a majority of the Independent Directors) not
interested in the transaction determine the transaction is fair and reasonable
to the Company.
3. The Company will not make any loans to Affiliates. The Advisor and
its Affiliates will not make loans to the Company, or to Joint Ventures in which
the Company is a co-venturer, for the purchase of Properties. Any loans to the
Company by the Advisor or its Affiliates for other purposes must be approved by
a majority of the Directors (including a majority of the Independent Directors)
not otherwise interested in such transaction as fair, competitive, and
commercially reasonable, and no less favorable to the Company than comparable
loans between unaffiliated parties. It is anticipated that the Advisor or its
Affiliates shall be entitled to reimbursement, at cost, for actual expenses
incurred by the Advisor or its Affiliates on behalf of the Company or Joint
Ventures in which the Company is a co-venturer, subject to the 2%/25% Guidelines
(2% of Average Invested Assets or 25% of Net Income) described under The
Advisor and the Advisory Agreement The Advisory Agreement.
4. Until completion of this offering, the Advisor and its Affiliates will
not offer or sell interests in any subsequently formed public program that has
investment objectives and structure similar to those of the Company and that
intends to (i) invest, on a cash and/or leveraged basis, in a diversified
portfolio of restaurant properties (either existing properties or properties
upon which restaurants are to be constructed) to be leased on a triple-net
basis to operators of national and regional fast-food, family-style, and casual
dining Restaurant Chains, and (ii) offer Secured Equipment Leases. The Advisor
and its Affiliates also will not purchase property or offer a Mortgage Loan or
Secured Equipment Lease for any such subsequently formed public program that has
investment objectives and structure similar to the Company and that intends to
invest on a cash and/or leveraged basis primarily in a diversified portfolio of
restaurant properties (either existing properties or properties upon which
restaurants are to be constructed) to be leased on a triple-net basis to
operators of national and regional fast-food, family-style, and casual dining
Restaurant Chains until substantially all (generally, 80%) of the funds
available for investment (Net Offering Proceeds) by the Company have been
invested or committed to investment. (For purposes of the preceding sentence
only, funds are deemed to have been committed to investment to the extent
written agreements in principle or letters of understanding are executed and in
effect at any time, whether or not any such investment is consummated, and also
to the extent any funds have been reserved to make contingent payments in
connection with any Property, whether or not any such payments are made.)
Affiliates of the Advisor are currently purchasing restaurant facilities,
including furniture, fixtures and equipment, and incurring related costs for
public and private programs, which have investment objectives that are not
identical, and a structure not similar to, those of the Company, but which make
investments that include triple-net leases of fast-food, family-style, and
casual dining restaurant properties. The Advisor or its Affiliates currently
and in the future may offer interests in one or more public or private programs
organized to purchase and lease fast-food, family-style, and casual dining
restaurants on a triple-net basis.
5. The Board of Directors and the Advisor have agreed that, in the event
that an investment opportunity becomes available which is suitable for both the
Company and a public or private entity with which the Advisor or its Affiliates
are affiliated, for which both entities have sufficient uninvested funds, then
the entity which has had the longest period of time elapse since it was offered
an investment opportunity will first be offered the investment opportunity. An
investment opportunity will not be considered suitable for a program if the
requirements of Item 4 above could not be satisfied if the program were to make
the investment. In determining whether or not an investment opportunity is
suitable for more than one program, the Board of Directors and the Advisor will
examine such factors, among others, as the cash requirements of each program,
the effect of the acquisition both on diversification of each program's
investments by types of restaurants and geographic area, and on diversification
of the tenants of its properties (which also may affect the need for one of the
programs to prepare or produce audited financial statements for a property or a
tenant), the anticipated cash flow of each program, the size of the investment,
the amount of funds available to each program, and the length of time such funds
have been available for investment. If a subsequent development, such as a
delay in the closing of a property or a delay in the construction of a property,
causes any such investment, in the opinion of the Advisor, to be more
appropriate for an entity other than the entity which committed to make the
investment, however, the Advisor has the right to agree that the other entity
affiliated with the Advisor or its Affiliates may make the investment. The
Advisor and certain other Affiliates of the Company are affiliated with CNL
Income Fund XVII, Ltd., a public program, and CNL Income & Growth Fund VII,
Ltd., a private program, offerings of securities for both of which are ongoing.
As of December 31, 1995, CNL Income Fund XVII, Ltd. had approximately $4,000,000
available for investment and CNL Income & Growth Fund VII, Ltd. had
approximately $4,400,000 available for investment.
SUMMARY OF REINVESTMENT PLAN
The Company has adopted the Reinvestment Plan pursuant to which
stockholders may elect to have the full amount of their cash Distributions from
the Company reinvested in additional Shares of the Company. Each prospective
investor who wishes to participate in the Reinvestment Plan should consult with
such investor's Soliciting Dealer as to the Soliciting Dealer's position
regarding participation in the Reinvestment Plan. The following discussion
summarizes the principal terms of the Reinvestment Plan. The Reinvestment Plan
is attached hereto as Exhibit A.
GENERAL
An independent agent (the Reinvestment Agent ), which currently is MMS
Escrow and Transfer Agency, Inc., will act on behalf of the participants in the
Reinvestment Plan (the Participants ). Prior to the time that the offering
terminates, the Reinvestment Agent will invest all Distributions attributable to
Shares owned by Participants in Shares of the Company at the public offering
price per Share, which is $10.00 per Share. Thereafter, and until Listing, the
price per Share will be determined by (i) quarterly appraisal updates performed
by the Company based on a review of the existing appraisal and lease of each
Property, focusing on a re-examination of the capitalization rate applied to the
rental stream to be derived from that Property; and (ii) a review of the
outstanding Mortgage Loans and Secured Equipment Leases focusing on a
determination of present value by a re-examination of the capitalization rate
applied to the stream of payments due under the terms of each Mortgage Loan and
Secured Equipment Lease. The capitalization rate used by the Company and, as a
result, the price per Share paid by Participants in the Reinvestment Plan prior
to Listing will be determined by the Advisor in its sole discretion. The
factors that the Advisor will use to determine the capitalization rate include
(i) its experience in selecting, acquiring and managing restaurant properties
similar to the Properties; (ii) an examination of the conditions in the market;
and (iii) capitalization rates in use by private appraisers, to the extent that
the Advisor deems such factors appropriate, as well as any other factors that
the Advisor deems relevant or appropriate in making its determination. The
Company's internal accountants then convert the most recent quarterly balance
sheet of the Company from a GAAP balance sheet to a fair market value
balance sheet. Based on the fair market value balance sheet, the internal
accountants then assume a sale of the Company's assets and the liquidation of
the Company in accordance with its constitutive documents and applicable law and
compute the appropriate method of distributing the cash available after payment
of reasonable liquidation expenses, including closing costs typically associated
with the sale of assets and shared by the buyer and seller, and the creation of
reasonable reserves to provide for the payment of any contingent liabilities.
All Shares available for purchase under the Reinvestment Plan either are
registered pursuant to this Prospectus or will be registered under the
Securities Act of 1933 through a separate prospectus relating solely to the
Reinvestment Plan. Until this offering has terminated, Shares will be available
for purchase out of the additional 1,500,000 Shares registered with the
Securities and Exchange Commission (the Commission ) in connection with this
offering. See The Offering Plan of Distribution. After the offering has
terminated, Shares will be available from any additional Shares (not expected to
exceed 1,500,000 Shares at any one time) which the Company elects to register
with the Commission for the Reinvestment Plan.
Stockholders who have received a copy of this Prospectus and participate
in this offering can elect to participate in and purchase Shares through the
Reinvestment Plan at any time and would not need to receive a separate
prospectus relating solely to the Reinvestment Plan. A person who becomes a
stockholder otherwise than by participating in this offering may purchase Shares
through the Reinvestment Plan only after receipt of a separate prospectus
relating solely to the Reinvestment Plan.
After the termination of the offering, the price per Share purchased
pursuant to the Reinvestment Plan shall be the fair market value of the Shares
based on quarterly appraisal updates of the Company's assets until such time, if
any, as Listing occurs. Upon Listing, the Shares to be acquired for the
Reinvestment Plan may be acquired either through such market or directly from
the Company pursuant to a registration statement relating to the Reinvestment
Plan, in either case at a per-Share price equal to the then-prevailing market
price on the national securities exchange or over-the-counter market on which
the Shares are listed at the date of purchase. The Company is unable to predict
the effect which such a proposed listing would have on the price of the Shares
acquired through the Reinvestment Plan.
INVESTMENT OF DISTRIBUTIONS
Distributions will be used by the Reinvestment Agent, promptly following
the payment date with respect to such Distributions, to purchase Shares on
behalf of the Participants from the Company. All such Distributions shall be
invested in Shares within 30 days after such payment date. Any Distributions
not so invested will be returned to Participants.
At this time, Participants will not have the option to make voluntary
contributions to the Reinvestment Plan to purchase Shares in excess of the
amount of Shares that can be purchased with their Distributions. The Board of
Directors reserves the right, however, to amend the Reinvestment Plan in the
future to permit voluntary contributions to the Reinvestment Plan by
Participants, to the extent consistent with the Company's objective of
qualifying as a REIT.
PARTICIPANT ACCOUNTS, FEES, AND ALLOCATION OF SHARES
For each Participant, the Reinvestment Agent will maintain a record which
shall reflect for each fiscal quarter the Distributions received by the
Reinvestment Agent on behalf of such Participant. The Company shall be
responsible for all administrative charges and expenses charged by the
Reinvestment Agent. Any interest earned on such Distributions will be paid to
the Company to defray certain costs relating to the Reinvestment Plan. The
administrative charge for each fiscal quarter will be the lesser of 5% of the
amount reinvested for the Participant or $2.50, with a minimum charge of $0.50.
The maximum annual charge is $10.00.
The Reinvestment Agent will use the aggregate amount of Distributions to
all Participants for each fiscal quarter to purchase Shares for the
Participants. If the aggregate amount of Distributions to Participants exceeds
the amount required to purchase all Shares then available for purchase, the
Reinvestment Agent will purchase all available Shares and will return all
remaining Distributions to the Participants within 30 days after the date such
Distributions are made. The purchased Shares will be allocated among the
Participants based on the portion of the aggregate Distributions received by the
Reinvestment Agent on behalf of each Participant, as reflected in the records
maintained by the Reinvestment Agent. The ownership of the Shares purchased
pursuant to the Reinvestment Plan shall be reflected on the books of the
Company.
Subject to the provisions of the Articles of Incorporation relating to
certain restrictions on and the effective dates of transfer, Shares acquired
pursuant to the Reinvestment Plan will entitle the Participant to the same
rights and to be treated in the same manner as those purchased by the
Participants in the offering. Accordingly, the Company will pay the Managing
Dealer Selling Commissions of 7.5% (subject to reduction under the circumstances
provided under The Offering Plan of Distribution ), a marketing support and
due diligence fee of .5%, and Acquisition Fees of 4.5% of the purchase price of
the Shares sold pursuant to the Reinvestment Plan until the termination of the
offering. Thereafter, Acquisition Fees will be paid by the Company only in the
event that proceeds of the sale of Shares are used to acquire Properties. As a
result, aggregate fees payable to Affiliates of the Company will total between
8.0% and 12.5% of the proceeds of reinvested Distributions, up to 7.5% of which
may be reallowed to Soliciting Dealers.
The allocation of Shares among Participants may result in the ownership of
fractional Shares, computed to four decimal places.
REPORTS TO PARTICIPANTS
Within 60 days after the end of each fiscal quarter, the Reinvestment
Agent will mail to each Participant a statement of account describing, as to
such Participant, the Distributions reinvested during the quarter, the number of
Shares purchased during the quarter, the per Share purchase price for such
Shares, the total administrative charge paid by the Company on behalf of each
Participant (see Participant Accounts, Fees, and Allocation of Shares above),
and the total number of Shares purchased on behalf of the Participant pursuant
to the Reinvestment Plan. Until such time, if any, as Listing occurs, the
statement of account also will report the most recent fair market value of the
Shares, determined as described above. See General above.
Tax information for income earned on Shares under the Reinvestment Plan
for the calendar year will be sent to each participant by the Company or the
Reinvestment Agent.
ELECTION TO PARTICIPATE OR TERMINATE PARTICIPATION
Stockholders of the Company who purchase Shares in this offering may
become Participants in the Reinvestment Plan by making a written election to
participate on their Subscription Agreements at the time they subscribe for
Shares. Any other stockholder who receives a copy of this Prospectus or a
separate prospectus relating solely to the Reinvestment Plan and who has not
previously elected to participate in the Reinvestment Plan may so elect at any
time by written notice to the Board of Directors of such stockholder's desire to
participate in the Reinvestment Plan. Participation in the Reinvestment Plan
will commence with the next Distribution made after receipt of the Participant's
notice, provided it is received at least ten days prior to the record date for
such Distribution. Subject to the preceding sentence, the election to
participate in the Reinvestment Plan will apply to all Distributions
attributable to the fiscal quarter in which the stockholder made such written
election to participate in the Reinvestment Plan and to all fiscal quarters
thereafter, whether made (i) upon subscription or subsequently for stockholders
who participate in this offering, or (ii) upon receipt of a separate prospectus
relating solely to the Reinvestment Plan for stockholders who do not participate
in this offering. Participants will be able to terminate their participation in
the Reinvestment Plan at any time without penalty by delivering ten days'
written notice to the Board of Directors.
A Participant who chooses to terminate participation in the Reinvestment
Plan must terminate his or her entire participation in the Reinvestment Plan and
will not be allowed to terminate in part. If a Participant terminates his or
her participation the Reinvestment Agent will send him or her a check in payment
for any fractional Shares in his or her account based on the then market price
of the Shares and the record books of the Company will be revised to reflect the
ownership of records of his or her whole Shares. There are no fees associated
with a Participant's terminating his or her interest in the Reinvestment Plan.
A Participant in the Reinvestment Plan who terminates his or her interest in the
Reinvestment Plan will be allowed to participate in the Reinvestment Plan again
by notifying the Reinvestment Agent and completing any required forms.
The Board of Directors reserves the right to prohibit Qualified Plans from
participating in the Reinvestment Plan if such participation would cause the
underlying assets of the Company to constitute plan assets of Qualified Plans.
See The Offering ERISA Considerations.
FEDERAL INCOME TAX CONSIDERATIONS
Stockholders subject to federal taxation who elect to participate in the
Reinvestment Plan will incur a tax liability for Distributions allocated to them
even though they have elected not to receive their Distributions in cash but
rather to have their Distributions held pursuant to the Reinvestment Plan.
Specifically, stockholders will be treated as if they have received the
Distribution from the Company and then applied such Distribution to purchase
Shares in the Reinvestment Plan. A stockholder designating a Distribution for
reinvestment will be taxed on the amount of such Distribution as ordinary income
to the extent such Distribution is from current or accumulated earnings and
profits, unless the Company has designated all or a portion of the Distribution
as a capital gain dividend. In such case, such designated portion of the
Distribution will be taxed as long-term capital gain.
AMENDMENTS AND TERMINATION
The Company reserves the right to renew, extend, or amend any aspect of
the Reinvestment Plan without the consent of stockholders, provided that notice
of the amendment is sent to Participants at least 30 days prior to the effective
date thereof. The Company also reserves the right to terminate the Reinvestment
Plan for any reason at any time by ten days' prior written notice of termination
to all Participants.
REDEMPTION OF SHARES
After the termination of the offering and prior to such time, if any, as
Listing occurs, any stockholder (other than the Advisor) may present all or any
portion equal to at least 25% of such stockholder's Shares to the Company for
redemption at any time, in accordance with the procedures outlined herein. At
such time, the Company may, at its option, subject to the conditions described
below, redeem such Shares presented for redemption for cash to the extent it has
sufficient net proceeds ( Reinvestment Proceeds ) from the sale of Shares under
the Reinvestment Plan. There is no assurance that there will be Reinvestment
Proceeds available for redemption and, accordingly, a stockholder's Shares may
not be redeemed. The full amount of Reinvestment Proceeds attributable to any
quarter will be used to redeem Shares presented for redemption during such
quarter. If the full amount of Reinvestment Proceeds available for any given
quarter exceeds the amount necessary for such redemptions, the remaining amount
shall be held for subsequent redemptions unless such amount is sufficient to
acquire an additional Property (directly or through a Joint Venture). In that
event, the Company may use all or a portion of such amount to acquire one or
more additional Properties, or to make one or more additional Mortgage Loans,
provided that the Company (or, if applicable, the Joint Venture) enters into a
binding contract to purchase such Property or Properties, or enter into such
Mortgage Loan or Mortgage Loans, prior to payment of the next Distribution and
the Company's receipt of requests for redemption of Shares. If the full amount
of Reinvestment Proceeds for any given quarter is insufficient to fund all of
the requested redemptions, the Company will redeem the Shares presented for
redemption in order of receipt.
A stockholder (other than a resident of Nebraska) who wishes to have his
or her Shares redeemed must mail or deliver a written request on a form provided
by the Company and executed by the stockholder, its trustee or authorized agent,
to the Company. Nebraska stockholders must deliver the same type of request to
a broker-dealer registered in Nebraska and must have his or her Shares redeemed
through such broker-dealer, who will communicate directly with the Company.
Within 30 days following the Company's receipt of the stockholder's request, the
Company will forward to such stockholder the documents necessary to effect the
redemption, including any signature guarantee the Company may require. The
Company will effect such redemption for the calendar quarter provided that the
Company receives the properly completed redemption documents relating to the
Shares to be redeemed from the stockholder at least one calendar month prior to
the last day of the current calendar quarter and has sufficient Reinvestment
Proceeds to redeem such Shares. The effective date of any redemption will be
the last date during a quarter during which the Company receives the properly
completed redemption documents. As a result, the Company anticipates that,
assuming sufficient Reinvestment Proceeds, the effective date of redemptions
will be no later than thirty days after the quarterly determination of the
availability of Reinvestment Proceeds.
Upon the Company's receipt of notice for redemption of Shares, the
redemption price will be on such other terms as the Reinvestment Agent shall
determine. It is not anticipated that there will be a market for the Shares
before Listing occurs (although liquidity is not assured thereby). The
redemption plan will terminate, and the Company no longer shall accept Shares
for redemption, if and when Listing occurs. See Risk Factors Investment
Risks Lack of Liquidity of Shares. Accordingly, in determining the market
price of the Shares for this purpose, it is expected that the purchase price
for Shares purchased from stockholders will be determined by reference to the
following factors, as well as any others deemed relevant or appropriate by the
Reinvestment Agent: (i) the price at which Shares have been purchased from
stockholders, either pursuant to the Reinvestment Plan or outside of the
Reinvestment Plan (to the extent the Company has information regarding the
prices paid for Shares purchased outside the Reinvestment Plan), (ii) the annual
statement of Share valuation provided to certain stockholders (see Reports to
Stockholders ), and (iii) the price at which stockholders are willing to sell
their Shares. Shares purchased during any particular period of time therefore
may be purchased at varying prices. The Board of Directors will announce any
price adjustment and the time period of its effectiveness as part of its regular
communications with stockholders. Any Shares acquired pursuant to a redemption
will be retired and no longer available for issuance by the Company.
A stockholder may present fewer than all his or her Shares to the Company
for redemption, provided, however, that (i) the minimum number of Shares which
must be presented for redemption shall be at least 25% of his or her Shares, and
(ii) if such stockholder retains any Shares, he or she must retain at least 250
Shares (100 Shares for an IRA, Keogh Plan or pension plan).
The Directors, in their sole discretion, may amend or suspend the
redemption plan at any time they determine that such amendment or suspension is
in the best interest of the Company. The Directors may suspend the redemption
of Shares if (i) they determine, in their sole discretion, that such redemption
impairs the capital or the operations of the Company; (ii) they determine, in
their sole discretion, that an emergency makes such redemption not reasonably
practical; (iii) any governmental or regulatory agency with jurisdiction over
the Company so demands for the protection of the stockholders; (iv) they
determine, in their sole discretion, that such redemption would be unlawful; or
(v) they determine, in their sole discretion, that such redemption, when
considered with all other redemptions, sales, assignments, transfers and
exchanges of Shares in the Company, could cause direct or indirect ownership of
Shares of the Company to become concentrated to an extent which would prevent
the Company from qualifying as a REIT under the Code. For a discussion of the
tax treatment of such redemptions, see Federal Income Tax Considerations
Taxation of Stockholders.
BUSINESS
GENERAL
The Company intends to purchase existing fast-food, family-style, and
casual dining restaurant Properties, including land and buildings, as
well as Properties upon which such restaurants are to be constructed, the
land underlying the restaurant building with the building owned by the
tenant or a third party, and the building only with the land owned by a third
party. The Company may provide financing (the Mortgage Loans ) for the
purchase of buildings, generally by tenants that lease the underlying land from
the Company. To a lesser extent, the Company also intends to Offer Furniture,
Fixture and Equipment ( Equipment ) Financing to Operators of Restaurant Chains
Pursuant to Which the Company Will Finance, Through Direct Financing Leases, the
Equipment (Collectively, the Secured Equipment Leases. )
THE PROPERTIES, WHICH TYPICALLY WILL BE FREESTANDING AND WILL BE LOCATED
ACROSS THE UNITED STATES, WILL BE LEASED ON A TRIPLE-NET BASIS TO CREDITWORTHY
OPERATORS OF THE RESTAURANT CHAINS TO BE SELECTED BY THE ADVISOR AND APPROVED BY
THE BOARD OF DIRECTORS. EACH PROPERTY ACQUISITION AND MORTGAGE LOAN COMMITMENT
BY THE COMPANY WILL BE SUBMITTED TO THE BOARD OF DIRECTORS FOR APPROVAL.
PROPERTIES PURCHASED BY THE COMPANY ARE EXPECTED TO BE LEASED UNDER ARRANGEMENTS
REQUIRING BASE ANNUAL RENT EQUAL TO A SPECIFIED PERCENTAGE OF THE COMPANY'S COST
OF PURCHASING A PARTICULAR PROPERTY, WITH AUTOMATIC RENT INCREASES, AS WELL AS
PERCENTAGE RENT BASED ON GROSS SALES. SEE DESCRIPTION OF LEASES COMPUTATION
OF LEASE PAYMENTS, BELOW.
IT IS EXPECTED THAT THE COMPANY WILL INVEST IN PROPERTIES OF SELECTED
RESTAURANT CHAINS THAT ARE NATIONAL AND REGIONAL RESTAURANT CHAINS, PRIMARILY
FAST-FOOD, FAMILY-STYLE, AND CASUAL DINING CHAINS. FAST-FOOD RESTAURANTS
FEATURE QUALITY FOOD AND QUICK SERVICE, WHICH OFTEN INCLUDES DRIVE-THROUGH
SERVICE, AND OFFER A VARIETY OF MENU ITEMS SUCH AS HAMBURGERS, STEAKS, SEAFOOD,
CHILI, PIZZA, PASTA DISHES, CHICKEN, HOT AND COLD SANDWICHES, AND SALADS.
FAMILY-STYLE RESTAURANTS FEATURE SERVICES THAT GENERALLY ARE ASSOCIATED WITH
FULL-SERVICE RESTAURANTS, SUCH AS FULL TABLE SERVICE AND COOKED-TO-ORDER FOOD,
BUT AT MORE MODERATE PRICES. THE CASUAL DINING (OR DINNER HOUSE) CONCEPT
FEATURES A VARIETY OF POPULAR CONTEMPORARY FOODS, FULL TABLE SERVICE, MODERATE
PRICES, AND SURROUNDINGS THAT ARE APPEALING TO FAMILIES. THE CASUAL DINING
SEGMENT OF THE RESTAURANT INDUSTRY, LIKE THE FAMILY-STYLE SEGMENT, FEATURES
SERVICES THAT GENERALLY ARE ASSOCIATED WITH THE FULL-SERVICE RESTAURANT
CATEGORY. ACCORDING TO FORECASTS APPEARING IN THE JANUARY 1, 1996 ISSUE OF
RESTAURANTS AND INSTITUTIONS, IT IS PROJECTED THAT THE CASUAL DINING SEGMENT OF
FULL-SERVICE RESTAURANTS SALES WILL EXPERIENCE 4.1% REAL GROWTH IN SALES THIS
YEAR, WITH SALES PREDICTED TO REACH $46 BILLION. THE TOP 15 CASUAL DINING
CHAINS HAVE A TOTAL OF 4,483 RESTAURANTS THROUGHOUT THE UNITED STATES.
THE RESTAURANT INDUSTRY IS ONE OF THE LARGEST INDUSTRIES IN THE UNITED
STATES IN VOLUME OF SALES AND NUMBER OF EMPLOYEES (APPROXIMATELY 9 MILLION
PERSONS) AND INCLUDES FAST-FOOD OUTLETS, CAFETERIAS, LUNCHROOMS, CONVENIENCE
STORES, FAMILY-STYLE RESTAURANTS, CASUAL DINING FACILITIES, FULL-SERVICE
RESTAURANTS, AND CONTRACT AND INDUSTRIAL FEEDERS. BY THE YEAR 2000, FOOD
SERVICE SALES ARE EXPECTED TO EXCEED $392 BILLION. INDUSTRY PUBLICATIONS
PROJECT THAT RESTAURANT INDUSTRY SALES WILL INCREASE FROM $173.7 BILLION IN 1985
TO $313 BILLION IN 1996. RESTAURANT INDUSTRY SALES FOR 1995 ARE PROJECTED TO BE
$298 BILLION. IN 1995, NOMINAL GROWTH, WHICH IS COMPRISED OF REAL GROWTH AND
INFLATIONARY GROWTH, WAS 5.2% AND IS ESTIMATED TO BE 5.0% IN 1996. REAL GROWTH
OF THE RESTAURANT INDUSTRY IN 1995 WAS 2.3%, AND INDUSTRY ANALYSTS CURRENTLY
ESTIMATE THAT THE RESTAURANT INDUSTRY WILL ACHIEVE 2.4% REAL GROWTH IN 1995;
HOWEVER, ACCORDING TO THE NATIONAL RESTAURANT ASSOCIATION, FAST-FOOD RESTAURANTS
SHOULD OUTPACE THE INDUSTRY AVERAGE FOR REAL GROWTH, WITH A PROJECTED 6.7%
INCREASE OVER 1995. SALES IN THIS SEGMENT OF THE RESTAURANT INDUSTRY ARE
PROJECTED TO BE $100.2 BILLION FOR 1996.
THE COMPANY WILL INVEST IN THE FAST-FOOD, FAMILY-STYLE, AND CASUAL DINING
SEGMENTS OF THE RESTAURANT INDUSTRY, THE MOST RAPIDLY GROWING SEGMENTS IN RECENT
YEARS. ACCORDING TO THE NATIONAL RESTAURANT ASSOCIATION, 51% OF ADULTS EAT AT A
QUICK-SERVICE RESTAURANT AND 42% OF ADULTS PATRONIZE A MODERATELY-PRICED FAMILY
RESTAURANT AT LEAST ONCE EACH WEEK. IN ADDITION, THE NATIONAL RESTAURANT
ASSOCIATION INDICATES THAT AMERICANS SPEND APPROXIMATELY 44 CENTS OF EVERY FOOD
DOLLAR ON DINING AWAY FROM HOME. SURVEYS PUBLISHED IN RESTAURANT BUSINESS
INDICATE THAT FAMILIES WITH CHILDREN CHOOSE QUICK-SERVICE RESTAURANTS FOUR OUT
OF EVERY FIVE TIMES THEY DINE OUT. ADDITIONALLY, ACCORDING TO THE WALL STREET
JOURNAL (MAY 11, 1992), THE AVERAGE AMERICAN SPENDS $19,791 ON FAST-FOOD IN A
LIFETIME. FURTHER, ACCORDING TO NATION'S RESTAURANT NEWS, THE 100 LARGEST
RESTAURANT CHAINS ARE POSTING AN AVERAGE OF 7.38% GROWTH IN THEIR SYSTEMWIDE
SALES FIGURES FOR 1995. CASUAL-THEME DINING CONCEPTS ARE AMONG THE CHAINS
SHOWING THE STRONGEST GROWTH. IN 1995, THE SANDWICH SEGMENT IS EXPECTED TO
EXPERIENCE SALES GROWTH OF 7.16% OVER 1994 FIGURES, AND, THE CASUAL DINING
SEGMENT IS EXPECTED TO EXPERIENCE SYSTEMWIDE SALES GROWTH IN 1995 OF 12.01%,
COMPARED TO 14.8% IN 1993. MANAGEMENT BELIEVES THAT THE COMPANY WILL HAVE THE
OPPORTUNITY TO PARTICIPATE IN THIS GROWTH THROUGH THE OWNERSHIP OF PROPERTIES
LEASED TO OPERATORS OF THE RESTAURANT CHAINS.
THE FAST-FOOD, FAMILY-STYLE AND CASUAL DINING SEGMENTS OF THE RESTAURANT
INDUSTRY HAVE DEMONSTRATED THEIR ABILITY TO ADAPT TO CHANGES IN CONSUMER
PREFERENCES, SUCH AS HEALTH AND DIETARY ISSUES, DECREASES IN THE DISPOSABLE
INCOME OF CONSUMERS AND ENVIRONMENTAL AWARENESS, THROUGH VARIOUS INNOVATIVE
TECHNIQUES, INCLUDING SPECIAL VALUE PRICING AND PROMOTIONS, INCREASED
ADVERTISING, MENU CHANGES FEATURING LOW-CALORIE, LOW-CHOLESTEROL MENU ITEMS, AND
NEW PACKAGING AND ENERGY CONSERVATION TECHNIQUES.
THE TABLE SET FORTH BELOW PROVIDES INFORMATION WITH RESPECT TO RESTAURANT
CHAINS IN WHICH AFFILIATES OF THE COMPANY (CONSISTING OF A PUBLIC REIT, 17
PUBLIC PARTNERSHIPS AND 7 PRIVATE PARTNERSHIPS) HAVE INVESTED, AS OF DECEMBER
31, 1995:
AGGREGATE
DOLLARS INVESTED BY PERCENTAGE OF NUMBER OF
NAME COMPANY AFFILIATES DOLLARS INVESTED PRIOR PROGRAMS
GOLDEN CORRAL $95,619,000 15.3% 22
BURGER KING 88,306,000 14.1% 22
DENNY'S 85,637,000 13.7% 19
JACK IN THE BOX 59,652,000 9.5% 12
HARDEE'S 58,599,000 9.4% 13
LONG JOHN SILVER'S 32,029,000 5.1% 6
SHONEY'S 31,871,000 5.1% 11
WENDY'S 24,593,000 3.9% 13
CHECKERS 21,263,000 3.4% 7
PERKINS 16,311,000 2.6% 9
KFC 13,642,000 2.2% 10
TGI FRIDAY'S 13,918,000 2.2% 6
PIZZA HUT 12,404,000 2.0% 7
POPEYES 9,357,000 1.5% 7
TACO BELL 6,428,000 1.0% 5
PONDEROSA 3,210,000 0.5% 3
CAPTAIN D'S 2,819,000 0.5% 4
MANAGEMENT INTENDS TO STRUCTURE THE COMPANY'S INVESTMENTS TO ALLOW IT TO
PARTICIPATE, TO THE MAXIMUM EXTENT POSSIBLE, IN ANY SALES GROWTH IN THESE
INDUSTRY SEGMENTS, AS REFLECTED IN THE PROPERTIES THAT IT OWNS. THE COMPANY
THEREFORE INTENDS TO STRUCTURE ALL OF ITS LEASES WITH PERCENTAGE RENT
REQUIREMENTS WHICH ARE BASED ON GROSS SALES OF THE PARTICULAR RESTAURANT. GROSS
SALES MAY INCREASE EVEN ABSENT REAL GROWTH BECAUSE INCREASES IN THE RESTAURANT'S
COSTS TYPICALLY ARE PASSED ON TO THE CONSUMERS THROUGH INCREASED PRICES, AND
INCREASED PRICES ARE REFLECTED IN GROSS SALES. IN AN EFFORT TO PROVIDE REGULAR
CASH FLOW TO THE COMPANY, THE COMPANY INTENDS TO STRUCTURE ITS LEASES TO PROVIDE
A MINIMUM LEVEL OF RENT, WITH AUTOMATIC INCREASES IN THE MINIMUM RENT, WHICH IS
PAYABLE REGARDLESS OF THE AMOUNT OF GROSS SALES AT A PARTICULAR PROPERTY. THE
COMPANY ALSO WILL ENDEAVOR TO MAXIMIZE GROWTH AND MINIMIZE RISKS ASSOCIATED WITH
OWNERSHIP AND LEASING OF REAL ESTATE THAT OPERATES IN THESE INDUSTRY SEGMENTS
THROUGH CAREFUL SELECTION AND SCREENING OF ITS TENANTS (AS DESCRIBED IN
STANDARDS FOR INVESTMENT BELOW) IN ORDER TO REDUCE RISKS OF DEFAULT;
MONITORING STATISTICS RELATING TO RESTAURANT CHAINS AND CONTINUING TO DEVELOP
RELATIONSHIPS IN THE INDUSTRY IN ORDER TO REDUCE CERTAIN RISKS ASSOCIATED WITH
INVESTMENT IN REAL ESTATE; AND ACQUISITION OF PROPERTIES WHICH WILL NOT BE
ENCUMBERED PRIOR TO LISTING. SEE STANDARDS FOR INVESTMENT BELOW FOR A
DESCRIPTION OF THE STANDARDS WHICH THE BOARD OF DIRECTORS WILL EMPLOY IN
SELECTING RESTAURANT CHAINS AND PARTICULAR RESTAURANT PROPERTIES WITHIN A
RESTAURANT CHAIN FOR INVESTMENT.
MANAGEMENT EXPECTS TO ACQUIRE PROPERTIES IN PART WITH A VIEW TO
DIVERSIFICATION AMONG RESTAURANT CHAINS AND THE GEOGRAPHIC LOCATION OF THE
PROPERTIES. THERE ARE NO RESTRICTIONS ON THE GEOGRAPHIC AREA OR AREAS WITHIN
THE UNITED STATES IN WHICH PROPERTIES ACQUIRED BY THE COMPANY MAY BE LOCATED.
IT IS ANTICIPATED THAT THE PROPERTIES ACQUIRED BY THE COMPANY WILL BE LOCATED IN
VARIOUS STATES AND REGIONS WITHIN THE UNITED STATES.
THE COMPANY BELIEVES THAT FREESTANDING, TRIPLE-NET LEASED RESTAURANT
PROPERTIES OF THE TYPE IN WHICH THE COMPANY WILL INVEST ARE ATTRACTIVE TO
TENANTS BECAUSE FREESTANDING PROPERTIES TYPICALLY OFFER HIGH VISIBILITY TO
PASSING TRAFFIC, EASE OF ACCESS FROM A BUSY THOROUGHFARE, TENANT CONTROL OVER
THE SITE TO SET HOURS OF OPERATION AND MAINTENANCE STANDARDS AND DISTINCTIVE
BUILDING DESIGNS CONDUCTIVE TO CUSTOMER NAME RECOGNITION.
ON MARCH 5, 1996, THE COMPANY ENTERED INTO A $15,000,000 LINE OF CREDIT
AND SECURITY AGREEMENT (THE LOAN ), THE PROCEEDS OF WHICH WILL BE USED TO FUND
SECURED EQUIPMENT LEASES TO OPERATORS OF RESTAURANT CHAINS AND TO PAY THE
SECURED EQUIPMENT LEASE SERVICING FEE EQUAL TO 2% OF THE PURCHASE PRICE OF THE
EQUIPMENT SUBJECT TO EACH SECURED EQUIPMENT LEASE. SEE BUSINESS - BORROWINGS
FOR A DESCRIPTION OF THE LOAN. THE SECURED EQUIPMENT LEASES WILL CONSIST
PRIMARILY OF LEASES OF EQUIPMENT. THE COMPANY HAS NEITHER IDENTIFIED ANY
PROSPECTIVE OPERATORS OF RESTAURANT CHAINS THAT WILL PARTICIPATE IN SUCH
FINANCING ARRANGEMENTS NOR NEGOTIATED ANY SPECIFIC TERMS OF A SECURED EQUIPMENT
LEASE. THE COMPANY CANNOT PREDICT TERMS AND CONDITIONS OF THE SECURED EQUIPMENT
LEASES, ALTHOUGH THE COMPANY EXPECTS THAT THE SECURED EQUIPMENT LEASES WILL (I)
HAVE LEASE TERMS THAT EQUAL OR EXCEED THE USEFUL LIFE OF THE SUBJECT EQUIPMENT
(ALTHOUGH SUCH LEASE TERMS WILL NOT EXCEED 7 YEARS), (II) INCLUDE AN OPTION FOR
THE LESSEE TO ACQUIRE THE SUBJECT EQUIPMENT AT THE END OF THE LEASE TERM FOR A
NOMINAL FEE, AND (III) PROVIDE THAT THE COMPANY AND THE LESSEES WILL EACH TREAT
THE SECURED EQUIPMENT LEASES AS LOANS SECURED BY PERSONAL PROPERTY FOR FEDERAL
INCOME TAX PURPOSES. SEE FEDERAL INCOME TAX CONSIDERATIONS CHARACTERIZATION
OF SECURED EQUIPMENT LEASES. IN ADDITION, THE COMPANY EXPECTS THAT EACH OF THE
SECURED EQUIPMENT LEASES WILL BE SECURED BY THE EQUIPMENT TO WHICH IT RELATES.
PAYMENTS RECEIVED FROM LESSEES UNDER SECURED EQUIPMENT LEASES WILL BE TREATED AS
PAYMENTS OF PRINCIPAL AND INTEREST. ALL SECURED EQUIPMENT LEASES WILL BE
NEGOTIATED BY THE ADVISOR AND APPROVED BY THE BOARD OF DIRECTORS INCLUDING A
MAJORITY OF THE INDEPENDENT DIRECTORS.
AS OF APRIL 9, 1996, THE COMPANY HAD ACQUIRED 48 PROPERTIES (INCLUDING 21
PROPERTIES WHICH CONSIST OF LAND AND BUILDING, ONE PROPERTY THROUGH A JOINT
VENTURE ARRANGEMENT WHICH CONSISTS OF LAND AND BUILDING, THREE PROPERTIES WHICH
CONSIST OF BUILDING ONLY, AND 23 PROPERTIES WHICH CONSIST OF LAND ONLY), AND HAD
INITIAL COMMITMENTS TO ACQUIRE 12 ADDITIONAL PROPERTIES (INCLUDING ONE PROPERTY
WHICH IS LAND AND BUILDING, ONE PROPERTY WHICH IS BUILDING ONLY, AND 10
PROPERTIES WHICH ARE LAND ONLY). IN CONNECTION WITH THE ACQUISITION OF THE 23
PROPERTIES WHICH ARE LAND ONLY, THE COMPANY HAS MADE A SINGLE MORTGAGE LOAN
SECURED BY THE BUILDINGS AND OTHER IMPROVEMENTS ON SUCH PROPERTIES. IN
CONNECTION WITH THE INITIAL COMMITMENTS WITH THE TEN PROPERTIES CONSISTING OF
LAND ONLY, THE COMPANY ANTICIPATES PROVIDING MORTGAGE FINANCING TO THE TENANT
WHICH WILL BE COLLATERALIZED BY THE BUILDING IMPROVEMENTS. IF THE MORTGAGE LOAN
IS EXECUTED, IT IS EXPECTED TO BE EXECUTED UNDER SUBSTANTIALLY THE SAME TERMS
DESCRIBED IN BUSINESS - MORTGAGE LOANS. HOWEVER, AS OF APRIL 9, 1996, THE
COMPANY HAD NOT ENTERED INTO ANY ARRANGEMENTS THAT CREATE A REASONABLE
PROBABILITY THAT THE COMPANY WILL ENTER INTO ANY SECURED EQUIPMENT LEASE.
MOREOVER, NO SECURED EQUIPMENT LEASE LESSEES HAVE BEEN SPECIFICALLY IDENTIFIED.
THE COMPANY HAS UNDERTAKEN TO SUPPLEMENT THIS PROSPECTUS DURING THE
OFFERING PERIOD TO DISCLOSE THE ACQUISITION OF PROPERTIES AT SUCH TIME AS THE
BOARD OF DIRECTORS BELIEVES THAT A REASONABLE PROBABILITY EXISTS THAT ANY SUCH
PROPERTY WILL BE ACQUIRED BY THE COMPANY. BASED UPON THE EXPERIENCE AND
ACQUISITION METHODS OF THE AFFILIATES OF THE COMPANY AND THE ADVISOR THIS
NORMALLY WILL OCCUR, WITH REGARD TO ACQUISITION OF PROPERTIES, AS OF THE DATE ON
WHICH (I) A COMMITMENT LETTER IS EXECUTED BY A PROPOSED LESSEE, (II) A
SATISFACTORY CREDIT UNDERWRITING FOR THE PROPOSED LESSEE HAS BEEN COMPLETED, AND
(III) A SATISFACTORY SITE INSPECTION HAS BEEN COMPLETED. THE INITIAL DISCLOSURE
OF ANY PROPOSED ACQUISITION, HOWEVER, CANNOT BE RELIED UPON AS AN ASSURANCE THAT
THE COMPANY ULTIMATELY WILL CONSUMMATE SUCH PROPOSED ACQUISITION OR THAT THE
INFORMATION PROVIDED CONCERNING THE PROPOSED ACQUISITION WILL NOT CHANGE BETWEEN
THE DATE OF SUCH SUPPLEMENT AND THE ACTUAL PURCHASE OR EXTENSION OF FINANCING.
ACQUISITION OF A RESTAURANT PROPERTY GENERALLY INVOLVES AN INVESTMENT IN
LAND AND BUILDING OF APPROXIMATELY $400,000 TO $1,250,000, ALTHOUGH HIGHER OR
LOWER FIGURES FOR INDIVIDUAL PROPERTIES ARE POSSIBLE. THE COMPANY ESTIMATES
THAT IT WILL ACQUIRE AT LEAST 140 TO 160 PROPERTIES, BASED ON AN ESTIMATED
AVERAGE PURCHASE PRICE OF $800,000 TO $900,000 PER PROPERTY, IF THE MAXIMUM OF
15,000,000 SHARES IS SOLD. MANAGEMENT HAS ESTIMATED THE AVERAGE PURCHASE PRICE
OF A PROPERTY BASED ON ITS PAST EXPERIENCE IN ACQUIRING SIMILAR PROPERTIES AND
IN LIGHT OF CURRENT MARKET CONDITIONS. IN CERTAIN CASES, THE COMPANY MAY BECOME
A CO-VENTURER IN A JOINT VENTURE THAT WILL OWN THE PROPERTY. IN EACH SUCH CASE,
THE COMPANY'S COST TO PURCHASE AN INTEREST IN SUCH PROPERTY WILL BE LESS THAN
THE TOTAL PURCHASE PRICE AND THE COMPANY THEREFORE WILL BE ABLE TO ACQUIRE
INTERESTS IN A GREATER NUMBER OF PROPERTIES. MANAGEMENT ESTIMATES THAT
APPROXIMATELY 30% TO 50% OF THE COMPANY'S INVESTMENT IN A PROPERTY GENERALLY
WILL BE FOR THE COST OF LAND, AND 50% TO 70% GENERALLY WILL BE FOR THE COST OF
THE BUILDING. SEE JOINT VENTURE ARRANGEMENTS BELOW AND RISK FACTORS
INVESTMENT RISKS POSSIBLE LACK OF DIVERSIFICATION.
ALTHOUGH MANAGEMENT CANNOT ESTIMATE THE NUMBER OF MORTGAGE LOANS THAT MAY
BE ENTERED INTO, MANAGEMENT CURRENTLY EXPECTS TO INVEST APPROXIMATELY 7% TO 10%
OF GROSS PROCEEDS OF THE OFFERING, ASSUMING THE MAXIMUM OF 15,000,000 SHARES IS
SOLD, IN MORTGAGE LOANS.
ALTHOUGH MANAGEMENT CANNOT ESTIMATE THE NUMBER OF SECURED EQUIPMENT LEASES
THAT MAY BE ENTERED INTO, IT EXPECTS TO INVEST AN AMOUNT EQUAL TO 10% OF THE
GROSS PROCEEDS OF THE OFFERING IN SECURED EQUIPMENT LEASES AND MANAGEMENT HAS
UNDERTAKEN TO ENSURE THAT THE TOTAL VALUE OF ALL SECURED EQUIPMENT LEASES WILL
NOT EXCEED 25% OF THE COMPANY'S TOTAL ASSETS, AND THAT SECURED EQUIPMENT LEASES
TO A SINGLE LESSEE, IN THE AGGREGATE, WILL NOT EXCEED 5% OF TOTAL ASSETS.
PROPERTY ACQUISITIONS
FROM INCEPTION THROUGH APRIL 9, 1996, THE COMPANY UNDERTOOK NEGOTIATIONS
TO ACQUIRE CERTAIN PROPERTIES, OF WHICH 61 PROPERTIES WERE CONSIDERED TO BE
REASONABLY PROBABLE FOR ACQUISITION. THESE 61 PROPERTIES WERE FOUR DENNY'S
PROPERTIES (ONE IN EACH OF SHAWNEE, OKLAHOMA, GRAND RAPIDS, MICHIGAN, AND FORT
WORTH, AND PASADENA, TEXAS); EIGHT GOLDEN CORRAL PROPERTIES (ONE IN EACH OF
CARLSBAD, NEW MEXICO, TAMPA, FLORIDA, DOVER, DELAWARE, COLUMBUS, OHIO AND FORT
WORTH, CORSICANA, UNIVERSAL CITY, AND CLEBURNE, TEXAS); TWO JACK IN THE BOX
PROPERTIES (ONE IN EACH OF LOS ANGELES, CALIFORNIA AND HOUSTON, TEXAS); TWO
KENNY ROGERS ROASTERS PROPERTIES (ONE IN EACH OF FRANKLIN, TENNESSEE AND GRAND
RAPIDS, MICHIGAN); FOUR TGI FRIDAY'S PROPERTIES (ONE IN EACH OF ORANGE AND
HAMDEN, CONNECTICUT, AND HAZLET AND MARLBORO, NEW JERSEY); THREE BOSTON MARKET
PROPERTIES (ONE IN EACH OF GRAND ISLAND, NEBRASKA, DUBUQUE, IOWA AND CHANHASSEN,
MINNESOTA); FOUR BURGER KING PROPERTIES (ONE IN EACH OF OAK LAWN, BURBANK, AND
INDIAN HEAD PARK, ILLINOIS, AND HIGHLAND, INDIANA), ONE WENDY'S PROPERTY (IN
KNOXVILLE, TENNESSEE), AND 33 PIZZA HUT PROPERTIES (ONE IN EACH OF ADRIAN,
LAMBERTVILLE AND MONROE, MICHIGAN, BEDFORD, BOWLING GREEN, EAST CLEVELAND,
EUCLID, FAIRVIEW PARK, DEFIANCE, MAYFIELD HEIGHTS, MIDDLEBURG HEIGHTS, NORTH
OLMSTEAD, NORWALK, SANDUSKY, SEVEN HILLS, STRONGSVILLE, AND MARIETTA, OHIO,
THREE IN CLEVELAND, AND FOUR IN TOLEDO, OHIO, AND ONE IN EACH OF BEAVER,
BLUEFIELD, HUNTINGTON, HURRICANE, MILTON, PARKERSBURG, AND RONCEVERTE, WEST
VIRGINIA, AND TWO IN BECKLEY, WEST VIRGINIA).
BETWEEN JUNE 30, 1995 AND APRIL 9, 1996, THE COMPANY ACQUIRED 48 OF THE 61
PROPERTIES, INCLUDING 21 PROPERTIES WHICH CONSIST OF LAND AND BUILDING, ONE
PROPERTY THROUGH A JOINT VENTURE ARRANGEMENT WHICH CONSISTS OF LAND AND
BUILDING, THREE PROPERTIES CONSISTING OF BUILDING ONLY AND 23 PROPERTIES
CONSISTING OF LAND ONLY. THESE 48 PROPERTIES ARE THE TWO JACK IN THE BOX
PROPERTIES IN LOS ANGELES, CALIFORNIA, AND HOUSTON, TEXAS; THREE OF THE TGI
FRIDAY'S PROPERTIES IN ORANGE, CONNECTICUT, AND MARLBORO AND HAZLET, NEW JERSEY;
THE EIGHT GOLDEN CORRAL PROPERTIES (IN CLEBURNE, UNIVERSAL CITY, CORSICANA AND
FORT WORTH, TEXAS, DOVER, DELAWARE, CARLSBAD, NEW MEXICO, TAMPA, FLORIDA, AND
COLUMBUS, OHIO); THE TWO KENNY ROGERS ROASTERS PROPERTIES (IN GRAND RAPIDS,
MICHIGAN, AND FRANKLIN, TENNESSEE); THREE OF THE DENNY'S PROPERTIES (IN
PASADENA, TEXAS, SHAWNEE, OKLAHOMA, AND GRAND RAPIDS, MICHIGAN); THE THREE
BOSTON MARKET PROPERTIES (IN GRAND ISLAND, NEBRASKA, DUBUQUE, IOWA, AND
CHANHASSEN, MINNESOTA); FOUR OF THE BURGER KING PROPERTIES (IN OAK LAWN,
BURBANK, AND INDIAN HEAD PARK, ILLINOIS, AND HIGHLAND, INDIANA); AND 23 OF THE
PIZZA HUT PROPERTIES (ONE IN EACH OF ADRIAN, LAMBERTVILLE AND MONROE, MICHIGAN,
AND BEDFORD, BOWLING GREEN, EAST CLEVELAND, EUCLID, FAIRVIEW PARK, DEFIANCE,
MAYFIELD HEIGHTS, MIDDLEBURG HEIGHTS, NORTH OLMSTEAD, NORWALK, SANDUSKY, SEVEN
HILLS, AND STRONGSVILLE, OHIO, THREE IN CLEVELAND, OHIO, AND FOUR IN TOLEDO,
OHIO) (HEREINAFTER REFERRED TO AS THE 23 PIZZA HUT PROPERTIES ). THE JACK IN
THE BOX PROPERTY IN LOS ANGELES, CALIFORNIA, THE GOLDEN CORRAL PROPERTIES IN
CLEBURNE AND UNIVERSAL CITY, TEXAS, CARLSBAD, NEW MEXICO, AND COLUMBUS, OHIO,
THE KENNY ROGERS ROASTERS PROPERTIES IN GRAND RAPIDS, MICHIGAN, AND FRANKLIN,
TENNESSEE, AND THE DENNY'S PROPERTIES IN PASADENA, TEXAS, SHAWNEE, OKLAHOMA, AND
GRAND RAPIDS, MICHIGAN, WERE ACQUIRED FROM AFFILIATES OF THE COMPANY. THE
AFFILIATES HAD PURCHASED AND TEMPORARILY HELD TITLE TO THESE PROPERTIES TO
FACILITATE THEIR ACQUISITION BY THE COMPANY. THE PROPERTIES WERE ACQUIRED BY
THE COMPANY FOR AN AGGREGATE PURCHASE PRICE OF APPROXIMATELY $7,443,000 FROM
AFFILIATES OF THE COMPANY. EACH PROPERTY, WITH THE EXCEPTION OF THE JACK IN THE
BOX IN LOS ANGELES, CALIFORNIA, WAS ACQUIRED AT A COST EQUAL TO THE COST OF THE
PROPERTY TO THE AFFILIATE (INCLUDING CARRYING COSTS) DUE TO THE FACT THAT THESE
AMOUNTS WERE LESS THAN EACH PROPERTY'S APPRAISED VALUE. THE JACK IN THE BOX IN
LOS ANGELES, CALIFORNIA, WAS ACQUIRED BY THE COMPANY AT A COST COMPUTED BY
CAPITALIZING PROJECTED CASH FLOWS OF THE PROPERTY, RESULTING IN A PURCHASE PRICE
THAT WAS LESS THAN EITHER THE COST TO THE AFFILIATE (INCLUDING CARRYING COSTS)
OR THE PROPERTY'S APPRAISED VALUE.
IN ADDITION, ONE OF THESE 48 PROPERTIES, THE GOLDEN CORRAL PROPERTY IN
TAMPA, FLORIDA, WAS ACQUIRED PURSUANT TO A JOINT VENTURE ARRANGEMENT BETWEEN THE
COMPANY AND AN UNAFFILIATED ENTITY.
IN CONNECTION WITH THE PURCHASE OF 25 OF THESE 48 PROPERTIES, THE COMPANY
OR THE JOINT VENTURE, AS LESSOR, ENTERED INTO LONG-TERM LEASE AGREEMENTS WITH
UNAFFILIATED LESSEES. THE GENERAL TERMS OF THE LEASE AGREEMENTS ARE DESCRIBED
IN THE SECTION OF THE PROSPECTUS ENTITLED BUSINESS - DESCRIPTION OF PROPERTY
LEASES. IN CONNECTION WITH THE ACQUISITION OF THE BUILDINGS RELATING TO THE
TGI FRIDAY'S PROPERTIES IN ORANGE, CONNECTICUT, AND MARLBORO AND HAZLET, NEW
JERSEY, THE COMPANY HAS ALSO ENTERED INTO TRI-PARTY AGREEMENTS WITH THE OWNER OF
THE LAND AND THE GROUND LESSEE. THE TRI-PARTY AGREEMENTS PROVIDE THAT THE
GROUND LESSEE IS RESPONSIBLE FOR ALL OBLIGATIONS UNDER THE GROUND LEASE AND
PROVIDES CERTAIN RIGHTS TO THE COMPANY RELATING TO THE MAINTENANCE OF ITS
INTEREST IN THE BUILDINGS IN THE EVENT OF A DEFAULT BY THE LESSEE UNDER THE
TERMS OF THE GROUND LEASES.
FOR PROPERTIES THAT ARE OR WERE TO BE CONSTRUCTED OR RENOVATED, THE
COMPANY OR THE JOINT VENTURE HAS ENTERED INTO DEVELOPMENT AND INDEMNIFICATION
AND PUT AGREEMENTS WITH THE LESSEES. THE GENERAL TERMS OF THESE AGREEMENTS ARE
DESCRIBED IN THE SECTION OF THE PROSPECTUS ENTITLED BUSINESS - SITE SELECTION
AND ACQUISITION OF PROPERTIES - CONSTRUCTION AND RENOVATION.
IN CONNECTION WITH THE 23 PIZZA HUT PROPERTIES, THE COMPANY ACQUIRED THE
LAND AND IS LEASING THESE 23 PARCELS TO THE LESSEE, CASTLE HILL HOLDINGS V,
L.L.C. ( CASTLE HILL ), PURSUANT TO A MASTER LEASE AGREEMENT (THE MASTER LEASE
AGREEMENT ). CASTLE HILL HAS SUBLEASED THE 23 PIZZA HUT PROPERTIES TO ONE OF
ITS AFFILIATES, MIDLAND FOODS SERVICES, L.L.C., WHICH IS THE OPERATOR OF THE
RESTAURANTS. THE GENERAL TERMS OF THE MASTER LEASE AGREEMENT ARE SIMILAR TO
THOSE DESCRIBED IN THE SECTION OF THE PROSPECTUS ENTITLED BUSINESS -
DESCRIPTION OF PROPERTY LEASES. UPON TERMINATION OF THE MASTER LEASE
AGREEMENT, THE SUBLESSEE AND LESSEE WILL SURRENDER POSSESSION OF THE PROPERTIES
TO THE COMPANY, TOGETHER WITH ANY IMPROVEMENTS ON SUCH PROPERTIES. THE LESSEE
OWNS THE BUILDINGS LOCATED ON THE 23 PIZZA HUT PROPERTIES. IN CONNECTION WITH
THE ACQUISITION OF THE 23 PIZZA HUT PROPERTIES, THE COMPANY PROVIDED MORTGAGE
FINANCING OF $8,475,000 TO THE LESSEE PURSUANT TO A MORTGAGE LOAN EVIDENCED BY A
MASTER MORTGAGE NOTE (THE MASTER MORTGAGE NOTE ) WHICH IS COLLATERALIZED BY THE
BUILDING IMPROVEMENTS ON THE 23 PIZZA HUT PROPERTIES. THE MASTER MORTGAGE NOTE
BEARS INTEREST AT A RATE OF 10.75% PER ANNUM AND PRINCIPAL AND INTEREST ARE DUE
IN EQUAL MONTHLY INSTALLMENTS OVER 20 YEARS STARTING MARCH 1, 1996. THE MASTER
MORTGAGE NOTE EQUALS APPROXIMATELY 87 PERCENT OF THE APPRAISED VALUE OF THE
RELATED BUILDINGS. MANAGEMENT BELIEVES THAT, DUE TO THE FACT THAT THE COMPANY
OWNS THE UNDERLYING LAND RELATING TO THE 23 PIZZA HUT PROPERTIES AND DUE TO
OTHER UNDERWRITING CRITERIA, THE COMPANY HAS SUFFICIENT COLLATERAL FOR THE
MASTER MORTGAGE NOTE.
ONE OF THE 61 PROPERTIES THE COMPANY UNDERTOOK NEGOTIATIONS TO ACQUIRE,
THE DENNY'S PROPERTY IN FORT WORTH, TEXAS, WAS NO LONGER CONSIDERED REASONABLY
PROBABLE FOR ACQUISITION BY THE COMPANY, AS OF NOVEMBER 17, 1995. A DELAY IN
THE CLOSING OF THIS PROPERTY CAUSED THE INVESTMENT IN SUCH PROPERTY TO BE MORE
APPROPRIATE FOR AN AFFILIATE OF THE COMPANY, WHICH THEREFORE PURCHASED SUCH
PROPERTY. THE ACQUISITION OF THIS PROPERTY BY THE AFFILIATE WAS IN ACCORDANCE
WITH THE CONFLICT RESOLUTION PROCEDURES OF THE COMPANY AND THE AFFILIATE. SEE
CONFLICTS OF INTEREST - CERTAIN CONFLICT RESOLUTION PROCEDURES.
AS OF APRIL 9, 1996, THE COMPANY HAD INITIAL COMMITMENTS TO ACQUIRE 12
PROPERTIES, INCLUDING ONE WENDY'S PROPERTY WHICH IS LAND AND BUILDING, ONE TGI
FRIDAY'S PROPERTY WHICH IS A BUILDING ONLY AND 10 PIZZA HUT PROPERTIES WHICH ARE
LAND ONLY. THE ACQUISITION OF EACH OF THESE PROPERTIES IS SUBJECT TO THE
FULFILLMENT OF CERTAIN CONDITIONS, INCLUDING, BUT NOT LIMITED TO, A SATISFACTORY
ENVIRONMENTAL SURVEY AND PROPERTY APPRAISAL. THERE CAN BE NO ASSURANCE THAT ANY
OR ALL OF THE CONDITIONS WILL BE SATISFIED OR, IF SATISFIED, THAT ONE OR MORE OF
THESE PROPERTIES WILL BE ACQUIRED BY THE COMPANY. IF ACQUIRED, THE LEASES OF
ALL 12 OF THESE PROPERTIES ARE EXPECTED TO BE ENTERED INTO ON SUBSTANTIALLY THE
SAME TERMS DESCRIBED IN THE PROSPECTUS IN THE SECTION ENTITLED BUSINESS -
DESCRIPTION OF PROPERTY LEASES, EXCEPT AS DESCRIBED BELOW.
IN CONNECTION WITH THE TGI FRIDAY'S PROPERTY IN HAMDEN, CONNECTICUT, THE
COMPANY ANTICIPATES OWNING ONLY THE BUILDING AND NOT THE UNDERLYING LAND.
HOWEVER, THE COMPANY ANTICIPATES ENTERING INTO A TRI-PARTY AGREEMENT WITH THE
GROUND LESSEE AND THE OWNER OF THE LAND IN ORDER TO PROVIDE THE COMPANY WITH
CERTAIN RIGHTS WITH RESPECT TO THE LAND ON WHICH THE BUILDING IS LOCATED.
IN CONNECTION WITH THE TEN PIZZA HUT PROPERTIES, THE COMPANY ANTICIPATES
ACQUIRING THE LAND AND LEASING IT TO THE TENANT, CASTLE HILL, PURSUANT TO A
MASTER LEASE AGREEMENT FOR THESE TEN PROPERTIES. THE TENANT IS EXPECTED TO OWN
THE BUILDINGS FOR THESE TEN PIZZA HUT PROPERTIES. IN CONNECTION THEREWITH, THE
COMPANY ANTICIPATES PROVIDING MORTGAGE FINANCING TO THE TENANT WHICH WILL BE
COLLATERALIZED BY THE BUILDING IMPROVEMENTS. IF THE MORTGAGE NOTE IS EXECUTED,
IT IS EXPECTED TO BE EXECUTED UNDER SUBSTANTIALLY THE SAME TERMS DESCRIBED IN
BUSINESS -MORTGAGE LOANS.
SET FORTH BELOW ARE SUMMARIZED TERMS EXPECTED TO APPLY TO THE LEASES OF
EACH OF THE PROPERTIES. MORE DETAILED INFORMATION RELATING TO A PROPERTY AND
ITS RELATED LEASE WILL BE PROVIDED AT SUCH TIME, IF ANY, AS THE PROPERTY IS
ACQUIRED.
<TABLE>
<CAPTION>
LEASE TERM AND
PROPERTY RENEWAL OPTIONS MINIMUM ANNUAL RENT PERCENTAGE RENT OPTION TO PURCHASE
<S> <C> <C> <C> <C>
PIZZA HUT (1)(3) 20 YEARS; TWO TEN-YEAR 11% OF THE COMPANY'S NONE AT ANY TIME AFTER
BEAVER, WV RENEWAL OPTIONS TOTAL COST TO PURCHASE THE SEVENTH YEAR
LAND ONLY THE LAND; INCREASES BY
10% AFTER THE FIFTH
AND TENTH LEASE YEARS
AND 12% AFTER THE
FIFTEENTH LEASE YEAR
(2)
PIZZA HUT (1)(3) 20 YEARS; TWO TEN-YEAR 11% OF THE COMPANY'S NONE AT ANY TIME AFTER
BECKLEY, WV (#1) RENEWAL OPTIONS TOTAL COST TO PURCHASE THE SEVENTH YEAR
LAND ONLY THE LAND; INCREASES BY
10% AFTER THE FIFTH
AND TENTH LEASE YEARS
AND 12% AFTER THE
FIFTEENTH LEASE YEAR
(2)
PIZZA HUT (1)(3) 20 YEARS; TWO TEN-YEAR 11% OF THE COMPANY'S NONE AT ANY TIME AFTER
BECKLEY, WV (#2) RENEWAL OPTIONS TOTAL COST TO PURCHASE THE SEVENTH YEAR
LAND ONLY THE LAND; INCREASES BY
10% AFTER THE FIFTH
AND TENTH LEASE YEARS
AND 12% AFTER THE
FIFTEENTH LEASE YEAR
(2)
PIZZA HUT (1)(3) 20 YEARS; TWO TEN-YEAR 11% OF THE COMPANY'S NONE AT ANY TIME AFTER
BLUEFIELD, WV RENEWAL OPTIONS TOTAL COST TO PURCHASE THE SEVENTH YEAR
LAND ONLY THE LAND; INCREASES BY
10% AFTER THE FIFTH
AND TENTH LEASE YEARS
AND 12% AFTER THE
FIFTEENTH LEASE YEAR
(2)
PIZZA HUT (1)(3) 20 YEARS; TWO TEN-YEAR 11% OF THE COMPANY'S NONE AT ANY TIME AFTER
HUNTINGTON, WV RENEWAL OPTIONS TOTAL COST TO PURCHASE THE SEVENTH YEAR
LAND ONLY THE LAND; INCREASES BY
10% AFTER THE FIFTH
AND TENTH LEASE YEARS
AND 12% AFTER THE
FIFTEENTH LEASE YEAR
(2)
PIZZA HUT (1)(3) 20 YEARS; TWO TEN-YEAR 11% OF THE COMPANY'S NONE AT ANY TIME AFTER
HURRICANE, WV RENEWAL OPTIONS TOTAL COST TO PURCHASE THE SEVENTH YEAR
LAND ONLY THE LAND; INCREASES BY
10% AFTER THE FIFTH
AND TENTH LEASE YEARS
AND 12% AFTER THE
FIFTEENTH LEASE YEAR
(2)
PIZZA HUT (1)(3) 20 YEARS; TWO TEN-YEAR 11% OF THE COMPANY'S NONE AT ANY TIME AFTER
MILTON, WV RENEWAL OPTIONS TOTAL COST TO PURCHASE THE SEVENTH YEAR
LAND ONLY THE LAND; INCREASES BY
10% AFTER THE FIFTH
AND TENTH LEASE YEARS
AND 12% AFTER THE
FIFTEENTH LEASE YEAR
(2)
PIZZA HUT (1)(3) 20 YEARS; TWO TEN-YEAR 11% OF THE COMPANY'S NONE AT ANY TIME AFTER
PARKERSBURG, WV RENEWAL OPTIONS TOTAL COST TO PURCHASE THE SEVENTH YEAR
LAND ONLY THE LAND; INCREASES BY
10% AFTER THE FIFTH
AND TENTH LEASE YEARS
AND 12% AFTER THE
FIFTEENTH LEASE YEAR
(2)
PIZZA HUT (1)(3) 20 YEARS; TWO TEN-YEAR 11% OF THE COMPANY'S NONE AT ANY TIME AFTER
RONCEVERTE, WV RENEWAL OPTIONS TOTAL COST TO PURCHASE THE SEVENTH YEAR
LAND ONLY THE LAND; INCREASES BY
10% AFTER THE FIFTH
AND TENTH LEASE YEARS
AND 12% AFTER THE
FIFTEENTH LEASE YEAR
(2)
PIZZA HUT (1)(3) 20 YEARS; TWO TEN-YEAR 11% OF THE COMPANY'S NONE AT ANY TIME AFTER
MARIETTA, OH RENEWAL OPTIONS TOTAL COST TO PURCHASE THE SEVENTH YEAR
LAND ONLY THE LAND; INCREASES BY
10% AFTER THE FIFTH
AND TENTH LEASE YEARS
AND 12% AFTER THE
FIFTEENTH LEASE YEAR
(2)
TGI FRIDAY'S (5) 12 YEARS 15.043% OF TOTAL COST; NONE AT ANY TIME AFTER THE
HAMDEN, CT INCREASES BY 10% AFTER THIRD LEASE YEAR (6)
RESTAURANT TO BE THE FIFTH LEASE YEAR
CONSTRUCTED AND AFTER EVERY FIVE
YEARS THEREAFTER
DURING THE LEASE TERM
(4)
WENDY'S 20 YEARS 10.25% OF TOTAL COST; FOR EACH LEASE YEAR, AT ANY TIME AFTER
KNOXVILLE, TN INCREASES TO 10.76% OF (I) 6% OF ANNUAL THE SEVENTH LEASE
RESTAURANT TO BE TOTAL COST DURING THE GROSS SALES MINUS YEAR
CONSTRUCTED FOURTH THROUGH SIXTH (II) THE MINIMUM
LEASE YEARS, INCREASES ANNUAL RENT FOR SUCH
TO 11.95% OF TOTAL LEASE YEAR
COST DURING THE
SEVENTH THROUGH TENTH
LEASE YEARS, INCREASES
TO 12.70% OF TOTAL
COST DURING THE
ELEVENTH THROUGH
FIFTEENTH LEASE YEARS
AND INCREASES TO
13.97% OF TOTAL COST
DURING THE SIXTEENTH
THROUGH TWENTIETH
LEASE YEARS (4)
<FN>
FOOTNOTES:
(1) The lease relating to this property is a land lease only. The Company
anticipates entering into a master mortgage note receivable collateralized
by the Beaver, Beckley #1, Beckley #2, Bluefield, Huntington, Hurricane,
Milton, Parkersburg and Ronceverte, West Virginia, and Marietta, Ohio
building improvements.
(2) If the lessee exercises one or both of its renewal options, minimum annual
rent will increase by 12% after the expiration of the original lease term
and after five years thereafter during any subsequent lease term.
(3) The Company anticipates entering into a master lease agreement for the
Beaver, Beckley #1, Beckley #2, Bluefield, Huntington, Hurricane, Milton,
Parkersburg, and Ronceverte, West Virginia, and the Marietta, Ohio
properties.
(4) The "Total Cost" is equal to the sum of (i) the purchase price of the
property, (ii) closing costs, and (iii) actual development costs incurred
under the development agreement, and in the case of the TGI Friday's
Property in Hamden, Connecticut, (iv) "constructing financing costs"
during the development period.
(5) The Company anticipates owning the building only for this property. The
C o mpany will not own the underlying land; although, the Company
anticipates entering into a tri-party agreement with the lessee and the
landlord of the land in order to provide the Company with certain rights
with respect to the land on which the building is located.
(6) If the lessee exercises its purchase option after the third lease year and
before the eleventh lease year, the purchase price to be paid by the
lessee shall be equal to the net present value of the monthly lease rental
payments for the remainder of the lease term (including previous and
scheduled rent increases) discounted at the lesser of (i) 11% per annum,
or (ii) the then-current annual yield on 7-year Treasury securities plus
4.5%, plus the full amount of any late fees, default interest, enforcement
costs or other sums otherwise due or payable by the lessee under the
lease. If the lessee exercises its option after the tenth lease year, the
purchase price to be paid by the lessee shall be equal to the net present
value of the monthly lease payments for the remainder of the lease term
(based, however, for purposes hereof on the initial monthly installment
amount of annual rental and not including previous and scheduled
increases) discounted at 11% per annum, plus the full amount of any late
fees, default interest, enforcement costs or other sums otherwise due or
payable by the lessee under the lease.
</TABLE>
The following table sets forth the location of the 48 Properties acquired
by the Company, from June 30, 1995, through April 9, 1996, including the 23
Pizza Hut Properties in which the Company acquired the land only and the three
TGI Friday's Properties in which the Company acquired the building only, a
description of the competition, and a summary of the principal terms of the
acquisition and lease of each Property.
<TABLE>
PROPERTY ACQUISITIONS
From Inception through April 9, 1996
<CAPTION>
Lease Expira-
Purchase Date tion and Minimum Option
Property Location and Competition Price (1) Acquir- Renewal Annual Rent (2) Percentage To
ed Options Rent Purchase
<S> <C> <C> <C> <C> <C> <C>
JACK IN THE BOX (23) $1,130,401 6/30/95 7/2011; four $114,756; for each Not
(the Los Angeles Property ) (excluding five-year increases by lease year, applicable
Existing restaurant closing renewal 10% after the 5% of annual
costs) options fifth lease gross sales,
The Los Angeles Property is year and after less the
located at the northwest corner every five minimum
of 30th Street and South Figueroa years annual rent
Street in Los Angeles, Los thereafter payable in
Angeles County, California, in an during the that lease
area of mixed residential, lease term year (3)
retail, office, and industrial
development. Other fast-food and
family-style restaurants located
in proximity to the Los Angeles
Property include a Jack in the
Box, a KFC, an Arby's, a Carl's
Jr. Hamburger, an El Pollo Loco,
a Little Caesar's Pizza, and
several local restaurants.
TGI FRIDAY'S (21) (4) 7/19/95 11/2007 15.0427% of None at any
(the Orange Property ) (4) Total Cost; time after
Restaurant to be constructed increases by the third
10% after the lease year
The Orange Property is located at fifth lease (6)
the southeast quadrant of the year and after
intersection of Lambert Road and every five
Boston Post Road in Orange, New years
Haven County, Connecticut, in an thereafter
area of primarily retail, during the
commercial, office, industrial, lease term (5)
and residential development.
Other fast-food and family-style
restaurants located in proximity
to the Orange Property include an
Arby's, a Wendy's, a Subway
Sandwich Shop, a Kenny Rogers
Roasters, and several local
restaurants.
GOLDEN CORRAL (22) $926,370 8/04/95 8/2015; two 11.25% of Total (12) at any
(the Dover Property ) (excluding five-year Cost; increases time after
Restaurant to be constructed closing renewal by 12% after the
and options the fifteenth seventh
The Dover Property is located at development lease year (5) lease year
the southeast quadrant of the costs)
intersection of U.S. Highway 13 (4)
and Townsend Boulevard in Dover,
Kent County, Delaware, in an area
of mixed retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in proximity
to the Dover Property include a
Ponderosa, a Pizza Hut, a
Hooters, a Taco Bell, a Burger
King, an Arby's, an Olive Garden,
a McDonald's, a Lone Star
Steakhouse, a Friendly's, a KFC,
a Chi Chi's, a Red Lobster, and a
TGI Friday's.
GOLDEN CORRAL (7) $298,786 8/04/95 12/2010; four 10.75% of Total for each (8)
(the Cleburne Property ) (excluding five-year Cost (5)(11) lease year,
Restaurant to be constructed closing renewal 5% of the
and options amount by
The Cleburne Property is located development which annual
on the southwest quadrant of West costs) gross sales
Henderson Street and Colonial (4) exceed
Drive in Cleburne, Johnson $1,975,989
County, Texas, in an area of (3)(9)
mixed retail, commercial,
residential, and professional
development. Other fast-food and
family-style restaurants located
in proximity to the Cleburne
Property are a Subway Sandwich
Shop, a Little Caesar's Pizza, a
Burger King, a Long John
Silver's, a KFC, a Whataburger, a
Dairy Queen, a Pizza Hut, a Taco
Bell, a Jack in the Box, and
several local restaurants.
KENNY ROGERS ROASTERS (14) $834,897 8/04/95 5/2015; two $89,751; for each at any
(the Grand Rapids #1 Property ) (excluding five-year increases by lease year, time after
Existing restaurant closing renewal 12% after the 5% of annual the
costs) options seventh lease gross sales, seventh
The Grand Rapids #1 Property is (10) year and after less the lease year
located just east of the every seven minimum
intersection of Leonard Street, years there- annual rent
N.E. and Fuller Avenue, N.E., in after during payable in
Grand Rapids, Kent County, the lease term that lease
Michigan, in an area of mixed year (3)
retail and residential
development. Other fast-food and
family-style restaurants located
in proximity to the Grand Rapids
#1 Property include a McDonald's
and several local restaurants.
GOLDEN CORRAL (7) $297,292 8/04/95 12/2010; four 10.75% of Total for each (8)
(the Universal City Property) (excluding five-year Cost (5)(11) lease year,
Restaurant to be constructed closing renewal 5% of the
and options amount by
The Universal City Property is development which annual
located on the southeast quadrant costs) gross sales
of Pat Booker Road and Coronado (4) exceed
Boulevard, in Universal City, $2,012,585
Bexar County, Texas, in an area (3)(9)
of mixed retail, commercial,
residential, and professional
development. Other fast-food and
family-style restaurants located
in proximity to the Universal
City Property include a Pizza
Hut, a Long John Silver's, a
Little Caesar's Pizza, an Arby's,
a McDonald's, a Subway Sandwich
Shop, a Rally's, a Wendy's, a
Taco Bell, a Dunkin Donuts, a
Church's Fried Chicken, a Jack in
the Box, and several local
restaurants.
GOLDEN CORRAL (7) $327,733 8/18/95 6/2010; four 10.75% of Total for each (8)
(the Carlsbad Property ) (excluding five-year Cost (5)(11) lease year,
Restaurant to be constructed closing renewal 5% of the
and options amount by
The Carlsbad Property is located development which annual
on the west side of South Canal costs)(4) gross sales
Street in Carlsbad, Eddy County, exceed
New Mexico, in an area of mixed $1,973,815
retail and commercial (3)
development. Other fast-food and
family-style restaurants located
in proximity to the Carlsbad
Property include a Pizza Hut, a
Jerry's Restaurant, a Dairy
Queen, a McDonald's, a Wendy's,
and several local restaurants.
KENNY ROGERS ROASTERS (14) $950,361 8/18/95 5/2015; two $102,164; for each at any
(the Franklin Property ) (excluding five-year increases by lease year, time after
Existing restaurant closing renewal 12% after the 5% of annual the
The Franklin Property is located costs) options seventh lease gross sales, seventh
at the southeast quadrant of the (10) year and after less the lease year
intersection of Moores Road and every seven minimum
Galleria Boulevard in Franklin, years annual rent
Williamson County, Tennessee, in thereafter payable in
an area of mixed retail, during the that lease
commercial, office, and lease term year (3)
residential development. Other
fast-food and family-style
restaurants located in proximity
to the Franklin Property include
a Red Lobster, an Outback
Steakhouse, a McDonald's, a
Chili's, a Subway Sandwich Shop,
a Taco Bell, and several local
restaurants.
GOLDEN CORRAL (13) $845,588 8/15/95 8/2010; two 11.50% of Total for each during the
(the Tampa Property ) (excluding five-year Cost; increases lease year, eighth and
Restaurant to be constructed closing renewal by 8% after the 5% of annual ninth
and options fifth lease gross sales, lease
The Tampa Property is located on development year and after less the years only
the south side of West costs) every five minimum (8)
Hillsborough Avenue in Tampa, (4) years annual rent
Hillsborough County, Florida, in thereafter payable in
an area of mixed retail, during the that lease
commercial, residential, and lease term (5) year (3)
professional development. Other
fast-food and family-style
restaurants located in proximity
to the Tampa Property include a
Pizza Hut, a Checkers, a Village
Inn, a Taco Bell, a Burger King,
an Arby's, a Chili's, a Kenny
Rogers Roasters, a Wendy's, a
KFC, a McDonald's, a Shoney's, a
Subway Sandwich Shop, a Hardee's,
and several local restaurants.
GOLDEN CORRAL (7) $1,061,625 8/18/95 8/2010; four $114,125 (11) for each (8)
(the Corsicana Property ) (excluding five-year lease year,
Existing restaurant closing renewal 5% of the
costs) options amount by
The Corsicana Property is located which annual
on the southwest corner of South gross sales
44th Street and West 7th Avenue exceed
in Corsicana, Navarro County, $1,962,078
Texas, in an area of mixed (3)
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in proximity
to the Corsicana Property include
a Long John Silver's, a Jack in
the Box, a Sonic Drive-In, a Taco
Bell, a Pizza Hut, a Burger King,
a Church's Fried Chicken, a KFC,
a Subway Sandwich Shop, and
several local restaurants.
GOLDEN CORRAL (7) $1,458,638 8/18/95 8/2010; four $156,804 (11) for each (8)
(the Fort Worth Property ) (excluding five-year lease year,
Existing restaurant closing renewal 5% of the
costs) options amount by
The Fort Worth Property is which annual
located on the southeast corner gross sales
of South Hulen Street and Bayside exceed
Drive in Fort Worth, Tarrant $1,458,638
County, Texas, in an area of (3)
mixed retail, commercial,
residential, and professional
development. Other fast-food and
family-style restaurants located
in proximity to the Fort Worth
Property include a Pizza Hut, a
Denny's, a Whataburger, a KFC, a
Chili's, a Red Lobster, a
Bennigan's, a McDonald's, an
Olive Garden, and several local
restaurants.
DENNY'S (15) $664,335 9/06/95 8/2015; two 11% of Total for each during the
(the Pasadena Property ) (excluding five-year Cost; increases lease year, eighth,
Restaurant to be renovated (17) closing renewal by 8% after the 5% of annual tenth, and
and options fifth lease gross sales, twelfth
The Pasadena Property is located renovation year and 10% less the lease
on the northwest quadrant of costs) (4) after the tenth minimum years only
Spencer Highway and Watters Road lease year and annual rent
in Pasadena, Harris County, after every payable in
Texas, in an area of mixed five years that lease
retail, commer-cial, and thereafter year (3)
professional development. Other during the
fast-food and family-style lease term (5)
restaurants located in proximity
to the Pasadena Property include
a Black-Eyed Pea, a Burger King,
a Dairy Queen, a Golden Corral,
an International House of
Pancakes, a KFC, a Long John
Silver's, a McDonald's, a Pizza
Hut, a Popeye's, a Red Lobster, a
Ryan's Steakhouse, and several
local restaurants.
DENNY'S (15) $839,930 9/06/95 8/2015; two 11% of Total for each during the
(the Shawnee Property ) (excluding five-year Cost; increases lease year, eighth,
Restaurant to be renovated (17) closing renewal by 8% after the 5% of annual tenth, and
and options fifth lease gross sales, twelfth
The Shawnee Property is located renovation year and 10% less the lease
on the east side of N. Harrison costs) (4) after the tenth minimum years only
Street approximately mile north lease year and annual rent
of Interstate 40 in Shawnee, after every payable in
Pottawatomie County, Oklahoma, in five years that lease
an area of mixed retail, thereafter year (3)
commercial, industrial, and during the
residential development. Other lease term (5)
fast-food and family-style
restaurants located in proximity
to the Shawnee Property include a
McDonald's.
BOSTON MARKET (16) $837,656 9/19/95 9/2010; three $90,048; for each at any
(the Grand Island Property ) (excluding five-year increases by lease year, time after
Existing restaurant closing renewal 10% after the 4% of annual the fifth
costs) options fifth lease gross sales, lease year
The Grand Island Property is year and after less the
located at the northwest corner every five minimum
of the intersection of West State years annual rent
Street and Lawrence Lane in Grand thereafter payable in
Island, Hall County, Nebraska, in during the that lease
an area of mixed retail, lease term year, not to
commercial, and residential exceed
development. Other fast-food and $10,000 (3)
family-style restaurants located
in proximity to the Grand Island
Property include an Arby's, a
Little Caesar's Pizza, a Burger
King, a Pizza Hut, a McDonald's,
a Taco Bell, a Subway Sandwich
Shop, a KFC, a Red Lobster, a
Wendy's, and several local
restaurants.
BOSTON MARKET (16) $969,159 10/04/95 10/2010; $104,185; for each at any
(the Dubuque Property ) (excluding three five- increases by lease year, time after
Existing restaurant closing year renewal 10% after the 4% of annual the fifth
costs) options fifth lease gross sales, lease year
The Dubuque Property is located year and after less the
at the southwest corner of John every five minimum
F. Kennedy Road and Hillcrest on years annual rent
the west side of Dubuque, Dubuque thereafter payable in
County, Iowa, in an area of during the that lease
primarily retail and residential lease term year, not to
development. Other than fast- exceed
food and family-style restaurants $10,000 (3)
located in proximity to the
Dubuque Property include a
Ponderosa, a Subway Sandwich
Shop, a McDonald's, a KFC, a
Godfather's Pizza, a Burger King,
a Wendy's, a Pizza Hut, a Dairy
Queen, a Village Inn, an Arby's,
a Little Caesar's Pizza, a Long
John Silver's, a Hardee's, and
several local restaurants.
BOSTON MARKET (16) $972,187 11/07/95 11/2010; $104,510; for each at any
(the Chanhassen Property ) (excluding three five- increases by lease year, time after
Existing restaurant closing year renewal 10% after the 4% of annual the fifth
costs) options fifth lease gross sales, lease year
The Chanhassen Property is year and after less the
located on the southeast corner every five minimum
of West 78th Street or Powers years annual rent
Boulevard, Chanhassen, Carver thereafter payable in
County, Minnesota, in an area of during the that lease
mixed commercial, office, and lease term year, not to
residential development. Other exceed
fast-food and family-style $10,000 (3)
restaurants located in proximity
to the Chanhassen Property
include a Subway Sandwich Shop, a
Wendy's, and several local
restaurants.
GOLDEN CORRAL (22) $1,278,876 11/07/95 7/2015; two 11.25% of Total (12) at any
(the Columbus Property ) (excluding five-year Cost; increases time after
Restaurant to be constructed closing renewal by 12% after the
and options the fifteenth seventh
The Columbus Property is located development lease year (5) lease year
on the northeast quadrant of costs)(4)
Dublin-Ganville Road and Sawmill
Road, in Columbus, Franklin
County, Ohio, in an area of mixed
retail commercial, and
residential development. Other
fast-food and family-style
restaurants located in proximity
to the Columbus Property include
a Chili's, a Pizza Hut, a Ryan's
Steak House, a Chuck E. Cheese
Pizza, two Wendy's, a Rax, a
Kenny Rogers Roasters, a Boston
Market, a Red Lobster, a KFC, a
Longhorn Steakhouse, a Bob
Evan's, an Olive Garden, a
McDonald's, a Taco Bell, and
several local restaurants.
JACK IN THE BOX (23) $503,198 11/21/95 11/2013; four 10.75% of Total for each at any
(the Houston Property ) (excluding five-year Cost; increases lease year, time after
Restaurant to be constructed closing renewal by 10% after 5% of annual the
and options the fifth lease gross sales, seventh
The Houston Property is located development year and after less the lease year
at the southwest corner of the costs) every five minimum
intersection of Hammerly (4) years annual rent
Boulevard and the southbound thereafter payable in
Frontage Road of the Sam Houston during the that lease
Parkway in Houston, Harris lease term (5) year (3)
County, Texas, in an area of
mixed retail commercial,
industrial, and residential
development. Other fast-food and
family-style restaurants located
in proximity to the Houston
Property include a McDonald's
Express, a KFC, a Chili's, a
Grandy's, and a local restaurant.
20 PIZZA HUT PROPERTIES - Land $3,760,883 01/22/96 02/2016; two $413,697; None at any
only - (18)(20) located in (excluding ten-year increases by time after
Adrian, Michigan (the Adrian closing renewal 10% after the the
Property ), Lambertville, costs) options fifth and tenth seventh
Michigan (the Lambertville lease years and lease year
Property ), Monroe, Michigan (the 12% after the
Monroe Property ), Bedford, Ohio fifteenth lease
(the Bedford Property ), Bowling year (19)
Green, Ohio (the Bowling Green
Property ), Cleveland, Ohio (the
Cleveland #1 Property ),
Cleveland, Ohio (the Cleveland
#2 Property ), Cleveland, Ohio
(the Cleveland #3 Property ),
Defiance, Ohio (the Defiance
Property ), East Cleveland, Ohio
(the East Cleveland Property ),
Euclid, Ohio (the Euclid
Property ), Fairview Park, Ohio
(the Fairview Park Property ),
Middleburg Heights (Cleveland),
Ohio (the Middleburg Heights
Property ), North Olmstead, Ohio
(the North Olmstead Property ),
Norwalk, Ohio (the Norwalk
Property ), Sandusky, Ohio (the
Sandusky Property ), Seven Hills
(Cleveland), Ohio (the Seven
Hills Property ) and Toledo, Ohio
(the Toledo #2 Property, the
Toledo #3 Property, and the
Toledo #4 Property ).
The Adrian Property is located on
the southeast corner of South
Main Street and Baker Street in
Adrian, Lenawee County, Michigan,
in an area of mixed retail,
commercial, and residential
development. Other fast-food and
family-style restaurants located
in proximity to the Adrian
Property include a Subway
Sandwich Shop, a Long John
Silver's, a Red Lobster, a Bob
Evans, a McDonald's, a Burger
King, an Applebee's, a Taco Bell,
a KFC, and an Arby's
The Lambertville Property is
located at the southeast corner
of Summerfield Road and Secor
Road in Lambertville, Monroe
County, Michigan, in an area of
mixed retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in proximity
to the Lambertville Property
include a Burger King, a
McDonald's, a Subway Sandwich
Shop, and several local
restaurants.
The Monroe Property is located at
the west side of Telegraph Road
in Monroe County, Michigan, in an
area of mixed retail, commercial,
and residential development.
Other fast-food and family-style
restaurants located in proximity
to the Monroe Property include a
Taco Bell, a Hungry Howie's, a
Burger King, a McDonald's, a
Wendy's, an Arby's, a Ruby
Tuesday, and several local
restaurants.
The Bedford Property is located
at the north quadrant of Rockside
Road in Bedford, Cuyahoga County,
Ohio, in an area of mixed retail,
commercial, and residential
development. Other fast-food and
family-style restaurants located
in proximity to the Bedford
Property include a Burger King, a
KFC, a Wendy's, and a Taco Bell.
The Bowling Green Property is
located at the northeast corner
of South Main Street and Gypsy
Lane in Bowling Green, Wood
County, Ohio, in an area of mixed
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in proximity
to the Bowling Green Property
include a McDonald's, a Wendy's,
a Burger King, a Big Boy, a
Rally's, a KFC, and several local
restaurants.
The Cleveland #1 Property is
located on the north side of Lake
Shore Boulevard east of the
intersection of East 159th
Street, Cleveland, Cuyahoga
County, Ohio, in an area of mixed
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in proximity
to the Cleveland #1 Property
include a KFC, a Burger King, and
a McDonald's.
The Cleveland #2 Property is
located on Euclid Avenue near
Booth Hospital and Lakeview
Cemetery in Cleveland, Cuyahoga
County, Ohio, in an area of mixed
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in proximity
to the Cleveland #2 Property
include a KFC, a Popeye's, and a
Burger King.
The Cleveland #3 Property is
located on the southeast corner
of West 117th Street and Detroit
Avenue in Cleveland, Cuyahoga
County, Ohio, in an area of mixed
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in proximity
to the Cleveland #3 Property
include an Arby's, a McDonald's,
a Rally's, a Subway Sandwich
Shop, a Wendy's, a Burger King, a
Taco Bell, a KFC, and several
local restaurants.
The Defiance Property is located
on the east side of North Clinton
Street in Defiance, Defiance
County, Ohio, in an area of mixed
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in proximity
to the Defiance Property include
a Bob Evans, a Friendly's, a
McDonald's, a Ponderosa, a Subway
Sandwich Shop, a Burger King, a
KFC, and a Pizza Hut.
The East Cleveland Property is
located at the northwest side of
Euclid Avenue in East Cleveland,
Cuyahoga County, Ohio, in an area
of mixed retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in proximity
to the East Cleveland Property
include a Rally's, a Wendy's, a
McDonald's, and a Burger King.
The Euclid Property is located at
the southeast side of Euclid
Avenue in Euclid, Cuyahoga
County, Ohio, in an area of mixed
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in proximity
to the Euclid Property include a
McDonald's, a Denny's, a Wendy's,
a Taco Bell, an Arby's, a Long
John Silver's, and a Red Lobster.
The Fairview Park Property is
located on the south side of
Center Ridge Road in Fairview
Park, Cuyahoga County, Ohio, in
an area of mixed retail,
commercial, and residential
development. Other fast-food and
family-style restaurants located
in proximity to the Fairview Park
Property include a Boston Market,
a McDonald's, a Burger King, a
Friendly's, an Applebee's, and a
Longhorn Steaks Restaurant &
Saloon.
The Middleburg Heights Property
is located at the south side of
Bagley Road in Middleburg
Heights, Cuyahoga County, Ohio,
in an area of mixed retail,
commercial, and residential
development. Other fast-food and
family-style restaurants located
in proximity to the Middleburg
Heights Property include a Dunkin
Donuts, a Bob Evans, a Golden
Corral, a McDonald's, a
Friendly's, a Burger King, a
Ponderosa, and a Perkins.
The North Olmstead Property is
located on the southwest corner
of Lorain Road and Decker Road in
North Olmstead, Cuyahoga County,
Ohio, in an area of mixed retail,
commercial, and residential
development. Other fast-food and
family-style restaurants located
in proximity to the North
Olmstead Property include a
McDonald's, a Rally's, a Boston
Market, a Blimpie's, an Arby's,
an Olive Garden, a Chi-Chi's, and
a Tony Roma's.
The Norwalk Property is located
at the northeast corner of Milan
Street and Willard Street in
Norwalk, Huron County, Ohio, in
an area of mixed retail and
residential development. Other
fast-food and family-style
restaurants located in proximity
to the Norwalk Property include a
Wendy's, a Long John Silver's, a
Taco Bell, a McDonald's, a KFC, a
Bob Evans, a Burger King, and a
Ponderosa.
The Sandusky Property is located
on the northeast side of Milan
Road in Sandusky, Erie County,
Ohio, in an area of mixed retail,
commercial, and residential
development. Other fast-food and
family-style restaurants located
in proximity to the Sandusky
Property include a Wendy's, a
Chi-Chi's, a Red Lobster, a
Burger King, a Kenny Rogers
Roasters, a Ponderosa, an Arby's,
a Bob Evans, a McDonald's, a Big
Boy, an Applebee's, and a local
restaurant.
The Seven Hills Property is
located at the northeast corner
of Broadway Road and Mabel Avenue
in Seven Hills, Cuyahoga County,
Ohio, in an area of mixed retail,
commercial, and residential
development. Other fast-food and
family-style restaurants located
in proximity to the Seven Hills
Property include a Taco Bell, a
Boston Market, a KFC, a
McDonald's, a Ponderosa, a Burger
King, and a Wendy's.
The Toledo #2 Property is located
at the north side of Monroe
Street in Toledo, Lucas County,
Ohio, in an area of mixed retail,
commercial, and residential
development. Other fast-food and
family-style restaurants located
in proximity to the Toledo #2
Property include a Lone Star
Steak House, an Olive Garden, a
Chuck E. Cheese, a Denny's, a
Kenny Rogers Roasters, a Burger
King, a Subway Sandwich Shop, an
Outback Steakhouse, a Red
Lobster, a Taco Bell, and several
local restaurants.
The Toledo #3 Property is located
at the west side of Secor Road in
Toledo, Lucas County, Ohio, in an
area of mixed retail, commercial,
and residential development.
Other fast-food and family-style
restaurants located in proximity
to the Toledo #3 Property include
a Burger King, a KFC, a Boston
Market, a Long John Silver's, a
McDonald's, a Denny's, and a Big
Boy.
The Toledo #4 Property is located
at the north side of East
Manhattan Boulevard in Toledo,
Lucas County, Ohio, in an area of
mixed retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in proximity
to the Toledo #4 Property include
a McDonald's, a Wendy's, an
Arby's, a Papa John's, and
several local restaurants.
TGI FRIDAY'S (21) (4) 02/06/96 7/2008; two 15.0427% of None at any
(the Marlboro Property ) (4) five-year Total Cost; time after
Restaurant to be constructed renewal increases by the third
options 10% after the lease year
The Marlboro Property is located fifth lease (6)
at the northeast quadrant of the year and after
intersection of Route 9 and Union every five
Hill Road in Marlboro, Monmouth years
County, New Jersey, in an area of thereafter
mixed retail, commercial, and during the
residential development. Other lease term (5)
fast-food and family-style
restaurants located in proximity
to the Marlboro Property include
a McDonald's and several local
restaurants.
TGI FRIDAY'S (21) (4) 3/06/96 3/2008; two 14.954% of None at any
(the Hazlet Property ) (4) five-year Total Cost; time after
Restaurant to be constructed renewal increases by the third
options 10% after the lease year
The Hazlet Property is located at fifth lease (6)
the southwest quadrant of the year and after
intersection of Route 35 and every five
Bethany Road in Hazlet, Monmouth years
County, New Jersey, in an area of thereafter
primarily retail, commercial, and during the
residential development. Other lease term (5)
fast-food and family-style
restaurants located in proximity
to the Hazlet Property include a
Friendly's and several local
restaurants.
DENNY'S (15) $820,625 03/19/96 9/2015; two $97,952; (25) during the
(the Grand Rapids #2 Property ) (excluding five-year increases by eighth
Existing restaurant closing renewal 15% after the lease year
costs) options fifth lease only
The Grand Rapids #2 Property is year and after
located on the north side of every five
Michigan Street, between Fuller years
and Balls Avenues, Grand Rapids, thereafter
Kent County, Michigan, in an area during the
of primarily retail, commercial, lease term
and residential development.
Other fast-food and family-style
restaurants located in proximity
to the Grand Rapids #2 Property
include a Wendy's, a Checkers, a
Subway, a Burger King, and a
local restaurant.
BURGER KING (24) $1,088,500 03/20/96 7/2016; two 10.75% of Total for each None
(the Oak Lawn Property ) (excluding five-year Cost (5) lease year,
Restaurant to be constructed closing renewal 8.5% of
and options annual gross
The Oak Lawn Property is located development sales, less
on the northeast section of the costs) the minimum
Village of Oak Lawn, Cook County, annual rent
Illinois, in an area of primarily payable in
retail, commercial, and that lease
residential development. Other year
fast-food and family-style
restaurants located in proximity
to the Oak Lawn Property include
a Wendy's, a KFC, a Popeye's, a
White Castle, a Boston Market, a
McDonald's, a Denny's, a Domino's
Pizza, a Long John Silver's, a
Taco Bell, and several local
restaurants.
BURGER KING (24) $515,000 03/20/96 7/2016; two 10.75% of Total for each None
(the Burbank Property ) (excluding five-year Cost (5) lease year,
Restaurant to be constructed closing renewal 8.5% of
and options annual gross
The Burbank Property is located development sales, less
on the southwest section of the costs) the minimum
City of Burbank, Cook County, annual rent
Illinois, in an area of primarily payable in
retail, commercial, and that lease
residential development. Other year
fast-food and family-style
restaurants located in proximity
to the Burbank Property include a
McDonald's, a Subway, a Taco
Bell, a KFC, and several local
restaurants.
THREE PIZZA HUT PROPERTIES - $489,117 4/03/96 02/2016; two $53,803; None at any
Land only - (18) (20) located in (excluding ten-year increases by time after
Mayfield Heights, Ohio (the closing renewal 10% after the the
"Mayfield Heights Property"), costs) options fifth and tenth seventh
Toledo, Ohio (the "Toledo #1 lease years and lease year
Property"), and Strongsville, 12% after the
Ohio (the "Strongsville fifteenth lease
Property") year (19)
The Mayfield Heights Property is
located on the southwest corner
of Mayfield Road and Longwood
Drive in Mayfield Heights,
Cuyahoga County, Ohio, in an area
of primarily retail, commercial,
and residential development.
Other fast-food and family-style
restaurants located in proximity
to the Mayfield Heights Property
include a Big Boy, an Applebee's,
an Outback Steakhouse, a Burger
King, and a McDonald's.
The Toledo #1 Property is located
at the east side of South Detroit
Avenue in Toledo, Lucas County,
Ohio, in an area of primarily
retail, commercial,
institutional, and residential
development. Other fast-food and
family-style restaurants located
in proximity to the Toledo #1
Property include a McDonald's.
The Strongsville Property is
located at the east side of Pearl
Road south of State Road 82 in
Strongsville, Cuyahoga County,
Ohio, in an area of primarily
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in proximity
to the Strongsville Property
include a McDonald's, a Boston
Market, a Taco Bell, a Burger
King, a TGI Friday's, and a
Ground Round.
BURGER KING (24) $670,517 4/03/96 08/2016; two 10.75% of Total for each None
(the "Indian Head Park Property") (excluding five-year Cost (5) lease year,
Restaurant to be constructed closing renewal 8.5% of
and options annual gross
The Indian Head Park Property is development sales, less
located on the northwest side of costs) the minimum
Joliet Road, southwest of Willow (4) annual rent
Springs Road, in Indian Head, payable in
Cook County, Illinois, in an area that lease
of primarily residential year
development. Other fast-food and
family-style restaurants located
in proximity to the Indian Head
Park Property include a Wendy's,
a Taco Bell, and a McDonald's.
BURGER KING (24) $685,953 4/03/96 08/2016; two- 10.75% of Total for each None
(the "Highland Property") (excluding five year Cost (5) lease year,
Restaurant to be constructed closing renewal 8.5% of
and options annual gross
The Highland Property is located development sales, less
within the Highland Town Center, costs) the minimum
in Highland, Lake County, (4) annual rent
Indiana, in an area of primarily payable in
residential development. Other that lease
fast-food and family-style year
restaurants located in proximity
to the Highland Property include
a Wendy's, an Arby's, and a
McDonald's.
<FN>
FOOTNOTES:
(1) The estimated federal income tax basis of the depreciable portion (the building portion) of each of the
Properties acquired is set forth below:
Property Federal Tax Basis Property Federal Tax Basis
Los Angeles Property $ 603,000 Grand Island Property $ 645,000
Orange Property 1,374,000 Dubuque Property 664,000
Dover Property 916,000 Chanhassen Property 640,000
Cleburne Property 766,000 Columbus Property 975,000
Grand Rapids #1 Property 599,000 Houston Property 534,000
Universal City Property 791,000 Marlboro Property 1,360,000
Carlsbad Property 741,000 Hazlet Property 1,312,000
Franklin Property 443,000 Grand Rapids #2 Property 548,000
Tampa Property 1,408,000 Oak Lawn Property 869,000
Corsicana Property 754,000 Burbank Property 633,000
Fort Worth Property 898,000 Indian Head Park Property 756,000
Pasadena Property 504,000 Highland Property 632,000
Shawnee Property 624,000
(2) Minimum annual rent for each of the Properties became payable on the effective date of the lease, except
as indicated below. For the Orange, Marlboro, and Hazlet Properties, minimum annual rent will become
due and payable on the earlier of (a) the later of (i) the date the restaurant opens for business to the
public, (ii) the date the certificate of occupancy for the restaurant is issued, and (iii) the date the
tenant received its final funding from the Company under the development agreement; or (b) 150 days
after execution of the lease. For the Dover, Cleburne, Carlsbad, Tampa, Universal City and Columbus
Properties, minimum annual rent will become due and payable on the earlier of (i) the date the
restaurant opens for business to the public, (ii) the date the certificate of occupancy for the
restaurant is issued, or (iii) 180 days after the execution of the lease. For the Houston Property,
minimum annual rent will become due and payable on the earlier of (i) the date the restaurant opens for
business to the public or (ii) 180 days after the execution of the lease. For the Oak Lawn, Burbank,
Indian Head Park and Highland Properties, minimum annual rent will become due and payable on the earlier
of (i) the date the certificate of occupancy for the restaurant is issued, (ii) the date the restaurant
opens for business to the public, or (iii) 120 days after execution of the lease.
(3) Percentage rent shall be calculated on a calendar year basis (January 1 to December 31).
(4) The Company accepted an assignment of an interest in the ground lease relating to the Orange, Marlboro,
and Hazlet Properties effective July 19, 1995, February 6, 1996, and March 6, 1996, respectively, in
consideration of its funding of certain preliminary development costs and its agreement to fund
remaining development costs not in excess of the amount specified below. The development agreements for
the Properties which are to be constructed or renovated provide that construction or renovation must be
completed no later than the dates set forth below. The maximum cost to the Company (including the
purchase price of the land (if applicable), development costs (if applicable), and closing and
acquisition costs) is not expected to, but may, exceed the amounts set forth below:
Estimated
Property Maximum Cost Estimated Final Completion Date
Orange Property $1,275,000 Opened for business October 30, 1995
Dover Property 1,963,901 Opened for business December 16, 1995
Cleburne Property 1,169,389 Opened for business October 19, 1995
Universal City
Property 1,189,815 Opened for business September 15, 1995
Carlsbad Property 1,210,903 Opened for business September 5, 1995
Tampa Property 1,750,000 Opened for business February 5, 1996
Pasadena Property 955,287 May 8, 1996
Shawnee Property 1,139,053 Opened for business December 21, 1995
Columbus Property 2,033,037 Opened for business November 28, 1995
Houston Property 1,064,679 Opened for business March 3, 1996
Marlboro Property 1,306,900 July 7, 1996
Hazlet Property 1,330,000 August 3, 1996
Oak Lawn Property 2,009,163 July 18, 1996
Burbank Property 1,171,116 July 18, 1996
Indian Head Park
Property 1,272,727 August 1, 1996
Highland Property 1,213,636 August 1, 1996
(5) The Total Cost is equal to the sum of (i) the purchase price of the Property, (ii) closing costs, and
(iii) actual development costs incurred under the development agreement, and in the case of the Tampa,
Columbus, Houston, Marlboro, and Hazlet Properties, (iv) construction financing costs during the
development period.
(6) If the lessee exercises its purchase option after the third lease year and before the eleventh lease
year, the purchase price to be paid by the lessee shall be equal to the net present value of the monthly
lease rental payments for the remainder of the lease term (including previous and scheduled rent
increases) discounted at the lesser of (i) 11% per annum, or (ii) the then-current annual yield on 7-
year Treasury securities plus 4.5%, plus the full amount of any late fees, default interest, enforcement
costs or other sums otherwise due or payable by the lessee under the lease. If the lessee exercises its
option after the tenth lease year, the purchase price to be paid by the lessee shall be equal to the net
present value of the monthly lease payments for the remainder of the lease term (based, however, for
purposes hereof on the initial monthly installment amount of annual rental and not including previous
and scheduled increases) discounted at 11% per annum, plus the full amount of any late fees, default
interest, enforcement costs or other sums otherwise due or payable by the lessee under the lease.
(7) The lessee of the Cleburne, Universal City, Carlsbad, Corsicana and Fort Worth Properties is the same
unaffiliated lessee.
(8) If the Property is not producing percentage rent and the lessee determines, in good faith, that the
restaurant has become uneconomic and unsuitable, in the case of the Cleburne, Universal City, Carlsbad,
Fort Worth, and Corsicana Properties the lessee may elect:
(A) During the first through seventh and again during the tenth through 15th lease years:
(i) to purchase the Property for a purchase price, net of closing costs, equal to the greater of
(a) the then fair-market value of the Property as determined by an independent appraisal, or (b)
100% of the Company's original cost for the Property if the Company is successful in effectuating
the lessee's purchase through a tax-free like-kind exchange, or 120% of the Company's original
cost for the Property if a tax-free, like-kind exchange is not effectuated; or
(ii) to sublet the Property as described in the section of the Prospectus entitled Description
of Property Leases - Assignment and Sublease, and in the case of a sublease that requires the
consent of the Company, the minimum annual rent will increase by 15% on the first day of the fifth
year of the sublease and the first day of each fifth lease year thereafter; or
(iii) to substitute the Property for another Golden Corral restaurant property on terms similar
to those described in the section of the Prospectus entitled Description of Property Leases -
Substitution of Properties for Golden Corral restaurant properties.
(B) During the eighth and ninth lease year, to close the restaurant upon 60 days' prior written notice
to the Company and continue to meet all of its obligations under the lease until such time as the
lessee finds a new lessee or a purchaser for the Property. If the Property is sold pursuant to
this provision, the lessee shall reimburse to the Company 100% of any deficiency between the sale
price and The Company's original cost for the Property up to $200,000, plus one-half of any
deficiency over $400,000. The Company will bear 100% of any deficiency between the sale price and
the Company's original cost for the Property over $200,000 up to $400,000, plus one-half of any
deficiency over $400,000.
If the lessee and the Company enter into more than three Golden Corral leases, then the option to
close the restaurant will apply to the first three Golden Corral leases (the "Three Leases"). The
lessee may only exercise the option to close with respect to any two of such Three Leases. At
such time as the lessee has exercised its rights to close the restaurant with respect to any two
of the Three Leases, its right with respect to the third lease will automatically terminate.
In the case of the Tampa Property the lessee may elect:
(A) During the first through seventh and again during the tenth through 15th lease years:
(i) to purchase the Property for a purchase price, net of closing costs, equal to the greater of
(a) the then fair-market value of the Property as determined by an independent appraisal, or (b)
100% of the Company's original cost for the Property if the Company is successful in effectuating
the lessee's purchase through a tax-free like-kind exchange, or 120% of the Company's original
cost for the Property if a tax-free, like-kind exchange is not effectuated; or
(ii) to sublet the Property as described in the section of the Prospectus entitled Description
of Property Leases - Assignment and Sublease; or
(iii) to substitute the Property for another Golden Corral restaurant property on terms similar
to those described in the section of the Prospectus entitled Description of Property Leases -
Substitution of Properties for Golden Corral restaurant properties.
(9) The percentage rent may be adjusted in the event the lessee incurs remodeling costs in order either to
make structural improvements that increase the interior floor area of the restaurant or to make
alterations that materially change the restaurant concept and/or the operating system. The adjustment
will relieve the lessee of paying percentage rent on up to $268,750 of gross sales, but the adjustment
shall take into account only actual remodeling costs not in excess of $150,000.
(10) The Company paid 85% of the total cost for the property, and the remaining 15% of the cost was paid by
the lessee, but the Company will hold undivided title to the property. Upon the sale of the property,
the Company will pay the lessee 15% of any net sales proceeds available in excess of the Company's cost
to purchase the property.
In the event of an exercise of the lessee's option to purchase the property, the purchase price shall
equal the greater of: (i) fair market value of the Company's effective 85% interest in the property as
of the option exercise date; or (ii) the purchase price paid by the Company for the property (not
including the amount paid by the lessee), plus 15%.
(11) If the lessee elects to renew the lease after the initial 15-year term, then beginning with the
commencement of the first extension term of the lease, and continuing throughout any subsequent
extension terms, the lessee shall be obligated to pay the Company minimum monthly rent equal to the
greater of (i) 115% of the monthly minimum annual rent payable during the last month of the initial term
of the lease, or (ii) 1/12th of the total of the minimum annual rent payable during the initial term
plus the percentage rent during the 12-month period immediately preceding the first day of such
extension term. In addition, if the lessee enters into a sublease of the Property prior to the 11th
lease year with any person other than a franchisee, licensee, or other affiliate of the lessee, then the
minimum annual rent shall increase by 15% every five years after commencement of the sublease. Minimum
annual rent does not increase in connection with any assignment of the lease.
(12) Following the date the restaurant opens for business, the tenant shall pay as additional rent,
percentage rent equal to six percent of the amount by which the tenant's gross sales exceed annual rent
divided by five percent.
(13) The Company acquired an interest in CNL/Corral South Joint Venture, a general partnership between the
Company and an unaffiliated co-venturer. Based upon anticipated development costs for the Property, the
Company expects to own a 76% interest in the CNL/Corral South Joint Venture upon completion of
construction.
(14) The lessee of the Grand Rapids #1 and Franklin Properties is the same unaffiliated lessee.
(15) The lessee of the Pasadena, Shawnee and Grand Rapids #2 Properties is the same unaffiliated lessee.
(16) The lessee of the Dubuque, Chanhassen and Grand Island Properties is the same unaffiliated lessee.
(17) Minimum annual rent for each of the Pasadena and Shawnee Properties became payable on the effective date
of the lease. In accordance with the lease agreement, these Properties are being converted from Kettles
restaurants to Denny's restaurants. Renovation of the Properties is expected to be completed within 150
days of the effective date of the lease. In connection therewith, the Company has agreed to pay
renovation costs of $250,000 for each Property up to the amounts as described in Note 4 above. The
Pasadena and Shawnee Properties are expected to remain operational during renovations. Upon completion
of the renovations and payment of costs by the Company, base rental income will be adjusted upward in
accordance with the lease agreement.
(18) The lease relating to this Property is a land lease only. The Company entered into a Mortgage Loan
evidenced by the Master Mortgage Note for $8,475,000 collateralized by building improvements. The
Master Mortgage Note bears interest at a rate of 10.75% per annum and principal and interest will be
collected in equal monthly installments over 20 years beginning in March 1996.
(19) If the lessee exercises one or both of its renewal options, minimum annual rent will increase by 12%
after the expiration of the original lease term and after five years thereafter during any subsequent
lease term.
(20) The Company entered into a master lease agreement for the Adrian, Lambertville, Monroe, Bedford, Bowling
Green, East Cleveland, Defiance, Euclid, Fairview Park, Mayfield Heights, Middleburg Heights, North
Olmstead, Norwalk, Sandusky, Seven Hills, Strongsville, Cleveland #1, Cleveland #2, Cleveland #3,
Toledo #1, Toledo #2, Toledo #3 and Toledo #4 Properties.
(21) The lessee of the Orange, Marlboro and Hazlet Properties is the same unaffiliated lessee.
(22) The lessee of the Dover and Columbus Properties is the same unaffiliated lessee.
(23) The lessee of the Los Angeles and Houston Properties is the same unaffiliated lessee.
(24) The lessee of the Oak Lawn, Burbank, Indian Head Park and Highland Properties is the same unaffiliated
lessee.
(25) Within 20 days after the expiration of the first 24 full calendar months of the lease (the Base
Period ) (as defined in the Lease), the lessee must pay to the Company 5% of the amount by which gross
sales for the last 12 months of the Base Period exceed four times the average quarterly gross sales for
the Base Period (the Base Figure ). After the expiration of the Base Period and continuing each Lease
Year thereafter during the term of the Lease, lessee must pay percentage rent equal to: (i) one-fourth
of the initial minimum annual rental (without adjustment) plus 5% of the amount by which gross sales for
the then-ended calendar quarter exceeds the Base Figure; minus (ii) one-fourth of the minimum annual
rent (as adjusted).
</TABLE>
SITE SELECTION AND ACQUISITION OF PROPERTIES
GENERAL. It is anticipated that the Restaurant Chains selected by the
Advisor, and as approved by the Board of Directors, will have full-time staffs
engaged in site selection and evaluation. All new sites must be approved by the
Restaurant Chains. The Restaurant Chains generally conduct or require the
submission of studies which typically include such factors as traffic patterns,
p o p u l ation trends, commercial and industrial development, office and
institutional development, residential development, per capita or household
median income, per capita or household median age, and other factors. The
Restaurant Chains also will review and approve all proposed tenants and
restaurant sites. THE RESTAURANT CHAINS OR THE OPERATORS ARE EXPECTED TO MAKE
THEIR SITE EVALUATIONS AND ANALYSES, AS WELL AS FINANCIAL INFORMATION REGARDING
PROPOSED TENANTS, AVAILABLE TO THE COMPANY.
THE BOARD OF DIRECTORS, ON BEHALF OF THE COMPANY, WILL ELECT TO PURCHASE
AND LEASE PROPERTIES BASED PRINCIPALLY ON AN EXAMINATION AND EVALUATION BY THE
ADVISOR OF THE POTENTIAL VALUE OF THE SITE, THE FINANCIAL CONDITION AND BUSINESS
HISTORY OF THE PROPOSED TENANT, THE DEMOGRAPHICS OF THE AREA IN WHICH THE
RESTAURANT PROPERTY IS LOCATED OR TO BE LOCATED, THE PROPOSED PURCHASE PRICE AND
PROPOSED LEASE TERMS, GEOGRAPHIC AND MARKET DIVERSIFICATION, AND POTENTIAL SALES
EXPECTED TO BE GENERATED BY THE RESTAURANT. IN ADDITION, THE POTENTIAL TENANT
MUST MEET AT LEAST THE MINIMUM STANDARDS ESTABLISHED BY A RESTAURANT CHAIN FOR
ITS OPERATORS. THE ADVISOR ALSO WILL PERFORM AN INDEPENDENT BREAK-EVEN ANALYSIS
OF THE POTENTIAL PROFITABILITY OF A RESTAURANT PROPERTY USING HISTORICAL DATA
AND OTHER DATA DEVELOPED BY THE COMPANY AND PROVIDED BY THE RESTAURANT CHAINS.
ALTHOUGH THE RESTAURANT CHAINS THAT ARE SELECTED BY THE ADVISOR WILL HAVE
APPROVED EACH TENANT AND EACH PROPERTY, THE BOARD OF DIRECTORS WILL EXERCISE ITS
OWN JUDGMENT AS TO, AND WILL BE SOLELY RESPONSIBLE FOR, THE ULTIMATE SELECTION
OF BOTH TENANTS AND PROPERTIES. THEREFORE, SOME OF THE PROPERTIES APPROVED BY A
RESTAURANT CHAIN MAY NOT BE PURCHASED BY THE COMPANY.
IN EACH PROPERTY ACQUISITION, IT IS ANTICIPATED THAT THE ADVISOR WILL
NEGOTIATE THE LEASE AGREEMENT WITH THE TENANT. IN CERTAIN INSTANCES, THE
ADVISOR MAY NEGOTIATE AN ASSIGNMENT OF AN EXISTING LEASE, IN WHICH CASE THE
TERMS OF THE LEASE MAY VARY SUBSTANTIALLY FROM THE COMPANY'S STANDARD LEASE
TERMS, IF THE BOARD OF DIRECTORS, BASED ON THE RECOMMENDATION OF THE ADVISOR,
DETERMINES THAT THE TERMS OF AN ACQUISITION AND LEASE OF A PROPERTY, TAKEN AS A
WHOLE, ARE FAVORABLE TO THE COMPANY. IT IS EXPECTED THAT THE STRUCTURE OF THE
LONG-TERM TRIPLE-NET LEASE AGREEMENTS, WHICH PROVIDE FOR MONTHLY RENTAL
PAYMENTS AND AUTOMATIC INCREASES IN BASE RENT AT SPECIFIED TIMES DURING THE
LEASE TERMS, PLUS A PERCENTAGE OF GROSS RESTAURANT SALES, WILL INCREASE THE
VALUE OF THE PROPERTIES AND PROVIDE AN INFLATION HEDGE. SEE DESCRIPTION OF
LEASES BELOW FOR A DISCUSSION OF THE ANTICIPATED TERMS OF THE COMPANY'S LEASES.
IN CONNECTION WITH A PROPERTY ACQUISITION, IN THE EVENT THE TENANT DOES NOT
ENTER INTO A SECURED EQUIPMENT LEASE WITH THE COMPANY, THE TENANT WILL PROVIDE
AT ITS OWN EXPENSE ALL EQUIPMENT (SUCH AS DEEP FRYERS, GRILLS, REFRIGERATORS,
AND FREEZERS) NECESSARY TO OPERATE THE COMPANY'S PROPERTY AS A RESTAURANT.
GENERALLY, A TENANT EITHER PAYS CASH OR OBTAINS A LOAN FROM A THIRD PARTY TO
PURCHASE SUCH ITEMS. IF THE TENANT OBTAINS SUCH A LOAN, THE TENANT WILL OWN
THIS PERSONAL PROPERTY SUBJECT TO THE TENANT'S OBLIGATIONS UNDER ITS LOAN. IN
THE EXPERIENCE OF THE AFFILIATES OF THE COMPANY AND THE ADVISOR, THERE MAY BE
RARE CIRCUMSTANCES IN WHICH A TENANT DEFAULTS UNDER SUCH A LOAN, IN WHICH EVENT
THE LENDER MAY ATTEMPT TO REMOVE THE PERSONAL PROPERTY FROM THE BUILDING,
RESULTING IN THE PROPERTY BECOMING INOPERABLE AS A RESTAURANT UNTIL NEW
EQUIPMENT CAN BE PURCHASED AND INSTALLED. IN ORDER TO PREVENT REPOSSESSION OF
THIS PERSONAL PROPERTY BY THE LENDER, AND ONLY ON AN INTERIM BASIS IN ORDER TO
PRESERVE THE VALUE OF A PROPERTY, THE COMPANY MAY ELECT (BUT ONLY TO THE EXTENT
CONSISTENT WITH THE COMPANY'S OBJECTIVE OF QUALIFYING AS A REIT) TO USE COMPANY
RESERVES TO PURCHASE THIS PERSONAL PROPERTY FROM THE LENDER, GENERALLY AT A
DISCOUNT FOR THE REMAINING UNPAID BALANCE UNDER THE TENANT'S LOAN. THE COMPANY
THEN WOULD EXPECT, CONSISTENT WITH THE COMPANY'S OBJECTIVE OF QUALIFYING AS A
REIT, TO RESELL THE PERSONAL PROPERTY TO A NEW TENANT IN CONNECTION WITH THE
TRANSFER OF THE LEASE TO THAT TENANT.
SOME LEASE AGREEMENTS WILL BE NEGOTIATED TO PROVIDE THE TENANT WITH THE
OPPORTUNITY TO PURCHASE THE PROPERTY UNDER CERTAIN CONDITIONS, GENERALLY EITHER
AT A PRICE NOT LESS THAN FAIR MARKET VALUE (DETERMINED BY APPRAISAL OR
OTHERWISE) OR THROUGH A RIGHT OF FIRST REFUSAL TO PURCHASE THE PROPERTY. IN
EITHER CASE, THE LEASE AGREEMENTS WILL PROVIDE THAT THE TENANT MAY EXERCISE
THESE RIGHTS ONLY TO THE EXTENT CONSISTENT WITH THE COMPANY'S OBJECTIVE OF
QUALIFYING AS A REIT. SEE SALE OF PROPERTIES, MORTGAGE LOANS, AND SECURED
E Q U I P M E N T LEASES BELOW AND FEDERAL INCOME TAX CONSIDERATIONS
CHARACTERIZATION OF LEASES.
THE PURCHASE OF EACH PROPERTY WILL BE SUPPORTED BY AN APPRAISAL OF THE
REAL ESTATE PREPARED BY AN INDEPENDENT APPRAISER. THE ADVISOR, HOWEVER, WILL
RELY ON ITS OWN INDEPENDENT ANALYSIS AND NOT ON SUCH APPRAISALS IN DETERMINING
WHETHER OR NOT TO RECOMMEND THE COMPANY TO ACQUIRE A PARTICULAR PROPERTY. THE
PURCHASE PRICE OF EACH SUCH PROPERTY, PLUS ANY ACQUISITION FEES PAID BY THE
COMPANY IN CONNECTION WITH SUCH PURCHASE, WILL NOT EXCEED THE PROPERTY'S
APPRAISED VALUE. (IN CONNECTION WITH THE ACQUISITION OF A PROPERTY WHICH IS TO
BE CONSTRUCTED OR RENOVATED, THE COMPARISON OF THE PURCHASE PRICE AND THE
APPRAISED VALUE OF SUCH PROPERTY ORDINARILY WILL BE BASED ON THE WHEN
CONSTRUCTED PRICE AND VALUE OF SUCH PROPERTY.) IT SHOULD BE NOTED THAT
APPRAISALS ARE ESTIMATES OF VALUE AND SHOULD NOT BE RELIED UPON AS MEASURES OF
TRUE WORTH OR REALIZABLE VALUE. EACH APPRAISAL WILL BE MAINTAINED IN THE
COMPANY'S RECORDS FOR AT LEAST FIVE YEARS AND WILL BE AVAILABLE FOR INSPECTION
AND DUPLICATION BY ANY STOCKHOLDER.
THE TITLES TO PROPERTIES PURCHASED BY THE COMPANY WILL BE INSURED BY
APPROPRIATE TITLE INSURANCE POLICIES AND/OR ABSTRACT OPINIONS CONSISTENT WITH
NORMAL PRACTICES IN THE JURISDICTIONS IN WHICH THE PROPERTIES ARE LOCATED.
CONSTRUCTION AND RENOVATION. In some cases, construction or renovation
will be required after the purchase contract has been entered into, but before
the total purchase price has been paid. In connection with the acquisition of
Properties that are to be constructed or renovated and as to which the Company
will own both the land and the building or building only, the Company generally
will enter into a development agreement with the tenant pursuant to which the
Company will advance funds to the tenant to meet construction or renovation
costs as they are incurred. The tenant will act as the project developer, will
enter into all construction contracts, and will arrange for and coordinate all
aspects of the construction or renovation of the restaurant improvements. The
tenant will be responsible for the construction or renovation of the restaurant
improvements, although it may employ co-developers or sub-agents in fulfilling
its responsibilities under the development agreement. All general contractors
performing work in connection with such restaurant improvements must provide a
payment and performance bond or other satisfactory form of guarantee of
performance. All construction and renovation will be performed or supervised by
persons or entities acceptable to the Advisor and the Board of Directors. The
Company will be obligated, as construction or renovation costs are incurred, to
make the remaining payments due as part of the purchase price for the
Properties, provided that the construction or renovation conforms to definitive
plans, specifications, and costs approved by the Advisor and the Board of
Directors and embodied in the construction contract.
Under the terms of the development agreement, the Company generally will
advance its funds on a monthly basis to meet construction draw requests of the
tenant. The Company, in general, only will advance its funds to meet the
tenant's draw requests upon receipt of an inspection report and a certification
of draw requests from an inspecting architect or engineer suitable to the
Company, and the Company may retain a portion of any advance until satisfactory
completion of the project. The certification must be supported by color
photographs showing the construction work completed as of the date of
inspection. The total amount of the funds advanced to the tenant (including the
purchase price of the land plus closing costs and certain other costs) generally
will not exceed the maximum amount specified in the development agreement. Such
maximum amount will be based on the Company's estimate of the costs of such
construction or renovation. Initially, the calculation of minimum annual rent
will be based on such estimated amount; however, once the actual cost is known,
the minimum annual rent will be increased or reduced accordingly and the Company
or the tenant, as the case may be, will promptly refund or remit to the other an
amount equal to any excess rent paid or any underpayment of rent due.
In certain cases in which the Company intends to purchase a Property upon
completion of construction or renovation of that Property, the Company may
permit the proposed tenant to arrange for a bank or another lender to provide
construction financing to the tenant. In such cases, the lender may seek
assurance from the Company that it has sufficient funds to pay to the tenant the
full purchase price of the Property upon completion of the construction or
renovation. In the event that the Company segregates funds as assurance to the
lender of its ability to purchase the Property, the funds will remain the
property of the Company, and the lender will have no rights with respect to such
funds upon any default by the tenant under the development agreement or under
the loan agreement with such lender, or if the closing of the purchase of the
Property by the Company does not occur for any reason.
Affiliates of the Company may provide construction financing to the
developer of a Property. The purchase price paid by the Company for such a
Property, subject to the approval of a majority of the Board of Directors
including a majority of the Independent Directors, will include a Construction
Financing Fee in an amount equal to generally 1% to 2% of the total loan amount
plus the difference between the Affiliate's cost of funds and the amount of
interest charged to the developer with such difference determined by applying an
annual percentage rate of generally 1.5% to 3.0% throughout the duration of the
loan to the outstanding balance of the loan. The Construction Financing Fee
will also be included in the calculation of base rent.
In addition, the Company may purchase from an Affiliate of the Company a
Property that has been constructed or renovated by the Affiliate. In such
instances, the purchase price paid by the Company, subject to the approval of a
majority of the Board of Directors including a majority of the Independent
Directors, will include a Development/Construction Management Fee generally
equal to 5% to 10% of the Affiliate's cost of constructing or renovating the
Property. The Development/Construction Management Fees charged by Affiliates of
the Company are negotiated with the tenants and management believes such fees
are at or below the market rates for comparable construction and renovation
services when contracted from third parties. The Property will be sold to the
Company with the lease in place. The Development/Construction Management Fee is
included in the cost of the Property and, therefore, will be included in the
calculation of base rent.
Under the development agreement, the tenant generally will be obligated to
complete the construction or renovation of the restaurant improvements within
120 to 150 days from the date of the development agreement. If the construction
or renovation is not completed within that time and the tenant fails to remedy
this default within 10 days after notice from the Company, the Company will have
the option to grant the tenant additional time to complete the construction, to
take over construction or renovation of the restaurant improvements, or to
terminate the development agreement and require the tenant to purchase the
Property at a price equal to the sum of (i) the Company's purchase price of the
land, including all fees, costs, and expenses paid by the Company in connection
with its purchase of the land, (ii) all fees, costs, and expenses disbursed by
the Company pursuant to the development agreement for construction of the
restaurant improvements, and (iii) the Company's construction financing costs.
The construction financing costs of the Company is an amount equal to a
return, at the annual percentage rate used in calculating the minimum annual
rent under the lease, on all Company payments and disbursements described in
clauses (i) and (ii) above.
The Company also generally will enter into an indemnification and put
agreement (the Indemnity Agreement ) with the tenant and any guarantor of the
obligations of the tenant under the lease in connection with the acquisition of
Properties to be constructed or renovated. The Indemnity Agreement will provide
for certain additional rights to the Company unless certain conditions are met.
In general, these conditions are (i) the tenant's acquisition of all permits,
approvals, and consents necessary to permit commencement of construction or
renovation of the restaurant within a specified period of time after the date of
the Indemnity Agreement (normally, 60 days), or (ii) the completion of
construction or renovation of the restaurant as evidenced by the issuance of a
certificate of occupancy, within a specified period of time (generally, 120 to
150 days) after the date of the Indemnity Agreement. If such conditions are not
met, the Company will have the right to grant the tenant additional time to
satisfy the conditions or to require the tenant to purchase the Property from
the Company at a purchase price equal to the total amount disbursed by the
Company in connection with the acquisition and construction or renovation of the
Property (including closing costs), plus an amount equal to the return described
in item (iii) of the preceding paragraph. Failure of the tenant to purchase the
Property from the Company upon demand by the Company under the circumstances
specified above will entitle the Company to declare the tenant in default under
the lease and to declare each guarantor in default under any guarantee of the
tenant's obligations to the Company.
In certain situations where construction or renovation is required for a
restaurant Property, the Company will pay a negotiated maximum amount upon
completion of construction or renovation rather than providing financing to the
tenant, with such amount to be based on the tenant's actual costs of such
construction or renovation.
In all situations where construction or renovation of a restaurant
Property is required, the Company also will have the right to review the
tenant's books, records, and agreements during and following completion of
construction to verify actual costs.
INTERIM ACQUISITIONS. The Affiliates of the Company and the Advisor
regularly have opportunities to acquire restaurant properties of a type suitable
for acquisition by the Company as a result of their existing relationships and
past experience with various Restaurant Chains and restaurant operators. See
General above. These acquisitions often must be made within a relatively
short period of time, occasionally at a time when the Company may be unable to
make the acquisition. In an effort to address these situations and preserve the
acquisition opportunities of the Company (and other entities with which the
Company is affiliated), the Advisor and its Affiliates maintain lines of credit
which enable them to acquire these restaurant properties on an interim basis and
temporarily own them for the purpose of facilitating their acquisition by the
Company (or other entities with which the Company is affiliated). At such time
as a Property acquired on an interim basis is determined to be suitable for
acquisition by the Company, the interim owner of the Property will sell its
interest in the Property to the Company at a price equal to the lesser of its
cost (which includes carrying costs and, in instances in which an Affiliate of
the Company has provided real estate brokerage services in connection with the
initial purchase of the Property, indirectly includes fees paid to an Affiliate
of the Company) to purchase such interest in the Property or the Property's
appraised value, provided that a majority of Directors, including a majority of
the Independent Directors, determine that the acquisition is fair and reasonable
to the Company. See Conflicts of Interest Certain Conflict Resolution
Procedures. Appraisals of Properties acquired from such interim owners will be
obtained in all cases.
ACQUISITION SERVICES. Acquisition services performed by the Advisor may
include, but are not limited to, site selection and/or approval; review and
selection of tenants and negotiation of lease agreements and related documents;
monitoring Property acquisitions; and the processing of all final documents
and/or procedures to complete the acquisition of Properties and the commencement
of tenant occupancy and lease payments.
The Company will pay the Advisor an Acquisition Fee not to exceed 4.5% of
the Gross Proceeds from the sale of Shares. See Management Compensation. The
total of all Acquisition Fees (including Development/Construction Management
Fees to Affiliates and Construction Financing Fees to Affiliates described in
Management Compensation and any other Acquisition Fees to Affiliates or
nonaffiliates, but excluding development/management fees paid to any person or
entity not affiliated with the Advisor in connection with the actual development
and construction of any Property) and Acquisition Expenses shall be reasonable
and shall not exceed an amount equal to 6% of the Real Estate Asset Value of a
Property, or in the case of a Mortgage Loan, 6% of the funds advanced, unless a
majority of the Board of Directors, including a majority of the Independent
Directors, not otherwise interested in the transaction approves fees in excess
of these limits subject to a determination that the transaction is commercially
competitive, fair and reasonable to the Company. The total of all Acquisition
Fees payable to all persons or entities will not exceed the compensation
customarily charged in arm's-length transactions by others rendering similar
services as an ongoing activity in the same geographical location and for
comparable property.
The Advisor engages counsel to perform legal services, and such counsel
also may provide legal services to the Company in connection with the
acquisition of Properties. The legal fees payable to such counsel by the
Company will not exceed those generally charged for similar services.
STANDARDS FOR INVESTMENT IN PROPERTIES
SELECTION OF RESTAURANT CHAINS. The selection of Restaurant Chains by the
Advisor, as approved by the Board of Directors, will be based on an evaluation
of the operations of restaurants in the Restaurant Chain, the number of restau-
rants operated throughout the Restaurant Chain's system, the relationship of
average restaurant gross sales to the average capital costs of a restaurant, the
Restaurant Chain's relative competitive position among the same type of restau-
rants offering similar types of food, name recognition, and market penetration.
The Restaurant Chains will not be affiliated with the Advisor, the Company or an
Affiliate.
SELECTION OF PROPERTIES AND TENANTS. In making investments in Properties,
the Advisor will consider relevant real property and financial factors,
including the condition, use, and location of the Property, income-producing
capacity, the prospects for long-term appreciation, the relative success of the
Restaurant Chain in the geographic area in which the Property is located, and
the management capability and financial condition of the tenant. The Company
will obtain an independent appraisal for each Property it purchases. In
selecting tenants, the Advisor will consider the prior experience of the tenant
in the restaurant industry, the net worth of the tenant, past operating results
of other restaurants currently or previously operated by the tenant, and the
tenant's prior experience in managing restaurants within a particular Restaurant
Chain.
In selecting specific Properties within a particular Restaurant Chain and
in selecting lessees for the Company's Properties, the Advisor, as approved by
the Board of Directors, will apply the following minimum standards.
1. Each Property will be in what the Advisor believes is a prime business
location.
2. Base (or minimum) annual rent will provide a specified minimum return
on the Company's cost of purchasing and, if applicable, developing the Property,
and the lease typically also will provide for automatic increases in base rent
at specified times during the lease term and for payment of percentage rent
based on gross restaurant sales.
3. The initial lease term typically will be at least 15 to 20 years.
4. The Company will reserve the right to approve or reject any tenant and
restaurant site selected by a Restaurant Chain.
5. In evaluating prospective tenants, the Company will examine, among
other factors, the tenant's ranking in its market segment, trends in per store
sales, overall changes in consumer preferences, and the tenant's ability to
adapt to changes in market and competitive conditions, the tenant's historical
financial performance, and its current financial condition.
6. In general, the Company will not acquire a Property, if, as a result,
more than 25% of its Gross Proceeds would be invested in Properties of a single
Restaurant Chain or if more than 30% of its Gross Proceeds would be invested in
Properties in a single state.
DESCRIPTION OF PROPERTIES
Based on the 48 Properties that the Company had purchased as of April 9,
1996, and on past experience and knowledge of the fast-food, family-style, and
casual dining restaurant industry, the Advisor expects that any Properties
purchased by the Company will conform generally to the following specifications
of size, cost, and type of land and buildings. These specifications may vary
substantially if the Company invests in any full-service restaurant Properties.
LAND. Lot sizes generally range from 25,000 to 60,000 square feet
depending upon building size and local demographic factors. Restaurants located
on land within shopping centers will be freestanding and may be located on
smaller parcels if sufficient common parking is available. Restaurant sites
purchased by the Company will be in locations zoned for commercial use which
have been reviewed for traffic patterns and volume of traffic. There is
substantial competition for quality sites; accordingly, land costs may be high
and are generally expected to range from $150,000 to $500,000, although the cost
of the land for particular Properties may be higher or lower in some cases.
BUILDINGS. Either before or after construction or renovation, the restau-
rant Properties to be acquired by the Company will be one of a Restaurant
Chain's approved designs. Prior to purchase of all restaurant Properties, other
than those purchased prior to completion of construction, the Company will
receive a copy of the certificate of occupancy issued by the local building
inspector or other governmental authority which permits the use of the Property
as a restaurant, and shall receive a certificate from the Restaurant Chain to
the effect that (i) the Property is operational and (ii) the Property and the
tenant are in compliance with all of the Restaurant Chain's requirements,
including, but not limited to, building plans and specifications approved by the
Restaurant Chain. The Company also will receive a certificate of occupancy for
each restaurant for which construction has not been completed at the time of
purchase, prior to the Company's payment of the final installment of the
purchase price for the restaurant Property.
The restaurant buildings generally will be rectangular and constructed
from various combinations of stucco, steel, wood, brick, and tile. Building
sizes generally will range from 2,500 to 6,000 square feet, with the larger
restaurants having greater seating and equipment areas. Building and site
preparation costs vary depending upon the size of the building and the site and
the area in which the restaurant Property is located. It is estimated that
building and site preparation costs generally will range from $250,000 to
$750,000 for each restaurant Property.
Generally, Properties to be acquired by the Company will consist of both
land and building, although in a number of cases the Company may acquire only
the land underlying the restaurant building with the building owned by the
tenant or a third party, and also may acquire the building only with the land
owned by a third party. See Business - Property Acquisitions for a
description of the 48 Properties owned by the Company as of April 9, 1996, 23 of
which consist of land only, three of which consist of building only, 21 of which
consist of land and building, and one of which was acquired through a joint
venture arrangement and consists of land and building. In general, the
Properties will be freestanding and surrounded by paved parking areas.
Buildings are suitable for conversion to various uses, although modifications
will be required prior to use for other than restaurant operations.
A tenant generally will be required by the lease agreement to make such
capital expenditures as may be reasonably necessary to refurbish restaurant
buildings, premises, signs, and equipment so as to comply with the tenant's
obligations under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures will be paid by the
tenant during the term of the lease.
DESCRIPTION OF PROPERTY LEASES
The terms and conditions of any lease entered into by the Company with
regard to a restaurant Property may vary from those described below. The
Advisor in all cases will use its best efforts to obtain terms at least as
favorable as those described below. If the Board of Directors determines, based
on the recommendation of the Advisor, that the terms of an acquisition and lease
of a Property, taken as a whole, are favorable to the Company, the Board of
Directors may, in its sole discretion, cause the Company to enter into leases
with terms which are substantially different than the terms described below, but
only to the extent consistent with the Company's objective of qualifying as a
REIT. In making such determination, the Advisor will consider such factors as
the type and location of the restaurant, the creditworthiness of the tenant, the
purchase price of the Property, the prior performance of the tenant, and the
prior business experience of management of the Company and the Company's
Affiliates with a Restaurant Chain or restaurant operator.
GENERAL. In general, the leases are expected to be triple-net leases,
which means that the tenants will be required to pay for all repairs,
maintenance, property taxes, utilities, and insurance. The tenants also will be
required to pay for special assessments, sales and use taxes, and the cost of
any renovations permitted under the leases. The Company will be the lessor
under each lease except in certain circumstances in which it may be a party to a
Joint Venture which will own the Property. In those cases, the Joint Venture,
rather than the Company, will be the lessor, and all references in this section
to the Company as lessor therefore should be read accordingly. See Joint
Venture Arrangements below.
TERM OF LEASES. It presently is anticipated that restaurant Properties
will be leased on a triple-net basis for an initial term of either 15 or 20
years with up to five, five-year renewal options. The minimum rental payment
under the renewal option generally is expected to be greater than that due for
the final lease year of the initial term of the lease. Upon termination of the
lease, the tenant will surrender possession of the Property to the Company,
together with any improvements made to the Property during the term of the
lease, except that for Properties in which the Company owns only the land
underlying the building, the tenant may in certain cases retain ownership of the
building.
COMPUTATION OF LEASE PAYMENTS. During the initial term of the lease, the
tenant will pay the Company, as lessor, minimum annual rent equal to a specified
percentage of the Company's cost of purchasing the Property. Typically, the
l e ases provide for automatic increases in the minimum annual rent at
predetermined intervals during the term of the lease. In the case of
acquisition of Properties that are to be constructed or renovated pursuant to a
development agreement, the Company's costs of purchasing the Property will
include the purchase price of the land, including all fees, costs, and expenses
paid by the Company in connection with its purchase of the land, and all fees,
costs, and expenses disbursed by the Company for construction of restaurant
improvements. See Site Selection and Acquisition of Properties Construction
and Renovation above.
In addition to minimum annual rent, the tenant will pay the Company
percentage rent. Percentage rent is computed as a percentage of the
restaurant gross sales at a particular Property. The leases generally will
provide that percentage rent will commence in the first lease year in which
gross sales exceed a specified amount. Certain leases, however, may provide
that percentage rent is to be paid quarterly beginning at the end of the first
two years of the lease and each succeeding quarter thereafter to the extent the
restaurant gross sales in that quarter exceed the average quarterly gross sales
during the first two lease years. The leases also generally will provide that
the tenant will receive a credit against percentage rent for the amount of the
escalations in the minimum annual rent due under the lease. Gross sales include
sales of all products and services of the restaurant, excluding sales taxes,
tips paid to serving people, and sales from vending machines.
In the case of Properties in which the Company owns only the building, the
Company will structure its leases to have recovered its investment in the
building by the expiration of the lease.
ASSIGNMENT AND SUBLEASE. In general, it is expected that no lease may be
assigned or subleased without the Company's prior written consent (which may not
be unreasonably withheld) except to a tenant's corporate franchisor, corporate
affiliate or subsidiary, a successor by merger or acquisition, or, in certain
cases, another franchisee, if such assignee or subtenant agrees to operate the
same type of restaurant on the premises, but only to the extent consistent with
the Company's objective of qualifying as a REIT. The leases set forth certain
factors (such as the financial condition of the proposed tenant or subtenant)
that are deemed to be a reasonable basis for the Company's refusal to consent to
an assignment or sublease. In addition, the Company may refuse to permit any
a s s i gnment or sublease that would jeopardize the Company's continued
qualification as a REIT. The original tenant generally will remain fully
liable, however, for the performance of all tenant obligations under the lease
following any such assignment or sublease unless the Company agrees in writing
to release the original tenant from its lease obligations.
ALTERATIONS TO PREMISES. A tenant generally will have the right, without
the prior consent of the Company and at the tenant's own expense, to make
certain immaterial structural modifications to the restaurant building and
improvements (with a cost of up to $10,000) or, with the Company's prior written
c o nsent and at the tenant's own expense, to make material structural
modifications that may include demolishing and rebuilding the restaurant. Under
certain leases, the tenant, at its own expense, may make any type of alterations
to the leased premises without the Company's consent but must provide the
Company with plans of any proposed structural modifications at least 30 days
before construction of the alterations commences. Certain leases may require
the tenant to post a payment and performance bond for any structural alterations
with a cost in excess of a certain amount.
RIGHT OF TENANT TO PURCHASE. It is anticipated that if the Company wishes
at any time to sell a Property pursuant to a bona fide offer from a third party,
the tenant of that Property will have the right to purchase the Property for the
same price, and on the same terms and conditions, as contained in the offer. In
certain cases, the tenant also may have a right to purchase the Property seven
to 20 years after commencement of the lease at a purchase price equal to the
greater of (i) the Property's appraised value at the time of the tenant's
purchase, or (ii) a specified amount, generally equal to the Company's purchase
price of the Property, plus a predetermined percentage (generally, 15% to 20%)
o f s u c h purchase price. See Federal Income Tax Considerations
Characterization of Leases.
SUBSTITUTION OF PROPERTIES. Under certain leases, the tenant, at its own
expense, is entitled to operate another form of approved restaurant on the
Property as long as such approved restaurant has an operating history which
reflects an ability to generate gross sales and potential sales growth equal to
or greater than that experienced by the tenant in operating the original
restaurant.
In addition, it is anticipated that certain leases will provide the tenant
with the right, to the extent consistent with the Company's objective of
qualifying as a REIT, to offer the substitution of another national or regional
fast-food, family-style, or casual dining restaurant property selected by the
tenant in the event that (i) the Property that is the subject of the lease is
not producing percentage rent pursuant to the terms of the lease, and (ii) the
tenant determines that the Property has become uneconomic (other than as a
result of an insured casualty loss or condemnation) for the tenant's continued
use and occupancy in its business operation and the tenant's board of directors
has determined to close and discontinue use of the Property. The tenant's
determination that a Property has become uneconomic is to be made in good faith
based on the tenant's reasonable business judgment after comparing the results
of operations of the Property to the results of operations at the majority of
other properties then operated by the tenant. If either of these events occurs,
the tenant will have the right to offer the Company the opportunity to exchange
the Property for another national or regional fast-food, family-style, or casual
dining restaurant property (the Substituted Property ) with a total cost for
land and improvements thereon (including overhead, construction interest, and
other related charges) equal to or greater than the cost of the Property to the
Company.
Generally, the Company will have 30 days following receipt of the tenant's
offer for exchange of the Property to accept or reject such offer. In the event
that the Company requests an appraisal of the Substituted Property, it will have
at least ten days following receipt of the appraisal to accept or reject the
offer. If the Company accepts such offer, (i) the Substituted Property will be
exchanged for the Property in a transaction designed and intended to qualify as
a like-kind exchange within the meaning of section 1031 of the Code with
respect to the Company and (ii) the lease of the Property will be amended to (a)
provide for minimum rent in an amount equal to the sum determined by multiplying
the cost of the Substituted Property by the Property lease rate and (b) provide
for the number of five-year lease renewal options sufficient to permit the
tenant, at its option, to continue its occupancy of the Substituted Property for
up to 35 years from the date on which the exchange is made. The Company will
pay the tenant the excess, if any, of the cost of the Substituted Property over
the cost of the Property. If the substitution does not take place within a
specified period of time after the tenant makes the offer to exchange the
Property for the Substituted Property, either party thereafter will have the
right not to proceed with the substitution. If the Company rejects the
Substituted Property offered by the tenant, the tenant is generally required to
offer at least three additional alternative properties for the Company's
acceptance or rejection. If the Company rejects all Substituted Properties
offered to it pursuant to the lease, or otherwise fails or refuses to consummate
a substitution for any reason other than the tenant's failure to fulfill the
conditions precedent to the exchange, then the tenant will be entitled to
terminate the lease on the date scheduled for such exchange by purchasing the
Property from the Company for a price equal to the then-fair market value of the
Property.
Neither the tenant nor any of its subsidiaries, licensees,
concessionaires, or sublicensees or any other affiliate will be permitted to use
the original Property as a restaurant of the same type and style for at least
one year after the closing of the original Property. In addition, in the event
the tenant or any of its affiliates sells the Property within twelve months
after the Company acquires the Substituted Property, the Company will receive,
to the extent consistent with its objective of qualifying as a REIT, from the
proceeds of the sale the amount by which the selling price exceeds the cost of
the Property to the Company.
SPECIAL CONDITIONS. Certain leases may provide that the lessee will not
be permitted to own or operate, directly or indirectly, another Property of the
same or similar type as the leased Property that is or will be located within a
specified distance of the leased Property.
INSURANCE, TAXES, MAINTENANCE, AND REPAIRS. All of the leases are
expected to require that the tenant pay all taxes and assessments, maintenance,
repair, utility, and insurance costs applicable to the real estate and permanent
improvements. Tenants will be required to maintain all Properties in good order
and repair.
Tenants generally will be required, under the terms of the leases, to
maintain, for the benefit of the Company and the tenant, casualty insurance in
an amount not less than the full replacement value of the building and other
permanent improvements (or a percent of such value in the case of certain
leases, but in no case less than 90%), as well as liability insurance, generally
in an amount not less than $2,000,000 for each location and event. All tenants,
other than those tenants with a substantial net worth, generally also will be
required to obtain rental value or business interruption insurance to cover
losses due to the occurrence of an insured event for a specified period,
generally six to twelve months. In general, no lease will be entered into
unless, in the opinion of the Advisor, as approved by the Board of Directors,
the insurance required by the lease adequately insures the Property.
The tenants generally will be required to maintain the Property and repair
any damage to the Property, except damage occurring during the last 24 to 48
months of the lease term (as extended), which in the opinion of the tenant
renders the Property unsuitable for occupancy, in which case the tenant will
have the right instead to pay the insurance proceeds to the Company and
terminate the lease.
The tenant generally will be required to repair the Property in the event
that less than a material portion of the Property (for example, more than 20% of
the building or more than 40% of the land) is taken for public or quasi-public
use. The Company's leases generally will provide that, in the event of any
condemnation of the Property that does not give rise to an option to terminate
the lease or in the event of any condemnation which does give rise to an option
to terminate the lease and the tenant elects not to terminate, the Company will
remit to the tenant the award from such condemnation and the tenant will be
required to repair and restore the Property. To the extent that the award
exceeds the estimated costs of restoring or repairing the Property, the tenant
is required to deposit such excess amount with the Company. Until a specified
time (generally, ten days) after the tenant has restored the premises and all
improvements thereon to the same condition as existed immediately prior to such
condemnation insofar as is reasonably possible, a just and proportionate
amount of the minimum annual rent will be abated from the date of such
condemnation. In addition, the minimum annual rent will be reduced in
proportion to the reduction in the then rental value of the premises or the fair
market value of the premises after the condemnation in comparison with the
rental value or fair market value prior to such condemnation.
EVENTS OF DEFAULT. The leases generally are expected to provide that the
following events, among others, will constitute a default under the lease: (i)
the insolvency or bankruptcy of the tenant, provided that the tenant may have
the right, under certain circumstances, to cure such default, (ii) the failure
of the tenant to make timely payment of rent or other charges due and payable
under the lease, if such failure continues for a specified period of time
(generally, five to 30 days) after notice from the Company of such failure,
(iii) the failure of the tenant to comply with any of its other obligations
under the lease (for example, the discontinuance of operations of the leased
Property) if such failure continues for a specified period of time (generally,
ten to 45 days), (iv) a default under or termination of the franchise agreement
between the tenant and its franchisor, (v) in cases where the Company enters
into a development agreement relating to the construction or renovation of a
restaurant, a default under the development agreement or the Indemnity Agreement
or the failure to establish the minimum annual rent at the end of the
development period, and (vi) in cases where the Company has entered into other
leases with the same tenant, a default under such lease.
Upon default by the tenant, the Company generally will have the right
under the lease and under most state laws to evict the tenant, re-lease the
Property to others, and hold the tenant responsible for any deficiency in the
minimum lease payments. Similarly, if the Company determined not to re-lease
the Property, it could sell the Property. (Unless required to do so by the
lease or its investment objectives, however, the Company does not intend to sell
any Property prior to five to ten years after the commencement of the lease on
such Property. See Right of Tenant to Purchase above.) In the event that a
lease requires the tenant to make a security deposit (which it is anticipated
normally would be equal to two months' base rent), the Company will have the
right under the lease to apply the security deposit, upon default by the tenant,
towards any payments due from the defaulting tenant. In general, the tenant
will remain liable for all amounts due under the lease to the extent not paid
from a security deposit or by a new tenant.
In the event that a tenant defaults under a lease with the Company, the
Company either will attempt to locate a replacement restaurant operator
acceptable to the Restaurant Chain involved or will discontinue operation of the
restaurant. In lieu of obtaining a replacement restaurant operator, some
Restaurant Chains may have the option and may elect to operate the restaurants
themselves. The Company will have no obligation to operate the restaurants, and
no Restaurant Chain will be obligated to permit the Company or a replacement
restaurant operator to operate the restaurants.
JOINT VENTURE ARRANGEMENTS
The Company may enter into a Joint Venture to own and operate a Property
with various unaffiliated persons or entities or with another program formed by
the principals of the Company or the Advisor or their Affiliates, if a majority
of the Directors, including a majority of the Independent Directors, not
otherwise interested in the transaction determine that the investment in the
Joint Venture is fair and reasonable to the Company and on substantially the
same terms and conditions as those to be received by the co-venturer or co-
venturers. The Company may take more or less than a 50% interest in any Joint
Venture, subject to obtaining the requisite approval of the Directors. See
Risk Factors Real Estate and Financing Risks Risks of Joint Investment in
Properties.
Under the terms of each Joint Venture agreement, the Company and each
joint venture partner will be jointly and severally liable for all debts,
obligations, and other liabilities of the Joint Venture, and the Company and
each joint venture partner will have the power to bind each other with any
actions they take within the scope of the Joint Venture's business. In
addition, it is expected that the Advisor or its Affiliates will be entitled to
reimbursement, at cost, for actual expenses incurred by the Advisor or its
Affiliates on behalf of the Company. Joint Ventures entered into to purchase
and hold a Property for investment generally will have an initial term of 15 to
20 years (generally the same term as the initial term of the lease for the
Property in which the Joint Venture invests), and, after the expiration of the
initial term, will continue in existence from year to year unless terminated at
the option of either joint venturer or unless terminated by an event of
dissolution. Events of dissolution will include the bankruptcy, insolvency, or
termination of any co-venturer, sale of the Property owned by the Joint Venture,
mutual agreement of the Company and its joint venture partner to dissolve the
Joint Venture, and the expiration of the term of the Joint Venture. The Joint
Venture agreement typically will restrict each venturer's ability to sell,
transfer, or assign its joint venture interest without first offering it for
sale to its co-venturer. In addition, in any Joint Venture with another program
sponsored by the Advisor or its Affiliates, where such arrangements are entered
into for the purpose of purchasing and holding Properties for investment, in the
event that one party desires to sell the Property and the other party does not
desire to sell, either party will have the right to trigger dissolution of the
Joint Venture by sending a notice to the other party. The notice will establish
the price and terms for the sale or purchase of the other party's interest in
the Joint Venture to the other party. The Joint Venture agreement will grant
the receiving party the right to elect either to purchase the other party's
interest on the terms set forth in the notice or to sell its own interest on
such terms.
The following paragraphs describe the allocations and distributions under
the expected terms of the joint venture agreement for any Joint Venture in which
the Company and its co-venturer each have a 50% ownership interest. In any
other case, the allocations and distributions are expected to be similar to
those described below, except that allocations and distributions which are
described below as being made 50% to each co-venturer will instead be made in
proportion to each co-venturer's respective ownership interest.
Under the terms of each joint venture agreement, operating profits and
losses generally will be allocated 50% to each co-venturer. Profits from the
sale or other disposition of Joint Venture property first will be allocated to
any co-venturers with negative capital account balances in proportion to such
balances until such capital accounts equal zero, and thereafter 50% to each co-
venturer. Similarly, losses from the sale or other disposition of Joint Venture
property first will be allocated to joint venture partners with positive capital
account balances in proportion to such balances until such capital accounts
equal zero, and thereafter 50% to each co-venturer. Notwithstanding any other
provisions in the Joint Venture agreement, income, gain, loss, and deductions
with respect to any contributed property will be shared in a manner which takes
into account the variation between the basis of such property and its fair
market value at the time of contribution in accordance with section 704(c) of
the Code.
Net cash flow from operations of the Joint Venture will be distributed 50%
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 50% to each joint venture partner.
In order that the allocations of Joint Venture income, gain, loss, and
deduction provided in Joint Venture agreements may be respected for federal
income tax purposes, it is expected that any Joint Venture agreement (i) will
contain a qualified income offset provision, (ii) will prohibit allocations of
loss or deductions to the extent such allocation would cause or increase an
Adjusted Capital Account Deficit, and (iii) will require (a) that capital
accounts be maintained for each joint venture partner in a manner which complies
with Treasury Regulation section1.704-1(b)(2)(iv) and (b) that distributions of
proceeds from the liquidation of a partner's interest in the Joint Venture
(whether or not in connection with the liquidation of the Joint Venture) be made
in accordance with the partner's positive capital account balance. See Federal
Income Tax Considerations Investment in Joint Ventures.
Prior to entering into any Joint Venture arrangement with any unaffiliated
co-venturer (or the principals of any unaffiliated co-venturer), the Company
will confirm that such person or entity has demonstrated to the satisfaction of
the Company that requisite financial qualifications are met.
MORTGAGE LOANS
The Company has provided and intends to continue to provide Mortgage Loans
to operators of the Restaurant Chains, or their affiliates, to enable them to
acquire the building and improvements on real property. Generally in these
cases, the Company will acquire the underlying land and will enter into a long-
term ground lease for the Property with the borrower as the tenant. The
Mortgage Loan will be secured by the building and improvements on the land.
Management believes that the criteria for investing in the Mortgage Loans are
substantially the same as those involved in the Company's investments in
Properties consisting of buildings only; therefore, the Company will use the
same underwriting criteria as described above in Business - Standards for
Investment in Properties.
Generally, management believes the economic effects of these transactions
are substantially the same as those of the leases. The borrower will be
responsible for all of the expenses of owning the building and improvements, as
with the triple-net leases, including expenses for insurance and repairs and
maintenance. Management expects the Mortgage Loans will be fully amortizing
loans over a period of 15 to 20 years (generally, the same term as the initial
term of the Property leases), with payments of principal and interest due
monthly. In addition, management expects the interest rate charged under the
terms of the Mortgage Loan will be fixed over the term of the loan and generally
will be comparable to, or slightly lower than, lease rates charged to tenants
for the Properties.
Management also believes that the combined leasing and financing structure
provides the benefit of allowing the Company to receive, on a fixed income
basis, the return of its initial investment in each financed building, which is
generally a depreciating asset, plus interest. At the same time, the Company
retains ownership of the underlying land, which is generally an appreciating
asset, thus providing an opportunity for a capital gain on the sale of the land.
In such cases, in which the borrower is also the tenant under a Property lease
for the underlying land, if the borrower does not elect to exercise its purchase
option to acquire the Property under the terms of the lease, the building and
improvements on the Property will revert to the Company at the end of term of
the lease, including any renewal periods. If the borrower does elect to
exercise its purchase option as the tenant of the underlying land, the Company
will generally have the option of selling the Property at the greater of fair
market value or cost plus a specified percentage.
The Company will not make or invest in Mortgage Loans unless an appraisal
is obtained concerning the property that secures the Mortgage Loan. Mortgage
indebtedness on any property shall not exceed such property's appraised value.
In cases in which the majority of the Independent Directors so determine, and in
all cases in which the Mortgage Loan involves the Advisor, Directors, or
Affiliates, such appraisal must be obtained from an independent expert
concerning the underlying property. Such appraisal shall be maintained in the
Company's records for at least five years, and shall be available for inspection
and duplication by any stockholder. In addition to the appraisal, a mortgagee's
or owner's title insurance policy or commitment as to the priority of the
mortgage or condition of the title must be obtained.
In addition, the Company will not make or invest in Mortgage Loans on any
one property if the aggregate amount of all mortgage loans outstanding on the
property, including the loans of the Company, would exceed an amount equal to
85% of the appraised value of the property as determined by appraisal unless
substantial justification exists because of the presence of other underwriting
criteria. For purposes of this limitation, the aggregate amount of all mortgage
loans outstanding on the property, including the loans of the Company, shall
include all interest (excluding contingent participation in income and/or
appreciation in value of the mortgaged property), the current payment of which
may be deferred pursuant to the terms of such loans, to the extent that deferred
interest on each loan exceeds 5% per annum of the principal balance of the loan.
Further, the Company will not make or invest in any Mortgage Loans that
are subordinate to any mortgage, other indebtedness or equity interest of the
Advisor, the Directors, or their Affiliates.
MANAGEMENT SERVICES
The Advisor will provide management services relating to the Company, the
Properties, the Mortgage Loans, and the Secured Equipment Lease program pursuant
to an Advisory Agreement between it and the Company. Under this agreement, the
Advisor will be responsible for assisting the Company in negotiating leases,
Mortgage Loans, and Secured Equipment Leases, collecting rental, Mortgage Loan
and Secured Equipment Lease payments, inspecting the Properties and the tenants'
books and records, and responding to tenant inquiries and notices. The Advisor
also will provide information to the Company about the status of the leases, the
Properties, the Mortgage Loans, the Loan and the Secured Equipment Leases. In
exchange for these services, the Advisor will be entitled to receive certain
fees from the Company. For supervision of the Properties, the Advisor will
receive the Asset Management Fee, which, generally, is payable monthly in an
amount equal to one-twelfth of .60% of Real Estate Asset Value as of the end of
the preceding month. For supervision of the Mortgage Loans, the Advisor will
receive the Mortgage Management Fee, which is payable monthly in an amount equal
to one-twelfth of .60% of the total principal amount of the Mortgage Loans as of
the end of the preceding month. For negotiating Secured Equipment Leases and
supervising the Secured Equipment Lease program, the Advisor will receive, upon
entering into each lease, a Secured Equipment Lease Servicing Fee, payable out
of the proceeds of the Loan, equal to 2% of the purchase price of the Equipment
subject to each Secured Equipment Lease. See Management Compensation.
BORROWING
On March 5, 1996, the Company entered into a line of credit and security
agreement with a bank to be used by the Company to offer Secured Equipment
Leases. The Loan provides that the Company will be able to receive advances of
up to $15,000,000 until March 4, 1998. Generally, advances under the Loan will
be fully amortizing term loans repayable in terms equal to the duration of the
Secured Equipment Leases, but in no event greater than 72 months. In addition,
advances for short-term needs (to acquire equipment to be leased under Secured
Equipment Leases) may be requested in an aggregate amount which does not exceed
the Revolving Sublimit (defined in the Loan as $1,000,000) and such advances may
be repaid and readvanced; provided, however, that advances made pursuant to the
Revolving Sublimit shall be converted to term loans the earlier of (i) the end
of each 60 day period following the closing date (defined in the Loan as March
5, 1996), or (ii) when the aggregate amount outstanding equals or exceeds
$1,000,000. Interest on advances made pursuant to the Revolving Sublimit shall
be paid monthly in arrears. In addition, principal amounts under advances
pursuant to the Revolving Sublimit, if not sooner paid or converted into term
loans, shall be paid, together with any unpaid interest relating to such
advances, to the bank on March 5, 1998. Generally, all advances under the Loan
will bear interest at either (i) a rate per annum equal to 215 basis points
above the Reserve Adjusted LIBOR Rate (as defined in the Loan) or (ii) a rate
per annum equal to the bank's prime rate, whichever the Company selects at the
time advances are made. As a condition of obtaining the Loan, the Company
agreed to grant to the bank a first security interest in the Secured Equipment
Leases. In connection with the Loan, the Company incurred a commitment fee,
legal fees and closing costs of approximately $53,500 relating to the Loan. As
of April 9, 1996, $53,500 had been advanced under the Loan to fund the
commitment fee, legal fees and closing costs related to the Loan. The Company
intends to limit advances under the Loan to 10% of Gross Proceeds of the
offering.
The Company, or Joint Venture in which the Company becomes a joint
venturer, will initially acquire Properties without borrowing. The Board of
Directors does not anticipate that the Company will borrow funds, other than the
Loan or for the purpose of preserving its status as a REIT. For example, the
Company may borrow to the extent necessary to permit the Company to make
Distributions required in order to enable the Company to qualify as a REIT for
federal income tax purposes; however, the Company will not borrow for the
purpose of returning capital to the stockholders unless necessary to eliminate
corporate-level tax to the Company. Until Listing occurs, the Company will not
encumber Properties in connection with any borrowing. If Listing occurs,
however, the Board of Directors may elect to cause the Company to borrow funds
in connection with the purchase of additional Properties or for other Company
purposes and to encumber any or all of the Company's Properties in connection
with any such borrowing. The aggregate borrowing of the Company, secured and
unsecured, shall be reasonable in relation to Net Assets of the Company and
shall be reviewed by the Board of Directors at least quarterly. The Board of
Directors anticipates that the aggregate amount of any borrowing will not exceed
50% of Real Estate Asset Value, although the maximum amount of borrowing in
relation to Net Assets, in the absence of a satisfactory showing that a higher
level of borrowing is appropriate, shall not exceed 300% of Net Assets (an
amount which the Company anticipates will correspond to approximately 75% of
Real Estate Asset Value). Any excess in borrowing over such 300% level shall
occur only with approval by a majority of the Independent Directors and will be
disclosed and explained to stockholders in the first quarterly report of the
Company prepared after such approval occurs.
SALE OF PROPERTIES, MORTGAGE LOANS, AND SECURED EQUIPMENT LEASES
For the first five to ten years after the commencement of the offering,
the Company intends, to the extent consistent with the Company's objective of
qualifying as a REIT, to reinvest in additional Properties or Mortgage Loans any
proceeds of the Sale of a Property or a Mortgage Loan that are not required to
be distributed to stockholders in order to preserve the Company's REIT status
for federal income tax purposes. Similarly, and to the extent consistent with
REIT qualification, the Company plans to use the proceeds of the Sale of a
Secured Equipment Lease to fund additional Secured Equipment Leases, or to
reduce its outstanding indebtedness on the Loan. At or prior to the end of such
ten-year period, the Company intends to provide stockholders of the Company with
liquidity of their investment, either in whole or in part, through Listing
(although liquidity cannot be assured thereby) or by commencing orderly sales of
the Company's assets. If Listing occurs, the Company intends to reinvest in
additional Properties, Mortgage Loans, and Secured Equipment Leases any Net
Sales Proceeds not required to be distributed to stockholders in order to
preserve the Company's status as a REIT. If Listing does not occur within ten
years after the commencement of the offering, the Company thereafter will
undertake the orderly liquidation of the Company and the Sale of the Company's
assets and will distribute any Net Sales Proceeds to stockholders. In addition,
the Company will not sell any assets if such Sale would not be consistent with
the Company's objective of qualifying as a REIT.
In deciding the precise timing and terms of Property Sales, the Advisor
will consider factors such as national and local market conditions, potential
capital appreciation, cash flows, and federal income tax considerations. The
terms of certain leases, however, may require the Company to sell a Property at
an earlier time if the tenant exercises its option to purchase a Property after
a specified portion of the lease term has elapsed. See Business Description
of Leases Right of Tenant to Purchase. The Company will have no obligation
to sell all or any portion of a Property at any particular time, except as may
be required under property or joint venture purchase options granted to certain
tenants. In connection with Sales of Properties by the Company, purchase money
obligations may be taken by the Company as part payment of the sales price. The
terms of payment will be affected by custom in the area in which the Property is
located and by prevailing economic conditions. When a purchase money obligation
is accepted in lieu of cash upon the Sale of a Property, the Company will
continue to have a mortgage on the Property and the proceeds of the Sale will be
realized over a period of years rather than at closing of the Sale.
The Company does not anticipate selling the Secured Equipment Leases prior
to expiration of the lease term, except in the event that the Company undertakes
orderly liquidation of its assets. In addition, the Company does not anticipate
selling any Mortgage Loans prior to the expiration of the loan term, except in
the event (i) the Company owns the Property (land only) underlying the building
improvements which secure the Mortgage Loan and the Sale of the Property occurs,
or (ii) the Company undertakes an orderly Sale of its assets.
FRANCHISE REGULATION
Many states regulate the franchise or license relationship between a
tenant/franchisee and a Restaurant Chain. The Company will not be an Affiliate
of any Restaurant Chain, and is not currently aware of any states in which the
relationship between the Company as lessor and the tenant will be subjected to
those regulations, but it will comply with such regulations in the future, if so
required. Restaurant Chains which franchise their operations are subject to
regulation by the Federal Trade Commission.
COMPETITION
The fast-food, family-style, and casual dining restaurant business is
characterized by intense competition. The operators of the restaurants located
on the Properties will 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.
Many successful fast-food, family-style, and casual dining restaurants are
located in eating islands, which are areas to which people tend to return
frequently and within which they can diversify their eating habits, because in
many cases local competition may enhance the restaurant's success instead of
detracting from it. Fast-food, family-style, and casual dining restaurants
frequently experience better operating results when there are other restaurants
in the same area.
The Company will be in competition with other persons and entities both to
locate suitable Properties to acquire and to locate purchasers for its
Properties. The Company also will compete with other financing sources such as
banks, mortgage lenders, and sale/leaseback companies for suitable Properties,
tenants, and Equipment tenants.
REGULATION OF MORTGAGE LOANS AND SECURED EQUIPMENT LEASES
The Mortgage Loans and Secured Equipment Lease program may be subject to
regulation by federal, state and local authorities and subject to various laws
and judicial and administrative decisions imposing various requirements and
r e s trictions, including among other things, regulating credit granting
activities, establishing maximum interest rates and finance charges, requiring
disclosures to customers, governing secured transactions and setting collection,
repossession, claims handling procedures and other trade practices. In
addition, certain states may have enacted legislation requiring the licensing of
mortgage bankers or other lenders and these requirements may affect the
Company's ability to effectuate its Mortgage Loans and Secured Equipment Lease
program. Commencement of operations into these or other jurisdictions may be
dependent upon a finding of financial responsibility, character and fitness of
the Company. The Company may determine not to make Mortgage Loans or operate
Secured Equipment Lease program in any jurisdiction in which it believes the
Company has not complied in all material respects with applicable requirements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE COMPANY
INTRODUCTION
The Company is a Maryland corporation that was organized on May 2, 1994,
to acquire Properties, directly or indirectly through Joint Venture or co-
tenancy arrangements, to be leased on a long-term, triple-net basis to
operators of certain Restaurant Chains. In addition, the Company may provide
Mortgage Loans for the purchase of buildings, generally by tenants that lease
the underlying land from the Company. To a lesser extent, the Company intends
to offer Secured Equipment Leases to operators of Restaurant Chains. Secured
Equipment Leases will be funded from the proceeds of the Loan, in an amount up
to 10% of Gross Proceeds from the offering, which the Company has obtained.
The Company's primary investment objectives are to preserve, protect, and
enhance the Company's assets while (i) making distributions commencing in the
initial year of Company operations; (ii) obtaining fixed income through the
receipt of base rent, and increasing the Company's income (and distributions)
and providing protection against inflation through automatic increases in base
rent and receipt of percentage rent, and obtaining fixed income through the
receipt of payments from Secured Equipment Leases; (iii) qualifying as a REIT
for federal income tax purposes; and (iv) providing stockholders of the Company
with liquidity of their investment within five to ten years after commencement
of the offering, either in whole or in part, through (a) listing of the shares
on a national securities exchange or over-the-counter market ( Listing ), or (b)
the commencement of orderly sales of the Company's assets, and distribution of
the proceeds thereof (outside the ordinary course of business and consistent
with its objective of qualifying as a REIT).
Pursuant to the registration statement of which this Prospectus is a part,
the Company registered for sale an aggregate of $165,000,000 of Shares of common
stock (16,500,000 Shares at $10 per Share). The offering of Shares of the
Company commenced in April 1995. Currently, the Company is in the offering
stage. The offering of Shares of the Company will terminate no later than March
29, 1997, in states that permit the extension of the offering period for a
second year.
As of December 31, 1995, the Company owned 18 Properties (including one
Property through a joint venture arrangement and one consisting of building
only), four of which were under construction or renovation at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
During the period May 2, 1994 (date of inception) through December 31,
1994, the Company received initial capital contributions of $200,000 for 20,000
shares of common stock from the Advisor.
In April 1995, the Company commenced an offering of its Shares of common
stock. As of December 31, 1995, the Company had received subscription proceeds
of $38,454,158 (3,845,416 Shares) from the offering, including $50,790 (5,079
Shares) through the Reinvestment Plan.
As of December 31, 1995, net proceeds to the Company from its offering of
S h a res and capital contributions from the Advisor after deduction of
Organizational and Offering Expenses, totalled $32,250,487. As of December 31,
1995, approximately $24,000,000 had been used to invest, or committed for
investment, in 18 Properties (two of which were undeveloped land on which a
restaurant was being constructed and two of which were being renovated),
including one Property owned by a Joint Venture and one Property consisting of
building only, and to pay Acquisition Fees to the Advisor totalling $1,730,437
and certain Acquisition Expenses. The Company acquired nine of the 18
P r o perties from Affiliates for purchase prices totalling approximately
$6,621,000. The Affiliates had purchased and temporarily held title to these
Properties in order to facilitate the acquisition of the Properties by the
Company. Each Property was acquired at a cost no greater than the lesser of the
cost of the Property to the Affiliate (including carrying costs) or the
Property's appraised value. The Company expects to use Net Offering Proceeds
from the sale of Shares to purchase additional Properties, to fund construction
costs relating to the Properties under construction and to make Mortgage Loans.
The Company expects to use the proceeds of the Loan to fund the Secured
Equipment Lease program, as described above. The number of Properties to be
acquired and Mortgage Loans to be entered into will depend upon the amount of
Net Offering Proceeds available to the Company.
The Company has entered into various development agreements with tenants
which provide terms and specifications for the construction of buildings the
tenants have agreed to lease once construction is completed. The agreements
provide a maximum amount of development costs (including the purchase price of
the land and closing costs) to be paid by the Company. The aggregate maximum
development costs the Company has agreed to pay is approximately $3,214,700, of
which approximately $1,760,000 in land and other costs had been incurred as of
December 31, 1995. The buildings under construction as of December 31, 1995,
are expected to be operational by May 1996. In connection with the purchase of
each Property, the Company, as lessor, entered into a long-term lease agreement.
In addition, in connection with the acquisition of two Properties during
the year ended December 31, 1995, the Company has committed to fund an aggregate
amount of $500,000 for the renovation of the Properties. As of December 31,
1995, the Company had incurred approximately $234,000 in such costs. Upon the
completion of the renovation of the Properties and the payment of such by the
Company, the base rent due under the terms of the lease will be adjusted upward.
The renovations are expected to be completed by May 1996.
During the period January 1, 1996 through April 9, 1996, the Company
acquired 30 additional Properties (two Properties consisting of building only,
which are to be constructed, five Properties consisting of land and building,
four of which are to be constructed, and 23 Properties consisting of land only)
for cash at a total cost of approximately $8,031,000, excluding development
costs, Acquisition Fees and certain Acquisition Expenses. With regard to the 23
Properties consisting of land only, the Company is leasing the parcels to a
single lessee pursuant to a Master Lease Agreement. The lessee owns the
buildings located on the 23 Properties. In connection therewith, the Company
provided a Mortgage Loan in the amount of $8,475,000 to the lessee pursuant to a
Master Mortgage Note which is collateralized by the building improvements of the
23 Properties. The Master Mortgage Note bears interest at a rate of 10.75% per
annum and principal and interest will be collected in equal monthly installments
over 20 years starting March 1, 1996.
The Company presently is negotiating to acquire additional Properties, but
as of April 9, 1996, had not acquired any such Properties.
As of April 9, 1996, the Company had received subscription proceeds of
$57,887,405 (5,788,741 Shares) from 3,440 stockholders, including $128,151
(12,815 Shares) issued pursuant to the Reinvestment Plan. As of April 9, 1996,
the Company had invested, or committed for investment, a total of approximately
$46,200,000 of such proceeds in Properties, in providing mortgage financing to
the tenant of the 23 Properties consisting of land only through a Mortgage Loan,
and to pay Acquisition Fees and Acquisition Expenses, leaving approximately
$4,200,000 in Net Offering Proceeds available for investment in Properties and
Mortgage Loans. As of April 9, 1996, the Company had incurred $2,604,933 in
Acquisition Fees due to the Advisor.
On March 5, 1996, the Company entered into a line of credit and security
agreement with a bank to be used by the Company to offer Secured Equipment
Leases. The Loan provides that the Company will be able to receive advances of
up to $15,000,000 until March 4, 1998. Generally, advances under the Loan will
be fully amortizing term loans repayable in terms equal to the duration of the
Secured Equipment Leases, but in no event greater than 72 months. In addition,
advances for short-term needs (to acquire equipment to be leased under Secured
Equipment Leases) may be requested in an aggregate amount which does not exceed
the Revolving Sublimit (defined in the Loan as $1,000,000) and such advances may
be repaid and readvanced; provided, however, that advances made pursuant to the
Revolving Sublimit shall be converted to term loans the earlier of (i) the end
of each 60 day period following the closing date (defined in the Loan as March
5, 1996), or (ii) when the aggregate amount outstanding equals or exceeds
$1,000,000. Interest on advances made pursuant to the Revolving Sublimit shall
be paid monthly in arrears. In addition, principal amounts under advances
pursuant to the Revolving Sublimit, if not sooner paid or converted into term
loans, shall be paid, together with any unpaid interest relating to such
advances, to the bank on March 5, 1998. Generally, all advances under the Loan
will bear interest at either (i) a rate per annum equal to 215 basis points
above the Reserve Adjusted LIBOR Rate (as defined in the Loan) or (ii) a rate
per annum equal to the bank's prime rate, whichever the Company selects at the
time advances are made. As a condition of obtaining the Loan, the Company
agreed to grant to the bank a first security interest in the Secured Equipment
Leases. In connection with the Loan, the Company incurred a commitment fee,
legal fees and closing costs of approximately $53,500 relating to the Loan. As
of April 9, 1996, $53,500 had been advanced under the Loan to fund the
commitment fee, legal fees and closing costs related to the Loan. The Company
intends to limit advances under the Loan to 10% of Gross Proceeds of the
offering.
Properties are and will be leased on a triple-net basis, meaning that
tenants are generally required to pay all repairs and maintenance, property
taxes, insurance and utilities. Rental payments under the leases are expected
to exceed the Company's operating expenses. For these reasons, no short-term or
long-term liquidity problems currently are anticipated by management.
Until Properties are acquired, or Mortgage Loans are entered into, by the
Company, all offering proceeds are held in short-term, highly liquid investments
which management believes to have appropriate safety of principal. This
investment strategy provides high liquidity in order to facilitate the Company's
use of these funds to acquire Properties at such time as Properties suitable for
acquisition are located or to fund Mortgage Loans. At December 31, 1995, the
Company had $11,508,445 invested in such short-term investments as compared to
$945 at December 31, 1994. The increase in the amount invested in short-term
investments reflects subscription proceeds derived from the sale of Shares
during the year ended December 31, 1995. These funds will be used primarily to
purchase and develop or renovate Properties (directly or indirectly through
joint venture arrangements) to make Mortgage Loans, to pay organization and
offering and acquisition costs, to pay Distributions to stockholders, to meet
Company expenses and, in management's discretion, to create cash reserves.
During the year ended December 31, 1995 and the period May 2, 1994 (date
of inception) through December 31, 1994, Affiliates of the Company incurred on
behalf of the Company $2,084,145 and $461,866, respectively, for certain
Organizational and Offering Expenses. In addition, during the year ended
December 31, 1995, Affiliates of the Company incurred on behalf of the Company
$131,629 for certain Acquisition Expenses and $54,234 for certain Operating
Expenses. As of December 31, 1995, the Company owed the Advisor $108,316 for
such amounts and accounting and administrative expenses. In addition, as of
December 31, 1995, the Company owed the Advisor $45,118 and $9,108 for
Acquisition Fees and Asset Management Fees, respectively. As of February 7,
1996, the Company had reimbursed all such amounts. The Advisor has agreed to
pay or reimburse to the Company all Organizational and Offering Expenses in
excess of three percent of gross offering proceeds. Amounts payable to
unrelated parties increased to $1,148,425 at December 31, 1995, from $424,324 at
December 31, 1994, primarily as a result of the accrual of construction costs
incurred and unpaid as of December 31, 1995.
During the year ended December 31, 1995, the Company generated cash from
operations (which includes cash received from tenants and interest received,
less cash paid for operating expenses) of $498,459. Based on current and
anticipated future cash from operations the Company declared Distributions to
the stockholders of $638,618 during the year ended December 31, 1995. No
Distributions were paid or declared for the period May 2, 1994 (date of
inception) through December 31, 1994. In January, February, and March 1996, the
Company declared Distributions to its stockholders totalling $225,354, $255,649,
and $287,805, respectively, which were paid March 29, 1996. In addition, on
April 1, 1996, the Company declared Distributions to its stockholders totalling
$323,748 payable in June 1996. For the year ended December 31, 1995, 59.82% of
the Distributions received by stockholders were considered to be ordinary income
and 40.18% were considered a return of capital for federal income tax purposes.
However, no amounts distributed or to be distributed to the stockholders as of
April 9, 1996, are required to be or have been treated by the Company as a
return of capital for purposes of calculating the stockholders' return on their
Invested Capital.
Management believes that the Properties are adequately covered by
insurance. During 1995, the Advisor obtained contingent liability and property
coverage for the Company. This insurance policy is intended to reduce the
Company's exposure in the unlikely event a tenant's insurance policy lapses or
is insufficient to cover a claim relating to the Property. The Company's
investment strategy of acquiring Properties for cash and leasing them under
triple-net leases to operators who meet specified financial standards is
expected to minimize the Company's Operating Expenses. Accordingly, management
believes that any anticipated decrease in the Company's liquidity in 1996, due
to its investment of available Net Offering Proceeds in Properties, will not
have an adverse effect on the Company's operations. During the operational
stage, management believes that the leases will generate cash flow in excess of
Operating Expenses. Since the leases are expected generally to have an initial
term of 15 to 20 years, with two or more five-year renewal options, and provide
for specified percentage rent in addition to the annual base rent and, in
certain cases, increases in the base rent or the percentage rent at specified
times during the terms of the leases, it is anticipated that rental income will
increase over time.
Due to anticipated low Operating Expenses, rental income expected to be
obtained from Properties after they are acquired, and the fact that as of April
9, 1996, no amounts had been borrowed under the Loan for Secured Equipment
Leases and that the Company had not entered into any Secured Equipment Leases,
management does not believe that working capital reserves will be necessary at
this time. Management has the right to cause the Company to maintain reserves
if, in their discretion, they determine such reserves are required to meet the
Company's working capital needs.
Management expects that the cash generated from operations will be
adequate to pay Operating Expenses.
RESULTS OF OPERATIONS
No significant operations commenced until the Company received the minimum
offering proceeds of $1,500,000 on June 1, 1995.
As of December 31, 1995, the Company had purchased 18 Properties,
including one which is owned through a joint venture and one Property consisting
of building only, and entered into lease agreements relating to these
Properties. The leases provide for minimum base annual rental payments (payable
in monthly installments) ranging from approximately $89,800 to $215,900. In
addition, the leases generally provide for percentage rent based on sales in
excess of a specified amount. The majority of the leases also provide that,
commencing in generally the sixth lease year, the annual base rent required
under the terms of the leases will increase. For a further description of the
Company's leases and Properties owned as of December 31, 1995, and leases for
Properties acquired during the period January 1, 1996 through April 9, 1996, see
Business - Property Acquisitions above.
During the year ended December 31, 1995, the Company and its consolidated
joint venture, CNL/Corral South Joint Venture, earned a total of $539,776 in
rental income from operating leases, earned income from the direct financing
lease and contingent rental income from 16 Properties (excluding two Properties
under construction as of December 31, 1995). Because the Company did not
commence significant operations until it received the minimum offering proceeds
on June 1, 1995, and has not yet acquired all of its Properties, revenues for
the year ended December 31, 1995, represent only a portion of revenues which the
Company is expected to earn during a full year in which the Company's Properties
are operational.
During the year ended December 31, 1995, five of the Company's lessees,
Golden Corral Corporation, Northstar Restaurants, Inc., Foodmaker, Inc.,
Roasters Corp. and Denwest Restaurant Corp., each contributed more than ten
percent of the Company's total rental income. Golden Corral Corporation is the
lessee under leases relating to six restaurants, Northstar Restaurants, Inc. is
the lessee under leases relating to three restaurants, Foodmaker, Inc. is the
lessee under a lease relating to one restaurant, Roasters Corp. is the lessee
under leases relating to two restaurants and Denwest Restaurant Corp. is the
lessee under leases relating to two restaurants. In addition, five of the
Restaurant Chains, Golden Corral Family Steakhouse, Kenny Rogers' Roasters,
Boston Market, Jack in the Box and Denny's, each accounted for more than ten
percent of the Company's total rental income during 1995. Because the Company
did not commence operations or purchase its first Property until June 1995, the
foregoing information regarding the lessees and Restaurant Chains which
contributed a significant amount of the Company's total rental income during the
year ended December 31, 1995, may or may not be representative of the lessees
and Restaurant Chains which will account for more than ten percent of the
Company's rental income during 1996 and subsequent years. Because the Company
has not completed its acquisition of Properties as yet, it is not possible to
determine which lessees or Restaurant Chains will contribute more than ten
percent of the Company's rental income during 1996 and subsequent years. In the
event that certain lessees or Restaurant Chains contribute more than ten percent
of the Company's rental income in the current and future years, any failure of
such lessees or Restaurants Chains could materially affect the Company's income.
During the year ended December 31, 1995, the Company also earned $119,355
in interest income from investments in money market accounts or other short-
term, highly liquid investments. Interest income is expected to increase as the
Company invests subscription proceeds in highly liquid investments pending the
acquisition of Properties. However, as Net Offering Proceeds are invested in
Properties and used to make Mortgage Loans, interest income from investments in
money market accounts or other short-term, highly liquid investments is expected
to decrease.
Operating expenses, including depreciation and amortization expense, were
$290,276 for the year ended December 31, 1995. Operating expenses, including
depreciation and amortization expense, also represent only a portion of
operating expenses which the Company is expected to incur during a full year in
which the Company's Properties are operational. The dollar amount of operating
expenses is expected to increase as the Company acquires additional Properties.
The Company has made the election under Section 856(c) of the Internal
Revenue Code of 1986, as amended (the Code ), to be taxed as a REIT under the
Code beginning with its taxable year ended December 31, 1995. As a REIT for
federal income tax purposes, the Company generally will not be subject to
federal income tax on income that it distributes to its stockholders. If the
Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax on its taxable income at regular corporate rates and will not
permitted to qualify for treatment as a REIT for federal income tax purposes for
four years following the year during which qualification is lost. Such an event
could materially affect the Company's income. However, the Company believes
that it is organized and operates in such a manner as to qualify for treatment
as a REIT for the year ended December 31, 1995. In addition, the Company
intends to continue to operate the Company so as to remain qualified as a REIT
for federal income tax purposes.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Statement,
which is effective for fiscal years beginning after December 15, 1995, requires
that an entity review long-lived assets and certain identifiable intangibles, to
be held and used, for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. The
Company will adopt this standard in 1996. Adoption of this standard currently
would not have had a material effect on the Company's financial position or
results of operations.
All of the Company's leases as of December 31, 1995, are triple-net leases
and contain provisions that management believes will 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
Company's Properties. Inflation and changing prices, however, also may have an
adverse impact on the operating margins of the restaurants and on potential
capital appreciation of the Properties.
MANAGEMENT
GENERAL
The Company will operate under the direction of the Board of Directors,
the members of which are accountable to the Company as fiduciaries. As required
by applicable regulations, a majority of the Independent Directors and a
m a jority of the Directors have reviewed and ratified the Articles of
Incorporation and have adopted the Bylaws.
The Company currently has five Directors; it may have no fewer than three
Directors and no more than 15. Directors will be elected annually, and each
Director will hold office until the next annual meeting of stockholders or until
his successor has been duly elected and qualified. There is no limit on the
number of times that a Director may be elected to office. Although the number
of Directors may be increased or decreased as discussed above, a decrease shall
not have the effect of shortening the term of any incumbent Director.
Any Director may resign at any time and may be removed with or without
cause by the stockholders upon the affirmative vote of at least a majority of
all the Shares outstanding and entitled to vote at a meeting called for this
purpose. The notice of such meeting shall indicate that the purpose, or one of
the purposes, of such meeting is to determine if a Director shall be removed.
FIDUCIARY RESPONSIBILITY OF THE BOARD OF DIRECTORS
The Board of Directors will be responsible for the management and control
of the affairs of the Company; however, the Board of Directors will retain the
Advisor to manage the Company's day-to-day affairs and the acquisition and
disposition of investments, subject to the supervision of the Board of
Directors.
The Directors are not required to devote all of their time to the Company
and are only required to devote such of their time to the affairs of the Company
as their duties require. The Board of Directors will meet quarterly in person
or by telephone, or more frequently if necessary. It is not expected that the
Directors will be required to devote a substantial portion of their time to
discharge their duties as directors. Consequently, in the exercise of their
fiduciary responsibilities, the Directors will rely heavily on the Advisor. In
this regard, the Advisor, in addition to the Directors, will have a fiduciary
duty to the Company.
The Directors will monitor the administrative procedures, investment
operations, and performance of the Company and the Advisor to assure that such
policies are in the best interest of the stockholders and are fulfilled. Until
modified by the Directors, the Company will follow the policies on investments
set forth in this Prospectus. See Investment Objectives and Policies.
The Independent Directors are responsible for reviewing the fees and
expenses of the Company at least annually or with sufficient frequency to
determine that the total fees and expenses of the Company are reasonable in
light of the Company's investment performance, Net Assets, Net Income, and the
fees and expenses of other comparable unaffiliated real estate investment
trusts. This determination shall be reflected in the minutes of the meetings of
the Board of Directors. For purposes of this determination, Net Assets are the
Company's total assets (other than intangibles), calculated at cost before
deducting depreciation or other non-cash reserves, less total liabilities, and
computed at least quarterly on a basis consistently applied. Such determination
will be reflected in the minutes of the meetings of the Board of Directors. In
addition, a majority of the Independent Directors and a majority of Directors
not otherwise interested in the transaction must approve each transaction with
the Advisor or its Affiliates. The Board of Directors also will be responsible
for reviewing and evaluating the performance of the Advisor before entering into
or renewing an advisory agreement. The Independent Directors shall determine
from time to time and at least annually that compensation to be paid to the
Advisor is reasonable in relation to the nature and quality of services to be
p e rformed and shall supervise the performance of the Advisor and the
compensation paid to it by the Company to determine that the provisions of the
Advisory Agreement are being carried out. Specifically, the Independent
Directors will consider factors such as the amount of the fee paid to the Advi-
sor in relation to the size, composition and performance of the Company's
investments, the success of the Advisor in generating appropriate investment
opportunities, rates charged to other comparable REITs and other investors by
advisors performing similar services, additional revenues realized by the
Advisor and its Affiliates through their relationship with the Company, whether
paid by the Company or by others with whom the Company does business, the
quality and extent of service and advice furnished by the Advisor, the
performance of the investment portfolio of the Company and the quality of the
portfolio of the Company relative to the investments generated by the Advisor
for its own account. Such review and evaluation will be reflected in the
minutes of the meetings of the Board of Directors. The Board of Directors shall
determine that any successor Advisor possesses sufficient qualifications to (i)
perform the advisory function for the Company and (ii) justify the compensation
provided for in its contract with the Company.
The liability of the officers and Directors while serving in such capacity
is limited in accordance with the Articles of Incorporation and applicable law.
See Summary of the Articles of Incorporation and Bylaws Limitation of
Director and Officer Liability.
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and executive officers of the Company are listed below:
Name Age Position with the Company
James M. Seneff, Jr. 49 Director, Chairman of the Board,
and Chief Executive Officer
Robert A. Bourne 49 Director and President
G. Richard Hostetter 56 Independent Director
J. Joseph Kruse 63 Independent Director
Richard C. Huseman 57 Independent Director
John T. Walker 37 Chief Operating Officer and
Executive Vice President
Jeanne A. Wall 37 Executive Vice President
Lynn E. Rose 47 Secretary and Treasurer
Edgar J. McDougall 48 Executive Vice President
JAMES M. SENEFF, JR. Director, Chairman of the Board, and Chief Executive
Officer. Mr. Seneff currently holds the position of Chairman of the Board,
Chief Executive Officer and director of CNL Fund Advisors, Inc., the advisor to
the Company. Mr. Seneff is a principal stockholder of CNL Group, Inc., a
diversified real estate company, and has served as its Chairman of the Board of
Directors, director, and Chief Executive Officer since its formation in 1980.
CNL Group, Inc. is the parent company of CNL Securities Corp., which is acting
as the Managing Dealer in this offering, CNL Investment Company and CNL Fund
Advisors, Inc. Mr. Seneff has been a director and registered principal of CNL
Securities Corp. since its formation in 1979. Mr. Seneff also has held the
position of President and a director of CNL Management Company, a registered
investment advisor, since its formation in 1976, has served as Chief Executive
Officer and Chairman of the Board of CNL Investment Company, and Chief Executive
Officer and Chairman of the Board of Commercial Net Lease Realty, Inc. since
1992, has served as Chief Executive Officer and Chairman of the Board of CNL
Realty Advisors, Inc. since its inception in 1991, and has held the position of
Chief Executive Officer and a director of CNL Institutional Advisors, Inc., a
registered investment advisor, since its inception in 1990. Mr. Seneff
previously served on the State of Florida Commission on Ethics and is a former
member and past Chairman of the Florida Investment Advisory Council, which
recommends to the Florida Board of Administration investments for various
Florida employee retirement funds. The Florida Board of Administration,
Florida's principal investment advisory and money management agency, oversees
the investment of more than $40 BILLION OF RETIREMENT FUNDS. SINCE 1971, MR.
SENEFF HAS BEEN ACTIVE IN THE ACQUISITION, DEVELOPMENT, AND MANAGEMENT OF REAL
ESTATE PROJECTS AND, DIRECTLY OR THROUGH AN AFFILIATED ENTITY, HAS SERVED AS A
GENERAL PARTNER OR JOINT VENTURER IN APPROXIMATELY 100 REAL ESTATE VENTURES
INVOLVED IN THE FINANCING, ACQUISITION, CONSTRUCTION, AND RENTAL OF RESTAURANTS,
OFFICE BUILDINGS, APARTMENT COMPLEXES, HOTELS, AND OTHER REAL ESTATE. INCLUDED
IN THESE 100 REAL ESTATE VENTURES ARE APPROXIMATELY 57 PRIVATELY OFFERED REAL
ESTATE LIMITED PARTNERSHIPS WITH INVESTMENT OBJECTIVES SIMILAR TO ONE OR MORE OF
THE COMPANY'S INVESTMENT OBJECTIVES, IN WHICH MR. SENEFF, DIRECTLY OR THROUGH AN
AFFILIATED ENTITY, SERVES OR HAS SERVED AS A GENERAL PARTNER. MR. SENEFF
RECEIVED HIS DEGREE IN BUSINESS ADMINISTRATION FROM FLORIDA STATE UNIVERSITY IN
1968.
ROBERT A. BOURNE. Director and President. Mr. Bourne currently holds the
position of President and director of CNL Fund Advisors, Inc., the advisor to
the Company. Mr. Bourne is President and Treasurer of CNL Group, Inc.,
President, a director, and a registered principal of CNL Securities Corp. (the
Managing Dealer of this offering), President and a director of CNL Investment
Company, and President, Chief Investment Officer and a director of CNL
Institutional Advisors, Inc., a registered investment advisor. Mr. Bourne also
has served as President and a director from July 1992 to February 1996, and has
served as Vice Chairman of the Board of Directors, Secretary and Treasurer since
February 1996, of Commercial Net Lease Realty, Inc. In addition, Mr. Bourne
served as President of CNL Realty Advisors, Inc. from 1991 to February 1996, and
has served as a director of CNL Realty Advisors, Inc. since 1991, and as
Secretary and Treasurer since February 1996. Upon graduation from Florida State
University in 1970, where he received a B.A. in Accounting, with honors, Mr.
Bourne worked as a certified public accountant and, from September 1971 through
December 1978 was employed by Coopers & Lybrand, Certified Public Accountants,
where he held the position of tax manager beginning in 1975. From January 1979
until June 1982, Mr. Bourne was a partner in the accounting firm of Cross &
Bourne and from July 1982 through January 1987 he was a partner in the
accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Mr.
Bourne, who joined CNL Securities Corp. in 1979, has participated as a general
partner or joint venturer in approximately 100 real estate ventures involved in
the financing, acquisition, construction, and rental of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Included in
these 100 real estate ventures are approximately 57 privately offered real
estate limited partnerships with investment objectives similar to one or more of
those of the Company's investment objectives, in which Mr. Bourne, directly or
through an affiliated entity, serves or has served as a general partner.
G. RICHARD HOSTETTER, ESQ. Independent Director. Mr. Hostetter was a
senior partner at the law firm of Miller and Martin from 1966 through 1989. In
this capacity, he has served for more than 20 years as counsel for various
corporate real estate groups, fast-food companies and public companies,
including The Krystal Company, resulting in his extensive participation in
transactions involving the sale, lease, and sale/leaseback of approximately 250
restaurant units. Mr. Hostetter graduated from the University of Georgia and
received his J.D. from Emory Law School in 1966. He is licensed to practice law
in Tennessee and Georgia. From 1989 to date, Mr. Hostetter has served as
President and General Counsel of Mills, Ragland & Hostetter, Inc., a holding
company involved in corporate acquisitions, in which he also is a general and
limited partner.
J. JOSEPH KRUSE. Independent Director. From 1993 to the present, Mr.
Kruse has been President and Chief Executive Officer of Kruse & Co., Inc., a
merchant banking company engaged in real estate. Formerly, Mr. Kruse was a
Senior Vice President with Textron, Inc. for twenty years, and then served as
Senior Vice President at G. William Miller & Co., a firm founded by the former
Chairman of the Federal Reserve Board and the Treasury Secretary. Mr. Kruse was
responsible for evaluations of commercial real estate and retail shopping mall
projects and continues to serve of counsel to the firm. Mr. Kruse received a
Bachelors of Education degree from the University of Florida in 1957 and a
Masters of Science in Administration in 1958.
RICHARD C. HUSEMAN. Independent Director. Mr. Huseman is presently a
professor in the College of Business, and from 1990 through 1995, served as the
Dean of the College of Business Administration of the University of Central
Florida. He has served as a consultant in the area of managerial strategies to
a number of Fortune 500 corporations, including IBM, AT&T, and 3M, as well as to
several branches of the U.S. government, including the U.S. Department of Health
and Human Services, the U.S. Department of Justice, and the Internal Revenue
Service. Mr. Huseman received a B.A. from Greenville College in 1961 and an
M.A. and a Ph.D. from the University of Illinois in 1963 and 1965, respectively.
JOHN T. WALKER. Chief Operating Officer and Executive Vice President.
Mr. Walker joined CNL Group, Inc. in September 1994, as Senior Vice President,
responsible for Research and Development. He currently serves as the Chief
Operating Officer and Executive Vice President of CNL Fund Advisors, Inc., the
advisor to the Company. From May 1992 to May 1994, he was Executive Vice
President for Finance and Administration and Chief Financial Officer of Z Music,
I n c., a television network which was subsequently acquired by Gaylord
Entertainment, where he was responsible for overall financial and administrative
management and planning. From January 1990 through April 1992, Mr. Walker was
Chief Financial Officer of the First Baptist Church in Orlando, Florida. From
April 1984 through December 1989, he was a partner in the accounting firm of
Chastang, Ferrell & Walker, P.A., where he was the partner in charge of audit
and consulting services, and from 1981 to 1984, Mr. Walker was a Senior
Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a Cum Laude graduate
of Wake Forest University with a B.S. in Accountancy and is a Certified Public
Accountant.
JEANNE A. WALL. Executive Vice President. Ms. Wall serves as Executive
Vice President of CNL Fund Advisors, Inc., the advisor to the Company. Ms. Wall
has served as Chief Operating Officer of CNL Investment Company and of CNL
Securities Corp. since November 1994 and previously served as Executive Vice
President of CNL Investment Company since January 1991. In 1984, Ms. Wall
joined CNL Securities Corp. as its Partnership Administrator. In 1985, Ms. Wall
became Vice President of CNL Securities Corp. and, in 1987, she became a Senior
Vice President of CNL Securities Corp. In this capacity, Ms. Wall serves as
national marketing director and oversees the national marketing plan for the CNL
investment programs. In addition, Ms. Wall oversees partnership administration
and investor services for programs offered through participating brokers. Ms.
Wall also has served as Senior Vice President of CNL Institutional Advisors,
Inc., a registered investment advisor, from 1990 to 1993, as Vice President of
CNL Realty Advisors, Inc. since its inception in 1991; and as Vice President of
Commercial Net Lease Realty, Inc. since 1992. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp. Ms. Wall currently serves as a trustee on the Board of the
Investment Program Association and on the Direct Participation Program committee
for the National Association of Securities Dealers.
LYNN E. ROSE. Secretary and Treasurer. Ms. Rose serves as Secretary and
Treasurer of CNL Fund Advisors, Inc., the advisor to the Company. Ms. Rose, a
certified public accountant, has served as Chief Financial Officer and Secretary
of CNL Group, Inc. since December 1993, and served as Controller and Secretary
of CNL Group, Inc. from 1987 until December 1993. She has served as Chief
Operating Officer of CNL Corporate Services, Inc. since November 1994. Ms. Rose
also has served as Chief Financial Officer of CNL Institutional Advisors, Inc.
since its inception in 1990, as a director of CNL Realty Advisors, Inc. since
its inception in 1991, and as Secretary and Treasurer of CNL Realty Advisors,
Inc. from 1991 to February 1996. In addition, Ms. Rose served as Secretary and
Treasurer of Commercial Net Lease Realty, Inc. from 1992 to February 1996. In
addition, Ms. Rose oversees the management information services, administration,
legal compliance, accounting, tenant compliance, and reporting for over 200
corporations, partnerships and joint ventures. Prior to joining CNL, Ms. Rose
was a partner with Robert A. Bourne in the accounting firm of Bourne & Rose,
P.A., Certified Public Accountants. Ms. Rose holds a B.A. in Sociology from the
University of Central Florida. She was licensed as a Certified Public
Accountant in 1979.
EDGAR J. MCDOUGALL. Executive Vice President. Mr. McDougall currently
serves as Executive Vice President of CNL Fund Advisors, Inc., the advisor to
the Company and has served as Executive Vice President of CNL Group, Inc. since
August 1990. Mr. McDougall joined CNL Group, Inc. in May 1990 as Senior Vice
President Strategic Planning. Mr. McDougall also serves as Chief Operating
Officer of CNL Institutional Advisors, Inc. In addition, Mr. McDougall has
served as Vice President of CNL Realty Advisors, Inc. since its inception in
1991 and Vice President of Commercial Net Lease Realty, Inc. since 1992. Prior
to joining CNL in 1990, Mr. McDougall served as President of Colony Land
Company, in Orlando, Florida, beginning in November 1987. From 1985 to 1987,
Mr. McDougall served as the Sales Manager of the Orlando office of Coldwell
Banker Commercial Real Estate, a diversified real estate company involved in the
sale and leasing of commercial properties. Mr. McDougall holds a Doctor of
Philosophy degree in Business Administration from the University of Florida.
INDEPENDENT DIRECTORS
Under the Articles of Incorporation, a majority of the Board of Directors
must consist of Independent Directors, except for a period of 90 days after the
death, removal or resignation of an Independent Director. The Independent
Directors shall nominate replacements for vacancies amongst the Independent
Director positions. An Independent Director may not, directly or indirectly
(including through a member of his immediately family), own any interest in, be
employed by, have any present business or professional relationship with, or
serve as an officer or director of, the Advisor or its Affiliates. Except to
carry out the responsibilities of a Director, an Independent Director may not
perform material services for the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a standing Audit Committee, the members of which are
selected by the full Board of Directors each year. The Audit Committee makes
recommendations to the Board of Directors in accordance with those of the
independent accountants of the Company. The Board of Directors shall review
with such accounting firm the scope of the audit and the results of the audit
upon its completion.
At such time, if any, as the Shares are listed on a national securities
exchange or over-the-counter market, the Company will form a Compensation
Committee, the members of which will be selected by the full Board of Directors
each year.
At least a majority of the members of each committee of the Company's
Board of Directors must be Independent Directors.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Each Director is entitled to receive $6,000 annually for serving on the
Board of Directors, as well as fees of $750 per meeting attended ($375 for each
telephonic meeting in which the Director participates), including committee
meetings. No executive officer or Director of the Company has received a bonus
from the Company. The Company will not pay any compensation to the officers and
Directors of the Company who also serve as officers and directors of the
Advisor.
MANAGEMENT COMPENSATION
For a description of the types, recipients, methods of computation, and
estimated amounts of all compensation, fees, and distributions to be paid
directly or indirectly by the Company to the Advisor, Managing Dealer, and their
Affiliates, see Management Compensation.
THE ADVISOR AND THE ADVISORY AGREEMENT
THE ADVISOR
CNL Fund Advisors, Inc. is a Florida corporation organized in March, 1994
to provide management, advisory and administrative services to the Company. The
Company entered into the Advisory Agreement with the Advisor effective April 19,
1995. CNL Fund Advisors, Inc., as Advisor, has a fiduciary responsibility to
the Company and the stockholders.
The directors and officers of the Advisor are as follows:
James M. Seneff, Jr. . . . . . . . . . . . . Chairman of the Board, Chief
. . . . . . . . . . . . . . . . . . . . . . . Executive Officer, and Director
Robert A. Bourne . . . . . . . . . . . . . . President and Director
John T. Walker . . . . . . . . . . . . . . . C h ief Operating Officer and
. . . . . . . . . . . . . . . . . . . . . . . Executive Vice President
Edgar J. McDougall . . . . . . . . . . . . . Executive Vice President
Lynn E. Rose . . . . . . . . . . . . . . . . Secretary, Treasurer and
. . . . . . . . . . . . . . . . . . . . . . . Director
Jeanne A. Wall . . . . . . . . . . . . . . . Executive Vice President
T h e backgrounds of these individuals are described above under
Management Directors and Officers.
The Advisor employs personnel, in addition to the directors and executive
officers listed above, who have extensive experience in selecting and managing
restaurant properties similar to the Properties.
The Advisor currently owns 20,000 Shares. The Advisor may not sell these
Shares while the Advisory Agreement is in effect, although the Advisor may
transfer such Shares to Affiliates. Neither the Advisor, a Director, or any
Affiliate may vote or consent on matters submitted to the stockholders regarding
removal of, or any transaction between the Company and the Advisor, Directors,
or an Affiliate. In determining the requisite percentage in interest of Shares
necessary to approve a matter on which the Advisor, Directors, and any Affiliate
may not vote or consent, any Shares owned by any of them will not be included.
THE ADVISORY AGREEMENT
Under the terms of the Advisory Agreement, the Advisor has responsibility
for the day-to-day operations of the Company, administers the Company's
bookkeeping and accounting functions, serves as the Company's consultant in
connection with policy decisions to be made by the Board of Directors, manages
the Company's Properties and Mortgage Loans, administers the Company's Secured
Equipment Lease program and renders other services as the Board of Directors
deems appropriate. The Advisor is subject to the supervision of the Company's
Board of Directors and has only such functions as are delegated to it.
The Company will reimburse the Advisor for all of the costs it incurs in
connection with the services it provides to the Company, including, but not
limited to: (i) Organizational and Offering Expenses, which are defined to
include expenses attributable to preparing the documents relating to this
offering, the formation and organization of the Company, qualification of the
Shares for sale in the states, escrow arrangements, filing fees and expenses
attributable to selling the Shares, (ii) Selling Commissions, advertising
expenses, expense reimbursements, and legal and accounting fees, (iii) the
actual cost of goods and materials used by the Company and obtained from
entities not affiliated with the Advisor, including brokerage fees paid in
connection with the purchase and sale of securities, (iv) administrative
services (including personnel costs; provided, however that no reimbursement
shall be made for costs of personnel to the extent that such personnel perform
services in transactions for which the Advisor receives a separate fee),
(v) Acquisition Expenses, which are defined to include expenses related to the
selection and acquisition of Properties, at the lesser of actual cost or 90% of
the competitive rate charged by unaffiliated persons providing similar goods and
services in the same geographic location, and (vi) expenses related to
negotiating and servicing the Mortgage Loans and Secured Equipment Leases.
The Company shall not reimburse the Advisor at the end of any fiscal
quarter Operating Expenses that, in the four consecutive fiscal quarters then
ended (the Expense Year ) exceed (the Excess Amount ) the greater of 2% of
Average Invested Assets or 25% of Net Income (the 2%/25% Guidelines ) for such
year. Any Excess Amount paid to the Advisor during a fiscal quarter shall be
repaid to the Company. If there is an Excess Amount in any Expense Year and the
Independent Directors determine that such excess was justified, based on unusual
and nonrecurring factors which they deem sufficient, the Excess Amount may be
carried over and included in Operating Expenses in subsequent Expense Years, and
reimbursed to the Advisor in one or more of such years, provided that Operating
Expenses in any Expense Year, including any Excess Amount to be paid to the
Advisor, shall not exceed the 2%/25% Guidelines. Within 60 days after the end
of any fiscal quarter of the Company for which total Operating Expenses for the
Expense Year exceed the 2%/25% Guidelines, there shall be sent to the
stockholders a written disclosure of such fact, together with an explanation of
the factors the Independent Directors considered in determining that such excess
expenses were justified. Such determination shall be reflected in the minutes
of the meetings of the Board of Directors.
The Company will not reimburse the Advisor or its Affiliates for services
for which the Advisor or its Affiliates are entitled to compensation in the form
of a separate fee.
Pursuant to the Advisory Agreement, the Advisor is entitled to receive
certain fees and reimbursements, as listed in Management Management
Compensation. The Subordinated Incentive Fee payable to the Advisor under
certain circumstances if Listing occurs may be paid, at the option of the
Company, in cash, in Shares, by delivery of a promissory note payable to the
Advisor, or by any combination thereof. In the event the Subordinated Incentive
Fee is paid to the Advisor following Listing, no Performance Fee, as described
below, will be paid to the Advisor under the Advisory Agreement nor will any
share of Net Sales Proceeds be paid to the Advisor. The Acquisition Fees
payable to the Advisor in connection with the selection or acquisition of any
Property shall be reduced to the extent that, and if necessary to limit, the
total compensation paid to all persons involved in the acquisition of such
Property to the amount customarily charged in arm's-length transactions by other
persons or entities rendering similar services as an ongoing public activity in
the same geographical location and for comparable types of Properties, and to
the extent that other acquisition fees, finder's fees, real estate commissions,
or other similar fees or commissions are paid by any person in connection with
the transaction.
If the Advisor or a CNL Affiliate performs services that are outside of
the scope of the Advisory Agreement, compensation is at such rates and in such
amounts as are agreed to by the Advisor and the Independent Directors of the
Company.
Further, if Listing occurs, the Company automatically will become a
perpetual life entity. At such time, the Company and the Advisor will negotiate
in good faith a fee structure appropriate for an entity with a perpetual life,
subject to approval by a majority of the Independent Directors. In negotiating
a new fee structure, the Independent Directors shall consider all of the factors
they deem relevant. These are expected to include, but will not necessarily be
limited to: (i) the amount of the advisory fee in relation to the asset value,
composition, and profitability of the Company's portfolio; (ii) the success of
the Advisor in generating opportunities that meet the investment objectives of
the Company; (iii) the rates charged to other REITs and to investors other than
REITs by advisors that perform the same or similar services; (iv) additional
revenues realized by the Advisor and its Affiliates through their relationship
with the Company, including loan administration, underwriting or broker
commissions, servicing, engineering, inspection and other fees, whether paid by
the Company or by others with whom the Company does business; (v) the quality
and extent of service and advice furnished by the Advisor; (vi) the performance
of the investment portfolio of the Company, including income, conservation or
appreciation of capital, and number and frequency of problem investments; and
(vii) the quality of the Property, Mortgage Loan, and Secured Equipment Lease
portfolio of the Company in relationship to the investments generated by the
Advisor for its own account. The Board of Directors, including a majority of
the Independent Directors, may not approve a new fee structure that, in its
judgment, is more favorable to the Advisor than the current fee structure.
The Advisory Agreement, which was entered into by the Company with the
unanimous approval of the Board of Directors, including the Independent
Directors, expires one year after the date of execution, on April 19, 1996,
subject to successive one-year renewals upon mutual consent of the parties. In
the event that a new Advisor is retained, the previous Advisor will cooperate
with the Company and the Directors in effecting an orderly transition of the
advisory functions. The Board of Directors (including a majority of the
I n d ependent Directors) shall approve a successor Advisor only upon a
determination that the Advisor possesses sufficient qualifications to perform
the advisory functions for the Company and that the compensation to be received
by the new Advisor pursuant to the new Advisory Agreement is justified.
The Advisory Agreement may be terminated without cause or penalty by
either party, or by the mutual consent of the parties (by a majority of the
Independent Directors of the Company or a majority of the directors of the
Advisor, as the case may be), upon 60 days' prior written notice. At that time,
the Advisor shall be entitled to receive the Performance Fee if performance
standards satisfactory to a majority of the Board of Directors, including a
majority of the Independent Directors, when compared to (a) the performance of
the Advisor in comparison with its performance for other entities, and (b) the
performance of other advisors for similar entities, have been met. If Listing
has not occurred, the Performance Fee, if any, shall equal 10% of the amount, if
any, by which (i) the appraised value of the Properties and Secured Equipment
Leases on the date of termination of the Advisory Agreement (the Termination
Date ), less the amount of all indebtedness secured by Properties and Secured
Equipment Leases, plus the total Distributions made to stockholders from the
Company's inception through the Termination Date, exceeds (ii) Invested Capital
plus an amount equal to the Stockholders' 8% Return from inception through the
Termination Date. The Advisor shall be entitled to receive all accrued but
unpaid compensation and expense reimbursements in cash within 30 days of the
Termination Date. All other amounts payable to the Advisor in the event of a
termination shall be evidenced by a promissory note and shall be payable from
time to time. The Performance Fee shall be paid in 12 equal quarterly
installments without interest on the unpaid balance, provided, however, that no
payment will be made in any quarter in which such payment would jeopardize the
Company's REIT status, in which case any such payment or payments will be
delayed until the next quarter in which payment would not jeopardize REIT
status. Notwithstanding the preceding sentence, any amounts which may be deemed
payable at the date the obligation to pay the Performance Fee is incurred which
relate to the appreciation of the Company's Properties shall be an amount which
provides compensation to the terminated Advisor only for that portion of the
holding period for the respective Properties during which such terminated
Advisor provided services to the Company. If Listing occurs, the Performance
Fee, if any, payable thereafter will be as negotiated between the Company and
the Advisor. The Advisor shall not be entitled to payment of the Performance
Fee in the event the Advisory Agreement is terminated because of failure of the
Company and the Advisor to establish a fee structure appropriate for a
perpetual-life entity at such time, if any, as the Shares become listed on a
national securities exchange or over-the-counter market. The Performance Fee,
to the extent payable at the time of Listing, will not be paid in the event that
the Subordinated Incentive Fee is paid.
The Advisor has the right to assign the Advisory Agreement to an Affiliate
subject to approval by the Independent Directors of the Company. The Company
has the right to assign the Advisory Agreement to any successor to all of its
assets, rights, and obligations.
The Advisor will not be liable to the Company or its stockholders or
others, except by reason of acts constituting bad faith, fraud, misconduct, or
negligence, and will not be responsible for any action of the Board of Directors
in following or declining to follow any advice or recommendation given by it.
The Company has agreed to indemnify the Advisor with respect to acts or
omissions of the Advisor undertaken in good faith, in accordance with the
foregoing standards and pursuant to the authority set forth in the Advisory
Agreement. Any indemnification made to the Advisor may be made only out of the
net assets of the Company and not from stockholders.
PRIOR PERFORMANCE INFORMATION
The information presented in this section represents the historical
experience of certain real estate programs organized by certain officers and
directors of the Advisor. INVESTORS IN THE COMPANY SHOULD NOT ASSUME THAT THEY
WILL EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN
SUCH PRIOR REAL ESTATE PROGRAMS. INVESTORS WHO PURCHASE SHARES IN THE COMPANY
WILL NOT THEREBY ACQUIRE ANY OWNERSHIP INTEREST IN ANY PARTNERSHIPS TO WHICH THE
FOLLOWING INFORMATION RELATES.
Two Directors of the Company, Robert A. Bourne and James M. Seneff, Jr.,
individually or with others have served as general partners of 78 and 79 real
estate limited partnerships, respectively, including the 17 publicly offered CNL
Income Fund partnerships, which purchased properties similar to those to be
acquired by the Company, listed in the table below. None of these limited
partnerships has been audited by the IRS. Of course, there is no guarantee that
the Company will not be audited. Based on an analysis of the operating results
of the prior partnerships, the general partners of these partnerships believe
that each of such partnerships has met or is meeting its principal investment
objectives in a timely manner.
CNL Realty Corporation, which was organized as a Florida corporation in
November 1985 and whose sole stockholders are Messrs. Bourne and Seneff,
currently serves as the corporate general partner with Messrs. Bourne and Seneff
as individual general partners of 17 CNL Income Fund limited partnerships, all
of which were organized to invest in fast-food and family-style restaurant
properties similar to those that the Company intends to acquire and have
investment objectives similar to those of the Company. As of December 31, 1995,
these 17 partnerships had raised a total of $555,706,921 from a total of 46,266
investors, and had invested in 628 fast-food or family-style restaurant
properties.
As of December 31, 1995, offerings by 16 of the 17 CNL public partnerships
had been completed and these public partnerships had made annualized cash
distributions to limited partners in amounts equal to from 4.5% to ten percent
of invested capital. An average of approximately 7.4% (ranging from zero to
21.6%) of the cumulative cash distributions to limited partners from these
partnerships constituted cash distributions that exceeded accumulated net income
o n a GAAP basis, primarily as the result of depreciation deductions.
Accumulated net income includes deductions for depreciation and amortization
expense and income from certain non-cash items. The partnerships do not treat
these amounts, which are presented as a return of capital on a GAAP basis in
Table III of the Prior Performance Tables included in Exhibit C, as a return of
capital for any other purpose. Certain additional information relating to the
offerings and investment history of the 17 public partnerships is set forth
below.
Date 90% of
Net
Proceeds
Fully
Number of Invested or
Maximum Limited Committed to
Name of Offering Partnership Investment
Partnership Amount (1) Date Closed Units Sold (2)
----------- ----------- ------------ ----------- -----------
CNL Income $15,000,000 December 31, 30,000 December 1986
Fund, Ltd. (30,000 1986
Units)
CNL Income $25,000,000 August 21, 50,000 November 1987
Fund II, (50,000 1987
Ltd. Units)
CNL Income $25,000,000 April 29, 1988 50,000 June 1988
Fund III, (50,000
Ltd. Units)
CNL Income $30,000,000 December 6, 60,000 February 1989
Fund IV, (60,000 1988
Ltd. Units)
CNL Income $25,000,000 June 7, 1989 50,000 December 1989
Fund V, (50,000
Ltd. Units)
CNL Income $35,000,000 January 19, 70,000 May 1990
Fund VI, (70,000 1990
Ltd. Units)
CNL Income $30,000,000 August 1, 1990 30,000,000 January 1991
Fund VII, (30,000,000
Ltd. Units)
CNL Income $35,000,000 March 7, 1991 35,000,000 September
Fund VIII, (35,000,000 1991
Ltd. Units)
CNL Income $35,000,000 September 6, 3,500,000 November 1991
Fund IX, (3,500,000 1991
Ltd. Units)
CNL Income $40,000,000 March 18, 1992 4,000,000 June 1992
Fund X, (4,000,000
Ltd. Units)
CNL Income $40,000,000 September 28, 4,000,000 September
Fund XI, (4,000,000 1992 1992
Ltd. Units)
CNL Income $45,000,000 March 15, 1993 4,500,000 July 1993
Fund XII, (4,500,000
Ltd. Units)
CNL Income $40,000,000 August 26, 4,000,000 August 1993
Fund XIII, (4,000,000 1993
Ltd. Units)
CNL Income $45,000,000 February 22, 4,500,000 May 1994
Fund XIV, (4,500,000 1994
Ltd. Units)
CNL Income $40,000,000 September 1, 4,000,000 December 1994
Fund XV, (4,000,000 1994
Ltd. Units)
CNL Income $45,000,000 June 12, 1995 4,500,000 August 1995
Fund XVI, (4,500,000
Ltd. Units)
CNL Income $30,000,000 (3) (3) (3)
Fund XVII, (3,000,000
Ltd. Units)
(1) The amount stated includes the exercise by the general partners of each
partnership of their option to increase by $5,000,000 the maximum size of
the offering of CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL
Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund VI, Ltd.,
CNL Income Fund VIII, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XII,
Ltd., CNL Income Fund XIV, Ltd., and CNL Income Fund XVI, Ltd.
(2) F o r a description of the property acquisitions by these limited
partnerships during the last nine years, see the table set forth on the
following page.
(3) As of December 31, 1995, CNL Income Fund XVII, Ltd. which is offering a
maximum of 3,000,000 limited partnership units ($30,000,000), had received
subscriptions totalling $5,696,921 (569,692 units). As of such date, CNL
Income Fund XVII, Ltd. had purchased one property.
As of December 31, 1995, Mr. Seneff and Mr. Bourne, directly or through
affiliated entities, also had served as joint general partners of 61 nonpublic
real estate limited partnerships. The offerings of 59 of these 61 nonpublic
limited partnerships had terminated as of December 31, 1995. These 59
partnerships raised a total of $143,794,266 from approximately 3,600 investors,
and purchased, directly or through participation in a joint venture or limited
partnership, interests in a total of 186 projects as of December 31, 1995.
These 186 projects consist of 19 apartment projects (comprising 13% of the total
amount raised by all 59 partnerships), 13 office buildings (comprising 6% of the
total amount raised by all 59 partnerships), 140 fast-food or family-style
restaurant property and business investments (comprising 68% of the total amount
raised by all 59 partnerships), one condominium development (comprising .5% of
the total amount raised by all 59 partnerships), four hotels/motels (comprising
6% of the total amount raised by all 59 partnerships), seven commercial/retail
properties (comprising 6% of the total amount raised by all 59 partnerships),
and two tracts of undeveloped land (comprising .5% of the total amount raised by
all 59 partnerships). The offering of the remaining two nonpublic limited
partnerships (offerings aggregating $16,650,000) had raised $7,450,000 from 169
investors (approximately 45% of the total offering amount) as of December 31,
1995.
Mr. Bourne also has served, without Mr. Seneff, as a general partner of
one additional nonpublic real estate limited partnership program which raised a
total of $600,000 from 13 investors and purchased, through participation in a
limited partnership, one apartment building located in Georgia with a purchase
price of $1,712,000.
Mr. Seneff also has served, without Mr. Bourne, as a general partner of
two additional nonpublic real estate limited partnerships which raised a total
of $240,000 from 12 investors and purchased two office buildings with an
aggregate purchase price of $928,390. Both of the office buildings are located
in Florida.
Of the 78 real estate limited partnerships whose offerings had closed as
of December 31, 1995 (including 16 of the 17 CNL Income Fund limited
partnerships) in which Mr. Seneff and/or Mr. Bourne serve or have served as
general partners in the past ten years, 33 invested in restaurant properties
leased on a triple-net basis, including six which also invested in franchised
restaurant businesses (accounting for approximately 93% of the total amount
raised by all 78 real estate limited partnerships).
The following table sets forth summary information, as of December 31,
1995 regarding property acquisitions during the nine preceding years by the 17
limited partnerships that, either individually or through a joint venture or
partnership arrangement, acquired restaurant properties and that have investment
objectives similar to those of the Company.
NAME OF TYPE OF METHOD OF TYPE OF
PARTNERSHIP PROPERTY LOCATION FINANCING PROGRAM
- ----------- --------------- --------------- ---------- -------
CNL Income 20 fast-food or AL, AZ, CA, FL, All cash Public
Fund, Ltd. family-style GA, LA, MD, OK,
restaurants TX, VA
CNL Income 43 fast-food or AL, AZ, CO, FL, All cash Public
Fund II, Ltd. family-style GA, IL, IN, LA,
restaurants MI, MN, MO, NC,
NM, OH, TX, WY
CNL Income 32 fast-food or AZ, CA, FL, GA, All cash Public
Fund III, Ltd. family-style IA, IL, IN, KS,
restaurants KY, MD, MI, MN,
MO, NE, OK, TX
CNL Income 41 fast-food or AL, DC, FL, GA, All cash Public
Fund IV, Ltd. family-style IL, IN, KS, MA,
restaurants MD, MI, MS, OH,
PA, TN, TX, VA
CNL Income 30 fast-food or FL, GA, IL, IN, All cash Public
Fund V, Ltd. family-style MI, NH, NY, OH,
restaurants SC, TN, TX, UT,
WA
CNL Income 45 fast-food or AR, AZ, FL, IN, All cash Public
Fund VI, Ltd. family-style MA, MI, MN, NC,
restaurants NE, NM, NY, OH,
OK, PA, TN, TX,
VA, WY
CNL Income 45 fast-food or AZ, CO, FL, GA, All cash Public
Fund VII, Ltd. family-style IN, LA, MI, MN,
restaurants OH, SC, TN, TX,
UT, WA
CNL Income 39 fast-food or AZ, FL, IN, LA, All cash Public
Fund VIII, Ltd. family-style MI, MN, NC, NY,
restaurants OH, TN, TX, VA
CNL Income 41 fast-food or AL, FL, GA, IL, ALL CASH PUBLIC
Fund IX, Ltd. family-style IN, LA, MI, MN,
restaurants MS, NC, NH, NY,
OH, SC, TN, TX
CNL INCOME 47 FAST-FOOD OR AL, CA, CO, FL, ALL CASH PUBLIC
FUND X, LTD. FAMILY-STYLE ID, IL, LA, MI,
RESTAURANTS MO, MT, NC, NH,
NM, NY, OH, PA,
SC, TN, TX
CNL INCOME 39 FAST-FOOD OR AL, AZ, CA, CO, ALL CASH PUBLIC
FUND XI, LTD. FAMILY-STYLE CT, FL, KS, LA,
RESTAURANTS MA, MI, MS, NC,
NH, NM, OH, OK,
PA, SC, TX, VA,
WA
CNL INCOME 48 FAST-FOOD OR AL, AZ, CA, FL, ALL CASH PUBLIC
FUND XII, LTD. FAMILY-STYLE GA, LA, MO, MS,
RESTAURANTS NC, NM, OH, SC,
TN, TX, WA
CNL INCOME 48 FAST-FOOD OR AL, AR, AZ, CA, ALL CASH PUBLIC
FUND XIII, LTD. FAMILY-STYLE CO, FL, GA, IN,
RESTAURANTS KS, LA, MD, NC,
OH, PA, SC, TN,
TX, VA
CNL INCOME 56 FAST-FOOD OR AL, AZ, CO, FL, ALL CASH PUBLIC
FUND XIV, LTD. FAMILY-STYLE GA, KS, LA, MO,
RESTAURANTS MS, NC, NJ, NV,
OH, SC, TN, TX,
VA
CNL INCOME 47 FAST-FOOD OR CA, FL, GA, KS, ALL CASH PUBLIC
FUND XV, LTD. FAMILY-STYLE KY, MO, MS, NC,
RESTAURANTS NJ, NM, OH, OK,
PA, SC, TN, TX,
VA
CNL INCOME 41 FAST-FOOD OR AZ, CA, CO, DC, ALL CASH PUBLIC
FUND XVI, LTD. FAMILY-STYLE FL, GA, ID, IN,
RESTAURANTS KS, MN, MO, NC,
NM, NV, OH, TN,
TX, UT, WI
CNL INCOME (1) (1) ALL CASH PUBLIC
FUND XVII, LTD.
(1) AS OF DECEMBER 31, 1995, CNL INCOME FUND XVII, LTD. HAD ACQUIRED ONE
PROPERTY.
A MORE DETAILED DESCRIPTION OF THE ACQUISITIONS BY REAL ESTATE LIMITED
PARTNERSHIPS SPONSORED BY MESSRS. BOURNE AND SENEFF IS SET FORTH IN PRIOR
PERFORMANCE TABLE VI, INCLUDED AS EXHIBIT 99 TO PART II OF THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THIS OFFERING.
A COPY OF TABLE VI IS AVAILABLE TO STOCKHOLDERS FROM THE COMPANY UPON REQUEST,
FREE OF CHARGE. IN ADDITION, UPON REQUEST TO THE COMPANY, THE COMPANY WILL
PROVIDE, WITHOUT CHARGE, A COPY OF THE MOST RECENT ANNUAL REPORT ON FORM 10-K
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR CNL INCOME FUND, LTD., CNL
INCOME FUND II, LTD., CNL INCOME FUND III, LTD., CNL INCOME FUND IV, LTD., CNL
INCOME FUND V, LTD., CNL INCOME FUND VI, LTD., CNL INCOME FUND VII, LTD., CNL
INCOME FUND VIII, LTD., CNL INCOME FUND IX, LTD., CNL INCOME FUND X, LTD., CNL
INCOME FUND XI, LTD., CNL INCOME FUND XII, LTD., CNL INCOME FUND XIII, LTD.,
CNL INCOME FUND XIV, LTD., CNL INCOME FUND XV, LTD., CNL INCOME FUND XVI, LTD.,
AND CNL INCOME FUND XVII, LTD., AS WELL AS A COPY, FOR A REASONABLE FEE, OF THE
EXHIBITS FILED WITH SUCH REPORTS.
IN ORDER TO PROVIDE POTENTIAL PURCHASERS OF SHARES IN THE COMPANY WITH
INFORMATION TO ENABLE THEM TO EVALUATE THE PRIOR EXPERIENCE OF THE MESSRS.
SENEFF AND BOURNE AS GENERAL PARTNERS OF REAL ESTATE LIMITED PARTNERSHIPS,
INCLUDING THOSE SET FORTH IN THE FOREGOING TABLE, CERTAIN FINANCIAL AND OTHER
INFORMATION CONCERNING THOSE LIMITED PARTNERSHIPS WITH INVESTMENT OBJECTIVES
SIMILAR TO ONE OR MORE OF THE COMPANY'S INVESTMENT OBJECTIVES IN WHICH MESSRS.
SENEFF AND BOURNE ARE GENERAL PARTNERS IS PROVIDED IN THE PRIOR PERFORMANCE
TABLES INCLUDED AS EXHIBIT C. INFORMATION ABOUT THE 16 PREVIOUS PUBLIC
PARTNERSHIPS IS INCLUDED THEREIN. POTENTIAL STOCKHOLDERS ARE ENCOURAGED TO
EXAMINE THE PRIOR PERFORMANCE TABLES ATTACHED AS EXHIBIT C (IN TABLE III), WHICH
INCLUDE INFORMATION AS TO THE OPERATING RESULTS OF THESE PRIOR PARTNERSHIPS, FOR
MORE DETAILED INFORMATION CONCERNING THE EXPERIENCE OF MESSRS. SENEFF AND
BOURNE.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
THE COMPANY'S PRIMARY INVESTMENT OBJECTIVES ARE TO PRESERVE, PROTECT, AND
ENHANCE THE COMPANY'S ASSETS WHILE (I) MAKING DISTRIBUTIONS COMMENCING IN THE
INITIAL YEAR OF COMPANY OPERATIONS; (II) OBTAINING FIXED INCOME THROUGH THE
RECEIPT OF BASE RENT, AND INCREASING THE COMPANY'S INCOME (AND DISTRIBUTIONS)
AND PROVIDING PROTECTION AGAINST INFLATION THROUGH AUTOMATIC INCREASES IN BASE
RENT AND RECEIPT OF PERCENTAGE RENT, AND OBTAINING FIXED INCOME THROUGH THE
RECEIPT OF PAYMENTS ON SECURED EQUIPMENT LEASES; (III) QUALIFYING AND REMAINING
QUALIFIED AS A REIT FOR FEDERAL INCOME TAX PURPOSES; AND (IV) PROVIDING
STOCKHOLDERS OF THE COMPANY WITH LIQUIDITY OF THEIR INVESTMENT, EITHER IN WHOLE
OR IN PART, WITHIN FIVE TO TEN YEARS AFTER COMMENCEMENT OF THE OFFERING, THROUGH
(A) THE LISTING OF THE SHARES OF THE COMPANY, OR, (B) IF LISTING DOES NOT OCCUR
WITHIN TEN YEARS AFTER COMMENCEMENT OF THE OFFERING, THE COMMENCEMENT OF ORDERLY
SALES OF THE COMPANY'S ASSETS, OUTSIDE THE ORDINARY COURSE OF BUSINESS AND
CONSISTENT WITH ITS OBJECTIVE OF QUALIFYING AS A REIT, AND DISTRIBUTION OF THE
PROCEEDS THEREOF. THE SHELTERING FROM TAX OF INCOME FROM OTHER SOURCES IS NOT
AN OBJECTIVE OF THE COMPANY. IF THE COMPANY IS SUCCESSFUL IN ACHIEVING ITS
INVESTMENT AND OPERATING OBJECTIVES, THE STOCKHOLDERS (OTHER THAN TAX-EXEMPT
ENTITIES) ARE LIKELY TO RECOGNIZE TAXABLE INCOME IN EACH YEAR. WHILE THERE IS
NO ORDER OF PRIORITY INTENDED IN THE LISTING OF THE COMPANY'S OBJECTIVES,
STOCKHOLDERS SHOULD REALIZE THAT THE ABILITY OF THE COMPANY TO MEET THESE
OBJECTIVES MAY BE SEVERELY HANDICAPPED BY ANY LACK OF DIVERSIFICATION OF THE
COMPANY'S INVESTMENTS AND THE TERMS OF THE LEASES.
THE COMPANY INTENDS TO MEET ITS OBJECTIVES THROUGH ITS INVESTMENT POLICIES
OF (I) PURCHASING CAREFULLY SELECTED, WELL-LOCATED PROPERTIES AND LEASING THEM
ON A TRIPLE-NET BASIS (WHICH MEANS THAT THE TENANT WILL BE RESPONSIBLE FOR
PAYING THE COST OF ALL REPAIRS, MAINTENANCE, PROPERTY TAXES, AND INSURANCE) TO
CREDITWORTHY OPERATORS OF RESTAURANT CHAINS UNDER LEASES REQUIRING THE TENANT TO
PAY BOTH BASE ANNUAL RENTAL (INCLUDING AUTOMATIC INCREASES IN BASE RENT) AND
PERCENTAGE RENT BASED ON GROSS RESTAURANT SALES, AND (II) OFFERING MORTGAGE
LOANS AND SECURED EQUIPMENT LEASES TO OPERATORS OF RESTAURANT CHAINS.
IN ACCORDANCE WITH ITS INVESTMENT POLICIES, THE COMPANY INTENDS TO INVEST
ITS ASSETS IN PROPERTIES WHOSE TENANTS ARE FRANCHISORS OR FRANCHISEES OF ONE OF
THE RESTAURANT CHAINS TO BE SELECTED BY THE COMPANY, BASED UPON RECOMMENDATIONS
BY THE ADVISOR. ALTHOUGH THERE IS NO LIMIT ON THE NUMBER OF RESTAURANTS OF A
PARTICULAR RESTAURANT CHAIN WHICH THE COMPANY MAY ACQUIRE, THE COMPANY CURRENTLY
DOES NOT EXPECT TO INVEST MORE THAN 25% OF THE GROSS PROCEEDS IN PROPERTIES OF
ANY ONE RESTAURANT CHAIN OR TO INVEST MORE THAN 30% OF THE GROSS PROCEEDS IN
PROPERTIES LOCATED IN ANY ONE STATE. POTENTIAL MORTGAGE LOAN BORROWERS AND
SECURED EQUIPMENT LEASE LESSEES WILL SIMILARLY BE OPERATORS OF RESTAURANT CHAINS
SELECTED BY THE COMPANY, FOLLOWING THE ADVISOR'S RECOMMENDATIONS. THE COMPANY
HAS UNDERTAKEN TO ENSURE THAT THE VALUE OF ALL SECURED EQUIPMENT LEASES, IN THE
AGGREGATE, WILL NOT EXCEED 25% OF THE COMPANY'S TOTAL ASSETS, WHILE SECURED
EQUIPMENT LEASES TO ANY SINGLE LESSEE, IN THE AGGREGATE, WILL NOT EXCEED 5% OF
THE COMPANY'S TOTAL ASSETS. IT IS INTENDED THAT INVESTMENTS WILL BE MADE IN
PROPERTIES, MORTGAGE LOANS, AND SECURED EQUIPMENT LEASES IN VARIOUS LOCATIONS IN
AN ATTEMPT TO ACHIEVE DIVERSIFICATION AND THEREBY MINIMIZE THE EFFECT OF CHANGES
IN LOCAL ECONOMIC CONDITIONS AND CERTAIN OTHER RISKS. THE EXTENT OF SUCH
DIVERSIFICATION, HOWEVER, DEPENDS IN PART UPON THE AMOUNT RAISED IN THE
OFFERING. SEE ESTIMATED USE OF PROCEEDS AND RISK FACTORS INVESTMENT RISKS
POSSIBLE LACK OF DIVERSIFICATION. FOR A MORE COMPLETE DESCRIPTION OF THE
MANNER IN WHICH THE STRUCTURE OF THE COMPANY'S BUSINESS, INCLUDING ITS
INVESTMENT POLICIES, WILL FACILITATE THE COMPANY'S ABILITY TO MEET ITS
INVESTMENT OBJECTIVES, SEE BUSINESS.
THE INVESTMENT OBJECTIVES OF THE COMPANY MAY NOT BE CHANGED WITHOUT THE
APPROVAL OF STOCKHOLDERS OWNING A MAJORITY OF THE SHARES OF OUTSTANDING COMMON
STOCK. THE BYLAWS OF THE COMPANY REQUIRE THE INDEPENDENT DIRECTORS TO REVIEW
THE COMPANY'S INVESTMENT POLICIES AT LEAST ANNUALLY TO DETERMINE THAT THE
POLICIES ARE IN THE BEST INTERESTS OF THE STOCKHOLDERS. THE DETERMINATION SHALL
BE SET FORTH IN THE MINUTES OF THE BOARD OF DIRECTORS ALONG WITH THE BASIS FOR
SUCH DETERMINATION. THE DIRECTORS (INCLUDING A MAJORITY OF THE INDEPENDENT
DIRECTORS) HAVE THE RIGHT, WITHOUT A STOCKHOLDER VOTE, TO ALTER THE COMPANY'S
INVESTMENT POLICIES BUT ONLY TO THE EXTENT CONSISTENT WITH THE COMPANY'S
INVESTMENT OBJECTIVES AND INVESTMENT LIMITATIONS. SEE CERTAIN INVESTMENT
LIMITATIONS, BELOW.
CERTAIN INVESTMENT LIMITATIONS
IN ADDITION TO OTHER INVESTMENT RESTRICTIONS IMPOSED BY THE DIRECTORS FROM
TIME TO TIME, CONSISTENT WITH THE COMPANY'S OBJECTIVE OF QUALIFYING AS A REIT,
THE ARTICLES OF INCORPORATION OR THE BYLAWS PROVIDE FOR THE FOLLOWING
LIMITATIONS ON THE COMPANY'S INVESTMENTS.
1. NOT MORE THAN 10% OF THE COMPANY'S TOTAL ASSETS SHALL BE INVESTED IN
UNIMPROVED REAL PROPERTY OR MORTGAGE LOANS ON UNIMPROVED REAL PROPERTY. FOR
PURPOSES OF THIS PARAGRAPH, UNIMPROVED REAL PROPERTY DOES NOT INCLUDE ANY
PROPERTY UNDER CONSTRUCTION, UNDER CONTRACT FOR DEVELOPMENT OR PLANNED FOR
DEVELOPMENT WITHIN ONE YEAR.
2. THE COMPANY SHALL NOT INVEST IN COMMODITIES OR COMMODITY FUTURE
CONTRACTS. THIS LIMITATION IS NOT INTENDED TO APPLY TO INTEREST RATE FUTURES,
WHEN USED SOLELY FOR HEDGING PURPOSES.
3. THE COMPANY SHALL NOT INVEST IN OR MAKE MORTGAGE LOANS UNLESS AN
APPRAISAL IS OBTAINED CONCERNING THE UNDERLYING PROPERTY. MORTGAGE INDEBTEDNESS
ON ANY PROPERTY SHALL NOT EXCEED SUCH PROPERTY'S APPRAISED VALUE. IN CASES IN
WHICH THE MAJORITY OF INDEPENDENT DIRECTORS SO DETERMINE, AND IN ALL CASES IN
WHICH THE MORTGAGE LOAN INVOLVES THE ADVISOR, DIRECTORS, OR AFFILIATES, SUCH
APPRAISAL MUST BE OBTAINED FROM AN INDEPENDENT EXPERT CONCERNING THE UNDERLYING
PROPERTY. SUCH APPRAISAL SHALL BE MAINTAINED IN THE COMPANY'S RECORDS FOR AT
LEAST FIVE YEARS, AND SHALL BE AVAILABLE FOR INSPECTION AND DUPLICATION BY ANY
STOCKHOLDER. IN ADDITION TO THE APPRAISAL, A MORTGAGEE'S OR OWNER'S TITLE
INSURANCE POLICY OR COMMITMENT AS TO THE PRIORITY OF THE MORTGAGE OR CONDITION
OF THE TITLE MUST BE OBTAINED. THE COMPANY MAY NOT INVEST IN REAL ESTATE
CONTRACTS OF SALE OTHERWISE KNOWN AS LAND SALE CONTRACTS.
4. THE COMPANY MAY NOT MAKE OR INVEST IN MORTGAGE LOANS, INCLUDING
CONSTRUCTION LOANS, ON ANY ONE PROPERTY IF THE AGGREGATE AMOUNT OF ALL MORTGAGE
LOANS OUTSTANDING ON THE PROPERTY, INCLUDING THE LOANS OF THE COMPANY, WOULD
EXCEED AN AMOUNT EQUAL TO 85% OF THE APPRAISED VALUE OF THE PROPERTY AS
DETERMINED BY APPRAISAL UNLESS SUBSTANTIAL JUSTIFICATION EXISTS BECAUSE OF THE
PRESENCE OF OTHER UNDERWRITING CRITERIA. FOR PURPOSES OF THIS SUBSECTION, THE
AGGREGATE AMOUNT OF ALL MORTGAGE LOANS OUTSTANDING ON THE PROPERTY, INCLUDING
THE LOANS OF THE COMPANY SHALL INCLUDE ALL INTEREST (EXCLUDING CONTINGENT
PARTICIPATION IN INCOME AND/OR APPRECIATION IN VALUE OF THE MORTGAGED PROPERTY),
THE CURRENT PAYMENT OF WHICH MAY BE DEFERRED PURSUANT TO THE TERMS OF SUCH
LOANS, TO THE EXTENT THAT DEFERRED INTEREST ON EACH LOAN EXCEEDS 5% PER ANNUM OF
THE PRINCIPAL BALANCE OF THE LOAN.
5. THE COMPANY MAY NOT MAKE OR INVEST IN ANY MORTGAGE LOANS THAT ARE
SUBORDINATE TO ANY MORTGAGE, OTHER INDEBTEDNESS OR EQUITY INTEREST OF THE
ADVISOR, THE DIRECTORS, OR THEIR AFFILIATES.
6. THE COMPANY WILL NOT INVEST IN EQUITY SECURITIES UNLESS A MAJORITY OF
THE DIRECTORS (INCLUDING A MAJORITY OF INDEPENDENT DIRECTORS) NOT OTHERWISE
I N TERESTED IN SUCH TRANSACTION APPROVE THE TRANSACTION AS BEING FAIR,
COMPETITIVE, AND COMMERCIALLY REASONABLE AND DETERMINE THAT THE TRANSACTION WILL
NOT JEOPARDIZE THE COMPANY'S ABILITY TO QUALIFY AND REMAIN QUALIFIED AS A REIT.
INVESTMENTS IN ENTITIES AFFILIATED WITH THE ADVISOR, A DIRECTOR, THE COMPANY, OR
AFFILIATES THEREOF ARE SUBJECT TO THE RESTRICTIONS ON JOINT VENTURE INVESTMENTS.
IN ADDITION, THE COMPANY SHALL NOT INVEST IN ANY SECURITY OF ANY ENTITY HOLDING
INVESTMENTS OR ENGAGE IN ACTIVITIES PROHIBITED BY THE COMPANY'S ARTICLES OF
INCORPORATION.
7. THE COMPANY WILL NOT ISSUE (I) EQUITY SECURITIES REDEEMABLE SOLELY AT
THE OPTION OF THE HOLDER (EXCEPT THAT STOCKHOLDERS MAY OFFER THEIR SHARES TO THE
COMPANY AS DESCRIBED UNDER REDEMPTION OF SHARES, ; (II) DEBT SECURITIES UNLESS
THE HISTORICAL DEBT SERVICE COVERAGE (IN THE MOST RECENTLY COMPLETED FISCAL
YEAR), AS ADJUSTED FOR KNOWN CHARGES, IS SUFFICIENT TO SERVICE THAT HIGHER LEVEL
OF DEBT PROPERLY; (III) SHARES ON A DEFERRED PAYMENT BASIS OR UNDER SIMILAR
ARRANGEMENTS; (IV) NON-VOTING OR ASSESSABLE SECURITIES; OR (V) OPTIONS,
WARRANTS, OR SIMILAR EVIDENCES OF A RIGHT TO BUY ITS SECURITIES (COLLECTIVELY,
OPTIONS ) UNLESS (1) ISSUED TO ALL OF ITS STOCKHOLDERS RATABLY, (2) AS PART OF
A FINANCING ARRANGEMENT, OR (3) AS PART OF A STOCK OPTION PLAN AVAILABLE TO
DIRECTORS, OFFICERS, OR EMPLOYEES OF THE COMPANY OR THE ADVISOR. OPTIONS MAY
NOT BE ISSUED TO THE ADVISOR, DIRECTORS OR ANY AFFILIATE THEREOF EXCEPT ON THE
SAME TERMS AS SUCH OPTIONS ARE SOLD TO THE GENERAL PUBLIC. OPTIONS MAY BE
ISSUED TO PERSONS OTHER THAN THE ADVISOR, DIRECTORS OR ANY AFFILIATE THEREOF BUT
NOT AT EXERCISE PRICES LESS THAN THE FAIR MARKET VALUE OF THE UNDERLYING
SECURITIES ON THE DATE OF GRANT AND NOT FOR CONSIDERATION THAT IN THE JUDGMENT
OF THE INDEPENDENT DIRECTORS HAS A MARKET VALUE LESS THAN THE VALUE OF SUCH
OPTION ON THE DATE OF GRANT. OPTIONS ISSUABLE TO THE ADVISOR, DIRECTORS OR ANY
AFFILIATE THEREOF SHALL NOT EXCEED 10% OF THE OUTSTANDING SHARES ON THE DATE OF
GRANT.
8. A MAJORITY OF THE DIRECTORS SHALL AUTHORIZE THE CONSIDERATION TO BE
PAID FOR EACH PROPERTY, BASED ON THE FAIR MARKET VALUE OF THE PROPERTY. IF A
MAJORITY OF THE INDEPENDENT DIRECTORS DETERMINE, OR IF THE PROPERTY IS ACQUIRED
FROM THE ADVISOR, A DIRECTOR, OR AFFILIATES THEREOF, SUCH FAIR MARKET VALUE
SHALL BE DETERMINED BY A QUALIFIED INDEPENDENT REAL ESTATE APPRAISER SELECTED BY
THE INDEPENDENT DIRECTORS.
9. THE COMPANY WILL NOT ENGAGE IN UNDERWRITING OR THE AGENCY DISTRIBUTION
OF SECURITIES ISSUED BY OTHERS OR IN TRADING, AS COMPARED TO INVESTMENT
ACTIVITIES.
10. THE COMPANY WILL NOT INVEST IN REAL ESTATE CONTRACTS OF SALE UNLESS
SUCH CONTRACTS OF SALE ARE IN RECORDABLE FORM AND APPROPRIATELY RECORDED IN THE
CHAIN OF TITLE.
11. THE COMPANY WILL NOT INVEST IN ANY FOREIGN CURRENCY OR BULLION OR
ENGAGE IN SHORT SALES.
12. THE COMPANY WILL NOT ISSUE SENIOR SECURITIES EXCEPT NOTES TO BANKS AND
OTHER LENDERS AND PREFERRED SHARES.
13. THE COMPANY WILL NOT MAKE LOANS TO THE ADVISOR OR ITS AFFILIATES.
14. THE COMPANY WILL NOT OPERATE SO AS TO BE CLASSIFIED AS AN INVESTMENT
COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED.
15. THE COMPANY WILL NOT MAKE ANY INVESTMENT THAT THE COMPANY BELIEVES
WILL BE INCONSISTENT WITH ITS OBJECTIVE OF QUALIFYING AS A REIT.
THE FOREGOING LIMITATIONS MAY NOT BE MODIFIED OR ELIMINATED WITHOUT THE
APPROVAL OF A MAJORITY OF THE SHARES OF OUTSTANDING COMMON STOCK.
DISTRIBUTION POLICY
GENERAL
IN ORDER TO QUALIFY AS A REIT FOR FEDERAL INCOME TAX PURPOSES, AMONG OTHER
THINGS, THE COMPANY MUST MAKE DISTRIBUTIONS EACH TAXABLE YEAR (NOT INCLUDING ANY
RETURN OF CAPITAL FOR FEDERAL INCOME TAX PURPOSES) EQUAL TO AT LEAST 95% OF ITS
REAL ESTATE INVESTMENT TRUST TAXABLE INCOME, ALTHOUGH THE BOARD OF DIRECTORS, IN
ITS DISCRETION, MAY INCREASE THAT PERCENTAGE AS IT DEEMS APPROPRIATE. SEE
FEDERAL INCOME TAX CONSIDERATIONS TAXATION OF THE COMPANY DISTRIBUTION
REQUIREMENTS. THE DECLARATION OF DISTRIBUTIONS IS WITHIN THE DISCRETION OF THE
BOARD OF DIRECTORS AND DEPENDS UPON THE COMPANY'S DISTRIBUTABLE FUNDS, CURRENT
AND PROJECTED CASH REQUIREMENTS, TAX CONSIDERATIONS AND OTHER FACTORS.
DISTRIBUTIONS
THE COMPANY INTENDS TO MAKE REGULAR DISTRIBUTIONS TO STOCKHOLDERS. THE
PAYMENT OF DISTRIBUTIONS COMMENCED IN JULY 1995. DISTRIBUTIONS WILL BE MADE TO
THOSE STOCKHOLDERS WHO ARE STOCKHOLDERS AS OF THE RECORD DATE SELECTED BY THE
DIRECTORS. DISTRIBUTIONS WILL BE DECLARED MONTHLY AND PAID ON A QUARTERLY BASIS
DURING THE OFFERING PERIOD AND DECLARED AND PAID QUARTERLY THEREAFTER. THE
COMPANY IS REQUIRED TO DISTRIBUTE ANNUALLY AT LEAST 95% OF ITS REAL ESTATE
INVESTMENT TRUST TAXABLE INCOME TO MAINTAIN ITS OBJECTIVE OF QUALIFYING AS A
REIT. GENERALLY, INCOME DISTRIBUTED WILL NOT BE TAXABLE TO THE COMPANY UNDER
FEDERAL INCOME TAX LAWS IF THE COMPANY COMPLIES WITH THE PROVISIONS RELATING TO
QUALIFICATION AS A REIT. IF THE CASH AVAILABLE TO THE COMPANY IS INSUFFICIENT
TO PAY SUCH DISTRIBUTIONS, THE COMPANY MAY OBTAIN THE NECESSARY FUNDS BY
BORROWING, ISSUING NEW SECURITIES, OR SELLING ASSETS. THESE METHODS OF
OBTAINING FUNDS COULD AFFECT FUTURE DISTRIBUTIONS BY INCREASING OPERATING COSTS.
TO THE EXTENT THAT DISTRIBUTIONS TO STOCKHOLDERS EXCEED EARNINGS AND PROFITS,
SUCH AMOUNTS CONSTITUTE A RETURN CAPITAL FOR FEDERAL INCOME TAX PURPOSES,
ALTHOUGH SUCH DISTRIBUTIONS WILL NOT REDUCE STOCKHOLDERS' AGGREGATE INVESTED
CAPITAL. FOR THE YEAR ENDED DECEMBER 31, 1995, THE COMPANY DECLARED AND PAID
DISTRIBUTIONS TOTALLING $638,618. FOR THE YEAR ENDED DECEMBER 31, 1995, 59.82%
OF SUCH AMOUNTS WERE CHARACTERIZED AS ORDINARY INCOME AND 40.18% WERE
CHARACTERIZED AS RETURN OF CAPITAL FOR FEDERAL INCOME TAX PURPOSES. DUE TO THE
FACT THAT THE COMPANY HAD NOT ACQUIRED ALL OF ITS PROPERTIES AND WAS STILL IN
I T S OFFERING PERIOD AS OF DECEMBER 31, 1995, THE CHARACTERIZATION OF
DISTRIBUTIONS FOR FEDERAL INCOME TAX PURPOSES IS NOT NECESSARILY CONSIDERED BY
MANAGEMENT TO BE REPRESENTATIVE OF THE CHARACTERIZATION OF DISTRIBUTIONS IN
FUTURE YEARS.
DISTRIBUTIONS WILL BE MADE AT THE DISCRETION OF THE DIRECTORS, DEPENDING
PRIMARILY ON NET CASH FROM OPERATIONS (WHICH INCLUDES CASH RECEIVED FROM TENANTS
EXCEPT TO THE EXTENT THAT SUCH CASH REPRESENTS A RETURN OF PRINCIPAL IN REGARD
TO THE LEASE OF A PROPERTY CONSISTING OF BUILDING ONLY, DISTRIBUTIONS FROM JOINT
VENTURES, AND INTEREST INCOME FROM LESSEES OF EQUIPMENT AND BORROWERS UNDER
MORTGAGE LOANS, LESS EXPENSES PAID) AND THE GENERAL FINANCIAL CONDITION OF THE
COMPANY, SUBJECT TO THE OBLIGATION OF THE DIRECTORS TO CAUSE THE COMPANY TO
QUALIFY AND REMAIN QUALIFIED AS A REIT FOR FEDERAL INCOME TAX PURPOSES. THE
COMPANY INTENDS TO INCREASE DISTRIBUTIONS IN ACCORDANCE WITH INCREASES IN NET
CASH FROM OPERATIONS.
SUMMARY OF THE
ARTICLES OF INCORPORATION AND BYLAWS
GENERAL
THE COMPANY IS ORGANIZED AS A CORPORATION UNDER THE LAWS OF THE STATE OF
MARYLAND. AS A MARYLAND CORPORATION, THE COMPANY IS GOVERNED BY THE MARYLAND
GENERAL CORPORATION LAW. MARYLAND CORPORATE LAW DEALS WITH A VARIETY OF MATTERS
R E G ARDING MARYLAND CORPORATIONS, INCLUDING LIABILITIES OF THE COMPANY,
STOCKHOLDERS, DIRECTORS, AND OFFICERS, THE AMENDMENT OF THE ARTICLES OF
INCORPORATION, AND MERGERS OF A MARYLAND CORPORATION WITH OTHER ENTITIES. SINCE
MANY MATTERS ARE NOT ADDRESSED BY MARYLAND CORPORATE LAW, IT IS CUSTOMARY FOR A
MARYLAND CORPORATION TO ADDRESS THESE MATTERS THROUGH PROVISIONS IN ITS ARTICLES
OF INCORPORATION.
THE ARTICLES OF INCORPORATION AND THE BYLAWS OF THE COMPANY CONTAIN
CERTAIN PROVISIONS THAT COULD MAKE IT MORE DIFFICULT TO ACQUIRE CONTROL OF THE
COMPANY BY MEANS OF A TENDER OFFER, A PROXY CONTEST, OR OTHERWISE. THESE
PROVISIONS ARE EXPECTED TO DISCOURAGE CERTAIN TYPES OF COERCIVE TAKEOVER
PRACTICES AND INADEQUATE TAKEOVER BIDS AND TO ENCOURAGE PERSONS SEEKING TO
ACQUIRE CONTROL OF THE COMPANY TO NEGOTIATE FIRST WITH ITS BOARD OF DIRECTORS.
THE COMPANY BELIEVES THAT THESE PROVISIONS INCREASE THE LIKELIHOOD THAT
PROPOSALS INITIALLY WILL BE ON MORE ATTRACTIVE TERMS THAN WOULD BE THE CASE IN
THEIR ABSENCE AND FACILITATE NEGOTIATIONS WHICH MAY RESULT IN IMPROVEMENT OF THE
TERMS OF AN INITIAL OFFER.
THE ARTICLES OF INCORPORATION ALSO PERMIT LISTING BY THE BOARD OF
DIRECTORS AFTER COMPLETION OR TERMINATION OF THE OFFERING.
THE DISCUSSION SET FORTH BELOW DOES NOT PURPORT TO BE COMPLETE AND IS
SUBJECT TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MARYLAND GENERAL
CORPORATION LAW, THE GUIDELINES FOR REITS PUBLISHED BY THE NORTH AMERICAN
SECURITIES ADMINISTRATORS ASSOCIATION, THE COMPANY'S ARTICLES OF INCORPORATION,
AND ITS BYLAWS.
DESCRIPTION OF CAPITAL STOCK
THE COMPANY HAS AUTHORIZED A TOTAL OF 46,000,000 SHARES OF CAPITAL STOCK,
CONSISTING OF 20,000,000 SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE,
3,000,000 SHARES OF PREFERRED STOCK ( PREFERRED STOCK ), AND 23,000,000
ADDITIONAL SHARES OF EXCESS STOCK ( EXCESS SHARES ), $.01 PAR VALUE PER SHARE.
OF THE 23,000,000 EXCESS SHARES, 20,000,000 ARE ISSUABLE IN EXCHANGE FOR COMMON
STOCK AND 3,000,000 ARE ISSUABLE IN EXCHANGE FOR PREFERRED STOCK AS DESCRIBED
BELOW AT RESTRICTION OF OWNERSHIP. AS OF APRIL 9, 1996, THE COMPANY HAD
5,788,741 SHARES OF COMMON STOCK OUTSTANDING (INCLUDING 20,000 ISSUED TO THE
ADVISOR PRIOR TO THE COMMENCEMENT OF THIS OFFERING AND 12,815 SHARES ISSUED
PURSUANT TO THE REINVESTMENT PLAN) AND NO PREFERRED STOCK OR EXCESS SHARES
OUTSTANDING. THE COMPANY WILL NOT ISSUE SHARE CERTIFICATES. EACH STOCKHOLDER'S
INVESTMENT WILL BE RECORDED ON THE BOOKS OF THE COMPANY, AND INFORMATION
CONCERNING THE RESTRICTIONS AND RIGHTS ATTRIBUTABLE TO SHARES (WHETHER IN
CONNECTION WITH AN INITIAL ISSUANCE OR A TRANSFER) WILL BE SENT TO THE
STOCKHOLDER RECEIVING SHARES IN CONNECTION WITH AN ISSUANCE OR TRANSFER. A
STOCKHOLDER WISHING TO TRANSFER HIS OR HER SHARES WILL BE REQUIRED TO SEND ONLY
AN EXECUTED FORM TO THE COMPANY, AND THE COMPANY WILL PROVIDE THE REQUIRED FORM
UPON A STOCKHOLDER'S REQUEST. THE EXECUTED FORM AND ANY OTHER REQUIRED
DOCUMENTATION MUST BE RECEIVED BY THE COMPANY AT LEAST ONE CALENDAR MONTH PRIOR
TO THE LAST DATE OF THE CURRENT QUARTER. SUBJECT TO RESTRICTIONS IN THE
ARTICLES OF INCORPORATION, TRANSFERS OF SHARES SHALL BE EFFECTIVE, AND THE
TRANSFEREE OF THE SHARES WILL BE RECOGNIZED AS THE HOLDER OF SUCH SHARES AS OF
THE FIRST DAY OF THE FOLLOWING QUARTER ON WHICH THE COMPANY RECEIVES PROPERLY
EXECUTED DOCUMENTATION. STOCKHOLDERS WHO ARE RESIDENTS OF NEW YORK MAY NOT
TRANSFER FEWER THAN 250 SHARES AT ANY TIME.
STOCKHOLDERS HAVE NO PREEMPTIVE RIGHTS TO PURCHASE OR SUBSCRIBE FOR
SECURITIES THAT THE COMPANY MAY ISSUE SUBSEQUENTLY. EACH SHARE IS ENTITLED TO
ONE VOTE PER SHARE, AND SHARES DO NOT HAVE CUMULATIVE VOTING RIGHTS. THE
STOCKHOLDERS ARE ENTITLED TO DISTRIBUTIONS IN SUCH AMOUNTS AS MAY BE DECLARED BY
THE BOARD OF DIRECTORS FROM TIME TO TIME OUT OF FUNDS LEGALLY AVAILABLE FOR SUCH
PAYMENTS AND, IN THE EVENT OF LIQUIDATION, TO SHARE RATABLY IN ANY ASSETS OF THE
COMPANY REMAINING AFTER PAYMENT IN FULL OF ALL CREDITORS.
ALL OF THE SHARES OFFERED HEREBY WILL BE FULLY PAID AND NONASSESSABLE WHEN
ISSUED.
THE ARTICLES OF INCORPORATION AUTHORIZE THE BOARD OF DIRECTORS TO
DESIGNATE AND ISSUE FROM TIME TO TIME ONE OR MORE CLASSES OR SERIES OF PREFERRED
SHARES WITHOUT STOCKHOLDER APPROVAL. THE BOARD OF DIRECTORS MAY DETERMINE THE
RELATIVE RIGHTS, PREFERENCES, AND PRIVILEGES OF EACH CLASS OR SERIES OF
PREFERRED STOCK SO ISSUED. BECAUSE THE BOARD OF DIRECTORS HAS THE POWER TO
ESTABLISH THE PREFERENCES AND RIGHTS OF EACH CLASS OR SERIES OF PREFERRED STOCK,
IT MAY AFFORD THE HOLDERS OF ANY SERIES OR CLASS OF PREFERRED STOCK PREFERENCES,
POWERS, AND RIGHTS SENIOR TO THE RIGHTS OF HOLDERS OF COMMON STOCK; HOWEVER, THE
VOTING RIGHTS FOR EACH SHARE OF PREFERRED STOCK SHALL NOT EXCEED VOTING RIGHTS
WHICH BEAR THE SAME RELATIONSHIP TO THE VOTING RIGHTS OF THE SHARES AS THE
CONSIDERATION PAID TO THE COMPANY FOR EACH SHARE OF PREFERRED STOCK BEARS TO THE
BOOK VALUE OF THE SHARES ON THE DATE THAT SUCH PREFERRED STOCK IS ISSUED. THE
ISSUANCE OF PREFERRED STOCK COULD HAVE THE EFFECT OF DELAYING OR PREVENTING A
CHANGE IN CONTROL OF THE COMPANY. THE BOARD OF DIRECTORS HAS NO PRESENT PLANS
TO ISSUE ANY PREFERRED STOCK.
FOR A DESCRIPTION OF THE CHARACTERISTICS OF THE EXCESS SHARES, WHICH
DIFFER FROM COMMON STOCK AND PREFERRED STOCK IN A NUMBER OF RESPECTS, INCLUDING
VOTING AND ECONOMIC RIGHTS, SEE RESTRICTION OF OWNERSHIP, BELOW.
BOARD OF DIRECTORS
THE ARTICLES OF INCORPORATION PROVIDE THAT THE NUMBER OF DIRECTORS OF THE
COMPANY CANNOT BE LESS THAN THREE NOR MORE THAN 15. A MAJORITY OF THE BOARD OF
DIRECTORS WILL BE INDEPENDENT DIRECTORS. SEE MANAGEMENT INDEPENDENT
DIRECTORS. EACH DIRECTOR, OTHER THAN A DIRECTOR ELECTED TO FILL THE UNEXPIRED
TERM OF ANOTHER DIRECTOR, WILL BE ELECTED AT EACH ANNUAL MEETING OR AT ANY
SPECIAL MEETING OF THE STOCKHOLDERS CALLED FOR THAT PURPOSE, BY A MAJORITY OF
THE SHARES OF COMMON STOCK OUTSTANDING AND ENTITLED TO VOTE. INDEPENDENT
DIRECTORS WILL NOMINATE REPLACEMENTS FOR VACANCIES AMONG THE INDEPENDENT
DIRECTORS. UNDER THE ARTICLES OF INCORPORATION, THE TERM OF OFFICE FOR EACH
DIRECTOR WILL BE ONE YEAR, EXPIRING EACH ANNUAL MEETING OF STOCKHOLDERS;
HOWEVER, NOTHING IN THE ARTICLES OF INCORPORATION PROHIBITS A DIRECTOR FROM
BEING REELECTED BY THE STOCKHOLDERS. THE DIRECTORS MAY NOT (A) AMEND THE
ARTICLES OF INCORPORATION, EXCEPT FOR AMENDMENTS WHICH DO NOT ADVERSELY AFFECT
THE RIGHTS, PREFERENCES AND PRIVILEGES OF STOCKHOLDERS; (B) SELL ALL OR
SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS OTHER THAN IN THE ORDINARY COURSE OF
BUSINESS OR IN CONNECTION WITH LIQUIDATION AND DISSOLUTION; (C) CAUSE THE MERGER
OR OTHER REORGANIZATION OF THE COMPANY; OR (D) DISSOLVE OR LIQUIDATE THE
COMPANY, OTHER THAN BEFORE THE INITIAL INVESTMENT IN PROPERTY. THE DIRECTORS
MAY ESTABLISH SUCH COMMITTEES AS THEY DEEM APPROPRIATE (PROVIDED THAT THE
MAJORITY OF THE MEMBERS OF EACH COMMITTEE ARE INDEPENDENT DIRECTORS).
STOCKHOLDER MEETINGS
AN ANNUAL MEETING WILL BE HELD FOR THE PURPOSE OF ELECTING DIRECTORS AND
FOR THE TRANSACTION OF SUCH OTHER BUSINESS AS MAY COME BEFORE THE MEETING, AND
WILL BE HELD NOT LESS THAN 30 DAYS AFTER DELIVERY OF THE ANNUAL REPORT. UNDER
THE COMPANY'S BYLAWS, A SPECIAL MEETING OF STOCKHOLDERS MAY BE CALLED BY THE
CHIEF EXECUTIVE OFFICER, A MAJORITY OF THE DIRECTORS, OR A MAJORITY OF THE
INDEPENDENT DIRECTORS. SPECIAL MEETINGS OF THE STOCKHOLDERS ALSO SHALL BE
CALLED BY AN OFFICER OF THE COMPANY UPON THE WRITTEN REQUEST OF STOCKHOLDERS
HOLDING IN THE AGGREGATE NOT LESS THAN 10% OF THE OUTSTANDING COMMON STOCK
ENTITLED TO VOTE AT SUCH MEETING. UPON RECEIPT OF SUCH A WRITTEN REQUEST,
EITHER IN PERSON OR BY MAIL, STATING THE PURPOSE OR PURPOSES OF THE MEETING, THE
COMPANY SHALL PROVIDE ALL STOCKHOLDERS, WITHIN TEN DAYS OF RECEIPT OF THE WRIT-
TEN REQUEST, WRITTEN NOTICE, EITHER IN PERSON OR BY MAIL, OF A MEETING AND ITS
PURPOSE. SUCH MEETING WILL BE HELD NOT LESS THAN FIFTEEN NOR MORE THAN SIXTY
DAYS AFTER DISTRIBUTION OF THE NOTICE, AT A TIME AND PLACE SPECIFIED IN THE
REQUEST, OR IF NONE IS SPECIFIED, AT A TIME AND PLACE CONVENIENT TO
STOCKHOLDERS.
AT ANY MEETING OF STOCKHOLDERS, EACH STOCKHOLDER IS ENTITLED TO ONE VOTE
PER SHARE OF COMMON STOCK OWNED OF RECORD ON THE APPLICABLE RECORD DATE. IN
GENERAL, THE PRESENCE IN PERSON OR BY PROXY OF A MAJORITY OF THE SHARES OF
COMMON STOCK SHALL CONSTITUTE A QUORUM, AND THE MAJORITY VOTE OF THE
STOCKHOLDERS WILL BE BINDING ON ALL THE STOCKHOLDERS OF THE COMPANY.
ADVANCE NOTICE FOR STOCKHOLDER NOMINATIONS FOR
DIRECTORS AND PROPOSALS OF NEW BUSINESS
THE BYLAWS OF THE COMPANY REQUIRE NOTICE AT LEAST 60 DAYS AND NOT MORE
THAN 90 DAYS BEFORE THE ANNIVERSARY OF THE PRIOR ANNUAL MEETING OF STOCKHOLDERS
IN ORDER FOR A STOCKHOLDER TO (A) NOMINATE A DIRECTOR, OR (B) PROPOSE NEW
BUSINESS OTHER THAN PURSUANT TO THE NOTICE OF THE MEETING OR BY OR ON BEHALF OF
THE DIRECTORS. THE BYLAWS CONTAIN A SIMILAR NOTICE REQUIREMENT IN CONNECTION
WITH NOMINATIONS FOR DIRECTORS AT A SPECIAL MEETING OF STOCKHOLDERS CALLED FOR
THE PURPOSE OF ELECTING ONE OR MORE DIRECTORS. ACCORDINGLY, FAILURE TO COMPLY
WITH THE NOTICE PROVISIONS WILL MAKE STOCKHOLDERS UNABLE TO NOMINATE DIRECTORS
OR PROPOSE NEW BUSINESS.
AMENDMENTS TO THE ARTICLES OF INCORPORATION
PURSUANT TO THE COMPANY'S ARTICLES OF INCORPORATION, THE DIRECTORS CAN
AMEND THE ARTICLES OF INCORPORATION BY A TWO-THIRDS MAJORITY FROM TIME TO TIME
IF NECESSARY IN ORDER TO QUALIFY INITIALLY OR IN ORDER TO CONTINUE TO QUALIFY AS
A REIT. EXCEPT AS SET FORTH ABOVE, THE ARTICLES OF INCORPORATION MAY BE AMENDED
ONLY BY THE AFFIRMATIVE VOTE OF A MAJORITY, AND, IN SOME CASES A TWO-THIRDS
MAJORITY, OF THE SHARES OF COMMON STOCK OUTSTANDING AND ENTITLED TO VOTE. THE
STOCKHOLDERS MAY VOTE TO AMEND THE ARTICLES OF INCORPORATION, TERMINATE OR
DISSOLVE THE COMPANY OR REMOVE ONE OR MORE DIRECTORS WITHOUT NECESSITY FOR
CONCURRENCE BY THE BOARD OF DIRECTORS.
MERGERS, COMBINATIONS, AND SALE OF ASSETS
A MERGER, COMBINATION, SALE, OR OTHER DISPOSITION OF ALL OR SUBSTANTIALLY
ALL OF THE COMPANY'S ASSETS OTHER THAN IN THE ORDINARY COURSE OF BUSINESS MUST
BE APPROVED BY THE DIRECTORS AND A MAJORITY OF THE SHARES OF COMMON STOCK
OUTSTANDING AND ENTITLED TO VOTE. IN ADDITION, ANY SUCH TRANSACTION INVOLVING
AN AFFILIATE OF THE COMPANY OR THE ADVISOR ALSO MUST BE APPROVED BY A MAJORITY
OF THE DIRECTORS (INCLUDING A MAJORITY OF THE INDEPENDENT DIRECTORS) NOT
OTHERWISE INTERESTED IN SUCH TRANSACTION AS FAIR AND REASONABLE TO THE COMPANY
AND ON TERMS AND CONDITIONS NOT LESS FAVORABLE TO THE COMPANY THAN THOSE
AVAILABLE FROM UNAFFILIATED THIRD PARTIES.
TERMINATION OF THE COMPANY AND REIT STATUS
THE ARTICLES OF INCORPORATION PROVIDE FOR THE VOLUNTARY TERMINATION AND
DISSOLUTION OF THE COMPANY BY THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES
OF COMMON STOCK OUTSTANDING AND ENTITLED TO VOTE AT A MEETING CALLED FOR THAT
PURPOSE. IN ADDITION, THE ARTICLES OF INCORPORATION PERMITS THE STOCKHOLDERS TO
TERMINATE THE STATUS OF THE COMPANY AS A REIT UNDER THE CODE ONLY BY A
SUPERMAJORITY VOTE OF TWO-THIRDS OF THE SHARES OF COMMON STOCK OUTSTANDING AND
ENTITLED TO VOTE.
UNDER THE ARTICLES OF INCORPORATION, THE COMPANY AUTOMATICALLY WILL
TERMINATE AND DISSOLVE ON DECEMBER 31, 2005, UNLESS LISTING OCCURS, IN WHICH
EVENT THE COMPANY AUTOMATICALLY WILL BECOME A PERPETUAL LIFE ENTITY.
RESTRICTION OF OWNERSHIP
TO QUALIFY AS A REIT UNDER THE CODE (I) NOT MORE THAN 50% OF THE VALUE OF
THE REIT'S OUTSTANDING STOCK MAY BE OWNED, DIRECTLY OR INDIRECTLY (APPLYING
CERTAIN ATTRIBUTION RULES), BY FIVE OR FEWER INDIVIDUALS (AS DEFINED IN THE CODE
TO INCLUDE CERTAIN ENTITIES) DURING THE LAST HALF OF A TAXABLE YEAR, (II) THE
REIT'S STOCK MUST BE BENEFICIALLY OWNED (WITHOUT REFERENCE TO ANY ATTRIBUTION
RULES) BY 100 OR MORE PERSONS DURING AT LEAST 335 DAYS OF A TAXABLE YEAR OF 12
MONTHS OR DURING A PROPORTIONATE PART OF A SHORTER TAXABLE YEAR; AND (III)
CERTAIN OTHER REQUIREMENTS MUST BE SATISFIED. SEE FEDERAL INCOME TAX
CONSIDERATIONS TAXATION OF THE COMPANY.
TO ENSURE THAT THE COMPANY SATISFIES THESE REQUIREMENTS, THE ARTICLES OF
INCORPORATION RESTRICT THE DIRECT OR INDIRECT OWNERSHIP (APPLYING CERTAIN
ATTRIBUTION RULES) OF SHARES OF COMMON STOCK AND PREFERRED STOCK BY ANY PERSON
(AS DEFINED IN THE ARTICLES OF INCORPORATION) TO NO MORE THAN 9.8% OF THE
OUTSTANDING SHARES OF SUCH COMMON STOCK OR 9.8% OF ANY SERIES OF PREFERRED
SHARES (THE OWNERSHIP LIMIT ). HOWEVER, THE ARTICLES OF INCORPORATION PROVIDE
THAT THIS OWNERSHIP LIMIT MAY BE MODIFIED, EITHER ENTIRELY OR WITH RESPECT TO
ONE OR MORE PERSONS, BY A VOTE OF A MAJORITY OF THE DIRECTORS, IF SUCH
MODIFICATION DOES NOT JEOPARDIZE THE COMPANY'S STATUS AS A REIT. AS A CONDITION
OF SUCH MODIFICATION, THE BOARD OF DIRECTORS MAY REQUIRE OPINIONS OF COUNSEL
SATISFACTORY TO IT AND/OR AN UNDERTAKING FROM THE APPLICANT WITH RESPECT TO
PRESERVING THE STATUS OF THE COMPANY AS A REIT.
IT IS THE RESPONSIBILITY OF EACH PERSON (AS DEFINED IN THE ARTICLES OF
INCORPORATION) OWNING (OR DEEMED TO OWN) MORE THAN 5% OF THE OUTSTANDING SHARES
OF COMMON STOCK OR ANY SERIES OF OUTSTANDING PREFERRED STOCK TO GIVE THE COMPANY
WRITTEN NOTICE OF SUCH OWNERSHIP. IN ADDITION, TO THE EXTENT DEEMED NECESSARY
BY THE DIRECTORS, THE COMPANY CAN DEMAND THAT EACH STOCKHOLDER DISCLOSE TO THE
COMPANY IN WRITING ALL INFORMATION REGARDING THE BENEFICIAL AND CONSTRUCTIVE
OWNERSHIP (AS SUCH TERMS ARE DEFINED IN THE ARTICLES OF INCORPORATION) OF THE
COMMON STOCK AND PREFERRED STOCK.
IF THE OWNERSHIP, TRANSFER OR ACQUISITION OF SHARES OF COMMON OR PREFERRED
STOCK, OR CHANGE IN CAPITAL STRUCTURE OF THE COMPANY OR OTHER EVENT OR
TRANSACTION WOULD RESULT IN (I) ANY PERSON OWNING (APPLYING CERTAIN ATTRIBUTION
RULES) COMMON STOCK OR PREFERRED STOCK IN EXCESS OF THE OWNERSHIP LIMIT, (II)
FEWER THAN 100 PERSONS OWNING THE COMMON STOCK AND PREFERRED STOCK, (III) THE
COMPANY BEING CLOSELY HELD WITHIN THE MEANING OF SECTION 856(H) OF THE CODE,
OR (IV) THE COMPANY FAILING ANY OF THE GROSS INCOME REQUIREMENTS OF SECTION
856(C) OF THE CODE OR OTHERWISE FAILING TO QUALIFY AS A REIT, THEN THE
OWNERSHIP, TRANSFER, OR ACQUISITION, OR CHANGE IN CAPITAL STRUCTURE OR OTHER
EVENT OR TRANSACTION THAT WOULD HAVE SUCH EFFECT WILL BE VOID AS TO THE
PURPORTED TRANSFEREE OR OWNER, AND THE PURPORTED TRANSFEREE OR OWNER WILL NOT
HAVE OR ACQUIRE ANY RIGHTS TO THE COMMON STOCK AND/OR PREFERRED STOCK, AS THE
CASE MAY BE, TO THE EXTENT REQUIRED TO AVOID SUCH A RESULT. COMMON STOCK OR
PREFERRED STOCK OWNED, TRANSFERRED OR PROPOSED TO BE TRANSFERRED IN EXCESS OF
THE OWNERSHIP LIMIT OR WHICH WOULD OTHERWISE JEOPARDIZE THE COMPANY'S STATUS AS
A REIT WILL AUTOMATICALLY BE CONVERTED TO EXCESS SHARES. A HOLDER OF EXCESS
SHARES IS NOT ENTITLED TO DISTRIBUTIONS, VOTING RIGHTS, AND OTHER BENEFITS WITH
RESPECT TO SUCH SHARES EXCEPT FOR THE RIGHT TO PAYMENT OF THE PURCHASE PRICE FOR
THE SHARES (OR, IN THE CASE OF A DEVISE OR GIFT OR SIMILAR EVENT WHICH RESULTS
IN THE ISSUANCE OF EXCESS SHARES, THE FAIR MARKET VALUE AT THE TIME OF SUCH
DEVISE OR GIFT OR EVENT) AND THE RIGHT TO CERTAIN DISTRIBUTIONS UPON
LIQUIDATION. ANY DISTRIBUTION PAID TO A PROPOSED TRANSFEREE OR HOLDER OF EXCESS
SHARES SHALL BE REPAID TO THE COMPANY UPON DEMAND. EXCESS SHARES SHALL BE
SUBJECT TO REPURCHASE BY THE COMPANY AT ITS ELECTION. THE PURCHASE PRICE OF ANY
EXCESS SHARES SHALL BE EQUAL TO THE LESSER OF (A) THE PRICE PAID IN SUCH
PURPORTED TRANSACTION (OR, IN THE CASE OF A DEVISE OR GIFT OR SIMILAR EVENT
RESULTING IN THE ISSUANCE OF EXCESS SHARES, THE FAIR MARKET VALUE AT THE TIME OF
SUCH DEVISE OR GIFT OR EVENT), OR (B) THE FAIR MARKET VALUE OF SUCH SHARES ON
THE DATE ON WHICH THE COMPANY OR ITS DESIGNEE DETERMINES TO EXERCISE ITS
REPURCHASE RIGHT. IF THE FOREGOING TRANSFER RESTRICTIONS ARE DETERMINED TO BE
VOID OR INVALID BY VIRTUE OF ANY LEGAL DECISION, STATUTE, RULE OR REGULATION,
THEN THE PURPORTED TRANSFEREE OF ANY EXCESS SHARES MAY BE DEEMED, AT THE OPTION
OF THE COMPANY, TO HAVE ACTED AS AN AGENT ON BEHALF OF THE COMPANY IN ACQUIRING
SUCH EXCESS SHARES AND TO HOLD SUCH EXCESS SHARES ON BEHALF OF THE COMPANY.
FOR PURPOSES OF THE ARTICLES OF INCORPORATION, THE TERM PERSON SHALL
MEAN AN INDIVIDUAL, CORPORATION, PARTNERSHIP, ESTATE, TRUST (INCLUDING A TRUST
QUALIFIED UNDER SECTION 401(A) OR 501(C)(17) OF THE CODE), A PORTION OF A TRUST
PERMANENTLY SET ASIDE TO BE USED EXCLUSIVELY FOR THE PURPOSES DESCRIBED IN
SECTION 642(C) OF THE CODE, ASSOCIATION, PRIVATE FOUNDATION WITHIN THE MEANING
OF SECTION 509(A) OF THE CODE, JOINT STOCK COMPANY OR OTHER ENTITY, OR A GROUP
AS THAT TERM IS USED FOR PURPOSES OF SECTION 13(D)(3) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED; BUT DOES NOT INCLUDE (I) CNL FUND ADVISORS, INC.,
DURING THE PERIOD ENDING ON DECEMBER 31, 1995, OR (II) AN UNDERWRITER WHICH
PARTICIPATED IN A PUBLIC OFFERING OF SHARES FOR A PERIOD OF SIXTY (60) DAYS
FOLLOWING THE PURCHASE BY SUCH UNDERWRITER OF SHARES THEREIN, PROVIDED THAT THE
FOREGOING EXCLUSIONS SHALL APPLY ONLY IF THE OWNERSHIP OF SUCH SHARES BY CNL
FUND ADVISORS, INC. OR AN UNDERWRITER WOULD NOT CAUSE THE COMPANY TO FAIL TO
QUALIFY AS A REIT BY REASON OF BEING CLOSELY HELD WITHIN THE MEANING OF
SECTION 856(A) OF THE CODE OR OTHERWISE CAUSE THE COMPANY TO FAIL TO QUALIFY AS
A REIT.
RESPONSIBILITY OF DIRECTORS
DIRECTORS SERVE IN A FIDUCIARY CAPACITY AND SHALL HAVE A FIDUCIARY DUTY TO
THE STOCKHOLDERS OF THE COMPANY, WHICH DUTY SHALL INCLUDE A DUTY TO SUPERVISE
THE RELATIONSHIP OF THE COMPANY WITH THE ADVISOR. SEE MANAGEMENT FIDUCIARY
RESPONSIBILITIES OF THE BOARD OF DIRECTORS.
LIMITATION OF LIABILITY AND INDEMNIFICATION
PURSUANT TO MARYLAND CORPORATE LAW AND THE COMPANY'S ARTICLES OF
INCORPORATION, THE COMPANY IS REQUIRED TO INDEMNIFY AND HOLD HARMLESS A PRESENT
OR FORMER DIRECTOR, OFFICER, ADVISOR, OR AFFILIATE AND MAY INDEMNIFY AND HOLD
HARMLESS A PRESENT OR FORMER EMPLOYEE OR AGENT OF THE COMPANY (THE INDEMNITEE )
AGAINST ANY OR ALL LOSSES OR LIABILITIES REASONABLY INCURRED BY THE INDEMNITEE
IN CONNECTION WITH OR BY REASON OF ANY ACT OR OMISSION PERFORMED OR OMITTED TO
BE PERFORMED ON BEHALF OF THE COMPANY WHILE A DIRECTOR, OFFICER, ADVISOR,
AFFILIATE, EMPLOYEE, OR AGENT AND IN SUCH CAPACITY, PROVIDED, THAT THE
INDEMNITEE HAS DETERMINED, IN GOOD FAITH, THAT THE ACT OR OMISSION WHICH CAUSED
THE LOSS OR LIABILITY WAS IN THE BEST INTERESTS OF THE COMPANY. THE COMPANY
WILL NOT INDEMNIFY OR HOLD HARMLESS THE INDEMNITEE IF: (I) THE LOSS OR
LIABILITY WAS THE RESULT OF NEGLIGENCE OR MISCONDUCT, OR IF THE INDEMNITEE IS AN
INDEPENDENT DIRECTOR, THE LOSS OR LIABILITY WAS THE RESULT OF GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT, (II) THE ACT OR OMISSION WAS MATERIAL TO THE LOSS OR
LIABILITY AND WAS COMMITTED IN BAD FAITH OR WAS THE RESULT OF ACTIVE OR
DELIBERATE DISHONESTY, (III) THE INDEMNITEE ACTUALLY RECEIVED AN IMPROPER
PERSONAL BENEFIT IN MONEY, PROPERTY, OR SERVICES, (IV) IN THE CASE OF ANY
CRIMINAL PROCEEDING, THE INDEMNITEE HAD REASONABLE CAUSE TO BELIEVE THAT THE ACT
OR OMISSION WAS UNLAWFUL, OR (V) IN A PROCEEDING BY OR IN THE RIGHT OF THE
COMPANY, THE INDEMNITEE SHALL HAVE BEEN ADJUDGED TO BE LIABLE TO THE COMPANY.
IN ADDITION, THE COMPANY WILL NOT PROVIDE INDEMNIFICATION FOR ANY LOSS OR
LIABILITY ARISING FROM AN ALLEGED VIOLATION OF FEDERAL OR STATE SECURITIES LAWS
UNLESS ONE OR MORE OF THE FOLLOWING CONDITIONS ARE MET: (I) THERE HAS BEEN A
SUCCESSFUL ADJUDICATION ON THE MERITS OF EACH COUNT INVOLVING ALLEGED SECURITIES
LAW VIOLATIONS AS TO THE PARTICULAR INDEMNITEE; (II) SUCH CLAIMS HAVE BEEN
DISMISSED WITH PREJUDICE ON THE MERITS BY A COURT OF COMPETENT JURISDICTION AS
TO THE PARTICULAR INDEMNITEE; OR (III) A COURT OF COMPETENT JURISDICTION
APPROVES A SETTLEMENT OF THE CLAIMS AGAINST A PARTICULAR INDEMNITEE AND FINDS
THAT INDEMNIFICATION OF THE SETTLEMENT AND THE RELATED COSTS SHOULD BE MADE, AND
THE COURT CONSIDERING THE REQUEST FOR INDEMNIFICATION HAS BEEN ADVISED OF THE
POSITION OF THE SECURITIES AND EXCHANGE COMMISSION AND OF THE PUBLISHED POSITION
OF ANY STATE SECURITIES REGULATORY AUTHORITY IN WHICH SECURITIES OF THE COMPANY
WERE OFFERED OR SOLD AS TO INDEMNIFICATION FOR VIOLATIONS OF SECURITIES LAWS.
PURSUANT TO ITS ARTICLES OF INCORPORATION, THE COMPANY IS REQUIRED TO PAY OR
REIMBURSE REASONABLE EXPENSES INCURRED BY A PRESENT OR FORMER DIRECTOR, OFFICER,
ADVISOR OR AFFILIATE AND MAY PAY OR REIMBURSE REASONABLE EXPENSES INCURRED BY
ANY OTHER INDEMNITEE IN ADVANCE OF FINAL DISPOSITION OF A PROCEEDING IF THE
FOLLOWING ARE SATISFIED: (I) THE INDEMNITEE WAS MADE A PARTY TO THE PROCEEDING
BY REASONS OF HIS OR HER SERVICE AS A DIRECTOR, OFFICER, ADVISOR, AFFILIATE,
EMPLOYEE OR AGENT OF THE COMPANY, (II) THE INDEMNITEE PROVIDES THE COMPANY WITH
WRITTEN AFFIRMATION OF HIS OR HER GOOD FAITH BELIEF THAT HE OR SHE HAS MET THE
STANDARD OF CONDUCT NECESSARY FOR INDEMNIFICATION BY THE COMPANY AS AUTHORIZED
BY THE ARTICLES OF INCORPORATION, (III) THE INDEMNITEE PROVIDES THE COMPANY WITH
A WRITTEN AGREEMENT TO REPAY THE AMOUNT PAID OR REIMBURSED BY THE COMPANY,
TOGETHER WITH THE APPLICABLE LEGAL RATE OF INTEREST THEREON, IF IT IS ULTIMATELY
DETERMINED THAT THE INDEMNITEE DID NOT COMPLY WITH THE REQUISITE STANDARD OF
CONDUCT, AND (IV) THE LEGAL PROCEEDING WAS INITIATED BY A THIRD PARTY WHO IS NOT
A STOCKHOLDER OR, IF BY A STOCKHOLDER OF THE COMPANY ACTING IN HIS OR HER
CAPACITY AS SUCH, A COURT OF COMPETENT JURISDICTION APPROVES SUCH ADVANCEMENT.
THE COMPANY'S ARTICLES OF INCORPORATION FURTHER PROVIDE THAT ANY
INDEMNIFICATION, PAYMENT, OR REIMBURSEMENT OF THE EXPENSES PERMITTED BY THE
ARTICLES OF INCORPORATION WILL BE FURNISHED IN ACCORDANCE WITH THE PROCEDURES IN
SECTION 2-418 OF THE MARYLAND GENERAL CORPORATION LAW.
ANY INDEMNIFICATION MAY BE PAID ONLY OUT OF NET ASSETS OF THE COMPANY, AND
NO PORTION MAY BE RECOVERABLE FROM THE STOCKHOLDERS.
THERE ARE CERTAIN DEFENSES UNDER MARYLAND LAW AVAILABLE TO THE DIRECTORS,
OFFICERS AND THE ADVISOR IN THE EVENT OF A STOCKHOLDER ACTION AGAINST THEM. ONE
SUCH DEFENSE IS THE BUSINESS JUDGMENT RULE. A DIRECTOR, OFFICER OR THE
ADVISOR CAN ARGUE THAT HE OR SHE PERFORMED THE ACTION GIVING RISE TO THE
STOCKHOLDER'S ACTION IN GOOD FAITH AND IN A MANNER HE OR SHE REASONABLY BELIEVED
TO BE IN THE BEST INTERESTS OF THE COMPANY, AND WITH SUCH CARE AS AN ORDINARILY
PRUDENT PERSON IN A LIKE POSITION WOULD HAVE USED UNDER SIMILAR CIRCUMSTANCES.
THE DIRECTORS, OFFICERS AND THE ADVISOR ARE ALSO ENTITLED TO RELY ON
INFORMATION, OPINIONS, REPORTS OR RECORDS PREPARED BY EXPERTS (INCLUDING
ACCOUNTANTS, CONSULTANTS, COUNSEL, ETC.) WHO WERE SELECTED WITH REASONABLE CARE.
HOWEVER, THE DIRECTORS, OFFICERS AND THE ADVISOR MAY NOT INVOKE THE BUSINESS
JUDGMENT RULE TO FURTHER LIMIT THE RIGHTS OF THE STOCKHOLDERS TO ACCESS RECORDS
AS PROVIDED IN THE ARTICLES OF INCORPORATION.
THE COMPANY HAS ENTERED INTO INDEMNIFICATION AGREEMENTS WITH EACH OF THE
COMPANY'S OFFICERS AND DIRECTORS. THE INDEMNIFICATION AGREEMENTS REQUIRE, AMONG
OTHER THINGS, THAT THE COMPANY INDEMNIFY ITS OFFICERS AND DIRECTORS TO THE
FULLEST EXTENT PERMITTED BY LAW, AND ADVANCE TO THE OFFICERS AND DIRECTORS ALL
RELATED EXPENSES, SUBJECT TO REIMBURSEMENT IF IT IS SUBSEQUENTLY DETERMINED THAT
INDEMNIFICATION IS NOT PERMITTED. IN ACCORDANCE WITH THIS AGREEMENT, THE
COMPANY MUST INDEMNIFY AND ADVANCE ALL EXPENSES REASONABLY INCURRED BY OFFICERS
AND DIRECTORS SEEKING TO ENFORCE THEIR RIGHTS UNDER THE INDEMNIFICATION
AGREEMENTS. THE COMPANY ALSO MUST COVER OFFICERS AND DIRECTORS UNDER THE
COMPANY'S DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. ALTHOUGH THESE
INDEMNIFICATION AGREEMENTS OFFER SUBSTANTIALLY THE SAME SCOPE OF COVERAGE
AFFORDED BY THE INDEMNIFICATION PROVISIONS IN THE ARTICLES OF INCORPORATION AND
THE BYLAWS, IT PROVIDES GREATER ASSURANCE TO DIRECTORS AND OFFICERS THAT
INDEMNIFICATION WILL BE AVAILABLE BECAUSE THESE CONTRACTS CANNOT BE MODIFIED
UNILATERALLY BY THE BOARD OF DIRECTORS OR BY THE STOCKHOLDERS.
REMOVAL OF DIRECTORS
UNDER THE ARTICLES OF INCORPORATION, A DIRECTOR MAY RESIGN OR BE REMOVED
WITH OR WITHOUT CAUSE BY THE AFFIRMATIVE VOTE OF A MAJORITY OF THE CAPITAL STOCK
OF THE COMPANY OUTSTANDING AND ENTITLED TO VOTE.
INSPECTION OF BOOKS AND RECORDS
THE ADVISOR WILL KEEP, OR CAUSE TO BE KEPT, ON BEHALF OF THE COMPANY, FULL
AND TRUE BOOKS OF ACCOUNT ON AN ACCRUAL BASIS OF ACCOUNTING, IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. ALL OF SUCH BOOKS OF ACCOUNT,
TOGETHER WITH ALL OTHER RECORDS OF THE COMPANY, INCLUDING A COPY OF THE ARTICLES
OF INCORPORATION AND ANY AMENDMENTS THERETO, WILL AT ALL TIMES BE MAINTAINED AT
THE PRINCIPAL OFFICE OF THE COMPANY, AND WILL BE OPEN TO INSPECTION,
EXAMINATION, AND, FOR A REASONABLE CHARGE, DUPLICATION UPON REASONABLE NOTICE
AND DURING NORMAL BUSINESS HOURS BY A STOCKHOLDER OR HIS AGENT.
AS A PART OF ITS BOOKS AND RECORDS, THE COMPANY WILL MAINTAIN AT ITS
PRINCIPAL OFFICE AN ALPHABETICAL LIST OF NAMES OF STOCKHOLDERS, ALONG WITH THEIR
ADDRESSES AND TELEPHONE NUMBERS AND THE NUMBER OF SHARES HELD BY EACH
STOCKHOLDER. SUCH LIST SHALL BE UPDATED AT LEAST QUARTERLY AND SHALL BE
AVAILABLE FOR INSPECTION AT THE COMPANY'S HOME OFFICE BY A STOCKHOLDER OR HIS OR
HER DESIGNATED AGENT UPON SUCH STOCKHOLDER'S REQUEST. SUCH LIST ALSO SHALL BE
MAILED TO ANY STOCKHOLDER REQUESTING THE LIST WITHIN 10 DAYS OF A REQUEST. THE
COMPANY MAY REQUIRE THE STOCKHOLDER REQUESTING THE STOCKHOLDER LIST TO REPRESENT
THAT HE OR SHE WILL NOT MAKE ANY COMMERCIAL DISTRIBUTION OF SUCH LIST OR THE
INFORMATION DISCLOSED THROUGH SUCH INSPECTION. THE COMPANY MAY IMPOSE A
REASONABLE CHARGE FOR EXPENSES INCURRED IN REPRODUCING SUCH LIST. THE LIST MAY
NOT BE SOLD OR USED FOR COMMERCIAL PURPOSES.
RESTRICTIONS ON ROLL-UP TRANSACTIONS
IN CONNECTION WITH A PROPOSED ROLL-UP TRANSACTION, WHICH, IN GENERAL
TERMS, IS ANY TRANSACTION INVOLVING THE ACQUISITION, MERGER, CONVERSION, OR
CONSOLIDATION, DIRECTLY OR INDIRECTLY, OF THE COMPANY AND THE ISSUANCE OF
SECURITIES OF A ROLL-UP ENTITY THAT WOULD BE CREATED OR WOULD SURVIVE AFTER THE
SUCCESSFUL COMPLETION OF THE ROLL-UP TRANSACTION, AN APPRAISAL OF ALL PROPERTIES
SHALL BE OBTAINED FROM AN INDEPENDENT EXPERT. IN ORDER TO QUALIFY AS AN
INDEPENDENT EXPERT FOR THIS PURPOSE(S), THE PERSON OR ENTITY SHALL HAVE NO
MATERIAL CURRENT OR PRIOR BUSINESS OR PERSONAL RELATIONSHIP WITH THE ADVISOR OR
DIRECTORS AND SHALL BE ENGAGED TO A SUBSTANTIAL EXTENT IN THE BUSINESS OF
RENDERING OPINIONS REGARDING THE VALUE OF ASSETS OF THE TYPE HELD BY THE
COMPANY. THE PROPERTIES SHALL BE APPRAISED ON A CONSISTENT BASIS, AND THE
APPRAISAL SHALL BE BASED ON THE EVALUATION OF ALL RELEVANT INFORMATION AND
SHALL INDICATE THE VALUE OF THE PROPERTIES AS OF A DATE IMMEDIATELY PRIOR TO THE
ANNOUNCEMENT OF THE PROPOSED ROLL-UP TRANSACTION. THE APPRAISAL SHALL ASSUME AN
ORDERLY LIQUIDATION OF PROPERTIES OVER A 12-MONTH PERIOD. THE TERMS OF THE
ENGAGEMENT OF SUCH INDEPENDENT EXPERT SHALL CLEARLY STATE THAT THE ENGAGEMENT IS
FOR THE BENEFIT OF THE COMPANY AND THE STOCKHOLDERS. A SUMMARY OF THE
INDEPENDENT APPRAISAL, INDICATING ALL MATERIAL ASSUMPTIONS UNDERLYING THE
APPRAISAL, SHALL BE INCLUDED IN A REPORT TO STOCKHOLDERS IN CONNECTION WITH A
PROPOSED ROLL-UP TRANSACTION. IN CONNECTION WITH A PROPOSED ROLL-UP TRANSACTION
WHICH HAS NOT BEEN APPROVED BY AT LEAST TWO-THIRDS OF THE STOCKHOLDERS, THE
PERSON SPONSORING THE ROLL-UP TRANSACTION SHALL OFFER TO STOCKHOLDERS WHO VOTE
AGAINST THE PROPOSAL THE CHOICE OF:
(I) ACCEPTING THE SECURITIES OF THE ROLL-UP ENTITY OFFERED IN THE
PROPOSED ROLL-UP TRANSACTION; OR
(II) ONE OF THE FOLLOWING:
(A) REMAINING STOCKHOLDERS OF THE COMPANY AND PRESERVING THEIR
INTERESTS THEREIN ON THE SAME TERMS AND CONDITIONS AS EXISTED PREVIOUSLY;
OR
(B) RECEIVING CASH IN AN AMOUNT EQUAL TO THE STOCKHOLDER'S PRO
RATA SHARE OF THE APPRAISED VALUE OF THE NET ASSETS OF THE COMPANY.
THE COMPANY IS PROHIBITED FROM PARTICIPATING IN ANY PROPOSED ROLL-UP
TRANSACTION:
(I) WHICH WOULD RESULT IN THE STOCKHOLDERS HAVING DEMOCRACY RIGHTS IN
THE ROLL-UP ENTITY THAT ARE LESS THAN THOSE PROVIDED IN THE COMPANY'S ARTICLES
OF INCORPORATION, SECTIONS 8.1, 8.2, 8.4, 8.5, 8.6 AND 9.1 AND DESCRIBED
ELSEWHERE IN THIS PROSPECTUS, INCLUDING RIGHTS WITH RESPECT TO THE ELECTION AND
REMOVAL OF DIRECTORS, ANNUAL REPORTS, ANNUAL AND SPECIAL MEETINGS, AMENDMENT OF
T H E ARTICLES OF INCORPORATION, AND DISSOLUTION OF THE COMPANY. (SEE
DESCRIPTION OF CAPITAL STOCK AND STOCKHOLDER MEETINGS, ABOVE);
(II) WHICH INCLUDES PROVISIONS THAT WOULD OPERATE AS A MATERIAL
IMPEDIMENT TO, OR FRUSTRATION OF, THE ACCUMULATION OF SHARES BY ANY PURCHASER OF
THE SECURITIES OF THE ROLL-UP ENTITY (EXCEPT TO THE MINIMUM EXTENT NECESSARY TO
PRESERVE THE TAX STATUS OF THE ROLL-UP ENTITY), OR WHICH WOULD LIMIT THE ABILITY
OF AN INVESTOR TO EXERCISE THE VOTING RIGHTS OF ITS SECURITIES OF THE ROLL-UP
ENTITY ON THE BASIS OF THE NUMBER OF SHARES HELD BY THAT INVESTOR;
(III) IN WHICH INVESTOR'S RIGHTS TO ACCESS OF RECORDS OF THE ROLL-UP
ENTITY WILL BE LESS THAN THOSE PROVIDED IN SECTIONS 8.4 AND 8.5 OF THE COMPANY'S
ARTICLES OF INCORPORATION AND DESCRIBED IN INSPECTION OF BOOKS AND RECORDS,
ABOVE; OR
(IV) IN WHICH ANY OF THE COSTS OF THE ROLL-UP TRANSACTION WOULD BE BORNE
BY THE COMPANY IF THE ROLL-UP TRANSACTION IS NOT APPROVED BY THE STOCKHOLDERS.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
THE FOLLOWING IS A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE OWNERSHIP OF SHARES OF THE COMPANY, PREPARED BY SHAW, PITTMAN, POTTS &
TROWBRIDGE, AS COUNSEL. THIS DISCUSSION IS BASED UPON THE LAWS, REGULATIONS,
AND REPORTED JUDICIAL AND ADMINISTRATIVE RULINGS AND DECISIONS IN EFFECT AS OF
THE DATE OF THIS PROSPECTUS, ALL OF WHICH ARE SUBJECT TO CHANGE, RETROACTIVELY
OR PROSPECTIVELY, AND TO POSSIBLY DIFFERING INTERPRETATIONS. THIS DISCUSSION
DOES NOT PURPORT TO DEAL WITH THE FEDERAL INCOME OR OTHER TAX CONSEQUENCES
APPLICABLE TO ALL INVESTORS IN LIGHT OF THEIR PARTICULAR INVESTMENT OR OTHER
CIRCUMSTANCES, OR TO ALL CATEGORIES OF INVESTORS, SOME OF WHOM MAY BE SUBJECT TO
S P E CIAL RULES (INCLUDING, FOR EXAMPLE, INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS, FINANCIAL INSTITUTIONS, BROKER-DEALERS, FOREIGN CORPORATIONS AND
PERSONS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES). NO RULING ON
THE FEDERAL, STATE OR LOCAL TAX CONSIDERATIONS RELEVANT TO THE OPERATION OF THE
COMPANY, OR TO THE PURCHASE, OWNERSHIP OR DISPOSITION OF THE SHARES, HAS BEEN
REQUESTED FROM THE INTERNAL REVENUE SERVICE (THE IRS OR THE SERVICE ) OR
OTHER TAX AUTHORITY. COUNSEL HAS RENDERED CERTAIN OPINIONS DISCUSSED HEREIN AND
BELIEVES THAT IF THE SERVICE WERE TO CHALLENGE THE CONCLUSIONS OF COUNSEL, SUCH
CONCLUSIONS SHOULD PREVAIL IN COURT. HOWEVER, OPINIONS OF COUNSEL ARE NOT
BINDING ON THE SERVICE OR ON THE COURTS, AND NO ASSURANCE CAN BE GIVEN THAT THE
CONCLUSIONS REACHED BY COUNSEL WOULD BE SUSTAINED IN COURT. PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE SHARES OF THE COMPANY, THE TAX TREATMENT OF A
REIT AND THE EFFECT OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. THE COMPANY HAS ELECTED TO BE TAXED AS A REIT FOR FEDERAL INCOME
TAX PURPOSES, AS DEFINED IN SECTIONS 856 THROUGH 860 OF THE CODE, COMMENCING
WITH ITS TAXABLE YEAR ENDING DECEMBER 31, 1995. THE COMPANY BELIEVES THAT IT IS
ORGANIZED AND WILL OPERATE IN SUCH A MANNER AS TO QUALIFY AS A REIT, AND THE
COMPANY INTENDS TO CONTINUE TO OPERATE IN SUCH A MANNER, BUT NO ASSURANCE CAN BE
GIVEN THAT IT WILL OPERATE IN A MANNER SO AS TO QUALIFY OR REMAIN QUALIFIED AS A
REIT. THE PROVISIONS OF THE CODE PERTAINING TO REITS ARE HIGHLY TECHNICAL AND
COMPLEX. ACCORDINGLY, THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE
A P PLICABLE CODE SECTIONS, RULES AND REGULATIONS ISSUED THEREUNDER, AND
ADMINISTRATIVE AND JUDICIAL INTERPRETATIONS THEREOF.
IF THE COMPANY QUALIFIES FOR TAXATION AS A REIT, IT GENERALLY WILL NOT BE
SUBJECT TO FEDERAL CORPORATE INCOME TAX ON ITS NET INCOME THAT IS CURRENTLY
DISTRIBUTED TO HOLDERS OF SHARES. THIS TREATMENT SUBSTANTIALLY ELIMINATES THE
DOUBLE TAXATION (AT THE CORPORATE AND STOCKHOLDER LEVELS) THAT GENERALLY
RESULTS FROM INVESTMENT IN A CORPORATION. HOWEVER, THE COMPANY WILL BE SUBJECT
TO FEDERAL INCOME TAX IN THE FOLLOWING CIRCUMSTANCES. FIRST, THE COMPANY WILL
BE TAXED AT REGULAR CORPORATE RATES ON ANY UNDISTRIBUTED REAL ESTATE INVESTMENT
TRUST TAXABLE INCOME, INCLUDING UNDISTRIBUTED NET CAPITAL GAINS. SECOND, UNDER
CERTAIN CIRCUMSTANCES, THE COMPANY MAY BE SUBJECT TO THE ALTERNATIVE MINIMUM TAX
ON ITS ITEMS OF TAX PREFERENCE. THIRD, IF THE COMPANY HAS NET INCOME FROM
FORECLOSURE PROPERTY, IT WILL BE SUBJECT TO TAX ON SUCH INCOME AT THE HIGHEST
CORPORATE RATE. FORECLOSURE PROPERTY GENERALLY MEANS REAL PROPERTY (AND ANY
PERSONAL PROPERTY INCIDENT TO SUCH REAL PROPERTY) WHICH IS ACQUIRED AS A RESULT
OF A DEFAULT EITHER ON A LEASE OF SUCH PROPERTY OR ON INDEBTEDNESS WHICH SUCH
PROPERTY SECURED AND WITH RESPECT TO WHICH AN APPROPRIATE ELECTION IS MADE.
FOURTH, IF THE COMPANY HAS NET INCOME DERIVED FROM PROHIBITED TRANSACTIONS, SUCH
INCOME WILL BE SUBJECT TO A 100% TAX. A PROHIBITED TRANSACTION GENERALLY
INCLUDES A SALE OR OTHER DISPOSITION OF PROPERTY (OTHER THAN FORECLOSURE
PROPERTY) THAT IS HELD PRIMARILY FOR SALE TO CUSTOMERS IN THE ORDINARY COURSE OF
BUSINESS. FIFTH, IF THE COMPANY SHOULD FAIL TO SATISFY THE 75% GROSS INCOME
TEST OR THE 95% GROSS INCOME TEST (AS DISCUSSED BELOW), BUT HAS NONETHELESS
MAINTAINED ITS QUALIFICATION AS A REIT BECAUSE CERTAIN OTHER REQUIREMENTS HAVE
BEEN MET, IT WILL BE SUBJECT TO A 100% TAX ON THE NET INCOME ATTRIBUTABLE TO THE
GREATER OF THE AMOUNT BY WHICH THE COMPANY FAILS THE 75% OR 95% TEST. SIXTH,
IF, DURING EACH CALENDAR YEAR, THE COMPANY FAILS TO DISTRIBUTE AT LEAST THE SUM
OF (I) 85% OF ITS REAL ESTATE INVESTMENT TRUST ORDINARY INCOME FOR SUCH YEAR;
(II) 95% OF ITS REAL ESTATE INVESTMENT TRUST CAPITAL GAIN NET INCOME FOR SUCH
YEAR; AND (III) ANY UNDISTRIBUTED TAXABLE INCOME FROM PRIOR PERIODS, THE COMPANY
WILL BE SUBJECT TO A 4% EXCISE TAX ON THE EXCESS OF SUCH REQUIRED DISTRIBUTION
OVER THE AMOUNTS ACTUALLY DISTRIBUTED.
IF THE COMPANY FAILS TO QUALIFY AS A REIT FOR ANY TAXABLE YEAR AND CERTAIN
RELIEF PROVISIONS DO NOT APPLY, THE COMPANY WILL BE SUBJECT TO FEDERAL INCOME
TAX (INCLUDING ALTERNATIVE MINIMUM TAX) AS AN ORDINARY CORPORATION ON ITS
TAXABLE INCOME AT REGULAR CORPORATE RATES WITHOUT ANY DEDUCTION OR ADJUSTMENT
FOR DISTRIBUTIONS TO HOLDERS OF SHARES. TO THE EXTENT THAT THE COMPANY WOULD,
AS A CONSEQUENCE, BE SUBJECT TO TAX LIABILITY FOR ANY SUCH TAXABLE YEAR, THE
A M OUNT OF CASH AVAILABLE FOR SATISFACTION OF ITS LIABILITIES AND FOR
DISTRIBUTION TO HOLDERS OF SHARES WOULD BE REDUCED. DISTRIBUTIONS MADE TO
HOLDERS OF SHARES GENERALLY WOULD BE TAXABLE AS ORDINARY INCOME TO THE EXTENT OF
C U R RENT AND ACCUMULATED EARNINGS AND PROFITS AND, SUBJECT TO CERTAIN
LIMITATIONS, WOULD BE ELIGIBLE FOR THE CORPORATE DIVIDENDS RECEIVED DEDUCTION,
BUT THERE CAN BE NO ASSURANCE THAT ANY SUCH DISTRIBUTIONS WOULD BE MADE. THE
COMPANY WOULD NOT BE ELIGIBLE TO ELECT REIT STATUS FOR THE FOUR TAXABLE YEARS
AFTER THE TAXABLE YEAR IT FAILED TO QUALIFY AS A REIT, UNLESS ITS FAILURE TO
QUALIFY WAS DUE TO REASONABLE CAUSE AND NOT WILLFUL NEGLECT AND CERTAIN OTHER
REQUIREMENTS WERE SATISFIED.
OPINION OF COUNSEL. BASED UPON REPRESENTATIONS MADE BY OFFICERS OF THE
COMPANY WITH RESPECT TO RELEVANT FACTUAL MATTERS, UPON THE EXISTING CODE
P R O V ISIONS, RULES AND REGULATIONS PROMULGATED THEREUNDER AND REPORTED
ADMINISTRATIVE AND JUDICIAL INTERPRETATIONS THEREOF, UPON COUNSEL'S INDEPENDENT
REVIEW OF SUCH DOCUMENTS AS COUNSEL DEEMED RELEVANT IN THE CIRCUMSTANCES AND
UPON THE ASSUMPTION THAT THE COMPANY WILL OPERATE IN THE MANNER DESCRIBED IN
THIS PROSPECTUS, COUNSEL HAS ADVISED THE COMPANY THAT, IN ITS OPINION, THE
COMPANY QUALIFIED AS A REIT UNDER THE CODE FOR THE TAXABLE YEAR ENDED
DECEMBER 31, 1995, THE COMPANY IS ORGANIZED IN CONFORMITY WITH THE REQUIREMENTS
FOR QUALIFICATION AS A REIT, AND THE COMPANY'S PROPOSED METHOD OF OPERATION WILL
ENABLE IT TO MEET THE REQUIREMENTS FOR QUALIFICATION AS A REIT. IT MUST BE
EMPHASIZED, HOWEVER, THAT THE COMPANY'S ABILITY TO QUALIFY AND REMAIN QUALIFIED
AS A REIT IS DEPENDENT UPON ACTUAL OPERATING RESULTS AND FUTURE ACTIONS BY AND
EVENTS INVOLVING THE COMPANY AND OTHERS, AND NO ASSURANCE CAN BE GIVEN THAT THE
ACTUAL RESULTS OF THE COMPANY'S OPERATIONS AND FUTURE ACTIONS AND EVENTS WILL
ENABLE THE COMPANY TO SATISFY IN ANY GIVEN YEAR THE REQUIREMENTS FOR
QUALIFICATION AND TAXATION AS A REIT.
REQUIREMENTS FOR QUALIFICATION AS A REIT. AS DISCUSSED MORE FULLY BELOW,
THE CODE DEFINES A REIT AS A CORPORATION, TRUST OR ASSOCIATION (I) WHICH IS
MANAGED BY ONE OR MORE TRUSTEES OR DIRECTORS; (II) THE BENEFICIAL OWNERSHIP OF
WHICH IS EVIDENCED BY TRANSFERABLE SHARES, OR BY TRANSFERABLE CERTIFICATES OF
BENEFICIAL INTEREST; (III) WHICH WOULD BE TAXABLE, BUT FOR SECTIONS 856 THROUGH
860 OF THE CODE, AS A DOMESTIC CORPORATION; (IV) WHICH IS NEITHER A FINANCIAL
INSTITUTION NOR AN INSURANCE COMPANY; (V) THE BENEFICIAL OWNERSHIP OF WHICH IS
HELD (WITHOUT REFERENCE TO ANY RULES OF ATTRIBUTION) BY 100 OR MORE PERSONS;
(VI) WHICH IS NOT CLOSELY HELD AS DEFINED IN SECTION 856(H) OF THE CODE; AND
(VII) WHICH MEETS CERTAIN OTHER TESTS REGARDING THE NATURE OF ITS ASSETS AND
INCOME AND THE AMOUNT OF ITS DISTRIBUTIONS.
IN THE CASE OF A REIT WHICH IS A PARTNER IN A PARTNERSHIP, TREASURY
REGULATIONS PROVIDE THAT THE REIT WILL BE DEEMED TO OWN ITS PROPORTIONATE SHARE
OF THE ASSETS OF THE PARTNERSHIP AND WILL BE DEEMED TO BE ENTITLED TO THE INCOME
OF THE PARTNERSHIP ATTRIBUTABLE TO SUCH SHARE. IN ADDITION, THE ASSETS AND
GROSS INCOME (AS DEFINED IN THE CODE) OF THE PARTNERSHIP ATTRIBUTED TO THE REIT
SHALL RETAIN THE SAME CHARACTER AS IN THE HANDS OF THE PARTNERSHIP FOR PURPOSES
OF SECTION 856 OF THE CODE, INCLUDING SATISFYING THE GROSS INCOME TESTS AND THE
ASSET TESTS DESCRIBED BELOW. THUS, THE COMPANY'S PROPORTIONATE SHARE OF THE
ASSETS, LIABILITIES AND ITEMS OF INCOME OF ANY JOINT VENTURE, AS DESCRIBED IN
BUSINESS JOINT VENTURE ARRANGEMENTS, WILL BE TREATED AS ASSETS, LIABILITIES
AND ITEMS OF INCOME OF THE COMPANY FOR PURPOSES OF APPLYING THE ASSET AND GROSS
INCOME TESTS DESCRIBED HEREIN.
OWNERSHIP TESTS. THE OWNERSHIP REQUIREMENTS FOR QUALIFICATION AS A REIT
ARE THAT (I) DURING THE LAST HALF OF EACH TAXABLE YEAR NOT MORE THAN 50% IN
VALUE OF THE REIT'S OUTSTANDING SHARES MAY BE OWNED, DIRECTLY OR INDIRECTLY
(APPLYING CERTAIN ATTRIBUTION RULES), BY FIVE OR FEWER INDIVIDUALS (OR CERTAIN
ENTITIES AS DEFINED IN THE CODE) AND (II) THERE MUST BE AT LEAST 100
STOCKHOLDERS (WITHOUT REFERENCE TO ANY ATTRIBUTION RULES) ON AT LEAST 335 DAYS
OF SUCH 12-MONTH TAXABLE YEAR (OR A PROPORTIONATE NUMBER OF DAYS OF A SHORT
TAXABLE YEAR). THESE TWO REQUIREMENTS DO NOT APPLY TO THE FIRST TAXABLE YEAR
FOR WHICH AN ELECTION IS MADE TO BE TREATED AS A REIT. IN ORDER TO MEET THESE
REQUIREMENTS FOR SUBSEQUENT TAXABLE YEARS, OR TO OTHERWISE OBTAIN, MAINTAIN, OR
REESTABLISH REIT STATUS, THE ARTICLES OF INCORPORATION GENERALLY PROHIBIT ANY
PERSON OR ENTITY FROM ACTUALLY, CONSTRUCTIVELY OR BENEFICIALLY ACQUIRING OR
OWNING (APPLYING CERTAIN ATTRIBUTION RULES) MORE THAN 9.8% OF THE OUTSTANDING
COMMON STOCK OR 9.8% OF ANY SERIES OF OUTSTANDING PREFERRED STOCK. AMONG OTHER
PROVISIONS, THE ARTICLES OF INCORPORATION EMPOWER THE BOARD OF DIRECTORS TO
REDEEM, AT ITS OPTION, A SUFFICIENT NUMBER OF SHARES TO BRING THE OWNERSHIP OF
SHARES OF THE COMPANY IN CONFORMITY WITH THESE REQUIREMENTS OR TO ASSURE
CONTINUED CONFORMITY WITH SUCH REQUIREMENTS.
UNDER THE ARTICLES OF INCORPORATION, EACH HOLDER OF SHARES IS REQUIRED,
UPON DEMAND, TO DISCLOSE TO THE BOARD OF DIRECTORS IN WRITING SUCH INFORMATION
WITH RESPECT TO ACTUAL, CONSTRUCTIVE OR BENEFICIAL OWNERSHIP OF SHARES OF THE
COMPANY AS THE BOARD OF DIRECTORS DEEMS NECESSARY TO COMPLY WITH PROVISIONS OF
THE CODE APPLICABLE TO THE COMPANY OR THE PROVISIONS OF THE ARTICLES OF
INCORPORATION, OR THE REQUIREMENTS OF ANY OTHER APPROPRIATE TAXING AUTHORITY.
CERTAIN TREASURY REGULATIONS GOVERN THE METHOD BY WHICH THE COMPANY IS REQUIRED
TO DEMONSTRATE COMPLIANCE WITH THESE STOCK OWNERSHIP REQUIREMENTS AND THE
FAILURE TO SATISFY SUCH REGULATIONS COULD CAUSE THE COMPANY TO FAIL TO QUALIFY
AS A REIT. THE COMPANY HAS REPRESENTED THAT IT EXPECTS TO MEET THESE STOCK
OWNERSHIP REQUIREMENTS FOR EACH TAXABLE YEAR AND IT WILL BE ABLE TO DEMONSTRATE
ITS COMPLIANCE WITH THESE REQUIREMENTS.
ASSET TESTS. AT THE END OF EACH QUARTER OF A REIT'S TAXABLE YEAR, AT
LEAST 75% OF THE VALUE OF ITS TOTAL ASSETS MUST CONSIST OF REAL ESTATE ASSETS,
CASH AND CASH ITEMS (INCLUDING RECEIVABLES) AND CERTAIN GOVERNMENT SECURITIES.
THE BALANCE OF A REIT'S ASSETS GENERALLY MAY BE INVESTED WITHOUT RESTRICTION,
EXCEPT THAT HOLDINGS OF SECURITIES NOT WITHIN THE 75% CLASS OF ASSETS GENERALLY
MUST NOT, WITH RESPECT TO ANY ISSUER, EXCEED 5% OF THE VALUE OF THE REIT'S
ASSETS OR 10% OF THE ISSUER'S OUTSTANDING VOTING SECURITIES. THE TERM REAL
ESTATE ASSETS INCLUDES REAL PROPERTY, INTERESTS IN REAL PROPERTY, LEASEHOLDS OF
LAND OR IMPROVEMENTS THEREON, AND MORTGAGES ON THE FOREGOING AND ANY PROPERTY
ATTRIBUTABLE TO THE TEMPORARY INVESTMENT OF NEW CAPITAL (BUT ONLY IF SUCH
PROPERTY IS STOCK OR A DEBT INSTRUMENT AND ONLY FOR THE ONE-YEAR PERIOD
BEGINNING ON THE DATE THE REIT RECEIVES SUCH CAPITAL). WHEN A MORTGAGE IS
SECURED BY BOTH REAL PROPERTY AND OTHER PROPERTY, IT IS CONSIDERED TO CONSTITUTE
A MORTGAGE ON REAL PROPERTY TO THE EXTENT OF THE FAIR MARKET VALUE OF THE REAL
PROPERTY WHEN THE REIT IS COMMITTED TO MAKE THE LOAN (OR, IN THE CASE OF A
CONSTRUCTION LOAN, THE REASONABLY ESTIMATED COST OF CONSTRUCTION). INITIALLY,
THE BULK OF THE COMPANY'S ASSETS WILL BE REAL PROPERTY. HOWEVER, THE COMPANY
WILL ALSO HOLD THE SECURED EQUIPMENT LEASES. COUNSEL IS OF THE OPINION, BASED
ON CERTAIN ASSUMPTIONS, THAT THE SECURED EQUIPMENT LEASES WILL BE TREATED AS
LOANS SECURED BY PERSONAL PROPERTY FOR FEDERAL INCOME TAX PURPOSES. SEE
FEDERAL INCOME TAX CONSIDERATIONS CHARACTERIZATION OF THE SECURED EQUIPMENT
LEASES. THEREFORE, THE SECURED EQUIPMENT LEASES WILL NOT QUALIFY AS REAL
ESTATE ASSETS. HOWEVER, THE COMPANY HAS REPRESENTED THAT AT THE END OF EACH
QUARTER THE VALUE OF THE SECURED EQUIPMENT LEASES, TOGETHER WITH ANY PERSONAL
PROPERTY OWNED BY THE COMPANY, WILL IN THE AGGREGATE REPRESENT LESS THAN 25% OF
THE COMPANY'S TOTAL ASSETS AND THAT THE VALUE OF THE SECURED EQUIPMENT LEASES
ENTERED INTO WITH ANY PARTICULAR TENANT WILL REPRESENT LESS THAN 5% OF THE
COMPANY'S TOTAL ASSETS. NO INDEPENDENT APPRAISALS WILL BE ACQUIRED TO SUPPORT
T H IS REPRESENTATION, AND COUNSEL, IN RENDERING ITS OPINION AS TO THE
QUALIFICATION OF THE COMPANY AS A REIT, IS RELYING ON THE CONCLUSIONS OF THE
COMPANY AND ITS SENIOR MANAGEMENT AS TO THE RELATIVE VALUES OF ITS ASSETS.
THERE CAN BE NO ASSURANCE HOWEVER, THAT THE IRS MAY NOT CONTEND THAT EITHER
(I) THE VALUE OF THE SECURED EQUIPMENT LEASES ENTERED INTO WITH ANY PARTICULAR
TENANT REPRESENTS MORE THAN 5% OF THE COMPANY'S TOTAL ASSETS, OR (II) THE VALUE
OF THE SECURED EQUIPMENT LEASES, TOGETHER WITH ANY PERSONAL PROPERTY OWNED BY
THE COMPANY, EXCEEDS 25% OF THE COMPANY'S TOTAL ASSETS.
AS INDICATED IN BUSINESS JOINT VENTURE ARRANGEMENTS, THE COMPANY MAY
PARTICIPATE IN JOINT VENTURES. IF A JOINT VENTURE WERE CLASSIFIED, FOR FEDERAL
INCOME TAX PURPOSES, AS AN ASSOCIATION TAXABLE AS A CORPORATION RATHER THAN AS A
PARTNERSHIP, THE COMPANY'S OWNERSHIP OF A 10% OR GREATER INTEREST IN THE JOINT
VENTURE WOULD CAUSE THE COMPANY TO FAIL TO MEET THE REQUIREMENT THAT IT NOT OWN
10% OR MORE OF AN ISSUER'S VOTING SECURITIES. HOWEVER, COUNSEL IS OF THE
OPINION, BASED ON CERTAIN ASSUMPTIONS, THAT ANY JOINT VENTURES WILL CONSTITUTE
PARTNERSHIPS FOR FEDERAL INCOME TAX PURPOSES. SEE FEDERAL INCOME TAX
CONSIDERATIONS INVESTMENT IN JOINT VENTURES.
INCOME TESTS. A REIT ALSO MUST MEET THREE SEPARATE TESTS WITH RESPECT TO
ITS SOURCES OF GROSS INCOME FOR EACH TAXABLE YEAR.
(a) THE 75 PERCENT AND 95 PERCENT TESTS.
IN GENERAL, AT LEAST 75% OF A REIT'S GROSS
INCOME FOR EACH TAXABLE YEAR MUST BE FROM
RENTS FROM REAL PROPERTY, INTEREST ON
OBLIGATIONS SECURED BY MORTGAGES ON REAL
PROPERTY, GAINS FROM THE SALE OR OTHER
DISPOSITION OF REAL PROPERTY AND CERTAIN
OTHER SOURCES, INCLUDING QUALIFIED
TEMPORARY INVESTMENT INCOME. FOR THESE
PURPOSES, QUALIFIED TEMPORARY INVESTMENT
INCOME MEANS ANY INCOME (I) ATTRIBUTABLE TO
A STOCK OR DEBT INSTRUMENT PURCHASED WITH
T H E PROCEEDS RECEIVED BY THE REIT IN
EXCHANGE FOR STOCK (OR CERTIFICATES OF
BENEFICIAL INTEREST) IN SUCH REIT (OTHER
THAN AMOUNTS RECEIVED PURSUANT TO A DIVIDEND
REINVESTMENT PLAN) OR IN A PUBLIC OFFERING
OF DEBT OBLIGATIONS WITH A MATURITY OF AT
LEAST FIVE YEARS AND (II) RECEIVED OR
ACCRUED DURING THE ONE-YEAR PERIOD BEGINNING
ON THE DATE THE REIT RECEIVES SUCH CAPITAL.
IN ADDITION, A REIT MUST DERIVE AT LEAST 95%
OF ITS GROSS INCOME FOR EACH TAXABLE YEAR
FROM ANY COMBINATION OF THE ITEMS OF INCOME
WHICH QUALIFY UNDER THE 75% TEST, FROM
DIVIDENDS AND INTEREST, AND FROM GAINS FROM
THE SALE, EXCHANGE OR OTHER DISPOSITION OF
CERTAIN STOCK AND SECURITIES.
INITIALLY, THE BULK OF THE COMPANY'S INCOME WILL BE DERIVED FROM RENTS
WITH RESPECT TO THE PROPERTIES. RENTS FROM PROPERTIES RECEIVED BY THE COMPANY
QUALIFY AS RENTS FROM REAL PROPERTY IN SATISFYING THESE TWO TESTS ONLY IF
SEVERAL CONDITIONS ARE MET. FIRST, THE RENT MUST NOT BE BASED IN WHOLE OR IN
PART, DIRECTLY OR INDIRECTLY, ON THE INCOME OR PROFITS OF ANY PERSON. AN AMOUNT
RECEIVED OR ACCRUED GENERALLY WILL NOT BE EXCLUDED FROM THE TERM RENTS FROM
REAL PROPERTY SOLELY BY REASON OF BEING BASED ON A FIXED PERCENTAGE OR
PERCENTAGES OF RECEIPTS OR SALES. SECOND, THE CODE PROVIDES THAT RENTS RECEIVED
FROM A TENANT WILL NOT QUALIFY AS RENTS FROM REAL PROPERTY IF THE REIT, OR A
DIRECT OR INDIRECT OWNER OF 10% OR MORE OF THE REIT OWNS, DIRECTLY OR
CONSTRUCTIVELY, 10% OR MORE OF SUCH TENANT (A RELATED PARTY TENANT ). THIRD,
IF RENT ATTRIBUTABLE TO PERSONAL PROPERTY LEASED IN CONNECTION WITH A LEASE OF
REAL PROPERTY IS GREATER THAN 15% OF THE TOTAL RENT RECEIVED UNDER THE LEASE,
THEN THE PORTION OF RENT ATTRIBUTABLE TO SUCH PERSONAL PROPERTY WILL NOT QUALIFY
AS RENTS FROM REAL PROPERTY. FINALLY, FOR RENTS TO QUALIFY AS RENTS FROM
REAL PROPERTY, A REIT GENERALLY MUST NOT OPERATE OR MANAGE THE PROPERTY OR
FURNISH OR RENDER SERVICES TO THE TENANTS OF SUCH PROPERTY, OTHER THAN THROUGH
AN INDEPENDENT CONTRACTOR FROM WHOM THE REIT DERIVES NO REVENUE, EXCEPT THAT A
REIT MAY DIRECTLY PERFORM SERVICES WHICH ARE USUALLY OR CUSTOMARILY RENDERED
IN CONNECTION WITH THE RENTAL OF SPACE FOR OCCUPANCY, OTHER THAN SERVICES WHICH
ARE CONSIDERED TO BE RENDERED TO THE OCCUPANT OF THE PROPERTY.
THE COMPANY HAS REPRESENTED THAT IT WILL NOT (I) CHARGE RENT FOR ANY
PROPERTY THAT IS BASED IN WHOLE OR IN PART ON THE INCOME OR PROFITS OF ANY
PERSON (EXCEPT BY REASON OF BEING BASED ON A PERCENTAGE OR PERCENTAGES OF
RECEIPTS OR SALES, AS DESCRIBED ABOVE); (II) CHARGE RENT THAT WILL BE
ATTRIBUTABLE TO PERSONAL PROPERTY IN AN AMOUNT GREATER THAN 15% OF THE TOTAL
RENT RECEIVED UNDER THE APPLICABLE LEASE; (III) DIRECTLY PERFORM SERVICES
CONSIDERED TO BE RENDERED TO THE OCCUPANT OF A PROPERTY OR WHICH ARE NOT USUALLY
OR CUSTOMARILY FURNISHED OR RENDERED IN CONNECTION WITH THE RENTAL OF REAL
P R OPERTY; OR (IV) ENTER INTO ANY LEASE WITH A RELATED PARTY TENANT.
SPECIFICALLY, THE COMPANY EXPECTS THAT VIRTUALLY ALL OF ITS INCOME WILL BE
DERIVED FROM LEASES OF THE TYPE DESCRIBED IN BUSINESS DESCRIPTION OF LEASES,
AND IT DOES NOT EXPECT SUCH LEASES TO GENERATE INCOME THAT WOULD NOT QUALIFY AS
RENTS FROM REAL PROPERTY FOR PURPOSES OF THE 75% AND 95% INCOME TESTS.
IN ADDITION, THE COMPANY WILL BE PAID INTEREST ON THE MORTGAGE LOANS. IF
A MORTGAGE LOAN IS SECURED BY BOTH REAL PROPERTY AND OTHER PROPERTY, ALL THE
INTEREST ON IT WILL NEVERTHELESS QUALIFY UNDER THE 75% GROSS INCOME TEST IF THE
AMOUNT OF THE LOAN DID NOT EXCEED THE FAIR MARKET VALUE OF THE REAL PROPERTY AT
THE TIME OF THE LOAN COMMITMENT. THE COMPANY ANTICIPATES THIS WILL ALWAYS BE
THE CASE.
THE COMPANY WILL ALSO RECEIVE PAYMENTS UNDER THE TERMS OF THE SECURED
EQUIPMENT LEASES. ALTHOUGH THE SECURED EQUIPMENT LEASES WILL BE STRUCTURED AS
LEASES, COUNSEL IS OF THE OPINION THAT, SUBJECT TO CERTAIN ASSUMPTIONS, THEY
WILL BE TREATED AS LOANS SECURED BY PERSONAL PROPERTY FOR FEDERAL INCOME TAX
PURPOSES. SEE FEDERAL INCOME TAX CONSIDERATIONS CHARACTERIZATION OF THE
SECURED EQUIPMENT LEASES. IF THE SECURED EQUIPMENT LEASES ARE TREATED AS LOANS
SECURED BY PERSONAL PROPERTY FOR FEDERAL INCOME TAX PURPOSES THEN, THE PORTION
OF THE PAYMENTS UNDER THE TERMS OF THE SECURED EQUIPMENT LEASES THAT REPRESENT
INTEREST, RATHER THAN A RETURN OF CAPITAL FOR FEDERAL INCOME TAX PURPOSES, WILL
NOT SATISFY THE 75% GROSS INCOME TEST (ALTHOUGH IT WILL SATISFY THE 95% GROSS
INCOME TEST). THE COMPANY BELIEVES, HOWEVER, THAT THE AGGREGATE AMOUNT OF SUCH
NON-QUALIFYING INCOME WILL NOT CAUSE THE COMPANY TO EXCEED THE LIMITS ON NON-
QUALIFYING INCOME UNDER THE 75% GROSS INCOME TEST.
IF, CONTRARY TO THE OPINION OF COUNSEL, THE SECURED EQUIPMENT LEASES ARE
TREATED AS TRUE LEASES, RATHER THAN AS LOANS SECURED BY PERSONAL PROPERTY FOR
FEDERAL INCOME TAX PURPOSES, THE PAYMENTS UNDER THE TERMS OF THE SECURED
EQUIPMENT LEASES WOULD BE TREATED AS RENTS FROM PERSONAL PROPERTY. RENTS FROM
PERSONAL PROPERTY WILL SATISFY EITHER THE 75% OR 95% GROSS INCOME TESTS IF THEY
ARE RECEIVED IN CONNECTION WITH A LEASE OF REAL PROPERTY AND THE RENT
ATTRIBUTABLE TO THE PERSONAL PROPERTY DOES NOT EXCEED 15% OF THE TOTAL RENT
RECEIVED FROM THE TENANT IN CONNECTION WITH THE LEASE. HOWEVER, IF RENTS
ATTRIBUTABLE TO PERSONAL PROPERTY EXCEED 15% OF THE TOTAL RENT RECEIVED FROM A
PARTICULAR TENANT, THEN THE PORTION OF THE TOTAL RENT ATTRIBUTABLE TO PERSONAL
PROPERTY WILL NOT SATISFY EITHER THE 75% OR 95% GROSS INCOME TESTS.
IF, NOTWITHSTANDING THE ABOVE, THE COMPANY FAILS TO SATISFY ONE OR BOTH OF
THE 75% OR 95% TESTS FOR ANY TAXABLE YEAR, IT MAY STILL QUALIFY AS A REIT IF
(I) SUCH FAILURE IS DUE TO REASONABLE CAUSE AND NOT WILLFUL NEGLECT; (II) IT
REPORTS THE NATURE AND AMOUNT OF EACH ITEM OF ITS INCOME ON A SCHEDULE ATTACHED
TO ITS TAX RETURN FOR SUCH YEAR; AND (III) THE REPORTING OF ANY INCORRECT
INFORMATION IS NOT DUE TO FRAUD WITH INTENT TO EVADE TAX. HOWEVER, EVEN IF
THESE THREE REQUIREMENTS ARE MET AND THE COMPANY IS NOT DISQUALIFIED AS A REIT,
A PENALTY TAX WOULD BE IMPOSED BY REFERENCE TO THE AMOUNT BY WHICH THE COMPANY
FAILED THE 75% OR 95% TEST (WHICHEVER AMOUNT IS GREATER).
(b) THE 30 PERCENT TEST. IN ADDITION TO
THE 75% AND 95% TESTS FOR EACH TAXABLE YEAR,
A REIT MUST DERIVE LESS THAN 30% OF ITS
G R O SS INCOME FROM THE SALE OR OTHER
DISPOSITION OF (I) REAL PROPERTY HELD FOR
LESS THAN FOUR YEARS (OTHER THAN FORECLOSURE
P R O PERTY OR PROPERTY INVOLUNTARILY OR
COMPULSORILY CONVERTED THROUGH DESTRUCTION,
CONDEMNATION OR SIMILAR EVENTS); (II) STOCK
OR SECURITIES HELD FOR LESS THAN ONE YEAR;
A N D (III) PROPERTY SOLD OR OTHERWISE
DISPOSED OF IN A PROHIBITED TRANSACTION.
THE COMPANY HAS REPRESENTED THAT IT DOES NOT
EXPECT THAT IT WILL RECOGNIZE GROSS INCOME
OF A TYPE, IN AN AMOUNT OR AT A TIME WHICH
WOULD CAUSE IT TO FAIL THE 30% TEST. AS
NOTED ABOVE, THE COMPANY PLANS, IF LISTING
DOES NOT OCCUR WITHIN TEN YEARS AFTER THE
COMMENCEMENT OF THIS OFFERING, TO COMMENCE
WITH THE ORDERLY SALE OF ITS PROPERTIES AND
DISTRIBUTE THE PROCEEDS THEREOF. IN THE
EVENT OF SUCH A SALE OF PROPERTIES, IT IS
POSSIBLE THAT INCOME DERIVED FROM THE SALE
COULD BE TREATED AS INCOME FROM PROHIBITED
TRANSACTIONS AND TAKEN INTO ACCOUNT IN
APPLYING THE 30% GROSS INCOME TEST. THE
COMPANY BELIEVES THAT AT THE TIME ANY OF THE
PROPERTIES ARE SOLD NONE OF THE PROPERTIES
WILL BE PRIMARILY HELD FOR SALE TO CUSTOMERS
AND THAT ANY SALE OF THE PROPERTIES WILL NOT
BE IN THE ORDINARY COURSE OF BUSINESS.
HOWEVER, WHETHER PROPERTY IS HELD PRIMARILY
FOR SALE TO CUSTOMERS IN THE ORDINARY COURSE
O F BUSINESS DEPENDS ON THE FACTS AND
CIRCUMSTANCES IN EFFECT FROM TIME TO TIME,
INCLUDING THOSE RELATED TO A PARTICULAR
PROPERTY. IN ADDITION, NO ASSURANCE CAN BE
GIVEN THAT THE COMPANY CAN (A) COMPLY WITH
CERTAIN SAFE-HARBOR PROVISIONS OF THE CODE
WHICH PROVIDE THAT CERTAIN SALES DO NOT
CONSTITUTE PROHIBITED TRANSACTIONS OR
(B) AVOID OWNING PROPERTY THAT MAY BE
CHARACTERIZED AS PROPERTY HELD PRIMARILY FOR
SALE TO CUSTOMERS IN THE ORDINARY COURSE OF
BUSINESS.
(c) T H E IMPACT OF DEFAULT UNDER THE
SECURED EQUIPMENT LEASES. IN APPLYING THE
GROSS INCOME TESTS TO THE COMPANY, IT IS
NECESSARY TO CONSIDER THE IMPACT THAT A
DEFAULT UNDER ONE OR MORE OF THE SECURED
EQUIPMENT LEASES WOULD HAVE ON THE COMPANY'S
ABILITY TO SATISFY SUCH TESTS. A DEFAULT
UNDER ONE OR MORE OF THE SECURED EQUIPMENT
LEASES WOULD RESULT IN THE COMPANY DIRECTLY
HOLDING THE EQUIPMENT SECURING SUCH LEASES
FOR FEDERAL INCOME TAX PURPOSES. IN THE
EVENT OF A DEFAULT, THE COMPANY MAY CHOOSE
TO EITHER LEASE OR SELL SUCH EQUIPMENT.
HOWEVER, ANY INCOME RESULTING FROM A RENTAL OR SALE OF EQUIPMENT NOT
INCIDENTAL TO THE RENTAL OR SALE OF REAL PROPERTY WOULD NOT QUALIFY UNDER THE
75% AND 95% GROSS INCOME TESTS, AND ANY INCOME FROM A SALE OF SUCH ASSETS WOULD
COUNT AS GAIN FROM THE SALE OF ASSETS FOR PURPOSES OF THE 30% GROSS INCOME TEST.
IN ADDITION, IN CERTAIN CIRCUMSTANCES, INCOME DERIVED FROM A SALE OR OTHER
DISPOSITION OF EQUIPMENT COULD BE CONSIDERED NET INCOME FROM PROHIBITED
TRANSACTIONS, SUBJECT TO A 100% TAX. THE COMPANY DOES NOT, HOWEVER, ANTICIPATE
THAT ITS INCOME FROM THE RENTAL OR SALE OF EQUIPMENT WOULD BE MATERIAL IN ANY
TAXABLE YEAR.
DISTRIBUTION REQUIREMENTS. A REIT MUST DISTRIBUTE TO ITS STOCKHOLDERS FOR
EACH TAXABLE YEAR ORDINARY INCOME DIVIDENDS IN AN AMOUNT EQUAL TO AT LEAST (A)
95% OF THE SUM OF (I) ITS REAL ESTATE INVESTMENT TRUST TAXABLE INCOME (BEFORE
DEDUCTION OF DIVIDENDS PAID AND EXCLUDING ANY NET CAPITAL GAINS) AND (II) THE
EXCESS OF NET INCOME FROM FORECLOSURE PROPERTY OVER THE TAX ON SUCH INCOME,
MINUS (B) CERTAIN EXCESS NON-CASH INCOME. REAL ESTATE INVESTMENT TRUST TAXABLE
INCOME GENERALLY IS THE TAXABLE INCOME OF A REIT COMPUTED AS IF IT WERE AN
ORDINARY CORPORATION, WITH CERTAIN ADJUSTMENTS. DISTRIBUTIONS MUST BE MADE IN
THE TAXABLE YEAR TO WHICH THEY RELATE OR, IF DECLARED BEFORE THE TIMELY FILING
OF THE REIT'S TAX RETURN FOR SUCH YEAR AND PAID NOT LATER THAN THE FIRST REGULAR
DIVIDEND PAYMENT AFTER SUCH DECLARATION, IN THE FOLLOWING TAXABLE YEAR.
THE COMPANY HAS REPRESENTED THAT IT INTENDS TO MAKE DISTRIBUTIONS TO
STOCKHOLDERS THAT WILL BE SUFFICIENT TO MEET THE 95% DISTRIBUTION REQUIREMENT.
UNDER SOME CIRCUMSTANCES, HOWEVER, IT IS POSSIBLE THAT THE COMPANY MAY NOT HAVE
SUFFICIENT FUNDS FROM ITS OPERATIONS TO MAKE CASH DISTRIBUTIONS TO SATISFY THE
95% DISTRIBUTION REQUIREMENT. FOR EXAMPLE, IN THE EVENT OF THE DEFAULT OR
FINANCIAL FAILURE OF ONE OR MORE TENANTS OR LESSEES, THE COMPANY MIGHT BE
REQUIRED TO CONTINUE TO ACCRUE RENT FOR SOME PERIOD OF TIME UNDER FEDERAL INCOME
TAX PRINCIPLES EVEN THOUGH THE COMPANY WOULD NOT CURRENTLY BE RECEIVING THE
CORRESPONDING AMOUNTS OF CASH. SIMILARLY, UNDER FEDERAL INCOME TAX PRINCIPLES,
THE COMPANY MIGHT NOT BE ENTITLED TO DEDUCT CERTAIN EXPENSES AT THE TIME THOSE
EXPENSES ARE INCURRED. IN EITHER CASE, THE COMPANY'S CASH AVAILABLE FOR MAKING
D I STRIBUTIONS MIGHT NOT BE SUFFICIENT TO SATISFY THE 95% DISTRIBUTION
REQUIREMENT. IF THE CASH AVAILABLE TO THE COMPANY IS INSUFFICIENT, THE COMPANY
MIGHT RAISE CASH IN ORDER TO MAKE THE DISTRIBUTIONS BY BORROWING FUNDS, ISSUING
NEW SECURITIES OR SELLING ASSETS. IF THE COMPANY ULTIMATELY WERE UNABLE TO
SATISFY THE 95% DISTRIBUTION REQUIREMENT, IT WOULD FAIL TO QUALIFY AS A REIT
AND, AS A RESULT, WOULD BE SUBJECT TO FEDERAL INCOME TAX AS AN ORDINARY
CORPORATION WITHOUT ANY DEDUCTION OR ADJUSTMENT FOR DIVIDENDS PAID TO HOLDERS OF
THE SHARES. IF THE COMPANY FAILS TO SATISFY THE 95% DISTRIBUTION REQUIREMENT,
AS A RESULT OF AN ADJUSTMENT TO ITS TAX RETURNS BY THE SERVICE, UNDER CERTAIN
CIRCUMSTANCES, IT MAY BE ABLE TO RECTIFY ITS FAILURE BY PAYING A DEFICIENCY
DIVIDEND (PLUS A PENALTY AND INTEREST) WITHIN 90 DAYS AFTER SUCH ADJUSTMENT.
THIS DEFICIENCY DIVIDEND WILL BE INCLUDED IN THE COMPANY'S DEDUCTIONS FOR
DIVIDENDS PAID FOR THE TAXABLE YEAR AFFECTED BY SUCH ADJUSTMENT. HOWEVER, THE
DEDUCTION FOR A DEFICIENCY DIVIDEND WILL BE DENIED, IF ANY PART OF THE
ADJUSTMENT RESULTING IN THE DEFICIENCY IS ATTRIBUTABLE TO FRAUD WITH INTENT TO
EVADE TAX OR TO WILLFUL FAILURE TO TIMELY FILE AN INCOME TAX RETURN.
TAXATION OF STOCKHOLDERS
TAXABLE DOMESTIC STOCKHOLDERS. FOR ANY TAXABLE YEAR IN WHICH THE COMPANY
QUALIFIES AS A REIT FOR FEDERAL INCOME TAX PURPOSES, DISTRIBUTIONS MADE BY THE
COMPANY TO ITS STOCKHOLDERS THAT ARE UNITED STATES PERSONS (GENERALLY, ANY
PERSON OTHER THAN A NONRESIDENT ALIEN INDIVIDUAL, A FOREIGN TRUST OR ESTATE OR A
FOREIGN PARTNERSHIP OR CORPORATION) GENERALLY WILL BE TAXED AS ORDINARY INCOME.
AMOUNTS RECEIVED BY SUCH UNITED STATES PERSONS THAT ARE PROPERLY DESIGNATED AS
CAPITAL GAIN DIVIDENDS BY THE COMPANY GENERALLY WILL BE TAXED AS LONG-TERM
CAPITAL GAIN, WITHOUT REGARD TO THE PERIOD FOR WHICH SUCH PERSON HAS HELD ITS
SHARES, TO THE EXTENT THAT THEY DO NOT EXCEED THE COMPANY'S ACTUAL NET CAPITAL
GAIN FOR THE TAXABLE YEAR. CORPORATE STOCKHOLDERS MAY BE REQUIRED TO TREAT UP
TO 20% OF CERTAIN CAPITAL GAINS DIVIDENDS AS ORDINARY INCOME. SUCH ORDINARY
INCOME AND CAPITAL GAIN ARE NOT ELIGIBLE FOR THE DIVIDENDS RECEIVED DEDUCTION
ALLOWED TO CORPORATIONS. DISTRIBUTIONS TO SUCH UNITED STATES PERSONS IN EXCESS
OF THE COMPANY'S CURRENT OR ACCUMULATED EARNINGS AND PROFITS WILL BE CONSIDERED
FIRST A TAX-FREE RETURN OF CAPITAL FOR FEDERAL INCOME TAX PURPOSES, REDUCING THE
TAX BASIS OF EACH STOCKHOLDER'S SHARES, AND THEN, TO THE EXTENT THE DISTRIBUTION
EXCEEDS EACH STOCKHOLDER'S BASIS, A GAIN REALIZED FROM THE SALE OF SHARES. THE
COMPANY WILL NOTIFY EACH STOCKHOLDER AS TO THE PORTIONS OF EACH DISTRIBUTION
WHICH, IN ITS JUDGMENT, CONSTITUTE ORDINARY INCOME, CAPITAL GAIN OR RETURN OF
CAPITAL FOR FEDERAL INCOME TAX PURPOSES. ANY DISTRIBUTION THAT IS (I) DECLARED
BY THE COMPANY IN OCTOBER, NOVEMBER OR DECEMBER OF ANY CALENDAR YEAR AND PAYABLE
TO STOCKHOLDERS OF RECORD ON A SPECIFIED DATE IN SUCH MONTHS AND (II) ACTUALLY
PAID BY THE COMPANY IN JANUARY OF THE FOLLOWING YEAR, SHALL BE DEEMED TO HAVE
BEEN RECEIVED BY EACH STOCKHOLDER ON DECEMBER 31 OF SUCH CALENDAR YEAR AND, AS A
RESULT, WILL BE INCLUDABLE IN GROSS INCOME OF THE STOCKHOLDER FOR THE TAXABLE
YEAR WHICH INCLUDES SUCH DECEMBER 31. STOCKHOLDERS WHO ELECT TO PARTICIPATE IN
THE REINVESTMENT PLAN WILL BE TREATED AS IF THEY RECEIVED A CASH DISTRIBUTION
FROM THE COMPANY AND THEN APPLIED SUCH DISTRIBUTION TO PURCHASE SHARES IN THE
REINVESTMENT PLAN. STOCKHOLDERS MAY NOT DEDUCT ON THEIR INCOME TAX RETURNS ANY
NET OPERATING OR NET CAPITAL LOSSES OF THE COMPANY.
UPON THE SALE OR OTHER DISPOSITION OF THE COMPANY'S SHARES, A STOCKHOLDER
GENERALLY WILL RECOGNIZE CAPITAL GAIN OR LOSS EQUAL TO THE DIFFERENCE BETWEEN
THE AMOUNT REALIZED ON THE SALE OR OTHER DISPOSITION AND THE ADJUSTED BASIS OF
THE SHARES INVOLVED IN THE TRANSACTION. SUCH GAIN OR LOSS WILL BE LONG-TERM
CAPITAL GAIN OR LOSS IF, AT THE TIME OF SALE OR OTHER DISPOSITION, THE SHARES
INVOLVED HAVE BEEN HELD FOR MORE THAN ONE YEAR. IN ADDITION, IF A STOCKHOLDER
RECEIVES A CAPITAL GAIN DIVIDEND WITH RESPECT TO SHARES WHICH HE HAS HELD FOR
SIX MONTHS OR LESS AT THE TIME OF SALE OR OTHER DISPOSITION, ANY LOSS RECOGNIZED
BY THE STOCKHOLDER WILL BE TREATED AS LONG-TERM CAPITAL LOSS TO THE EXTENT OF
THE AMOUNT OF THE CAPITAL GAIN DIVIDEND THAT WAS TREATED AS LONG-TERM CAPITAL
GAIN.
GENERALLY, THE REDEMPTION OF SHARES BY THE COMPANY WILL RESULT IN
RECOGNITION OF ORDINARY INCOME BY THE STOCKHOLDER UNLESS THE STOCKHOLDER
COMPLETELY TERMINATES OR SUBSTANTIALLY REDUCES HIS OR HER INTEREST IN THE
COMPANY. A REDEMPTION OF SHARES FOR CASH WILL BE TREATED AS A DISTRIBUTION THAT
IS TAXABLE AS A DIVIDEND TO THE EXTENT OF THE COMPANY'S CURRENT OR ACCUMULATED
EARNINGS AND PROFITS AT THE TIME OF THE REDEMPTION UNDER SECTION 302 OF THE CODE
UNLESS THE REDEMPTION (A) RESULTS IN A COMPLETE TERMINATION OF THE
STOCKHOLDER'S INTEREST IN THE COMPANY UNDER SECTION 302(B)(3) OF THE CODE, (B)
IS SUBSTANTIALLY DISPROPORTIONATE WITH RESPECT TO THE STOCKHOLDER UNDER
SECTION 302(B)(2) OF THE CODE, OR (C) IS NOT ESSENTIALLY EQUIVALENT TO A
DIVIDEND WITH RESPECT TO THE STOCKHOLDER UNDER SECTION 302(B)(1) OF THE CODE.
UNDER CODE SECTION 302(B)(2) A REDEMPTION IS CONSIDERED SUBSTANTIALLY
DISPROPORTIONATE IF THE PERCENTAGE OF THE VOTING STOCK OF THE CORPORATION OWNED
BY A STOCKHOLDER IMMEDIATELY AFTER THE REDEMPTION IS LESS THAN EIGHTY PERCENT OF
THE PERCENTAGE OF THE VOTING STOCK OF THE CORPORATION OWNED BY SUCH STOCKHOLDER
IMMEDIATELY BEFORE THE REDEMPTION. IN DETERMINING WHETHER THE REDEMPTION IS NOT
TREATED AS A DIVIDEND, SHARES CONSIDERED TO BE OWNED BY A STOCKHOLDER BY REASON
OF CERTAIN CONSTRUCTIVE OWNERSHIP RULES SET FORTH IN SECTION 318 OF THE CODE, AS
WELL AS SHARES ACTUALLY OWNED, MUST GENERALLY BE TAKEN INTO ACCOUNT. A
DISTRIBUTION TO A STOCKHOLDER WILL BE NOT ESSENTIALLY EQUIVALENT TO A DIVIDEND
IF ITS RESULTS IN A MEANINGFUL REDUCTION IN THE STOCKHOLDER'S INTEREST IN THE
COMPANY. THE SERVICE HAS PUBLISHED A RULING INDICATING THAT A REDEMPTION WHICH
RESULTS IN A REDUCTION IN THE PROPORTIONATE INTEREST IN A CORPORATION (TAKING
INTO ACCOUNT THE SECTION 318 CONSTRUCTIVE OWNERSHIP RULES) OF A STOCKHOLDER
WHOSE RELATIVE STOCK INTEREST IS MINIMAL (AN INTEREST OF LESS THAN 1% SHOULD
SATISFY THIS REQUIREMENT) AND WHO EXERCISES NO CONTROL OVER THE CORPORATION'S
AFFAIRS SHOULD BE TREATED AS BEING NOT ESSENTIALLY EQUIVALENT TO A DIVIDEND.
IF THE REDEMPTION IS NOT TREATED AS A DIVIDEND, THE REDEMPTION OF THE
SHARES FOR CASH WILL RESULT IN TAXABLE GAIN OR LOSS EQUAL TO THE DIFFERENCE
BETWEEN THE AMOUNT OF CASH RECEIVED AND THE STOCKHOLDER'S TAX BASIS IN THE
SHARES REDEEMED. SUCH GAIN OR LOSS WOULD BE CAPITAL GAIN OR LOSS IF THE SHARES
WERE HELD AS A CAPITAL ASSET AND WOULD BE LONG-TERM CAPITAL GAIN OR LOSS IF THE
HOLDING PERIOD FOR THE SHARES EXCEEDS ONE YEAR.
THE COMPANY WILL REPORT TO ITS U.S. STOCKHOLDERS AND THE SERVICE THE
AMOUNT OF DIVIDENDS PAID OR TREATED AS PAID DURING EACH CALENDAR YEAR, AND THE
AMOUNT OF TAX WITHHELD, IF ANY. UNDER THE BACKUP WITHHOLDING RULES, A
STOCKHOLDER MAY BE SUBJECT TO BACKUP WITHHOLDING AT THE RATE OF 31% WITH RESPECT
TO DIVIDENDS PAID UNLESS SUCH HOLDER (A) IS A CORPORATION OR COMES WITHIN
CERTAIN OTHER EXEMPT CATEGORIES AND, WHEN REQUIRED, DEMONSTRATES THIS FACT OR
(B) PROVIDES A TAXPAYER IDENTIFICATION NUMBER, CERTIFIES AS TO NO LOSS OF
EXEMPTION FROM BACKUP WITHHOLDING, AND OTHERWISE COMPLIES WITH APPLICABLE
REQUIREMENTS OF THE BACKUP WITHHOLDING RULES. A STOCKHOLDER THAT DOES NOT
PROVIDE THE COMPANY WITH A CORRECT TAXPAYER IDENTIFICATION NUMBER MAY ALSO BE
SUBJECT TO PENALTIES IMPOSED BY THE SERVICE. ANY AMOUNT PAID TO THE SERVICE AS
BACKUP WITHHOLDING WILL BE CREDITABLE AGAINST THE STOCKHOLDER'S INCOME TAX
LIABILITY. IN ADDITION, THE COMPANY MAY BE REQUIRED TO WITHHOLD A PORTION OF
CAPITAL GAIN DIVIDENDS TO ANY STOCKHOLDERS WHO FAIL TO CERTIFY THEIR NON-FOREIGN
STATUS TO THE COMPANY. SEE FOREIGN STOCKHOLDERS BELOW.
THE STATE AND LOCAL INCOME TAX TREATMENT OF THE COMPANY AND ITS
STOCKHOLDERS MAY NOT CONFORM TO THE FEDERAL INCOME TAX TREATMENT DESCRIBED
ABOVE. AS A RESULT, STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS FOR AN
EXPLANATION OF HOW OTHER STATE AND LOCAL TAX LAWS WOULD AFFECT THEIR INVESTMENT
IN SHARES.
TAX-EXEMPT STOCKHOLDERS. DIVIDENDS PAID BY THE COMPANY TO A STOCKHOLDER
THAT IS A TAX-EXEMPT ENTITY GENERALLY WILL NOT CONSTITUTE UNRELATED BUSINESS
TAXABLE INCOME ( UBTI ) AS DEFINED IN SECTION 512(A) OF THE CODE, PROVIDED THAT
THE TAX-EXEMPT ENTITY HAS NOT FINANCED THE ACQUISITION OF ITS SHARES WITH
ACQUISITION INDEBTEDNESS WITHIN THE MEANING OF SECTION 524(C) OF THE CODE AND
THE SHARES ARE NOT OTHERWISE USED IN AN UNRELATED TRADE OR BUSINESS OF THE TAX-
EXEMPT ENTITY.
NOTWITHSTANDING THE FOREGOING, QUALIFIED TRUSTS THAT HOLD MORE THAN 10%
(BY VALUE) OF THE SHARES OF CERTAIN REITS MAY BE REQUIRED TO TREAT A CERTAIN
PERCENTAGE OF SUCH REIT'S DISTRIBUTIONS AS UBTI. THIS REQUIREMENT WILL APPLY
ONLY IF (I) TREATING QUALIFIED TRUSTS HOLDING REIT SHARES AS INDIVIDUALS WOULD
RESULT IN A DETERMINATION THAT THE REIT IS CLOSELY HELD WITHIN THE MEANING OF
SECTION 856(H)(1) OF THE CODE AND (II) THE REIT IS PREDOMINANTLY HELD BY
QUALIFIED TRUSTS. A REIT IS PREDOMINANTLY HELD IF EITHER (I) A SINGLE QUALIFIED
TRUST HOLDS MORE THAN 25% BY VALUE OF THE REIT INTERESTS OR (II) ONE OR MORE
QUALIFIED TRUSTS, EACH OWNING MORE THAN 10% BY VALUE OF THE REIT INTERESTS, HOLD
IN THE AGGREGATE MORE THAN 50% OF THE REIT INTERESTS. THE PERCENTAGE OF ANY
REIT DIVIDEND TREATED AS UBTI IS EQUAL TO THE RATIO OF (A) THE UBTI EARNED BY
THE REIT (TREATING THE REIT AS IF IT WERE A QUALIFIED TRUST AND THEREFORE
SUBJECT TO TAX ON UBTI) TO (B) THE TOTAL GROSS INCOME (LESS CERTAIN ASSOCIATED
EXPENSES) OF THE REIT. A DE MINIMIS EXCEPTION APPLIES WHERE THE RATIO SET FORTH
IN THE PRECEDING SENTENCE IS LESS THAN 5% FOR ANY YEAR. FOR THESE PURPOSES, A
QUALIFIED TRUST IS ANY TRUST DESCRIBED IN SECTION 401(A) OF THE CODE AND EXEMPT
FROM TAX UNDER SECTION 501(A) OF THE CODE. THE RESTRICTIONS ON OWNERSHIP OF
SHARES IN THE ARTICLES OF INCORPORATION WILL PREVENT APPLICATION OF THE
PROVISIONS TREATING A PORTION OF REIT DISTRIBUTIONS AS UBTI TO TAX-EXEMPT
ENTITIES PURCHASING SHARES IN THE COMPANY, ABSENT A WAIVER OF THE RESTRICTIONS
BY THE BOARD OF DIRECTORS. SEE SUMMARY OF THE ARTICLES OF INCORPORATION AND
BYLAWS RESTRICTION OF OWNERSHIP.
ASSUMING THAT THERE IS NO WAIVER OF THE RESTRICTIONS ON OWNERSHIP OF
SHARES IN THE ARTICLES OF INCORPORATION AND THAT A TAX-EXEMPT STOCKHOLDER DOES
NOT FINANCE THE ACQUISITION OF ITS SHARES WITH ACQUISITION INDEBTEDNESS WITHIN
THE MEANING OF SECTION 524(C) OF THE CODE OR OTHERWISE USE ITS SHARES IN AN
UNRELATED TRADE OR BUSINESS, IN THE OPINION OF COUNSEL THE DISTRIBUTIONS OF THE
COMPANY WITH RESPECT TO SUCH TAX-EXEMPT STOCKHOLDER WILL NOT CONSTITUTE UBTI.
THE TAX DISCUSSION OF DISTRIBUTIONS BY QUALIFIED RETIREMENT PLANS, IRAS,
KEOGH PLANS AND OTHER TAX-EXEMPT ENTITIES IS BEYOND THE SCOPE OF THIS
DISCUSSION, AND SUCH ENTITIES SHOULD CONSULT THEIR TAX ADVISER REGARDING SUCH
QUESTIONS.
FOREIGN STOCKHOLDERS. THE RULES GOVERNING UNITED STATES FEDERAL INCOME
TAXATION OF NONRESIDENT ALIEN INDIVIDUALS, FOREIGN CORPORATIONS, FOREIGN
P A R T I CIPANTS AND OTHER FOREIGN STOCKHOLDERS (COLLECTIVELY, NON-U.S.
STOCKHOLDERS ) ARE COMPLEX, AND NO ATTEMPT WILL BE MADE HEREIN TO PROVIDE MORE
THAN A SUMMARY OF SUCH RULES. THE FOLLOWING DISCUSSION ASSUMES THAT THE INCOME
FROM INVESTMENT IN THE SHARES WILL NOT BE EFFECTIVELY CONNECTED WITH THE NON-
U.S. STOCKHOLDERS' CONDUCT OF A UNITED STATES TRADE OR BUSINESS. PROSPECTIVE
NON-U.S. STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE AND LOCAL LAWS WITH REGARD TO AN INVESTMENT IN
SHARES, INCLUDING ANY REPORTING REQUIREMENTS. NON-U.S. STOCKHOLDERS WILL BE
ADMITTED AS STOCKHOLDERS WITH THE APPROVAL OF THE ADVISOR.
DIVIDENDS THAT ARE NOT ATTRIBUTABLE TO GAIN FROM SALES OR EXCHANGES BY THE
COMPANY OF UNITED STATES REAL PROPERTY INTERESTS AND NOT DESIGNATED BY THE
COMPANY AS CAPITAL GAIN DIVIDENDS WILL BE TREATED AS ORDINARY INCOME TO THE
EXTENT THAT THEY ARE MADE OUT OF CURRENT AND ACCUMULATED EARNINGS AND PROFITS OF
THE COMPANY. SUCH DIVIDENDS ORDINARILY WILL BE SUBJECT TO A WITHHOLDING TAX
EQUAL TO 30% OF THE GROSS AMOUNT OF THE DIVIDEND, UNLESS AN APPLICABLE TAX
TREATY REDUCES OR ELIMINATES THAT TAX. THE COMPANY EXPECTS TO WITHHOLD U.S.
INCOME TAX AT THE RATE OF 30% ON THE GROSS AMOUNT OF ANY SUCH DIVIDENDS PAID TO
A NON-U.S. STOCKHOLDER UNLESS (I) A LOWER TREATY RATE APPLIES AND THE NON-U.S.
STOCKHOLDER HAS FILED THE REQUIRED IRS FORM 1001 WITH THE COMPANY OR (II) THE
NON-U.S. STOCKHOLDER FILES AN IRS FORM 4224 WITH THE COMPANY CLAIMING THAT THE
DIVIDEND IS EFFECTIVELY CONNECTED INCOME. DIVIDENDS IN EXCESS OF THE COMPANY'S
CURRENT AND ACCUMULATED EARNINGS AND PROFITS WILL NOT BE TAXABLE TO A
STOCKHOLDER TO THE EXTENT THAT SUCH DIVIDENDS PAID DO NOT EXCEED THE ADJUSTED
BASIS OF THE STOCKHOLDER'S SHARES, BUT RATHER WILL REDUCE THE ADJUSTED BASIS OF
SUCH SHARES. TO THE EXTENT THAT DIVIDENDS IN EXCESS OF CURRENT AND ACCUMULATED
EARNINGS AND PROFITS EXCEED THE ADJUSTED BASIS OF A NON-U.S. STOCKHOLDERS'
SHARES, SUCH DIVIDENDS WILL GIVE RISE TO TAX LIABILITY IF THE NON-U.S.
STOCKHOLDER WOULD OTHERWISE BE SUBJECT TO TAX ON ANY GAIN FROM THE SALE OR
DISPOSITION OF THE SHARES, AS DESCRIBED BELOW. IF IT CANNOT BE DETERMINED AT
THE TIME A DIVIDEND IS PAID WHETHER OR NOT SUCH DIVIDEND WILL BE IN EXCESS OF
CURRENT AND ACCUMULATED EARNINGS AND PROFITS, THE DIVIDENDS WILL BE SUBJECT TO
WITHHOLDING AT THE RATE OF 30%. HOWEVER, A NON-U.S. STOCKHOLDER MAY SEEK A
REFUND OF SUCH AMOUNTS FROM THE IRS IF IT IS SUBSEQUENTLY DETERMINED THAT SUCH
DIVIDEND WAS, IN FACT, IN EXCESS OF THE COMPANY'S CURRENT AND ACCUMULATED
EARNINGS AND PROFITS.
FOR ANY YEAR IN WHICH THE COMPANY QUALIFIES AS A REIT, DIVIDENDS THAT ARE
ATTRIBUTABLE TO GAIN FROM SALES OR EXCHANGES BY THE COMPANY OF UNITED STATES
REAL PROPERTY INTERESTS WILL BE TAXED TO A NON-U.S. STOCKHOLDER UNDER THE
PROVISIONS OF THE FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT OF 1980, AS
AMENDED ( FIRPTA ). UNDER FIRPTA, DIVIDENDS ATTRIBUTABLE TO GAIN FROM SALES OF
UNITED STATES REAL PROPERTY INTERESTS ARE TAXED TO A NON-U.S. STOCKHOLDER AS IF
SUCH GAIN WERE EFFECTIVELY CONNECTED WITH A UNITED STATES BUSINESS. NON-U.S.
STOCKHOLDERS WOULD THUS BE TAXED AT THE NORMAL CAPITAL GAIN RATES APPLICABLE TO
U.S. STOCKHOLDERS (SUBJECT TO APPLICABLE ALTERNATIVE MINIMUM TAX AND A SPECIAL
ALTERNATIVE MINIMUM TAX IN THE CASE OF NONRESIDENT ALIEN INDIVIDUALS). ALSO,
DIVIDENDS SUBJECT TO FIRPTA MAY BE SUBJECT TO A 30% BRANCH PROFITS TAX IN THE
HANDS OF A FOREIGN CORPORATE STOCKHOLDER NOT ENTITLED TO TREATY EXEMPTION. THE
COMPANY IS REQUIRED BY APPLICABLE TREASURY REGULATIONS TO WITHHOLD 35% OF ANY
DISTRIBUTION THAT COULD BE DESIGNATED BY THE COMPANY AS A CAPITAL GAIN DIVIDEND.
THIS AMOUNT IS CREDITABLE AGAINST THE NON-U.S. STOCKHOLDERS' FIRPTA TAX
LIABILITY.
GAIN RECOGNIZED BY A NON-U.S. STOCKHOLDER UPON A SALE OF SHARES GENERALLY
WILL NOT BE TAXED UNDER FIRPTA IF THE COMPANY IS A DOMESTICALLY CONTROLLED
REIT, DEFINED GENERALLY AS A REIT IN WHICH AT ALL TIMES DURING A SPECIFIED
TESTING PERIOD LESS THAN 50% IN VALUE OF THE STOCK WAS HELD DIRECTLY OR
INDIRECTLY BY FOREIGN PERSONS. IT IS CURRENTLY ANTICIPATED THAT THE COMPANY
WILL BE A DOMESTICALLY CONTROLLED REIT, AND IN SUCH CASE THE SALE OF SHARES
WOULD NOT BE SUBJECT TO TAXATION UNDER FIRPTA. HOWEVER, GAIN NOT SUBJECT TO
FIRPTA NONETHELESS WILL BE TAXABLE TO A NON-U.S. STOCKHOLDER IF (I) INVESTMENT
IN THE SHARES IS TREATED AS EFFECTIVELY CONNECTED WITH THE NON-U.S.
STOCKHOLDERS' U.S. TRADE OR BUSINESS, IN WHICH CASE THE NON-U.S. STOCKHOLDER
WILL BE SUBJECT TO THE SAME TREATMENT AS U.S. STOCKHOLDERS WITH RESPECT TO SUCH
GAIN OR (II) THE NON-U.S. STOCKHOLDER IS A NONRESIDENT ALIEN INDIVIDUAL WHO WAS
PRESENT IN THE UNITED STATES FOR 183 DAYS OR MORE DURING THE TAXABLE YEAR AND
EITHER THE INDIVIDUAL HAS A TAX HOME IN THE UNITED STATES OR THE GAIN IS
ATTRIBUTABLE TO AN OFFICE OR OTHER FIXED PLACE OF BUSINESS MAINTAINED BY THE
INDIVIDUAL IN THE UNITED STATES, IN WHICH CASE THE NONRESIDENT ALIEN INDIVIDUAL
WILL BE SUBJECT TO A 30% TAX ON CAPITAL GAINS FROM SALES OF SHARES. IF THE GAIN
ON THE SALE OF SHARES WERE TO BE SUBJECT TO TAXATION UNDER FIRPTA, THE NON-U.S.
STOCKHOLDER WOULD BE SUBJECT TO THE SAME TREATMENT AS U.S. STOCKHOLDERS WITH
RESPECT TO SUCH GAIN (SUBJECT TO APPLICABLE ALTERNATIVE MINIMUM TAX AND A
SPECIAL ALTERNATIVE MINIMUM TAX IN THE CASE OF NONRESIDENT ALIEN INDIVIDUALS),
AND THE PURCHASER OF THE SHARES WOULD BE REQUIRED TO WITHHOLD AND REMIT TO THE
SERVICE 10% OF THE PURCHASE PRICE.
STATE AND LOCAL TAXES
THE COMPANY AND ITS SHAREHOLDERS MAY BE SUBJECT TO STATE AND LOCAL TAXES
IN VARIOUS STATES AND LOCALITIES IN WHICH IT OR THEY TRANSACT BUSINESS, OWN
PROPERTY, OR RESIDE. THE TAX TREATMENT OF THE COMPANY AND THE SHAREHOLDERS IN
SUCH JURISDICTIONS MAY DIFFER FROM THE FEDERAL INCOME TAX TREATMENT DESCRIBED
ABOVE. CONSEQUENTLY, PROSPECTIVE SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS UPON AN INVESTMENT IN
THE COMMON STOCK OF THE COMPANY.
CHARACTERIZATION OF PROPERTY LEASES
THE COMPANY WILL PURCHASE BOTH NEW AND EXISTING PROPERTIES AND LEASE THEM
TO FRANCHISEES OR CORPORATE FRANCHISORS PURSUANT TO LEASES OF THE TYPE DESCRIBED
IN BUSINESS DESCRIPTION OF PROPERTY LEASES. THE ABILITY OF THE COMPANY TO
CLAIM CERTAIN TAX BENEFITS ASSOCIATED WITH OWNERSHIP OF THE PROPERTIES, SUCH AS
DEPRECIATION, DEPENDS ON A DETERMINATION THAT THE LEASE TRANSACTIONS ENGAGED IN
BY THE COMPANY ARE TRUE LEASES, UNDER WHICH THE COMPANY IS THE OWNER OF THE
LEASED PROPERTY FOR FEDERAL INCOME TAX PURPOSES, RATHER THAN A CONDITIONAL SALE
OF THE PROPERTY OR A FINANCING TRANSACTION. A DETERMINATION BY THE SERVICE THAT
THE COMPANY IS NOT THE OWNER OF THE PROPERTIES FOR FEDERAL INCOME TAX PURPOSES
COULD HAVE SUBSTANTIAL ADVERSE CONSEQUENCES TO THE COMPANY, SUCH AS THE DENYING
OF THE COMPANY'S DEPRECIATION DEDUCTIONS. MOREOVER, A DENIAL OF THE COMPANY'S
DEPRECIATION DEDUCTIONS COULD RESULT IN A DETERMINATION THAT THE COMPANY'S
DISTRIBUTIONS TO STOCKHOLDERS WERE INSUFFICIENT TO SATISFY THE 95% DISTRIBUTION
REQUIREMENT FOR QUALIFICATION AS A REIT. HOWEVER, AS DISCUSSED ABOVE, IF THE
COMPANY HAS SUFFICIENT CASH, IT MAY BE ABLE TO REMEDY ANY PAST FAILURE TO
SATISFY THE DISTRIBUTION REQUIREMENTS BY PAYING A DEFICIENCY DIVIDEND (PLUS A
PENALTY AND INTEREST). SEE DISTRIBUTION REQUIREMENTS, ABOVE.
THE CHARACTERIZATION OF TRANSACTIONS AS LEASES, CONDITIONAL SALES, OR
FINANCINGS HAS BEEN ADDRESSED IN NUMEROUS CASES. THE COURTS HAVE NOT IDENTIFIED
ANY ONE FACTOR AS BEING DETERMINATIVE OF WHETHER THE LESSOR OR THE LESSEE OF
PROPERTY IS TO BE TREATED AS THE OWNER. JUDICIAL DECISIONS AND PRONOUNCEMENTS
OF THE SERVICE WITH RESPECT TO THE CHARACTERIZATION OF TRANSACTIONS AS EITHER
LEASES, CONDITIONAL SALES, OR FINANCING TRANSACTIONS HAVE MADE IT CLEAR THAT
THE CHARACTERIZATION OF LEASES FOR TAX PURPOSES IS A QUESTION WHICH MUST BE
DECIDED ON THE BASIS OF A WEIGHING OF MANY FACTORS, AND COURTS HAVE REACHED
DIFFERENT CONCLUSIONS EVEN WHERE CHARACTERISTICS OF TWO LEASE TRANSACTIONS WERE
SUBSTANTIALLY SIMILAR.
WHILE CERTAIN CHARACTERISTICS OF THE LEASES ANTICIPATED TO BE ENTERED INTO
BY THE COMPANY SUGGEST THE COMPANY MIGHT NOT BE THE OWNER OF THE PROPERTIES,
SUCH AS THE FACT THAT SUCH LEASES ARE TRIPLE-NET LEASES, A SUBSTANTIAL NUMBER
OF OTHER CHARACTERISTICS INDICATE THE BONA FIDE NATURE OF SUCH LEASES AND THAT
THE COMPANY WILL BE THE OWNER OF THE PROPERTIES. FOR EXAMPLE, UNDER THE TYPES
OF LEASES DESCRIBED IN BUSINESS DESCRIPTION OF LEASES, THE COMPANY WILL BEAR
THE RISK OF SUBSTANTIAL LOSS IN THE VALUE OF THE PROPERTIES, SINCE THE COMPANY
WILL ACQUIRE ITS INTERESTS IN THE PROPERTIES WITH AN EQUITY INVESTMENT, RATHER
THAN WITH NONRECOURSE INDEBTEDNESS. FURTHER, THE COMPANY, RATHER THAN THE
TENANT, WILL BENEFIT FROM ANY APPRECIATION IN THE PROPERTIES, SINCE THE COMPANY
WILL HAVE THE RIGHT AT ANY TIME TO SELL OR TRANSFER ITS PROPERTIES, SUBJECT TO
THE TENANT'S RIGHT TO PURCHASE THE PROPERTY AT A PRICE NOT LESS THAN THE
PROPERTY'S FAIR MARKET VALUE (DETERMINED BY APPRAISAL OR OTHERWISE).
OTHER FACTORS THAT ARE CONSISTENT WITH THE OWNERSHIP OF THE PROPERTIES BY
THE COMPANY ARE (I) THE TENANTS ARE LIABLE FOR REPAIRS AND TO RETURN THE
PROPERTIES IN REASONABLY GOOD CONDITION; (II) INSURANCE PROCEEDS GENERALLY ARE
TO BE USED TO RESTORE THE PROPERTIES AND, TO THE EXTENT NOT SO USED, BELONG TO
THE COMPANY; (III) THE TENANTS AGREE TO SUBORDINATE THEIR INTERESTS IN THE
PROPERTIES TO THE LIEN OF ANY FIRST MORTGAGE UPON DELIVERY OF A NONDISTURBANCE
AGREEMENT AND AGREE TO ATTORN TO THE PURCHASER UPON ANY FORECLOSURE SALE; AND
(IV) BASED ON THE COMPANY'S REPRESENTATION THAT THE PROPERTIES CAN REASONABLY BE
EXPECTED TO HAVE AT THE END OF THEIR LEASE TERMS (GENERALLY A MAXIMUM OF 30 TO
40 YEARS) A FAIR MARKET VALUE OF AT LEAST 20% OF THE COMPANY'S COST AND A
REMAINING USEFUL LIFE OF AT LEAST 20% OF THEIR USEFUL LIVES AT THE BEGINNING OF
THE LEASES, THE COMPANY HAS NOT RELINQUISHED THE PROPERTIES TO THE TENANTS FOR
THEIR ENTIRE USEFUL LIVES, BUT HAS RETAINED A SIGNIFICANT RESIDUAL INTEREST IN
THEM. MOREOVER, THE COMPANY WILL NOT BE PRIMARILY DEPENDENT UPON TAX BENEFITS
IN ORDER TO REALIZE A REASONABLE RETURN ON ITS INVESTMENTS.
ON THE BASIS OF THE FOREGOING, ASSUMING (I) THE COMPANY LEASES THE
PROPERTIES ON SUBSTANTIALLY THE SAME TERMS AND CONDITIONS DESCRIBED IN BUSINESS
DESCRIPTION OF LEASES, AND (II) AS IS REPRESENTED BY THE COMPANY, THE
RESIDUAL VALUE OF THE PROPERTIES REMAINING AFTER THE END OF THEIR LEASE TERMS
(INCLUDING ALL RENEWAL PERIODS) MAY REASONABLY BE EXPECTED TO BE AT LEAST 20% OF
THE COMPANY'S COST OF SUCH PROPERTIES, AND THE REMAINING USEFUL LIVES OF THE
PROPERTIES AFTER THE END OF THEIR LEASE TERMS (INCLUDING ALL RENEWAL PERIODS)
MAY REASONABLY BE EXPECTED TO BE AT LEAST 20% OF THE PROPERTIES' USEFUL LIVES AT
THE BEGINNING OF THEIR LEASE TERMS, IT IS THE OPINION OF COUNSEL THAT THE
COMPANY WILL BE TREATED AS THE OWNER OF THE PROPERTIES FOR FEDERAL INCOME TAX
PURPOSES AND WILL BE ENTITLED TO CLAIM DEPRECIATION AND OTHER TAX BENEFITS
ASSOCIATED WITH SUCH OWNERSHIP. COUNSEL'S OPINION THAT THE COMPANY WILL BE
ORGANIZED IN CONFORMITY WITH THE REQUIREMENTS FOR QUALIFICATION AS A REIT AND
THAT ITS PROPOSED METHOD OF OPERATION WILL ENABLE IT TO MEET THE REQUIREMENTS
FOR QUALIFICATION AS A REIT IS BASED, IN PART, ON THE ASSUMPTION THAT EACH OF
THE COMPANY'S PROPERTY LEASES WILL CONFORM TO THE CONDITIONS OUTLINED IN CLAUSES
(I) AND (II) OF THE PRECEDING SENTENCE.
CHARACTERIZATION OF SECURED EQUIPMENT LEASES
THE COMPANY WILL PURCHASE EQUIPMENT AND LEASE IT TO FRANCHISEES OR
CORPORATE FRANCHISORS PURSUANT TO LEASES OF THE TYPE DESCRIBED IN BUSINESS
GENERAL. THE ABILITY OF THE COMPANY TO QUALIFY AS A REIT DEPENDS ON A
DETERMINATION THAT THE SECURED EQUIPMENT LEASES ARE FINANCING ARRANGEMENTS,
UNDER WHICH THE LESSEES ACQUIRE OWNERSHIP OF THE EQUIPMENT FOR FEDERAL INCOME
TAX PURPOSES. IF THE SECURED EQUIPMENT LEASES ARE INSTEAD TREATED AS TRUE
LEASES, THE COMPANY MAY BE UNABLE TO SATISFY THE INCOME TESTS FOR REIT
QUALIFICATION. SEE FEDERAL INCOME TAX CONSIDERATIONS TAXATION OF THE COMPANY
INCOME TESTS.
WHILE CERTAIN CHARACTERISTICS OF THE SECURED EQUIPMENT LEASES TO BE
ENTERED INTO BY THE COMPANY SUGGEST THAT THE COMPANY RETAINS OWNERSHIP OF THE
EQUIPMENT, SUCH AS THE FACT THAT THE SECURED EQUIPMENT LEASES ARE STRUCTURED AS
LEASES, WITH THE COMPANY RETAINING TITLE TO THE EQUIPMENT, A SUBSTANTIAL NUMBER
OF OTHER CHARACTERISTICS INDICATE THAT THE SECURED EQUIPMENT LEASES ARE
FINANCING ARRANGEMENTS AND THAT THE LESSEES ARE THE OWNERS OF THE EQUIPMENT FOR
FEDERAL INCOME TAX PURPOSES. FOR EXAMPLE, UNDER THE TYPES OF SECURED EQUIPMENT
LEASES DESCRIBED IN BUSINESS GENERAL, THE LEASE TERM WILL EQUAL OR EXCEED
THE USEFUL LIFE OF THE EQUIPMENT, AND THE LESSEE WILL HAVE THE OPTION TO
PURCHASE THE EQUIPMENT AT THE END OF THE LEASE TERM FOR A NOMINAL SUM.
MOREOVER, UNDER THE TERMS OF THE SECURED EQUIPMENT LEASES, THE COMPANY AND THE
LESSEES WILL EACH AGREE TO TREAT THE SECURED EQUIPMENT LEASES AS LOANS SECURED
BY PERSONAL PROPERTY, RATHER THAN LEASES, FOR TAX PURPOSES.
ON THE BASIS OF THE FOREGOING, ASSUMING (I) THE SECURED EQUIPMENT LEASES
ARE MADE ON SUBSTANTIALLY THE SAME TERMS AND CONDITIONS DESCRIBED IN BUSINESS
GENERAL, AND (II) AS REPRESENTED BY THE COMPANY, EACH OF THE SECURED EQUIPMENT
LEASES WILL HAVE A TERM THAT EQUALS OR EXCEEDS THE USEFUL LIFE OF THE EQUIPMENT
SUBJECT TO THE LEASE, IT IS THE OPINION OF COUNSEL THAT THE COMPANY WILL NOT BE
TREATED AS THE OWNER OF THE EQUIPMENT THAT IS SUBJECT TO THE SECURED EQUIPMENT
LEASES FOR FEDERAL INCOME TAX PURPOSES AND THAT THE COMPANY WILL BE ABLE TO
TREAT THE SECURED EQUIPMENT LEASES AS LOANS SECURED BY PERSONAL PROPERTY.
COUNSEL'S OPINION THAT THE COMPANY WILL BE ORGANIZED IN CONFORMITY WITH THE
REQUIREMENTS FOR QUALIFICATION AS A REIT IS BASED, IN PART, ON THE ASSUMPTION
THAT EACH OF THE SECURED EQUIPMENT LEASES WILL CONFORM TO THE CONDITIONS
OUTLINED IN CLAUSES (I) AND (II) OF THE PRECEDING SENTENCE.
INVESTMENT IN JOINT VENTURES
AS INDICATED IN BUSINESS JOINT VENTURE ARRANGEMENTS, THE COMPANY MAY
PARTICIPATE IN JOINT VENTURES WHICH OWN AND LEASE PROPERTIES. ASSUMING THAT THE
JOINT VENTURES HAVE THE CHARACTERISTICS DESCRIBED IN BUSINESS JOINT VENTURE
ARRANGEMENTS, AND ARE OPERATED IN THE SAME MANNER THAT THE COMPANY OPERATES
WITH RESPECT TO PROPERTIES THAT IT OWNS DIRECTLY, IT IS THE OPINION OF COUNSEL
THAT (I) THE JOINT VENTURES WILL BE TREATED AS PARTNERSHIPS, AS DEFINED IN
SECTIONS 7701(A)(2) AND 761(A) OF THE CODE AND NOT AS ASSOCIATIONS TAXABLE AS
CORPORATIONS, AND THAT THE COMPANY WILL BE SUBJECT TO TAX AS A PARTNER PURSUANT
TO SECTIONS 701-761 OF THE CODE AND (II) ALL MATERIAL ALLOCATIONS TO THE COMPANY
OF INCOME, GAIN, LOSS AND DEDUCTION AS PROVIDED IN THE JOINT VENTURE AGREEMENTS
AND AS DISCUSSED IN THE PROSPECTUS WILL BE RESPECTED UNDER SECTION 704(B) OF THE
CODE. THE COMPANY HAS REPRESENTED THAT IT WILL NOT BECOME A PARTICIPANT IN ANY
JOINT VENTURE UNLESS THE COMPANY HAS FIRST OBTAINED ADVICE OF COUNSEL THAT THE
JOINT VENTURE WILL CONSTITUTE A PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES AND
THAT THE ALLOCATIONS TO THE COMPANY CONTAINED IN THE JOINT VENTURE AGREEMENT
WILL BE RESPECTED.
IF, CONTRARY TO THE OPINION OF COUNSEL, A JOINT VENTURE WERE TO BE TREATED
AS AN ASSOCIATION TAXABLE AS A CORPORATION, THE COMPANY WOULD BE TREATED AS A
STOCKHOLDER FOR TAX PURPOSES AND WOULD NOT BE TREATED AS OWNING A PRO RATA SHARE
OF THE JOINT VENTURE'S ASSETS. IN ADDITION, THE ITEMS OF INCOME AND DEDUCTION
OF THE JOINT VENTURE WOULD NOT PASS THROUGH TO THE COMPANY. INSTEAD, THE JOINT
VENTURE WOULD BE REQUIRED TO PAY INCOME TAX AT REGULAR CORPORATE TAX RATES ON
ITS NET INCOME, AND DISTRIBUTIONS TO PARTNERS WOULD CONSTITUTE DIVIDENDS THAT
WOULD NOT BE DEDUCTIBLE IN COMPUTING THE JOINT VENTURE'S TAXABLE INCOME.
MOREOVER, A DETERMINATION THAT A JOINT VENTURE IS TAXABLE AS A CORPORATION COULD
CAUSE THE COMPANY TO FAIL TO SATISFY THE ASSET TESTS FOR QUALIFICATION AS A
REIT. SEE ASSET TESTS AND INCOME TESTS, ABOVE.
REPORTS TO STOCKHOLDERS
THE COMPANY WILL FURNISH EACH STOCKHOLDER WITH ITS AUDITED ANNUAL REPORT
WITHIN 120 DAYS FOLLOWING THE CLOSE OF EACH FISCAL YEAR. THESE ANNUAL REPORTS
WILL CONTAIN THE FOLLOWING: (I) FINANCIAL STATEMENTS, INCLUDING A BALANCE
SHEET, STATEMENT OF OPERATIONS, STATEMENT OF STOCKHOLDERS' EQUITY, AND STATEMENT
OF CASH FLOWS, PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPALS WHICH ARE AUDITED AND REPORTED ON BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS; (II) THE RATIO OF THE COSTS OF RAISING CAPITAL DURING THE PERIOD TO
THE CAPITAL RAISED; (III) THE AGGREGATE AMOUNT OF ADVISORY FEES AND THE
AGGREGATE AMOUNT OF OTHER FEES PAID TO THE ADVISOR AND ANY AFFILIATE OF THE
ADVISOR BY THE COMPANY AND INCLUDING FEES OR CHARGES PAID TO THE ADVISOR AND ANY
AFFILIATE OF THE ADVISOR BY THIRD PARTIES DOING BUSINESS WITH THE COMPANY; (IV)
THE OPERATING EXPENSES OF THE COMPANY, STATED AS A PERCENTAGE OF THE AVERAGE
INVESTED ASSETS (THE AVERAGE OF THE AGGREGATE BOOK VALUE OF THE ASSETS OF THE
COMPANY, FOR A SPECIFIED PERIOD, INVESTED, DIRECTLY OR INDIRECTLY, IN EQUITY
INTERESTS IN AND LOANS SECURED BY REAL ESTATE, BEFORE RESERVES FOR DEPRECIATION
OR BAD DEBTS OR OTHER SIMILAR NON-CASH RESERVES, COMPUTED BY TAKING THE AVERAGE
OF SUCH VALUES AT THE END OF EACH MONTH DURING SUCH PERIOD) AND AS A PERCENTAGE
OF ITS NET INCOME; (V) A REPORT FROM THE INDEPENDENT DIRECTORS THAT THE POLICIES
BEING FOLLOWED BY THE COMPANY ARE IN THE BEST INTEREST OF ITS STOCKHOLDERS AND
THE BASIS FOR SUCH DETERMINATION; (VI) SEPARATELY STATED, FULL DISCLOSURE OF ALL
MATERIAL TERMS, FACTORS AND CIRCUMSTANCES SURROUNDING ANY AND ALL TRANSACTIONS
INVOLVING THE COMPANY, DIRECTORS, ADVISOR AND ANY AFFILIATE THEREOF OCCURRING IN
THE YEAR FOR WHICH THE ANNUAL REPORT IS MADE; AND (VII) DISTRIBUTIONS TO THE
STOCKHOLDERS FOR THE PERIOD, IDENTIFYING THE SOURCE OF SUCH DISTRIBUTIONS AND IF
SUCH INFORMATION IS NOT AVAILABLE AT THE TIME OF THE DISTRIBUTION, A WRITTEN
EXPLANATION OF THE RELEVANT CIRCUMSTANCES WILL ACCOMPANY THE DISTRIBUTIONS (WITH
THE STATEMENT AS TO THE SOURCE OF DISTRIBUTIONS TO BE SENT TO STOCKHOLDERS NOT
LATER THAN 60 DAYS AFTER THE END OF THE FISCAL YEAR IN WHICH THE DISTRIBUTION
WAS MADE). INDEPENDENT DIRECTORS SHALL BE SPECIFICALLY CHARGED WITH A DUTY TO
EXAMINE AND COMMENT IN THE REPORT ON THE FAIRNESS OF SUCH TRANSACTIONS.
WITHIN 75 DAYS FOLLOWING THE CLOSE OF EACH COMPANY FISCAL YEAR, EACH
STOCKHOLDER THAT IS A QUALIFIED PLAN WILL BE FURNISHED WITH AN ANNUAL STATEMENT
OF SHARE VALUATION TO ENABLE IT TO FILE ANNUAL REPORTS REQUIRED BY ERISA AS THEY
RELATE TO ITS INVESTMENT IN THE COMPANY. THE STATEMENT WILL REPORT AN ESTIMATED
VALUE OF EACH SHARE OF, PRIOR TO THE TERMINATION OF THE OFFERING, $10 PER SHARE,
AND AFTER THE TERMINATION OF THE OFFERING, BASED ON (I) THE AMOUNT PAID FOR
SHARES PRESENTED FOR REDEMPTION DURING THE QUARTER PRECEDING THE VALUATION DATE,
ASSUMING ADEQUATE LIQUIDITY OR (II) THE AMOUNT STOCKHOLDERS WOULD RECEIVE FROM
THE NET SALES PROCEEDS OF THE PROPERTIES AND THE SECURED EQUIPMENT LEASES IF
SUCH ASSETS WERE SOLD AT THEIR VALUES (DETERMINED BY APPRAISAL UPDATES) AS OF
THE CLOSE OF THE FISCAL YEAR AND THE NET SALES PROCEEDS WERE DISTRIBUTED IN A
LIQUIDATION OF THE COMPANY AS DESCRIBED IN THIS PROSPECTUS. EACH APPRAISAL
UPDATE WILL BE BASED ON CAPITALIZATION OF INCOME FOR THE PROPERTY THAT IS THE
SUBJECT OF THE UPDATE UNLESS THE COMPANY PREVIOUSLY OBTAINED AN APPRAISAL FOR
SUCH PROPERTY WITHIN THE NINE-MONTH PERIOD PRIOR TO THE CLOSE OF THE RELEVANT
FISCAL YEAR. THE COMPANY MAY ELECT TO DELIVER SUCH REPORTS TO ALL STOCKHOLDERS.
STOCKHOLDERS WILL NOT BE FORWARDED COPIES OF APPRAISALS OR UPDATES. IN
PROVIDING SUCH REPORTS TO STOCKHOLDERS, NEITHER THE COMPANY NOR ITS AFFILIATES
T H E REBY MAKE ANY WARRANTY, GUARANTEE, OR REPRESENTATION THAT (I) THE
STOCKHOLDERS OR THE COMPANY, UPON LIQUIDATION, WILL ACTUALLY REALIZE THE
ESTIMATED VALUE PER SHARE, OR (II) THE STOCKHOLDERS WILL REALIZE THE ESTIMATED
NET ASSET VALUE IF THEY ATTEMPT TO SELL THEIR SHARES.
IF THE COMPANY IS REQUIRED BY THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, TO FILE QUARTERLY REPORTS WITH THE SECURITIES AND EXCHANGE COMMISSION
ON FORM 10-Q, STOCKHOLDERS WILL BE FURNISHED WITH A SUMMARY OF THE INFORMATION
CONTAINED IN EACH SUCH REPORT WITHIN 60 DAYS AFTER THE END OF EACH FISCAL
QUARTER. SUCH SUMMARY INFORMATION GENERALLY WILL INCLUDE A BALANCE SHEET, A
QUARTERLY STATEMENT OF INCOME, AND A STATEMENT OF CASH FLOWS, AND ANY OTHER
PERTINENT INFORMATION REGARDING THE COMPANY AND ITS ACTIVITIES DURING THE
QUARTER. STOCKHOLDERS ALSO MAY RECEIVE A COPY OF ANY FORM 10-Q UPON REQUEST TO
THE COMPANY. IF THE COMPANY IS NOT SUBJECT TO THIS FILING REQUIREMENT,
STOCKHOLDERS WILL BE FURNISHED WITH A SEMI-ANNUAL REPORT WITHIN 60 DAYS AFTER
EACH SIX-MONTH PERIOD CONTAINING INFORMATION SIMILAR TO THAT CONTAINED IN THE
QUARTERLY REPORT BUT APPLICABLE TO SUCH SIX-MONTH PERIOD.
STOCKHOLDERS AND THEIR DULY AUTHORIZED REPRESENTATIVES ARE ENTITLED TO
INSPECT AND COPY, AT THEIR EXPENSE, THE BOOKS AND RECORDS OF THE COMPANY AT ALL
TIMES DURING REGULAR BUSINESS HOURS, UPON REASONABLE PRIOR NOTICE TO THE
COMPANY, AT THE LOCATION WHERE SUCH REPORTS ARE KEPT BY THE COMPANY.
STOCKHOLDERS, UPON REQUEST AND AT THEIR EXPENSE, MAY OBTAIN FULL INFORMATION
REGARDING THE FINANCIAL CONDITION OF THE COMPANY, A COPY OF THE COMPANY'S
FEDERAL, STATE, AND LOCAL INCOME TAX RETURNS FOR EACH FISCAL YEAR OF THE
COMPANY, AND, SUBJECT TO CERTAIN CONFIDENTIALITY REQUIREMENTS, A LIST CONTAINING
THE NAME, ADDRESS, AND SHARES HELD BY EACH STOCKHOLDER.
THE FISCAL YEAR OF THE COMPANY WILL BE THE CALENDAR YEAR.
THE COMPANY'S FEDERAL TAX RETURN (AND ANY APPLICABLE STATE INCOME TAX
RETURNS) WILL BE PREPARED BY THE ACCOUNTANTS REGULARLY RETAINED BY THE COMPANY.
APPROPRIATE TAX INFORMATION WILL BE SUBMITTED TO THE STOCKHOLDERS WITHIN 30 DAYS
FOLLOWING THE END OF EACH FISCAL YEAR OF THE COMPANY. A SPECIFIC RECONCILIATION
B E TWEEN GAAP AND INCOME TAX INFORMATION WILL NOT BE PROVIDED TO THE
STOCKHOLDERS; HOWEVER, SUCH RECONCILING INFORMATION WILL BE AVAILABLE IN THE
OFFICE OF THE COMPANY FOR INSPECTION AND REVIEW BY ANY INTERESTED STOCKHOLDER.
THE OFFERING
AS OF APRIL 9, 1996, THE COMPANY HAD RECEIVED AGGREGATE SUBSCRIPTION
PROCEEDS OF $57,887,405 (5,788,741 SHARES) FROM 3,440 STOCKHOLDERS, INCLUDING
$128,151 (12,815 SHARES) ISSUED PURSUANT TO THE REINVESTMENT PLAN. AS OF APRIL
9, 1996, THE COMPANY HAD INVESTED OR COMMITTED FOR INVESTMENT APPROXIMATELY
$46,200,000 OF SUCH PROCEEDS IN 48 PROPERTIES (INCLUDING 21 PROPERTIES WHICH
CONSIST OF LAND AND BUILDING, ONE PROPERTY THROUGH A JOINT VENTURE ARRANGEMENT
WHICH CONSISTS OF LAND AND BUILDING, THREE PROPERTIES WHICH CONSIST OF BUILDING
ONLY, AND 23 PROPERTIES WHICH CONSIST OF LAND ONLY), IN PROVIDING A MORTGAGE
LOAN TO THE TENANT OF THE 23 PROPERTIES CONSISTING OF LAND ONLY, AND TO PAY
ACQUISITION FEES AND MISCELLANEOUS ACQUISITION EXPENSES, LEAVING APPROXIMATELY
$4,200,000 IN OFFERING PROCEEDS AVAILABLE FOR INVESTMENT IN PROPERTIES AND
MAKING MORTGAGE LOANS. AS OF APRIL 9, 1996, THE COMPANY HAD INCURRED $2,604,933
IN ACQUISITION FEES TO THE ADVISOR.
GENERAL
A MAXIMUM OF 10,000,000 SHARES ($100,000,000) ARE BEING OFFERED AT A
PURCHASE PRICE OF $10.00 EACH. THE MAXIMUM OFFERING IS SUBJECT TO INCREASE TO
15,000,000 SHARES ($150,000,000) AT THE OPTION OF THE MANAGING DEALER IF THE
OFFERING IS OVERSUBSCRIBED. IN ADDITION, THE COMPANY HAS REGISTERED AN
ADDITIONAL 1,500,000 SHARES ($15,000,000) AVAILABLE ONLY TO STOCKHOLDERS WHO
RECEIVE A COPY OF THIS PROSPECTUS AND WHO ELECT TO PARTICIPATE IN THE
REINVESTMENT PLAN. ANY PARTICIPATION IN SUCH PLAN BY A PERSON WHO BECOMES A
STOCKHOLDER OTHERWISE THAN BY PARTICIPATING IN THIS OFFERING WILL REQUIRE
SOLICITATION UNDER A SEPARATE PROSPECTUS. SEE SUMMARY OF REINVESTMENT PLAN.
A MINIMUM INVESTMENT OF 250 SHARES ($2,500) IS REQUIRED. IRAS, KEOGH
PLANS, AND PENSION PLANS MUST MAKE A MINIMUM INVESTMENT OF AT LEAST 100 SHARES
($1,000), EXCEPT FOR IOWA TAX-EXEMPT INVESTORS WHO MUST MAKE A MINIMUM
INVESTMENT OF 250 SHARES ($2,500). FOR MINNESOTA INVESTORS ONLY, IRAS AND
QUALIFIED PLANS MUST MAKE A MINIMUM INVESTMENT OF 200 SHARES ($2,000). IN
ADDITION, NEBRASKA, NEW YORK, AND NORTH CAROLINA INVESTORS MUST MAKE A MINIMUM
INVESTMENT OF 500 SHARES ($5,000). ANY INVESTOR WHO MAKES THE REQUIRED MINIMUM
INVESTMENT MAY PURCHASE ADDITIONAL SHARES IN INCREMENTS OF ONE SHARE. MAINE
INVESTORS, HOWEVER, MAY NOT PURCHASE ADDITIONAL SHARES IN AMOUNTS LESS THAN THE
APPLICABLE MINIMUM INVESTMENT EXCEPT AT THE TIME OF THE INITIAL SUBSCRIPTION OR
WITH RESPECT TO SHARES PURCHASED PURSUANT TO THE REINVESTMENT PLAN. SEE THE
OFFERING GENERAL, THE OFFERING SUBSCRIPTION PROCEDURES, AND SUMMARY OF
REINVESTMENT PLAN.
THE COMPANY HAS ELECTED TO EXTEND THE OFFERING UNTIL A DATE NO LATER THAN
MARCH 29, 1997 (IN STATES THAT PERMIT SUCH AN EXTENSION).
PLAN OF DISTRIBUTION
THE SHARES ARE BEING OFFERED TO THE PUBLIC ON A BEST EFFORTS BASIS
(WHICH MEANS THAT NO ONE IS GUARANTEEING THAT ANY MINIMUM AMOUNT WILL BE SOLD)
THROUGH THE SOLICITING DEALERS, WHO ARE MEMBERS OF THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC. (THE NASD ) OR OTHER PERSONS OR ENTITIES EXEMPT FROM
BROKER-DEALER REGISTRATION, AND THE MANAGING DEALER. THE SOLICITING DEALERS
WILL USE THEIR BEST EFFORTS DURING THE OFFERING PERIOD TO FIND ELIGIBLE PERSONS
WHO DESIRE TO SUBSCRIBE FOR THE PURCHASE OF SHARES FROM THE COMPANY. BOTH JAMES
M. SENEFF, JR. AND ROBERT A. BOURNE ARE AFFILIATES AND LICENSED PRINCIPALS OF
THE MANAGING DEALER, AND THE ADVISOR IS AN AFFILIATE OF THE MANAGING DEALER.
PRIOR TO A SUBSCRIBER'S ADMISSION TO THE COMPANY AS A STOCKHOLDER, FUNDS
PAID BY SUCH SUBSCRIBER WILL BE DEPOSITED IN AN INTEREST-BEARING ESCROW ACCOUNT
WITH SOUTHTRUST ESTATE & TRUST COMPANY, INC. THE COMPANY, WITHIN 30 DAYS AFTER
THE DATE A SUBSCRIBER IS ADMITTED TO THE COMPANY, WILL PAY TO SUCH SUBSCRIBER
THE INTEREST (GENERALLY CALCULATED ON A DAILY BASIS) ACTUALLY EARNED ON THE
FUNDS OF THOSE SUBSCRIBERS WHOSE FUNDS HAVE BEEN HELD IN ESCROW BY SUCH BANK FOR
AT LEAST 20 DAYS. STOCKHOLDERS OTHERWISE ARE NOT ENTITLED TO INTEREST EARNED ON
COMPANY FUNDS OR TO RECEIVE INTEREST ON THEIR INVESTED CAPITAL. SEE ESCROW
ARRANGEMENTS BELOW.
SUBJECT TO THE PROVISIONS FOR REDUCED SELLING COMMISSIONS DESCRIBED BELOW,
THE COMPANY WILL PAY THE MANAGING DEALER AN AGGREGATE OF 7.5% OF THE GROSS
PROCEEDS AS SELLING COMMISSIONS. THE MANAGING DEALER SHALL REALLOW FEES OF UP
TO 7% TO THE SOLICITING DEALERS WITH RESPECT TO SHARES SOLD BY THEM. IN
ADDITION, THE COMPANY WILL PAY THE MANAGING DEALER, AS AN EXPENSE ALLOWANCE, A
MARKETING SUPPORT AND DUE DILIGENCE EXPENSE REIMBURSEMENT FEE EQUAL TO 0.5% OF
GROSS PROCEEDS. THE MANAGING DEALER, IN ITS SOLE DISCRETION, MAY REALLOW TO ANY
SOLICITING DEALER ALL OR ANY PORTION OF THIS FEE BASED ON SUCH FACTORS AS THE
NUMBER OF SHARES SOLD BY SUCH SOLICITING DEALER, THE ASSISTANCE, IF ANY, OF SUCH
SOLICITING DEALER IN MARKETING THE OFFERING, AND BONA FIDE DUE DILIGENCE
EXPENSES INCURRED. STOCKHOLDERS WHO ELECT TO PARTICIPATE IN THE REINVESTMENT
PLAN WILL BE CHARGED SELLING COMMISSIONS AND THE MARKETING SUPPORT AND DUE
DILIGENCE FEE ON SHARES PURCHASED FOR THEIR ACCOUNTS ON THE SAME BASIS AS
INVESTORS WHO PURCHASE SHARES IN THE OFFERING. SEE SUMMARY OF REINVESTMENT
PLAN.
A REGISTERED PRINCIPAL OR REPRESENTATIVE OF THE MANAGING DEALER OR A
SOLICITING DEALER MAY PURCHASE SHARES NET OF 7% COMMISSIONS, AT A PER SHARE
PURCHASE PRICE OF $9.30. IN ADDITION, SOLICITING DEALERS, IN THEIR SOLE
DISCRETION, MAY ELECT NOT TO ACCEPT ANY SELLING COMMISSIONS OFFERED BY THE
COMPANY FOR SHARES THAT THEY SELL. IN THAT EVENT, SUCH SHARES SHALL BE SOLD TO
THE INVESTOR NET OF ALL SELLING COMMISSIONS, AT A PER SHARE PURCHASE PRICE OF
$9.30. IN CONNECTION WITH THE PURCHASES OF CERTAIN MINIMUM NUMBERS OF SHARES,
THE AMOUNT OF SELLING COMMISSIONS OTHERWISE PAYABLE TO THE MANAGING DEALER OR A
SOLICITING DEALER, SHALL BE REDUCED IN ACCORDANCE WITH THE FOLLOWING SCHEDULE:
<TABLE>
DOLLAR AMOUNT
OF SHARES PURCHASE PRICE REALLOWED COMMISSIONS ON SALES PER SHARE
PURCHASED PER SHARE PERCENT DOLLAR AMOUNT
----------- -------------- ------- -------------
<S> <C> <C> <C>
$10 - $249,990 $10.00 7.0% $0.70
$250,000 - $499,990 $9.90 6.0% $0.60
$500,000 - $999,990 $9.70 4.0% $0.40
$1,000,000 - $1,499,990 $9.60 3.0% $0.30
$1,500,000 OR MORE $9.50 2.0% $0.20
</TABLE>
SUBSCRIPTIONS MAY BE COMBINED FOR THE PURPOSE OF DETERMINING THE VOLUME
DISCOUNTS IN THE CASE OF SUBSCRIPTIONS MADE BY ANY PURCHASER, PROVIDED ALL
SUCH SHARES ARE PURCHASED THROUGH THE SAME SOLICITING DEALER OR THROUGH THE
MANAGING DEALER. THE VOLUME DISCOUNT WILL BE PRORATED AMONG THE SEPARATE
SUBSCRIBERS CONSIDERED TO BE A SINGLE PURCHASER. SHARES PURCHASED PURSUANT TO
THE REINVESTMENT PLAN ON BEHALF OF A PARTICIPANT IN THE REINVESTMENT PLAN WILL
NOT BE COMBINED WITH OTHER SUBSCRIPTIONS FOR SHARES BY THE INVESTOR IN
DETERMINING THE VOLUME DISCOUNT TO WHICH SUCH INVESTOR MAY BE ENTITLED. SEE
SUMMARY OF REINVESTMENT PLAN. FURTHER SUBSCRIPTIONS FOR SHARES WILL NOT BE
COMBINED FOR PURPOSES OF THE VOLUME DISCOUNT IN THE CASE OF SUBSCRIPTIONS BY ANY
PURCHASER WHO SUBSCRIBES FOR ADDITIONAL SHARES SUBSEQUENT TO THE PURCHASER'S
INITIAL PURCHASE OF SHARES.
ANY REQUEST TO COMBINE MORE THAN ONE SUBSCRIPTION MUST BE MADE IN WRITING
IN A FORM SATISFACTORY TO THE COMPANY AND MUST SET FORTH THE BASIS FOR SUCH
REQUEST. ANY SUCH REQUEST WILL BE SUBJECT TO VERIFICATION BY THE MANAGING
DEALER THAT ALL OF SUCH SUBSCRIPTIONS WERE MADE BY A SINGLE PURCHASER. IF A
PURCHASER DOES NOT REDUCE THE PER SHARE PURCHASE PRICE, THE EXCESS PURCHASE
PRICE OVER THE DISCOUNTED PURCHASE PRICE WILL BE RETURNED TO THE ACTUAL SEPARATE
SUBSCRIBERS FOR SHARES.
FOR PURPOSES OF SUCH VOLUME DISCOUNTS, PURCHASER INCLUDES (I) AN
INDIVIDUAL, HIS OR HER SPOUSE, AND THEIR CHILDREN UNDER THE AGE OF 21, WHO
PURCHASE THE SHARES FOR HIS OR HER OR THEIR OWN ACCOUNTS, AND ALL PENSION OR
T R U ST FUNDS ESTABLISHED BY EACH SUCH INDIVIDUAL; (II) A CORPORATION,
PARTNERSHIP, ASSOCIATION, JOINT-STOCK COMPANY, TRUST FUND, OR ANY ORGANIZED
GROUP OF PERSONS, WHETHER INCORPORATED OR NOT (PROVIDED THAT THE ENTITIES
DESCRIBED IN THIS CLAUSE (II) MUST HAVE BEEN IN EXISTENCE FOR AT LEAST SIX
MONTHS BEFORE PURCHASING THE SHARES AND MUST HAVE FORMED SUCH GROUP FOR A
PURPOSE OTHER THAN TO PURCHASE THE SHARES AT A DISCOUNT); (III) AN EMPLOYEE'S
TRUST, PENSION, PROFIT-SHARING, OR OTHER EMPLOYEE BENEFIT PLAN QUALIFIED UNDER
SECTION 401 OF THE CODE; AND (IV) ALL PENSION, TRUST, OR OTHER FUNDS MAINTAINED
BY A GIVEN BANK. IN ADDITION, THE COMPANY, IN ITS SOLE DISCRETION, MAY
AGGREGATE AND COMBINE SEPARATE SUBSCRIPTIONS FOR SHARES RECEIVED DURING THE
OFFERING PERIOD FROM (I) THE MANAGING DEALER OR THE SAME SOLICITING DEALER, (II)
INVESTORS WHOSE ACCOUNTS ARE MANAGED BY A SINGLE INVESTMENT ADVISER REGISTERED
UNDER THE INVESTMENT ADVISERS ACT OF 1940, (III) INVESTORS OVER WHOSE ACCOUNTS A
DESIGNATED BANK, INSURANCE COMPANY, TRUST COMPANY, OR OTHER ENTITY EXERCISES
D I S CRETIONARY INVESTMENT RESPONSIBILITY, OR (IV) A SINGLE CORPORATION,
PARTNERSHIP, TRUST ASSOCIATION, OR OTHER ORGANIZED GROUP OF PERSONS, WHETHER
INCORPORATED OR NOT, AND WHETHER SUCH SUBSCRIPTIONS ARE BY OR FOR THE BENEFIT OF
SUCH CORPORATION, PARTNERSHIP, TRUST ASSOCIATION, OR GROUP. EXCEPT AS PROVIDED
IN THIS PARAGRAPH, SUBSCRIPTIONS WILL NOT BE CUMULATED, COMBINED, OR AGGREGATED.
THE COMPANY OR ITS AFFILIATES ALSO MAY PROVIDE INCENTIVE ITEMS FOR
REGISTERED REPRESENTATIVES OF THE MANAGING DEALER AND THE SOLICITING DEALERS,
WHICH IN NO EVENT SHALL EXCEED AN AGGREGATE OF $100 PER ANNUM PER PARTICIPATING
SALESPERSON. IN THE EVENT OTHER INCENTIVES ARE PROVIDED TO REGISTERED
REPRESENTATIVES OF THE MANAGING DEALER OR THE SOLICITING DEALERS, THEY WILL BE
PAID ONLY IN CASH, AND SUCH PAYMENTS WILL BE MADE ONLY TO THE MANAGING DEALER OR
THE SOLICITING DEALERS RATHER THAN TO THEIR REGISTERED REPRESENTATIVES. ANY
SUCH SALES INCENTIVE PROGRAM MUST FIRST HAVE BEEN SUBMITTED FOR REVIEW BY THE
NASD, AND MUST COMPLY WITH ARTICLE III, SECTION 44(C)(6)(B)(XI) OF ITS RULES OF
FAIR PRACTICE. COSTS INCURRED IN CONNECTION WITH SUCH SALES INCENTIVE PROGRAMS,
IF ANY, WILL BE CONSIDERED UNDERWRITING COMPENSATION. SEE ESTIMATED USE OF
PROCEEDS.
A REGISTERED PRINCIPAL OR REPRESENTATIVE OF THE MANAGING DEALER OR A
SOLICITING DEALER, EMPLOYEES, OFFICERS, AND DIRECTORS OF THE COMPANY, OR
EMPLOYEES, OFFICERS, AND DIRECTORS OF THE ADVISOR, ANY OF THEIR AFFILIATES AND
ANY PLAN ESTABLISHED EXCLUSIVELY FOR THE BENEFIT OF SUCH PERSONS OR ENTITIES MAY
PURCHASE SHARES NET OF 7% COMMISSIONS, AT A PER SHARE PURCHASE PRICE OF $9.30.
IN ADDITION, CLIENTS OF AN INVESTMENT ADVISER REGISTERED UNDER THE INVESTMENT
ADVISERS ACT OF 1940, AS AMENDED, WHO HAVE BEEN ADVISED BY SUCH ADVISER ON AN
ONGOING BASIS REGARDING INVESTMENTS OTHER THAN IN THE COMPANY, AND WHO ARE NOT
BEING CHARGED BY SUCH ADVISER OR ITS AFFILIATES, THROUGH THE PAYMENT OF
COMMISSIONS OR OTHERWISE, FOR THE ADVICE RENDERED BY SUCH ADVISER IN CONNECTION
WITH THE PURCHASE OF THE SHARES, MAY PURCHASE THE SHARES NET OF 7% COMMISSIONS.
ANY REDUCTION IN COMMISSIONS WILL REDUCE THE EFFECTIVE PURCHASE PRICE PER
SHARE TO THE INVESTOR INVOLVED BUT WILL NOT ALTER THE NET PROCEEDS PAYABLE TO
THE COMPANY AS A RESULT OF SUCH SALE. ALL INVESTORS WILL BE DEEMED TO HAVE
CONTRIBUTED THE SAME AMOUNT PER SHARE TO THE COMPANY WHETHER OR NOT THE INVESTOR
RECEIVES A DISCOUNT. ACCORDINGLY, FOR PURPOSES OF DIVIDENDS, INVESTORS WHO PAY
REDUCED COMMISSIONS WILL RECEIVE HIGHER RETURNS ON THEIR INVESTMENTS IN THE
COMPANY AS COMPARED TO INVESTORS WHO DO NOT PAY REDUCED COMMISSIONS.
IN CONNECTION WITH THE SALE OF SHARES, CERTAIN REGISTERED PRINCIPALS OR
REPRESENTATIVES OF THE MANAGING DEALER MAY PERFORM WHOLESALING FUNCTIONS FOR
WHICH THEY WILL RECEIVE COMPENSATION PAYABLE BY THE MANAGING DEALER IN AN
AGGREGATE AMOUNT NOT IN EXCESS OF ONE PERCENT OF GROSS PROCEEDS. IN ADDITION,
THE ADVISOR AND ITS AFFILIATES, INCLUDING THE MANAGING DEALER AND ITS REGISTERED
PRINCIPALS OR REPRESENTATIVES, MAY INCUR DUE DILIGENCE FEES AND OTHER EXPENSES,
INCLUDING EXPENSES RELATED TO SALES SEMINARS AND WHOLESALING ACTIVITIES, A
PORTION OF WHICH MAY BE PAID BY THE COMPANY.
THE MANAGING DEALER AND THE SOLICITING DEALERS SEVERALLY WILL INDEMNIFY
THE COMPANY AND ITS OFFICERS AND DIRECTORS, THE ADVISOR AND ITS OFFICERS AND
D I R ECTORS AND THEIR AFFILIATES, AGAINST CERTAIN LIABILITIES, INCLUDING
LIABILITIES UNDER THE SECURITIES ACT OF 1933.
SUBSCRIPTION PROCEDURES
PROCEDURES APPLICABLE TO ALL SUBSCRIPTIONS. In order to purchase Shares,
the subscriber must complete and execute the Subscription Agreement. Any
subscription for Shares must be accompanied by cash or check payable to
SouthTrust Estate & Trust Company, Inc., Escrow Agent or to the Company, in
the amount of $10.00 per Share. See Escrow Arrangements below. Certain
Soliciting Dealers who have net capital, as defined in the applicable federal
securities regulations, of $250,000 or more may instruct their customers to make
their checks for Shares for which they have subscribed payable directly to the
Soliciting Dealer. In such case, the Soliciting Dealer will issue a check made
payable to the order of the Escrow Agent for the aggregate amount of the
subscription proceeds.
Each subscription will be accepted or rejected by the Company within 30
days after its receipt, and no sale of Shares shall be completed until at least
five business days after the date on which the subscriber receives a copy of
this Prospectus. If a subscription is rejected, the funds will be returned to
the subscriber within ten business days after the date of such rejection,
without interest and without deduction. A form of the Subscription Agreement is
set forth as Exhibit D to this Prospectus. The subscription price of each Share
is payable in full upon execution of the Subscription Agreement. A subscriber
whose subscription is accepted shall be sent a confirmation of his or her
purchase.
The Advisor and each Soliciting Dealer who sells Shares on behalf of the
Company have the responsibility to make every reasonable effort to determine
that the purchase of Shares is appropriate for an investor and that the
requisite suitability standards are met. See Suitability Standards and How to
Subscribe Suitability Standards . In making this determination, the
Soliciting Dealers will rely on relevant information provided by the investor,
i n cluding information as to the investor's age, investment objectives,
i n v e s tment experience, income, net worth, financial situation, other
investments, and any other pertinent information. Each investor should be aware
that determining suitability is the responsibility of the Soliciting Dealer.
Subscribers will be admitted as stockholders not later than the last day
of the calendar month following acceptance of their subscriptions.
PROCEDURES APPLICABLE TO NON-TELEPHONIC ORDERS. Each Soliciting Dealer
receiving a subscriber's check made payable solely to the bank escrow agent
(where, pursuant to such Soliciting Dealer's internal supervisory procedures,
internal supervisory review must be conducted at the same location at which
subscription documents and checks are received from subscribers), will deliver
such checks to the Managing Dealer no later than the close of business of the
first business day after receipt of the subscription documents by the Soliciting
Dealer except that, in any case in which the Soliciting Dealer maintains a
branch office, and, pursuant to a Soliciting Dealer's internal supervisory
procedures, final internal supervisory review is conducted at a different
location, the branch office shall transmit the subscription documents and check
to the Soliciting Dealer conducting such internal supervisory review by the
close of business on the first business day following their receipt by the
branch office and the Soliciting Dealer shall review the subscription documents
and subscriber's check to ensure their proper execution and form and, if they
are acceptable, transmit the check to the Managing Dealer by the close of
business on the first business day after the check is received by the Soliciting
Dealer. The Managing Dealer will transmit the check to the Escrow Agent by no
later than the close of business on the first business day after the check is
received from the Soliciting Dealer.
PROCEDURES APPLICABLE TO TELEPHONIC ORDERS. Certain Soliciting Dealers
may permit investors to subscribe for Shares by telephonic order to the
Soliciting Dealer. There are no additional fees associated with telephonic
orders. Subscribers who wish to subscribe for Shares by telephonic order to the
Soliciting Dealer may complete the telephonic order either by delivering a check
in the amount necessary to purchase the Shares to be covered by the subscription
agreement to the Soliciting Dealer or by authorizing the Soliciting Dealer to
pay the purchase price for the Shares to be covered by the subscription
agreement from funds available in an account maintained by the Soliciting Dealer
on behalf of the subscriber. A subscriber must specifically authorize the
registered representative and branch manager to execute the subscription
agreement on behalf of the subscriber and must already have made or agreed to
make payment for the Shares covered by the subscription agreement.
To the extent that customers of any Soliciting Dealer wish to subscribe
and pay for Shares with funds held by or to be deposited with those firms, then
such firms shall, subject to Rule 15c2-4 promulgated under the Securities
Exchange Act of 1934, either (i) upon receipt of an executed subscription
agreement or direction to execute a subscription agreement on behalf of a
customer, to forward the offering price for the Shares covered by the
subscription agreement on or before the close of business of the first business
day following receipt or execution of a subscription agreement by such firms to
the Managing Dealer (except that, in any case in which the Soliciting Dealer
maintains a branch office, and, pursuant to a Soliciting Dealer's internal
supervisory procedures, final internal supervisory review is conducted at a
different location, the branch office shall transmit the subscription documents
and subscriber's check to the Soliciting Dealer conducting such internal
supervisory review by the close of business on the first business day following
their receipt by the branch office and the Soliciting Dealer shall review the
subscription documents and subscriber's check to ensure their proper execution
and form and, if they are acceptable, transmit the check to the Managing Dealer
by the close of business on the first business day after the check is received
by the Soliciting Dealer), or (ii) to solicit indications of interest in which
event (a) such Soliciting Dealers must subsequently contact the customer
indicating interest to confirm the interest and give instructions to execute and
return a subscription agreement or to receive authorization to execute the
subscription agreement on the customer's behalf, (b) such Soliciting Dealers
must mail acknowledgments of receipt of orders to each customer confirming
interest on the business day following such confirmation, (c) such Soliciting
Dealers must debit accounts of such customers on the fifth business day (the
debit date ) following receipt of the confirmation referred to in (a), and (d)
such Soliciting Dealers must forward funds to the Managing Dealer in accordance
with the procedures and on the schedule set forth in clause (i) of this
sentence. If the procedure in (ii) is adopted, subscribers' funds are not
required to be in their accounts until the debit date. The Managing Dealer will
transmit the check to the Escrow Agent by no later than the close of business on
the first business day after the check is received from the Soliciting Dealer.
Investors, however, who are residents of Florida, Iowa, Maine, Michigan,
Minnesota, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, Ohio,
Oregon, South Dakota, Tennessee, or Washington must complete and sign the
Subscription Agreement in order to subscribe for Shares and, therefore, may not
subscribe for Shares by telephone. Representatives of Soliciting Dealers who
accept telephonic orders will execute the Subscription Agreement on behalf of
investors who place such orders. All investors who telephonically subscribe for
Shares will receive, with confirmation of their subscription, a second copy of
the Prospectus.
Residents of California, Oklahoma, and Texas who telephonically subscribe
for Shares will have the right to rescind such subscriptions within ten days
from receipt of the confirmation. Such investors who do not rescind their
subscriptions within such ten-day period shall be deemed to have assented to all
of the terms and conditions of the Subscription Agreement.
ADDITIONAL SUBSCRIPTION PROCEDURES. Investors who have questions or who
wish to place orders for Shares by telephone or to participate in the
Reinvestment Plan should contact their Soliciting Dealer. Certain Soliciting
Dealers do not permit telephonic subscriptions or participation in the
Reinvestment Plan. See Summary of Reinvestment Plan. The form of
Subscription Agreement for certain Soliciting Dealers who do not permit
telephonic subscriptions or participation in the Reinvestment Plan differs
slightly from the form attached hereto as Exhibit D, primarily in that it will
eliminate one or both of these options.
Investors who wish to establish an IRA for the purpose of investing solely
in Shares may do so by completing, in addition to the Subscription Agreement,
the special IRA account form attached hereto as a part of Exhibit D appointing
Franklin Bank, N.A., an unaffiliated bank, to act as their IRA custodian. The
custodian will not have the authority to vote any of the Shares held in an IRA
except in accordance with written instructions from the beneficiary of the IRA,
although it will hold the Shares on behalf of the beneficiary and make
distributions and, at the direction and in the discretion of the beneficiary,
investments in Shares or in other securities issued by Affiliates of the
Advisor. The custodian will not have authority at any time to make investments
through any such IRA on behalf of the beneficiary if the investments do not
constitute Shares or other securities issued by Affiliates of the Advisor. The
investors will not be required to pay any initial or annual fees in connection
with any such IRA. The fees for establishing and maintaining all such IRAs will
be paid by the Advisor initially and annually up to an aggregate amount of
$5,000, and by the Company above such amount.
As of April 9, 1996, the Company had received aggregate subscription
proceeds of $57,887,405 (5,788,741 Shares) from 3,440 stockholders, including
$128,151 (12,815 Shares) issued pursuant to the Reinvestment Plan, all of whom
had been admitted as stockholders as of that date.
ESCROW ARRANGEMENTS
Subscription proceeds will be received in trust and deposited in a
separate account with SouthTrust Estate & Trust Company, Inc. (the Bank ).
The Escrow Agreement between the Company and the Bank provides that
escrowed funds will be invested by the Bank in an interest-bearing account with
the power of investment in short-term, highly liquid securities issued or
guaranteed by the U.S. Government, other investments permitted under Rule 15c2-4
of the Securities Exchange Act of 1934, as amended, or, in other short-term,
h i ghly liquid investments with appropriate safety of principal. Such
subscription funds will be released periodically (at least once per month) upon
admission of stockholders to the Company.
The interest, if any, earned on subscription proceeds will be payable only
to those subscribers whose funds have been held in escrow by the Bank for at
least 20 days. Stockholders will not otherwise be entitled to interest earned
on Company funds or to receive interest on their Invested Capital.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under the
Employee Retirement Income Security Act of 1974, as amended ( ERISA ) and the
prohibited transaction provisions of Section 4975 of the Code that may be
relevant to prospective investors. This discussion does not purport to deal
with all aspects of ERISA or the Code that may be relevant to particular
investors in light of their particular circumstances.
A PROSPECTIVE INVESTOR THAT IS AN EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA, A TAX-
QUALIFIED RETIREMENT PLAN, AN IRA, OR A GOVERNMENTAL, CHURCH, OR OTHER PLAN THAT
IS EXEMPT FROM ERISA IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR REGARDING THE
SPECIFIC CONSIDERATIONS ARISING UNDER APPLICABLE PROVISIONS OF ERISA, THE CODE,
AND STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP, OR SALE OF THE SHARES BY
SUCH PLAN OR IRA.
Fiduciary Duties and Prohibited Transactions. A fiduciary of a pension,
profit-sharing, retirement or other employee benefit plan subject to ERISA (an
ERISA Plan ) should consider the fiduciary standards under ERISA in the context
of the ERISA Plan's particular circumstances before authorizing an investment of
any portion of the ERISA Plan's assets in the Common Stock. Accordingly, such
f i d u c i ary should consider (i) whether the investment satisfies the
diversification requirements of Section 404(a)(1)(C) of ERISA; (ii) whether the
investment is in accordance with the documents and instruments governing the
ERISA Plan as required by Section 404(a)(1)(D) of ERISA; (iii) whether the
investment is prudent under Section 404(a)(1)(B) of ERISA; and (iv) whether the
investment is solely in the interests of the ERISA Plan participants and
beneficiaries and for the exclusive purpose of providing benefits to the ERISA
Plan participants and beneficiaries and defraying reasonable administrative
expenses of the ERISA Plan as required by Section 404(a)(1)(A) of ERISA.
In addition to the imposition of fiduciary standards, ERISA and Section
4975 of the Code prohibit a wide range of transactions between an ERISA Plan, an
IRA, or certain other plans (collectively, a Plan ) and persons who have
certain specified relationships to the Plan ( parties in interest within the
meaning of ERISA and disqualified persons within the meaning of the Code).
Thus, a Plan fiduciary or person making an investment decision for a Plan also
should consider whether the acquisition or the continued holding of the Shares
might constitute or give rise to a direct or indirect prohibited transaction.
Plan Assets. The prohibited transaction rules of ERISA and the Code apply
to transactions with a Plan and also to transactions with the plan assets of
the Plan. The plan assets of a Plan include the Plan's interest in an entity
in which the Plan invests and, in certain circumstances, the assets of the
entity in which the Plan holds such interest. The term plan assets is not
specifically defined in ERISA or the Code, nor, as of the date hereof, has it
been interpreted definitively by the courts in litigation. On November 13,
1986, the United States Department of Labor, the governmental agency primarily
responsible for administering ERISA, adopted a final regulation (the DOL
Regulation ) setting out the standards it will apply in determining whether an
equity investment in an entity will cause the assets of such entity to
constitute plan assets. The DOL Regulation applies for purposes of both ERISA
and Section 4975 of the Code.
Under the DOL Regulation, if a Plan acquires an equity interest in an
entity, which equity interest is not a publicly-offered security, the Plan's
assets generally would include both the equity interest and an undivided
interest in each of the entity's underlying assets unless certain specified
exceptions apply. The DOL Regulation defines a publicly-offered security as a
security that is widely held, freely transferable, and either part of a
class of securities registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the Exchange Act ), or sold pursuant to an
effective registration statement under the Securities Act (provided the
securities are registered under the Exchange Act within 120 days after the end
of the fiscal year of the issuer during which the offering occurred). The
Shares are being sold in an offering registered under the Securities Act of
1933, as amended, and will be registered within the relevant time period under
Section 12(b) of the Exchange Act.
The DOL Regulation provides that a security is widely held only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. However, a class of securities will not fail
to be widely held solely because the number of independent investors falls
below 100 subsequent to the initial public offering as a result of events beyond
the issuer's control. The Company expects the Shares to be widely held upon
completion of the offering.
T h e DOL Regulation provides that whether a security is freely
transferable is a factual question to be determined on the basis of all the
relevant facts and circumstances. The DOL Regulation further provides that when
a security is part of an offering in which the minimum investment is $10,000 or
less, as is the case with this offering, certain restrictions ordinarily will
not affect, alone or in combination, the finding that such securities are freely
transferable. The Company believes that the restrictions imposed under the
Articles of Incorporation on the transfer of the Common Stock are limited to
restrictions on transfer generally permitted under the DOL Regulation and are
not likely to result in the failure of the Common Stock to be freely
transferable. See Summary of the Articles of Incorporation and Bylaws
Restriction on Ownership. The DOL Regulation only establishes a presumption in
favor of a finding of free transferability and, therefore, no assurance can be
given that the Department of Labor and the U.S. Treasury Department would not
reach a contrary conclusion with respect to the Common Stock.
Assuming that the Shares will be widely held and freely transferable,
the Company believes that the Shares will be publicly-offered securities for
purposes of the DOL Regulation and that the assets of the Company will not be
deemed to be plan assets of any Plan that invests in the Shares.
DETERMINATION OF OFFERING PRICE
The offering price per Share was determined by the Company based upon the
estimated costs of acquiring the Properties, the fees to be paid to the Advisor
and its Affiliates, as well as fees to third parties, and the expenses of this
offering.
SUPPLEMENTAL SALES MATERIAL
Shares are being offered only through this Prospectus. In addition to
this Prospectus, the Company may use certain sales materials in connection with
this offering, although only when accompanied or preceded by the delivery of
this Prospectus. No sales material may be used unless it has first been
approved in writing by the Company. As of the date of this Prospectus, it is
anticipated that the following sales material will be authorized for use by the
Company in connection with this offering: (i) a brochure entitled CNL American
Properties Fund, Inc.; (ii) a brochure describing CNL Group, Inc. and its
affiliated entities; (iii) a fact sheet describing the general features of the
Company; (iv) a cover letter transmitting the Prospectus; (v) a summary
description of the offering; (vi) a slide presentation; (vii) broker updates;
(viii) an audio cassette presentation; (ix) a video presentation; (x) a script
for telephonic marketing; (xi) seminar advertisements and invitations; and
(xii) certain third-party articles. All such materials will be used only by
registered broker-dealers which are members of the NASD. The Company also may
respond to specific questions from Soliciting Dealers and prospective investors.
Additional materials relating to the offering may be made available to
Soliciting Dealers for their internal use.
LEGAL OPINIONS
The legality of the Shares being offered hereby has been passed upon for
the Company by Shaw, Pittman, Potts & Trowbridge. Statements made under Risk
Factors Federal Income Tax Risks and Federal Income Tax Considerations have
been reviewed by Shaw, Pittman, Potts & Trowbridge, who have given their opinion
that such statements as to matters of law are correct in all material respects.
Shaw, Pittman, Potts & Trowbridge serves as securities and tax counsel to the
Company and to the Advisor and certain of their Affiliates. Shaw, Pittman,
Potts & Trowbridge has not reviewed any sticker supplement to the Prospectus or
amendment to the registration statement subsequent to August 8, 1995. Certain
members of the firm have invested in prior programs sponsored by the Affiliates
of the Company in aggregate amounts which do not exceed one percent of the
amounts sold by any such program, and members of the firm also may invest in the
Company.
EXPERTS
The audited consolidated financial statements (including the financial
statement schedule) of the Company, as of December 31, 1995 and 1994, and for
the year ended December 31, 1995 and for the period May 2, 1994 (date of
inception) through December 31, 1994, included in this Prospectus, have been
included herein in reliance on the report of Coopers & Lybrand, L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission with respect to the securities offered hereby. This Prospectus does
not contain all information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. The information so omitted may be obtained from the principal
office of the Commission in Washington, D.C., upon payment of the fee prescribed
by the Commission, or examined at the principal office of the Commission without
charge.
DEFINITIONS
Acquisition Expenses shall mean any and all expenses incurred by the
Company, the Advisor, or any Affiliate of either in connection with the
selection or acquisition of any Property or the making of any Mortgage Loan,
whether or not acquired, including, without limitation, legal fees and expenses,
travel and communication expenses, costs of appraisals, nonrefundable option
payments on property not acquired, accounting fees and expenses, and title
insurance.
Acquisition Fees shall mean any and all fees and commissions, exclusive
of Acquisition Expenses, paid by any person or entity to any other person or
entity (including any fees or commissions paid by or to any Affiliate of the
Company or the Advisor) in connection with making or investing in mortgage loans
and the selection or acquisition of any Property, including, without limitation,
Development/Construction Management Fees, Construction Financing Fees, real
e s t a t e commissions, acquisition fees, finder's fees, selection fees,
nonrecurring management fees, consulting fees, loan fees, points, or any other
fees or commissions of a similar nature. Excluded shall be
development/construction management fees paid to any person or entity not
affiliated with the Advisor in connection with the actual development and
construction of any Property.
Advisor shall mean CNL Fund Advisors, Inc., a Florida corporation, any
successor advisor to the Company, or any person or entity to which CNL Fund
Advisors, Inc. or any successor advisors subcontracts substantially all of its
functions.
Advisory Agreement shall mean the Advisory Agreement between the Company
and the Advisor, pursuant to which the Advisor will act as the advisor to the
Company and provide specified services to the Company.
Affiliate shall mean (i) any person or entity directly or indirectly
through one or more intermediaries controlling, controlled by, or under common
control with another person or entity; (ii) any person or entity directly or
indirectly owning, controlling, or holding with power to vote ten percent (10%)
or more of the outstanding voting securities of another person or entity; (iii)
any officer, director, partner, or trustee of such person or entity; (iv) any
person ten percent (10%) or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held, with power to vote, by such
other person; and (v) if such other person or entity is an officer, director,
partner, or trustee of a person or entity, the person or entity for which such
person or entity acts in any such capacity.
Articles of Incorporation shall mean the Articles of Incorporation, as
the same may be amended from time to time, of the Company.
Asset Management Fee shall mean the fee payable to the Advisor for
day-to-day professional management services in connection with the Company and
its Properties pursuant to the Advisory Agreement.
Average Invested Assets shall mean, for a specified period, the average
of the aggregate book value of the assets of the Company invested, directly or
indirectly, in Properties and loans secured by real estate before reserves for
depreciation or bad debts or other similar non-cash reserves, computed by taking
the average of such values at the end of each month during such period.
Bank shall mean SouthTrust Estate & Trust Company, Inc., escrow agent
for the offering.
Board of Directors shall mean the Directors of the Company.
Bylaws shall mean the bylaws of the Company.
CNL shall mean CNL Group, Inc., the parent company of the Advisor and
the Managing Dealer.
Code shall mean the Internal Revenue Code of 1986, as amended.
Commitment shall mean the written commitment from a bank for a
$15,000,000 line of credit to be used by the Company to offer Secured Equipment
Leases.
Common Stock shall mean the common stock, par value $.01 per share, of
the Company.
Competitive Real Estate Commission shall mean a real estate or brokerage
commission for the purchase or sale of property which is reasonable, customary,
and competitive in light of the size, type, and location of the property. The
total of all real estate commissions paid by the Company to all persons and
entities (including the subordinated real estate disposition fee payable to the
Advisor) in connection with any Sale of one or more of the Company's Properties
shall not exceed the lesser of (i) a Competitive Real Estate Commission or (ii)
six percent of the gross sales price of the Property or Properties.
Construction Financing Fees shall mean construction financing fees
payable to Affiliates as Acquisition Fees, subject in each case to the approval
of a majority of the Board of Directors including a majority of the Independent
Directors, in connection with the acquisition of Properties from affiliated or
unaffiliated developers, to whom Affiliates of the Company have provided
construction financing. Such fees will be an amount equal to generally 1% to 2%
of the total amount of each loan plus the difference between the Affiliate-
lender's cost of funds and the amount of interest charged to the developer with
such difference determined by applying an annual percentage rate of generally
1.5% to 3% throughout the duration of the loan to the outstanding amount of the
loan.
Counsel shall mean tax counsel to the Company.
D e velopment/Construction Management Fees shall mean
development/construction management fees of generally 5% to 10% of the cost of
constructing or renovating a Property, payable to Affiliates as Acquisition
Fees, subject in each case to the approval of a majority of the Board of
Directors including a majority of the Independent Directors, in connection with
the acquisition of Properties that have been constructed or renovated by
Affiliates.
Director shall mean a member of the Board of Directors of the Company.
Distributions shall mean any distributions of money or other property by
the Company to owners of Shares, including distributions that may constitute a
return of capital for federal income tax purposes.
Equipment shall mean the furniture, fixtures and equipment used at
Restaurant Chains.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended.
ERISA Plan shall mean a pension, profit-sharing, retirement, or other
employee benefit plan subject to ERISA.
Excess Shares shall mean the excess shares exchanged for shares of
Common Stock or Preferred Stock, as the case may be, transferred or proposed to
be transferred in excess of the Ownership Limit or which would otherwise
jeopardize the Company's status as a REIT under the Code.
Front-End Fees shall mean fees and expenses paid by any person or entity
to any person or entity for any services rendered in connection with the
organization of the Company and the acquisition of Properties, including Selling
Commissions, marketing support and due diligence expense reimbursement fees,
Organizational and Offering Expenses, Acquisition Expenses, Acquisition Fees,
and any other similar fees, however designated. During the term of the Company,
Front-End Fees shall not exceed 20% of Gross Proceeds.
Gross Proceeds shall mean the aggregate purchase price of all Shares
sold for the account of the Company through the offering, without deduction for
Selling Commissions, volume discounts, the marketing support and due diligence
expense reimbursement fee or Organization and Offering Expenses. For the
purpose of computing Gross Proceeds, the purchase price of any Share for which
reduced Selling Commissions are paid to the Managing Dealer or a Soliciting
Dealer (where net proceeds to the Company are not reduced) shall be deemed to be
$10.00.
Independent Director shall mean a Director who is not and within the
last two years has not been directly or indirectly associated with the Advisor
by virtue of (i) ownership of an interest in the Advisor or its Affiliates,
(ii) employment by the Advisor or its Affiliates, (iii) service as an officer or
director of the Advisor or its Affiliates, (iv) the performance of services,
other than as a Director, for the Company, (v) service as a director or trustee
of more than three real estate investment trusts advised by the Advisor, or
(vi) maintenance of a material business or professional relationship with the
Advisor or any of its Affiliates. A business or professional relationship is
considered material if the gross revenue derived by the Director from the
Advisor and Affiliates exceeds 5% of either the Company's annual gross revenue
during either of the last two years or the Director's net worth on a fair market
value basis.
Independent Expert shall mean a person or entity with no material
current or prior business or personal relationship with the Advisor or the
Directors and who is engaged to a substantial extent in the business of
rendering opinions regarding the value of assets of the type held by the
Company.
Invested Capital shall mean the amount calculated by multiplying the
total number of Shares purchased by stockholders by the issue price, reduced by
the portion of any Dividend that is attributable to Net Sales Proceeds and by
any amounts paid by the Company to repurchase Shares pursuant to the plan for
redemption of Shares.
Investment in Properties shall mean the amount of the Net Offering
Proceeds actually paid or allocated by the Company, either directly or through
joint venture arrangements or other partnerships, to the purchase, development,
construction, or improvement (including WORKING CAPITAL RESERVES OF UP TO FIVE
PERCENT OF THE NET OFFERING PROCEEDS) OF PROPERTIES, AND OTHER CASH PAYMENTS
SUCH AS INTEREST AND TAXES, BUT EXCLUDING FRONT-END FEES.
IRA SHALL MEAN AN INDIVIDUAL RETIREMENT ACCOUNT.
IRS SHALL MEAN THE INTERNAL REVENUE SERVICE.
JOINT VENTURES SHALL MEAN THE JOINT VENTURE OR GENERAL PARTNERSHIP
ARRANGEMENTS IN WHICH THE COMPANY IS A CO-VENTURER OR GENERAL PARTNER WHICH ARE
ESTABLISHED TO ACQUIRE PROPERTIES.
LISTING SHALL MEAN THE LISTING OF THE SHARES OF THE COMPANY ON A
NATIONAL SECURITIES EXCHANGE OR OVER-THE-COUNTER MARKET.
LOAN SHALL MEAN A LOAN, THE MAXIMUM PRINCIPAL AMOUNT OF WHICH SHALL NOT
EXCEED 10% OF GROSS PROCEEDS.
MANAGING DEALER SHALL MEAN CNL SECURITIES CORP., AN AFFILIATE OF THE
ADVISOR, OR SUCH OTHER PERSON OR ENTITY SELECTED BY THE BOARD OF DIRECTORS TO
ACT AS THE MANAGING DEALER FOR THE OFFERING. CNL SECURITIES CORP. IS A MEMBER
OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
MORTGAGE LOANS SHALL MEAN NOTES OR OTHER EVIDENCES OF INDEBTEDNESS OR
O B L IGATIONS WHICH ARE SECURED OR COLLATERALIZED BY BUILDING OR OTHER
IMPROVEMENTS IN REAL PROPERTY.
MORTGAGE MANAGEMENT FEE SHALL MEAN THE FEE PAYABLE TO THE ADVISOR FOR
THE DAY-TO-DAY PROFESSIONAL MANAGEMENT SERVICES IN CONNECTION WITH THE COMPANY
AND ITS MORTGAGE LOANS.
NET ASSETS SHALL MEAN THE TOTAL ASSETS OF THE COMPANY (OTHER THAN
INTANGIBLES) AT COST BEFORE DEDUCTING DEPRECIATION OR OTHER NON-CASH RESERVES
LESS TOTAL LIABILITIES, CALCULATED QUARTERLY BY THE COMPANY, ON A BASIS
CONSISTENTLY APPLIED.
NET INCOME SHALL MEAN FOR ANY PERIOD, THE TOTAL REVENUES APPLICABLE TO
SUCH PERIOD, LESS THE TOTAL EXPENSES APPLICABLE TO SUCH PERIOD EXCLUDING
ADDITIONS TO RESERVES FOR DEPRECIATION, BAD DEBTS OR OTHER SIMILAR NON-CASH
RESERVES; PROVIDED, HOWEVER, NET INCOME FOR PURPOSES OF CALCULATING TOTAL
ALLOWABLE OPERATING EXPENSES (AS DEFINED HEREIN) SHALL EXCLUDE THE GAIN FROM THE
SALE OF THE COMPANY'S ASSETS.
NET OFFERING PROCEEDS SHALL MEAN GROSS PROCEEDS LESS (I) SELLING
COMMISSIONS, (II) ORGANIZATIONAL AND OFFERING EXPENSES, AND (III) THE MARKETING
SUPPORT AND DUE DILIGENCE EXPENSE REIMBURSEMENT FEE.
NET SALES PROCEEDS SHALL MEAN, IN THE CASE OF A TRANSACTION DESCRIBED IN
CLAUSE (I)(A) OF THE DEFINITION OF SALE, THE PROCEEDS OF ANY SUCH TRANSACTION
LESS THE AMOUNT OF ALL REAL ESTATE COMMISSIONS AND CLOSING COSTS PAID BY THE
COMPANY. IN THE CASE OF A TRANSACTION DESCRIBED IN CLAUSE (I)(B) OF SUCH
DEFINITION, NET SALES PROCEEDS MEANS THE PROCEEDS OF ANY SUCH TRANSACTION LESS
THE AMOUNT OF ANY LEGAL AND OTHER SELLING EXPENSES INCURRED IN CONNECTION WITH
SUCH TRANSACTION. IN THE CASE OF A TRANSACTION DESCRIBED IN CLAUSE (I)(C) OF
SUCH DEFINITION, NET SALES PROCEEDS MEANS THE PROCEEDS OF ANY SUCH TRANSACTION
ACTUALLY DISTRIBUTED TO THE COMPANY FROM THE JOINT VENTURE. IN THE CASE OF A
TRANSACTION OR SERIES OF TRANSACTIONS DESCRIBED IN CLAUSE (I)(D) OF THE
DEFINITION OF SALE, NET SALES PROCEEDS MEANS THE PROCEEDS OF ANY SUCH
TRANSACTION LESS THE AMOUNT OF ALL COMMISSIONS AND CLOSING COSTS PAID BY THE
COMPANY. IN THE CASE OF A TRANSACTION DESCRIBED IN CLAUSE (II) OF THE
DEFINITION OF SALE, NET SALES PROCEEDS MEANS THE PROCEEDS OF SUCH TRANSACTION OR
SERIES OF TRANSACTIONS LESS ALL AMOUNTS GENERATED THEREBY AND REINVESTED IN ONE
OR MORE PROPERTIES WITHIN 180 DAYS THEREAFTER AND LESS THE AMOUNT OF ANY REAL
ESTATE COMMISSIONS, CLOSING COSTS, AND LEGAL AND OTHER SELLING EXPENSES INCURRED
BY OR ALLOCATED TO THE COMPANY IN CONNECTION WITH SUCH TRANSACTION OR SERIES OF
TRANSACTIONS. NET SALES PROCEEDS SHALL ALSO INCLUDE, IN THE CASE OF ANY LEASE
OF A PROPERTY CONSISTING OF A BUILDING ONLY OR ANY SECURED EQUIPMENT LEASE, ANY
AMOUNTS FROM TENANTS OR LESSEES THAT THE COMPANY DETERMINES, IN ITS DISCRETION,
TO BE ECONOMICALLY EQUIVALENT TO PROCEEDS OF A SALE. NET SALES PROCEEDS SHALL
NOT INCLUDE ANY RESERVES ESTABLISHED BY THE COMPANY IN ITS SOLE DISCRETION.
OPERATING EXPENSES SHALL INCLUDE ALL COSTS AND EXPENSES INCURRED BY THE
COMPANY, AS DETERMINED UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, WHICH IN
ANY WAY ARE RELATED TO THE OPERATION OF THE COMPANY OR TO COMPANY BUSINESS,
INCLUDING (A) ADVISORY FEES, (B) THE SOLICITING DEALER SERVICING FEE, (C) THE
ASSET MANAGEMENT FEE, (D) THE PERFORMANCE FEE, AND (E) THE SUBORDINATED
INCENTIVE FEE, BUT EXCLUDING (I) THE EXPENSES OF RAISING CAPITAL SUCH
AS ORGANIZATIONAL AND OFFERING EXPENSES, LEGAL, AUDIT, ACCOUNTING, UNDERWRITING,
BROKERAGE, LISTING, REGISTRATION, AND OTHER FEES, PRINTING AND OTHER SUCH
EXPENSES, AND TAX INCURRED IN CONNECTION WITH THE ISSUANCE, DISTRIBUTION,
TRANSFER, REGISTRATION, AND LISTING OF THE SHARES, (II) INTEREST PAYMENTS,
(III) TAXES, (IV) NON-CASH EXPENDITURES SUCH AS DEPRECIATION, AMORTIZATION, AND
BAD DEBT RESERVES, (V) THE ADVISOR'S SUBORDINATED 10% SHARE OF NET SALES
PROCEEDS, (VI) THE SECURED EQUIPMENT LEASE SERVICING FEE, AND (VII) ACQUISITION
FEES AND ACQUISITION EXPENSES, REAL ESTATE COMMISSIONS ON THE SALE OF PROPERTY
AND OTHER EXPENSES CONNECTED WITH THE ACQUISITION AND OWNERSHIP OF REAL ESTATE
INTERESTS, MORTGAGE LOANS, OR OTHER PROPERTY (SUCH AS THE COSTS OF FORECLOSURE,
INSURANCE PREMIUMS, LEGAL SERVICES, MAINTENANCE, REPAIR, AND IMPROVEMENT OF
PROPERTY).
ORGANIZATIONAL AND OFFERING EXPENSES SHALL MEAN ANY AND ALL COSTS AND
EXPENSES, OTHER THAN SELLING COMMISSIONS, THE 0.5% MARKETING SUPPORT AND DUE
DILIGENCE EXPENSE REIMBURSEMENT FEE, AND THE SOLICITING DEALER SERVICING FEE
INCURRED BY THE COMPANY, THE ADVISOR OR ANY AFFILIATE OF EITHER IN CONNECTION
WITH THE FORMATION, QUALIFICATION, AND REGISTRATION OF THE COMPANY AND THE
MARKETING AND DISTRIBUTION OF SHARES, INCLUDING, WITHOUT LIMITATION, THE
F O L L O WING: LEGAL, ACCOUNTING, AND ESCROW FEES; PRINTING, AMENDING,
SUPPLEMENTING, MAILING, AND DISTRIBUTING COSTS; FILING, REGISTRATION, AND
QUALIFICATION FEES AND TAXES; TELEGRAPH AND TELEPHONE COSTS; AND ALL ADVERTISING
A N D MARKETING EXPENSES, INCLUDING THE COSTS RELATED TO INVESTOR AND
BROKER-DEALER SALES MEETINGS.
OWNERSHIP LIMIT SHALL MEAN, WITH RESPECT TO SHARES OF COMMON STOCK AND
PREFERRED STOCK, THE PERCENT LIMITATION PLACED ON THE OWNERSHIP OF COMMON STOCK
AND PREFERRED STOCK BY ANY ONE PERSON (AS DEFINED IN THE ARTICLES OF
INCORPORATION). AS OF THE INITIAL DATE OF THIS PROSPECTUS, THE OWNERSHIP LIMIT
IS 9.8% OF THE OUTSTANDING COMMON STOCK AND 9.8% OF THE OUTSTANDING PREFERRED
STOCK.
PARTICIPANTS SHALL MEAN THOSE STOCKHOLDERS WHO ELECT TO PARTICIPATE IN
THE REINVESTMENT PLAN.
PERFORMANCE FEE SHALL MEAN THE FEE PAYABLE TO THE ADVISOR UNDER CERTAIN
C I R CUMSTANCES IF CERTAIN PERFORMANCE STANDARDS HAVE BEEN MET AND THE
SUBORDINATED INCENTIVE FEE HAS NOT BEEN PAID.
PLAN SHALL MEAN ERISA PLANS, IRAS, KEOGH PLANS, STOCK BONUS PLANS, AND
CERTAIN OTHER PLANS.
PREFERRED STOCK SHALL MEAN ANY CLASS OR SERIES OF PREFERRED STOCK OF THE
COMPANY THAT MAY BE ISSUED IN ACCORDANCE WITH THE TERMS OF THE ARTICLES OF
INCORPORATION AND APPLICABLE LAW.
PROPERTIES SHALL MEAN (I) THE REAL PROPERTIES, INCLUDING THE BUILDINGS
LOCATED THEREON (II) THE REAL PROPERTIES ONLY, OR (III) THE BUILDINGS ONLY,
WHICH ARE ACQUIRED BY THE COMPANY, EITHER DIRECTLY OR THROUGH JOINT VENTURE
ARRANGEMENTS OR OTHER PARTNERSHIPS.
PROSPECTUS SHALL MEAN THE FINAL PROSPECTUS INCLUDED IN THE COMPANY'S
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
PURSUANT TO WHICH THE COMPANY WILL OFFER SHARES TO THE PUBLIC, AS THE SAME MAY
BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF SUCH
REGISTRATION STATEMENT.
QUALIFIED PLANS SHALL MEAN QUALIFIED PENSION, PROFIT-SHARING, AND STOCK
BONUS PLANS, INCLUDING KEOGH PLANS AND IRAS.
REAL ESTATE ASSET VALUE SHALL MEAN THE AMOUNT ACTUALLY PAID OR ALLOCATED
TO THE PURCHASE, DEVELOPMENT, CONSTRUCTION OR IMPROVEMENT OF A PROPERTY,
EXCLUSIVE OF ACQUISITION FEES AND ACQUISITION EXPENSES.
REINVESTMENT AGENT OR AGENT SHALL MEAN THE INDEPENDENT AGENT, WHICH
CURRENTLY IS MMS ESCROW AND TRANSFER AGENCY, INC., FOR PARTICIPANTS IN THE
REINVESTMENT PLAN.
REINVESTMENT PLAN SHALL MEAN THE REINVESTMENT PLAN, IN THE FORM ATTACHED
HERETO AS EXHIBIT A.
REINVESTMENT PROCEEDS SHALL MEAN NET PROCEEDS AVAILABLE FROM THE SALE OF
SHARES UNDER THE REINVESTMENT PLAN TO REDEEM SHARES OR, UNDER CERTAIN
CIRCUMSTANCES, TO PURCHASE ADDITIONAL PROPERTIES.
REIT SHALL MEAN REAL ESTATE INVESTMENT TRUST, AS DEFINED PURSUANT TO
SECTIONS 856 THROUGH 860 OF THE CODE.
RELATED PARTY TENANT SHALL MEAN A RELATED PARTY TENANT, AS DEFINED
PURSUANT TO SECTION 856(D)(2)(B) OF THE CODE.
RESTAURANT CHAINS SHALL MEAN THE NATIONAL AND REGIONAL RESTAURANT
CHAINS, PRIMARILY FAST-FOOD, FAMILY-STYLE, AND CASUAL DINING CHAINS, TO BE
SELECTED BY THE ADVISOR WHO THEMSELVES OR THEIR FRANCHISEES WILL EITHER
(I) LEASE THE PROPERTIES PURCHASED BY THE COMPANY, (II) BECOME BORROWERS UNDER
MORTGAGE LOANS, OR (III) BECOME LESSEES OF SECURED EQUIPMENT LEASES.
ROLL-UP ENTITY SHALL MEAN A PARTNERSHIP, REAL ESTATE INVESTMENT TRUST,
CORPORATION, TRUST, OR SIMILAR ENTITY THAT WOULD BE CREATED OR WOULD SURVIVE
AFTER THE SUCCESSFUL COMPLETION OF A PROPOSED ROLL-UP TRANSACTION.
ROLL-UP TRANSACTION SHALL MEAN A TRANSACTION INVOLVING THE ACQUISITION,
MERGER, CONVERSION, OR CONSOLIDATION, DIRECTLY OR INDIRECTLY, OF THE COMPANY AND
THE ISSUANCE OF SECURITIES OF A ROLL-UP ENTITY. SUCH TERM DOES NOT INCLUDE:
(I) A TRANSACTION INVOLVING SECURITIES OF THE COMPANY THAT HAVE BEEN LISTED ON A
NATIONAL SECURITIES EXCHANGE OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS
AUTOMATED QUOTATION NATIONAL MARKET SYSTEM FOR AT LEAST 12 MONTHS; OR (II) A
TRANSACTION INVOLVING THE CONVERSION TO CORPORATE, TRUST, OR ASSOCIATION FORM OF
ONLY THE COMPANY IF, AS A CONSEQUENCE OF THE TRANSACTION, THERE WILL BE NO
SIGNIFICANT ADVERSE CHANGE IN STOCKHOLDER VOTING RIGHTS, THE TERM OF EXISTENCE
OF THE COMPANY, COMPENSATION TO THE ADVISOR, OR THE INVESTMENT OBJECTIVES OF THE
COMPANY.
SALE (I) SHALL MEAN ANY TRANSACTION OR SERIES OF TRANSACTIONS WHEREBY:
(A) THE COMPANY SELLS, GRANTS, TRANSFERS, CONVEYS, OR RELINQUISHES ITS OWNERSHIP
OF ANY PROPERTY OR PORTION THEREOF, INCLUDING THE LEASE OF ANY PROPERTY
CONSISTING OF THE BUILDING ONLY, AND INCLUDING ANY EVENT WITH RESPECT TO ANY
PROPERTY WHICH GIVES RISE TO A SIGNIFICANT AMOUNT OF INSURANCE PROCEEDS OR
CONDEMNATION AWARDS; (B) THE COMPANY SELLS, GRANTS, TRANSFERS, CONVEYS, OR
RELINQUISHES ITS OWNERSHIP OF ALL OR SUBSTANTIALLY ALL OF THE INTEREST OF THE
COMPANY IN ANY JOINT VENTURE IN WHICH IT IS A CO-VENTURER OR PARTNER; (C) ANY
JOINT VENTURE IN WHICH THE COMPANY AS A CO-VENTURER OR PARTNER SELLS, GRANTS,
TRANSFERS, CONVEYS, OR RELINQUISHES ITS OWNERSHIP OF ANY PROPERTY OR PORTION
THEREOF, INCLUDING ANY EVENT WITH RESPECT TO ANY PROPERTY WHICH GIVES RISE TO
INSURANCE CLAIMS OR CONDEMNATION AWARDS OR, (D) THE COMPANY SELLS, GRANTS,
CONVEYS OR RELINQUISHES ITS INTEREST IN ANY MORTGAGE LOAN OR SECURED EQUIPMENT
LEASE OR PORTION THEREOF, INCLUDING ANY EVENT WITH RESPECT TO ANY MORTGAGE LOAN
OR SECURED EQUIPMENT LEASE WHICH GIVES RISE TO A SIGNIFICANT AMOUNT OF INSURANCE
PROCEEDS OR SIMILAR AWARDS, BUT (II) SHALL NOT INCLUDE ANY TRANSACTION OR SERIES
OF TRANSACTIONS SPECIFIED IN CLAUSE (I)(A), (I)(B), (I)(C) OR (I)(D) ABOVE IN
WHICH THE PROCEEDS OF SUCH TRANSACTION OR SERIES OF TRANSACTIONS ARE REINVESTED
IN ONE OR MORE PROPERTIES, MORTGAGE LOANS, OR SECURED EQUIPMENT LEASES WITHIN
180 DAYS THEREAFTER.
SECURED EQUIPMENT LEASES SHALL MEAN THE EQUIPMENT FINANCING MADE
AVAILABLE BY THE COMPANY TO OPERATORS OF RESTAURANT CHAINS PURSUANT TO WHICH THE
COMPANY WILL FINANCE, THROUGH DIRECT FINANCING LEASES, THE EQUIPMENT.
SECURED EQUIPMENT LEASE SERVICING FEE SHALL MEAN THE FEE PAYABLE TO THE
ADVISOR BY THE COMPANY OUT OF THE PROCEEDS OF THE LOAN FOR NEGOTIATING SECURED
EQUIPMENT LEASES AND SUPERVISING THE SECURED EQUIPMENT LEASE PROGRAM EQUAL TO 2%
OF THE PURCHASE PRICE OF THE EQUIPMENT SUBJECT TO EACH SECURED EQUIPMENT LEASE
AND PAID UPON ENTERING INTO SUCH LEASE.
SELLING COMMISSIONS SHALL MEAN ANY AND ALL COMMISSIONS PAYABLE TO
UNDERWRITERS, MANAGING DEALERS, OR OTHER BROKER-DEALERS IN CONNECTION WITH THE
SALE OF SHARES AS DESCRIBED IN THE PROSPECTUS, INCLUDING, WITHOUT LIMITATION,
COMMISSIONS PAYABLE TO CNL SECURITIES CORP.
SHARES SHALL MEAN THE UP TO 16,500,000 SHARES OF COMMON STOCK OF THE
COMPANY TO BE SOLD IN THE OFFERING.
SOLICITING DEALER SERVICING FEE SHALL MEAN AN ANNUAL FEE OF .20% OF
INVESTED CAPITAL ON DECEMBER 31 OF EACH YEAR FOLLOWING THE YEAR IN WHICH THE
O F F E R ING TERMINATES, PAYABLE TO THE MANAGING DEALER (OR IN CERTAIN
CIRCUMSTANCES, DIRECTLY TO A SOLICITING DEALER EXEMPT FROM REGISTRATION AS A
BROKER-DEALER), WHICH IN TURN MAY REALLOW ALL OR A PORTION OF SUCH FEE TO THE
SOLICITING DEALERS WHOSE CLIENTS HOLD SHARES ON SUCH DATE.
SOLICITING DEALERS SHALL MEAN THOSE BROKER-DEALERS THAT ARE MEMBERS OF
THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., OR THAT ARE EXEMPT FROM
BROKER-DEALER REGISTRATION, AND THAT, IN EITHER CASE, ENTER INTO PARTICIPATING
BROKER OR OTHER AGREEMENTS WITH THE MANAGING DEALER TO SELL SHARES.
STOCKHOLDERS' 8% RETURN, AS OF EACH DATE, SHALL MEAN AN AGGREGATE AMOUNT
EQUAL TO AN 8% CUMULATIVE, NONCOMPOUNDED, ANNUAL RETURN ON INVESTED CAPITAL.
SUBSCRIPTION AGREEMENT SHALL MEAN THE SUBSCRIPTION AGREEMENT, IN ONE OF
THE FORMS ATTACHED HERETO AS EXHIBIT D.
SUBORDINATED INCENTIVE FEE SHALL MEAN THE FEE PAYABLE TO THE ADVISOR
UNDER CERTAIN CIRCUMSTANCES IF THE SHARES ARE LISTED ON A NATIONAL SECURITIES
EXCHANGE OR OVER-THE-COUNTER MARKET.
TERMINATION DATE SHALL MEAN THE DATE OF TERMINATION OF THE ADVISORY
AGREEMENT.
EXHIBIT A
FORM OF
AMENDED REINVESTMENT PLAN
FORM OF
AMENDED REINVESTMENT PLAN
C N L AMERICAN PROPERTIES FUND, INC., A MARYLAND CORPORATION (THE
COMPANY ), PURSUANT TO ITS ARTICLES OF INCORPORATION, ADOPTED A REINVESTMENT
PLAN (THE REINVESTMENT PLAN ) ON THE TERMS AND CONDITIONS SET FORTH BELOW.
1. REINVESTMENT OF DISTRIBUTIONS. MMS ESCROW AND TRANSFER AGENCY, INC.,
THE AGENT (THE REINVESTMENT AGENT ) FOR PARTICIPANTS (THE PARTICIPANTS ) IN
THE REINVESTMENT PLAN, WILL RECEIVE ALL CASH DISTRIBUTIONS MADE BY THE COMPANY
WITH RESPECT TO SHARES OF COMMON STOCK OF THE COMPANY (THE SHARES ) OWNED BY
EACH PARTICIPANT (COLLECTIVELY, THE DISTRIBUTIONS ). THE REINVESTMENT AGENT
WILL APPLY SUCH DISTRIBUTIONS AS FOLLOWS:
(A) PRIOR TO THE TERMINATION OF THE PUBLIC OFFERING OF SHARES, THE
REINVESTMENT AGENT WILL INVEST DISTRIBUTIONS IN SHARES ACQUIRED FROM THE
MANAGING DEALER OR PARTICIPATING BROKERS FOR THE OFFERING AT THE PUBLIC
OFFERING PRICE PER SHARE, OR $10.00 PER SHARE. COMMISSIONS AND THE
MARKETING SUPPORT AND DUE DILIGENCE FEE EQUAL TO 0.5% OF THE TOTAL AMOUNT
RAISED FROM SALE OF THE SHARES WILL BE PAID TO THE BROKER WHO MADE THE
INITIAL SALE OF SHARES TO THE PARTICIPANT AT THE SAME RATE AS FOR INITIAL
PURCHASES.
(B) A F TER TERMINATION OF THE PUBLIC OFFERING OF SHARES, THE
REINVESTMENT AGENT WILL PURCHASE SHARES FROM ANY ADDITIONAL SHARES WHICH
THE COMPANY ELECTS TO REGISTER WITH THE SECURITIES AND EXCHANGE COMMISSION
(THE SEC ) FOR THE REINVESTMENT PLAN, AT A PER SHARE PRICE EQUAL TO THE
FAIR MARKET VALUE OF THE SHARES DETERMINED BY (I) QUARTERLY APPRAISAL
UPDATES PERFORMED BY THE COMPANY BASED ON A REVIEW OF THE EXISTING
APPRAISAL AND LEASE OF EACH PROPERTY, FOCUSING ON A RE-EXAMINATION OF THE
CAPITALIZATION RATE APPLIED TO THE RENTAL STREAM TO BE DERIVED FROM THAT
PROPERTY; AND (II) A REVIEW OF THE OUTSTANDING MORTGAGE LOANS AND SECURED
EQUIPMENT LEASES FOCUSING ON A DETERMINATION OF PRESENT VALUE BY A RE-
EXAMINATION OF THE CAPITALIZATION RATE APPLIED TO THE STREAM OF PAYMENTS
DUE UNDER THE TERMS OF EACH MORTGAGE LOAN AND SECURED EQUIPMENT LEASE.
THE CAPITALIZATION RATE USED BY THE COMPANY AND, AS A RESULT, THE PRICE
PER SHARE PAID BY PARTICIPANTS IN THE REINVESTMENT PLAN PRIOR TO LISTING
WILL BE DETERMINED BY THE ADVISOR IN ITS SOLE DISCRETION. THE FACTORS
THAT THE ADVISOR WILL USE TO DETERMINE THE CAPITALIZATION RATE INCLUDE (I)
ITS EXPERIENCE IN SELECTING, ACQUIRING AND MANAGING RESTAURANT PROPERTIES
SIMILAR TO THE PROPERTIES; (II) AN EXAMINATION OF THE CONDITIONS IN THE
MARKET; AND (III) CAPITALIZATION RATES IN USE BY PRIVATE APPRAISERS, TO
THE EXTENT THAT THE ADVISOR DEEMS SUCH FACTORS APPROPRIATE, AS WELL AS ANY
OTHER FACTORS THAT THE ADVISOR DEEMS RELEVANT OR APPROPRIATE IN MAKING ITS
DETERMINATION. THE COMPANY'S INTERNAL ACCOUNTANTS THEN CONVERT THE MOST
RECENT QUARTERLY BALANCE SHEET OF THE COMPANY FROM A "GAAP" BALANCE SHEET
TO A "FAIR MARKET VALUE" BALANCE SHEET. BASED ON THE "FAIR MARKET VALUE"
BALANCE SHEET, THE INTERNAL ACCOUNTANTS THEN ASSUME A SALE OF THE
COMPANY'S ASSETS AND THE LIQUIDATION OF THE COMPANY IN ACCORDANCE WITH ITS
CONSTITUTIVE DOCUMENTS AND APPLICABLE LAW AND COMPUTE THE APPROPRIATE
METHOD OF DISTRIBUTING THE CASH AVAILABLE AFTER PAYMENT OF REASONABLE
LIQUIDATION EXPENSES, INCLUDING CLOSING COSTS TYPICALLY ASSOCIATED WITH
THE SALE OF ASSETS AND SHARED BY THE BUYER AND SELLER, AND THE CREATION OF
REASONABLE RESERVES TO PROVIDE FOR THE PAYMENT OF ANY CONTINGENT
LIABILITIES. UPON LISTING OF THE SHARES ON A NATIONAL SECURITIES EXCHANGE
OR OVER-THE-COUNTER MARKET, THE REINVESTMENT AGENT MAY PURCHASE SHARES
EITHER THROUGH SUCH MARKET OR DIRECTLY FROM THE COMPANY PURSUANT TO A
REGISTRATION STATEMENT RELATING TO THE REINVESTMENT PLAN, IN EITHER CASE
AT A PER SHARE PRICE EQUAL TO THE THEN-PREVAILING MARKET PRICE ON THE
NATIONAL SECURITIES EXCHANGE OR OVER-THE-COUNTER MARKET ON WHICH THE
SHARES ARE LISTED AT THE DATE OF PURCHASE BY THE REINVESTMENT AGENT.
(C) FOR EACH PARTICIPANT, THE REINVESTMENT AGENT WILL MAINTAIN A
RECORD WHICH SHALL REFLECT FOR EACH FISCAL QUARTER THE DISTRIBUTIONS
RECEIVED BY THE REINVESTMENT AGENT ON BEHALF OF SUCH PARTICIPANT. THE
REINVESTMENT AGENT WILL USE THE AGGREGATE AMOUNT OF DISTRIBUTIONS TO ALL
P A RTICIPANTS FOR EACH FISCAL QUARTER TO PURCHASE SHARES FOR THE
PARTICIPANTS. IF THE AGGREGATE AMOUNT OF DISTRIBUTIONS TO PARTICIPANTS
EXCEEDS THE AMOUNT REQUIRED TO PURCHASE ALL SHARES THEN AVAILABLE FOR
PURCHASE, THE REINVESTMENT AGENT WILL PURCHASE ALL AVAILABLE SHARES AND
WILL RETURN ALL REMAINING DISTRIBUTIONS TO THE PARTICIPANTS WITHIN 30 DAYS
AFTER THE DATE SUCH DISTRIBUTIONS ARE MADE. THE PURCHASED SHARES WILL BE
ALLOCATED AMONG THE PARTICIPANTS BASED ON THE PORTION OF THE AGGREGATE
DISTRIBUTIONS RECEIVED BY THE REINVESTMENT AGENT ON BEHALF OF EACH
PARTICIPANT, AS REFLECTED IN THE RECORDS MAINTAINED BY THE REINVESTMENT
AGENT. THE OWNERSHIP OF THE SHARES PURCHASED PURSUANT TO THE REINVESTMENT
PLAN SHALL BE REFLECTED ON THE BOOKS OF THE COMPANY.
(D) DISTRIBUTIONS SHALL BE INVESTED BY THE REINVESTMENT AGENT IN
S H ARES PROMPTLY FOLLOWING THE PAYMENT DATE WITH RESPECT TO SUCH
DISTRIBUTIONS TO THE EXTENT SHARES ARE AVAILABLE. IF SUFFICIENT SHARES
ARE NOT AVAILABLE, DISTRIBUTIONS SHALL BE INVESTED ON BEHALF OF THE
PARTICIPANTS IN ONE OR MORE INTEREST-BEARING ACCOUNTS IN FRANKLIN BANK,
N.A., SOUTHFIELD, MICHIGAN, OR IN ANOTHER COMMERCIAL BANK APPROVED BY THE
COMPANY WHICH IS LOCATED IN THE CONTINENTAL UNITED STATES AND HAS ASSETS
OF AT LEAST $100,000,000, UNTIL SHARES ARE AVAILABLE FOR PURCHASE,
PROVIDED THAT ANY DISTRIBUTIONS THAT HAVE NOT BEEN INVESTED IN SHARES
WITHIN 30 DAYS AFTER SUCH DISTRIBUTIONS ARE MADE BY THE COMPANY SHALL BE
RETURNED TO PARTICIPANTS.
(E) THE ALLOCATION OF SHARES AMONG PARTICIPANTS MAY RESULT IN THE
OWNERSHIP OF FRACTIONAL SHARES, COMPUTED TO FOUR DECIMAL PLACES.
(F) DISTRIBUTIONS ATTRIBUTABLE TO SHARES PURCHASED ON BEHALF OF THE
PARTICIPANTS PURSUANT TO THE REINVESTMENT PLAN WILL BE REINVESTED IN
ADDITIONAL SHARES IN ACCORDANCE WITH THE TERMS HEREOF.
(G) NO CERTIFICATES WILL BE ISSUED TO A PARTICIPANT FOR SHARES
PURCHASED ON BEHALF OF THE PARTICIPANT PURSUANT TO THE REINVESTMENT PLAN.
PARTICIPANTS IN THE REINVESTMENT PLAN WILL RECEIVE STATEMENTS OF ACCOUNT
IN ACCORDANCE WITH PARAGRAPH 7 BELOW.
2. ELECTION TO PARTICIPATE. ANY STOCKHOLDER WHO PARTICIPATES IN THE
PUBLIC OFFERING OF SHARES AND WHO HAS RECEIVED A COPY OF THE FINAL PROSPECTUS
INCLUDED IN THE COMPANY'S REGISTRATION STATEMENT ON FORM S-11 FILED WITH THE SEC
MAY ELECT TO PARTICIPATE IN AND PURCHASE SHARES THROUGH THE REINVESTMENT PLAN AT
ANY TIME BY WRITTEN NOTICE TO THE COMPANY AND WOULD NOT NEED TO RECEIVE A
SEPARATE PROSPECTUS RELATING SOLELY TO THE REINVESTMENT PLAN. A PERSON WHO
BECOMES A STOCKHOLDER OTHERWISE THAN BY PARTICIPATING IN THE PUBLIC OFFERING OF
SHARES MAY PURCHASE SHARES THROUGH THE REINVESTMENT PLAN ONLY AFTER RECEIPT OF A
SEPARATE PROSPECTUS RELATING SOLELY TO THE REINVESTMENT PLAN. PARTICIPATION IN
THE REINVESTMENT PLAN WILL COMMENCE WITH THE NEXT DISTRIBUTION MADE AFTER
RECEIPT OF THE PARTICIPANT'S NOTICE, PROVIDED IT IS RECEIVED MORE THAN TEN DAYS
PRIOR TO THE LAST DAY OF THE FISCAL MONTH OR QUARTER, AS THE CASE MAY BE, TO
WHICH SUCH DISTRIBUTION RELATES. SUBJECT TO THE PRECEDING SENTENCE, REGARDLESS
OF THE DATE OF SUCH ELECTION, A SHAREHOLDER WILL BECOME A PARTICIPANT IN THE
REINVESTMENT PLAN EFFECTIVE ON THE FIRST DAY OF THE FISCAL MONTH (PRIOR TO
TERMINATION OF THE OFFERING OF SHARES) OR FISCAL QUARTER (AFTER TERMINATION OF
THE OFFERING OF SHARES) FOLLOWING SUCH ELECTION, AND THE ELECTION WILL APPLY TO
ALL DISTRIBUTIONS ATTRIBUTABLE TO THE FISCAL QUARTER OR MONTH (AS THE CASE MAY
BE) IN WHICH THE SHAREHOLDER MAKES SUCH WRITTEN ELECTION TO PARTICIPATE IN THE
REINVESTMENT PLAN AND TO ALL FISCAL QUARTERS OR MONTHS THEREAFTER.
3. DISTRIBUTION OF FUNDS. IN MAKING PURCHASES FOR PARTICIPANTS'
ACCOUNTS, THE REINVESTMENT AGENT MAY COMMINGLE DISTRIBUTIONS ATTRIBUTABLE TO
SHARES OWNED BY PARTICIPANTS IN THE REINVESTMENT PLAN.
4. PROXY SOLICITATION. THE REINVESTMENT AGENT WILL DISTRIBUTE TO
PARTICIPANTS PROXY SOLICITATION MATERIAL RECEIVED BY IT FROM THE COMPANY WHICH
IS ATTRIBUTABLE TO SHARES HELD IN THE REINVESTMENT PLAN. THE REINVESTMENT AGENT
WILL VOTE ANY SHARES THAT IT HOLDS FOR THE ACCOUNT OF A PARTICIPANT IN
ACCORDANCE WITH THE PARTICIPANT'S WRITTEN INSTRUCTIONS. IF A PARTICIPANT GIVES
A PROXY TO PERSON(S) REPRESENTING THE COMPANY COVERING SHARES REGISTERED IN THE
PARTICIPANT'S NAME, SUCH PROXY WILL BE DEEMED TO BE AN INSTRUCTION TO THE
REINVESTMENT AGENT TO VOTE THE FULL SHARES IN THE PARTICIPANT'S ACCOUNT IN LIKE
MANNER. IF A PARTICIPANT DOES NOT DIRECT THE REINVESTMENT AGENT AS TO HOW THE
SHARES SHOULD BE VOTED AND DOES NOT GIVE A PROXY TO PERSON(S) REPRESENTING THE
COMPANY COVERING THESE SHARES, THE REINVESTMENT AGENT WILL NOT VOTE SAID SHARES.
5. ABSENCE OF LIABILITY. NEITHER THE COMPANY NOR THE REINVESTMENT AGENT
SHALL HAVE ANY RESPONSIBILITY OR LIABILITY AS TO THE VALUE OF THE COMPANY'S
SHARES, ANY CHANGE IN THE VALUE OF THE SHARES ACQUIRED FOR THE PARTICIPANT'S
ACCOUNT, OR THE RATE OF RETURN EARNED ON, OR THE VALUE OF, THE INTEREST-BEARING
ACCOUNTS, IN WHICH DISTRIBUTIONS ARE INVESTED. NEITHER THE COMPANY NOR THE
REINVESTMENT AGENT SHALL BE LIABLE FOR ANY ACT DONE IN GOOD FAITH, OR FOR ANY
GOOD FAITH OMISSION TO ACT, INCLUDING, WITHOUT LIMITATION, ANY CLAIMS OF
LIABILITY (A) ARISING OUT OF THE FAILURE TO TERMINATE A PARTICIPANT'S
PARTICIPATION IN THE REINVESTMENT PLAN UPON SUCH PARTICIPANT'S DEATH PRIOR TO
RECEIPT OF NOTICE IN WRITING OF SUCH DEATH AND THE EXPIRATION OF 15 DAYS FROM
THE DATE OF RECEIPT OF SUCH NOTICE AND (B) WITH RESPECT TO THE TIME AND THE
PRICES AT WHICH SHARES ARE PURCHASED FOR A PARTICIPANT. NOTWITHSTANDING THE
FOREGOING, LIABILITY UNDER THE FEDERAL SECURITIES LAWS CANNOT BE WAIVED.
Similarly, the Company and the Reinvestment Agent have been advised that in the
opinion of certain state securities commissioners, indemnification is also
considered contrary to public policy and therefore unenforceable.
6. Suitability.
(a) Within 60 days prior to the end of each fiscal year, CNL
Securities Corp., the managing dealer of the offering ( CSC ), will mail
to each Participant a participation agreement (the Participation
Agreement ), in which the Participant will be required to represent that
there has been no material change in the Participant's financial condition
and confirm that the representations made by the Participant in the
Subscription Agreement (a form of which shall be attached to the
Participation Agreement) are true and correct as of the date of the
Participation Agreement, except as noted in the Participation Agreement or
the attached form of Subscription Agreement.
(b) Each Participant will be required to return the executed
Participation Agreement to CSC within 30 days after receipt. In the event
that a Participant fails to respond to CSC or return the completed
Participation Agreement on or before the fifteenth (15th) day after the
beginning of the fiscal year following receipt of the Participation
Agreement, the Participant's Distribution for the first fiscal quarter of
that year will be sent directly to the Participant and no Shares will be
purchased on behalf of the Participant for that fiscal quarter and,
subject to (c) below, any fiscal quarters thereafter, until CSC receives
an executed Participation Agreement from the Participant.
(c) If a Participant fails to return the executed Participation
Agreement to CSC prior to the end of the second fiscal quarter for any
year of the Participant's participation in the Reinvestment Plan, the
Participant's participation in the Reinvestment Plan shall be terminated
in accordance with Paragraph 11 below.
(d) Each Participant shall notify CSC in the event that, at any time
during his participation in the Reinvestment Plan, there is any material
change in the Participant's financial condition or inaccuracy of any
representation under the Subscription Agreement.
(e) For purposes of this Paragraph 6, a material change shall include
any anticipated or actual decrease in net worth or annual gross income or
any other change in circumstances that would cause the Participant to fail
to meet the suitability standards set forth in the Company's Prospectus.
7. Reports to Participants. Within 60 days after the end of each fiscal
quarter, the Reinvestment Agent will mail to each Participant a statement of
account describing, as to such Participant, the Distributions received during
the quarter, the number of Shares purchased during the quarter, the per Share
purchase price for such Shares, the total administrative charge to such
Participant, and the total Shares purchased on behalf of the Participant
pursuant to the Reinvestment Plan. Each statement shall also advise the
Participant that, in accordance with Paragraph 6(d) hereof, he is required to
notify CSC in the event that there is any material change in his financial
condition or if any representation under the Subscription Agreement becomes
inaccurate.
8. Administrative Charges, Commissions, and Plan Expenses. The Company
shall be responsible for all administrative changes and expenses charged by the
Reinvestment Agent. The administrative charge for each Participant for each
fiscal quarter shall be the lesser of 5% of the amount reinvested for the
Participant or $2.50, with a minimum charge of $.50. Any interest earned on
Distributions will be paid to the Company to defray costs relating to the
Reinvestment Plan. Additionally, the Company will pay to CSC selling
commissions of 7.5%, a marketing support and due diligence expense reimbursement
fee of .5%, and, in the event that proceeds of the sale of Shares pursuant to
the Reinvestment Plan are used to acquire Company properties, will pay to CNL
Fund Advisors, Inc. acquisition fees of 4.5% of the purchase price of the Shares
sold pursuant to the Reinvestment Plan.
9. No Drawing. No Participant shall have any right to draw checks or
drafts against his account or give instructions to the Company or the
Reinvestment Agent except as expressly provided herein.
10. Taxes. Taxable Participants may incur a tax liability for
Distributions made with respect to such Participant's Shares, even though they
have elected not to receive their Distributions in cash but rather to have their
Distributions held in their account under the Reinvestment Plan.
11. Termination.
(a) A Participant may terminate his participation in the Reinvestment
Plan at any time by written notice to the Company. To be effective for
any Distribution, such notice must be received by the Company at least ten
days prior to the last day of the fiscal month or quarter to which such
Distribution relates.
(b) T h e Company or the Reinvestment Agent may terminate a
Participant's individual participation in the Reinvestment Plan, and the
Company may terminate the Reinvestment Plan itself at any time by ten
d a y s' prior written notice mailed to a Participant, or to all
Participants, as the case may be, at the address or addresses shown on
their account or such more recent address as a Participant may furnish to
the Company in writing.
(c) After termination of the Reinvestment Plan or termination of a
Participant's participation in the Reinvestment Plan, the Reinvestment
Agent will send to each Participant (i) a statement of account in
accordance with Paragraph 7 hereof, and (ii) a check for (a) the amount of
any Distributions in the Participant's account that have not been
reinvested in Shares, and (b) the value of any fractional Shares standing
to the credit of a Participant's account based on the market price of the
Shares. The record books of the Company will be revised to reflect the
ownership of record of the Participant's full Shares and any future
Distributions made after the effective date of the termination will be
sent directly to the former Participant.
12. Notice. Any notice or other communication required or permitted
to be given by any provision of this Reinvestment Plan shall be in writing and
addressed to Investor Services Department, CNL Securities Corp., 400 East South
Street, Suite 500, Orlando, Florida 32801, if to the Company, or to 1845
Maxwell, Suite 101, Troy, Michigan 48084-4510, if to the Reinvestment Agent, or
such other addresses as may be specified by written notice to all Participants.
Notices to a Participant may be given by letter addressed to the Participant at
the Participant's last address of record with the Company. Each Participant
shall notify the Company promptly in writing of any change of address.
13. Amendment. The terms and conditions of this Reinvestment Plan
may be amended or supplemented by an agreement between the Reinvestment Agent
and the Company at any time, including but not limited to an amendment to the
Reinvestment Plan to add a voluntary cash contribution feature or to substitute
a new Reinvestment Agent to act as agent for the Participants or to increase the
administrative charge payable to the Reinvestment Agent, by mailing an
appropriate notice at least 30 days prior to the effective date thereof to each
Participant at his last address of record; provided, that any such amendment
must be approved by a majority of the Independent Directors of the Company.
Such amendment or supplement shall be deemed conclusively accepted by each
Participant except those Participants from whom the Company receives written
notice of termination prior to the effective date thereof.
14. Governing Law. THIS REINVESTMENT PLAN AND A PARTICIPANT'S
ELECTION TO PARTICIPATE IN THE REINVESTMENT PLAN SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF FLORIDA.
EXHIBIT B
FINANCIAL INFORMATION
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
Page
Pro Forma Consolidated Financial Information (unaudited):
Pro Forma Consolidated Balance Sheet as of December 31, 1995 B-2
Pro Forma Consolidated Statement of Earnings for the year
ended December 31, 1995 B-3
Notes to Pro Forma Consolidated Financial Statements
for the year ended December 31, 1995 B-4
Audited Consolidated Financial Statements:
Report of Independent Accountants B-8
Consolidated Balance Sheets as of December 31, 1995 and 1994 B-9
Consolidated Statements of Earnings for the year ended
December 31, 1995 and the period May 2, 1994 (date
of inception) through December 31, 1994 B-10
Consolidated Statements of Stockholders' Equity for the year ended
December 31, 1995 and the period May 2, 1994 (date of inception)
through December 31, 1994 B-11
Consolidated Statements of Cash Flows for the year ended
December 31, 1995 and the period May 2, 1994 (date of
inception) through December 31, 1994 B-12
Notes to Consolidated Financial Statements for the year
ended December 31, 1995 and the period May 2, 1994
(date of inception) through December 31, 1994 B-15
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation
as of December 31, 1995 B-29
Notes to Schedule III - Real Estate and Accumulated
Depreciation as of December 31, 1995 B-31
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Consolidated Balance Sheet of the Company gives
effect to (i) property acquisition transactions from inception through December
31, 1995, including the receipt of $38,454,158 in gross offering proceeds from
the sale of 3,845,416 shares of common stock pursuant to a Form S-11 under the
Securities Act of 1933, as amended, effective March 29, 1995, and the
application of such proceeds to purchase 18 properties (including 16 properties
which consist of land and building, one property through a joint venture
arrangement which consists of land and building and one property which consists
of building only), four of which were under construction or renovation at
December 31, 1995, and to pay organizational and offering expenses, acquisition
fees and miscellaneous acquisition expenses, (ii) the receipt of $19,433,247 in
gross offering proceeds from the sale of 1,943,325 additional shares of common
stock during the period January 1, 1996 through April 9, 1996, and (iii) the
application of such funds and $6,847,240 of cash and cash equivalents at
December 31, 1995, to purchase 30 additional properties acquired during the
period January 1, 1996 through April 9, 1996 (two of which are under
construction and consist of building only, four of which are under construction
and consist of land and building, one of which is an existing property
consisting of land and building, and 23 properties which consist of land only),
to pay additional costs for the four properties under construction or renovation
a t December 31, 1995, to pay offering expenses, acquisition fees and
miscellaneous acquisition expenses, and to provide mortgage financing to the
lessee of the 23 properties consisting of land only, all as reflected in the pro
forma adjustments described in the related notes. The Pro Forma Consolidated
Balance Sheet as of December 31, 1995, includes the transactions described in
(i) above from its historical consolidated balance sheet, adjusted to give
effect to the transactions in (ii) and (iii) above, as if they had occurred on
December 31, 1995.
The Pro Forma Consolidated Statement of Earnings for the year ended
December 31, 1995, includes the historical operating results of the properties
described in (i) above from the dates of their acquisitions plus operating
results for the six of the 48 properties that were owned by the Company as of
April 9, 1996, and had a previous rental history prior to the Company's
acquisition of such properties, from the later of (a) the date the property
became operational as a rental property by the previous owner or (b) June 2,
1995 (the date the Company became operational), to the date the property was
acquired by the Company. No pro forma adjustments have been made to the Pro
Forma Consolidated Statement of Earnings for the remaining 42 properties owned
by the Company as of April 9, 1996, due to the fact that these properties did
not have a previous rental history.
This pro forma consolidated financial information is presented for
informational purposes only and does not purport to be indicative of the
Company's financial results or condition if the various events and transactions
reflected therein had occurred on the dates, or been in effect during the
periods, indicated. This pro forma consolidated financial information should
not be viewed as predictive of the Company's financial results or conditions in
the future.
<TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
<CAPTION>
Pro Forma
ASSETS Historical Adjustments Pro Forma
<S> <C> <C> <C>
Land and buildings on operating leases,
less accumulated depreciation $19,723,726 $11,302,034 (a)
(640,510)(b) $30,385,250
Net investment in direct financing
leases (c) 1,373,882 3,295,938 (a)
1,407,516 (b) 6,077,336
Mortgage note receivable - 8,475,000 (a) 8,475,000
Cash and cash equivalents 11,508,445 (6,217,187)(a)
(624,753)(b)
(5,300)(b) 4,661,205
Receivables 113,613 113,613
Prepaid expenses 8,090 8,090
Organization costs, less accumulated
amortization 17,682 17,682
Accrued rental income 39,142 39,142
Other assets 818,504 130,402 (a) 948,906
----------- ----------- -----------
$33,603,084 $17,123,140 $50,726,224
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued construction costs payable $ 1,058,825 $ (922,062)(a)
(136,763)(b) $ -
Accounts payable and accrued expenses 79,904 79,904
Escrowed real estate taxes payable 9,696 9,696
Due to related parties 248,584 248,584
Rents paid in advance 25,351 25,351
Deferred financing income - 29,662 (a) 29,662
----------- ----------- -----------
Total liabilities 1,422,360 (1,029,163) 393,197
----------- ----------- -----------
Minority interest 200,076 273,716 (b) 473,792
----------- ----------- -----------
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000
shares - -
Excess shares, $.01 par value per
share. Authorized and unissued
23,000,000 shares - -
Common stock, $.01 par value per share.
Authorized 20,000,000 shares; issued
and outstanding 3,865,416 shares;
issued and outstanding, as adjusted,
5,808,741 shares 38,654 19,433 (a) 58,087
Capital in excess of par value 32,211,833 17,859,154 (a) 50,070,987
Accumulated distributions in excess
of net earnings (269,839) (269,839 )
----------- ----------- -----------
31,980,648 17,878,587 49,859,235
----------- ----------- -----------
$33,603,084 $17,123,140 $50,726,224
=========== =========== ===========
See accompanying notes to unaudited pro forma consolidated financial statements.
</TABLE>
<TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
Pro Forma
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Revenues:
Rental income from operating leases $ 498,817 $ 94,792 (1) $ 593,609
Earned income from direct financing
leases (2) 28,935 28,935
Contingent rental income 12,024 12,024
Interest income 119,355 (28,853)(3) 90,502
--------- --------- ---------
659,131 65,939 725,070
--------- --------- ---------
Expenses:
General operating and administrative 134,759 134,759
Professional services 8,119 8,119
Asset management fee to related party 23,078 4,368 (4) 27,446
State taxes 20,189 1,672 (5) 21,861
Depreciation and amortization 104,131 14,700 (6) 118,831
--------- --------- ---------
290,276 20,740 311,016
--------- --------- ---------
Earnings Before Minority Interest
in Earnings of Consolidated Joint
Venture 368,855 45,199 414,054
Minority Interest in Earnings of
Consolidated Joint Venture (76) (76)
--------- --------- ---------
Net Earnings $ 368,779 $ 45,199 $ 413,978
========= ========= =========
Earnings Per Share of Common Stock (7) $ .19 $ .22
========= =========
Weighted Average Number of Shares
Outstanding (7) 1,898,350 1,905,970
========= =========
See accompanying notes to unaudited pro forma consolidated financial statements.
</TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
Pro Forma Consolidated Balance Sheet:
(a) Represents gross proceeds of $19,433,247 from the issuance of 1,943,325
shares of common stock during the period January 1, 1996 through April 9,
1996, and proceeds of $29,662 of deferred financing income (loan
origination and commitment fees, net of legal fees) from the $8,475,000
mortgage financing described below, used (i) to acquire 30 properties for
$13,090,424 (of which 23 properties consist of land only, two properties
consist of building only and five properties consist of land and
building), (ii) to fund estimated construction costs of $1,685,516
( $ 922,062 of which was accrued as construction costs payable at
December 31, 1995) relating to three wholly-owned properties under
construction or renovation at December 31, 1995, (iii) to pay acquisition
fees of $874,496 ($744,094 of which was allocated to properties and
$130,402 of which was classified as other assets and will be allocated to
future properties), (iv) to pay selling commissions and offering expenses
(stock issuance costs) of $1,554,660, which have been netted against
capital in excess of par value and (v) to provide mortgage financing in
the amount of $8,475,000 to the lessee of the 23 properties consisting of
land only.
The pro forma adjustments to land and buildings on operating leases and
net investment in direct financing leases as a result of the above
transactions were as follows:
<TABLE>
Estimated
purchase price
(including con-
struction and Acquisition
closing costs) fees
and additional allocated
construction costs to property Total
<S> <C> <C> <C>
23 Pizza Huts (land
only) in Michigan
and Ohio $ 4,210,125 $ 227,138 $ 4,437,263
TGI Friday's in
Marlboro, NJ 1,290,671 69,142 1,359,813
TGI Friday's in
Hazlet, NJ 1,245,112 66,702 1,311,814
Denny's in Grand
Rapids, MI 830,394 44,485 874,879
Burger King in
Oak Lawn, IL 1,913,488 102,509 2,015,997
Burger King in
Burbank, IL 1,115,349 59,751 1,175,100
Burger King in
Indian Head Park, IL 1,272,727 68,182 1,340,909
Burger King in
Highland, IN 1,212,558 64,958 1,277,516
Three wholly owned
properties under
construction or
renovation at
December 31, 1995 763,454 41,227 804,681
----------- ----------- -----------
$13,853,878 $ 744,094 $14,597,972
=========== =========== ===========
Adjustment classified
as follows:
Land and buildings on
operating leases $11,302,034
Net investment in
direct financing
leases 3,295,938
-----------
$14,597,972
===========
</TABLE>
(b) Represents the use of $624,753 of the Company's net offering proceeds, the
assumed receipt of $273,716 in capital contributions from the Company's
co-venture partner in accordance with the joint venture agreement of
CNL/Corral South Joint Venture, and $5,300 of the consolidated joint
venture's cash on hand at December 31, 1995, from previous capital
contributions to fund estimated construction costs of $903,769 ($136,763
of which was accrued as construction costs payable at December 31, 1995)
relating to the one property of the joint venture that was under
construction at December 31, 1995. The Company accounts for its expected
76 percent interest in the accounts of CNL/Corral South Joint Venture
under the full consolidation method. All significant intercompany
accounts and transactions have been eliminated.
The pro forma adjustments to land and buildings on operating leases and
net investment in direct financing leases as a result of the above
transactions relating to the consolidated joint venture were as follows:
Additional construction costs for property owned
by consolidated joint venture under construction
at December 31, 1995 $ 767,006
----------
$ 767,006
==========
Adjustment classified as follows:
Land and building on operating leases:
Reclassification of building costs from
construction in progress at
December 31, 1995, to net invest-
ment in direct financing lease $ (640,510)
----------
Net investment in direct financing leases:
Additional construction costs 767,006
Reclassification of construction in progress 640,510
----------
1,407,516
----------
$ 767,006
==========
(c) In accordance with generally accepted accounting principles, leases in
which the present value of future minimum lease payments equals or exceeds
90 percent of the value of the related properties are treated as direct
financing leases rather than as land and buildings. The categorization of
the leases has no effect on rental revenues received. The building
portions of five of the properties (including one property owned through a
joint venture arrangement) have been classified as direct financing
leases.
Pro Forma Consiolidated Statement of Earnings
(1) Represents rental income from operating leases and earned income from
direct financing leases for the six of the 48 properties acquired during
the period from April 1, 1995 through April 9, 1996 which had a previous
rental history prior to the acquisition of the property by the Company
(the "Pro Forma Properties"), for the period commencing the later of (i)
the date the property became operational as a rental property by the
previous owner or (ii) June 2, 1995 (the date the Company became
operational), to the date the property was acquired by the Company. Each
of these six properties was acquired from an affiliate who had purchased
and temporarily held title to the property. The noncancellable leases in
place during the period the affiliate owned the properties were assigned
to the Company at the time the Company acquired the properties. The
following presents the actual date the Pro Forma Properties were acquired
by the Company as compared to the date the Pro Forma Properties were
treated as placed in service for purposes of the Pro Forma Consolidated
Statement of Earnings.
Date Placed Pro Forma
in Service Date Placed
By the Company In Service
Jack in the Box in
Los Angeles, CA June 1995 June 1995
Kenny Rogers Roasters in
Grand Rapids, MI August 1995 June 1995
Kenny Rogers Roasters in
Franklin, TN August 1995 June 1995
Denny's in Pasadena, TX September 1995 August 1995
Denny's in Shawnee, OK September 1995 August 1995
Denny's in Grand Rapids, MI March 1996 September 1995
In accordance with generally accepted accounting principles, lease revenue
from leases accounted for under the operating method is recognized over
the terms of the leases. For operating leases providing escalating
guaranteed minimum rents, income is reported on a straight-line basis over
the terms of the leases. For leases accounted for as direct financing
leases, future minimum lease payments are recorded as a receivable. The
difference between the receivable and the estimated residual values less
the cost of the properties is recorded as unearned income. The unearned
income is amortized over the lease terms to provide a constant rate of
return. Accordingly, pro forma rental income from operating leases and
earned income from direct financing leases does not necessarily represent
rental payments that would have been received if the properties had been
operational for the full pro forma period.
Generally, the leases provide for the payment of percentage rent in
addition to base rental income. However, due to the fact that no
percentage rent was due under the leases for the Pro Forma Properties
during the portion of 1995 that the previous owners held the properties,
no pro forma adjustment was made for percentage rental income.
(2) See Note (c) under "Pro Forma Consolidated Balance Sheet" above for a
description of direct financing leases.
(3) Represents adjustment to interest income due to the decrease in the amount
of cash available for investment in interest bearing accounts during the
periods commencing on the later of (i) the dates the Pro Forma Properties
became operational as rental properties by the previous owners or (ii)
June 2, 1995 (the date the Company became operational), through the actual
dates of acquisition by the Company, as described in Note (1) above. The
estimated pro forma adjustment is based upon the fact that interest income
on interest bearing accounts was earned at a rate of approximately four
percent per annum by the Company during 1995.
(4) Represents incremental increase in asset management fees relating to the
Pro Forma Properties for the period commencing the later of (i) the date
the property became operational as a rental property by the previous owner
or (ii) June 2, 1995 (the date the Company became operational), to the
date the property was acquired by the Company. Asset management fees are
equal to 0.60% of the Company's Real Estate Asset Value (estimated to be
approximately $5,241,000 for the Pro Forma Properties), as defined in the
Company's prospectus.
(5) Represents adjustment to state tax expense due to the incremental increase
in rental revenues of Pro Forma Properties. Estimated pro forma state tax
expense was calculated based on an analysis of state laws of the various
states in which the Company has acquired the Pro Forma Properties. The
estimated pro forma state taxes consist primarily of income and franchise
taxes ranging from zero to approximately three percent of the Company's
pro forma rental income of each Pro Forma Property. Due to the fact that
the Company's leases are triple net, the Company has not included any
amounts for real estate taxes in the pro forma statement of earnings.
(6) Represents incremental increase in depreciation expense of the building
portions of the Pro Forma Properties accounted for as operating leases
using the straight-line method over an estimated useful life of 30 years.
(7) Historical earnings per share were calculated based upon the weighted
average number of shares of common stock outstanding during the period the
Company was operational, June 2, 1995 (the date following when the Company
received the minimum offering proceeds and funds were released from
escrow) through December 31, 1995.
As a result of three of the six Pro Forma Properties being treated in the
Pro Forma Consolidated Statement of Earnings as placed in service on June
2, 1995 (the date the Company became operational), the Company assumed
approximately 347,100 shares of common stock were sold, and the net
offering proceeds were available for investment, on June 2, 1996. Due to
the fact that approximately 184,800 of these shares of common stock were
actually sold subsequently, during the period June 3, 1995 through June
20, 1995, the weighted average number of shares outstanding for the pro
forma period was adjusted. Pro forma earnings per share were calculated
based upon the weighted average number of shares of common stock
outstanding, as adjusted, during the period the Company was operational,
June 2, 1995 through December 31, 1995.
Report of Independent Accountants
To the Board of Directors
CNL American Properties Fund, Inc.
We have audited the accompanying consolidated balance sheets of CNL American
Properties Fund, Inc. (a Maryland corporation) and its subsidiary as of December
31, 1995 and 1994, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for the year ended December 31, 1995 and
for the period May 2, 1994 (date of inception) through December 31, 1994, and
the related financial statement schedule. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and per-form the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits pro-vide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CNL American
Properties Fund, Inc. and its subsidiary as of December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for the year
ended December 31, 1995 and for the period May 2, 1994 (date of inception)
through December 31, 1994 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole presents fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND L.L.P.
Orlando, Florida
January 22, 1996
<TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------------------
ASSETS 1995 1994
----------- ------------
<S> <C> <C>
Land and buildings on operating leases,
less accumulated depreciation $19,723,726 $ -
Net investment in direct financing lease 1,373,882 -
Cash and cash equivalents 11,508,445 945
Receivables 113,613 -
Prepaid expenses 8,090 -
Organization costs, less accumulated
amortization of $2,318 in 1995 17,682 -
Accrued rental income 39,142 -
Deferred offering costs - 928,640
Other assets 818,504 -
----------- -----------
$33,603,084 $ 929,585
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued construction costs payable $ 1,058,825 $ -
Accounts payable and accrued expenses 79,904 424,324
Escrowed real estate taxes payable 9,696 -
Due to related parties 248,584 305,261
Rents paid in advance 25,351 -
----------- -----------
Total liabilities 1,422,360 729,585
----------- -----------
Minority interest 200,076 -
----------- -----------
Commitments (Note 12)
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000
shares in 1995 - -
Excess shares, $.01 par value per share.
Authorized and unissued 23,000,000
shares in 1995 - -
Common stock, $.01 par value per share.
Authorized 20,000,000 and 100,000
shares, respectively, issued and
outstanding 3,865,416 and 20,000,
respectively 38,654 200
Capital in excess of par value 32,211,833 199,800
Accumulated distributions in excess of
net earnings (269,839) -
----------- -----------
Total stockholders' equity 31,980,648 200,000
----------- -----------
$33,603,084 $ 929,585
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
May 2, 1994
(Date of
Inception)
Year Ended through
December 31, December 31,
1995 1994
---------- ------------
<S> <C> <C>
Revenues:
Rental income from operating
leases $ 498,817 $ -
Earned income from direct financing
lease 28,935 -
Contingent rental income 12,024 -
Interest 119,355 -
---------- ----------
659,131 -
---------- ----------
Expenses:
General operating and
administrative 134,759 -
Professional services 8,119 -
Asset management fee to
related party 23,078 -
State taxes 20,189 -
Depreciation and amorti-
zation 104,131 -
---------- ----------
290,276 -
---------- ----------
Earnings Before Minority Interest in
Income of Consolidated Joint Venture 368,855 -
Minority Interest in Income of
Consolidated Joint Venture (76) -
---------- ----------
Net Earnings $ 368,779 $ -
========== ==========
Earnings Per Share of Common
Stock $ .19 $ -
========== ==========
Weighted Average Number of
Shares of Common Stock
Outstanding 1,898,350 -
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Year Ended December 31, 1995 and the
Period May 2, 1994 (Date of Inception) through
December 31, 1994
Accumulated
Common stock distributions
------------------------ Capital in in excess
Number Par excess of of net
of shares value par value earnings Total
---------- -------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
May 2, 1994 - $ - $ - $ - $ -
Sale of common
stock to CNL
Fund Advisors,
Inc. 20,000 200 199,800 - 200,000
---------- ------- ----------- --------- -----------
Balance at
December 31, 1994 20,000 200 199,800 - 200,000
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment plan 3,845,416 38,454 38,415,704 - 38,454,158
Stock issuance costs - - (6,403,671) - (6,403,671)
Net earnings - - - 368,779 368,779
Distributions
declared ($.03
to $.06 per
share) - - - (638,618) (638,618 )
---------- ------- ----------- --------- -----------
Balance at
December 31, 1995 3,865,416 $38,654 $32,211,833 $(269,839) $31,980,648
========== ======= =========== ========= ===========
See accomanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
May 2, 1994
(Date of
Inception)
Year Ended through
December 31, December 31,
1995 1994
------------ ---------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows From Operating Activities:
Cash received from tenants $ 492,488 $ -
Cash paid for expenses (113,384) -
Interest received 119,355 -
------------ ------------
Net cash provided by operating
activities 498,459 -
------------ ------------
Cash Flows From Investing Activities:
Additions to land and buildings on
operating leases (18,835,969) -
Increase in net investment in
direct financing lease (1,364,960) -
Increase in other assets (628,142) -
------------ ------------
Net cash used in investing
activities (20,829,071) -
------------ ------------
Cash Flows From Financing Activities:
Reimbursement of acquisition, organi-
zation and stock issuance costs paid
by related parties on behalf of the
Company (2,500,056) (199,036)
Contribution from minority interest
of consolidated joint venture 200,000 -
Sale of common stock to CNL Fund
Advisors, Inc. - 200,000
Subscriptions received from stock-
holders 38,454,158 -
Distributions to stockholders (635,286) -
Payment of stock issuance costs (3,680,704) (19)
------------ ------------
Net cash provided by financing
activities 31,838,112 945
------------ ------------
Net Increase in Cash and Cash Equivalents 11,507,500 945
Cash and Cash Equivalents at Beginning of
Period 945 -
------------ ------------
Cash and Cash Equivalents at End of Period $ 11,508,445 $ 945
============ ============
See accomanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
May 2, 1994
(Date of
Inception)
Year Ended through
December 31, December 31,
1995 1994
-------------- --------------
<S> <C> <C>
Reconciliation of Net Earnings to Net Cash
Provided by Operating Activities:
Net earnings $ 368,779 $ -
------------ ------------
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 100,318 -
Amortization 3,813 -
Increase in receivables (44,749) -
Decrease in net investment in direct
financing lease 1,078 -
Increase in prepaid expenses (8,090) -
Increase in accrued rental income (39,142) -
Increase in accounts payable and
accrued expenses 38,461 -
Increase in escrowed real estate
taxes payable 9,696 -
Increase in due to related parties,
excluding reimbursement of acqui-
sition, organization and stock
issuance costs paid on behalf
of the Company 42,868 -
Increase in rents paid in advance 25,351 -
Increase in minority interest 76 -
------------ ------------
Total adjustments 129,680 -
------------ ------------
Net Cash Provided by Operating Activities $ 498,459 $ -
============ ============
See accomanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
May 2, 1994
(Date of
Inception)
Year Ended through
December 31, December 31,
1995 1994
<S> <C> <C>
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain
acquisition, organization and
stock issuance costs on behalf
of the Company as follows:
Acquisition costs $ 131,629 $ -
Organization costs 20,000 -
Stock issuance costs 2,084,145 461,866
------------ ------------
$ 2,235,774 $ 461,866
============ ============
Land, building and other costs
incurred and unpaid at end of
period $ 1,127,167 $ -
============ ============
Commissions, marketing support and
due diligence expense reimbursement
fee, and other stock issuance costs
incurred and unpaid at end of period $ 176,937 $ 729,585
============ ============
Distributions declared and unpaid at
end of period $ 3,332 $ -
============ ============
</TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund, Inc. (the
"Company") was organized in Maryland on May 2, 1994. Effective December
6, 1994, the Company changed its name to CNL Investment Fund, Inc. and
effective February 1, 1995, the Company changed its name to CNL American
Properties Fund, Inc. The Company was organized primarily for the purpose
of acquiring, directly or indirectly through joint venture or co-tenancy
arrangements, restaurant properties (the "Properties") to be leased on a
long-term, triple-net basis to operators of certain national and regional
fast-food, family-style and casual dining restaurant chains. To a lesser
extent, the Company intends to offer furniture, fixtures and equipment
financing ("Secured Equipment Leases") to operators of restaurant chains.
The Company may provide financing (the "Mortgage Loans") for the purchase
of buildings, generally be tenants that lease the underlying land from the
Company. Secured Equipment Leases will be funded from the proceeds of a
loan of up to ten percent of the gross offering proceeds which the Company
intends to obtain.
The Company was a development stage enterprise from May 2, 1994 through
June 1, 1995. Since operations had not begun, activities through June 1,
1995, were devoted to organization of the Company.
Principles of Consolidation - The Company accounts for its expected 76
percent interest in CNL/Corral South Joint Venture, a Florida general
partnership, under the full consolidation method. Minority interest
represents the minority joint venture partner's proportionate share of the
equity in the Company's consolidated subsidiary. All significant
intercompany accounts and trans-actions have been eliminated.
Land and Buildings on Operating Leases - Land and buildings on operating
leases are stated at cost. Buildings are depreciated on the straight-line
method over their estimated useful life of 30 years. When the Properties
are sold, the related cost and accumulated depreciation will be removed
from the accounts and gains or losses from sale will be reflected in
income. The Properties will be written down to net realizable value in
the event management believes that the undepreciated cost cannot be
recovered through operations. Management determines whether an impairment
in value has occurred by comparing the estimated undiscounted cash flows
with the carrying cost of the individual Properties.
Acquisition Fees and Miscellaneous Acquisition Expenses - Acquisi-tion
fees and miscellaneous acquisitions expenses attributable to the Company's
investment in Properties are capitalized and allo-cated to land and
buildings on operating leases, net investment in direct financing lease
and other assets (See Note 6).
Lease Accounting - The leases are accounted for under either the direct
financing or the operating methods. Such methods are described below:
Direct financing method - The lease accounted for under the
direct financing method is recorded at its net investment(See
Note 5). Unearned income is deferred and amortized to income
over the lease term so as to produce a constant periodic rate
of return on the Company's net investment in the lease.
Operating method - Land and buildings are recorded at cost,
revenue is recognized as rentals are earned and depreciation
is charged to operations as incurred. When scheduled rentals
vary during the lease term, income is recognized on a
straight-line basis so as to produce a constant periodic rent.
Accrued rental income is the aggregate difference between the
scheduled rents which vary during the lease term and the
income recognized on a straight-line basis.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents. Cash and cash equivalents consist of demand deposits at
commercial banks and money market funds (some of which are backed by
government securities). Cash equivalents are stated at cost plus accrued
interest, which approximates market value.
Cash accounts maintained on behalf of the Company in demand deposits at
commercial banks and money market funds may exceed federally insured
levels; however, the Company has not experienced any losses in such
accounts. The Company limits investment of temporary cash investments to
financial institutions with high credit standing; therefore, management
believes it is not exposed to any significant credit risk on cash and cash
equivalents.
Organization Costs - Organization costs are amortized over five years
using the straight-line method.
Income Taxes - The Company intends to make an election to be taxed as a
real estate investment trust ("REIT") under Sections 856 through 860 of
the Internal Revenue Code commencing with its taxable year ended December
31, 1995. If the Company qualifies as a REIT, the Company generally will
not be subject to federal corporate income tax to the extent it
distributes its REIT taxable income to its stockholders, so long as it
distributes at least 95 percent of its REIT taxable income. Accordingly,
no provision for federal income taxes has been made in the consolidated
f i n ancial statements. REITs are subject to a number of other
organizational and operational requirements. Even if the Company
qualifies as a REIT, it may be subject to certain state and local taxes on
its income and property, and federal income and excise taxes on its
undistributed income.
Earnings Per Share - Earnings per share are calculated based upon the
weighted average number of shares of common stock outstanding during the
period the Company was operational.
Use of Estimates - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
New Accounting Standard - In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. The Statement, which is effective for fiscal
years beginning after December 15, 1995, requires that an entity review
long-lived assets and certain identifiable intangibles, to be held and
used, for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. The Company
will adopt this standard in 1996. Adoption of this standard currently
would not have had a material effect on the Company's financial position
or results of operations.
2. Public Offering:
The Company has filed a currently effective registration statement on Form
S-11 with the Securities and Exchange Commission.
A maximum of 10,000,000 shares ($100,000,000) may be sold, and if the
managing dealer exercises its option (in the event the offering is
oversubscribed) to sell an additional 5,000,000 shares ($50,000,000), a
maximum of 15,000,000 shares ($150,000,000) may be sold. In addition, the
Company has registered an additional 1,500,000 shares ($15,000,000) which
is available only to stockholders who elect to participate in the
Company's reinvest-ment plan. The Company has adopted a reinvestment plan
pursuant to which stockholders may elect to have the full amount of their
cash distributions from the Company reinvested in additional shares of
common stock of the Company. As of December 31, 1995, the Company had
r e c eived subscription proceeds of $38,454,158 (3,845,416 shares),
including $50,790 (5,079 shares) through the reinvestment plan.
3. Leases:
The Company leases its land and buildings primarily to operators or
franchisees of national and regional fast-food, family-style and casual
dining restaurants. The leases are accounted for under the provisions of
the Statement of Financial Accounting Standards No. 13, Accounting for
Leases. As of December 31, 1995, 17 of the leases have been classified as
operating leases and one lease has been classified as a direct financing
lease. Substantially all leases have initial terms of 15 to 20 years
(expiring between 2007 and 2015) and provide for minimum rentals. In
addition, all of the leases provide for contingent rentals and/or
scheduled rent increases over the terms of the leases. Each tenant also
pays all property taxes and assessments, fully maintains the interior and
exterior of the building and carries insurance coverage for public
liability, property damage, fire and extended coverage. The lease options
generally allow tenants to renew the leases for two to four successive
five-year periods subject to the same terms and conditions as the initial
lease.
4. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
1995 1994
Land $ 8,890,471 $ -
Buildings 10,049,032 -
----------- -----------
18,939,503 -
Less accumulated depreci-
ation (100,318) -
----------- -----------
18,839,185 -
Construction in progress 884,541 -
----------- -----------
$19,723,726 $ -
=========== ===========
Some leases provide for escalating guaranteed minimum rents throughout the
lease term. Income from these scheduled rent increases is recognized on a
straight-line basis over the terms of the leases. For the year ended
December 31, 1995, the Company recognized $39,142 of such rental income.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at December 31, 1995:
1996 $ 1,814,981
1997 1,820,348
1998 1,825,130
1999 1,831,824
2000 1,841,123
Thereafter 23,444,157
-----------
$32,577,563
===========
These amounts do not include minimum lease payments that will become due
when Properties under development or renovation are completed (See Note
12)
5. Net Investment in Direct Financing Lease:
The following lists the components of the net investment in direct
financing lease at December 31:
1995 1994
Minimum lease payments
receivable $ 2,498,881 $ -
Estimated residual value 343,740 -
Less unearned income (1,468,739) -
----------- -----------
Net investment in direct
financing lease $ 1,373,882 $ -
=========== ===========
The following is a schedule of future minimum lease payments to be
received on the direct financing lease at December 31, 1995:
1996 $ 196,183
1997 195,997
1998 195,997
1999 195,997
2000 199,264
Thereafter 1,515,443
----------
$2,498,881
==========
6. Other Assets:
Other assets totalling $818,504 at December 31, 1995, consisted of
acquisition fees and miscellaneous acquisition costs in the amount of
$806,504 which will be allocated to future Properties and $12,000 of other
assets.
7. Capitalization:
The Company's Board of Directors has authorized a total of 46,000,000
shares of capital stock, consisting of 20,000,000 shares of common stock,
$.01 par value per share, 3,000,000 shares of preferred stock, and
23,000,000 shares of excess stock, $.01 par value per share. Of the
23,000,000 excess shares, 20,000,000 are issuable in exchange for common
stock and 3,000,000 are issuable in exchange for preferred stock.
8. Stock Issuance Costs:
The Company has incurred certain expenses of its offering of shares,
including commissions, marketing support and due diligence expense
reimbursement fees, filing fees, legal, accounting, printing and escrow
fees, which have been deducted from the gross proceeds of the offering.
Preliminary costs incurred prior to raising capital were advanced by an
affiliate of the Company, CNL Fund Advisors, Inc. (the "Advisor"). The
Advisor has agreed to pay all organizational and offering expenses
(excluding commissions and marketing support and due diligence expense
reimbursement fees) which exceed three percent of the gross offering
proceeds received from the sale of shares of the Company.
As of December 31, 1995, the Company had incurred $6,423,671 in
organizational and offering costs, including $3,076,333 in commissions and
marketing support and due diligence expense reimbursement fees (see Note
10). Of this amount $6,403,671 has been treated as stock issuance costs
and $20,000 has been treated as organization costs. The stock issuance
costs have been charged to stockholders' equity subject to the three
percent cap described above.
9. Distributions:
For the year ended December 31, 1995, 59.82% of the distributions received
by stockholders were considered to be ordinary income and 40.18% were
considered a return of capital for federal income tax purposes. No
amounts distributed to stockholders for the year ended December 31, 1995,
are required to be or have been treated by the Company as a return of
capital for purposes of calculating the stockholders' return on their
invested capital.
10. Related Party Transactions:
Certain directors and officers of the Company hold similar positions with
the Advisor and the managing dealer, CNL Securities Corp. In addition, as
of December 31, 1994, the Advisor was the sole stockholder of the Company.
CNL Securities Corp. is entitled to receive selling commissions amounting
to 7.5% of the total amount raised from the sale of shares for services in
connection with the formation of the Company and the offering of shares, a
substantial portion of which
has been or will be paid as commissions to other broker-dealers. As of
December 31, 1995, the Company had incurred $2,884,062 of such fees, of
which approximately $2,682,303 was paid by CNL Securities Corp. as
commissions to other broker-dealers.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of the
total amount raised from the sale of shares, a portion of which may be
reallowed to other broker-dealers. As of December 31, 1995, the Company
had incurred $192,271 of such fees.
CNL Securities Corp. will also receive a soliciting dealer servicing fee
payable annually by the Company beginning on December 31 of the year
following the year in which the offering terminates in the amount of 0.20%
of the stockholders' investment in the Company. CNL Securities Corp. in
turn may reallow all or a portion of such fee to soliciting dealers whose
clients held shares on such date. The Company, however, may pay the
soliciting dealer servicing fee directly to any soliciting dealer exempt
from registration as a broker-dealer and whose clients held shares on such
date. As of December 31, 1995, no such fees had been incurred.
The Advisor is entitled to receive acquisition fees for services in
identifying the Properties and structuring the terms of the acquisition
and leases of the Properties equal to 4.5% of the total amount raised from
the sale of shares. As of December 31, 1995, the Company had incurred
$1,730,437 of such fees.
I n connection with the acquisition of Properties that have been
constructed or renovated by affiliates, subject to approval by the
C o m p a n y's Board of Directors, the Company may incur develop-
ment/construction management fees of generally five to ten percent of the
cost of constructing or renovating a Property, payable to affiliates of
the Company as acquisition fees. Such fees will be included in the
purchase price of Properties purchased from developers that are affiliates
of the Company. As of December 31, 1995, no such fees had been incurred
by the Company.
In connection with the acquisition of Properties from affiliated or
unaffiliated developers, to whom affiliates of the Company have provided
construction financing, subject to approval by the Company's Board of
Directors, the Company may incur construction financing fees, payable to
affiliates of the Company as acquisition fees. Such fees will be in an
amount equal to generally one to two percent of the total amount of each
loan plus the difference determined by applying an annual percentage rate
of generally 1.5 to three percent throughout the duration of the loan to
the outstanding amount of the loan. Such fees will be included in the
purchase price of the Properties purchased from developers that receive
such loans. As of December 31, 1995, no such fees had been incurred by
the Company.
The total of all acquisition fees (including develop-ment/construction
m a nagement fees to affiliates and construction financing fees to
affiliates described above) and acquisition expenses shall be reasonable
and shall not exceed an amount equal to six percent of the real estate
asset value of a Property (as defined in the Company's Articles of
Incorporation), or in the case of a Mortgage Loan, six percent of funds
advanced, unless a majority of the Board of Directors (including a
majority of the independent directors) approves fees in excess of these
limits subject to a determination that the transaction is commercially
competitive, fair and reasonable to the Company.
For negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program, the Advisor will be entitled to receive from the
Company a one-time secured equipment lease servicing fee of two percent of
the purchase price of the Equipment that is the subject of a Secured
Equipment Lease. As of December 31, 1995, no secured equipment lease
servicing fees had been incurred.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor will receive a monthly asset management fee
of one-twelfth of 0.60% of the Company's real estate asset value
(generally, the total amount invested in the Properties as of the end of
the preceding month, exclusive of acquisition fees and acquisition
expenses). The asset management fee, which will not exceed fees which are
competitive for similar services in the same geographic area, may or may
not be taken, in whole or in part as to any year, in the sole discretion
of the Advisor. All or any portion of the management fee not taken as to
any fiscal year shall be deferred without interest and may be taken in
such other fiscal year as the Advisor shall determine. As of December 31,
1995, the Company had incurred $27,950 of such fees, $4,872 of which has
been capitalized as part of the cost of building for Properties under
construction.
Prior to such time, if any, as shares of the Company's common stock are
listed on a national securities exchange or over-the-counter market, the
Advisor is entitled to receive a deferred, subordinated real estate
disposition fee, payable upon the sale of one or more Properties based on
the lesser of one-half of a competitive real estate commission or three
percent of the sales price if the Advisor provides a substantial amount of
services in connection with the sale. The real estate disposition fee is
payable only after the stockholders receive distributions equal to the sum
of an annual, aggregate, cumulative, noncompounded eight percent return on
their invested capital, excluding distributions attributable to proceeds
of the sale of a Property ("Stockholders' 8% Return") plus their aggregate
invested capital. No deferred, subordinated real estate disposition fees
have been incurred to date.
A subordinated share of net sales proceeds will be paid to the Advisor
upon the sale of one or more Properties or Secured Equipment Leases in an
amount equal to ten percent of net sales proceeds. This amount will be
paid only after the stockholders receive distributions equal to the sum of
the stockholders' aggregate invested capital and the Stockholders 8%
Return. As of December 31, 1995, no such payments have been made to the
Advisor.
The Advisor and its affiliates provide accounting and administra-tive
services to the Company (including accounting and administra-tive services
in connection with the offering of shares) on a day-to-day basis. For the
year ended December 31, 1995 and the period
May 2, 1994 (date of inception) through December 31, 1994, the expenses
incurred for these services were classified as follows:
May 2, 1994
(Date of
Inception)
Year Ended through
December 31, December 31,
1995 1994
Deferred offering costs $ - $ 42,431
Stock issuance costs 714,674 -
General operating and
administrative expenses 68,016 -
-------- --------
$782,690 $ 42,431
======== ========
During the year ended December 31, 1995, the Company acquired nine
Properties for an aggregate purchase price of approximately $6,621,000
from affiliates of the Company. The affiliates had purchased and
temporarily held title to these Properties in order to facilitate the
acquisition of the Properties by the Company. Each Property was acquired
at a cost no greater than the lesser of the cost of the Property to the
affiliate (including carrying costs) or the Property's appraised value.
The due to related parties consisted of the following at December 31:
1995 1994
Due to the Advisor:
Expenditures incurred on behalf
of the Company and accounting
and administrative services $108,316 $305,261
Acquisition fees 45,118 -
Asset management fees 9,108 -
Distributions 3,332 -
-------- --------
165,874 305,261
-------- --------
Due to CNL Securities Corp:
Commissions 75,197 -
Marketing support and due
diligence expense reim-
bursement fees 5,013 -
-------- --------
80,210 -
-------- --------
Other 2,500 -
-------- --------
$248,584 $305,261
======== ========
11. Concentration of Credit Risk:
The following schedule presents rental and earned income from individual
lessees and restaurant chains, each representing more than ten percent of
the Company's total rental and earned income for the year ended December
31, 1995:
Golden Corral Corporation
(operates Golden Corral restaurants) $212,406
Roasters Corp.
(operates Kenny Rogers' Roasters
restaurants) 82,136
Northstar Restaurants, Inc.
(operates Boston Market restaurants) 73,219
Foodmaker, Inc.
(operates a Jack in the Box restaurant) 66,813
Denwest Restaurant Corp.
(operates Denny's restaurants) 66,595
Although the Company's Properties are geographically diverse and the
lessees operate a variety of restaurant concepts, default by any one of
these lessees could significantly impact the results of the Company.
However, management believes that the risk of such a default is reduced
due to the essential or important nature of these Properties for the on-
going operations of the lessee.
It is expected that the percentage of total rental and earned income
contributed by these lessees and restaurant chains will decrease as
additional Properties are acquired and leased in 1996 and subsequent
years.
12. Commitments:
The Company has entered into various development agreements with tenants
which provide terms and specifications for the construction of buildings
the tenants have agreed to lease once construction is completed. The
agreements provide a maximum amount of development costs (including the
purchase price of the land and closing costs) to be paid by the Company.
The aggregate maximum development costs the Company has agreed to pay is
approximately $3,214,700, of which approximately $1,760,000 in land and
other costs had been incurred as of December 31, 1995. The buildings
currently under construction are expected to be operational by May 1996.
In connection with the purchase of each Property, the Company, as lessor,
entered into a long-term lease agreement. The general terms of the lease
agreements are substan-tially the same as those described in Note 3.
In addition, in connection with the acquisition of two Properties during
the year ended December 31, 1995, the Company has committed to fund an
aggregate amount of $500,000 for the renovation of the Properties. As of
December 31, 1995, the Company had incurred approximately $234,000 in such
costs. Upon the completion of the renovation of the Properties and the
payment of such by the Company, the base rent due under the terms of the
lease will be adjusted upward. The renovations are expected to be
completed by March 1996.
The Company has obtained a commitment from a bank (the "Bank") for a
$15,000,000 line of credit (the "Commitment") to be used by the Company to
offer Secured Equipment Leases. The Commitment provides that the Company
will be able to receive advances under the line of credit for a period
of two years from the date of
closing on the loan. Generally, advances under the loan will be fully
amortizing term loans repayable in terms equal to the duration of the
Secured Equipment Leases, but in no event greater than 72 months.
Advances under the loan will bear interest at either (i) a rate per annum
equal to 215 basis points above the Reserve Adjusted LIBOR Rate (as
defined in the Commitment) or (ii) a rate per annum equal to the Bank's
prime rate, whichever the Company selects at the time advances are made.
The Bank shall have a first security interest in and a direct assignment
of the Secured Equipment Leases. In connection with such loan, at the
date of closing, the Company shall pay the Bank a commitment fee equal to
$37,500 and shall pay all of the Bank's expenses relating to the loan (of
which $12,000 had been incurred by the Company as of December 31, 1995).
The written agreement between the Company and the Bank expired on July 31,
1995; however, the Company has received an oral agreement from the Bank to
extend the terms of the Commitment to the anticipated loan closing date.
As of January 22, 1996, the loan closing had not occurred. The Company
anticipates closing on the loan in the first quarter of 1996.
13. Subsequent Events:
During the period January 1, 1996 through January 22, 1996, the Company
r e c e ived subscription proceeds for an additional 349,572 shares
($3,495,720) of common stock.
On January 1, 1996, the Company declared distributions of $225,354 or
$.0583 per share of common stock, payable on March 29, 1996, to
stockholders of record on January 1, 1996.
During the period January 1, 1996 through January 22, 1996, the Company
acquired 20 Properties (land only) for cash at a total cost of
approximately $3,761,000. The Company is leasing the parcels to a single
lessee pursuant to a master lease agreement. The general terms of the
master lease agreement are substantially the same as those described in
Note 3. The lessee owns the buildings located on the 20 Properties. In
c o nnection therewith, the Company provided $8,475,000 of mortgage
financing to the lessee pursuant to a master mortgage note which is
collateralized by the building improvements of the 20 Properties and three
additional properties. The master mortgage note bears interest at a rate
of 10.75% per annum and principal and interest will be collected in equal
monthly installments over 20 years starting March 1, 1996.
<TABLE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1995
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C> <C> <C> <C> <C>
Properties the Company
has Invested in Under
Operating Leases:
Boston Market Restaurants:
Grand Island, Nebraska - $ 234,685 $ 644,615 $ - $ -
Dubuque, Iowa - 353,608 663,968 - -
Chanhassen, Minnesota - 376,929 639,875 - -
Denny's Restaurant:
Pasadena, Texas - 467,140 240,925 - -
Shawnee, Oklahoma - 529,362 373,427 233,646 -
Golden Corral Family
Steakhouse Restaurants:
Dover, Delaware - 1,045,822 - 915,609 -
Universal City, Texas - 349,394 - 791,273 -
Cleburne, Texas - 351,505 - 766,463 -
Tampa, Florida - 816,121 - 641,129 -
Carlsbad, New Mexico - 376,075 - 740,814 -
Corsicana, Texas - 342,208 753,578 - -
Ft. Worth, Texas - 640,320 898,171 - -
Columbus, Ohio - 1,031,698 - 975,093 -
Jack in the Box Restaurants:
Los Angeles, California - 603,644 602,920 - -
Houston, Texas - 522,592 - 9,766 -
Kenny Rogers' Roasters
Restaurants:
Grand Rapids, Michigan - 282,806 599,309 - -
Franklin, Tennessee - 566,562 442,992 - -
----------- ----------- ---------- --------
$ 8,890,471 $ 5,859,780 $5,073,793 $ -
=========== =========== ========== ========
Property the Company has Invested
in Under Direct Financing Lease:
TGI Friday's Restaurant:
Orange, Connecticut - $ - $ - $1,374,960 $ -
=========== =========== ========== ========
</TABLE>
<TABLE>
Gross Amount at Which Carried
at Close of Period (c)
Buildings
and Accumulated
Land Improvements Total Depreciation
<S> <C> <C> <C> <C>
Properties the Company
has Invested in Under
Operating Leases:
Boston Market Restaurants:
Grand Island, Nebraska $ 234,685 $ 644,615 $ 879,300 $ 6,078
Dubuque, Iowa 353,608 663,968 1,017,576 5,397
Chanhassen, Minnesota 376,929 639,875 1,016,804 3,214
Denny's Restaurant:
Pasadena, Texas 467,140 240,925 708,065 2,558
Shawnee, Oklahoma 529,362 607,073 1,136,435 3,964
Golden Corral Family
Steakhouse Restaurants:
Dover, Delaware 1,045,822 915,609 1,961,431 8,781
Universal City, Texas 349,394 791,273 1,140,667 8,294
Cleburne, Texas 351,505 766,463 1,117,968 5,566
Tampa, Florida 816,121 641,129 1,457,250 (d)
Carlsbad, New Mexico 376,075 740,814 1,116,889 8,536
Corsicana, Texas 342,208 753,578 1,095,786 9,901
Ft. Worth, Texas 640,320 898,171 1,538,491 11,094
Columbus, Ohio 1,031,698 975,093 2,006,791 3,193
Jack in the Box Restaurants:
Los Angeles, California 603,644 602,920 1,206,564 10,101
Houston, Texas 522,592 9,766 532,358 (d)
Kenny Rogers' Roasters
Restaurants:
Grand Rapids, Michigan 282,806 599,309 882,115 8,169
Franklin, Tennessee 566,562 442,992 1,009,554 5,472
----------- ----------- ----------- --------
$ 8,890,471 $10,933,573 $19,824,044 $100,318
=========== =========== =========== ========
Property the Company has Invested
in Under Direct Financing Lease:
TGI Friday's Restaurant:
Orange, Connecticut (h) (f) (f) (g)
</TABLE>
<TABLE> Life
on Which
Depreciation
in Latest
Date Income
of Con- Date Statement is
struction Acquired Computed
<S> <C> <C> <C>
Properties the Company
has Invested in Under
Operating Leases:
Boston Market Restaurants:
Grand Island, Nebraska 1995 09/95 (e)
Dubuque, Iowa 1995 10/95 (e)
Chanhassen, Minnesota 1995 11/95 (e)
Denny's Restaurant:
Pasadena, Texas 1981 09/95 (e)
Shawnee, Oklahoma 1987 09/95 (e)
Golden Corral Family
Steakhouse Restaurants:
Dover, Delaware 1995 08/95 (e)
Universal City, Texas 1995 08/95 (e)
Cleburne, Texas 1995 08/95 (e)
Tampa, Florida (b) 08/95 (d)
Carlsbad, New Mexico 1995 08/95 (e)
Corsicana, Texas 1995 08/95 (e)
Ft. Worth, Texas 1995 08/95 (e)
Columbus, Ohio 1995 11/95 (e)
Jack in the Box Restaurants:
Los Angeles, California 1986 06/95 (e)
Houston, Texas (b) 11/95 (d)
Kenny Rogers' Roasters
Restaurants:
Grand Rapids, Michigan 1995 08/95 (e)
Franklin, Tennessee 1995 08/95 (e)
Property the Company has Invested
in Under Direct Financing Lease:
TGI Friday's Restaurant:
Orange, Connecticut 1995 07/95 (g)
</TABLE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1995
(a) Transactions in real estate and accumulated depreciation during 1995 are
summarized as follows:
Accumulated
Cost Depreciation
Properties the Partnership
has Invested in Under
Operating Leases:
Balance, December 31, 1994 $ - $ -
Acquisitions 19,824,044 -
Depreciation expense (f) - 100,318
----------- -----------
Balance, December 31, 1995 $19,824,044 $ 100,318
=========== ===========
(b) Scheduled for completion in 1996.
(c) As of December 31, 1995, the aggregate cost of the Properties owned by
the Company and its subsidiary for federal income tax purposes was
$21,199,004. All of the leases are treated as operating leases for
federal income tax purposes.
(d) Property was not placed in service as of December 31, 1995; therefore, no
depreciation was taken.
(e) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(f) For financial reporting purposes, the lease relating to this building has
been recorded as a direct financing lease. Accordingly, costs relating
to the building are not shown.
(g) For financial reporting purposes, the lease has been recorded as a direct
financing lease. The cost of the building has been included in net
investment in direct financing lease; therefore, depreciation is not
applicable.
(h) The Company owns the building only relating to this Property. This
property is subject to a ground lease between the tenant and an
unaffiliated third party. In connection therewith, the Company entered
into a tri-party agreement with the tenant and the owner of the land.
The tri-party agreement provides that the tenant is responsible for all
obligations under the ground lease and provides certain rights to the
Company to help protect its interest in the building in the event of a
default by the tenant under the terms of the ground lease.
EXHIBIT C
PRIOR PERFORMANCE TABLES
The information in this Exhibit C contains certain relevant summary
information concerning prior partnerships sponsored by two of the Company's
principals (who also serve as the Chairman of the Board and President of the
Company) and their Affiliates (the "Prior Partnerships") which like the Company,
were formed to invest in restaurant properties leased on a triple-net basis to
operators of national and regional fast-food and family-style restaurant chains.
A more detailed description of the acquisitions by the Prior Partnerships
is set forth in Part II of the registration statement filed with the Securities
and Exchange Commission for this Offering and is available from the Company upon
request, without charge. In addition, upon request to the Company, the Company
will provide, without charge, a copy of the most recent Annual Report on Form
10-K filed with the Securities and Exchange Commission for CNL Income Fund,
Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV,
Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund VII,
Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund X,
Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIII,
Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund XVI,
Ltd., CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII, Ltd., as well as a
copy, for a reasonable fee, of the exhibits filed with such reports.
The investment objectives of the Prior Partnerships (like those of the
Company) generally include preservation and protection of capital, the potential
for increased income and protection against inflation, and potential for capital
appreciation, all through investment in restaurant properties. In addition, the
investment objectives of the Prior Partnerships included making partially tax-
sheltered distributions.
STOCKHOLDERS SHOULD NOT CONSTRUE INCLUSION OF THE FOLLOWING TABLES AS
IMPLYING THAT THE COMPANY WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED IN
SUCH TABLES. DISTRIBUTABLE CASH FLOW, FEDERAL INCOME TAX DEDUCTIONS, OR OTHER
FACTORS COULD BE SUBSTANTIALLY DIFFERENT. STOCKHOLDERS SHOULD NOTE THAT, BY
ACQUIRING SHARES IN THE COMPANY, THEY WILL NOT BE ACQUIRING ANY INTEREST IN ANY
PRIOR PARTNERSHIPS.
DESCRIPTION OF TABLES
The following Tables are included herein:
Table I - Experience in Raising and Investing Funds
Table II - Compensation to Sponsor
Table III - Operating Results of Prior Programs
Table V - Sales or Disposal of Properties
Unless otherwise indicated in the Tables, all information contained in the
Tables is as of December 31, 1995. The following is a brief description of the
Tables:
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS
Table I presents information on a percentage basis showing the experience
of two of the principals of the Company and their Affiliates in raising and
investing funds for the Prior Partnerships, the offerings of which closed
between December 1986 and December 1995.
The Table sets forth information on the offering expenses incurred and
amounts available for investment expressed as a percentage of total dollars
raised. The Table also shows the percentage of property acquisition cost
leveraged, the date the offering commenced, and the time required to raise funds
for investment.
TABLE II - COMPENSATION TO SPONSOR
Table II provides information, on a total dollar basis, regarding amounts
and types of compensation paid to the general partners of the Prior
Partnerships.
The Table indicates the total offering proceeds and the portion of such
offering proceeds paid or to be paid to two of the principals of the Company and
their Affiliates in connection with the Prior Partnerships, the offerings of
which closed between December 1986 and December 1995. The Table also shows the
amounts paid to two of the principals of the Company and their Affiliates from
cash generated from operations and from cash generated from sales or refinancing
by each of the Prior Partnerships on a cumulative basis commencing with
inception and ending December 31, 1995.
TABLE III - OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents a summary of operating results for the period from
inception through December 31, 1995, of the Prior Partnerships, the offerings of
which closed between December 1986 and December 1995.
The Table includes a summary of income or loss of the Prior Partnerships,
which are presented on the basis of generally accepted accounting principles
("GAAP"). (The principal difference between GAAP and the income tax basis of
reporting is that depreciation under the tax basis of reporting is based upon
the rates established by the Accelerated Cost Recovery System ["ACRS"] for
property placed in service between January 1, 1981 and December 31, 1986, and
the Modified Accelerated Cost Recovery System ["MACRS"] for property placed in
service after 1986. Use of ACRS usually results in a higher charge against
operations than would be the result if the depreciation rate applied to property
were based on the economic useful life of the property, as required by GAAP,
while use of MACRS usually results in a somewhat lower charge against
operations.) The Table also shows cash generated from operations, which
represents the cash generated from operations of the properties of the Prior
Partnerships, as distinguished from cash generated from other sources (special
items). The section of the Table entitled "Special Items" provides
information relating to cash generated from or used by items which are not
directly related to the operations of the properties of the Prior Partnerships,
but rather are related to items of a partnership nature. These items include
proceeds from capital contributions of limited partners and disbursements made
from these sources of funds, such as syndication and organizational costs,
acquisition of the properties and other costs which are related more to the
organization of the partnership and the acquisition of properties than to the
actual operations of the partnerships.
The Table also presents information pertaining to investment income,
returns of capital on a GAAP basis, cash distributions from operations, sales
and refinancing proceeds expressed in total dollar amounts as well as
distributions and tax results on a per $1,000 investment basis.
TABLE IV - RESULTS OF COMPLETED PROGRAMS
Table IV is omitted from this Exhibit C because none of the directors of
the Company or their Affiliates has been involved in completed programs which
made investments similar to those of the Company.
TABLE V - SALES OR DISPOSAL OF PROPERTIES
Table V provides information regarding the sale or disposal of properties
owned by the Prior Partnerships between December 1986 and December 1995.
<TABLE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund, Fund II, Fund III, Fund IV,
Ltd. Ltd. Ltd. Ltd.
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Dollar amount offered $15,000,000 $25,000,000 $25,000,000 $30,000,000
=========== =========== =========== ===========
Dollar amount raised 100.0% 100.0% 100.0% 100.0%
----------- ----------- ----------- -----------
Less offering expenses:
Selling commissions
and discounts (8.5) (8.5) (8.5) (8.5)
Organizational expenses (2.9) (2.3) (3.0) (3.0)
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated
entities) -- -- -- --
----------- ----------- ----------- -----------
(11.4) (10.8) (11.5) (11.5)
----------- ----------- ----------- -----------
Reserve for operations -- -- -- --
----------- ----------- ----------- -----------
Percent available for
investment 88.6% 89.2% 88.5% 88.5%
=========== =========== =========== ===========
Acquisition costs:
Cash down payment 83.6% 84.2% 83.5% 83.5%
Acquisition fees paid
to affiliates 5.0 5.0 5.0 5.0
Loan costs -- -- -- --
----------- ----------- ----------- -----------
Total acquisition costs 88.6% 89.2% 88.5% 88.5%
=========== =========== =========== ===========
Percent leveraged
(mortgage financing
divided by total
acquisition costs) -- -- -- --
Date offering began 4/09/86 1/02/87 8/10/87 5/06/88
Length of offering (in
months) 8.5 7.5 8.5 8
Months to invest 90% of
amount available for
investment measured
from date of offering 8.5 11 13 12.5
<CAPTION>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
CNL Income CNL Income CNL Income CNL Income CNL Income CNL Income CNL Income
Fund V, Fund VI, Fund VII, Fund VIII, Fund IX, Fund X, Fund XI,
Ltd. Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dollar amount offered $25,000,000 $35,000,000 $30,000,000 $35,000,000 $35,000,000 $40,000,000 $40,000,000
=========== =========== =========== =========== =========== =========== ===========
Dollar amount raised 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
----------- ----------- ----------- ----------- ----------- ----------- -----------
Less offering expenses:
Selling commissions
and discounts (8.5) (8.5) (8.5) (8.5) (8.5) (8.5) (8.5)
Organizational expenses (3.0) (3.0) (3.0) (3.0) (3.0) (3.0) (3.0)
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated
entities) -- -- -- -- (0.5) (0.5) (0.5)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(11.5) (11.5) (11.5) (11.5) (12.0) (12.0) (12.0)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Reserve for operations -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Percent available for
investment 88.5% 88.5% 88.5% 88.5% 88.0% 88.0% 88.0%
=========== =========== =========== =========== =========== =========== ===========
Acquisition costs:
Cash down payment 83.5% 83.5% 83.5% 83.5% 83.0% 83.0% 83.0%
Acquisition fees paid
to affiliates 5.0 5.0 5.0 5.0 5.0 5.0 5.0
Loan costs -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total acquisition costs 88.5% 88.5% 88.5% 88.5% 88.0% 88.0% 88.0%
=========== =========== =========== =========== =========== =========== ===========
Percent leveraged
(mortgage financing
divided by total
acquisition costs) -- -- -- -- -- -- --
Date offering began 12/16/88 6/08/89 1/30/90 8/02/90 3/20/91 9/09/91 3/18/92
Length of offering (in
months) 6 7.5 6 7 5.5 6 6
Months to invest 90% of
amount available for
investment measured 12 16 10 13.5 12 7 6
from date of offering
<CAPTION>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
CNL Income CNL Income CNL Income CNL Income CNL Income
Fund XII, Fund XIII, Fund XIV, Fund XV, Fund XVI,
Ltd. Ltd. Ltd. Ltd. Ltd.
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Dollar amount offered $45,000,000 $40,000,000 $45,000,000 $40,000,000 $45,000,000
=========== =========== =========== =========== ===========
Dollar amount raised 100.0% 100.0% 100.0% 100.0% 100.0%
----------- ----------- ----------- ----------- -----------
Less offering expenses:
Selling commissions
and discounts (8.5) (8.5) (8.5) (8.5) (8.5)
Organizational expenses (3.0) (3.0) (3.0) (3.0) (3.0)
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated
entities) (0.5) (0.5) (0.5) (0.5) (0.5)
----------- ----------- ----------- ----------- -----------
(12.0) (12.0) (12.0) (12.0) (12.0)
----------- ----------- ----------- ----------- -----------
Reserve for operations -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Percent available for
investment 88.0% 88.0% 88.0% 88.0% 88.0%
=========== =========== =========== =========== ===========
Acquisition costs:
Cash down payment 83.0% 82.5% 82.5% 82.5% 82.5%
Acquisition fees paid
to affiliates 5.0 5.5 5.5 5.5 5.5
Loan costs -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total acquisition costs 88.0% 88.0% 88.0% 88.0% 88.0%
=========== =========== =========== =========== ===========
Percent leveraged
(mortgage financing
divided by total
acquisition costs) -- -- -- -- --
Date offering began 9/29/92 3/31/93 8/27/93 2/23/94 9/02/94
Length of offering (in
months) 6 5 6 6 9
Months to invest 90% of
amount available for
investment measured
from date of offering 11 10 11 10 11
</TABLE>
<TABLE>
TABLE II
COMPENSATION TO SPONSOR
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund, Fund II, Fund III, Fund IV,
Ltd. Ltd. Ltd. Ltd.
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Date offering commenced 4/09/86 1/02/87 8/10/87 5/06/88
Dollar amount raised $15,000,000 $25,000,000 $25,000,000 $30,000,000
=========== =========== ============ ===========
Amount paid to sponsor from
proceeds of offering:
Selling commissions and
discounts 2,125,000 2,125,000 2,550,000
Real estate commissions - - - -
Acquisition fees 750,000 1,250,000 1,250,000 1,500,000
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated entities) - - - -
----------- ----------- ----------- -----------
Total amount paid to sponsor 750,000 3,375,000 3,375,000 4,050,000
=========== =========== ============ ===========
Dollar amount of cash generated
from operations before
deducting payments to
sponsor:
1995 1,241,057 2,249,390 2,282,034 2,750,169
1994 1,323,193 2,210,761 2,411,004 2,594,027
1993 1,321,053 2,214,797 2,332,160 2,696,323
1992 1,338,710 2,374,438 2,277,388 2,781,489
1991 1,468,807 2,524,093 2,426,263 2,578,520
1990 1,520,511 2,462,923 2,437,332 2,798,527
1989 1,542,424 2,449,414 2,430,482 2,642,185
1988 1,527,498 2,331,127 1,779,330 563,592
1987 1,537,453 1,204,453 93,740 -
1986 212,986 - - -
1985 - - - -
1984 - - - -
1983 - - - -
1982 - - - -
1981 - - - -
1980 - - - -
1979 - - - -
1978 - - - -
Amount paid to sponsor from
operations (administrative,
accounting and management
fees):
1995 58,543 81,023 78,597 79,776
1994 43,992 54,157 47,633 49,816
1993 35,320 44,620 39,619 42,764
1992 29,621 30,514 33,651 35,735
1991 26,084 28,141 26,912 27,315
1990 19,642 20,078 20,790 24,675
1989 30,059 18,505 20,419 36,121
1988 27,712 19,896 22,904 11,274
1987 15,596 9,141 2,703 -
1986 - - - -
1985 - - - -
1984 - - - -
1983 - - - -
1982 - - - -
1981 - - - -
1980 - - - -
1979 - - - -
1978 - - - -
Dollar amount of property
sales and refinancing
before deducting payments
to sponsor:
Cash 2,187,511 1,635,010 - 1,230,650
Notes - - - -
Amount paid to sponsors
from property sales and
refinancing:
Real estate commissions - - - -
Incentive fees - - - -
Other (Note 1) 66,750 - - -
<CAPTION>
CNL Income CNL Income CNL Income CNL Income CNL Income CNL Income
Fund V, Fund VI, Fund VII, Fund VIII, Fund IX, Fund X,
Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Date offering commenced 12/16/88 6/08/89 1/30/90 8/02/90 3/20/91 9/09/91
Dollar amount raised $25,000,000 $35,000,000 $30,000,000 $35,000,000 $35,000,000 $40,000,000
=========== =========== ============ =========== ============ ===========
Amount paid to sponsor from
proceeds of offering:
Selling commissions and
discounts 2,125,000 2,975,000 2,550,000 2,975,000 2,975,000 3,400,000
Real estate commissions - - - - - -
Acquisition fees 1,250,000 1,750,000 1,500,000 1,750,000 1,750,000 2,000,000
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated entities) - - - - 175,000 200,000
----------- ----------- ----------- ----------- ----------- -----------
Total amount paid to sponsor 3,375,000 4,725,000 4,050,000 4,725,000 4,900,000 5,600,000
=========== =========== ============ =========== ============ ===========
Dollar amount of cash generated
from operations before
deducting payments to
sponsor:
1995 2,226,800 3,304,277 2,565,797 3,337,050 3,162,674 3,603,470
1994 2,224,393 3,303,435 2,780,851 3,453,350 3,250,836 3,828,234
1993 2,257,910 3,234,816 2,701,325 3,240,772 3,064,973 3,499,905
1992 2,390,704 3,240,209 2,716,954 3,256,005 3,179,912 3,141,123
1991 2,278,902 3,235,671 2,803,819 2,880,558 1,291,549 204,240
1990 2,382,083 2,964,865 1,411,939 288,291 - -
1989 1,544,368 585,207 - - - -
1988 - - - - - -
1987 - - - - - -
1986 - - - - - -
1985 - - - - - -
1984 - - - - - -
1983 - - - - - -
1982 - - - - - -
1981 - - - - - -
1980 - - - - - -
1979 - - - - - -
1978 - - - - - -
Amount paid to sponsor from
operations (administrative,
accounting and management
fees):
1995 83,882 81,847 81,259 73,365 64,398 76,108
1994 47,314 49,761 46,469 40,461 36,622 42,741
1993 42,252 40,130 40,143 39,011 35,678 38,999
1992 36,114 36,852 33,638 36,802 37,348 39,505
1991 30,125 36,956 36,193 37,626 18,596 2,834
1990 25,195 33,330 24,391 7,371 - -
1989 23,611 9,827 - - - -
1988 - - - - - -
1987 - - - - - -
1986 - - - - - -
1985 - - - - - -
1984 - - - - - -
1983 - - - - - -
1982 - - - - - -
1981 - - - - - -
1980 - - - - - -
1979 - - - - - -
1978 - - - - - -
Dollar amount of property
sales and refinancing
before deducting payments
to sponsor:
Cash - 2,328,984 1,569,036 1,532,852 - 1,057,386
Notes 1,040,000 - 1,400,000 460,000 - -
Amount paid to sponsors
from property sales and
refinancing:
Real estate commissions - - - - - -
Incentive fees - - - - - -
Other (Note 1) - - 7,200 13,800 - -
<CAPTION>
CNL Income CNL Income
Fund XI, Fund XII,
Ltd. Ltd.
---------- -----------
<S> <C> <C>
Date offering commenced 3/18/92 9/29/92
Dollar amount raised $40,000,000 $45,000,000
============ ===========
Amount paid to sponsor from
proceeds of offering:
Selling commissions and
discounts 3,400,000 3,825,000
Real estate commissions - -
Acquisition fees 2,000,000 2,250,000
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated entities) 200,000 225,000
---------- -----------
Total amount paid to sponsor 5,600,000 6,300,000
========== ===========
Dollar amount of cash generated
from operations before
deducting payments to
sponsor:
1995 3,758,271 3,928,473
1994 3,574,474 3,933,486
1993 3,434,512 3,320,549
1992 1,525,462 63,401
1991 - -
1990 - -
1989 - -
1988 - -
1987 - -
1986 - -
1985 - -
1984 - -
1983 - -
1982 - -
1981 - -
1980 - -
1979 - -
1978 - -
Amount paid to sponsor from
operations (administrative,
accounting and management
fees):
1995 106,086 109,111
1994 76,533 84,524
1993 78,926 73,789
1992 30,237 2,031
1991 - -
1990 - -
1989 - -
1988 - -
1987 - -
1986 - -
1985 - -
1984 - -
1983 - -
1982 - -
1981 - -
1980 - -
1979 - -
1978 - -
Dollar amount of property
sales and refinancing
before deducting payments
to sponsor:
Cash - -
Notes - -
Amount paid to sponsors
from property sales and
refinancing:
Real estate commissions - -
Incentive fees - -
Other (Note 1) - -
<CAPTION>
TABLE II - COMPENSATION TO SPONSOR (continued)
CNL Income CNL Income CNL Income CNL Income
Fund XIII, Fund XIV, Fund XV, Fund XVI,
Ltd. Ltd. Ltd. Ltd.
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Date offering commenced 3/31/93 8/27/93 2/23/94 9/02/94
Dollar amount raised $40,000,000 $45,000,000 $40,000,000 $45,000,000
=========== =========== ============ ===========
Amount paid to sponsor from
proceeds of offering:
Selling commissions and
discounts 3,400,000 3,825,000 3,400,000 3,825,000
Real estate commissions - - - -
Acquisition fees 2,200,000 2,475,000 2,200,000 2,475,000
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated entities) 200,000 225,000 200,000 225,000
----------- ----------- ----------- -----------
Total amount paid to sponsor 5,800,000 6,525,000 5,800,000 6,525,000
=========== =========== ============ ===========
Dollar amount of cash generated
from operations before
deducting payments to
sponsor:
1995 3,482,461 3,823,939 3,361,477 2,619,840
1994 3,232,046 2,897,432 1,154,454 212,171
1993 1,148,550 329,957 - -
1992 - - - -
1991 - - - -
1990 - - - -
1989 - - - -
1988 - - - -
1987 - - - -
1986 - - - -
1985 - - - -
1984 - - - -
1983 - - - -
1982 - - - -
1981 - - - -
1980 - - - -
1979 - - - -
1978 - - - -
Amount paid to sponsor from
operations (administrative,
accounting and management
fees):
1995 103,083 114,095 122,107 138,445
1994 83,046 84,801 37,620 7,023
1993 27,003 8,220 - -
1992 - - - -
1991 - - - -
1990 - - - -
1989 - - - -
1988 - - - -
1987 - - - -
1986 - - - -
1985 - - - -
1984 - - - -
1983 - - - -
1982 - - - -
1981 - - - -
1980 - - - -
1979 - - - -
1978 - - - -
Dollar amount of property
sales and refinancing
before deducting payments
to sponsor:
Cash 286,411 696,012 811,706 -
Notes - - - -
Amount paid to sponsors
from property sales and
refinancing:
Real estate commissions - - - -
Incentive fees - - - -
Other - - - -
<FN>
Note 1: During the years ended December 31, 1992 and 1994, CNL Income Fund,
L t d . incurred $35,250 and $31,500, respectively, in deferred,
subordinated real estate disposition fees as a result of the sale of
two of its properties. In addition, during the year ended December 31,
1995, CNL Income Fund VII, Ltd. and CNL Income Fund VIII, Ltd. incurred
$7,200 and $13,800, respectively, in deferred, subordinated real estate
disposition fees as a result of the sale of one and two of their
properties, respectively. As of December 31, 1995, no such amounts had
been paid due to the subordinated nature of this fee.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND, LTD.
<CAPTION>
1986
(Note 1) 1987 1988 1989
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross revenues $ 191,554 $ 1,387,859 $ 1,463,585 $ 1,443,329
Equity in earnings of joint ventures 47,610 116,195 113,777 116,381
Profit from sale of properties 0 0 0 0
Interest income 68,373 40,172 15,852 14,788
Less: Operating expenses (20,031) (84,727) (100,630) (96,613)
Interest expense 0 0 0 0
Depreciation and amortization (45,887) (236,622) (248,962) (251,160)
Minority interest in income of
consolidated joint venture 0 (61) (1,406) 0
----------- ----------- ----------- -----------
Net income - GAAP basis 241,619 1,222,816 1,242,216 1,226,725
=========== =========== =========== ===========
Taxable income
- from operations 226,408 1,103,505 1,123,411 1,106,031
=========== =========== =========== ===========
- from gain on sale 0 0 0 0
=========== =========== =========== ===========
Cash generated from operations
(Notes 2 and 7) 212,986 1,521,857 1,499,786 1,512,365
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
----------- ----------- ----------- -----------
Cash generated from operations, sales
and refinancing 212,986 1,521,857 1,499,786 1,512,365
Less: Cash distributions to investors
(Note 8)
- from operating cash flow (212,986) (1,443,975) (1,499,786) (1,500,000)
- from sale of properties (Note 6) 0 0 0 0
- from cash flow from prior period 0 0 0 0
- from return of capital (Note 4) (82,152) 0 (214) 0
- from other (Note 5) 0 0 0 0
----------- ----------- ----------- -----------
Cash generated (deficiency) after cash
distributions (82,152) 77,882 (214) 12,365
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 15,000,000 0 0 0
General partners' capital
contributions 1,000 0 0 0
Organization costs (51,890) 0 0 0
Syndication costs (1,455,695) (20,056) 0 0
Acquisition of land and buildings (9,909,615) (2,003,668) (8,106) 0
Lease costs 0 0 0 (50,000)
Investment in joint ventures (1,129,974) 0 0 0
Loan to tenant, net of repayments 0 0 0 0
Repayment of advances (advances)
to an affiliate (20,500) 20,500 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund, Ltd. by
related parties (189,401) (145,371) 0 0
Minority interest in joint venture,
net of distributions 0 26,417 (1,755) 0
Acquisition of minority interest in
joint venture 0 0 (26,600) 0
Increase in other assets (26,541) (12,300) 0 0
----------- ----------- ----------- -----------
Cash generated (deficiency) after cash
distributions and special items 2,135,232 (2,056,596) (36,675) (37,635)
=========== =========== =========== ===========
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 36 73 74 73
=========== =========== =========== ===========
- from recapture 0 0 0 0
=========== =========== =========== ===========
Capital gain (loss) 0 0 0 0
=========== =========== =========== ===========
<CAPTION>
TABLE III - CNL INCOME FUND, LTD. (continued)
1990 1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues $ 1,414,800 $ 1,401,267 $ 1,328,805 $ 1,292,997 $ 1,233,600 $ 1,165,756
Equity in earnings of joint ventures 116,452 115,198 110,288 114,028 112,160 112,974
Profit from sale of properties 0 0 214,488 0 182,384 0
Interest income 15,208 13,002 13,668 5,302 13,111 11,837
Less: Operating expenses (81,179) (135,127) (128,135) (147,416) (110,252) (118,268)
Interest expense 0 0 0 0 0 0
Depreciation and amortization (251,784) (246,212) (233,093) (225,366) (222,427) (210,197)
Minority interest in income of
consolidated joint venture 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Net income - GAAP basis 1,213,497 1,148,128 1,306,021 1,039,545 1,208,576 962,102
=========== =========== =========== =========== =========== ===========
Taxable income
- from operations 1,085,391 1,031,688 970,214 922,353 996,832 863,755
=========== =========== =========== =========== =========== ===========
- from gain on sale 0 0 209,586 0 177,224 0
=========== =========== =========== =========== =========== ===========
Cash generated from operations
(Notes 2 and 7) 1,500,869 1,442,723 1,309,089 1,285,733 1,279,201 1,182,514
Cash generated from sales 0 0 1,169,021 0 1,018,490 0
Cash generated from refinancing 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Cash generated from operations, sales
and refinancing 1,500,869 1,442,723 2,478,110 1,285,733 2,297,691 1,182,514
Less: Cash distributions to investors
(Note 8)
- from operating cash flow (1,500,000) (1,442,723) (1,309,089) (1,063,216) (1,279,201) (1,182,514)
- from sale of properties (Note 6) 0 0 (1,080,850) 0 0 (861,500)
- from cash flow from prior period 0 (8,750) 0 0 (138,422) (120,554)
- from return of capital (Note 4) 0 0 0 0 0 0
- from other (Note 5) 0 (48,527) (23,873) 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Cash generated (deficiency) after cash
distributions 869 (57,277) 64,298 222,517 880,068 (982,054)
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0 0 0 0 0
General partners' capital
contributions 0 65,000 74,000 0 120,000 0
Organization costs 0 0 0 0 0 0
Syndication costs 0 0 0 0 0 0
Acquisition of land and buildings 0 (7,049) (14,523) 0 0 0
Lease costs 0 (2,000) 0 0 0 0
Investment in joint ventures 0 0 0 0 0 0
Loan to tenant, net of repayments 0 0 (25,000) 25,000 0 0
Repayment of advances (advances)
to an affiliate 0 0 0 0 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund, Ltd. by
related parties 0 0 0 0 0 0
Minority interest in joint venture,
net of distributions 0 0 0 0 0 0
Acquisition of minority interest in
joint venture 0 0 0 0 0 0
Increase in other assets 0 0 (30,000) 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Cash generated (deficiency) after cash
distributions and special items 869 (1,326) 2,175 247,517 1,000,068 (982,054)
=========== =========== =========== =========== =========== ===========
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 72 68 64 61 66 57
=========== =========== =========== =========== =========== ===========
- from recapture 0 0 0 0 0 0
=========== =========== =========== =========== =========== ===========
Capital gain (loss) 0 0 14 0 12 0
=========== =========== =========== =========== =========== ===========
<CAPTION>
TABLE III - CNL INCOME FUND, LTD. (continued)
1986
(Note 1) 1987 1988 1989
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 39 81 82 81
- from capital gain 0 0 0 0
- from return of capital (Note 3) 9 15 18 19
----------- ----------- ----------- -----------
Total distributions on GAAP basis (Note 8) 48 96 100 100
=========== =========== =========== ===========
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 35 96 100 100
- from cash flow from prior period 0 0 0 0
- from return of capital (Note 4) 13 0 0 0
- from other (Note 5) 0 0 0 0
----------- ----------- ----------- -----------
Total distributions on cash basis (Note 8) 48 96 100 100
=========== =========== =========== ===========
Total cumulative cash distributions per
$1,000 investment from inception 48 144 244 344
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 6) 100% 100% 100% 100%
<CAPTION>
1990 1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash distributions to investors 80 76 72 69 68 63
Source (on GAAP basis) 0 0 14 0 12 0
- from investment income 20 24 75 2 15 81
- from capital gain ---------- ---------- ---------- ---------- ---------- ----------
- from return of capital (Note 3) 100 100 161 71 95 144
=========== ========== ========== ========== ========== ==========
Total distributions on GAAP basis (Note 8)
0 0 72 0 0 57
Source (on cash basis) 0 0 0 0 0 0
- from sales 100 96 87 71 85 79
- from refinancing 0 1 0 0 10 8
- from operations 0 0 0 0 0 0
- from cash flow from prior period 0 3 2 0 0 0
- from return of capital (Note 4) ---------- ---------- ---------- ---------- ---------- ----------
- from other (Note 5) 100 100 161 71 95 144
=========== ========== ========== ========== ========== ==========
Total distributions on cash basis (Note 8)
444 544 705 776 871 1,015
Total cumulative cash distributions per
$1,000 investment from inception
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original 100% 100% 92% 92% 85% 85%
total acquisition cost of all properties
in program) (Note 6)
<FN>
Note 1:
The registration statement relating to the offering of units by CNL
Income Fund, Ltd. became effective on April 9, 1986. All income and
expenses include the period from April 9, 1986 to December 31, 1986.
Note 2:
Cash generated from operations includes cash received from tenants, plus
distributions from joint ventures, less cash paid for expenses, plus
interest received.
Note 3:
Cash distributions presented above as a return of capital on a GAAP
b a sis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income includes
deductions for depreciation and amortization expense and income from
certain non-cash items. This amount is not required to be presented as
a return of capital except for purposes of this table, and CNL Income
Fund, Ltd. has not treated this amount as a return of capital for any
other purpose, except for amounts described in Note 6 below.
Note 4:
CNL Income Fund, Ltd. makes its distributions in the current period
rather than in arrears based on estimated operating results. In cases
where distributions exceed cash from operations in the current period,
o n c e finally determined, subsequent distributions are lowered
accordingly in order to avoid any return of capital. This amount is not
required to be presented as a return of capital except for purposes of
this table, and CNL Income Fund, Ltd. has not treated this amount as a
return of capital for any other purpose, except for amounts described in
Note 6 below.
Note 5:
The corporate general partner of CNL Income Fund, Ltd. contributed
$65,000, $7,400 and $120,000 during the years ended December 31, 1991,
1992 and 1994, respectively, in connection with the operations of the
partnership.
Note 6:
During the year ended December 31, 1992, CNL Income Fund, Ltd. sold one
of its properties. Of the net sales proceeds distributed to the limited
partners, $823,975 was treated as a return of capital for purposes of
calculating the limited partners' preferred return. In addition, during
the year ended December 31, 1994, CNL Income Fund, Ltd. sold a property
and $861,500 of net sales proceeds distributed to limited partners was
treated as a return of capital for purposes of calculating the limited
partners' preferred return. As a result of these returns of capital,
the amount of the limited partners' adjusted capital contributions
(which generally is the limited partners' capital contributions, less
distributions from the sale of a property that are considered to be a
return of capital) was decreased.
Note 7:
Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund, Ltd.
Note 8:
As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and paid
in the following quarter. Since this table generally presents
d i s tributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarter ended December 31,
1993 and 1994, are reflected in the 1994 and 1995 columns, respectively,
for distributions on a cash basis due to the payment of such
distributions in January 1994 and 1995, respectively. As a result of
1 9 9 4 and 1995 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994 and 1995, are
not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND II, LTD.
<CAPTION>
1987
(Note 1) 1988 1989 1990
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 891,543 $ 2,379,358 $ 2,416,161 $ 2,413,874
Equity in earnings of joint ventures 6,648 39,579 82,531 103,198
Profit from sale of properties 0 0 0 0
Interest income 303,497 55,545 30,522 31,682
Lease termination income 0 0 0 0
Less: Operating expenses (39,295) (120,160) (127,796) (104,043)
Interest expense 0 0 0 0
Depreciation and amortization (170,283) (442,652) (460,460) (452,752)
------------ ------------ ------------ ------------
Net income - GAAP basis 992,110 1,911,670 1,940,958 1,991,959
============ ============ ============ ============
Taxable income
- from operations 1,010,827 1,931,840 1,963,484 2,021,575
============ ============ ============ ============
- from gain (loss) on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 6) 1,195,312 2,311,231 2,430,909 2,442,845
Cash generated from sales (Note 4) 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 1,195,312 2,311,231 2,430,909 2,442,845
Less: Cash distributions to investors
(Note 7)
- from operating cash flow (1,153,877) (2,281,500) (2,376,000) (2,438,500)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
- from other 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after
cash distributions 41,435 29,731 54,909 4,345
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 25,000,000 0 0 0
General partners' capital
contributions (Note 5) 1,000 0 0 0
Organization costs (10,000) 0 0 0
Syndication costs (2,445,247) 0 0 0
Acquisition of land and buildings (19,482,309) (2,462,767) (22,330) 0
Lease costs 0 0 (50,000) 0
Investment in joint ventures (307,355) 0 (1,217) (65,000)
Insurance proceeds 0 0 0 65,000
Deposit received from tenant to be
used for renovation 0 0 0 0
Proceeds received from tenant in
connection with termination of
lease 0 0 0 0
Increase in restricted cash 0 0 0 0
Repayment of advance from an
affiliate (20,500) 0 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund II, Ltd. by
related parties (253,510) (1,547) 0 0
Increase in other assets 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 2,523,514 (2,434,583) (18,638) 4,345
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 53 77 78 80
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
<CAPTION>
1991 1992 1993 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Gross revenue $ 2,442,225 $ 2,324,625 $ 2,251,780 $ 2,177,384 $ 2,284,560
Equity in earnings of joint ventures 126,321 109,302 124,098 132,810 153,677
Profit from sale of properties 0 0 161,025 40,650 0
Interest income 26,047 17,748 14,656 13,484 17,517
Lease termination income 0 0 0 198,482 0
Less: Operating expenses (136,678) (174,212) (255,962) (195,568) (160,444)
Interest expense 0 0 0 0 0
Depreciation and amortization (448,317) (446,317) (445,065) (441,725) (456,793)
------------ ------------ ------------ ------------ ------------
Net income - GAAP basis 2,009,598 1,831,146 1,850,532 1,925,517 1,838,517
============ ============ ============ ============ ============
Taxable income
- from operations 2,031,552 1,936,526 1,694,054 1,912,389 1,786,291
============ ============ ============ ============ ============
- from gain (loss) on sale 0 0 108,901 (37,097) 0
============ ============ ============ ============ ============
Cash generated from operations
(Notes 2 and 6) 2,495,952 2,343,924 2,170,177 2,156,604 2,168,367
Cash generated from sales (Note 4) 0 0 746,800 888,210 0
Cash generated from refinancing 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 2,495,952 2,343,924 2,916,977 3,044,814 2,168,367
Less: Cash distributions to investors
(Note 7)
- from operating cash flow (2,438,500) (2,343,924) (1,782,000) (2,156,604) (2,168,367)
- from sale of properties 0 0 0 0 0
- from cash flow from prior period 0 (94,576) 0 (281,896) (207,633)
- from other 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after
cash distributions 57,452 (94,576) 1,134,977 606,314 (207,633)
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0 0 0 0
General partners' capital
contributions (Note 5) 0 0 0 161,000 0
Organization costs 0 0 0 0 0
Syndication costs 0 0 0 0 0
Acquisition of land and buildings 0 0 (637,900) (651,540) (4,323)
Lease costs 0 0 (1,800) 0 (12,426)
Investment in joint ventures 0 0 0 (260,732) (121)
Insurance proceeds 0 0 0 0 0
Deposit received from tenant to be
used for renovation 0 0 0 0 25,000
Proceeds received from tenant in
connection with termination of
lease 0 0 0 198,482 0
Increase in restricted cash 0 0 0 0 (25,000)
Repayment of advance from an
affiliate 0 0 0 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund II, Ltd. by
related parties 0 0 0 0 0
Increase in other assets 0 0 0 (1,750) 0
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 57,452 (94,576) 495,277 51,774 (224,503)
============ ============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 80 77 67 76 71
============ ============ ============ ============ ============
- from recapture 0 0 0 0 0
============ ============ ============ ============ ============
Capital gain (loss) 0 0 4 (1) 0
============ ============ ============ ============ ============
<CAPTION>
TABLE III - CNL INCOME FUND II, LTD. (continued)
1987
(Note 1) 1988 1989 1990
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 52 76 77 79
- from capital gain 0 0 0 0
- from investment income from
prior period 0 0 0 0
- from return of capital (Note 3) 9 15 18 19
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 7) 61 91 95 98
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 61 91 95 98
- from cash flow from prior
period 0 0 0 0
- from other 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 7) 61 91 95 98
============ ============ ============ ============
Total cumulative cash distributions
per $1,000 investment from
inception 61 152 247 345
Amount (in percentage terms)
remaining invested in program
properties at the end of each year
(period) presented (original total
acquisition cost of properties
retained, divided by original total
acquisition cost of all properties
in program) (Note 4) 100% 100% 100% 100%
<CAPTION>
1991 1992 1993 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 80 73 65 75 73
- from capital gain 0 0 6 2 0
- from investment income from
prior period 0 0 0 2 0
- from return of capital (Note 3) 18 25 0 19 22
------------ ------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 7) 98 98 71 98 95
============ ============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0 0
- from refinancing 0 0 0 0 0
- from operations 98 94 71 86 87
- from cash flow from prior
period 0 4 0 12 8
- from other 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 7) 98 98 71 98 95
============ ============ ============ ============ ============
Total cumulative cash distributions
per $1,000 investment from
inception 443 541 612 710 805
Amount (in percentage terms)
remaining invested in program
properties at the end of each year
(period) presented (original total
acquisition cost of properties
retained, divided by original total
acquisition cost of all properties
in program) (Note 4) 100% 100% 100% 99% 99%
<FN>
Note 1: The registration statement relating to the offering of units by CNL
Income Fund II, Ltd. became effective on January 2, 1987. All income
and expenses include the period from January 2, 1987 to December 31,
1987.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income
includes deductions for depreciation and amortization expense and
income from certain non-cash items. This amount is not required to be
presented as a return of capital except for purposes of this table, and
CNL Income Fund II, Ltd. has not treated this amount as a return of
capital for any other purpose.
Note 4: In July 1993, the partnership sold one of its properties and received
net sales proceeds of $746,800. In addition, in 1994, the partnership
sold two additional properties and received net sales proceeds of
$888,210. The sale of one of the properties in 1994 qualified as a
like-kind exchange transaction in accordance with Section 1031 of the
Internal Revenue Code. As a result, no gain was recognized for tax
purposes on the sale of this property. The partnership reinvested
approximately $1,554,000 of the net sales proceeds in three additional
properties. The remaining sales proceeds were used to pay partnership
expenses and to meet other working capital needs.
Note 5: The corporate general partner of CNL Income Fund II, Ltd. contributed
$161,000 during the year ended December 31, 1994, in connection with
the operations of the partnership.
Note 6: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund II, Ltd.
Note 7: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
d i stributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarter ended December 31,
1 9 9 3 and 1994, are reflected in the 1994 and 1995 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994 and 1995, respectively. As a result
of 1994 and 1995 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994 and 1995, are
not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND III, LTD.
<CAPTION>
1987
(Note 1) 1988 1989 1990
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 55,316 $ 1,607,223 $ 2,487,626 $ 2,504,506
Equity in earnings (losses) of joint
venture 0 0 60,079 61,636
Profit from sale of properties 0 0 0 0
Provision for loss on land and
building (Note 6) 0 0 0 0
Interest income 41,081 233,970 36,574 30,541
Less: Operating expenses (6,340) (111,115) (126,039) (112,087)
Interest expense 0 0 0 0
Depreciation and amortization (19,877) (294,811) (451,668) (458,189)
Minority interest in income of
consolidated joint venture 0 (20,509) (17,240) (17,290)
------------ ------------ ------------ ------------
Net income - GAAP basis 70,180 1,414,758 1,989,332 2,009,117
============ ============ ============ ============
Taxable income
- from operations 76,166 1,427,351 2,012,200 2,073,719
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 7) 91,037 1,756,426 2,410,063 2,416,542
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations,
sales and refinancing 91,037 1,756,426 2,410,063 2,416,542
Less: Cash distributions to investors
(Note 8)
- from operating cash flow (91,037) (1,672,500) (2,376,000) (2,376,000)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
- from return of capital (Note 4) (2,103) 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after
cash distributions (2,103) 83,926 34,063 40,542
Special items (not including sales
and refinancing):
Limited partners' capital
contributions 11,345,875 13,654,125 0 0
General partners' capital
contributions (Note 5) 1,000 0 0 0
Organization costs (10,000) 0 0 0
Syndication costs (973,197) (1,398,802) (150) 0
Acquisition of land and buildings (7,269,301) (13,799,321) (165,636) 0
Lease costs 0 0 0 0
Investment in and loans to joint
ventures 0 (650,540) (95,294) 0
Investment of tenant security
deposit 0 (50,000) 0 0
Proceeds from certificate of
deposit 0 0 50,000 0
Decrease (increase) in restricted
cash 0 (29,820) 0 29,820
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund III, Ltd. by
related parties (189,613) (393,065) (933) 0
Repayment of advance (advances) to
affiliates (4,129) 4,129 0 0
Collection on loans 0 0 0 0
Distributions to holder of minority
interest 0 (26,348) (20,028) (20,184)
Decrease (increase) in other assets (25,188) (40,869) 11,515 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 2,873,344 (2,646,585) (186,463) 50,178
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 27 61 80 82
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
<CAPTION>
1991 1992 1993 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Gross revenue $ 2,473,440 $ 2,379,939 $ 2,458,704 $ 2,496,217 $ 2,339,419
Equity in earnings (losses) of joint
venture (17,482) 31,040 26,521 20,952 22,015
Profit from sale of properties 0 0 0 0 0
Provision for loss on land and
building (Note 6) 0 0 0 0 (207,844)
Interest income 30,119 20,416 16,444 11,951 14,006
Less: Operating expenses (133,947) (256,773) (171,418) (218,737) (233,384)
Interest expense 0 0 0 0 0
Depreciation and amortization (458,189) (457,439) (449,120) (434,491) (434,492)
Minority interest in income of
consolidated joint venture (17,169) (17,242) (24,669) (17,287) (17,205)
------------ ------------ ------------ ------------ ------------
Net income - GAAP basis 1,876,772 1,699,941 1,856,462 1,858,605 1,482,515
============ ============ ============ ============ ============
Taxable income
- from operations 1,864,647 1,854,785 1,922,069 1,925,870 1,728,573
============ ============ ============ ============ ============
- from gain on sale 0 0 0 0 0
============ ============ ============ ============ ============
Cash generated from operations
2,399,351 2,243,737 2,292,541 2,363,371 2,203,437
0 0 0 0 0
(Notes 2 and 7) 0 0 0 0 0
Cash generated from sales ------------ ------------ ------------ ------------ ------------
Cash generated from refinancing
2,399,351 2,243,737 2,292,541 2,363,371 2,203,437
Cash generated from operations,
sales and refinancing
Less: Cash distributions to investors (2,376,000) (2,243,737) (1,782,000) (2,363,371) (2,203,437)
(Note 8) 0 0 0 0 0
- from operating cash flow 0 (132,263) 0 (12,629) (172,563)
- from sale of properties 0 0 0 0 0
- from cash flow from prior period ------------ ------------ ------------ ------------ ------------
- from return of capital (Note 4)
23,351 (132,263) 510,541 (12,629) (172,563)
Cash generated (deficiency) after
cash distributions
Special items (not including sales
and refinancing):
Limited partners' capital
contributions 0 0 0 0 0
General partners' capital
contributions (Note 5) 0 160,500 0 0 0
Organization costs 0 0 0 0 0
Syndication costs 0 0 0 0 0
Acquisition of land and buildings 0 0 0 0 0
Lease costs 0 0 (8,000) (4,000) 0
Investment in and loans to joint
ventures (132,084) (19,728) 0 0 0
Investment of tenant security
deposit 0 0 0 0 0
Proceeds from certificate of
deposit 0 0 0 0 0
Decrease (increase) in restricted
cash 0 0 0 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund III, Ltd. by
related parties 0 0 0 0 0
Repayment of advance (advances) to
affiliates 0 0 0 0 0
Collection on loans 55,000 8,206 27,206 26,173 0
Distributions to holder of minority
interest (19,854) (20,031) (27,455) (20,033) (19,997)
Decrease (increase) in other assets 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items (73,587) (3,316) 502,292 (10,489) (192,560)
============ ============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 74 73 76 76 68
============ ============ ============ ============ ============
- from recapture 0 0 0 0 0
============ ============ ============ ============ ============
Capital gain (loss) 0 0 0 0 0
============ ============ ============ ============ ============
<CAPTION>
TABLE III - CNL INCOME FUND III, LTD. (continued)
1987
(Note 1) 1988 1989 1990
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 25 60 79 80
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 0
- from return of capital (Note 3) 9 12 16 15
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 8) 34 72 95 95
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 33 72 95 95
- from cash flow from prior
period 0 0 0 0
- from return of capital (Note 4) 1 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 8) 34 72 95 95
============ ============ ============ ============
Total cumulative cash distributions
per $1,000 investment from
inception 34 106 201 296
Amount (in percentage terms)
remaining invested in program
properties at the end of each year
(period) presented (original total
acquisition cost of properties
retained, divided by original total
acquisition cost of all properties
in program) 100% 100% 100% 100%
<CAPTION>
1991 1992 1993 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 74 67 71 74 59
- from capital gain 0 0 0 0 0
- from investment income from prior
period 0 0 0 0 0
- from return of capital (Note 3) 21 28 0 21 36
------------ ------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 8) 95 95 71 95 95
============ ============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0 0
- from refinancing 0 0 0 0 0
- from operations 95 90 71 95 88
- from cash flow from prior
period 0 5 0 0 7
- from return of capital (Note 4) 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 8) 95 95 71 95 95
============ ============ ============ ============ ============
Total cumulative cash distributions
per $1,000 investment from
inception 391 486 557 652 747
Amount (in percentage terms)
remaining invested in program
properties at the end of each year
(period) presented (original total
acquisition cost of properties
retained, divided by original total
acquisition cost of all properties
in program) 100% 100% 100% 100% 100%
<FN>
Note 1: The registration statement relating to the offering of units by CNL
Income Fund III, Ltd. became effective on August 10, 1987. All income
and expenses include the period from August 10, 1987 to December 31,
1987.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income
includes deductions for depreciation and amortization expense and
income from certain non-cash items. This amount is not required to be
presented as a return of capital except for purposes of this table, and
CNL Income Fund III, Ltd. has not treated this amount as a return of
capital for any other purpose.
Note 4: CNL Income Fund III, Ltd. makes its distributions in the current period
rather than in arrears based on estimated operating results. In cases
where distributions exceed cash from operations in the current period,
o n c e finally determined, subsequent distributions are lowered
accordingly in order to avoid any return of capital. This amount is
not required to be presented as a return of capital except for purposes
of this table, and CNL Income Fund III, Ltd. has not treated this
amount as a return of capital for any other purpose.
Note 5: The corporate general partner of CNL Income Fund III, Ltd. contributed
$160,000 during the year ended December 31, 1992, in connection with
the operations of the partnership.
Note 6: During the year ended December 31, 1995, CNL Income Fund III, Ltd.
recorded an allowance for loss on land and building of $207,844 for
financial reporting purposes relating to one of its properties. The
loss represents the difference between the property's carrying value
and the estimated net realizable value, based on an anticipated sales
price expected to be received from an unrelated third party.
Note 7: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund III, Ltd.
Note 8: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
d i stributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarter ended December 31,
1 9 9 3 and 1994, are reflected in the 1994 and 1995 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994 and 1995, respectively. As a result
of 1994 and 1995 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994 and 1995, are
not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND IV, LTD.
<CAPTION>
1988
(Note 1) 1989 1990 1991
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 236,113 $ 2,540,112 $ 2,705,889 $ 2,607,075
Equity in earnings of joint ventures 8,367 92,589 194,745 207,752
Profit from sale of properties 0 0 0 0
Interest income 318,111 150,156 27,203 22,674
Less: Operating expenses (26,424) (175,108) (175,697) (221,842)
Interest expense 0 0 0 0
Depreciation and amortization (50,019) (427,683) (468,389) (467,451)
------------ ------------ ------------ ------------
Net income - GAAP basis 486,148 2,180,066 2,283,751 2,148,208
============ ============ ============ ============
Taxable income
- from operations 481,448 2,095,089 2,222,457 2,034,837
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 7) 552,318 2,606,064 2,773,852 2,551,205
Cash generated from sales (Note 5) 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 552,318 2,606,064 2,773,852 2,551,205
Less: Cash distributions to investors
(Note 8)
- from operating cash flow (510,163) (2,606,064) (2,760,000) (2,551,205)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 (11,736) 0 (44,271)
- from return of capital (Note 4) 0 0 0 (22,520)
- from other (Note 6) 0 0 0 (142,004)
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 42,155 (11,736) 13,852 (208,795)
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 30,000,000 0 0 0
General partners' capital
contributions 1,000 0 0 142,004
Organization costs (10,000) 0 0 0
Syndication costs (2,720,258) (41,440) 0 0
Lease costs 0 0 0 (5,050)
Acquisition of land and buildings (19,131,848) (3,382,106) (221,182) (2,155)
Investment in direct financing
leases 0 (2,236,216) 0 0
Investment in joint ventures (906,725) (375,408) (168) (15,960)
Proceeds from transfer of joint
venture interest 0 95,201 123,394 0
Increase in restricted cash 0 0 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund IV, Ltd. by
related parties (760,951) (5,264) (269) 0
Repayment of advance (advances)
to an affiliate (14,693) 14,693 0 0
Increase in other assets (373,299) (5,790) 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 6,125,381 (5,948,066) (84,373) (89,956)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 31 69 73 67
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
<CAPTION>
1992 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 2,708,496 $ 2,678,068 $ 2,591,454 $ 2,608,216
Equity in earnings of joint ventures 198,177 235,457 247,197 245,778
Profit from sale of properties 0 0 128,592 128,547
Interest income 15,370 20,202 27,119 17,578
Less: Operating expenses (158,464) (209,789) (220,033) (330,843)
Interest expense 0 0 0 0
Depreciation and amortization (471,737) (460,193) (463,805) (458,937)
------------ ------------ ------------ ------------
Net income - GAAP basis 2,291,842 2,263,745 2,310,524 2,210,339
============ ============ ============ ============
Taxable income
- from operations 2,236,726 2,229,572 2,164,504 2,153,355
============ ============ ============ ============
- from gain on sale 0 0 124,367 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 7) 2,745,754 2,653,559 2,544,211 2,670,393
Cash generated from sales (Note 5) 0 0 712,000 518,650
Cash generated from refinancing 0 0 0 0
Cash generated from operations, sales ------------ ------------ ------------ ------------
and refinancing 2,745,754 2,653,559 3,256,211 3,189,043
Less: Cash distributions to investors
(Note 8)
- from operating cash flow (2,745,754) (2,070,000) (2,544,211) (2,670,393)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 (215,789) (89,607)
- from return of capital (Note 4) 0 0 0 0
- from other (Note 6) (14,246) 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions (14,246) 583,559 496,211 429,043
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0 0 0
General partners' capital
contributions 21,000 77,500 0 0
Organization costs 0 0 0 0
Syndication costs 0 0 0 0
Lease costs (2,160) (10,560) (360) (1,800)
Acquisition of land and buildings 0 (34,011) (537,317) (1,628)
Investment in direct financing
leases 0 0 0 0
Investment in joint ventures 0 0 0 0
Proceeds from transfer of joint
venture interest 0 0 0 0
Increase in restricted cash 0 0 0 (518,150)
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund IV, Ltd. by
related parties (3,028) 0 0 (1,175)
Repayment of advance (advances)
to an affiliate 0 0 0 0
Increase in other assets 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,566 616,488 (41,466) (93,710)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 74 74 71 71
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 4 0
============ ============ ============ ============
<CAPTION>
TABLE III - CNL INCOME FUND IV, LTD. (continued)
1988
(Note 1) 1989 1990 1991
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 32 72 75 71
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 0
- from return of capital (Note 3) 2 15 17 21
------------ ------------ ------------ ------------
Total distributions on GAAP basis (Note 8) 34 87 92 92
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 34 87 92 85
- from cash flow from prior period 0 0 0 1
- from return of capital (Note 4) 0 0 0 1
- from other (Note 6) 0 0 0 5
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 8) 34 87 92 92
============ ============ ============ ============
Total cumulative cash distributions per
$1,000 investment from inception 34 121 213 305
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 5) 100% 100% 100% 100%
<CAPTION>
1992 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis) 76 69 72 69
- from investment income 0 0 4 4
- from capital gain 0 0 6 0
- from investment income from prior 16 0 10 19
period ------------ ------------ ------------ ------------
- from return of capital (Note 3) 92 69 92 92
============ ============ ============ ============
Total distributions on GAAP basis (Note 8)
0 0 0 0
Source (on cash basis) 0 0 0 0
- from sales 92 69 85 89
- from refinancing 0 0 7 3
- from operations 0 0 0 0
- from cash flow from prior period 0 0 0 0
- from return of capital (Note 4) ------------ ------------ ------------ ------------
- from other (Note 6) 92 69 92 92
============ ============ ============ ============
Total distributions on cash basis (Note 8)
397 466 558 650
Total cumulative cash distributions per
$1,000 investment from inception
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original 100% 100% 100% 100%
total acquisition cost of all properties
in program) (Note 5)
<FN>
Note 1: The registration statement relating to the offering of units by CNL
Income Fund IV, Ltd. became effective on May 6, 1988. All income and
expenses include the period from May 6, 1988 to December 31, 1988.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income
includes deductions for depreciation and amortization expense and
income from certain non-cash items. This amount is not required to be
presented as a return of capital except for purposes of this table, and
CNL Income Fund IV, Ltd. has not treated this amount as a return of
capital for any other purpose.
Note 4: CNL Income Fund IV, Ltd. makes its distributions in the current period
rather than in arrears based on estimated operating results. In cases
where distributions exceed cash from operations in the current period,
o n c e finally determined, subsequent distributions are lowered
accordingly in order to avoid any return of capital. This amount is
not required to be presented as a return of capital except for purposes
of this table, and CNL Income Fund IV, Ltd. has not treated this amount
as a return of capital for any other purpose.
Note 5: During April 1994, the partnership sold one of its properties for
$712,000. Subsequently, the partnership reinvested $539,794 of the net
sales proceeds in two additional properties. The remaining net sales
proceeds were used by the partnership to meet other working capital
needs of the Partnership. In December 1995, CNL Income Fund IV, Ltd.
sold one of its properties for $520,000 and received net sales proceeds
of $518,650. At December 31, 1995, the net sales proceeds were being
held in an interest bearing escrow account pending the release of funds
by the escrow agent to acquire an additional property or return the
funds to the partnership. In January 1996, CNL Income Fund IV, Ltd.
reinvested the net sales proceeds, along with additional funds, in an
additional property as tenants-in-common with affiliates of its general
partners.
Note 6: The corporate general partner of CNL Income Fund IV, Ltd. contributed
$142,004, $21,000 and $77,500 during the years ended December 31, 1991,
1992 and 1993, respectively, in connection with the operations of the
partnership.
Note 7: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund IV, Ltd.
Note 8: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
d i stributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarter ended December 31,
1 9 9 3 and 1994, are reflected in the 1994 and 1995 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994 and 1995, respectively. As a result
of 1994 and 1995 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994 and 1995, are
not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND V, LTD.
<CAPTION>
1988
(Note 1) 1989 1990 1991
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 1,122,067 $ 2,527,538 $ 2,507,285
Equity in earnings of unconsolidated
joint ventures 0 448 36,362 51,823
Profit from sale of properties
(Note 4) 0 0 0 0
Interest income 0 459,899 41,407 22,199
Less: Operating expenses 0 (74,006) (132,991) (201,129)
Interest expense 0 0 0 0
Depreciation and amortization 0 (117,848) (335,444) (343,363)
Minority interest in loss
(income) of consolidated
joint venture 0 (20,558) (43,323) (43,040)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 1,370,002 2,093,549 1,993,775
============ ============ ============ ============
Taxable income
- from operations 0 1,268,799 1,983,848 1,842,653
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 6) 0 1,520,757 2,356,888 2,248,777
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,520,757 2,356,888 2,248,777
Less: Cash distributions to investors
(Note 7)
- from operating cash flow 0 (1,370,974) (2,286,701) (2,248,777)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 (51,606)
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 149,783 70,187 (51,606)
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 24,010 24,976,000 0 0
General partners' capital
contributions 1,000 0 0 45,000
Withdrawal of original limited
partner 0 (10) 0 0
Organization costs 0 (10,000) 0 0
Syndication costs 0 (2,358,755) 0 0
Lease costs 0 0 0 (21,660)
Acquisition of land and buildings 0 (15,843,161) (2,129,325) (47,605)
Loan to tenant 0 0 0 (28,512)
Collections on mortgage note
receivable (Note 4) 0 0 0 0
Collections on note receivable 0 0 0 9,206
Investment in direct financing leases 0 (4,124,100) (38,042) 0
Investment in joint ventures 0 (21,292) (132,376) 0
Investment of tenant security deposit 0 (15,000) 0 0
Proceeds from certificate of deposit 0 0 15,000 0
Proceeds from sale of portion of land
for right of way purposes 0 0 0 0
Proceeds from sale of joint venture
interest 0 0 365,000 0
Increase in other assets (64) (95,773) 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund V, Ltd. by
related parties 0 (599,934) (4,792) 0
Distributions to holder of minority
interest 0 (23,319) (49,169) (29,086)
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 24,946 2,034,439 (1,903,517) (124,263)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 61 79 73
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
<CAPTION>
1992 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 2,405,496 $ 2,347,566 $ 2,292,921 $ 2,200,192
Equity in earnings of unconsolidated
joint ventures 49,839 45,711 47,219 47,018
Profit from sale of properties
(Note 4) 0 0 0 5,924
Interest income 15,127 10,650 7,564 55,785
Less: Operating expenses (153,618) (281,407) (208,805) (243,187)
Interest expense 0 0 0 0
Depreciation and amortization (345,847) (345,485) (403,147) (397,735)
Minority interest in loss
(income) of consolidated
joint venture 4,434 17,859 7,277 11,823
------------ ------------ ------------ ------------
Net income - GAAP basis 1,975,431 1,794,894 1,743,029 1,679,820
============ ============ ============ ============
Taxable income
- from operations 1,922,820 1,733,453 1,746,181 1,514,341
============ ============ ============ ============
- from gain on sale 0 0 0 5,855
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 6) 2,354,590 2,215,658 2,177,079 2,142,918
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 2,354,590 2,215,658 2,177,079 2,142,918
Less: Cash distributions to investors
(Note 7)
- from operating cash flow (2,300,053) (1,735,129) (2,177,079) (2,142,918)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 (122,921) (157,082)
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 54,537 480,529 (122,921) (157,082)
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0 0 0
General partners' capital
contributions 0 0 0 31,500
Withdrawal of original limited
partner 0 0 0 0
Organization costs 0 0 0 0
Syndication costs 0 0 0 0
Lease costs 0 0 0 0
Acquisition of land and buildings 0 0 0 0
Loan to tenant 0 0 0 0
Collections on mortgage note
receivable (Note 4) 0 0 0 11,409
Collections on note receivable 19,306 0 0 0
Investment in direct financing leases 0 0 0 0
Investment in joint ventures 0 0 0 0
Investment of tenant security deposit 0 0 0 0
Proceeds from certificate of deposit 0 0 0 0
Proceeds from sale of portion of land
for right of way purposes 0 0 0 7,625
Proceeds from sale of joint venture
interest 0 0 0 0
Increase in other assets 0 0 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund V, Ltd. by
related parties 0 0 0 0
Distributions to holder of minority
interest (26,731) (10,725) 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 47,112 469,804 (122,921) (106,548)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 76 69 69 60
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
<CAPTION>
TABLE III - CNL INCOME FUND V, LTD. (continued)
1988
(Note 1) 1989 1990 1991
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 66 83 79
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 0
- from return of capital (Note 3) 0 0 8 13
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 7) 0 66 91 92
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 66 91 90
- from cash flow from prior
period 0 0 0 2
------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 7) 0 66 91 92
============ ============ ============ ============
Total cumulative cash distributions
per $1,000 investment from inception 0 66 157 249
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 4) N/A 100% 100% 100%
<CAPTION>
1992 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 78 69 69 66
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 2 0
- from return of capital (Note 3) 14 0 21 26
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 7) 92 69 92 92
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 92 69 87 86
- from cash flow from prior
period 0 0 5 6
------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 7) 92 69 92 92
============ ============ ============ ============
Total cumulative cash distributions
per $1,000 investment from inception 341 410 502 594
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 4) 100% 100% 100% 95%
<FN>
Note 1: The registration statement relating to the offering of units by CNL
Income Fund V, Ltd. became effective on December 16, 1988. Activities
through February 1, 1989, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income includes
deductions for depreciation and amortization expense and income from
certain non-cash items. This amount is not required to be presented as
a return of capital except for purposes of this table, and CNL Income
Fund V, Ltd. has not treated this amount as a return of capital for any
other purpose.
Note 4: In August 1995, CNL Income Fund V, Ltd. sold one of its properties to
the tenant and in connection therewith accepted a promissory note in
the principal sum of $1,040,000, collateralized by a mortgage on the
property. The note bears interest at a rate of 10.25% per annum and is
being collected in 59 equal monthly installments of $9,319, with a
balloon payment of $1,006,004 due in July 2000. In accordance with
generally accepted accounting principles, the partnership recorded the
sale using the installment method; therefore, the gain on sale of the
property was deferred and is being recognized as income proportionately
as payments under the mortgage note are collected. The partnership
recognized a gain of $1,571 for financial reporting purposes for the
year ended December 31, 1995, and had a deferred gain of $141,641 at
December 31, 1995. The general partners anticipate that payments
collected under the mortgage note will be reinvested in additional
properties or used for other partnership purposes.
Note 5: The corporate general partner of CNL Income Fund V, Ltd. contributed
$45,000 and $31,500 during the years ended December 31, 1991 and 1995,
respectively.
Note 6: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund V, Ltd.
Note 7: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
d i stributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarter ended December 31,
1 9 9 3 and 1994, are reflected in the 1994 and 1995 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994 and 1995, respectively. As a result
of 1994 and 1995 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994 and 1995, are
not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND VI, LTD.
<CAPTION>
1988
(Note 1) 1989 1990 1991
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 83,266 $ 2,760,167 $ 3,378,012
Equity in earnings of unconsolidated
joint ventures 0 0 12,246 41,607
Profit (Loss) from sale of properties 0 0 0 0
Interest income 0 527,128 417,935 43,401
Less: Operating expenses 0 (33,611) (144,999) (234,452)
Interest expense 0 0 0 0
Depreciation and amortization 0 (14,823) (405,738) (508,761)
Minority interest in income of
consolidated joint venture 0 0 (13,116) (17,873)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 561,960 2,626,495 2,701,934
============ ============ ============ ============
Taxable income
- from operations 0 559,399 2,490,985 2,495,354
============ ============ ============ ============
- from gain on sale (Note 4) 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 5) 0 575,380 2,931,535 3,198,715
Cash generated from sales (Note 4) 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 575,380 2,931,535 3,198,715
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (567,092) (2,876,824) (3,150,375)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 8,288 54,711 48,340
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 10 33,833,625 1,166,375 0
General partners' capital
contributions 1,000 0 0 0
Withdrawal of original limited
partner 0 (10) 0 0
Organization costs 0 (10,000) 0 0
Syndication costs 0 (3,105,276) (136,045) 0
Acquisition of land and buildings 0 (12,005,638) (13,096,593) (601,145)
Investment in direct financing
leases 0 (810,522) (2,836,022) (829)
Investment in joint ventures 0 0 (322,916) (150,378)
Proceeds from transfer of joint
venture interest 0 0 0 21,000
Lease costs 0 0 0 (14,200)
Loan to tenant 0 0 (200,920) 0
Collections on loan to tenant 0 0 0 200,920
Collections on mortgage note
receivable 0 0 0 0
Decrease(increase) in other assets (72) (1,044,052) 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund VI, Ltd. by
related parties 0 (773,705) (92,589) (23,408)
Distributions to holder of minority
interest 0 0 (16,590) (21,959)
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 938 16,092,710 (15,480,589) (541,659)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 32 71 71
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Note 4) 0 0 0 0
============ ============ ============ ============
<CAPTION>
1992 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 3,552,597 $ 3,595,729 $ 3,394,257 $ 3,331,584
Equity in earnings of unconsolidated
joint ventures 42,537 44,350 70,499 83,483
Profit (Loss) from sale of properties 0 0 332,664 95,913
Interest income 17,257 15,548 24,933 43,352
Less: Operating expenses (190,190) (163,373) (196,287) (182,432)
Interest expense 0 0 0 0
Depreciation and amortization (516,527) (516,717) (510,246) (490,386)
Minority interest in income of
consolidated joint venture (19,172) (19,845) (20,792) (20,133)
------------ ------------ ------------ ------------
Net income - GAAP basis 2,886,502 2,955,692 3,095,028 2,861,381
============ ============ ============ ============
Taxable income
- from operations 2,601,278 2,732,663 2,724,815 2,566,953
============ ============ ============ ============
- from gain on sale (Note 4) 0 0 0 92,999
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 5) 3,203,357 3,194,686 3,253,674 3,222,430
Cash generated from sales (Note 4) 0 0 1,429,481 899,503
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 3,203,357 3,194,686 4,683,155 4,121,933
Less: Cash distributions to investors
(Note 6)
- from operating cash flow (3,150,252) (2,382,184) (3,150,000) (3,150,000)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 53,105 812,502 1,533,155 971,933
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0 0 0
General partners' capital
contributions 0 0 0 0
Withdrawal of original limited
partner 0 0 0 0
Organization costs 0 0 0 0
Syndication costs 0 0 0 0
Acquisition of land and buildings (26,500) 0 (980,904) (25,646)
Investment in direct financing
leases 0 0 0 (723,237)
Investment in joint ventures (6,171) 0 (455,146) 0
Proceeds from transfer of joint
venture interest 0 0 0 0
Lease costs (4,800) (3,600) (1,500) (3,300)
Loan to tenant 0 0 0 0
Collections on loan to tenant 0 0 0 0
Collections on mortgage note
receivable 0 0 0 2,967
Decrease(increase) in other assets 4,067 0 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund VI, Ltd. by
related parties 0 0 0 (1,375)
Distributions to holder of minority
interest (23,229) (23,821) (22,077) (26,824)
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items (3,528) 785,081 73,528 194,518
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 74 77 77 73
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Note 4) 0 0 0 3
============ ============ ============ ============
<CAPTION>
TABLE III - CNL INCOME FUND VI, LTD. (continued)
1988
(Note 1) 1989 1990 1991
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 32 74 76
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 0
- from return of capital (Note 3) 0 0 8 14
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 0 32 82 90
============ ============ ============ ============
Source (on cash basis)
- from operations 0 32 82 90
- from sale of partnership interests 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 6) 0 32 82 90
============ ============ ============ ============
Total cumulative cash distributions per
$1,000 investment from inception 0 32 114 204
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 4) N/A 100% 100% 100%
<CAPTION>
1992 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 82 68 78 78
- from capital gain 0 0 10 3
- from investment income from prior
period 0 0 2 9
- from return of capital (Note 3) 8 0 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 90 68 90 90
============ ============ ============ ============
Source (on cash basis)
- from operations 90 68 90 90
- from sale of partnership interests 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 6) 90 68 90 90
============ ============ ============ ============
Total cumulative cash distributions per
$1,000 investment from inception 294 362 452 542
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 4) 100% 100% 100% 100%
<FN>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund VI, Ltd. ("CNL VI") and CNL
Income Fund V, Ltd. each registered for sale $25,000,000 units of
limited partnership interest ("Units"). The offering of Units of CNL
Income Fund V, Ltd. commenced December 16, 1988. Pursuant to the
registration statement, CNL VI's offering of Units could not commence
until the offering of Units of CNL Income Fund V, Ltd. was terminated.
CNL Income Fund V, Ltd. terminated its offering of Units on June 7,
1989, at which time the maximum offering proceeds of $25,000,000 had
been received. Upon the termination of the offering of Units of CNL
Income Fund V, Ltd., CNL VI commenced its offering of Units.
Activities through June 22, 1989, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income
includes deductions for depreciation and amortization expense and
income from certain non-cash items. This amount is not required to be
presented as a return of capital except for purposes of this table, and
CNL Income Fund VI, Ltd. has not treated this amount as a return of
capital for any other purpose.
Note 4: During the year ended December 31, 1994, the partnership sold two of
its properties and received net proceeds of $1,429,481. The sale of
these properties was structured to qualify as like-kind exchange
transactions in accordance with Section 1031 of the Internal Revenue
Code. As a result, no gain or loss was recognized for federal income
tax purposes. Subsequent to the sale of these properties, the
partnership reinvested the sales proceeds in two additional properties.
In June 1995, CNL Income Fund VI, Ltd. sold a property and received net
sales proceeds of $899,503. In August 1995, the partnership reinvested
$724,612 in an additional property. In addition, in January 1996, the
p a rtnership reinvested the remaining net sales proceeds in an
additional property as tenants-in-common with affiliates of the general
partners.
Note 5: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund VI, Ltd.
Note 6: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
d i stributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarter ended December 31,
1 9 9 3 and 1994, are reflected in the 1994 and 1995 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994 and 1995, respectively. As a result
of 1994 and 1995 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994 and 1995, are
not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND VII, LTD.
<CAPTION>
1989
(Note 1) 1990 1991 1992
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 1,107,671 $ 2,922,456 $ 2,827,336
Equity in earnings of unconsolidated
joint ventures 0 21,785 57,994 115,763
Profit (Loss) from sale of properties
(Note 6) 0 0 0 110,344
Interest income 0 352,475 87,982 33,395
Less: Operating expenses 0 (71,687) (151,806) (149,202)
Interest expense 0 0 0 0
Depreciation and amortization 0 (171,276) (369,363) (365,245)
Other (Note 7) 0 0 0 0
Minority interest in income of
consolidated joint venture 0 (8,113) (18,999) (19,338)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 1,230,855 2,528,264 2,553,053
============ ============ ============ ============
Taxable income
- from operations 0 1,187,723 2,395,751 2,286,276
============ ============ ============ ============
- from gain on sale (Notes 4 and 5) 0 0 0 65,924
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 8) 0 1,387,548 2,767,626 2,683,316
Cash generated from sales (Notes 4
and 5) 0 0 0 700,000
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,387,548 2,767,626 3,383,316
Less: Cash distributions to investors
(Note 9)
- from operating cash flow 0 (1,255,979) (2,640,400) (2,683,316)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 (16,688)
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 131,569 127,226 683,312
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 30,000,000 0 0
General partners' capital
contributions 1,000 0 0 0
Organization costs 0 (10,000) 0 0
Syndication costs 0 (2,695,286) 445 0
Acquisition of land and buildings 0 (18,596,877) (1,219,126) (284,264)
Collections on mortgage notes
receivable (Note 6) 0 0 0 0
Investment in direct financing leases 0 (4,758,884) 0 (338,216)
Investment in joint ventures 0 (365,168) (1,115,881) (53,542)
Return of capital from joint ventures 0 0 0 0
Increase in other assets (76) (244,822) 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund VII, Ltd. by
related parties 0 (853,348) (8,665) (117)
Distributions to holder of minority
interest 0 (8,246) (18,940) (19,221)
Other 0 0 1,522 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 924 2,598,938 (2,233,419) (12,048)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 51 79 75
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Notes 4 and 5) 0 0 0 2
============ ============ ============ ============
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Gross revenue $ 2,837,025 $ 2,764,901 $ 2,502,152
Equity in earnings of unconsolidated
joint ventures 115,908 142,974 154,937
Profit (Loss) from sale of properties
(Note 6) 0 77,379 (5,135)
Interest income 19,348 28,254 78,522
Less: Operating expenses (157,425) (139,845) (225,784)
Interest expense 0 0 0
Depreciation and amortization (362,070) (351,565) (329,350)
Other (Note 7) 0 0 (174,466)
Minority interest in income of
consolidated joint venture (18,876) (18,798) (18,728)
------------ ------------ ------------
Net income - GAAP basis 2,433,910 2,503,300 1,982,148
============ ============ ============
Taxable income
- from operations 2,269,497 2,283,272 2,171,377
============ ============ ============
- from gain on sale (Notes 4 and 5) 0 45,612 (179,648)
============ ============ ============
Cash generated from operations
(Notes 2 and 8) 2,661,182 2,734,382 2,484,538
Cash generated from sales (Notes 4
and 5)
Cash generated from refinancing 0 869,036 0
0 0 0
Cash generated from operations, sales ------------ ------------ ------------
and refinancing
Less: Cash distributions to investors 2,661,182 3,603,418 2,484,538
(Note 9)
- from operating cash flow
- from sale of properties (2,046,235) (2,700,002) (2,484,538)
- from cash flow from prior period 0 0 0
0 0 (275,464)
Cash generated (deficiency) after cash ------------ ------------ ------------
distributions
Special items (not including sales and 614,947 903,416 (275,464)
refinancing):
Limited partners' capital
contributions
General partners' capital 0 0 0
contributions
Organization costs 0 0 0
Syndication costs 0 0 0
Acquisition of land and buildings 0 0 0
Collections on mortgage notes (4,678) (397,536) 0
receivable (Note 6)
Investment in direct financing leases 0 0 12,725
Investment in joint ventures 0 0 0
Return of capital from joint ventures (48) (425,887) 0
Increase in other assets 0 0 0
Reimbursement of syndication and 0 0 0
acquisition costs paid on behalf
of CNL Income Fund VII, Ltd. by
related parties 0 0 0
Distributions to holder of minority
interest (19,092) (20,464) (17,240)
Other 0 0 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 591,129 59,529 (279,979)
============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 75 75 72
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) (Notes 4 and 5) 0 2 (6)
============ ============ ============
<CAPTION>
TABLE III - CNL INCOME FUND VII, LTD. (continued)
1989
(Note 1) 1990 1991 1992
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 52 83 81
- from capital gain 0 0 0 4
- from investment income from
prior period 0 0 0 0
- from return of capital (Note 3) 0 2 5 5
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 9) 0 54 88 90
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 54 88 89
- from cash flow from prior period 0 0 0 1
------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 9) 0 54 88 90
============ ============ ============ ============
Total cumulative cash distributions
per $1,000 investment from inception 0 54 142 232
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Notes 4, 5 and 6) N/A 100% 100% 100%
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 68 80 65
- from capital gain 0 3 0
- from investment income from
prior period 0 7 5
- from return of capital (Note 3) 0 0 22
------------ ------------ ------------
Total distributions on GAAP basis
(Note 9) 68 90 92
============ ============ ============
Source (on cash basis)
- from sales 0 0 0
- from refinancing 0 0 0
- from operations 68 90 83
- from cash flow from prior period 0 0 9
------------ ------------ ------------
Total distributions on cash basis
(Note 9) 68 90 92
============ ============ ============
Total cumulative cash distributions
per $1,000 investment from inception 300 390 482
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Notes 4, 5 and 6) 100% 100% 94%
<FN>
Note 1: The registration statement relating to the offering of units by CNL
Income Fund VII, Ltd. became effective on January 30, 1990. Activities
through March 8, 1990, were devoted to organization of the partnership
and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income
includes deductions for depreciation and amortization expense and
income from certain non-cash items. This amount is not required to be
presented as a return of capital except for purposes of this table, and
CNL Income Fund VII, Ltd. has not treated this amount as a return of
capital for any other purpose.
Note 4: On May 19, 1992, one of the partnership's properties was taken by the
State Department of Transportation as a result of condemnation
proceedings, and the partnership received condemnation proceeds of
$700,000. Since this property was held by the partnership for less
than two years and was involuntarily taken in condemnation proceedings,
the partnership has elected to defer a portion of the gain from the
sale for tax purposes and reinvest a majority of the proceeds in other
restaurant properties.
Note 5: In May 1994, the partnership sold one of its properties and received
net sales proceeds of $869,036. Subsequent to the sale of this
property, the partnership used the net sales proceeds to reinvest in
two additional properties or for other partnership purposes.
Note 6: In August 1995, CNL Income Fund VII, Ltd. sold one of its properties to
the tenant and in connection therewith accepted a promissory note in
the principal sum of $1,160,000, collateralized by a mortgage on the
property. The note bears interest at a rate of 10.25% per annum and is
being collected in 59 equal monthly installments of $10,395, with a
balloon payment of $1,106,657 due in July 2000. In accordance with
generally accepted accounting principles, the partnership recorded the
sale using the installment method; therefore, the gain on sale of the
property was deferred and is being recognized as income proportionately
as payments under the mortgage note are being collected. The
partnership recognized a gain of $1,421 for financial reporting
purposes for the year ended December 31, 1995, and had a deferred gain
of $128,065 at December 31, 1995. The general partners anticipate that
payments collected under the mortgage note will be reinvested in
additional properties or used for other partnership purposes. In
addition, in December 1995, CNL Income Fund VII, Ltd. sold one of its
properties to the subtenant of the property and in connection therewith
a c cepted a promissory note in the principal sum of $240,000,
collateralized by a mortgage on the property. The note bears interest
at a rate of 10% per annum and is being collected in 119 equal
installments of $2,106, with a balloon payment of $218,252 due December
2005. Proceeds received from payments collected under the mortgage
note are expected to be distributed to the limited partners or used for
other partnership purposes.
Note 7: During the year ended December 31, 1995, the building located on one of
the partnership's properties was demolished. As a result, the
undepreciated cost of the building was charged to income for financial
reporting purposes.
Note 8: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund VII, Ltd.
Note 9: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
d i stributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarter ended December 31,
1 9 9 3 and 1994, are reflected in the 1994 and 1995 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994 and 1995, respectively. As a result
of 1994 and 1995 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994 and 1995, are
not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND VIII, LTD.
<CAPTION>
1989
(Note 1) 1990 1991 1992
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 262,113 $ 2,719,978 $ 3,346,555
Equity in earnings of unconsolidated
joint ventures 0 0 103,195 241,148
Profit (Loss) from sale of properties 0 0 7,047 0
Interest income 0 40,345 321,312 33,477
Less: Operating expenses 0 (18,274) (151,188) (156,144)
Interest expense 0 0 0 0
Depreciation and amortization 0 (42,458) (182,535) (226,377)
Minority interest in income of
consolidated joint venture 0 0 (10,168) (14,362)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 241,726 2,807,641 3,224,297
============ ============ ============ ============
Taxable income
- from operations 0 238,870 2,470,765 2,750,886
============ ============ ============ ============
- from gain (loss) on sale 0 0 6,517 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 7) 0 280,920 2,842,932 3,219,203
Cash generated from sales (Notes 4
and 5) 0 0 347,987 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 280,920 3,190,919 3,219,203
Less: Cash distributions to investors
(Note 8)
- from operating cash flow 0 (266,364) (2,573,695) (3,127,143)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
- from other 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 0 14,556 617,224 92,060
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 21,343,892 13,656,108 0
General partners' capital
contributions 1,000 0 0 0
Organization costs 0 (10,000) 0 0
Syndication costs 0 (1,880,317) (1,165,045) 0
Acquisition of land and buildings 0 (11,468,731) (3,899,575) (1,119,387)
Investment in direct financing
leases 0 (2,053,171) (9,101,514) (1,344)
Investment in joint ventures 0 0 (3,008,634) (13)
Return of capital from joint
ventures 0 0 0 0
Increase in other assets (76) (380,641) 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund VIII, Ltd. by
related parties 0 (1,018,263) (69,490) (3,072)
Distributions to holder of minority
interest 0 0 (9,074) (12,594)
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 924 4,547,325 (2,980,000) (1,044,350)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 20 73 78
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Gross revenue $ 3,418,241 $ 3,406,108 $ 3,368,201
Equity in earnings of unconsolidated
joint ventures 246,027 245,933 244,933
Profit (Loss) from sale of properties 0 0 59,926
Interest income 24,283 32,273 68,145
Less: Operating expenses (157,387) (142,979) (172,732)
Interest expense 0 0 0
Depreciation and amortization (209,123) (218,961) (217,576)
Minority interest in income of
consolidated joint venture (14,247) (14,107) (14,142)
------------ ------------ ------------
Net income - GAAP basis 3,307,794 3,308,267 3,336,755
============ ============ ============
Taxable income
- from operations 2,718,665 2,890,736 3,096,286
============ ============ ============
- from gain (loss) on sale 0 0 (101,622)
============ ============ ============
Cash generated from operations
(Notes 2 and 7) 3,201,761 3,412,889 3,263,685
Cash generated from sales (Notes 4
and 5) 0 0 1,184,865
Cash generated from refinancing 0 0 0
------------ ------------ ------------
Cash generated from operations, sales
and refinancing 3,201,761 3,412,889 4,448,550
Less: Cash distributions to investors
(Note 8)
- from operating cash flow (2,384,934) (3,150,000) (3,263,685)
- from sale of properties 0 0 0
- from cash flow from prior period 0 0 (43,817)
- from other 0 0 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 816,827 262,889 1,141,048
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0 0
General partners' capital
contributions 0 0 0
Organization costs 0 0 0
Syndication costs 0 0 0
Acquisition of land and buildings 0 0 (397,291)
Investment in direct financing
leases (136,464) 0 (550,911)
Investment in joint ventures 0 0 0
Return of capital from joint
ventures 495 0 0
Increase in other assets 0 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund VIII, Ltd. by
related parties (1,925) 0 0
Distributions to holder of minority
interest (12,614) (13,562) (11,526)
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 666,319 249,327 181,320
============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 77 82 88
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) 0 0 (3)
============ ============ ============
<CAPTION>
TABLE III - CNL INCOME FUND VIII, LTD. (continued)
1989
(Note 1) 1990 1991 1992
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 20 76 89
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 0
- from return of capital (Note 3) 0 2 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 8) 0 22 76 89
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 22 76 89
- from cash flow from prior period 0 0 0 0
- from other 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 8) 0 22 76 89
============ ============ ============ ============
Total cumulative cash distributions
per $1,000 investment from inception 0 22 98 187
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Notes 4, 5 and 6) N/A 100% 100% 100%
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 68 90 93
- from capital gain 0 0 2
- from investment income from prior
period 0 0 0
- from return of capital (Note 3) 0 0 0
------------ ------------ ------------
Total distributions on GAAP basis
(Note 8) 68 90 95
============ ============ ============
Source (on cash basis)
- from sales 0 0 0
- from refinancing 0 0 0
- from operations 68 90 93
- from cash flow from prior period 0 0 2
- from other 0 0 0
------------ ------------ ------------
Total distributions on cash basis
(Note 8) 68 90 95
============ ============ ============
Total cumulative cash distributions
per $1,000 investment from inception 255 345 440
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Notes 4, 5 and 6) 100% 100% 98%
<FN>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund VIII, Ltd. ("CNL VIII") and
CNL Income Fund VII, Ltd. each registered for sale $30,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund VII, Ltd. commenced January 30, 1990. Pursuant to the
registration statement, CNL VIII's offering of Units could not commence
until the offering of Units of CNL Income Fund VII, Ltd. was
terminated. CNL Income Fund VII, Ltd. terminated its offering of Units
on August 1, 1990, at which time the maximum offering proceeds of
$30,000,000 had been received. Upon the termination of the offering of
Units of CNL Income Fund VII, Ltd., CNL VIII commenced its offering of
U n i ts. Activities through August 22, 1990, were devoted to
organization of the partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented as a return of capital on a GAAP basis
represent the amount of cash distributions in excess of accumulated net
income on a GAAP basis. Accumulated net income includes deductions for
depreciation and amortization expense and income from certain non-cash
items. This amount is not required to be presented as a return of
capital except for purposes of this table, and CNL Income Fund VIII,
Ltd. has not treated this amount as a return of capital for any other
purpose.
Note 4: During 1991, two properties ceased operations and were sold to third
parties. The net proceeds from the sales were $347,987. The
partnership used the proceeds to renovate one restaurant property and
t o make certain additions or improvements to other restaurant
properties.
Note 5: In July 1995, CNL Income Fund VIII, Ltd. sold one of its properties and
received net sales proceeds of $1,184,865. In September 1995, the
partnership reinvested $950,663 of the net sales proceeds in an
additional property. The remaining net sales proceeds are expected to
be used to purchase an additional property or for other partnership
purposes.
Note 6: In December 1995, CNL Income Fund VIII, Ltd. sold two of its properties
to the subtenant of the properties and in connection therewith accepted
two promissory notes in the principal sums totalling $460,000,
collateralized by mortgages on the properties. The notes bear interest
at a rate of 10% per annum and are being collected in 119 equal
installments totalling $4,037, with balloon payments totalling $418,576
due December 2005. Proceeds received from payments collected under the
mortgage notes are expected to be distributed to the limited partners
or used for other partnership purposes.
Note 7: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund VIII, Ltd.
Note 8: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
d i stributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarter ended December 31,
1 9 9 3 and 1994, are reflected in the 1994 and 1995 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994 and 1995, respectively. As a result
of 1994 and 1995 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994 and 1995, are
not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND IX, LTD.
<CAPTION>
1990
(Note 1) 1991 1992 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 787,718 $ 2,957,084 $ 3,010,717
Equity in earnings of joint ventures 0 52,325 389,625 470,094
Profit from sale of properties 0 0 0 0
Interest income 0 423,913 72,644 23,218
Less: Operating expenses 0 (56,243) (158,885) (167,115)
Interest expense 0 0 0 0
Depreciation and amortization 0 (77,647) (220,070) (220,052)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 1,130,066 3,040,398 3,116,862
============ ============ ============ ============
Taxable income
- from operations 0 1,136,231 2,682,360 2,587,955
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 1,272,953 3,142,564 3,029,295
Cash generated from sales 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,272,953 3,142,564 3,029,295
Less: Cash distributions to investors
(Note 4)
- from operating cash flow 0 (1,119,489) (2,880,517) (2,383,067)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 153,464 262,047 646,228
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 35,000,000 0 0
General partners' capital
contributions 1,000 0 0 0
Organization costs 0 (10,000) 0 0
Syndication costs 0 (3,261,772) 0 0
Acquisition costs paid by the
partnership on behalf of
related parties 0 (12,942) 0 0
Reimbursement of acquisition costs
paid by the partnership on behalf
of related parties 0 0 12,942 0
Acquisition of land and buildings 0 (14,265,241) (1,137,138) 0
Investment in direct financing
leases 0 (8,680,844) (79,493) (30,493)
Investment in joint venture 0 (2,768,296) (3,387,844) 0
Return of capital from joint
ventures 0 0 0 655
Increase in other assets (78) (285,383) 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund IX, Ltd. by
related parties 0 (1,038,645) (13,269) 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 922 4,830,341 (4,342,755) 616,390
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 44 76 73
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Gross revenue $ 2,879,282 $ 2,917,144
Equity in earnings of joint ventures 456,154 453,794
Profit from sale of properties 0 0
Interest income 26,958 57,209
Less: Operating expenses (125,815) (186,693)
Interest expense 0 0
Depreciation and amortization (232,996) (253,483)
------------ ------------
Net income - GAAP basis 3,003,583 2,987,971
============ ============
Taxable income
- from operations 2,818,525 2,581,931
============ ============
- from gain on sale 0 0
============ ============
Cash generated from operations
(Notes 2 and 3) 3,214,214 3,098,276
Cash generated from sales 0 0
Cash generated from refinancing 0 0
------------ ------------
Cash generated from operations, sales
and refinancing 3,214,214 3,098,276
Less: Cash distributions to investors
(Note 4)
- from operating cash flow (3,150,002) (3,098,276)
- from sale of properties 0 0
- from cash flow from prior period 0 (51,728)
------------ ------------
Cash generated (deficiency) after cash
distributions 64,212 (51,728)
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0
General partners' capital
contributions 0 0
Organization costs 0 0
Syndication costs 0 0
Acquisition costs paid by the
partnership on behalf of
related parties 0 0
Reimbursement of acquisition costs
paid by the partnership on behalf
of related parties 0 0
Acquisition of land and buildings 0 0
Investment in direct financing
leases 0 0
Investment in joint venture 0 0
Return of capital from joint
ventures 0 0
Increase in other assets 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund IX, Ltd. by
related parties 0 0
------------ ------------
Cash generated (deficiency) after cash
distributions and special items 64,212 (51,728)
============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 80 73
============ ============
- from recapture 0 0
============ ============
Capital gain (loss) 0 0
============ ============
<CAPTION>
TABLE III - CNL INCOME FUND IX, LTD. (continued)
1990
(Note 1) 1991 1992 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 44 82 68
- from capital gain 0 0 0 0
- from investment income from
prior period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 4) 0 44 82 68
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 44 82 68
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 4) 0 44 82 68
============ ============ ============ ============
Total cumulative cash distributions
per $1,000 investment from inception 0 44 126 194
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100% 100% 100%
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 85 85
- from capital gain 0 0
- from investment income from
prior period 5 5
------------ ------------
Total distributions on GAAP basis
(Note 4) 90 90
============ ============
Source (on cash basis)
- from sales 0 0
- from refinancing 0 0
- from operations 90 89
- from cash flow from prior period 0 1
------------ ------------
Total distributions on cash basis
(Note 4) 90 90
============ ============
Total cumulative cash distributions
per $1,000 investment from inception 284 374
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) 100% 100%
<FN>
Note 1: The registration statement relating to the offering of Units by CNL
Income Fund IX, Ltd. became effective on March 20, 1991. Activities
through April 11, 1991, were devoted to organization of the partnership
and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund IX, Ltd.
Note 4: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
d i stributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarter ended December 31,
1 9 9 3 and 1994, are reflected in the 1994 and 1995 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994 and 1995, respectively. As a result
of 1994 and 1995 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994 and 1995, are
not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND X, LTD.
<CAPTION>
1990
(Note 1) 1991 1992 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 80,723 $ 2,985,620 $ 3,729,533
Equity in earnings of unconsolidated
joint venture 0 0 184,425 273,564
Profit from sale of properties 0 0 0 0
Interest income 0 77,424 149,051 35,072
Less: Operating expenses 0 (7,078) (147,094) (178,294)
Interest expense 0 0 0 0
Depreciation and amortization 0 (5,603) (261,058) (215,143)
Minority interest in income of
consolidated joint venture 0 0 (4,902) (8,159)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 145,466 2,906,042 3,636,573
============ ============ ============ ============
Taxable income
- from operations 0 187,164 2,652,037 2,936,325
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 5) 0 201,406 3,101,618 3,460,906
Cash generated from sales (Note 4) 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 201,406 3,101,618 3,460,906
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (163,012) (2,760,446) (2,659,655)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 38,394 341,172 801,251
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 19,972,663 20,027,337 0
General partners' capital
contributions 1,000 0 0 0
Organization costs 0 (10,000) 0 0
Syndication costs 0 (1,942,339) (1,880,824) 0
Acquisition of land and buildings 0 (7,317,942) (12,095,378) (316)
Investment in direct financing
leases 0 (3,024,796) (8,018,153) (46,364)
Investment in joint ventures 0 0 (3,687,069) 0
Return of capital from joint
ventures 0 0 0 0
Deposit received for sale of land
and building 0 0 0 0
Increase in other assets (78) (482,466) 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund X, Ltd. by
related parties 0 (815,938) (313,196) (544)
Distributions to holder of minority
interest 0 0 (5,729) (5,543)
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 922 6,417,576 (5,631,840) 748,484
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 17 70 73
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Gross revenue $ 3,710,792 $ 3,544,446
Equity in earnings of unconsolidated
joint venture 271,512 267,799
Profit from sale of properties 0 67,214
Interest income 46,456 72,600
Less: Operating expenses (138,507) (189,230)
Interest expense 0 0
Depreciation and amortization (208,941) (201,696)
Minority interest in income of
consolidated joint venture (8,471) (9,066)
------------ ------------
Net income - GAAP basis 3,672,841 3,552,067
============ ============
Taxable income
- from operations 3,212,304 2,956,800
============ ============
- from gain on sale 0 50,819
============ ============
Cash generated from operations
(Notes 2 and 5) 3,785,493 3,527,362
Cash generated from sales (Note 4) 0 1,057,386
Cash generated from refinancing 0 0
------------ ------------
Cash generated from operations, sales
and refinancing 3,785,493 4,584,748
Less: Cash distributions to investors
(Note 6)
- from operating cash flow (3,500,017) (3,527,362)
- from sale of properties 0 0
- from cash flow from prior period 0 (172,641)
------------ ------------
Cash generated (deficiency) after cash
distributions 285,476 884,745
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0
General partners' capital
contributions 0 0
Organization costs 0 0
Syndication costs 0 0
Acquisition of land and buildings 0 (359,506)
Investment in direct financing
leases 0 (566,097)
Investment in joint ventures 0 0
Return of capital from joint
ventures 0 0
Deposit received for sale of land
and building 0 69,000
Increase in other assets 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund X, Ltd. by
related parties 0 0
Distributions to holder of minority
interest (7,909) (7,998)
------------ ------------
Cash generated (deficiency) after cash
distributions and special items 277,567 20,144
============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 80 73
============ ============
- from recapture 0 0
============ ============
Capital gain (loss) 0 1
============ ============
<CAPTION>
TABLE III - CNL INCOME FUND X, LTD. (continued)
1990
(Note 1) 1991 1992 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 13 73 66
- from capital gain 0 0 0 0
- from investment income from
prior period 0 0 0 0
- from return of capital (Note 3) 0 2 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 0 15 73 66
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 15 73 66
- from cash flow from prior
period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 6) 0 15 73 66
============ ============ ============ ============
Total cumulative cash distributions
per $1,000 investment from inception 0 15 88 154
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 4) N/A 100% 100% 100%
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 88 87
- from capital gain 0 2
- from investment income from
prior period 0 4
- from return of capital (Note 3) 0 0
------------ ------------
Total distributions on GAAP basis
(Note 6) 88 93
============ ============
Source (on cash basis)
- from sales 0 0
- from refinancing 0 0
- from operations 88 88
- from cash flow from prior
period 0 5
------------ ------------
Total distributions on cash basis
(Note 6) 88 93
============ ============
Total cumulative cash distributions
per $1,000 investment from inception 242 335
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 4) 100% 99%
<FN>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund X, Ltd. ("CNL X") and CNL
Income Fund IX, Ltd. each registered for sale $35,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund IX, Ltd. commenced March 20, 1991. Pursuant to the
registration statement, CNL X's offering of Units could not commence
until the offering of Units of CNL Income Fund IX, Ltd. was terminated.
CNL Income Fund IX, Ltd. terminated its offering of Units on September
6, 1991, at which time the maximum offering proceeds of $35,000,000 had
been received. Upon the termination of the offering of Units of CNL
Income Fund IX, Ltd., CNL X commenced its offering of Units.
Activities through September 24, 1991, were devoted to organization of
the partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income
includes deductions for depreciation and amortization expense and
income from certain non-cash items. This amount is not required to be
presented as a return of capital except for purposes of this table, and
CNL Income Fund X, Ltd. has not treated this amount as a return of
capital for any other purpose.
Note 4: In August 1995, CNL Income Fund X, Ltd. sold one of its properties and
received net sales proceeds of $1,050,186. In September 1995, the
partnership reinvested $928,122 in an additional property. In
addition, in January 1996, the partnership reinvested the remaining net
sales proceeds in an additional property as tenants-in-common with
affiliates of the general partners.
Note 5: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund X, Ltd.
Note 6: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
d i stributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarter ended December 31,
1 9 9 3 and 1994, are reflected in the 1994 and 1995 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994 and 1995, respectively. As a result
of 1994 and 1995 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994 and 1995, are
not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XI, LTD.
<CAPTION>
1991
(Note 1) 1992 1993 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Gross revenue $ 0 $ 1,269,086 $ 3,831,648 $ 3,852,107 $ 3,820,990
Equity in earnings of unconsolidated
joint ventures 0 33,367 121,059 119,370 118,384
Profit from sale of properties 0 0 0 0 0
Interest income 0 150,535 24,258 30,894 51,192
Less: Operating expenses 0 (63,390) (206,987) (179,717) (237,126)
Interest expense 0 0 0 0 0
Depreciation and amortization 0 (180,631) (469,127) (481,226) (481,226)
Minority interests in income of
consolidated joint ventures 0 (23,529) (68,399) (68,936) (70,038)
------------ ------------ ------------ ------------ ------------
Net income - GAAP basis 0 1,185,438 3,232,452 3,272,492 3,202,176
============ ============ ============ ============ ============
Taxable income
- from operations 0 1,295,104 2,855,026 2,947,445 2,985,221
============ ============ ============ ============ ============
- from gain on sale 0 0 0 0 0
============ ============ ============ ============ ============
Cash generated from operations
(Notes 2 and 4) 0 1,495,225 3,355,586 3,497,941 3,652,185
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,495,225 3,355,586 3,497,941 3,652,185
Less: Cash distributions to investors
(Note 5)
- from operating cash flow 0 (1,205,030) (2,495,002) (3,400,001) (3,500,023)
- from sale of properties 0 0 0 0 0
- from cash flow from prior period 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 290,195 860,584 97,940 152,162
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 40,000,000 0 0 0
General partners' capital
contributions 1,000 0 0 0 0
Minority interests' capital
contributions 0 426,367 0 0 0
Organization costs 0 (10,000) 0 0 0
Syndication costs 0 (3,922,875) 0 0 0
Acquisition of land and buildings 0 (26,428,556) (276,157) 0 0
Investment in direct financing
leases 0 (6,716,561) (276,206) 0 0
Investment in joint ventures 0 (1,658,925) (772) 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XI, Ltd. by
related parties 0 (1,011,487) (900) 0 0
Increase in other assets 0 (122,024) 0 0 0
Distributions to holders of minority
interests 0 (17,467) (51,562) (57,641) (54,227)
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 828,667 254,987 40,299 97,935
============ ============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 45 71 73 74
============ ============ ============ ============ ============
- from recapture 0 0 0 0 0
============ ============ ============ ============ ============
Capital gain (loss) 0 0 0 0 0
============ ============ ============ ============ ============
<CAPTION>
TABLE III - CNL INCOME FUND XI, LTD. (continued)
1991
(Note 1) 1992 1993 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 41 62 81 79
- from capital gain 0 0 0 0 0
- from investment income from
prior period 0 0 0 4 9
- from return of capital (Note 3) 0 1 0 0 0
------------ ------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 5) 0 42 62 85 88
============ ============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0 0
- from refinancing 0 0 0 0 0
- from operations 0 42 62 85 88
- from cash flow from prior
period 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 5) 0 42 62 85 88
============ ============ ============ ============ ============
Total cumulative cash distributions
per $1,000 investment from inception 0 42 104 189 277
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100% 100% 100% 100%
<FN>
Note 1: The registration statement relating to the offering of Units by CNL
Income Fund XI, Ltd. became effective on March 12, 1992. Activities
through April 22, 1992, were devoted to organization of the partnership
and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income
includes deductions for depreciation and amortization expense and
income from certain non-cash items. This amount is not required to be
presented as a return of capital except for purposes of this table, and
CNL Income Fund XI, Ltd. has not treated this amount as a return of
capital for any other purpose.
Note 4: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XI, Ltd.
Note 5: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
d i stributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarter ended December 31,
1 9 9 3 and 1994, are reflected in the 1994 and 1995 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994 and 1995, respectively. As a result
of 1994 and 1995 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994 and 1995, are
not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XII, LTD.
<CAPTION>
1991
(Note 1) 1992 1993 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Gross revenue $ 0 $ 25,133 $ 3,374,640 $ 4,397,881 $ 4,404,792
Equity in earnings of joint ventures 0 46 49,604 85,252 81,582
Profit from sale of properties 0 0 0 0 0
Interest income 0 45,228 190,082 65,447 84,197
Less: Operating expenses 0 (7,211) (193,804) (192,951) (228,404)
Interest expense 0 0 0 0 0
Depreciation and amortization 0 (3,997) (286,293) (327,795) (327,795)
------------ ------------ ------------ ------------ ------------
Net income - GAAP basis 0 59,199 3,134,229 4,027,834 4,014,372
============ ============ ============ ============ ============
Taxable income
- from operations 0 58,543 2,749,072 3,301,005 3,262,046
============ ============ ============ ============ ============
- from gain on sale 0 0 0 0 0
============ ============ ============ ============ ============
Cash generated from operations
(Notes 2 and 5) 0 61,370 3,246,760 3,848,962 3,819,362
Cash generated from sales 0 0 0 0 0
Cash generated from refinancing 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 61,370 3,246,760 3,848,962 3,819,362
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (61,370) (1,972,769) (3,768,754) (3,819,362)
- from sale of properties 0 0 0 0 0
- from return of capital (Note 4) 0 (60,867) 0 0 0
- from cash flow from prior period 0 0 0 0 (5,645)
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 (60,867) 1,273,991 80,208 (5,645)
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 21,543,270 23,456,730 0 0
General partners' capital
contributions 1,000 0 0 0 0
Organization costs 0 (10,000) 0 0 0
Syndication costs 0 (2,066,937) (2,277,637) 0 0
Acquisition of land and buildings 0 (7,536,009) (15,472,737) (230) 0
Investment in direct financing
leases 0 (2,503,050) (11,875,100) (591) 0
Loan to tenant of joint venture,
net of repayments 0 0 (207,189) 6,400 7,008
Investment in joint ventures 0 (372,045) (468,771) (4,400) 0
Increase in restricted cash 0 0 0 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XII, Ltd. by
related parties 0 (704,923) (432,749) 0 0
Increase in other assets 0 (654,497) 0 0 0
Other 0 0 0 973 0
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 7,634,942 (6,003,462) 82,360 1,363
============ ============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 5 64 73 72
============ ============ ============ ============ ============
- from recapture 0 0 0 0 0
============ ============ ============ ============ ============
Capital gain (loss) 0 0 0 0 0
============ ============ ============ ============ ============
<CAPTION>
TABLE III - CNL INCOME FUND XII, LTD. (continued)
1991
(Note 1) 1992 1993 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 5 46 84 85
- from capital gain 0 0 0 0 0
- from return of capital (Note 3) 0 7 0 0 0
------------ ------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 0 12 46 84 85
============ ============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0 0
- from refinancing 0 0 0 0 0
- from operations 0 6 46 84 85
- from return of capital (Note 4) 0 6 0 0 0
- from cash flow from prior period 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 6) 0 12 46 84 85
============ ============ ============ ============ ============
Total cumulative cash distributions
per $1,000 investment from inception 0 12 58 142 227
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100% 100% 100% 100%
<FN>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund XII, Ltd. ("CNL XII") and CNL
Income Fund XI, Ltd. each registered for sale $40,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund XI, Ltd. commenced March 12, 1992. Pursuant to the
registration statement, CNL XII could not commence until the offering
of Units of CNL Income Fund XI, Ltd. was terminated. CNL Income Fund
XI, Ltd. terminated its offering of Units on September 28, 1992, at
which time the maximum offering proceeds of $40,000,000 had been
received. Upon the termination of the offering of Units of CNL Income
Fund XI, Ltd., CNL XII commenced its offering of Units. Activities
t h rough October 8, 1992, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income
includes deductions for depreciation and amortization expense and
income from certain non-cash items. This amount is not required to be
presented as a return of capital except for purposes of this table, and
CNL Income Fund XII, Ltd. has not treated this amount as a return of
capital for any other purpose.
Note 4: CNL Income Fund XII, Ltd. makes its distributions in the current period
rather than in arrears based on estimated operating results. In cases
where distributions exceed cash from operations in the current period,
o n c e finally determined, subsequent distributions are lowered
accordingly in order to avoid any return of capital. This amount is
not required to be presented as a return of capital except for purposes
of this table, and CNL Income Fund XII, Ltd. has not treated this
amount as a return of capital for any other purpose.
Note 5: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XII, Ltd.
Note 6: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
d i stributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarter ended December 31,
1 9 9 3 and 1994, are reflected in the 1994 and 1995 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994 and 1995, respectively. As a result
of 1994 and 1995 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994 and 1995, are
not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XIII, LTD.
<CAPTION>
1992
(Note 1) 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 966,564 $ 3,558,447 $ 3,806,944
Equity in earnings of joint ventures 0 1,305 43,386 98,520
Profit (Loss) from sale of properties
(Note 4) 0 0 0 (29,560)
Interest income 0 181,568 77,379 51,410
Less: Operating expenses 0 (59,390) (183,311) (214,705)
Interest expense 0 0 0 0
Depreciation and amortization 0 (148,170) (378,269) (393,435)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 941,877 3,117,632 3,319,174
============ ============ ============ ============
Taxable income
- from operations 0 978,535 2,703,252 2,920,859
============ ============ ============ ============
- from gain (loss) on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 5) 0 1,121,547 3,149,000 3,379,378
Cash generated from sales (Note 4) 0 0 0 286,411
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,121,547 3,149,000 3,665,789
Less: Cash distributions to investors
(Note 5)
- from operating cash flow 0 (528,364) (2,800,004) (3,350,014)
- from sale of properties 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after
cash distributions 0 593,183 348,996 315,775
Special items (not including sales
and refinancing):
Limited partners' capital
contributions 0 40,000,000 0 0
General partners' capital
contributions 1,000 0 0 0
Syndication costs 0 (3,932,017) (181) 0
Acquisition of land and buildings 0 (19,691,630) (5,764,308) (336,116)
Investment in direct financing leases 0 (6,760,624) (1,365,075) 0
Investment in joint ventures 0 (314,998) (545,139) (140,052)
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XIII, Ltd. by related parties 0 (799,980) (25,036) (3,074)
Increase in other assets 0 (454,909) 9,226 0
Other 0 0 0 954
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 8,639,025 (7,341,517) (162,513)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 33 67 72
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Note 4) 0 0 0 0
============ ============ ============ ============
<CAPTION>
TABLE III - CNL INCOME FUND XIII, LTD. (continued)
1992
(Note 1) 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 18 70 82
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 2
------------ ------------ ------------ ------------
Total distributions on GAAP basis (Note 5) 0 18 70 84
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 18 70 84
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 5) 0 18 70 84
============ ============ ============ ============
Total cumulative cash distributions per
$1,000 investment from inception 0 18 88 172
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100% 100% 100%
<FN>
Note 1: The registration statement relating to the offering of Units by CNL
Income Fund XIII, Ltd. became effective on March 17, 1993. Activities
through April 15, 1993, were devoted to organization of the partnership
and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XIII, Ltd.
Note 4: During 1995, the partnership sold one of its properties to a tenant for
i t s o riginal purchase price, excluding acquisition fees and
miscellaneous acquisition expenses. The net sales proceeds were used
to acquire an additional property. As a result of this transaction,
the partnership recognized a loss for financial reporting purposes of
$29,560 primarily due to acquisition fees and miscellaneous acquisition
expenses the partnership had allocated to the property and due to the
accrued rental income relating to future scheduled rent increases that
the partnership had recorded and reversed at the time of sale.
Note 5: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
d i stributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarter ended December 31,
1 9 9 3 and 1994, are reflected in the 1994 and 1995 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994 and 1995, respectively. As a result
of 1994 and 1995 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994 and 1995, are
not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XIV, LTD.
<CAPTION>
1992
(Note 1) 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 256,234 $ 3,135,716 $ 4,017,266
Equity in earnings of joint ventures 0 1,305 35,480 338,717
Profit (Loss) from sale of properties
(Note 4) 0 0 0 (66,518)
Interest income 0 27,874 200,499 50,724
Less: Operating expenses 0 (14,049) (181,980) (248,840)
Interest expense 0 0 0 0
Depreciation and amortization 0 (28,918) (257,640) (340,112)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 242,446 2,932,075 3,751,237
============ ============ ============ ============
Taxable income
- from operations 0 278,845 2,482,240 3,162,165
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 321,737 2,812,631 3,709,844
Cash generated from sales (Note 4) 0 0 0 696,012
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 321,737 2,812,631 4,405,856
Less: Cash distributions to investors
(Note 5)
- from operating cash flow 0 (9,050) (2,229,952) (3,543,751)
- from sale of properties 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 312,687 582,679 862,105
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 28,785,100 16,214,900 0
General partners' capital
contributions 1,000 0 0 0
Syndication costs 0 (2,771,892) (1,618,477) 0
Acquisition of land and buildings 0 (13,758,004) (11,859,237) (964,073)
Investment in direct financing leases 0 (4,187,268) (5,561,748) (75,352)
Investment in joint ventures 0 (315,209) (1,561,988) (1,087,218)
Return of capital from joint venture 0 0 0 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XIV, Ltd. by related parties 0 (706,215) (376,738) (577)
Increase in other assets 0 (444,267) 0 0
Other 0 0 0 5,530
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 6,914,932 (4,180,609) (1,259,585)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 16 56 70
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Note 4) 0 0 0 0
============ ============ ============ ============
<CAPTION>
TABLE III - CNL INCOME FUND XIV, LTD. (continued)
1992
(Note 1) 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 1 51 79
- from capital gain 0 0 0 0
- from return of capital 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis (Note 5) 0 1 51 79
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 1 51 79
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 5) 0 1 51 79
============ ============ ============ ============
Total cumulative cash distributions
per $1,000 investment from inception 0 1 52 131
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100% 100% 100%
<FN>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund XIV, Ltd. ("CNL XIV") and CNL
Income Fund XIII, Ltd. each registered for sale $40,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund XIII, Ltd. commenced March 17, 1993. Pursuant to the
registration statement, CNL XIV could not commence until the offering
of Units of CNL Income Fund XIII, Ltd. was terminated. CNL Income Fund
XIII, Ltd. terminated its offering of Units on August 26, 1993, at
which time the maximum offering proceeds of $40,000,000 had been
received. Upon the termination of the offering of Units of CNL Income
Fund XIII, Ltd., CNL XIV commenced its offering of Units. Activities
through September 13, 1993, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XIV, Ltd.
Note 4: During 1995, the partnership sold two of its properties to a tenant for
i t s o riginal purchase price, excluding acquisition fees and
miscellaneous acquisition expenses. The net sales proceeds were used
t o acquire two additional properties. As a result of these
transactions, the partnership recognized a loss for financial reporting
purposes of $66,518 primarily due to acquisition fees and miscellaneous
acquisition expenses the partnership had allocated to the property and
due to the accrued rental income relating to future scheduled rent
increases that the partnership had recorded and reversed at the time of
sale.
Note 5: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
d i stributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarter ended December 31,
1 9 9 3 and 1994, are reflected in the 1994 and 1995 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994 and 1995, respectively. As a result
of 1994 and 1995 distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1994 and 1995, are
not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XV, LTD.
<CAPTION>
1993
(Note 1) 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Gross revenue $ 0 $ 1,143,586 $ 3,546,320
Equity in earnings of joint venture 0 8,372 280,606
Profit (Loss) from sale of properties (Note 4) 0 0 (71,023)
Interest income 0 167,734 88,059
Less: Operating expenses 0 (62,926) (228,319)
Interest expense 0 0 0
Depreciation and amortization 0 (70,848) (243,175)
------------ ------------ ------------
Net income - GAAP basis 0 1,185,918 3,372,468
============ ============ ============
Taxable income
- from operations 0 1,026,715 2,861,912
============ ============ ============
- from gain on sale 0 0 0
============ ============ ============
Cash generated from operations (Notes 2 and 3) 0 1,116,834 3,239,370
Cash generated from sales (Note 4) 0 0 811,706
Cash generated from refinancing 0 0 0
------------ ------------ ------------
Cash generated from operations, sales and refinancing 0 1,116,834 4,051,076
Less: Cash distributions to investors (Note 5)
- from operating cash flow 0 (635,944) (2,650,003)
- from sale of properties 0 0 0
------------ ------------ ------------
Cash generated (deficiency) after cash distributions 0 480,890 1,401,073
Special items (not including sales and refinancing):
Limited partners' capital contributions 0 40,000,000 0
General partners' capital contributions 1,000 0 0
Syndication costs 0 (3,892,003) 0
Acquisition of land and buildings 0 (22,152,379) (1,625,601)
Investment in direct financing leases 0 (6,792,806) (2,412,973)
Investment in joint venture 0 (1,564,762) (720,552)
Reimbursement of organization, syndication and
acquisition costs paid on behalf of CNL Income
Fund XV, Ltd. by related parties 0 (1,098,197) (23,507)
Increase in other assets 0 (187,757) 0
Other (38) (6,118) 25,150
------------ ------------ ------------
Cash generated (deficiency) after cash distributions
and special items 962 4,786,868 (3,356,410)
============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 33 71
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) (Note 4) 0 0 0
============ ============ ============
<CAPTION>
TABLE III - CNL INCOME FUND XV, LTD. (continued)
1993
(Note 1) 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 21 66
- from capital gain 0 0 0
------------ ------------ ------------
Total distributions on GAAP basis (Note 5) 0 21 66
============ ============ ============
Source (on cash basis)
- from sales 0 0 0
- from refinancing 0 0 0
- from operations 0 21 66
------------ ------------ ------------
Total distributions on cash basis (Note 5) 0 21 66
============ ============ ============
Total cumulative cash distributions per $1,000 investment
from inception 0 21 87
Amount (in percentage terms) remaining invested in program
properties at the end of each year (period) presented
(original total acquisition cost of properties
retained, divided by original total acquisition
cost of all properties in program) N/A 100% 100%
<FN>
Note 1: The registration statement relating to this offering of Units of CNL
Income Fund XV, Ltd. became effective February 23, 1994. Activities
through March 23, 1994, were devoted to organization of the partnership
and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint venture, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XV, Ltd.
Note 4: During 1995, the partnership sold three of its properties to a tenant
for its original purchase price, excluding acquisition fees and
miscellaneous acquisition expenses. The majority of the net sales
proceeds were used to acquire two additional properties. The remaining
net sales proceeds will be used towards the purchase of an additional
property. As a result of these transactions, the partnership
recognized a loss for financial reporting purposes of $71,023 primarily
due to acquisition fees and miscellaneous acquisition expenses the
partnership had allocated to the three properties and due to the
accrued rental income relating to future scheduled rent increases that
the partnership had recorded and reversed at the time of sale.
Note 5: Distributions declared for the quarter ended December 31, 1994 are
reflected in the 1995 column due to the payment of such distributions
in January 1995. As a result of distributions being presented on a
cash basis, distributions declared and unpaid as of December 31, 1994
and 1995, are not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XVI, LTD.
<CAPTION>
1993
(Note 1) 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Gross revenue $ 0 $ 186,257 $ 2,702,504
Profit from sale of properties 0 0 0
Interest income 0 21,478 321,137
Less: Operating expenses 0 (10,700) (274,595)
Interest expense 0 0 0
Depreciation and amortization 0 (9,458) (318,205)
------------ ------------ ------------
Net income - GAAP basis 0 187,577 2,430,841
============ ============ ============
Taxable income
- from operations 0 189,864 2,139,382
============ ============ ============
- from gain on sale 0 0 0
============ ============ ============
Cash generated from operations (Notes 2 and 3) 0 205,148 2,481,395
Cash generated from sales 0 0 0
Cash generated from refinancing 0 0 0
------------ ------------ ------------
Cash generated from operations, sales and refinancing 0 205,148 2,481,395
Less: Cash distributions to investors (Note 4)
- from operating cash flow 0 (2,845) (1,798,921)
- from sale of properties 0 0 0
------------ ------------ ------------
Cash generated (deficiency) after cash distributions 0 202,303 682,474
Special items (not including sales and refinancing):
Limited partners' capital contributions 0 20,174,172 24,825,828
General partners' capital contributions 1,000 0 0
Syndication costs 0 (1,929,465) (2,452,743)
Acquisition of land and buildings 0 (13,170,132) (16,012,458)
Investment in direct financing leases 0 (975,853) (5,595,236)
Reimbursement of organization, syndication and
acquisition costs paid on behalf of CNL Income
Fund XVI, Ltd. by related parties 0 (854,154) (405,569)
Increase in other assets 0 (443,625) (58,720)
Other (36) (20,714) 20,714
------------ ------------ ------------
Cash generated (deficiency) after cash distributions
and special items 964 2,982,532 1,004,290
============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 17 53
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) 0 0 0
============ ============ ============
<CAPTION>
TABLE III - CNL INCOME FUND XVI, LTD. (continued)
1993
(Note 1) 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 1 45
- from capital gain 0 0 0
- from return of capital 0 0 0
------------ ------------ ------------
Total distributions on GAAP basis (Note 4) 0 1 45
============ ============ ============
Source (on cash basis)
- from sales 0 0 0
- from refinancing 0 0 0
- from operations 0 1 45
------------ ------------ ------------
Total distributions on cash basis (Note 4) 0 1 45
============ ============ ============
Total cumulative cash distributions per $1,000
investment from inception 0 1 46
Amount (in percentage terms) remaining invested
in program properties at the end of each
year (period) presented (original total acquisition
cost of properties retained, divided by original
total acquisition cost of all properties in program) N/A 100% 100%
<FN>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund XVI, Ltd. ("CNL XVI") and CNL
Income Fund XV, Ltd. each registered for sale $40,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund XV, Ltd. commenced February 23, 1994. Pursuant to the
registration statement, CNL XVI could not commence until the offering
of Units of CNL Income Fund XV, Ltd. was terminated. CNL Income Fund
XV, Ltd. terminated its offering of Units on September 1, 1994, at
which time the maximum offering proceeds of $40,000,000 had been
received. Upon the termination of the offering of Units of CNL Income
Fund XV, Ltd., CNL XVI commenced its offering of Units. Activities
through September 22, 1994, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
less cash paid for expenses, plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XVI, Ltd.
Note 4: Distributions declared for the quarter ended December 31, 1994 are
reflected in the 1995 column due to the payment of such distributions
in January 1995. As a result of distributions being presented on a
cash basis, distributions declared and unpaid as of December 31, 1994
and 1995, are not included in the 1994 and 1995 totals, respectively.
</TABLE>
<TABLE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
=======================================================================================================
<CAPTION>
Selling Price, Net of
Closing Costs and GAAP Adjustments
-------------------------------------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund, Ltd.:
Burger King -
San Dimas, CA 02/05/87 06/12/92 $1,169,021 0 0 0 $1,169,021
Wendy's -
Fairfield, CA 07/01/87 10/03/94 1,018,490 0 0 0 1,018,490
CNL Income Fund II, Ltd.:
Golden Corral -
Salisbury, NC 05/29/87 07/21/93 746,800 0 0 0 746,800
Pizza Hut -
Graham, TX 08/24/87 07/28/94 261,628 0 0 0 261,628
Golden Corral -
Medina, OH 11/18/87 11/30/94 626,582 0 0 0 626,582
CNL Income Fund IV, Ltd.:
Taco Bell -
York, PA 03/22/89 04/27/94 712,000 0 0 0 712,000
Burger King -
Hastings, MI 08/12/88 12/15/95 518,650 0 0 0 518,650
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 02/28/90 08/25/95 1,040,000 0 0 0 1,040,000
CNL Income Fund VI, Ltd.:
Hardee's -
Batesville, AR 11/02/89 05/24/94 791,211 0 0 0 791,211
Hardee's -
Heber Springs, AR 02/13/90 05/24/94 638,270 0 0 0 638,270
Hardee's -
Little Canada, MN 11/28/89 06/29/95 899,503 0 0 0 899,503
<CAPTION>
=====================================================================================
Cost of Properties
Including Closing and
Soft Costs
--------------------------------
Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
=====================================================================================
<S> <C> <C> <C> <C>
CNL Income Fund, Ltd.:
Burger King -
San Dimas, CA 0 $955,000 $955,000 $214,021
Wendy's -
Fairfield, CA 0 861,500 861,500 156,990
CNL Income Fund II, Ltd.:
Golden Corral -
Salisbury, NC 0 642,800 642,800 104,000
Pizza Hut -
Graham, TX 0 205,500 205,500 56,128
Golden Corral -
Medina, OH 0 743,000 743,000 (116,418)
CNL Income Fund IV, Ltd.:
Taco Bell -
York, PA 0 616,501 616,501 95,499
Burger King -
Hastings, MI 0 419,936 419,936 98,714
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 0 986,418 986,418 53,582
CNL Income Fund VI, Ltd.:
Hardee's -
Batesville, AR 0 605,500 605,500 185,711
Hardee's -
Heber Springs, AR 0 532,893 532,893 105,377
Hardee's -
Little Canada, MN 0 821,692 821,692 77,811
<FN>
(1) Amounts shown do not include pro rata share of original offering costs or acquisition fees.
(2) These partnerships accepted mortgage note receivables in connection with the sales of these properties.
</TABLE>
<TABLE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES (continued)
=======================================================================================================
<CAPTION>
Selling Price, Net of
Closing Costs and GAAP Adjustments
-------------------------------------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund VII, Ltd.:
Taco Bell -
Kearns, UT 06/14/90 05/19/92 700,000 0 0 0 700,000
Hardee's -
St. Paul, MN 08/09/90 05/24/94 869,036 0 0 0 869,036
Perkins -
Florence, SC (2) 08/28/90 08/25/95 1,160,000 0 0 0 1,160,000
Church's Fried Chicken -
Jacksonville, FL (3) 04/30/90 12/01/95 240,000 0 0 0 240,000
CNL Income Fund VIII, Ltd.:
Church's Fried Chicken -
Melbourne, FL 09/28/90 02/01/91 172,945 0 0 0 172,945
Church's Fried Chicken -
Cocoa, FL 09/28/90 05/14/91 175,042 0 0 0 175,042
Denny's -
Ocoee, FL 03/16/91 07/31/95 1,184,865 0 0 0 1,184,865
Church's Fried Chicken -
Jacksonville, FL (2) 09/28/90 12/01/95 240,000 0 0 0 240,000
Church's Fried Chicken -
Jacksonville, FL (2) 09/28/90 12/01/95 220,000 0 0 0 220,000
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 03/04/92 08/11/95 1,050,186 0 0 0 1,050,186
<CAPTION>
==================================================================================
Cost of Properties
Including Closing and
Soft Costs
--------------------------------
Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
==================================================================================
<S> <C> <C> <C> <C>
CNL Income Fund VII, Ltd.:
Taco Bell -
Kearns, UT 0 560,202 560,202 139,798
Hardee's -
St. Paul, MN 0 742,333 742,333 126,703
Perkins -
Florence, SC (2) 0 1,084,905 1,084,905 75,095
Church's Fried Chicken -
Jacksonville, FL (2) 0 233,728 233,728 6,272
CNL Income Fund VIII, Ltd.:
Church's Fried Chicken -
Melbourne, FL 0 166,022 166,022 6,923
Church's Fried Chicken -
Cocoa, FL 0 175,694 175,694 (652)
Denny's -
Ocoee, FL 0 949,199 949,199 235,666
Church's Fried Chicken -
Jacksonville, FL (2) 0 238,153 238,153 1,847
Church's Fried Chicken -
Jacksonville, FL (2) 0 215,845 215,845 4,155
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 0 987,679 987,679 62,507
<FN>
(1) Amounts shown do not include pro rata share of original offering costs or acquisition fees.
(2) These partnerships accepted mortgage note receivables in connection with the sales of these properties.
</TABLE>
<TABLE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES (continued)
=======================================================================================================
<CAPTION>
Selling Price, Net of
Closing Costs and GAAP Adjustments
-------------------------------------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund XIII, Ltd.:
Checkers -
Houston, TX 03/31/94 04/24/95 286,411 0 0 0 286,411
CNL Income Fund XIV, Ltd.:
Checkers -
Knoxville, TN 03/31/94 03/01/95 339,031 0 0 0 339,031
Checkers -
Dallas, TX 03/31/94 03/01/95 356,981 0 0 0 356,981
CNL Income Fund XV, Ltd.:
Checkers -
Knoxville, TN 05/27/94 03/01/95 263,221 0 0 0 263,221
Checkers -
Leavenworth, KS 06/22/94 03/01/95 259,600 0 0 0 259,600
Checkers -
Knoxville, TN 07/08/94 03/01/95 288,885 0 0 0 288,885
<CAPTION>
====================================================================================
Cost of Properties
Including Closing and
Soft Costs
--------------------------------
Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
====================================================================================
<S> <C> <C> <C> <C>
CNL Income Fund XIII, Ltd.:
Checkers -
Houston, TX 0 286,411 286,411 0
CNL Income Fund XIV, Ltd.:
Checkers -
Knoxville, TN 0 339,031 339,031 0
Checkers -
Dallas, TX 0 356,981 356,981 0
CNL Income Fund XV, Ltd.:
Checkers -
Knoxville, TN 0 263,221 263,221 0
Checkers -
Leavenworth, KS 0 259,600 259,600 0
Checkers -
Knoxville, TN 0 288,885 288,885 0
<FN>
(1) Amounts shown do not include pro rata share of original offering costs or acquisition fees.
(2) These partnerships accepted mortgage note receivables in connection with the sales of these properties.
</TABLE>
EXHIBIT D
SUBSCRIPTION AGREEMENT
CNL AMERICAN PROPERTIES FUND, INC.
UP TO 16,500,000 SHARES $10.00 PER SHARE
MINIMUM PURCHASE 250 SHARES ($2,500)
100 SHARES ($1,000) FOR IRAS, KEOGH, AND QUALIFIED PLANS
(Minimum purchase may be higher in certain states)
PLEASE READ CAREFULLY this Subscription Agreement and the Notices (on the back
of the Agreement) before completing this document. TO SUBSCRIBE FOR SHARES,
complete and sign, where appropriate, and deliver the Subscription Agreement,
along with your check, to your Registered Representative. YOUR CHECK SHOULD
BE MADE PAYABLE TO:
SOUTHTRUST ESTATE & TRUST COMPANY, INC.
ALL ITEMS ON THE SUBSCRIPTION AGREEMENT MUST BE COMPLETED IN ORDER FOR YOUR
SUBSCRIPTION TO BE PROCESSED.
CNL SECURITIES CORP.
(407) 422-1574 OR (800) 522-3863
Overnight Packages: Regular Mail Packages:
Attn: Investor Services Attn: Investor Services
400 E. South Street, Suite 500 Post Office Box 1033
Orlando, Florida 32801 Orlando, Florida 32802-1033
CNL AMERICAN PROPERTIES FUND, INC.
1. INVESTMENT
This subscription is in the amount of $__ for the purchase of __ Shares ($10.00
per Share). The minimum initial subscription is 250 Shares ($2,500); 100 Shares
($1,000) for IRA, Keogh and qualified plan accounts (except in states with
higher minimum purchase requirements).
[ ] ADDITIONAL PURCHASE [ ] REINVESTMENT PLAN - Investor elects to
participate in Plan (See prospectus for
details.)
2. SUBSCRIBER INFORMATION
Name (1st) ____________________________ Date of Birth (MM/DD/YY) __________
Name (2nd) ____________________________ Date of Birth (MM/DD/YY) __________
Address ______________________ City _________ State ___ Zip Code _______
Custodian Account No. __________________Daytime Phone # ( __________________ )
[ ] U.S. Citizen [ ] Resident Alien [ ] Foreign Resident Country ___
[ ] Check if Subscriber is a U.S. citizen residing outside the U.S.
Income Tax Filing State __________________________
ALL SUBSCRIBERS: State of Residence of Subscriber/Plan Beneficiary (required)
TAXPAYER IDENTIFICATION NUMBER: For most individual taxpayers, it is their
Social Security number. Note: If the purchase is in more than one name, the
number should be that of the first person listed. For IRAs, Keoghs and
qualified plans, enter BOTH the Social Security number and the taxpayer
identification number.
TAXPAYER ID# __ - _______ SOCIAL SECURITY # ___ - __ - ___
3. INVESTOR MAILING ADDRESS
For the Subscriber of an IRA, Keogh, or qualified plan to receive informational
mailings, please complete if different from address in Section 2.
Name ___________________________________________
Address ________________________________________
City __________________________________ State _______ Zip Code __________
Daytime Phone #( ___ ) ____-______
4. DIRECT DEPOSIT ADDRESS
Investors requesting direct deposit of distribution checks to another financial
institution or mutual fund, please complete below. In no event will the Company
or Affiliates be responsible for any adverse consequences of direct deposit.
Company ________________________________________
Address ________________________________________
City ________________________ State _________ Zip Code ___________
Account No. _________________ Daytime Phone #( ___ ) ____-_______
5. FORM OF OWNERSHIP
(Select only one)
[ ] INDIVIDUAL-one signature required (1)
[ ] HUSBAND AND WIFE, AS COMMUNITY PROPERTY- two signatures required (15)
[ ] TENANTS IN COMMON-two signatures required (3)
[ ] TENANTS BY THE ENTIRETY-two signatures required (31)
[ ] CORPORATIONS
[ ] S-Corporation (22)
[ ] C-Corporation (5)
[ ] IRA-custodian signature required (23)
[ ] SEP-custodian signature required (38)
[ ] TAXABLE TRUST (7)
[ ] TAX-EXEMPT TRUST (28)
[ ] IRREVOCABLE TRUST-trustee signature required (21)
[ ] JOINT TENANTS WITH RIGHT OF SURVIVORSHIP-all parties must sign (8)
[ ] A MARRIED PERSON/SEPARATE PROPERTY-one signature required (34)
[ ] KEOGH (H.R.10)-trustee signature required (24)
[ ] CUSTODIAN-custodian signature required (33)
[ ] PARTNERSHIP (3)
[ ] NON-PROFIT ORGANIZATION (12)
[ ] PENSION PLAN-trustee signature(s) required (19)
[ ] PROFIT SHARING PLAN-trustee signature(s) required (27)
[ ] CUSTODIAN UGMA-STATE of -custodian signature required
(16)
[ ] CUSTODIAN UTMA-STATE of -custodian signature required
(42)
[ ] ESTATE-Personal Representative signature required (13)
[ ] REVOCABLE GRANTOR TRUST-grantor signature required (25)
[ ] SUBSCRIBER elects to have the Shares covered by this subscription placed in
a new sponsored IRA account offered by Franklin Bank as
custodian. IRA documents will be sent to subscriber upon receipt of
subscription documents. There is no annual fee involved
for CNL American Properties Fund, Inc. investments
6. SUBSCRIBER SIGNATURES
If the Subscriber is executing the Subscriber Signature Page, the Subscriber
understands that, BY EXECUTING THIS AGREEMENT A SUBSCRIBER DOES NOT WAIVE ANY
RIGHTS HE MAY HAVE UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE
ACT OF 1934 OR UNDER ANY STATE SECURITIES LAW:
X ___________________________ ________ X ___________________________ _____
Signature of 1st Subscriber Date Signature of 2nd Subscriber Date
7. BROKER/DEALER INFORMATION
Broker/Dealer NASD Firm Name ______________________________________
Registered Representative _________________________________________
Branch Mail Address _______________________________________________
City ____ State ____ Zip Code ______ [ ] Please check if new address
Phone #( ) _____-________ Fax #( ) ____-_______ [ ] Sold CNL
before
Shipping Address ___________ City ________ State _____ Zip Code _______
[ ] TELEPHONIC SUBSCRIPTIONS (check here): If the Registered Representative
and Branch Manager are executing the signature page on behalf of the
Subscriber, both must sign below. Registered Representatives and Branch
Managers may not sign on behalf of residents of Florida, Iowa, Maine,
Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Mexico, North
Carolina, Ohio, Oregon, South Dakota, Tennessee, or Washington. [NOTE:
Not to be executed until Subscriber(s) has (have) acknowledged receipt of
final prospectus.] Telephonic subscriptions may not be completed for IRA
accounts.
[ ] REGISTERED INVESTMENT ADVISOR (check here): If an owner or principal or
any member of the RIA firm is an NASD licensed Registered Representative
affiliated with a Broker/Dealer, the transaction should be conducted
through that Broker/Dealer, not through the RIA.
PLEASE READ CAREFULLY THE REVERSE SIDE OF THIS SIGNATURE PAGE AND SUBSCRIPTION
AGREEMENT BEFORE COMPLETING
X ___________________________________ ______ ____________________________
Principal, Branch Manager or Other Date Print or Type Name of Person
Authorized Signature Signing
X ___________________________________ ______ ____________________________
Registered Representative/Investment Date Print or Type Name of Person
Advisor Signature Signing
Make check payable to :SOUTHTRUST ESTATE & TRUST COMPANY, INC., ESCROW AGENT
Please remit check and For overnight delivery, please send
subscription document to:
to: FOR OFFICE USE ONLY
CNL SECURITIES CORP. CNL SECURITIES CORP. Sub. # _______
Attn: Investor Attn: Investor Services
Services 400 E. South Street, Suite 500 Admit Date____
P.O. Box 1033 Orlando, FL 32801
Orlando, FL 32802-1033 (407) 422-1574 Amount _______
(800) 522-3863 (800) 522-3863
Region _______
RSVP
NOTICE TO ALL INVESTORS:
(a) The purchase of Shares for an IRA or Keogh plan does not itself create
the plan.
(b) The Company, in its sole and absolute discretion, may accept or reject
the Subscriber's subscription which if rejected will be promptly returned to the
Subscriber, without interest. Non-U.S. Stockholders (as defined in the
Prospectus) will be admitted as stockholders with the approval of the Advisor.
(c) THE SALE OF SHARES SUBSCRIBED FOR HEREUNDER MAY NOT BE COMPLETED UNTIL
AT LEAST FIVE BUSINESS DAYS AFTER THE DATE THE SUBSCRIBER RECEIVES A FINAL
PROSPECTUS. EXCEPT AS PROVIDED IN THIS NOTICE, THE NOTICE BELOW, AND IN THE
PROSPECTUS, THE SUBSCRIBER WILL NOT BE ENTITLED TO REVOKE OR WITHDRAW HIS
SUBSCRIPTION.
NOTICE TO CALIFORNIA AND FLORIDA RESIDENTS: California and Florida investors
will have the right to withdraw their subscription funds if subscriptions for at
least $1,500,000 have not been accepted by the Company within six months after
the initial offer of Shares of the Company pursuant to the Prospectus and the
Company elects at that time to extend the offering beyond such date. The
Company will promptly notify California and Florida investors if the Company so
elects to extend the offering, and such investors must exercise their right to
withdraw within ten (10) days of such notice by delivering written notice to the
Company of their intention to exercise such right. The subscription funds of
withdrawing California and Florida investors will be promptly returned along
with such investor's pro rata share of interest earned thereon net of any escrow
fees calculated as set forth in the Prospectus and the Escrow Agreement.
NOTICE TO CALIFORNIA RESIDENTS: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER
OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFORE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
California investors who do not execute the Subscription Agreement will receive
a confirmation of investment accompanied by a second copy of the final
Prospectus, and will have the opportunity to rescind the investment within ten
(10) days from the date of confirmation.
NOTICE TO NORTH CAROLINA RESIDENTS: By signing this Subscription Agreement,
North Carolina investors acknowledge receipt of the Prospectus and represent
that they meet the suitability standards for North Carolina investors listed in
the Prospectus.
BROKER/DEALER AND FINANCIAL REPRESENTATIVE:
By signing this subscription agreement, the signers certify that they recognize
and have complied with their obligations under the NASD's Rules of Fair
Practice, and hereby certify as follows: (i) a copy of the Prospectus, including
the Subscription Agreement attached thereto as Exhibit C, as amended and/or
supplemented to date, has been delivered to the Subscriber; (ii) they have
discussed such investor's prospective purchase of Shares with such investor and
have advised such investor of all pertinent facts with regard to the liquidity
and marketability of the Shares; and (iii) they have reasonable grounds to
believe that the purchase of Shares is a suitable investment for such investor,
that such investor meets the suitability standards applicable to such investor
set forth in the Prospectus and related supplements, if any, and that such
investor is in a financial position to enable such investor to realize the
benefits of such an investment and to suffer any loss that may occur with
respect thereto and will maintain documentation on which the determination was
based for a period of not less than six years; and (iv) under penalties of
perjury, (a) the information provided in this Subscription Agreement to the best
of our knowledge and belief is true, correct, and complete, including, but not
limited to, the number shown above as the Subscriber's taxpayer identification
number; (b) to the best of our knowledge and belief, the Subscriber is not
subject to backup withholding either because the Subscriber has not been
notified that the Subscriber is subject to backup withholding as result of
failure to report all interest or dividends or the Internal Revenue Service has
notified the subscriber that the Subscriber is no longer subject to backup
withholding under Section 3406(a)(1)(C) of the Internal Revenue Code of 1986, as
amended; and (c) to the best of our knowledge and belief, the Subscriber is not
a nonresident alien, foreign corporation, foreign trust, or foreign estate for
U.S. tax purposes, and we hereby agree to notify the Company if it comes to the
attention of either of us that the Subscriber becomes such a person within sixty
(60) days of any event giving rise to the Subscriber becoming such a person.
Franklin Bank, N.A.
FRANKLIN BANK, N.A., INDIVIDUAL RETIREMENT ACCOUNT APPLICATION
ACCOUNTHOLDER INFORMATION: NAME_________________________
DISCLAIMER:
Franklin Bank, N.A. is a national bank, not associated with CNL
Group, Inc. or any CNL entity. Franklin Bank, N.A. is a custodian for IRAs and
will act in a custodial capacity for all beneficial owners of IRAs. CNL has no
affiliation with Franklin Bank, N.A.
It is not reasonable to project the growth of your IRA investments
include assets other than bank time deposits or savings accounts. Therefore,
your final account balance will depend upon many factors the amount of your
contributions, the amount of time the funds are invested, the earnings and/or
losses from the investments, expenses incurred such as brokerage commissions and
trustee's fees and the overall performance of your investments. We expressly
state that the growth in the value of your IRA cannot be guaranteed or
projected.
SIGNATURES IMPORTANT: Please read before signing.
I understand the eligibility requirements for the type of IRA
deposit I am making and I state that I do qualify to make the
deposit. I understand that the terms and conditions which
apply to the Individual Retirement Account are contained in
this Application and Form 5305A (which will be provided within
10 days of our receipt of this application). I agree to be
bound by those terms and conditions. I understand that I will
not be required to pay an annual fee as long as all
investments in this IRA are sponsored by a CNL entity. Within
seven (7) days from the date I establish the Individual
Retirement Account I may revoke it without penalty by mailing
or delivering a written notice to the Custodian.
I assume complete responsibility for:
1. Determining that I am eligible for an IRA each year I make
a contribution.
2. Insuring that all contributions I make are within the
limits set forth by the tax laws.
3. The tax consequences of any contribution (including
rollover contributions) and distributions.
Signature _______________________________________________
Accountholder
______________________ ________________
Authorized Signature Trustee Date
DESIGNATION OF
BENEFICIARY(IES): I designate the individual(s) named below as my primary
and contingent Beneficiary(ies) of the IRA. I revoke
all prior IRA Beneficiary designations, if any, made by
me. I understand that I may change or add Beneficiaries
at any time by completing and delivering the proper form
to the Custodian. (If you wish to name more than one
Beneficiary, attach a list of each Beneficiary's name,
social security number, relationship to you and
percentage share in this IRA.)
If any primary or contingent Beneficiary dies before me,
his or her interest and the interest of his or her heirs
shall terminate completely, and the percentage share of
any remaining Beneficiary(ies) shall be increased on a
pro rata basis.
Primary The following individual(s) shall be my Primary
Beneficiary(ies) Beneficiary(ies):
Name_____________________ Social Security #____________
Address__________________ Date of Birth______ Share______
_________________________ Relationship____________
Contingent If none of the Primary Beneficiaries survive me,
Beneficiary(ies) the following individual(s) shall be my Beneficiary(ies):
Name____________________ Social Security #__________
Address_________________ Date of Birth__________ Share______
________________________ Relationship_____________________
Spousal Consent
I am the spouse of IRA accountholder named above. I agree to
my spouse's naming of a primary Beneficiary other than myself.
I acknowledge that I have received a fair and reasonable
disclosure of my spouse's property and financial obligation.
I also acknowledge that I shall have no claim whatsoever
against the Custodian for any payments to my spouse's
Beneficiary(ies).
_____________________________ _____________________
Spouse's Signature Date
Custodial Services P.O. Box 7090 Troy, MI 48007-7090
1-800-344-0667
INVESTMENT OPTIONS:
[ ] I would like to receive information regarding mutual fund
investments.
[ ] I would like to receive information regarding money market accounts.
Note: Franklin Bank, N.A. may consider other investment options for your IRA.
Please provide the following information on your options.
Fund Name_______________________________________________________
Sponsor Name____________________________________________________
Address_________________________________________________________
Account No._______________________________________ Telephone #______________
Registered Representative information:
Registered Representative's
Name____________________________________________________________
Company_________________________________________________________
Address_________________________________________________________
Telephone #_____________________________________________________
<TABLE>
EXHIBIT E
PRO FORMA ESTIMATE OF TAXABLE INCOME
BEFORE DIVIDENDS PAID DEDUCTION
PRO FORMA ESTIMATE OF TAXABLE INCOME BEFORE DIVIDENDS PAID DEDUCTION OF
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
GENERATED FROM THE OPERATIONS OF PROPERTIES ACQUIRED AS OF APRIL 9, 1996
FOR A 12-MONTH PERIOD (UNAUDITED)
The following schedule represents pro forma unaudited estimates of taxable income before dividends paid
deduction of each Property acquired by the Company since inception, for the 12-month period commencing on the
date of the inception of the respective lease on such Property. The schedule should be read in light of the
accompanying footnotes.
These estimates do not purport to present actual or expected operations of the Company for any period
in the future. These estimates were prepared on the basis described in the accompanying notes which should be
read in conjunction herewith. No single lessee or group of affiliated lessees lease Properties or has
borrowed funds from the Company with an aggregate purchase price in excess of 20% of the expected total net
offering proceeds of the Company.
<CAPTION>
Jack in the Box TGI Friday's Golden Corral Golden Corral
Los Angeles, CA (14) Orange, CT (12)(16) Dover, DE (13)(16) Cleburne, TX (7)(16)
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
<S> <C> <C> <C> <C>
Base Rent (1) $114,756 $195,997 $214,648 $114,959
Interest Income (2) - - - -
-------- -------- -------- --------
Total Revenues 114,756 195,997 214,648 114,959
-------- -------- -------- --------
Asset Management Fees (3) (6,868) (7,821) (11,166) (6,364)
Mortgage Management Fee (4) - - - -
General and Administrative
Expenses (5) (7,115) (12,152) (13,308) (7,127)
-------- -------- -------- --------
Total Operating Expenses (13,983) (19,973) (24,474) (13,491)
-------- -------- -------- --------
Estimated Cash Available from
Operations 100,773 176,024 190,174 101,468
Depreciation and Amortization
Expense (6) (15,459) (35,228) (23,477) (19,653)
-------- -------- -------- --------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 85,314 $140,796 $166,697 $ 81,815
======== ======== ======== ========
Kenny Rogers Golden Corral Kenny Rogers
Roasters Universal Golden Corral Roasters
Grand Rapids, MI (8) City, TX (7)(16) Carlsbad, NM (7)(16) Franklin, TN (8)
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $ 89,751 $117,155 $114,828 $102,164
Interest Income (2) - - - -
-------- -------- -------- --------
Total Revenues 89,751 117,155 114,828 102,164
-------- -------- -------- --------
Asset Management Fees (3) (5,022) (6,493) (6,358) (5,747)
Mortgage Management Fee (4) - - - -
General and Administrative
Expenses (5) (5,565) (7,264) (7,119) (6,334)
-------- -------- -------- --------
Total Operating Expenses (10,587) (13,757) (13,477) (12,081)
-------- -------- -------- --------
Estimated Cash Available from
Operations 79,164 103,398 101,351 90,083
Depreciation and Amortization
Expense (6) (15,367 ) (20,289) (18,995) (11,359)
-------- -------- -------- --------
Pro forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 63,797 $ 83,109 $ 82,356 $ 78,724
======== ======== ======== ========
Golden Corral Golden Corral Golden Corral Denny's
Tampa, FL (9)(16) Corsicana, TX (7) Fort Worth, TX (7) Pasadena, TX (10)(16)
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $199,882 $114,125 $156,804 $101,040
Interest Income (2) - - - -
-------- -------- -------- --------
Total Revenues 199,882 114,125 156,804 101,040
-------- -------- -------- --------
Asset Management Fees (3) (10,500) (6,238) (8,758) (5,531)
Mortgage Management Fee (4) - - - -
General and Administrative
Expenses (5) (12,393) (7,076) (9,722) (6,264)
-------- -------- -------- --------
Total Operating Expenses (22,893) (13,314) (18,480) (11,795)
-------- -------- -------- --------
Estimated Cash Available from
Operations 176,989 100,811 138,324 89,245
Depreciation and Amortization
Expense (6) (27,429) (19,323) (23,030) (12,934)
-------- -------- -------- --------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $149,560 $ 81,488 $115,294 $ 76,311
======== ======== ======== ========
Denny's Boston Market Boston Market Boston Market
Shawnee, OK (10)(16) Grand Island, NE Dubuque, IA (11) Chanhassen, MN (11)
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $120,477 $ 90,048 $104,185 $104,510
Interest Income (2) - - - -
-------- -------- -------- --------
Total Revenues 120,477 90,048 104,185 104,510
-------- -------- -------- --------
Asset Management Fees (3) (6,567) (5,006) (5,793) (5,788)
Mortgage Management Fee (4) - - - -
General and Administrative
Expenses (5) (7,470) (5,583) (6,459) (6,480)
-------- -------- -------- --------
Total Operating Expenses (14,037) (10,589) (12,252) (12,268)
-------- -------- -------- --------
Estimated Cash Available from
Operations 106,440 79,459 91,933 92,242
Depreciation and Amortization
Expense (6) (16,008) (16,529) (17,025) (16,407)
-------- -------- -------- --------
Pro forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 90,432 $ 62,930 $ 74,908 $ 75,835
======== ======== ======== ========
Golden Corral Jack in the Box 23 Pizza Hut TGI Friday's
Columbus, OH (13)(16) Houston, TX (14)(16) Properties Marlboro, NJ (12)(16)
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $215,899 $ 110,051 $ 467,500 $ 197,270
Interest Income (2) - - 904,897 -
-------- ---------- ---------- ----------
Total Revenues 215,899 110,051 1,372,397 197,270
-------- ---------- ---------- ----------
Asset Management Fees (3) (11,424) (6,013) (25,261) (7,744)
Mortgage Management Fee (4) - - (50,850) -
General and Administrative
Expenses (5) (13,386) (6,823) (85,089) (12,231)
-------- ---------- ---------- -----------
Total Operating Expenses (24,810) (12,836) (161,200) (19,975)
-------- ---------- ---------- -----------
Estimated Cash Available from
Operations 191,089 97,215 1,211,197 177,295
Depreciation and Amortization
Expense (6) (25,002) (13,685) (22,883) (34,867)
-------- ---------- ---------- ----------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $166,087 $ 83,530 $1,188,314 $ 142,428
======== ========== ========== ==========
TGI Friday's Denny's Burger King Burger King
Hazlet, NJ (12)(16) Grand Rapids, MI (10) Oak Lawn, IL (15)(16) Burbank, IL (15)(16)
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $189,265 $ 97,952 $205,700 $119,900
Interest Income (2) - - - -
-------- -------- -------- --------
Total Revenues 189,265 97,952 205,700 119,900
-------- -------- -------- --------
Asset Management Fees (3) (7,471 ) (4,982 ) (11,481 ) (6,692 )
Mortgage Management Fee (4) - - - -
General and Administrative
Expenses (5) (11,734 ) (6,073 ) (12,753 ) (7,434 )
-------- -------- -------- --------
Total Operating Expenses (19,205 ) (11,055 ) (24,234 ) (14,126 )
-------- -------- -------- --------
Estimated Cash Available from
Operations 170,060 86,897 181,466 105,774
Depreciation and Amortization
Expense (6) (33,636 ) (14,038 ) (22,287 ) (16,218 )
-------- -------- -------- --------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $136,424 $ 72,859 $159,179 $ 89,556
======== ======== ======== ========
Burger King Burger King
Indian Head Park, IL (15)(16) Highland, IN (15)(16) Total
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $136,818 $130,350 $3,926,034
Interest Income (2) - - 904,897
-------- -------- ----------
Total Revenues 136,818 130,350 4,830,931
-------- -------- ----------
Asset Management Fees (3) (7,636 ) (7,275 ) (205,999 )
Mortgage Management Fee (4) - - (50,850 )
General and Administrative
Expenses (5) (8,483 ) (8,082 ) (299,519 )
-------- -------- ----------
Total Operating Expenses (16,119 ) (15,357 ) (556,368 )
-------- -------- ----------
Estimated Cash Available from
Operations 120,699 114,993 4,274,563
Depreciation and Amortization
Expense (6) (19,389 ) (16,197 ) (526,714 )
-------- -------- ----------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $101,310 $ 98,796 $3,747,849
======== ======== ==========
<FN>
FOOTNOTES:
(1) Base rent does not include percentage rents which become due if specified levels of gross receipts are
achieved.
(2) The Company entered into a Master Mortgage Note agreement for $8,475,000, collateralized by building
improvements located on the 23 Pizza Hut Properties. The Master Mortgage Note bears interest at a rate
of 10.75% per annum and principal and interest will be collected in equal monthly installments over 20
years beginning in March 1996. Amount does not include $42,375 of loan commitment fees and $42,375 in
loan origination fees collected by the Company at closing from the borrower.
(3) The Properties will be managed pursuant to an advisory agreement between the Company and CNL Fund
Advisors, Inc. (the "Advisor"), pursuant to which the Advisor will receive monthly asset management fees
in an amount equal to one-twelfth of .60% of the Company's Real Estate Asset Value as of the end of the
preceding month as defined in such agreement. See "Management Compensation."
(4) For managing the Mortgage Loans, the Advisor will be entitled to receive a monthly mortgage management
fee of one-twelfth of .60% of the total principal amount of the Mortgage Loans as of the end of the
preceding month. See "Management Compensation."
(5) Estimated at 6.2% of gross rental and interest income based on the previous experience of Affiliates of
the Advisor with 17 public limited partnerships which own properties similar to those owned by the
Company. Amount does not include soliciting dealer servicing fee due to the fact that such fee will not
be incurred until December 31 of the year following the year in which the offering terminates.
(6) The estimated federal tax basis of the depreciable portion (the building portion) of each Property has
been depreciated on the straight-line method over 39 years. In connection with the 23 Pizza Hut
Properties, acquisition fees allocated to the Master Mortgage Note have been amortized on a straight-
line basis over the life of the agreement (20 years).
(7) The lessee of the Cleburne, Universal City, Carlsbad, Corsicana and Ft. Worth Properties is the same
unaffiliated lessee.
(8) The lessee of the Grand Rapids #1 and Franklin Properties is the same unaffiliated lessee.
(9) The Company acquired an interest in CNL/Corral South Joint Venture, a general partnership between the
Company and an unaffiliated co-venturer. Based on anticipated development costs for the Property, the
Company expects to own a 76% interest in the CNL/Corral South Joint Venture upon completion of
construction. Therefore, amounts presented in this table represent estimated amounts to be allocated to
the Company from the joint venture.
(10) The lessee of the Pasadena, Shawnee and Grand Rapids #2 Properties is the same unaffiliated lessee.
(11) The lessee of the Dubuque, Chanhassen and Grand Island Properties is the same unaffiliated lessee.
(12) The lessee of the Orange, Marlboro and Hazlet Properties is the same unaffiliated lessee.
(13) The lessee of the Dover and Columbus Properties is the same unaffiliated lessee.
(14) The lessee of the Los Angeles and Houston Properties is the same unaffiliated lessee.
(15) The lessee of the Oak Lawn, Burbank, Indian Head Park and Highland Properties is the same unaffiliated
lessee.
(16) The Company accepted an assignment of an interest in the ground lease relating to the Orange, Marlboro,
and Hazlet Properties effective July 19, 1995, February 6, 1996, and March 6, 1996, respectively, in
consideration of its funding of certain preliminary development costs and its agreement to fund
remaining development costs not in excess of the amount specified below. The development agreements for
the Properties which are to be constructed or renovated provide that construction or renovation must be
completed no later than the dates set forth below:
Property Estimated Final Completion Date
Orange Property Opened for business October 30, 1995
Dover Property Opened for business December 16, 1995
Cleburne Property Opened for business October 19, 1995
Universal City
Property Opened for business September 15, 1995
Carlsbad Property Opened for business September 5, 1995
Tampa Property Opened for business February 5, 1996
Pasadena Property May 8, 1996
Shawnee Property Opened for business December 21, 1995
Columbus Property Opened for business November 28, 1995
Houston Property Opened for business March 3, 1996
Marlboro Property July 7, 1996
Hazlet Property August 3, 1996
Oak Lawn Property July 18, 1996
Burbank Property July 18, 1996
Indian Head Park
Property August 1, 1996
Highland Property August 1, 1996
</TABLE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
The following financial statements are included in the Prospectus.
(1) Pro Forma Balance Sheet as of December 31, 1995
(2) Pro Forma Statement of Earnings for the year ended December
31, 1995
(3) Notes to Pro Forma Financial Statements
(4) Report of Independent Accountants for CNL American Properties
Fund, Inc.
(5) Consolidated Balance Sheets at December 31, 1995 and 1994
(6) Consolidated Statements of Earnings for the year ended
December 31, 1995 and the period May 2, 1994 (Date of
Inception) through December 31, 1994
(7) Consolidated Statements of Stockholders' Equity for the year
ended December 31, 1995 and the period May 2, 1994 (Date of
Inception) through December 31, 1994
(8) Consolidated Statements of Cash Flows for the year ended
December 31, 1995 and the period May 2, 1994 (Date of
Inception) through December 31, 1994
(9) Notes to Consolidated Financial Statements
(10) Schedule III - Real Estate and Accumulated Depreciation as of
December 31, 1995
(11) Notes to Schedule III - Real Estate and Accumulated
Depreciation as of December 31, 1995
(12) Pro Forma Consolidated Balance Sheet as of March 31, 1996
(13) Pro Forma Consolidated Statement of Earnings for the quarter
ended March 31, 1996
(14) Pro Forma Consolidated Statement of Earnings for the year
ended December 31, 1995
(15) Notes to Pro Forma Consolidated Financial Statements
(16) Condensed Consolidated Balance Sheets at March 31, 1996 and
December 31, 1995
(17) Condensed Consolidated Statements of Earnings for the quarters
ended March 31, 1996 and 1995
(18) Condensed Consolidated Statements of Stockholders' Equity for
the quarter ended March 31, 1996 and the year ended December
31, 1995
(19) Condensed Consolidated Statements of Cash Flows for the
quarters ended March 31, 1996 and 1995
(20) Notes to Condensed Consolidated Financial Statements
All other schedules have been omitted as the required information
is inapplicable or is presented in the financial statements or related notes.
(b) Exhibits:
*1.1 Form of Managing Dealer Agreement
*1.2 Form of Participating Broker Agreement
*1.3 Sponsor Agreement between CNL American Properties Fund, Inc.,
CNL Securities Corp., CNL Fund Advisors, Inc., and Financial
Network Investment Corporation
*1.4 Soliciting Dealer Agreement between CNL American Properties
Fund, Inc., CNL Securities Corp., CNL Fund Advisors, Inc., and
American Express Financial Advisors, Inc. dated May 1, 1995.
*3.1 CNL Income Fund, Inc. Articles of Incorporation
*3.2 Articles of Amendment to Articles of Incorporation of CNL
Income Fund, Inc.
*3.3 Articles of Amendment to Articles of Incorporation of CNL
Investment Fund, Inc.
*3.4 Form of CNL American Properties Fund, Inc. Amended and
Restated Articles of Incorporation
*3.5 Form of CNL American Properties Fund, Inc. Bylaws
*4.1 CNL American Properties Fund, Inc. Articles of Incorporation
(Previously filed as Exhibits 3.1, 3.2 and 3.3.)
*4.2 Form of CNL American Properties Fund, Inc. Amended and
Restated Articles of Incorporation (Previously filed as
Exhibit 3.4.)
*4.3 Form of CNL American Properties Fund, Inc. Bylaws (Previously
filed as Exhibit 3.5.)
*4.4 Form of Amended Reinvestment Plan (Previously included in the
Prospectus as Exhibit A.)
*5.1 Opinion of Shaw, Pittman, Potts & Trowbridge as to the
legality of the securities being registered by CNL American
Properties Fund, Inc.
*8.1 Opinion of Shaw, Pittman, Potts & Trowbridge regarding certain
material tax issues relating to CNL American Properties Fund,
Inc.
*10.1 Form of Escrow Agreement between CNL American Properties Fund,
Inc. and South Trust Estate & Trust Company, Inc.
10.2 Advisory Agreement between CNL American Properties
Fund, Inc. and CNL Fund Advisors, Inc. dated April 20, 1996
(Filed herewith.)
*10.3 Form of Joint Venture Agreement
*10.4 Form of Development Agreement
*10.5 Form of Indemnification and Put Agreement
*10.6 Form of Unconditional Guarantee of Payment and Performance
*10.7 Form of Lease Agreement for Existing Restaurant
*10.8 Form of Lease Agreement for Restaurant to be Constructed
*10.9 Form of Real Estate Sale and Lease Contract
*10.10 Form of Amended Reinvestment Plan (Included in the prospectus
as Exhibit A.)
*10.11 Promissory Note, dated March 5, 1996, among Registrant and
First Union National Bank of Florida relating to a $15,000,000
loan (Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on April 1, 1996, and
incorporated herein by reference.)
*10.12 Line of Credit and Security Agreement, dated March 5, 1996,
among Registrant and First Union National Bank of Florida
relating to a $15,000,000 loan (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.)
*10.13 Collateral Assignment of Contract Rights, dated March 5, 1996,
among Registrant and First Union National Bank of Florida
relating to a $15,000,000 loan (Included as Exhibit 10.4 to
Form 10-K filed with the Securities and Exchange Commission on
April 1, 1996, and incorporated herein by reference.)
herewith.)
*23.1 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated March 28, 1995
*23.2 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated September 29, 1995
*23.3 Consent of Shaw, Pittman, Potts & Trowbridge (Previously
included in its opinion filed as Exhibit 5.1.)
*23.4 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated November 20, 1995
*23.5 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated February 19, 1996
*23.6 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated April 8, 1996
*23.7 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated April 25, 1996
23.8 Consent of Coopers & Lybrand, L.L.P., Certified Public
Accountants, dated July 25, 1996 (Filed herewith.)
*Previously filed.
TABLE VI
ACQUISITION OF PROPERTIES BY PROGRAMS
Table VI presents information concerning the acquisition of real
properties by public real estate limited partnerships sponsored by Affiliates of
the Company in the nine years ended December 31, 1995. The information includes
the gross leasable space or number of units and total square feet of units,
dates of purchase, locations, cash down payment and contract purchase price plus
acquisition fee. This information is intended to assist the prospective
investor in evaluating the terms involved in acquisitions by such prior
partnerships.
TABLE VI
ACQUISITIONS OF PROPERTIES BY PROGRAMS
CNL Income CNL Income CNL Income CNL Income
Fund, Fund II, Fund III, Fund IV,
Ltd. Ltd. Ltd. Ltd.
------------ ------------ ------------ ------------
(Note 2) (Note 3) (Note 4) (Note 5)
AL,AZ,CO,FL, AZ,CA,FL,GA, AL,DC,FL,GA,
AL,AZ,CA,FL, GA,IL,IN,LA, IA,IL,IN,KS, IL,IN,KS,MA,
GA,LA,MD,OK, MI,MN,MO,NC, KY,MD,MI,MN, MD,MI,MS,OH,
Locations TX,VA NM,OH,TX,WY MO,NE,OK,TX PA,TN,TX,VA
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 20 units 43 units 32 units 42 units
total square feet
of units 67,645 s/f 149,829 s/f 131,992 s/f 149,549 s/f
Dates of purchase 6/17/86 - 2/11/87- 10/04/87- 6/24/88-
12/17/87 12/08/94 6/30/88 12/08/94
Cash down payment
(Note 1) $12,296,264 $23,182,624 $19,637,008 $26,156,993
Contract purchase price
plus acquisition
fee $12,222,062 $23,022,783 $19,512,548 $26,040,248
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 74,202 159,841 124,460 116,745
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $12,296,264 $23,182,624 $19,637,008 $26,156,993
=========== =========== =========== ===========
Note 1: This amount was derived from capital contributions from partners and
net sales proceeds reinvested in other properties.
Note 2: The partnership owns a 50% interest in three separate joint ventures
which each own a restaurant property.
Note 3: The partnership owns a 49%, 50% and 64% interest in three separate
joint ventures. Each joint venture owns one restaurant property. In
addition, the partnership owns a 33.87% interest in one restaurant
property held as tenants-in-common with an affiliate.
Note 4: The partnership owns a 73.4% and 69.07% interest in two separate joint
ventures. Each joint venture owns one restaurant property.
Note 5: The partnership owns a 51%, 26.6%, 57%, 96.1% and 68.87% interest in
five separate joint ventures. Each joint venture owns one restaurant
property.
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
CNL Income CNL Income CNL Income CNL Income
Fund V, Fund VI, Fund VII, Fund VIII,
Ltd. Ltd. Ltd. Ltd.
------------ ------------ ------------ ------------
(Note 6) (Note 7) (Note 8) (Note 9)
AR,AZ,FL,IN,
FL,GA,IL,IN, MA,MI,MN,NC, AZ,CO,FL,GA,
MI,NH,NY,OH, NE,NM,NY,OH, IN,LA,MI,MN, AZ,FL,IN,LA,
SC,TN,TX,UT, OK,PA,TN,TX, OH,SC,TN,TX, MI,MN,NC,NY,
Locations WA VA,WY UT,WA OH,TN,TX,VA
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 30 units 45 units 45 units 39 units
total square feet
of units 117,652 s/f 167,073 s/f 160,939 s/f 168,776 s/f
Dates of purchase 2/06/89- 7/13/89- 3/30/90- 9/13/90-
1/05/90 8/31/95 7/29/94 9/08/95
Cash down payment
(Note 1) $22,113,522 $32,533,057 $27,310,125 $31,759,608
Contract purchase price
plus acquisition
fee $21,706,859 $31,999,665 $26,638,040 $31,222,507
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 406,663 533,392 672,085 537,101
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $22,113,522 $32,533,057 $27,310,125 $31,759,608
=========== =========== =========== ===========
Note 6: The partnership owns a 43%, 49% and 66.5% interest in three separate
joint ventures. Each joint venture owns one restaurant property.
Note 7: The partnership owns a 3.9%, 14.5%, 36% and a 66.14% interest in four
separate joint ventures. Each joint venture owns one restaurant
property. In addition, the partnership owns a 51.67% interest in one
restaurant property held as tenants-in-common with an affiliate.
Note 8: The partnership owns a 51%, 83.3%, 4.79% and a 18% interest in four
separate joint ventures. Three of the joint ventures each own one
restaurant property and the other joint venture owns six restaurant
properties. In addition, the partnership owns a 48.33% interest in one
restaurant property held as tenants-in-common with an affiliate.
Note 9: The partnership owns a 85.5%, 87.68% and a 36.8% interest in three
separate joint ventures. Two of the joint ventures each own one
restaurant property and the other joint venture owns six restaurant
properties.
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
CNL Income CNL Income CNL Income CNL Income
Fund IX, Fund X, Fund XI, Fund XII,
Ltd. Ltd. Ltd. Ltd.
------------ ------------ ------------ ------------
(Note 10) (Note 11) (Note 12) (Note 13)
AL,AZ,CA,CO,
AL,CA,CO,FL, CT,FL,KS,LA,
AL,FL,GA,IL, ID,IL,LA,MI, MA,MI,MS,NC, AL,AZ,CA,FL,
IN,LA,MI,MN, MO,MT,NC,NH, NH,NM,OH,OK, GA,LA,MO,MS,
MS,NC,NH,NY, NM,NY,OH,PA, PA,SC,TX,VA, NC,NM,OH,SC,
Locations OH,SC,TN,TX SC,TN,TX WA TN,TX,WA
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 41 units 48 units 39 units 48 units
total square feet
of units 177,469 s/f 196,698 s/f 170,661 s/f 195,936 s/f
Dates of purchase 5/31/91- 10/01/91- 5/18/92- 11/20/92-
10/01/92 9/05/95 10/16/92 8/24/93
Cash down payment
(Note 1) $30,748,694 $35,927,853 $35,200,825 $39,187,399
Contract purchase price
plus acquisition
fee $30,021,833 $35,211,359 $34,595,348 $38,667,796
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 726,861 716,494 605,477 519,603
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $30,748,694 $35,927,853 $35,200,825 $39,187,399
=========== =========== =========== ===========
Note 10: The partnership owns a 50%, 45.2% and 27.3% interest in three separate
joint ventures. One of the joint ventures owns one restaurant property
and the other two joint ventures own six restaurant properties each.
Note 11: The partnership owns a 50%, 88.3%, 40.95% and 10.5% interest in four
separate joint ventures. Three of the joint ventures own one
restaurant property each and the other joint venture owns six
restaurant properties.
Note 12: The partnership owns a 62.2%, 77.33%, 85% and 76.6% interest in four
separate joint ventures. Each joint venture owns one restaurant
property.
Note 13: The partnership owns a 31.13%, 59.05% and 18.61% interest in three
separate joint ventures. Each joint venture owns one restaurant
property.
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
CNL Income CNL Income CNL Income CNL Income
Fund XIII, Fund XIV, Fund XV, Fund XVI,
Ltd. Ltd. Ltd. Ltd.
------------ ------------ ------------ ------------
(Note 14) (Note 15) (Note 16)
AL,AR,AZ,CA, AL,AZ,CO,FL, CA,FL,GA,KS, AZ,CA,CO,DC,
CO,FL,GA,IN, GA,KS,LA,MO, KY,MO,MS,NC, FL,GA,ID,IN,
KS,LA,MD,NC, MS,NC,NJ,NV, NJ,NM,OH,OK, KS,MN,MO,NC,
OH,PA,SC,TN, OH,SC,TN,TX, PA,SC,TN,TX, NM,NV,OH,TN,
Locations TX,VA VA VA TX,UT,WI
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 48 units 56 units 47 units 41 units
total square feet
of units 156,156 s/f 161,913 s/f 136,705 s/f 152,971 s/f
Dates of purchase 5/18/93- 9/27/93- 4/28/94- 10/21/94-
4/24/95 3/16/95 8/31/95 12/18/95
Cash down payment
(Note 1) $34,905,219 $39,943,098 $35,655,728 $36,947,073
Contract purchase price
plus acquisition
fee $34,535,596 $39,515,928 $35,265,840 $36,578,580
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 369,623 427,170 389,888 368,493
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $34,905,219 $39,943,098 $35,655,728 $36,947,073
=========== =========== =========== ===========
Note 14: The partnership owns a 50% and 28% interest in two separate joint
ventures. Each joint venture owns one restaurant property. In
addition, the Partnership owns a 66.13% interest in one restaurant
property held as tenants-in-common with an affiliate.
Note 15: The partnership owns a 50% interest in two separate joint ventures and
a 72% interest in one joint venture. Two of the joint ventures each
own one restaurant property and the other joint venture owns two
restaurant properties.
Note 16: The partnership owns a 50% interest in a joint venture which owns the
restaurant property.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certified that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-11 and has duly caused this Post-
Effective Amendment No. 6 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Orlando,
State of Florida, on the 25th day of July, 1996.
CNL AMERICAN PROPERTIES FUND, INC.
(Registrant)
By:
/s/JAMES M. SENEFF, JR.
JAMES M. SENEFF, JR.,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 6 to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/James M. Seneff, Jr. Chairman of the Board July 25, 1996
JAMES M. SENEFF, JR. and Chief Executive
Officer
(Principal Executive
Officer)
/s/Robert A. Bourne Director and President July 25, 1996
ROBERT A. BOURNE (Principal Financial
and Accounting
Officer)
/s/G. Richard Hostetter Independent Director July 25, 1996
G. RICHARD HOSTETTER
/s/J. Joseph Kruse Independent Director July 25, 1996
J. JOSEPH KRUSE
/s/Richard C. Huseman Independent Director July 25, 1996
RICHARD C. HUSEMAN
EXHIBIT INDEX
Exhibit Number Page
*1.1 Form of Managing Dealer Agreement
*1.2 Form of Participating Broker Agreement
*1.3 Sponsor Agreement between CNL American Properties
F u nd, Inc., CNL Securities Corp., CNL Fund
Advisors, Inc., and Financial Network Investment
Corporation
*1.4 Soliciting Dealer Agreement between CNL American
Properties Fund, Inc., CNL Securities Corp., CNL
F u n d Advisors, Inc., and American Express
Financial Advisors, Inc. dated May 1, 1995.
*3.1 CNL Income Fund, Inc. Articles of Incorporation
*3.2 Articles of Amendment to Articles of Incorporation
of CNL Income Fund, Inc.
*3.3 Articles of Amendment to Articles of Incorporation
of CNL Investment Fund, Inc.
*3.4 Form of CNL American Properties Fund, Inc. Amended
and Restated Articles of Incorporation
*3.5 Form of CNL American Properties Fund, Inc. Bylaws
*4.1 CNL American Properties Fund, Inc. Articles of
Incorporation (Previously filed as Exhibits 3.1,
3.2 and 3.3.)
*4.2 Form of CNL American Properties Fund, Inc. Amended
and Restated Articles of Incorporation (Previously
filed as Exhibit 3.4.)
*4.3 Form of CNL American Properties Fund, Inc. Bylaws
(Previously filed as Exhibit 3.5.)
*4.4 Form of Amended Reinvestment Plan (Included in the
Prospectus as Exhibit A.)
*5.1 Opinion of Shaw, Pittman, Potts & Trowbridge as to
the legality of the securities being registered by
CNL American Properties Fund, Inc.
*8.1 Opinion of Shaw, Pittman, Potts & Trowbridge
regarding certain material tax issues relating to
CNL American Properties Fund, Inc.
*10.1 Form of Escrow Agreement between CNL American
Properties Fund, Inc. and South Trust Estate &
Trust Company, Inc.
10.2 Advisory Agreement between CNL American
Properties Fund, Inc. and CNL Fund Advisors, Inc.
dated April 20, 1996 (Filed herewith.)
*10.3 Form of Joint Venture Agreement
*10.4 Form of Development Agreement
*10.5 Form of Indemnification and Put Agreement
*10.6 Form of Unconditional Guarantee of Payment and
Performance
*10.7 Form of Lease Agreement for Existing Restaurant
*10.8 Form of Lease Agreement for Restaurant to be
Constructed
*10.9 Form of Real Estate Sale and Lease Contract
*10.10 Form of Amended Reinvestment Plan (Included in the
prospectus as Exhibit A.)
*10.11 Promissory Note, dated March 5, 1996, among
Registrant and First Union National Bank of
Florida relating to a $15,000,000 loan (Included
as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on April 1,
1996, and incorporated herein by reference.)
*10.12 Line of Credit and Security Agreement, dated March
5, 1996, among Registrant and First Union National
Bank of Florida relating to a $15,000,000 loan
(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.)
*10.13 Collateral Assignment of Contract Rights, dated
March 5, 1996, among Registrant and First Union
National Bank of Florida relating to a $15,000,000
loan (Included as Exhibit 10.4 to Form 10-K filed
with the Securities and Exchange Commission on
A p r il 1, 1996, and incorporated herein by
reference.)
*23.1 Consent of Coopers & Lybrand L.L.P., Certified
Public Accountants, dated March 28, 1995
*23.2 Consent of Coopers & Lybrand L.L.P., Certified
Public Accountants, dated September 29, 1995
*23.3 Consent of Shaw, Pittman, Potts & Trowbridge
(Previously included in its opinion filed as
Exhibit 5.1.)
*23.4 Consent of Coopers & Lybrand L.L.P., Certified
Public Accountants, dated November 20, 1995
*23.5 Consent of Coopers & Lybrand L.L.P., Certified
Public Accountants, dated February 19, 1996
*23.6 Consent of Coopers & Lybrand L.L.P., Certified
Public Accountants, dated April 8, 1996
*23.7 Consent of Coopers & Lybrand L.L.P., Certified
Public Accountants, dated April 25, 1996
23.8 Consent of Coopers & Lybrand L.L.P., Certified
Public Accountants, dated July 25, 1996 (Filed
herewith.)
*Previously filed.
EXHIBIT 10.2
Advisory Agreement
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT, dated as of April 20, 1996, is between CNL
AMERICAN PROPERTIES FUND, INC., a corporation organized under the laws of the
State of Maryland (the "Company") and CNL FUND ADVISORS, INC., a corporation
organized under the laws of the State of Florida (the "Advisor").
W I T N E S S E T H
WHEREAS, the Company has filed with the Securities and Exchange Commis-
sion a Registration Statement (No. 33-78790) on Form S-11 covering its common
shares ("Shares"), par value $.01, to be offered to the public, and the
Company may subsequently issue securities other than such Shares ("Securi-
ties") or otherwise raise additional capital;
WHEREAS, the Company intends to qualify as a REIT (as defined below),
and to invest its funds in investments permitted by the terms of the Registra-
tion Statement and Sections 856 through 860 of the Code (as defined below);
WHEREAS, the Company desires to avail itself of the experience, sources
of information, advice, assistance and certain facilities available to the
Advisor and to have the Advisor undertake the duties and responsibilities
hereinafter set forth, on behalf of, and subject to the supervision, of the
Board of Directors of the Company all as provided herein; and
WHEREAS, the Advisor is willing to undertake to render such services,
subject to the supervision of the Board of Directors, on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, the parties hereto agree as
follows:
(1) DEFINITIONS. As used in this Advisory Agreement (the "Agree-
ment"), the following terms have the definitions hereinafter indicated:
Acquisition Expenses. Any and all expenses incurred by the Company, the
Advisor, or any Affiliate of either in connection with the selection or
acquisition of any Property, whether or not acquired, including, without
limitation, legal fees and expenses, travel and communications expenses, costs
of appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses, and title insurance.
Acquisition Fees. Any and all fees and commissions, exclusive of
Acquisition Expenses, paid by any person or entity to any other person or
entity (including any fees or commissions paid by or to any Affiliate of the
Company or the Advisor) in connection with making or investing in mortgage
loans and the selection or acquisition of any Property, including, without
limitation, real estate commissions, acquisition fees, finder's fees, selec-
tion fees, nonrecurring management fees, consulting fees, loan fees, points,
or any other fees or commissions of a similar nature.
Advisor. CNL Fund Advisors, Inc., a Florida corporation, any successor
advisor to the Company, or any person or entity to which CNL Fund Advisors,
Inc. or any successor advisor subcontracts substantially all of its functions.
Affiliate or Affiliated. As to any individual, corporation, partner-
ship, trust or other association (other than the Excess Shares Trust), (i) any
Person or entity directly or indirectly; through one or more intermediaries
controlling, controlled by, or under common control with another person or
entity; (ii) any Person or entity, directly or indirectly owning or control-
ling ten percent (10%) or more of the outstanding voting securities of another
Person or entity; (iii) any officer, director, partner, or trustee of such
Person or entity; (iv) any Person ten percent (10%) or more of whose outstand-
ing voting securities are directly or indirectly owned, controlled, or held,
with power to vote, by such other Person; and (v) if such other Person or
entity is an officer, director, partner, or trustee of a Person or entity, the
Person or entity for which such Person or entity acts in any such capacity.
Appraised Value. Value according to an appraisal made by an Independent
Appraiser.
Articles of Incorporation. The Articles of Incorporation of the Company
under Title 2 of the Corporations and Associations Article of the Annotated
Code of Maryland, as amended from time to time.
Asset Management Fee. The fee payable to the Advisor for day-to-day
professional management services in connection with the Company and its
Properties pursuant to this Agreement.
Average Invested Assets. For a specified period, the average of the
aggregate book value of the assets of the Company invested, directly or
indirectly, in Properties and Loans secured by real estate before reserves for
depreciation or bad debts or other similar non-cash reserves, computed by
taking the average of such values at the end of each month during such period.
Board of Directors or Board. The persons holding such office, as of any
particular time, under the Articles of Incorporation of the Company, whether
they be the Directors named therein or additional or successor Directors.
Bylaws. The bylaws of the Company, as the same are in effect from time
to time.
Cash from Financings. Net cash proceeds realized by the Company from
the financing of Company Property, the refinancing of any Company indebted-
ness, or from the Company's Secured Equipment Leases.
Cash from Sales. Net cash proceeds realized by the Company from the
sale, exchange or other disposition of any of its assets, including Secured
Equipment Leases, after deduction of all expenses incurred in connection
therewith. Cash from Sales shall not include Cash from Financings.
Cash from Sales and Financings. The total sum of Cash from Sales and
Cash from Financings.
Cause. With respect to the termination of this Agreement, fraud,
criminal conduct, willful misconduct or willful or negligent breach of
fiduciary duty by the Advisor, breach of this Agreement, a default by the
Sponsor under the guarantee by the Sponsor to the Company or the bankruptcy of
the Sponsor.
Change of Control. A change of control of the Company of such a nature
that would be required to be reported in response to the disclosure require-
ments of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended, as enacted and in force on the date hereof
(the "Exchange Act"), whether or not the Company is then subject to such
reporting requirements; provided, however, that, without limitation, a change
of control shall be deemed to have occurred if: (i) any "person" (within the
meaning of Section 13(d) of the Exchange Act) is or becomes the "beneficial
owner" (as that term is defined in Rule 13d-3, as enacted and in force on the
date hereof, under the Exchange Act) of securities of the Company representing
8.5% or more of the combined voting power of the Company's securities then
outstanding; (ii) there occurs a merger, consolidation or other reorganization
of the Company which is not approved by the Board of Directors of the Company;
(iii) there occurs a sale, exchange, transfer or other disposition of substan-
tially all of the assets of the Company to another entity, which disposition
is not approved by the Board of Directors of the Company; or (iv) there occurs
a contested proxy solicitation of the Stockholders of the Company that results
in the contesting party electing candidates to a majority of the Board of
Directors' positions next up for election.
Code. Internal Revenue Code of 1986, as amended from time to time, or
any successor statute thereto. Reference to any provision of the Code shall
mean such provision as in effect from time to time, as the same may be
amended, and any successor provision thereto, as interpreted by any applicable
regulations as in effect from time to time.
Company. CNL American Properties Fund, Inc., a corporation organized
under the laws of the State of Maryland.
Company Property. Any and all property, real, personal or otherwise,
tangible or intangible, including Secured Equipment Leases, which is trans-
ferred or conveyed to the Company (including all rents, income, profits and
gains therefrom), and which is owned or held by, or for the account of, the
Company.
Competitive Real Estate Commission. A real estate or brokerage commis-
sion for the purchase or sale of property which is reasonable, customary, and
competitive in light of the size, type, and location of the property. The
total of all real estate commissions paid by the Company to all Persons
(including the Subordinated Disposition Fee payable to the Advisor) in
connection with any Sale of one or more of the Company's Properties shall not
exceed the lesser of (i) a Competitive Real Estate Commission or (ii) six
percent of the gross sales price of the Property or Properties.
Contract Purchase Price. The amount actually paid or allocated (as of
the date of purchase) to the purchase, development, construction or improve-
ment of property, exclusive of Acquisition Fees and Acquisition Expenses.
Contract Sales Price. The total consideration received by the Company
for the sale of a Company Property.
Cumulative Return. For the period for which the calculation is being
made, the percentage resulting from dividing (A) the total Distributions paid
on each Distribution date during such period (without regard to Distributions
paid out of Cash from Sales and Financings), by (B) the product of (i) the
average Invested Capital for such period (calculated on a daily basis), and
(ii) the number of years (including fractions thereof) elapsed during such
period.
Director. A member of the Board of Directors of the Company.
Distributions. Any distributions of money or other property by the
Company to owners of Shares, including distributions that may constitute a
return of capital for federal income tax purposes.
Equipment. The furniture, fixtures and equipment used at Restaurant
Chains.
Equipment Loan. A loan, the maximum principal amount of which shall not
exceed 10% of Gross Proceeds.
Equity Interest. The stock of or other interests in, or warrants or
other rights to purchase the stock of or other interests in, any entity that
has borrowed money from the Company or that is a tenant of the Company or that
is a parent or controlling Person of any such borrower or tenant.
Equity Shares. Transferable shares of beneficial interest of the
Company of any class or series, including common shares or preferred shares.
Final Closing Date. The last date on which purchasers of Shares offered
pursuant to the Prospectus are issued such Shares.
Good Reason. With respect to the termination of this Agreement, (i) any
failure to obtain a satisfactory agreement from any successor to the Company
to assume and agree to perform the Company's obligations under this Agreement;
or (ii) any material breach of this Agreement of any nature whatsoever by the
Company.
Gross Proceeds. The aggregate purchase price of all Shares sold for the
account of the Company through the Offering, without deduction for Selling
Commissions, volume discounts, the marketing support and due diligence expense
reimbursement fee or Organization and Offering Expenses. For the purpose of
computing Gross Proceeds, the purchase price of any Share for which reduced
Selling Commissions are paid to the Managing Dealer or a Soliciting Dealer
(where net proceeds to the Company are not reduced) shall be deemed to be
$10.00.
Independent Appraiser. A qualified appraiser of real estate as deter-
mined by the Board. Membership in a nationally recognized appraisal society
such as the American Institute of Real Estate Appraisers ("M.A.I.") or the
Society of Real Estate Appraisers ("S.R.E.A.") shall be conclusive evidence of
such qualification.
Independent Director. A Director who is not and within the last two
years has not been directly or indirectly associated with the Advisor by
virtue of (i) ownership of an interest in the Advisor or its Affiliates, (ii)
employment by the Advisor or its Affiliates, (iii) service as an officer or
director of the Advisor or its Affiliates, (iv) performance of services, other
than as a Director, for the Company, (v) service as a director or trustee of
more than three real estate investment trusts advised by the Advisor, or (vi)
maintenance of a material business or professional relationship with the
Advisor or any of its Affiliates. A business or professional relationship is
considered material if the gross revenue derived by the Director from the
Advisor and Affiliates exceeds 5% of either the Director's annual gross
revenue during either of the last two years or the Director's net worth on a
fair market value basis. An indirect relationship shall include circumstances
in which a Director's spouse, parents, children, siblings, mothers- or
fathers-in-law, sons- or daughters-in-law, or brothers- or sisters-in-law is
or has been associated with the Advisor, any of its Affiliates, or the
Company.
Independent Expert. A person or entity with no material current or
prior business or personal relationship with the Advisor or the Directors and
who is engaged to a substantial extent in the business of rendering opinions
regarding the value of assets of the type held by the Company.
Invested Capital. The amount calculated by multiplying the total number
of Shares purchased by stockholders by the issue price, reduced by the portion
of any Distribution that is attributable to Net Sales Proceeds and by any
amounts paid by the Company to repurchase Shares pursuant to the Company's
plan for redemption of Shares.
Joint Ventures. The joint venture or general partnership arrangements
in which the Company is a co-venturer or general partner which are established
to acquire Properties.
Listing. The listing of the Shares of the Company on a national
securities exchange or over-the-counter market.
Loans. The notes and other evidences of indebtedness or obligations
acquired or entered into by the Company as lender which are secured or
collateralized by personal property or fee or leasehold interests in real
estate or other assets, including, but not limited to, first or subordinate
mortgage loans, construction loans, development loans, loans secured by
capital stock or any other assets or form of equity interest and any other
type of loan or financial arrangement, such as providing or arranging for
letters of credit, providing guarantees of obligations to third parties, or
providing commitments for loans. The term "Loans" shall not include leases
which are not recognized as leases for federal income tax reporting purposes
and shall not include Secured Equipment Leases as defined herein.
Managing Dealer. CNL Securities Corp., an Affiliate of the Advisor, or
such entity selected by the Board of Directors to act as the managing dealer
for the Offering. CNL Securities Corp. is a member of the National Associa-
tion of Securities Dealers, Inc.
Mortgage Loans. The notes or other evidence of indebtedness or obliga-
tions which are secured or collateralized by building or other improvements in
real property.
Mortgage Loan Management Fee. The fee payable to the Advisor for the
day-to-day professional management services in connection with the Company and
its Mortgage Loans.
Net Income. For any period, the total revenues applicable to such
period, less the total expenses applicable to such period excluding additions
to reserves for depreciation, bad debts or other similar non-cash reserves;
provided, however, Net Income for purposes of calculating total allowable
Operating Expenses (as defined herein) shall exclude the gain from the sale of
the Company's assets.
Net Sales Proceeds. In the case of a transaction described in clause
(i)(A) of the definition of Sale, the proceeds of any such transaction less
the amount of all real estate commissions and closing costs paid by the
Company. In the case of a transaction described in clause (i)(B) of such
definition, Net Sales Proceeds means the proceeds of any such transaction less
the amount of any legal and other selling expenses incurred in connection with
such transaction. In the case of a transaction described in clause (i)(C) of
such definition, Net Sales Proceeds means the proceeds of any such transaction
actually distributed to the Company from the Joint Venture. In the case of a
transaction or series of transactions described in clause (i)(D) of the
definition of Sale, Net Sales Proceeds means the proceeds of any such transac-
tion less the amount of all commissions and closing costs paid by the Company.
In the case of a transaction described in clause (ii) of the definition of
Sale, Net Sales Proceeds means the proceeds of such transaction or series of
transactions less all amounts generated thereby and reinvested in one or more
Properties within 180 days thereafter and less the amount of any real estate
commissions, closing costs, and legal and other selling expenses incurred by
or allocated to the Company in connection with such transaction or series of
transactions. Net Sales Proceeds shall also include, in the case of any
Property consisting of a building only, any amounts that the Company deter-
mines, in its discretion, to be economically equivalent to proceeds of a Sale.
Net Sales Proceeds shall not include any reserves established by the Company
in its sole discretion.
Offering. The initial public offering of Shares pursuant to the
Prospectus.
Operating Expenses. All costs and expenses incurred by the Company, as
determined under generally accepted accounting principles, which in any way
are related to the operation of the Company or to Company business, including
(a) advisory fees, (b) the Soliciting Dealer Servicing Fee, (c) the Asset
Management Fee, (d) the Performance Fee and (e) the Subordinated Incentive
Fee, but excluding (i) the expenses of raising capital such as Organizational
and Offering Expenses, legal, audit, accounting, underwriting, brokerage,
listing, registration, and other fees, printing and other such expenses and
tax incurred in connection with the issuance, distribution, transfer, regis-
tration and Listing of the Shares, (ii) interest payments, (iii) taxes, (iv)
non-cash expenditures such as depreciation, amortization and bad loan re-
serves, (v) the Advisor's subordinated 10% share of Net Sales Proceeds,
(vi) the Secured Equipment Lease Servicing Fee and (vii) Acquisition Fees and
Acquisition Expenses, real estate commissions on the sale of property, and
other expenses connected with the acquisition, and ownership of real estate
interests, mortgage loans or other property (such as the costs of foreclosure,
insurance premiums, legal services, maintenance, repair and improvement of
property).
Organizational and Offering Expenses. Any and all costs and expenses,
other than Selling Commissions, the 0.5% marketing support and due diligence
expense reimbursement fee, and the Soliciting Dealer Servicing Fee incurred by
the Company, the Advisor or any Affiliate of either in connection with the
formation, qualification, and registration of the Company and the marketing
and distribution of Shares, including, without limitation, the following:
legal, accounting and escrow fees; printing, amending, supplementing, mailing
and distributing costs; filing, registration and qualification fees and
taxes; telegraph and telephone costs; and all advertising and marketing
expenses, including the costs related to investor and broker-dealer sales
meetings. The Organizational and Offering Expenses paid by the Company in
connection with formation of the Company will not exceed 3% of the Gross
Proceeds raised in connection with such Offering.
Performance Fee. The fee payable to the Advisor upon termination of
this Agreement under certain circumstances if certain performance standards
have been met and the Subordinated Incentive Fee has not been paid.
Person. An individual, corporation, partnership, estate, trust (includ-
ing a trust qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock
company or other entity, or any government or any agency or political subdivi-
sion thereof, and also includes a group as that term is used for purposes of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, but does
not include (i) an underwriter that participates in a public offering of
Equity Shares for a period of sixty (60) days following the initial purchase
by such underwriter of such Equity Shares in such public offering, or (ii) CNL
Fund Advisors, Inc., during the period ending December 31, 1995, provided that
the foregoing exclusions shall apply only if the ownership of such Equity
Shares by an underwriter or CNL Fund Advisors, Inc. would not cause the
Company to fail to qualify as a REIT by reason of being "closely held" within
the meaning of Section 856(a) of the Code or otherwise cause the Company to
fail to qualify as a REIT.
Property or Properties. (i) The real properties, including the buildings
located thereon, or (ii) the real properties only, or (iii) the buildings
only, which are acquired by the Company, either directly or through joint
venture arrangements or other partnerships.
Prospectus. "Prospectus" means the same as that term as defined in
Section 2(10) of the Securities Act of 1993, including a preliminary Prospec-
tus, an offering circular as described in Rule 256 of the General Rules and
Regulations under the Securities Act of 1933 or, in the case of an intrastate
offering, any document by whatever name known, utilized for the purpose of
offering and selling securities to the public.
Real Estate Asset Value. The amount actually paid or allocated to the
purchase, development, construction or improvement of a Property, exclusive of
Acquisition Fees and Acquisition Expenses.
Registration Statement. The Registration Statement (No. 33-78790) on
Form S-11 of which the Prospectus is a part.
REIT. A "real estate investment trust" under Sections 856 through 860
of the Code.
Restaurant Chains. The national and regional restaurant chains,
primarily fast-food family-style, and casual dining chains, to be selected by
the Advisor who themselves or their franchisees will either (i) lease the
Properties purchased by the Company, (ii) become borrowers under the Mortgage
Loans or (iii) become lessees of Secured Equipment Leases.
Sale or Sales. (i) Any transaction or series of transactions whereby:
(A) the Company sells, grants, transfers, conveys, or relinquishes its
ownership of any Property or portion thereof, including the lease of any
Property consisting of the building only, and including any event with respect
to any Property which gives rise to a significant amount of insurance proceeds
or condemnation awards; (B) the Company sells, grants, transfers, conveys, or
relinquishes its ownership of all or substantially all of the interest of the
Company in any Joint Venture in which it is a co-venturer or partner; (C) any
Joint Venture in which the Company as a co-venturer or partner sells, grants,
transfers, conveys, or relinquishes its ownership of any Property or portion
thereof, including any event with respect to any Property which gives rise to
insurance claims or condemnation awards, or (D) the Company sells, grants,
conveys or relinquishes its interest in any Secured Equipment Lease or portion
thereof, including any event with respect to any Secured Equipment Lease which
gives rise to a significant amount of insurance proceeds or similar awards,
but (ii) not including any transaction or series of transactions specified in
clause (i)(A), (i)(B), or (i)(C) above in which the proceeds of such transac-
tion or series of transactions are reinvested in one or more Properties or
Secured Equipment Leases within 180 days thereafter.
Secured Equipment Leases. The Equipment financing made available by the
Company to operators of Restaurant Chains pursuant to which the Company will
finance, through direct financing leases, the Equipment.
Secured Equipment Lease Servicing Fee. The fee payable to the Advisor
by the Company out of the proceeds of the Loan for negotiating Secured
Equipment Leases and supervising the Secured Equipment Lease program equal to
2% of the purchase price of the Equipment subject to each Secured Equipment
Lease and paid upon entering into such lease.
Securities. Any Equity Shares, Excess Shares, as such term is defined
in the Company's Articles of Incorporation, any other stock, shares or other
evidences of equity or beneficial or other interests, voting trust certifi-
cates, bonds, debentures, notes or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general any instru-
ments commonly known as "securities" or any certificates of interest, shares
or participations in, temporary or interim certificates for, receipts for,
guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.
Shares. The up to 16,500,000 shares of the common stock of the Company
to be sold in the Offering.
Soliciting Dealers. Broker-dealers who are members of the National
Association of Securities Dealers, Inc., or that are exempt from broker-dealer
registration, and who, in either case, have executed participating broker or
other agreements with the Managing Dealer to sell Shares.
Soliciting Dealer Servicing Fee. An annual fee of .20% of Invested
Capital on December 31 of each year, commencing in the year following the year
in which the Offering terminates, payable to the Managing Dealer, which in
turn may reallow all or a portion of such fee to the Soliciting Dealers whose
clients hold Shares on such date.
Sponsor. Any Person directly or indirectly instrumental in organizing,
wholly or in part, the Company or any Person who will control, manage or
participate in the management of the Company, and any Affiliate of such
Person. Not included is any Person whose only relationship with the Company
is that of an independent property manager of Company assets, and whose only
compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants, and underwriters whose only compensa-
tion is for professional services.
Stockholders. The registered holders of the Company's Shares.
Stockholders' 8% Return. As of each date, an aggregate amount equal to
an 8% cumulative, noncompounded, annual return on Invested Capital.
Subordinated Disposition Fee. The Subordinated Disposition Fee as
defined in Paragraph 9(c).
Subordinated Incentive Fee. The fee payable to the Advisor under
certain circumstances if the Shares are listed on a national securities
exchange or over-the-counter market.
Termination Date. The date of termination of the Agreement.
Total Property Cost. With regard to any Company Property, an amount
equal to the sum of the Real Estate Asset Value of such Property plus the
Acquisition Fees paid in connection with such Property.
2%/25% Guidelines. The requirement pursuant to the guidelines of the
North American Securities Administrators Association, Inc. that, in any 12
month period, total Operating Expenses not exceed the greater of 2% of the
Company's Average Invested Assets during such 12 month period or 25% of the
Company's Net Income over the same 12 month period.
Valuation. An estimate of value of the assets of the Company as
determined by an Independent Expert.
(2) APPOINTMENT. The Company hereby appoints the Advisor to serve as
its advisor on the terms and conditions set forth in this Agreement, and the
Advisor hereby accepts such appointment.
(3) DUTIES OF THE ADVISOR. The Advisor undertakes to use its best
efforts to present to the Company potential investment opportunities and to
provide a continuing and suitable investment program consistent with the
investment objectives and policies of the Company as determined and adopted
from time to time by the Directors. In performance of this undertaking,
subject to the supervision of the Directors and consistent with the provisions
of the Registration Statement, Articles of Incorporation and Bylaws of the
Company, the Advisor shall, either directly or by engaging an Affiliate:
(a) serve as the Company's investment and financial advisor and
provide research and economic and statistical data in connection
with the Company's assets and investment policies;
(b) provide the daily management of the Company and perform and super-
vise the various administrative functions reasonably necessary for
the management of the Company;
(c) investigate, select, and, on behalf of the Company, engage and
conduct business with such Persons as the Advisor deems necessary
to the proper performance of its obligations hereunder, including
but not limited to consultants, accountants, correspondents,
lenders, technical advisors, attorneys, brokers, underwriters,
corporate fiduciaries, escrow agents, depositaries, custodians,
agents for collection, insurers, insurance agents, banks, build-
ers, developers, property owners, mortgagors, and any and all
agents for any of the foregoing, including Affiliates of the
Advisor, and Persons acting in any other capacity deemed by the
Advisor necessary or desirable for the performance of any of the
foregoing services, including but not limited to entering into
contracts in the name of the Company with any of the foregoing;
(d) consult with the officers and Directors of the Company and assist
the Directors in the formulation and implementation of the Com-
pany's financial policies, and, as necessary, furnish the Direc-
tors with advice and recommendations with respect to the making of
investments consistent with the investment objectives and policies
of the Company and in connection with any borrowings proposed to
be undertaken by the Company;
(e) subject to the provisions of Paragraphs 3(g) and 4 hereof, (i)
locate, analyze and select potential investments in Properties,
Mortgage Loans and Loans and potential lessees of Secured Equip-
ment Leases, (ii) structure and negotiate the terms and conditions
of transactions pursuant to which investment in Properties,
Mortgage Loans and Loans will be made and Secured Equipment Leases
will be offered by the Company; (iii) make investments in Proper-
ties, Mortgage Loans and Loans and enter into Secured Equipment
Leases on behalf of the Company in compliance with the investment
objectives and policies of the Company; (iv) arrange for financing
and refinancing and make other changes in the asset or capital
structure of, and dispose of, reinvest the proceeds from the sale
of, or otherwise deal with the investments in, Property, Mortgage
Loans, Loans and Secured Equipment Leases; and (v) enter into
leases and service contracts for Company Property and, to the
extent necessary, perform all other operational functions for the
maintenance and administration of such Company Property;
(f) provide the Directors with periodic reports regarding prospective
investments in Properties, Mortgage Loans and Loans and prospec-
tive lessees of Secured Equipment Leases;
(g) obtain the prior approval of the Directors (including a majority
of all Independent Directors) for any and all investments in
Properties, Loans and in connection with the offering of Secured
Equipment Leases;
(h) negotiate on behalf of the Company with banks or lenders for loans
to be made to the Company, including the Equipment Loan, and
negotiate on behalf of the Company with investment banking firms
and broker-dealers or negotiate private sales of Shares and
Securities or obtain loans for the Company, but in no event in
such a way so that the Advisor shall be acting as broker-dealer or
underwriter; and provided, further, that any fees and costs
payable to third parties incurred by the Advisor in connection
with the foregoing shall be the responsibility of the Company;
(i) obtain reports (which may be prepared by the Advisor or its
Affiliates), where appropriate, concerning the value of invest-
ments or contemplated investments of the Company in Properties,
Mortgage Loans, Loans and/or Secured Equipment Leases;
(j) from time to time, or at any time reasonably requested by the
Directors, make reports to the Directors of its performance of
services to the Company under this Agreement;
(k) provide the Company with all necessary cash management services;
(l) do all things necessary to assure its ability to render the
services described in this Agreement;
(m) deliver to or maintain on behalf of the Company copies of all
appraisals obtained in connection with the investments in Proper-
ties, Mortgage Loans and Loans; and
(n) notify the Board of all proposed material transactions before they
are completed.
(o) administer the Secured Equipment Lease program on behalf of the
Company.
(4) AUTHORITY OF ADVISOR.
(a) Pursuant to the terms of this Agreement (including the restric-
tions included in this Paragraph 4 and in Paragraph 7), and subject to the
continuing and exclusive authority of the Directors over the management of the
Company, the Directors hereby delegate to the Advisor the authority to (1)
locate, analyze and select investment opportunities, (2) structure the terms
and conditions of transactions pursuant to which investments will be made or
acquired for the Company, (3) acquire Properties, make Mortgage Loans, make
Loans and offer Secured Equipment Leases in compliance with the investment
objectives and policies of the Company, (4) arrange for financing or refinanc-
ing Property, Mortgage Loans and Loans, (5) enter into leases and service
contracts for the Company's Property, and perform other property management
services, (6) oversee non-affiliated property managers and other non-affili-
ated Persons who perform services for the Company; and (7) undertake account-
ing and other record-keeping functions at the Property level.
(b) Notwithstanding the foregoing, any investment in Properties,
Mortgage Loans or Loans, or extension of a Secured Equipment Lease, including
any acquisition of Property by the Company (as well as any financing acquired
by the Company in connection with such acquisition), will require the prior
approval of the Directors (including a majority of the Independent Directors).
(c) If a transaction requires approval by the Independent Directors,
the Advisor will deliver to the Independent Directors all documents required
by them to properly evaluate the proposed investment in the Property, Mortgage
Loan or the Loan.
The prior approval of a majority of the Independent Directors and a
majority of the Directors not otherwise interested in the transaction will be
required for each transaction with the Advisor or its Affiliates.
The Directors may, at any time upon the giving of notice to the Advisor,
modify or revoke the authority set forth in this Paragraph 4. If and to the
extent the Directors so modify or revoke the authority contained herein, the
Advisor shall henceforth submit to the Directors for prior approval such
proposed transactions involving investments in Property as thereafter require
prior approval, provided however, that such modification or revocation shall
be effective upon receipt by the Advisor and shall not be applicable to
investment transactions to which the Advisor has committed the Company prior
to the date of receipt by the Advisor of such notification.
(5) BANK ACCOUNTS. The Advisor may establish and maintain one or more
bank accounts in its own name for the account of the Company or in the name of
the Company and may collect and deposit into any such account or accounts, and
disburse from any such account or accounts, any money on behalf of the
Company, under such terms and conditions as the Directors may approve,
provided that no funds shall be commingled with the funds of the Advisor; and
the Advisor shall from time to time render appropriate accountings of such
collections and payments to the Directors and to the auditors of the Company.
(6) RECORDS; ACCESS. The Advisor shall maintain appropriate records
of all its activities hereunder and make such records available for inspection
by the Directors and by counsel, auditors and authorized agents of the
Company, at any time or from time to time during normal business hours. The
Advisor shall at all reasonable times have access to the books and records of
the Company.
(7) LIMITATIONS ON ACTIVITIES. Anything else in this Agreement to the
contrary notwithstanding, the Advisor shall refrain from taking any action
which, in its sole judgment made in good faith, would (a) adversely affect the
status of the Company as a REIT, (b) subject the Company to regulation under
the Investment Company Act of 1940, or (c) violate any law, rule, regulation
or statement of policy of any governmental body or agency having jurisdiction
over the Company, its Shares or its Securities, or otherwise not be permitted
by the Articles of Incorporation or Bylaws of the Company, except if such
action shall be ordered by the Directors, in which case the Advisor shall
notify promptly the Directors of the Advisor's judgment of the potential
impact of such action and shall refrain from taking such action until it
receives further clarification or instructions from the Directors. In such
event the Advisor shall have no liability for acting in accordance with the
specific instructions of the Directors so given. Notwithstanding the forego-
ing, the Advisor, its directors, officers, employees and stockholders, and
stockholders, directors and officers of the Advisor's Affiliates shall not be
liable to the Company or to the Directors or stockholders for any act or
omission by the Advisor, its directors, officers or employees, or stockhold-
ers, directors or officers of the Advisor's Affiliates except as provided in
Paragraphs 20 and 21 of this Agreement.
(8) RELATIONSHIP WITH DIRECTORS. Directors, officers and employees of
the Advisor or an Affiliate of the Advisor or any corporate parents of an
Affiliate, or directors, officers or stockholders of any director, officer or
corporate parent of an Affiliate may serve as a Director and as officers of
the Company, except that no director, officer or employee of the Advisor or
its Affiliates who also is a Director or officer of the Company shall receive
any compensation from the Company for serving as a Director or officer other
than reasonable reimbursement for travel and related expenses incurred in
attending meetings of the Directors.
(9) FEES.
(a) Asset Management Fee and Mortgage Management Fee. The Company
shall pay to the Advisor as compensation for the advisory services rendered to
the Company under Paragraph 3 above a monthly fee in an amount equal to one-
twelfth of .60% of the Company's Real Estate Asset Value (the "Asset Manage-
ment Fee") as of the end of the preceding month. Specifically, Real Estate
Asset Value equals the amount invested in the Properties wholly owned by the
Company, determined on the basis of cost, plus, in the case of Properties
owned by any Joint Venture or partnership in which the Company is a co-
venturer or partner, the portion of the cost of such Properties paid by the
Company exclusive of Acquisition Fees and Expenses. The Company shall also
pay to the Advisor as compensation for the advisory services rendered to the
Company under Paragraph 3 above a monthly fee in an amount equal to one-
twelfth of .60% of the total principal amount of the Mortgage Loans as of the
end of the preceding month. The Asset Management Fee and the Mortgage
Management Fee shall be payable monthly on the last day of such month, or the
first business day following the last day of such month. The Asset Management
Fee and the Mortgage Management Fee, both of which will not exceed fees which
are competitive for similar services in the same geographic area, may or may
not be taken, in whole or in part as to any year, in the sole discretion of
the Advisor. All or any portion of the Asset Management Fee or the Mortgage
Management Fee not taken as to any fiscal year shall be deferred without
interest and may be taken in such other fiscal year as the Advisor shall
determine.
(b) Acquisition Fees. The Advisor may receive as compensation for
services rendered in connection with the investigation, selection and acquisi-
tion (by purchase, investment or exchange) of Property an Acquisition Fee
payable by the Company. The Acquisition Fees shall be reduced to the extent
that, and, if necessary to limit, the total compensation paid to all persons
involved in the acquisition of any Property to the amount customarily charged
in arm's-length transactions by other persons or entities rendering similar
services as an ongoing public activity in the same geographical location and
for comparable types of Properties and to the extent that other acquisition
fees, finder's fees, real estate commissions, or other similar fees or
commissions are paid by any person in connection with the transaction.
(c) Subordinated Disposition Fee. If the Advisor or an Affiliate
provides a substantial amount of the services (as determined by a majority of
the Independent Directors) in connection with the Sale of one or more Proper-
ties, the Advisor or an Affiliate shall receive a Subordinated Disposition Fee
equal to the lesser of (i) one-half of a Competitive Real Estate Commission or
(ii) 3% of the sales price of such Property or Properties. The Subordinated
Disposition Fee will be paid only if Stockholders have received total
Distributions in an amount equal to the sum of their aggregate Invested
Capital and their aggregate Stockholders' 8% Return. To the extent that
Subordinated Disposition Fees are not paid by the Company on a current basis
due to the foregoing limitation, the unpaid fees will be accrued and paid at
such time as the subordination conditions have been satisfied. The Subordi-
nated Disposition Fee may be paid in addition to real estate commissions paid
to non-Affiliates, provided that the total real estate commissions paid to all
Persons by the Company shall not exceed an amount equal to the lesser of (i)
6% of the Contract Sales Price of a Property or (ii) the Competitive Real
Estate Commission. In the event this Agreement is terminated prior to such
time as the Stockholders have received total Distributions in an amount equal
to 100% of Invested Capital plus an amount sufficient to pay the Stockholders'
8% Return through the Termination Date, an appraisal of the Properties then
owned by the Company shall be made and the Subordinated Disposition Fee on
Properties previously sold will be deemed earned if the Appraised Value of the
Properties then owned by the Company plus total Distributions received prior
to the Termination Date equals 100% of Invested Capital plus an amount
sufficient to pay the Stockholders' 8% Return through the Termination Date.
Upon Listing, if the Advisor has accrued but not been paid such Subordinated
Disposition Fee, then for purposes of determining whether the subordination
conditions have been satisfied, Stockholders will be deemed to have received a
Distribution in the amount equal to the product of the total number of Shares
outstanding and the average closing price of the Shares over a period,
beginning 180 days after Listing, of 30 days during which the Shares are
traded.
(d) Subordinated Share of Net Sales Proceeds. The Subordinated Share
of Net Sales Proceeds shall be payable to the Advisor in an amount equal to
10% of Net Sales Proceeds remaining after the Stockholders have received
Distributions equal to the sum of the Stockholders' 8% Return and 100% of
Invested Capital. Following Listing, no Subordinated Share of Net Sales
Proceeds will be paid to the Advisor.
(e) Subordinated Incentive Fee. Upon Listing, the Advisor shall be
paid the Subordinated Incentive fee in an amount equal to 10% of the amount by
which (i) the market value of the Company, measured by taking the average
closing price or average of bid and asked price, as the case may be, over a
period of 30 days during which the Shares are traded, with such period
beginning 180 days after Listing (the "Market Value"), plus the total Distri-
butions paid to Stockholders from the Company's inception until the date of
Listing, exceeds (ii) the sum of (A) 100% of Invested Capital and (B) the
total Distributions required to be paid to the Stockholders in order to pay
the Stockholders' 8% Return from inception through the date the Market Value
is determined. The Company shall have the option to pay such fee in the form
of cash, Shares, a promissory note or any combination of the foregoing. The
Subordinated Incentive Fee will be reduced by the amount of any prior payment
to the Advisor of a deferred, subordinated share of Net Sales Proceeds from a
Sale or Sales of a Property or Secured Equipment Lease.
(f) Secured Equipment Lease Servicing Fee. The Company shall pay to
the Advisor out of the Proceeds of the Equipment Loan as compensation for
negotiating its respective Secured Equipment Leases and supervising the
Secured Equipment Lease program a fee equal to 2% of the purchase price of the
Equipment subject to each Secured Equipment Lease upon entering into such
lease.
(g) Loans from Affiliates. If any loans are made to the Company by an
Affiliate of the Advisor, the maximum amount of interest that may be charged
by such Affiliate shall be the lesser of (i) 1% above the prime rate of
interest charged from time to time by The Bank of New York and (ii) the rate
that would be charged to the Company by unrelated lending institutions on
comparable loans for the same purpose. The terms of any such loans shall be
no less favorable than the terms available between non-Affiliated Persons for
similar commercial loans.
(h) Changes to Fee Structure. In the event of Listing, the Company
and the Advisor shall negotiate in good faith to establish a fee structure
appropriate for a perpetual-life entity. A majority of the Independent
Directors must approve the new fee structure negotiated with the Advisor. In
negotiating a new fee structure, the Independent Directors shall consider all
of the factors they deem relevant, including, but not limited to: (i) the
amount of the advisory fee in relation to the asset value, composition and
profitability of the Company's portfolio; (ii) the success of the Advisor in
generating opportunities that meet the investment objectives of the Company;
(iii) the rates charged to other REITs and to investors other than REITs by
Advisors performing the same or similar services; (iv) additional revenues
realized by the Advisor and its Affiliates through their relationship with the
Company, including loan administration, underwriting or broker commissions,
servicing, engineering, inspection and other fees, whether paid by the REIT or
by others with whom the REIT does business; (v) the quality and extent of
service and advice furnished by the Advisor; (vi) the performance of the
investment portfolio of the REIT, including income, conversion or appreciation
of capital, and number and frequency of problem investments; and (vii) the
quality of the Property, Mortgage Loan, Loan and Secured Equipment Lease
portfolio of the Company in relationship to the investments generated by the
Advisor for its own account. The new fee structure can be no more favorable
to the Advisor than the current fee structure.
(10) EXPENSES.
(a)In addition to the compensation paid to the Advisor pursuant to
Paragraph 9 hereof, the Company shall pay directly or reimburse the Advisor
for all of the expenses paid or incurred by the Advisor in connection with the
services it provides to the Company pursuant to this Agreement, including, but
not limited to:
(i) the Company's Organizational and Offering Expenses;
provided, however, that within 60 days after the end of the month in which the
Offering terminates, the Advisor shall reimburse the Company for any Organiza-
tional and Offering Expenses reimbursement received by the Advisor pursuant to
this Paragraph 10, to the extent that such reimbursement exceeds 3% of the
Gross Proceeds. The Advisor shall be responsible for the payment of all the
Company's Organizational and Offering Expenses in excess of 3% of the Gross
Proceeds;
(ii) Acquisition Expenses incurred in connection with the
selection and acquisition of Properties at the lesser of the actual cost or
90% of the competitive rate charged by unaffiliated persons providing similar
goods and services in the same geographic location;
(iii) the actual cost of goods and services used by the
Company and obtained from entities not affiliated with the Advisor, other than
Acquisition Expenses, including brokerage fees paid in connection with the
purchase and sale of securities;
(iv) interest and other costs for borrowed money, including
discounts, points and other similar fees;
(v) taxes and assessments on income or Property and taxes
as an expense of doing business;
(vi) costs associated with insurance required in connection
with the business of the Company or by the Directors;
(vii) expenses of managing and operating Properties owned by
the Company, whether payable to an Affiliate of the Company or a non-affili-
ated Person;
(viii) all expenses in connection with payments to the
Directors and meetings of the Directors and Stockholders;
(ix) expenses associated with Listing or with the issuance
and distribution of Shares and Securities, such as selling commissions and
fees, advertising expenses, taxes, legal and accounting fees, Listing and
registration fees, and other Organization and Offering Expenses;
(x) expenses connected with payments of Distributions in
cash or otherwise made or caused to be made by the Directors to the Stockhold-
ers;
(xi) expenses of organizing, revising, amending, convert-
ing, modifying, or terminating the Company or the Articles of Incorporation;
(xii) expenses of maintaining communications with Stockhold-
ers, including the cost of preparation, printing, and mailing annual reports
and other Stockholder reports, proxy statements and other reports required by
governmental entities;
(xiii) expenses related to negotiating and servicing Loans
and Mortgage Loans;
(xiv) expenses related to negotiating and servicing Secured
Equipment Leases and administering the Secured Equipment Lease program;
(xv) administrative service expenses (including personnel
costs; provided, however, that no reimbursement shall be made for costs of
personnel to the extent that such personnel perform services in transactions
for which the Advisor receives a separate fee);
(xvi) audit, accounting and legal fees.
(b) Expenses incurred by the Advisor on behalf of the Company
and payable pursuant to this Paragraph 10 shall be reimbursed no less than
monthly to the Advisor. The Advisor shall prepare a statement documenting the
expenses of the Company during each quarter, and shall deliver such statement
to the Company within 45 days after the end of each quarter.
(11) OTHER SERVICES. Should the Directors request that the Advisor or
any director, officer or employee thereof render services for the Company
other than set forth in Paragraph 3, such services shall be separately
compensated at such rates and in such amounts as are agreed by the Advisor and
the Independent Directors of the Company, subject to the limitations contained
in the Articles of Incorporation, and shall not be deemed to be services
pursuant to the terms of this Agreement.
(12) FIDELITY BOND. The Advisor shall maintain a fidelity bond for the
benefit of the Company which bond shall insure the Company from losses of up
to $10 million per occurrence and shall be of the type customarily purchased
by entities performing services similar to those provided to the Company by
the Advisor.
(13) REIMBURSEMENT TO THE ADVISOR. The Company shall not reimburse the
Advisor at the end of any fiscal quarter Operating Expenses that, in the four
consecutive fiscal quarters then ended (the "Expense Year") exceed (the
"Excess Amount") the greater of 2% of Average Invested Assets or 25% of Net
Income (the "2%/25% Guidelines") for such year. Any Excess Amount paid to the
Advisor during a fiscal quarter shall be repaid to the Company. If there is
an Excess Amount in any Expense Year and the Independent Directors determine
that such excess was justified, based on unusual and nonrecurring factors
which they deem sufficient, the Excess Amount may be carried over and included
in Operating Expenses in subsequent Expense Years, and reimbursed to the
Advisor in one or more of such years, provided that Operating Expenses in any
Expense Year, including any Excess Amount to be paid to the Advisor, shall not
exceed the 2%/25% Guidelines. Within 60 days after the end of any fiscal
quarter of the Company for which total Operating Expenses for the Expense Year
exceed the 2%/25% Guidelines, there shall be sent to the stockholders a
written disclosure of such fact, together with an explanation of the factors
the Independent Directors considered in determining that such excess expenses
were justified. Such determination shall be reflected in the minutes of the
meetings of the Board of Directors. The Company will not reimburse the
Advisor or its Affiliates for services for which the Advisor or its Affiliates
are entitled to compensation in the form of a separate fee. All figures used
in the foregoing computation shall be determined in accordance with generally
accepted accounting principles applied on a consistent basis.
(14) OTHER ACTIVITIES OF THE ADVISOR. Nothing herein contained shall
prevent the Advisor from engaging in other activities, including, without
limitation, the rendering of advice to other Persons (including other REITs)
and the management of other programs advised, sponsored or organized by the
Advisor or its Affiliates; nor shall this Agreement limit or restrict the
right of any director, officer, employee, or stockholder of the Advisor or its
Affiliates to engage in any other business or to render services of any kind
to any other partnership, corporation, firm, individual, trust or association.
The Advisor may, with respect to any investment in which the Company is a
participant, also render advice and service to each and every other partici-
pant therein. The Advisor shall report to the Directors the existence of any
condition or circumstance, existing or anticipated, of which it has knowledge,
which creates or could create a conflict of interest between the Advisor's
obligations to the Company and its obligations to or its interest in any other
partnership, corporation, firm, individual, trust or association. The Advisor
or its Affiliates shall promptly disclose to the Directors knowledge of such
condition or circumstance. If the Sponsor, Advisor, Director or Affiliates
thereof have sponsored other investment programs with similar investment
objectives which have investment funds available at the same time as the
Company, it shall be the duty of the Directors (including the Independent
Directors) to adopt the method set forth in the Registration Statement or
another reasonable method by which properties are to be allocated to the
competing investment entities and to use their best efforts to apply such
method fairly to the Company.
The Advisor shall be required to use its best efforts to present a continuing
and suitable investment program to the Company which is consistent with the
investment policies and objectives of the Company, but neither the Advisor nor
any Affiliate of the Advisor shall be obligated generally to present any
particular investment opportunity to the Company even if the opportunity is of
character which, if presented to the Company, could be taken by the Company.
The Advisor or its Affiliates may make such an investment in a property only
after (i) such investment has been offered to the Company and all public
partnerships and other investment entities affiliated with the Company with
funds available for such investment and (ii) such investment is found to be
unsuitable for investment by the Company, such partnerships and investment
entities.
In the event that the Advisor or its Affiliates is presented with a potential
investment which might be made by the Company and by another investment entity
which the Advisor or its Affiliates advises or manages, the Advisor shall
consider the investment portfolio of each entity, cash flow of each entity,
the effect of the acquisition on the diversification of each entity's portfo-
lio, rental payments during any renewal period, the estimated income tax
effects of the purchase on each entity, the policies of each entity relating
to leverage, the funds of each entity available for investment and the length
of time such funds have been available for investment. In the event that an
investment opportunity becomes available which is suitable for both the
Company and a public or private entity which the Advisor or its Affiliates are
Affiliated, then the entity which has had the longest period of time elapse
since it was offered an investment opportunity will first be offered the
investment opportunity. The Advisor may consider the property for private
placement only if such property is deemed inappropriate for any investment
entity which is advised or managed by the Advisor, including the Company.
(15) RELATIONSHIP OF ADVISOR AND COMPANY. The Company and the Advisor
are not partners or joint venturers with each other, and nothing in this
Agreement shall be construed to make them such partners or joint venturers or
impose any liability as such on either of them.
(16) TERM; TERMINATION OF AGREEMENT. This Agreement shall continue in
force until April 19, 1997, subject to an unlimited number of successive one-
year renewals upon mutual consent of the parties. It is the duty of the
Directors to evaluate the performance of the Advisor or annually before
renewing the Agreement, and each such agreement shall have a term of no more
than one year.
(17) TERMINATION BY EITHER PARTY. This Agreement may be terminated
upon 60 days written notice without Cause or penalty, by either party (by a
majority of the Independent Directors of the Company or a majority of the
Board of Directors of the Advisor, as the case may be).
(18) ASSIGNMENT TO AN AFFILIATE. This Agreement may be assigned by the
Advisor to an Affiliate with the approval of a majority of the Directors
(including a majority of the Independent Directors). The Advisor may assign
any rights to receive fees or other payments under this Agreement without
obtaining the approval of the Directors. This Agreement shall not be assigned
by the Company without the consent of the Advisor, except in the case of an
assignment by the Company to a corporation or other organization which is a
successor to all of the assets, rights and obligations of the Company, in
which case such successor organization shall be bound hereunder and by the
terms of said assignment in the same manner as the Company is bound by this
Agreement.
(19) PAYMENTS TO AND DUTIES OF ADVISOR UPON TERMINATION. Payments to
the Advisor pursuant to this Section (19) shall be subject to the 2%/25%
Guidelines to the extent applicable.
(a) After the Termination Date, the Advisor shall not be
entitled to compensation for further services hereunder except it shall be
entitled to receive from the Company within 30 days after the effective date
of such termination all unpaid reimbursements of expenses and all earned but
unpaid fees payable to the Advisor prior to termination of this Agreement.
(b) Upon termination, the Advisor shall be entitled to payment
of the Performance Fee if performance standards satisfactory to a majority of
the Board of Directors, including a majority of the Independent Directors,
when compared to (a) the performance of the Advisor in comparison with its
performance for other entities, and (b) the performance of other advisors for
similar entities, have been met. If Listing has not occurred, the Performance
Fee, if any, shall equal 10% of the amount, if any, by which (i) the appraised
value of the Properties and Secured Equipment Leases on the Termination Date,
less the amount of all indebtedness secured by Properties and Secured Equip-
ment Leases, plus the total Distributions paid to stockholders from the
Company's inception through the Termination Date, exceeds (ii) Invested
Capital plus an amount equal to the Stockholders' 8% Return from inception
through the Termination Date. The Advisor shall be entitled to receive all
accrued but unpaid compensation and expense reimbursements in cash within 30
days of the Termination Date. All other amounts payable to the Advisor in the
event of a termination shall be evidenced by a promissory note and shall be
payable from time to time.
(c) The Performance Fee shall be paid in 12 equal quarterly
installments without interest on the unpaid balance, provided, however, that
no payment will be made in any quarter in which such payment would jeopardize
the Company's REIT status, in which case any such payment or payments will be
delayed until the next quarter in which payment would not jeopardize REIT
status. Notwithstanding the preceding sentence, any amounts which may be
deemed payable at the date the obligation to pay the Performance Fee is
incurred which relate to the appreciation of the Company's Properties and
Secured Equipment Leases shall be an amount which provides compensation to the
Advisor only for that portion of the holding period for the respective
Properties and Secured Equipment Leases during which the Advisor provided
services to the Company.
(d) If Listing occurs, the Performance Fee, if any, payable
thereafter will be as negotiated between the Company and the Advisor. The
Advisor shall not be entitled to payment of the Performance Fee in the event
this Agreement is terminated because of failure of the Company and the Advisor
to establish, pursuant to Paragraph 9(h) hereof, a fee structure appropriate
for a perpetual-life entity at such time, if any, as Listing occurs.
(e) The Advisor shall promptly upon termination:
(i) pay over to the Company all money collected and held
for the account of the Company pursuant to this Agreement, after deducting any
accrued compensation and reimbursement for its expenses to which it is then
entitled;
(ii) deliver to the Directors a full accounting, including
a statement showing all payments collected by it and a statement of all money
held by it, covering the period following the date of the last accounting
furnished to the Directors;
(iii) deliver to the Directors all assets, including
Properties, Loans, and Secured Equipment Leases, and documents of the Company
then in the custody of the Advisor; and
(iv) cooperate with the Company to provide an orderly
management transition.
(20) INDEMNIFICATION BY THE COMPANY. The Company shall indemnify and
hold harmless the Advisor and its Affiliates, including their respective
officers, directors, partners and employees, from all liability, claims,
damages or losses arising in the performance of their duties hereunder, and
related expenses, including reasonable attorneys' fees, to the extent such
liability, claims, damages or losses and related expenses are not fully
reimbursed by insurance, subject to any limitations imposed by the laws of the
State of Maryland or the Articles of Incorporation of the Company. Notwith-
standing the foregoing, the Advisor shall not be entitled to indemnification
or be held harmless pursuant to this paragraph 20 for any activity which the
Advisor shall be required to indemnify or hold harmless the Company pursuant
to paragraph 21. Any indemnification of the Advisor may be made only out of
the net assets of the Company and not from Stockholders.
(21) INDEMNIFICATION BY ADVISOR. The Advisor shall indemnify and hold
harmless the Company from contract or other liability, claims, damages, taxes
or losses and related expenses including attorneys' fees, to the extent that
such liability, claims, damages, taxes or losses and related expenses are not
fully reimbursed by insurance and are incurred by reason of the Advisor's bad
faith, fraud, willful misfeasance, misconduct, negligence or reckless disre-
gard of its duties, but the Advisor shall not be held responsible for any
action of the Board of Directors in following or declining to follow any
advice or recommendation given by the Advisor.
(22) NOTICES. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing unless some other method
of giving such notice, report or other communication is required by the
Articles of Incorporation, the Bylaws, or accepted by the party to whom it is
given, and shall be given by being delivered by hand or by overnight mail or
other overnight delivery service to the addresses set forth herein:
To the Directors and to the Company: CNL American Properties Fund, Inc.
400 East South Street
Suite 500
Orlando, Florida 32801
To the Advisor: CNL Fund Advisors, Inc.
400 East South Street
Suite 500
Orlando, Florida 32801
Either party may at any time give notice in writing to the other party of a
change in its address for the purposes of this Paragraph 22.
(23) MODIFICATION. This Agreement shall not be changed, modified,
terminated, or discharged, in whole or in part, except by an instrument in
writing signed by both parties hereto, or their respective successors or
assignees.
(24) SEVERABILITY. The provisions of this Agreement are independent of
and severable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other
or others of them may be invalid or unenforceable in whole or in part.
(25) CONSTRUCTION. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of Florida.
(26) ENTIRE AGREEMENT. This Agreement contains the entire agreement
and understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements, understand-
ings, inducements and conditions, express or implied, oral or written, of any
nature whatsoever with respect to the subject matter hereof. The express
terms hereof control and supersede any course of performance and/or usage of
the trade inconsistent with any of the terms hereof. This Agreement may not
be modified or amended other than by an agreement in writing.
(27) INDULGENCES, NOT WAIVERS. Neither the failure nor any delay on
the part of a party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other
or further exercise of the same or of any other right, remedy, power or
privilege, nor shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy,
power or privilege with respect to any other occurrence. No waiver shall be
effective unless it is in writing and is signed by the party asserted to have
granted such waiver.
(28) GENDER. Words used herein regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as
the context requires.
(29) TITLES NOT TO AFFECT INTERPRETATION. The titles of paragraphs and
subparagraphs contained in this Agreement are for convenience only, and they
neither form a part of this Agreement nor are they to be used in the construc-
tion or interpretation hereof.
(30) EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
(31) NAME. CNL Fund Advisors, Inc. has a proprietary interest in the
name "CNL." Accordingly, and in recognition of this right, if at any time the
Company ceases to retain CNL Fund Advisors, Inc. or an Affiliate thereof to
perform the services of Advisor, the Directors of the Company will, promptly
after receipt of written request from CNL Fund Advisors, Inc., cease to
conduct business under or use the name "CNL" or any diminutive thereof and the
Company shall use its best efforts to change the name of the Company to a name
that does not contain the name "CNL" or any other word or words that might, in
the sole discretion of the Advisor, be susceptible of indication of some form
of relationship between the Company and the Advisor or any Affiliate thereof.
Consistent with the foregoing, it is specifically recognized that the Advisor
or one or more of its Affiliates has in the past and may in the future
organize, sponsor or otherwise permit to exist other investment vehicles
(including vehicles for investment in real estate) and financial and service
organizations having "CNL" as a part of their name, all without the need for
any consent (and without the right to object thereto) by the Company or its
Directors.
(32) INITIAL INVESTMENT. The Advisor has contributed to the Company
$200,000 in exchange for 20,000 Shares (the "Initial Investment"). The
Advisor or its Affiliates may not sell any of the Shares purchased with the
Initial Investment for a period of one year following completion of the
Offering and may only sell Shares representing the Initial Investment through
the market on which the Shares are normally traded. The restrictions included
above shall not continue to apply to any Shares, other than the Shares,
acquired through the Initial Investment, acquired by the Advisor or its
Affiliates. The Advisor shall not vote any Shares it now owns, or hereafter
acquires, in any vote for the election of Directors or any vote regarding the
approval or termination of any contract with the Advisor or any of its
Affiliates.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
CNL AMERICAN PROPERTIES FUND, INC.
By: /s/ John T. Walker
Name: John T. Walker
Its: Executive Vice President
CNL FUND ADVISORS, INC.
By: /s/ Robert A. Bourne
Name: Robert A. Bourne
Its: President
EXHIBIT 23.8
Consent of Coopers & Lybrand L.L.P.,
Certified Public Accountants,
dated July 25, 1996
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-11 (File
No. 33-78790) of our report dated January 22, 1996 on our audits of the
consolidated financial statements and the financial statement schedule of CNL
American Properties Fund, Inc. and Subsidiary. We also consent to the reference
to our Firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Orlando, Florida
July 25, 1996
