<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of CNL American Properties Fund, Inc. and Subsidiary
at March 31, 1996, and its consolidated statement of earnings for the three
months then ended and is qualified in its entirety by reference to the Form 10-Q
of CNL American Properties Fund, Inc. for the three months ended March 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,775,306
<SECURITIES> 0
<RECEIVABLES> 9,002,822
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,403,363
<PP&E> 28,508,323
<DEPRECIATION> 194,849
<TOTAL-ASSETS> 48,909,495
<CURRENT-LIABILITIES> 1,870,422
<BONDS> 0
55,242
0
<COMMON> 0
<OTHER-SE> 46,690,502
<TOTAL-LIABILITY-AND-EQUITY> 48,909,495
<SALES> 0
<TOTAL-REVENUES> 1,059,879
<CGS> 0
<TOTAL-COSTS> 300,380
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159
<INCOME-PRETAX> 744,588
<INCOME-TAX> 0
<INCOME-CONTINUING> 744,588
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 744,588
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</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 March 31, 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.
6,521,985 shares of common stock, $.01 par value, outstanding as of May 9,
1996.
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 6-15
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 16-22
Part II
Other Information 23
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.
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
---------- ------- ----------- ------------- ----------
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
========= ======= =========== ========= ===========
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
============ ============
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
miscellaneous acqui-
sition 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.
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 March 31, 1996, the Company owned 43 Properties (including one
Property through a joint venture arrangement, three consisting of building
only and 20 consisting of land only), four of which were under construction at
March 31, 1996.
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
shares and capital contributions from CNL Fund Advisors, Inc. (the "Advisor")
after deduction of 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 totalling 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 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 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 May 9, 1996, the Company
acquired eight additional Properties (five Properties consisting of
undeveloped land on which restaurants are being constructed and three
Properties consisting of land only) for cash at a total cost of approximately
$2,755,000, 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 $6,193,000. The buildings under construction are expected to be
operational by October 1996. With regard to the three Properties consisting
of land only, the Company is leasing the parcels together with 20 other land
parcels to a single lessee pursuant to a master lease agreement. The lessee
owns the buildings located on the 23 Properties.
The Company presently is negotiating to acquire additional Properties,
but as of May 9, 1996, had not acquired any such Properties.
As of May 9, 1996, the Company had received subscription proceeds of
$65,019,852 (6,501,985 shares) from 3,857 stockholders, including $128,151
(12,815 shares) issued pursuant to the reinvestment plan. As of May 9, 1996,
the Company had invested, or committed for investment, approximately
$49,500,000 of such proceeds in 51 Properties, in providing mortgage financing
to the tenant of the 23 Properties consisting of land only through a mortgage
loan, and to pay acquisition fees and acquisition expenses, leaving
approximately $6,500,000 in net offering proceeds available for investment in
Properties and mortgage loans. As of May 9, 1996, the Company had incurred
$2,925,893 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 April 30, 1996,
$53,500 had been advanced under the Loan to fund the commitment fee, legal
fees and closing costs related to the Loan. The Company intends to limit
advances under the Loan to 10% of Gross Proceeds of the offering.
Properties are and will be leased on a triple-net basis, meaning that
tenants are generally required to pay all repairs and maintenance, property
taxes, insurance and utilities. Rental payments under the leases are expected
to exceed the Company's operating expenses. For these reasons, no short-term
or long-term liquidity problems currently are anticipated by management.
Until Properties are acquired, or mortgage loans are entered into, by
the Company, all offering proceeds are held in short-term, highly liquid
investments which management believes to have appropriate safety of principal.
This investment strategy provides high liquidity in order to facilitate the
Company's use of these funds to acquire Properties at such time as Properties
suitable for acquisition are located or to fund mortgage loans. At 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 and May 1, 1996, the Company declared
distributions to its stockholders totalling $323,748 and $368,153,
respectively, payable in June 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,
three Properties consisting of building only and 20 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 $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 is the lessee under leases relating to six restaurants, Corral
South Store I, Inc. is the lessee under a lease relating to one restaurant,
Castle Hill Holdings V, LLC is the lessee under leases relating to 20
restaurants, Foodmaker, Inc. is the lessee under leases relating to two
restaurants, and Northstar Restaurants, Inc. is 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 loans bear interest at a rate of 10.75% per
annum and are 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.
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.
---------------------------------------------------
Inapplicable.
Item 5. Other Information. Inapplicable.
-----------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits - None.
(b) The Company filed two reports on Form 8-K, reporting the
acquisition of Properties, on February 6, 1996 and March 4,
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 May, 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)
