<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL American Properties Fund, Inc. at June 30, 1996, and its statement
of income for the six months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL American Properties Fund, Inc. for the six
months ended June 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 13,369,577
<SECURITIES> 0
<RECEIVABLES> 114,842
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 40,054,751
<DEPRECIATION> 300,179
<TOTAL-ASSETS> 70,597,609
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 77,017
<OTHER-SE> 66,163,309
<TOTAL-LIABILITY-AND-EQUITY> 70,597,609
<SALES> 0
<TOTAL-REVENUES> 2,831,472
<CGS> 0
<TOTAL-COSTS> 666,529
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,578
<INCOME-PRETAX> 1,711,365
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,711,365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,711,365
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL American Properties Fund, Inc. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
-----------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission file number
33-78790
----------------------
CNL American Properties Fund, Inc.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 59-3239115
- ----------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street, #500
Orlando, Florida 32801
- ---------------------------- -------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
8,806,849 shares of common stock, $.01 par value, outstanding as of August 6,
1996.<PAGE>
CONTENTS
--------
Part I Page
----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of
Earnings 2
Condensed Consolidated Statements of
Stockholders' Equity 3
Condensed Consolidated Statements of
Cash Flows 4-5
Notes to Condensed Consolidated
Financial Statements 6-16
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 17-23
Part II
Other Information 24
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS 1996 1995
----------- ------------
Land and buildings on operating leases,
less accumulated depreciation $39,754,572 $19,723,726
Net investment in direct financing leases 3,071,035 1,373,882
Cash and cash equivalents 13,369,577 11,508,445
Receivables 114,842 113,613
Mortgage notes receivable 12,432,362 -
Prepaid expenses 31,396 8,090
Organization costs, less accumulated
amortization of $4,318 and $2,318 15,682 17,682
Loan costs, less accumulated amorti-
zation of $8,629 at June 30, 1996 44,871 -
Accrued rental income 215,222 39,142
Other assets 1,548,050 818,504
----------- -----------
$70,597,609 $33,603,084
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $ 603,745 $ -
Accrued interest payable 2,462 -
Accrued construction costs payable 3,097,615 1,058,825
Accounts payable and accrued expenses 74,460 79,904
Escrowed real estate taxes payable 9,696 9,696
Due to related parties 206,702 248,584
Deferred financing income 42,518 -
Rents paid in advance 22,277 25,351
----------- -----------
Total liabilities 4,059,475 1,422,360
----------- -----------
Minority interest 297,808 200,076
----------- -----------
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 7,701,665 and 3,865,416,
respectively 77,017 38,654
Capital in excess of par value 66,612,593 32,211,833
Accumulated distributions in excess of
net earnings (449,284) (269,839)
----------- -----------
Total stockholders' equity 66,240,326 31,980,648
----------- -----------
$70,597,609 $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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Revenues:
Rental income from
operating leases $ 854,846 $ 369 $1,618,001 $ 369
Earned income from
direct financing
lease 50,258 - 86,184 -
Interest income from
mortgage notes
receivable 280,549 - 465,498 -
Other interest and
income 135,940 7,828 211,789 7,828
---------- ---------- ---------- ----------
1,321,593 8,197 2,381,472 8,197
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 140,371 3,352 269,319 3,352
Professional services 18,699 - 48,391 -
Asset and mortgage
management fees to
related party 57,303 - 97,673 -
State and other taxes 9,486 19 12,384 19
Interest expense 3,419 - 3,578 -
Depreciation and
amortization 140,290 371 238,762 371
---------- ---------- ---------- ----------
369,568 3,742 670,107 3,742
---------- ---------- ---------- ----------
Earnings Before Minority
Interest in Income of
Consolidated Joint
Venture 952,025 4,455 1,711,365 4,455
Minority Interest in
Income of Consolidated
Joint Venture (7,571) - (22,323) -
---------- ---------- ---------- ----------
Net Earnings $ 944,454 $ 4,455 $1,689,042 $ 4,455
========== =========== ========== ==========
Earnings Per Share of
Common Stock $ .14 $ .01 $ .30 $ .01
========== =========== ========== ==========
Weighted Average Number
of Shares of Common
Stock Outstanding 6,649,040 340,541 5,649,041 340,541
========== =========== ========== ==========
See accompanying notes to condensed consolidated
financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 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
---------- ------- ----------- ------------ -----------
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 and
paid ($.03
to $.06 per
share) - - - (638,618) (638,618)
---------- ------- ----------- --------- -----------
Balance at
December 31,
1995 3,865,416 38,654 32,211,833 (269,839) 31,980,648
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment
plan 3,836,249 38,363 38,324,127 - 38,362,490
Stock issuance
costs - - (3,923,367) - (3,923,367)
Net earnings - - - 1,689,042 1,689,042
Distributions
declared and
paid ($.06
per share) - - - (1,868,487) (1,868,487)
---------- ------- ----------- ----------- -----------
Balance at
June 30, 1996 7,701,665 $77,017 $66,612,593 $ (449,284) $66,240,326
========== ======= ============ =========== ===========
See accompanying notes to condensed consolidated
financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1996 1995
------------ ------------
Increase (Decrease) in Cash and Cash
Equivalents:
Net cash provided by operating
activities $ 1,573,575 $ 7,970
------------ ------------
Cash Flows From Investing Activities:
Additions to land and buildings
on operating leases (18,316,555) (1,192,053)
Investment in direct financing
leases (1,555,641) -
Investment in mortgage notes
receivable (12,363,000) -
Collection of deferred financing
income 43,270 -
Collection of mortgage notes
payments 41,022 -
Increase in other assets (644,752) (168,293)
------------ ------------
Net cash used in investing
activities (32,795,656) (1,360,346)
------------ ------------
Cash Flows From Financing Activities:
Reimbursement of acquisition,
organization and stock issuance
costs paid by related parties
on behalf of the Company (556,511) (1,288,234)
Proceeds of borrowing on line
of credit 603,745 -
Payment of loan costs (53,500) -
Contribution from minority
interest of consolidated
joint venture 97,419 -
Subscriptions received from
stockholders 38,362,490 4,849,410
Distribution to minority interest (22,010) -
Distributions to stockholders (1,871,820) -
Payment of stock issuance costs (3,502,100) (377,764)
Other 25,500 -
------------ ------------
Net cash provided by
financing activities 33,083,213 3,183,412
------------ ------------
Net Increase in Cash and Cash Equivalents 1,861,132 1,831,036
Cash and Cash Equivalents at Beginning
of Period 11,508,445 945
------------ ------------
Cash and Cash Equivalents at End
of Period $ 13,369,577 $ 1,831,981
============ ============
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 $ 107,383 $ 42,703
Organization costs - 20,000
Stock issuance costs 495,800 518,363
------------ ------------
$ 603,183 $ 581,066
============ ============
Land, building and other costs
incurred and unpaid at end of
period $ 3,155,108 $ 11,311
============ ============
Commissions, marketing support and
due diligence expense reimbursement
fee, and other stock issuance costs
incurred and unpaid at end of period $ 102,398 $ 565,954
============ ============
Distributions declared and unpaid at
end of period $ - $ 15,148
============ ============
See accompanying notes to condensed consolidated
financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 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 and six months ended June 30, 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 85.47% 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.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents. Cash and cash equivalents consist of demand deposits
at commercial banks, certificates of deposit and money market funds
(some of which are backed by government securities). Cash equivalents
are stated at cost plus accrued interest, which approximates market
value.
Cash accounts maintained on behalf of the Company in demand deposits at
commercial banks, money market funds and certificates of deposit may
exceed federally insured levels; however, the Company has not
experienced any losses in such accounts. The Company limits investment
of temporary cash investments to financial institutions with high credit
standing; therefore, management believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Earnings Per Share - Earnings per share are calculated based upon the
weighted average number of shares of common stock outstanding during the
period the Company was operational.
3. Leases:
------
The Company leases its land, buildings and equipment subject to Secured
Equipment Leases 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 65 of the Company's Properties have been classified as
operating leases (including the leases relating to 14 Properties under
construction as of June 30, 1996) and the leases relating to three
Properties and one Secured Equipment Lease have been classified as
direct financing leases. For the leases classified as direct financing
leases, the building portions of the leases are accounted for as direct
financing leases while the land portion of one of these leases is
accounted for as an operating lease.
4. Land and Buildings on Operating Leases:
--------------------------------------
Land and buildings on operating leases consisted of the following at:
June 30, December 31,
1996 1995
----------- ------------
Land $22,032,580 $ 8,890,471
Buildings 12,639,571 10,049,032
----------- -----------
34,672,151 18,939,503
Less accumulated
depreciation (300,179) (100,318)
----------- -----------
34,371,972 18,839,185
Construction in
progress 5,382,600 884,541
----------- -----------
$39,754,572 $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 and six months ended June 30, 1996, the Company recognized
$63,175 and $176,080, respectively, and for the quarter and six months
ended June 30, 1995, the Company recognized $50, of such rental income.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at June 30, 1996:
1996 $ 1,335,207
1997 2,949,196
1998 2,953,978
1999 2,960,672
2000 2,975,837
Thereafter 42,990,911
-----------
$56,165,801
===========
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 Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at:
June 30, December 31,
1996 1995
----------- ------------
Minimum lease payments
receivable $ 6,179,502 $ 2,498,881
Estimated residual
values 163,176 343,740
Less unearned income (3,271,643) (1,468,739)
----------- -----------
Net investment in
direct financing
leases $ 3,071,035 $ 1,373,882
=========== ===========
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at June 30, 1996:
1996 $ 230,098
1997 456,288
1998 456,288
1999 456,288
2000 459,607
Thereafter 4,120,933
----------
$6,179,502
==========
6. Mortgage Notes Receivable:
-------------------------
In January 1996, in connection with the acquisition of land for 23 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 the 23 Pizza Hut Properties. 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 June 30, 1996, $8,509,532
was outstanding relating to this note, including $75,554 in accrued
interest.
In addition, in May 1996, in connection with the acquisition of land for
10 Pizza Hut restaurants in West Virginia and Ohio, the Company accepted
a promissory note in the principal sum of $3,888,000, collateralized by
a mortgage on the buildings on the 10 Pizza Hut Properties. The
promissory note bears interest at a rate of 10.75% per annum and is
being collected in 240 equal monthly installments of $39,472. As of
June 30, 1996, $3,922,830 was outstanding relating to this note,
including $34,830 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 notes receivable as of June 30, 1996, was $12,432,362, the same
as its carrying value.
7. Other Assets:
------------
Other assets consisted of the following at:
June 30, December 31,
1996 1995
---------- ------------
Acquisition fees and
miscellaneous acqui-
sition expenses to
be allocated to
future properties $ 844,419 $ 806,504
Deferred costs relating
to mortgage notes
receivable 642,506 -
Other 89,835 12,000
---------- ----------
$1,576,760 $ 818,504
========== ==========
8. Note Payable:
------------
On March 5, 1996, the Company entered into a line of credit (the "Loan")
and security agreement with a bank. The Loan is 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. As of June 30,
1996, the Company had obtained two advances totalling $603,745 relating
to the Loan. The proceeds of the advances were used to fund a Secured
Equipment Lease at a cost of approximately $550,000 and to pay $53,500
in loan costs described above. As of June 30, 1996, $606,207 was
outstanding relating to the Loan, including $2,462 of accrued interest.
As of June 30, 1996, the Company had not yet converted the outstanding
principal amounts to term loans, as described above. 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 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 June 30, 1996 and December 31, 1995, the Company had incurred a
total of $10,347,038 and $6,423,671, respectively, in organizational and
offering costs, including $6,145,332 and $3,076,333, respectively, in
commissions and marketing support and due diligence expense
reimbursement fees (see Note 11). Of these amounts as of June 30, 1996
and December 31, 1995, $10,327,038 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 six months ended June 30, 1996, represent
approximately $1,574,000 of ordinary income and approximately $294,000
of return of capital to stockholders for federal income tax purposes.
No amounts distributed to the stockholders for the six months ended June
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. The characterization for tax purposes of
distributions declared for the six months ended June 30, 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 six months ended June 30, 1996, the Company incurred
$2,877,187 in selling commissions due to CNL Securities Corp. for
services in connection with the offering of shares. A substantial
portion of this amount ($2,603,613) 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 six months ended June 30,
1996, the Company incurred $191,812 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 six months ended June 30, 1996, the
Company incurred $1,726,312 of such fees. Such fees are included in
land and buildings on operating leases, net investment in direct
financing leases and other assets.
For negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program, the Advisor will be entitled to receive from
the Company a one-time secured equipment lease servicing fee of two
percent of the purchase price of the equipment that is the subject of a
Secured Equipment Lease. During the quarter and six months ended June
30, 1996, the Company incurred $10,776 in secured equipment lease
servicing fees. Such fees are included in net investment in direct
financing leases.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor will receive a monthly asset and mortgage
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), plus one-twelfth of .60% of the Company's total
principal amount of the mortgage loans as of the end of the preceding
month. The 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. During the
quarter and six months ended June 30, 1996, the Company incurred $58,762
and $100,526, respectively, in total asset and mortgage management fees,
$1,459 and $2,853, respectively, of which was capitalized as part of the
cost of building for Properties under construction. No asset or
mortgage management fees were incurred for the quarter and six months
ended June 30, 1995.
The Advisor and its affiliates provide accounting and admini-strative
services to the Company (including accounting and administrative
services in connection with the offering of shares) on a day-to-day
basis. For the six months ended June 30, 1996 and 1995, the expenses
incurred for these services were classified as follows:
1996 1995
-------- --------
Stock issuance costs $379,090 $200,492
General operating and
administrative expenses 154,018 330
-------- --------
$533,108 $200,822
======== ========
During the six months ended June 30, 1996, the Company acquired two
Properties for an aggregate purchase price of approximately $1,798,000
from affiliates of the Company. The affiliates had purchased and
temporarily held title to these Properties in order to facilitate the
acquisition of the Properties by the Company. Each Property was
acquired at a cost equal to the cost of the Property to the affiliate
(including carrying costs) due to the fact that these amounts were less
than each Property's appraised value.
The due to related parties consisted of the following at:
June 30, December 31,
1996 1995
--------- ------------
Due to the Advisor:
Expenditures incurred
on behalf of the
Company and accounting
and administrative
services $ 73,221 $108,316
Acquisition fees 48,062 45,118
Asset and mortgage
management fees - 9,108
Distributions - 3,332
-------- --------
121,283 165,874
-------- --------
Due to CNL Securities Corp:
Commissions 80,079 75,197
Marketing support and due
diligence expense reim-
bursement fees 5,340 5,013
-------- --------
85,419 80,210
-------- --------
Other - 2,500
-------- --------
$206,702 $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 at least one of the quarters ended June 30:
1996 1995
-------- --------
Castle Hill Holdings V,
L.L.C. and Castle Hill
Holdings VI, L.L.C.
("Castle Hill") $160,536 $ -
Golden Corral Corporation 142,178 -
Foodmaker, Inc. 52,833 369
During the quarter ended June 30, 1996, the Company also earned $280,549
in interest income from mortgage notes receivable under which Castle
Hill 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 at least
one of the quarters ended June 30:
1996 1995
-------- --------
Golden Corral
Family Steakhouse
Restaurants $313,694 $ -
Pizza Hut 160,536 -
Jack in the Box 52,833 369
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 or borrower that
contributes more than ten percent of the Company's total 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 lessees and borrowers.
It is expected that the percentage of total rental and earned income
contributed by these lessees, borrowers 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 $17,499,600, of which approximately $11,111,000 in land
and other costs had been incurred as of June 30, 1996. The buildings
currently under construction are expected to be operational by October
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 July 1, 1996 through August 6, 1996, the Company
received subscription proceeds for an additional 1,105,184 shares
($11,051,838) of common stock.
Subsequent to June 30, 1996, the Company declared distri-butions of
$458,646 and $515,906, respectively, or $.059375 per share of common
stock, payable in September 1996, to stockholders of record on July 1,
1996 and August 1, 1996, respectively.
During the period July 1, 1996 through August 6, 1996, the Company
acquired six Properties (five of which are undeveloped land on which
restaurants are being constructed) for cash at a total cost of
approximately $3,083,000, 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 $4,578,000. The buildings under construction are
expected to be operational by February 1997.
During the period July 1, 1996 through August 6, 1996, the Company
obtained two additional advances totalling approximately $1,093,000
under its $15,000,000 Loan. The proceeds of the advances were used to
fund two Secured Equipment Leases at a cost of approximately $1,093,000.
In connection with the Company's advances under the Loan, in July 1996,
the Company converted a total of approximately $1,686,000 from variable
rate advances to fixed rate advances (at a rate of nine percent per
annum)(See Note 8).
ITEM 2. 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 June 30, 1996, the Company owned 68 Properties (including one
Property through a joint venture arrangement consisting of land and building,
29 consisting of land and building, five consisting of building only and 33
consisting of land only and in connection with which the Company provided
mortgage loans to the tenant for the purchase of the buildings on the
Properties). Of the 68 Properties, 14 were under construction at June 30,
1996. In addition, as of June 30, 1996, the Company had entered into a
secured equipment lease.
Liquidity and Capital Resources
- -------------------------------
In April 1995, the Company commenced an offering of its shares of common
stock. As of June 30, 1996, the Company had received subscription proceeds of
$76,816,648 (7,681,665 shares) from the offering, including $243,167 (24,317
shares) through the reinvest-ment plan.
As of June 30, 1996, net proceeds to the Company from its offering of
shares and capital contributions from CNL Fund Advisors, Inc. (the "Advisor")
after deduction of selling commissions, marketing support and due diligence
expense reimburse-ment fees and organizational and offering expenses, totalled
$66,669,610. As of June 30, 1996, approximately $63,189,000 had been used to
invest, or committed for investment, in 68 Properties (14 of which were
undeveloped land on which a restaurant was being constructed), in providing
mortgage financing of $12,363,000 to the tenants of the 33 Properties
consisting of land only and to pay acquisition fees to the Advisor totalling
$3,456,749 and certain acquisition expenses. During the six months ended June
30, 1996, the Company acquired two Properties from affiliates, for purchase
prices totalling approximately $1,798,000. 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 equal to the cost of the Property to the affiliate (including carrying
costs) due to the fact that these amounts were less than each Property's
appraised value. The 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
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.
On March 5, 1996, the Company entered into a line of credit (the "Loan")
and security agreement with a bank. The Loan is 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 June 30, 1996, the Company had obtained two advances totalling $603,745
relating to the Loan. The proceeds were used to fund a Secured Equipment
Lease at a cost of approximately $550,000, including a secured equipment lease
servicing fee of $10,776 to the Advisor and to pay loan costs of $53,500
described above. The Company expects to use the proceeds of the Loan to fund
the secured equipment lease program, as described above. The Company intends
to limit advances under the Loan to 10% of gross proceeds of the offering.
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 $17,499,600,
of which approximately $11,111,000 in land and other costs had been incurred
as of June 30, 1996. The buildings under construction as of June 30, 1996,
are expected to be operational by October 1996. In connection with the
purchase of each Property, the Company, as lessor, entered into a long-term
lease agreement.
During the period July 1, 1996 through August 6, 1996, the Company
acquired six additional Properties (five Properties consisting of undeveloped
land on which restaurants are being constructed) for cash at a total cost of
approximately $3,083,000, 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 five Properties under construction are
estimated to be approximately $4,578,000. The buildings under construction
are expected to be operational by February 1997.
The Company presently is negotiating to acquire additional Properties,
but as of August 6, 1996, had not acquired any such Properties.
In addition, during the period July 1, 1996 through August 6, 1996, the
Company obtained two additional advances totalling approximately $1,093,000
under its $15,000,000 Loan. The proceeds of the advances were used to fund
two Secured Equipment Leases at a cost of approximately $1,093,000, including
secured equipment lease servicing fees of $21,399 paid to the Advisor. In
connection with the Company's advances under the Loan, in July 1996, the
Company converted a total of approximately $1,686,000 from variable rate
advances to fixed rate advances (at a rate of nine percent per annum).
As of August 6, 1996, the Company had received subscription proceeds of
$87,868,486 (8,786,849 shares) from 4,916 stockholders, including $243,167
(24,317 shares) issued pursuant to the reinvestment plan. As of August 6,
1996, the Company had invested, or committed for investment, approximately
$68,000,000 of such proceeds in 74 Properties, had provided mortgage financing
to the tenants of the 33 Properties consisting of land only through mortgage
loans, and had paid acquisition fees and acquisition expenses, leaving
approximately $8,700,000 in net offering proceeds available for investment in
Properties and mortgage loans. As of August 6, 1996, the Company had
incurred $3,954,082 in acquisition fees due to 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 June 30,
1996, the Company had $13,369,577 invested in such short-term investments as
compared to $11,508,445 at December 31, 1995. The increase in the amount
invested in short-term investments reflects subscription proceeds derived
from the sale of shares during the six months ended June 30, 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 six months ended June 30, 1996 and 1995, affiliates of the
Company incurred on behalf of the Company $495,800 and $222,894, respectively,
for certain organizational and offering expenses. In addition, during the six
months ended June 30, 1996 and 1995, affiliates of the Company incurred on
behalf of the Company $107,383 and $42,703 for certain acquisition expenses
and $149,802 and $12,680 for certain operating expenses. As of June 30, 1996,
the Company owed the Advisor $121,283 for such amounts, accounting and
administrative expenses and acquisition fees. As of August 6, 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 $3,852,773 at June 30, 1996, from $1,173,776 at December
31, 1995, primarily as a result of the accrual of construction costs incurred
and unpaid as of June 30, 1996.
During the six months ended June 30, 1996 and 1995, 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
$1,568,399 and $7,970, respectively. Based on current and anticipated future
cash from operations, the Company declared distributions to the stockholders
of $1,868,487 and $15,148 during the six months ended June 30, 1996 and 1995,
respectively, ($1,100,354 and $15,148 for the quarters ended June 30, 1996 and
1995, respectively). On July 1, 1996 and August 1, 1996, the Company declared
distributions to its stockholders totalling $458,646 and $515,906,
respectively, payable in September 1996. For the six months ended June 30,
1996, approximately 85 percent of the distributions received by stockholders
were considered to be ordinary income and 15 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 August 6, 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 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, the fact that as of August
6, 1996, the Company had entered into Secured Equipment Leases for amounts
borrowed under the Loan and the fact that payments due to the Company from the
Secured Equipment Leases are expected to exceed debt service requirements for
the Loan, 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 June 30, 1996, the Company and its consolidated joint venture had
purchased 68 Properties, including one which is owned through a joint venture
consisting of land and building, 29 Properties consisting of land and
building, five Properties consisting of building only and 33 Properties
consisting of land only, and entered into lease agreements relating to these
Properties. The leases provide for minimum base annual rental payments
(payable in monthly installments) ranging from approximately $89,700 to
$467,500. In addition, certain leases 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 six months ended June 30, 1996 and 1995, the Company and its
consolidated joint venture, CNL/Corral South Joint Venture, earned $1,704,185
and $369, respectively, in rental income from operating leases and earned
income from the direct financing lease from 54 Properties and "interim rent"
for nine of the 14 Properties under construction at June 30, 1996, $905,104
and $369 of which was earned during the quarters ended June 30, 1996 and 1995,
respectively. No rental income was earned for five of the 14 Properties under
construction as of June 30, 1996, due to the fact that rent does not generally
commence until the earlier of (i) the date the restaurant opens for
business to the public, (ii) the date the certificate of occupancy for the
restaurant is issued or (iii) a specified time after the execution of the
lease (ranging from 150 to 180 days). These Properties are expected to be
operational by September 1996, at which time rental payments are expected to
commence. 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 six months ended June 30,
1996, represent only a portion of revenues which the Company is expected to
earn in future periods in which the Company's Properties are operational.
During the six months ended June 30, 1996, the Company entered into two
mortgage loans in the principal sum of $12,363,000, collateralized by a
mortgage on the buildings relating to 33 Pizza Hut Properties. The mortgage
loans bear interest at a rate of 10.75% per annum and are being collected in
240 equal monthly installments totalling $125,513. In connection therewith,
the Company earned $465,498 in interest income relating to such mortgage loans
during the six months ended June 30, 1996, $280,549 of which was earned during
the quarter ended June 30, 1996.
During the quarter ended June 30, 1996, two lessees, or groups of
affiliated lessees of the Company, Golden Corral Corporation and Castle Hill
Holdings V, L.L.C. and Castle Hill Holdings VI, L.L.C. (hereinafter referred
to as Castle Hill), each contributed more than ten percent of the Company's
total rental income. Golden Corral Corporation is the lessee under leases
relating to five restaurants and Castle Hill is the lessee under leases
relating to 33 restaurants. During the quarter ended June 30, 1996, the
Company also earned $280,549 in interest income from mortgage notes receivable
under which Castle Hill is the borrower. In addition, two restaurant chains,
Golden Corral Family Steakhouse and Pizza Hut each accounted for more than ten
percent of the Company's total rental income during the quarter ended June 30,
1996. Because the Company has not yet completed its acquisition of
Properties, 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, with the exception of Castle Hill
and Pizza Hut, both of which the Company anticipates will contribute more than
ten percent of the Company's 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 six months ended June 30, 1996 and 1995, the Company also
earned $211,789 and $7,828, respectively, in interest income from investments
in money market accounts or other short-term, highly liquid investments and
other income, $135,940 and $7,828 of which was earned during the quarters
ended June 30, 1996 and 1995, respectively. Interest income from investing in
money market accounts or other short-term, highly liquid investments is
expected to increase as the Company invests subscription proceeds in highly
liquid investments pending the acquisition of Properties or investing in
mortgage loans. 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 $670,107 and $3,742 for the six months ended June 30, 1996 and 1995,
respectively, of which $369,568 and $3,742 were incurred during the quarters
ended June 30, 1996 and 1995, respectively. Operating expenses increased
during the quarter and six months ended June 30, 1996, as compared to the
quarter and six months ended June 30, 1995, primarily as a result of the fact
that the Company did not commence operations until June 1, 1995. General and
administrative expenses as a percentage of total revenues is expected to
decrease as the Company acquires additional Properties and the Properties
under construction become operational. However, depreciation and amortization
expense is expected to increase as the Company acquires additional Properties.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
-----------------
Item 2. Changes in Securities. Inapplicable.
---------------------
Item 3. Defaults upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
On May 30, 1996, the Company held its Annual Meeting of
Shareholders (the "Annual Meeting"). At the Annual Meeting, the
Company failed to receive the required vote of the shareholders to
elect the following nominees to the Board of Directors of the
Company: Messrs. Robert A. Bourne (2,479,528 voted for, 21,785
voted against and 500 abstained), G. Richard Hostetter (2,479,828
voted for, 21,485 voted against and 500 abstained), Richard C.
Huseman (2,479,828 voted for, 21,485 voted against and 500
abstained), J. Joseph Kruse (2,479,828 voted for, 21,485 voted
against and 500 abstained), and James M. Seneff, Jr. (2,479,528
voted for, 21,785 voted against and 500 abstained). In addition,
the Company failed to receive the required vote of Shareholders to
grant authority upon such other matters as may come before the
meeting as they determine to be in the best interest of the
Company.
On June 26, 1996, the Company reconvened its Annual Meeting and at
such meeting, the following nominees were elected to the Board of
Directors of the Company: Messrs. Robert A. Bourne (2,910,661
voted for, 28,785 voted against and 500 abstained), G. Richard
Hostetter (2,911,961 voted for, 27,485 voted against and 500
abstained), Richard C. Huseman (2,911,961 voted for, 27,485 voted
against and 500 abstained), J. Joseph Kruse (2,911,961 voted for,
27,485 voted against and 500 abstained), and James M. Seneff, Jr.
(2,910,661 voted for, 28,785 voted against and 500 abstained). In
addition, the shareholders granted the Company authority upon such
other matters as may come before the meeting as they determine to
be in the best interest of the Company (2,781,285 voted for,
25,336 voted against and 133,324 abstained).
Item 5. Other Information. Inapplicable.
-----------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits - None.
(b) The Company filed three reports on Form 8-K, reporting the
acquisition of Properties, on April 4, 1996, April 29, 1996
and June 4, 1996. In addition, the Company filed two
reports on Form 8-K/A on April 26, 1996, amending the Forms
8-K filed on February 6, 1996 and March 6, 1996.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 14th day of August, 1996.
CNL AMERICAN PROPERTIES FUND, INC.
By: /s/ James M. Seneff, Jr.
-----------------------------
JAMES M. SENEFF, JR.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-----------------------------
ROBERT A. BOURNE
Director and President
(Principal Financial and
Accounting Officer)
