Rule 424(b)(3)
No. 33-78790
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>