<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL American Properties Fund, Inc. at September 30, 1996, and its
statement of income for the nine months then ended and is qualified in its
entirety by reference to the Form 10-Q of CNL American Properties Fund, Inc. for
the nine months ended September 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 22,256,995
<SECURITIES> 0
<RECEIVABLES> 153,642
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 50,477,002
<DEPRECIATION> 423,115
<TOTAL-ASSETS> 97,998,150
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
103,161
0
<COMMON> 0
<OTHER-SE> 89,425,353
<TOTAL-LIABILITY-AND-EQUITY> 97,998,150
<SALES> 0
<TOTAL-REVENUES> 3,883,714
<CGS> 0
<TOTAL-COSTS> 1,057,099
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,269
<INCOME-PRETAX> 2,779,346
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,779,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,779,346
<EPS-PRIMARY> .41
<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 September 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.
11,631,858 shares of common stock, $.01 par value, outstanding as of November
5, 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 6-19
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 20-27
Part II
Other Information 28
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 1996 1995
------------- ------------
Land and buildings on operating leases,
less accumulated depreciation $50,053,887 $19,723,726
Net investment in direct financing leases 10,840,639 1,373,882
Cash and cash equivalents 22,256,995 11,508,445
Receivables 153,642 113,613
Mortgage notes receivable 12,311,892 -
Prepaid expenses 29,283 8,090
Organization costs, less accumulated
amortization of $5,318 and $2,318 14,682 17,682
Loan costs, less accumulated amortization
of $15,317 at September 30, 1996 38,183 -
Accrued rental income 314,564 39,142
Other assets 1,984,383 818,504
----------- -----------
$97,998,150 $33,603,084
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $ 2,376,235 $ -
Accrued interest payable 11,238 -
Accrued construction costs payable 4,887,602 1,058,825
Accounts payable and accrued expenses 38,363 79,904
Escrowed real estate taxes payable 9,696 9,696
Due to related parties 390,489 248,584
Deferred financing income 41,973 -
Rents paid in advance 425,584 25,351
----------- -----------
Total liabilities 8,181,180 1,422,360
----------- -----------
Minority interest 288,456 200,076
----------- -----------
Commitments (Note 12)
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 10,316,089 and 3,865,416,
respectively 103,161 38,654
Capital in excess of par value 90,340,860 32,211,833
Accumulated distributions in excess of
net earnings (915,507) (269,839)
----------- -----------
Total stockholders' equity 89,528,514 31,980,648
----------- -----------
$97,998,150 $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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Revenues:
Rental income from
operating leases $ 724,958 $ 122,418 $2,342,959 $ 122,787
Earned income from direct
financing leases 238,723 - 324,907 -
Interest income from
mortgage notes receiv-
able 330,880 - 796,378 -
Other interest and income 207,681 34,289 419,470 42,117
---------- ---------- ---------- ----------
1,502,242 156,707 3,883,714 164,904
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 132,727 43,112 402,046 46,464
Professional services 1,710 1,392 50,101 1,392
Asset and mortgage
management fees to
related party 78,100 3,864 175,773 3,864
State and other taxes 27,982 3,500 40,366 3,519
Interest expense 43,691 - 47,269 -
Depreciation and amorti-
zation 150,051 22,954 388,813 23,325
---------- ---------- ---------- ----------
434,261 74,822 1,104,368 78,564
---------- ---------- ---------- ----------
Earnings Before Minority
Interest in Loss (Income)
of Consolidated Joint
Venture 1,067,981 81,885 2,779,346 86,340
Minority Interest in Loss
(Income) of Consolidated
Joint Venture 736 - (21,587) -
---------- ---------- ---------- ----------
Net Earnings $1,068,717 $ 81,885 $2,757,759 $ 86,340
========== ========== ========== ==========
Earnings Per Share of
Common Stock $ 0.12 $ 0.06 $ 0.41 $ 0.08
========== ========== ========== ==========
Weighted Average Number of
Shares of Common Stock
Outstanding 8,993,595 1,324,609 6,771,120 1,088,791
========== ========== ========== ==========
See accompanying notes to condensed consolidated
financial statements.
<TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1996 and
Year Ended December 31, 1995
<CAPTION>
Accumulated
Common stock distributions
--------------------- Capital in in excess
Number Par excess of of net
of shares value par value earnings Total
---------- -------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at
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 $.06 per
share) - - - (638,618) (638,618)
---------- -------- ----------- ----------- -----------
Balance at
December 31, 1995 3,865,416 38,654 32,211,833 (269,839) 31,980,648
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment
plan 6,450,673 64,507 64,442,227 - 64,506,734
Stock issuance
costs - - (6,313,200) - (6,313,200)
Net earnings - - - 2,757,759 2,757,759
Distributions
declared and
paid ($.06
per share) - - - (3,403,427) (3,403,427)
---------- -------- ----------- ----------- -----------
Balance at
September 30,
1996 10,316,089 $103,161 $90,340,860 $ (915,507) $89,528,514
========== ======== =========== =========== ===========
See accompanying notes to condensed consolidated
financial statements.
</TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1996 1995
------------ ------------
Increase (Decrease) in Cash and Cash
Equivalents:
Net cash provided by operating
activities $ 3,244,519 $ 124,187
------------ ------------
Cash Flows From Investing Activities:
Additions to land and buildings
on operating leases (27,023,938) (13,588,527)
Investment in direct financing
leases (9,406,953) -
Investment in mortgage notes
receivable (12,363,000) -
Collection of deferred financing
income 43,270 -
Collection of mortgage notes
payments 86,815 -
Increase in other assets (877,463) (188,531)
------------ ------------
Net cash used in investing
activities (49,541,269) (13,777,058)
------------ ------------
Cash Flows From Financing Activities:
Reimbursement of acquisition,
organization and stock issuance
costs paid by related parties
on behalf of the Company (765,996) (2,268,907)
Proceeds of borrowing on line
of credit 2,417,572 -
Payment on line of credit (41,337) -
Payment of loan costs (53,500) -
Contribution from minority
interest of consolidated
joint venture 97,419 200,000
Subscriptions received from
stockholders 64,506,734 20,746,392
Distribution to minority interest (30,626) -
Distributions to stockholders (3,406,759) (15,148)
Payment of stock issuance costs (5,680,757) (1,729,078)
Other 2,550 -
------------ ------------
Net cash provided by
financing activities 57,045,300 16,933,259
------------ ------------
Net Increase in Cash and Cash Equivalents 10,748,550 3,280,388
Cash and Cash Equivalents at Beginning
of Period 11,508,445 945
------------ ------------
Cash and Cash Equivalents at End
of Period $ 22,256,995 $ 3,281,333
============ ============
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 $ 136,341 $ 75,501
Organization costs - 20,000
Stock issuance costs 615,600 1,974,281
------------ ------------
$ 751,941 $ 2,069,782
============ ============
Land, building and other costs
incurred and unpaid at end of
period $ 5,080,365 $ 1,037,687
============ ============
Commissions, marketing support and
due diligence expense reimbursement
fee, and other stock issuance costs
incurred and unpaid at end of period $ 193,781 $ 310,657
============ ============
Distributions declared and unpaid at
end of period $ - $ 172,536
============ ============
See accompanying notes to condensed consolidated
financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 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 proceeds from the Company's current $150,000,000
offering.
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 nine months ended September 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.
Rents Paid in Advance - Rents paid in advance by lessees for future
periods are deferred upon receipt and are recognized as revenues during
the period in which the rental income is earned. Rents paid in advance
include "interim rent" payments required to be paid under the terms of
certain leases for construction properties, equal to a pre-determined
rate times the amount funded by the Company during the period commencing
with the effective date of the lease to the date minimum annual rent
becomes payable. Once minimum annual rent becomes payable, the "interim
rent" payments are amortized and recorded as income either (i) over the
lease term so as to produce a constant periodic rate of return for
leases accounted for using the direct financing method, or (ii) over the
lease term using the straight-line method for leases accounted for using
the operating method, whichever is applicable.
Interest Rate Swaps - Income or expense associated with interest rate
swap agreements related to equipment financing is recognized on the
accrual basis over the life of the swap agreement as an adjustment to
interest expense.
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 to operators 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 73 of the
Company's Properties have been classified as operating leases (including
the leases relating to ten Properties under construction as of September
30, 1996) and the leases relating to nine Properties and four Secured
Equipment Leases 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 portions of three of these leases are accounted for as operating
leases.
4. Land and Buildings on Operating Leases:
--------------------------------------
Land and buildings on operating leases consisted of the following at:
September 30, December 31,
1996 1995
------------- ------------
Land $29,397,769 $ 8,890,471
Buildings 19,716,006 10,049,032
----------- -----------
49,113,775 18,939,503
Less accumulated
depreciation (423,115) (100,318)
----------- -----------
48,690,660 18,839,185
Construction in
progress 1,363,227 884,541
----------- -----------
$50,053,887 $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 nine months ended September 30, 1996, the Company
recognized $99,342 and $275,422, respectively, and for the quarter and
nine months ended September 30, 1995, the Company recognized $8,984 and
$9,034, respectively, of such rental income.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at September 30, 1996:
1996 $ 1,187,752
1997 4,396,156
1998 4,400,938
1999 4,418,883
2000 4,446,816
Thereafter 65,292,354
-----------
$84,142,899
===========
These amounts do not include minimum lease payments that will become due
when Properties under development are completed (See Note 12).
5. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at:
September 30, December 31,
1996 1995
------------- ------------
Minimum lease payments
receivable $ 20,935,800 $ 2,498,881
Estimated residual
values 441,657 343,740
Less unearned income (10,536,818) (1,468,739)
------------ ------------
Net investment in
direct financing
leases $ 10,840,639 $ 1,373,882
============ ============
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at September 30, 1996:
1996 $ 432,805
1997 1,736,012
1998 1,736,012
1999 1,736,012
2000 1,739,331
Thereafter 13,555,628
-----------
$20,935,800
===========
6. Mortgage Notes Receivable:
-------------------------
In January 1996, in connection with the acquisition of land for 23 Pizza
Hut restaurants, 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 September 30, 1996, $8,425,423 was
outstanding relating to this note, including $23,187 in accrued
interest.
In addition, in May 1996, in connection with the acquisition of land for
10 Pizza Hut restaurants, 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 September 30, 1996,
$3,886,469 was outstanding relating to this note, including $12,520 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 September 30, 1996, was $12,311,892, the
same as its carrying value.
7. 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 September 30, 1996, the Company had obtained seven advances
totalling $2,417,572 relating to the Loan. In general, the advances are
fully amortizing terms loans repayable over six years and bear interest
at a rate per annum equal to 215 basis points above the Reserve Adjusted
LIBOR Rate. The proceeds of the advances were used to fund Secured
Equipment Leases at an aggregate cost of approximately $2,364,000 and to
pay $53,500 in loan costs described above. As of September 30, 1996,
$2,376,235 of principal was outstanding relating to the Loan, plus
$11,238 of accrued interest.
During the quarter ended September 30, 1996, the Company entered into
interest rate swap agreements to reduce the impact of changes in
interest rates on its floating rate long-term debt. At September 30,
1996, the Company had outstanding two interest rate swap agreements with
a commercial bank, having a total notional amount of approximately
$2,206,000. Those agreements effectively change the Company's interest
rate exposure on approximately $1,641,000 of the outstanding floating
rate notes to a fixed nine percent per annum and approximately $565,000
of the outstanding floating rate notes to a fixed rate of 8.75% per
annum. The Company is exposed to credit loss in the event of
nonperformance by the other party to the interest rate swap agreements.
However, the Company does not anticipate nonperformance by the
counterparty.
8. Stock Issuance Costs:
--------------------
The Company has incurred certain expenses of its offering of shares,
including commissions, marketing support and due diligence expense
reimbursement fees, filing fees, legal, accounting, printing and escrow
fees, which have been deducted from the gross proceeds of the offering.
Preliminary costs incurred prior to raising capital were advanced by 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 September 30, 1996 and December 31, 1995, the Company had incurred
a total of $12,736,871 and $6,423,671, respectively, in organizational
and offering costs, including $8,236,871 and $3,076,333, respectively,
in commissions and marketing support and due diligence expense
reimbursement fees (see Note 10). Of these amounts as of September 30,
1996 and December 31, 1995, $12,716,871 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.
9. Distributions:
-------------
Distributions declared for the nine months ended September 30, 1996,
represent approximately $3,015,000 of ordinary income and approximately
$389,000 of return of capital to stockholders for federal income tax
purposes. No amounts distributed to the stockholders for the nine
months ended September 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 nine months ended
September 30, 1996, may not be indicative of the results that may be
expected for the year ending December 31, 1996.
10. Related Party Transactions:
--------------------------
During the nine months ended September 30, 1996, the Company incurred
$4,838,005 in selling commissions due to CNL Securities Corp. for
services in connection with the offering of shares. A substantial
portion of this amount (approximately $4,520,000) 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 nine months ended
September 30, 1996, the Company incurred $322,534 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 and structuring the terms of the Mortgage
Loans equal to 4.5% of the total amount raised from the sale of shares.
During the nine months ended September 30, 1996, the Company incurred
$2,902,803 of such fees. Such fees are included in land and buildings
on operating leases, net investment in direct financing leases and other
assets.
In connection with the acquisition of Properties that are being or have
been constructed or renovated by affiliates, subject to approval by the
Company's Board of Directors, the Company may incur
development/construction management fees of generally five to ten
percent of the cost of constructing or renovating a Property, payable to
affiliates of the Company as acquisition fees. Such fees will be
included in the purchase price of Properties purchased from developers
that are affiliates of the Company. During the quarter and nine months
ended September 30, 1996, the Company incurred $21,500 in
development/construction management fees. No development/con-struction
management fees were incurred for the quarter and nine months ended
September 30, 1995.
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 nine months ended
September 30, 1996, the Company incurred $35,516 and $46,292,
respectively, in secured equipment lease servicing fees. Such fees are
included in net investment in direct financing leases and other assets.
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 nine months ended September 30, 1996, the Company incurred
$80,971 and $181,497, respectively, in total asset and mortgage
management fees, $2,871 and $5,724, respectively, of which was
capitalized as part of the cost of Properties under construction.
During the quarter and nine months ended September 30, 1995, the Company
incurred $5,400 in asset management fees, $1,536 of which was
capitalized as part of the cost of building for Properties under
construction.
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 nine months ended September 30, 1996 and 1995, the
expenses incurred for these services were classified as follows:
1996 1995
-------- --------
Stock issuance costs $558,383 $515,772
General operating and
administrative expenses 236,191 20,504
-------- --------
$794,574 $536,276
======== ========
During the nine months ended September 30, 1996, the Company acquired
three Properties for an aggregate purchase price of approximately
$2,358,000 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:
September 30, December 31,
1996 1995
------------- ------------
Due to the Advisor:
Expenditures incurred
on behalf of the
Company and account-
ing and administra-
tive services $ 53,961 $108,316
Acquisition fees 182,502 45,118
Asset and mortgage
management fees - 9,108
Distributions - 3,332
-------- --------
236,463 165,874
-------- --------
Due to CNL Securities
Corp:
Commissions 144,397 75,197
Marketing support
and due diligence
expense reimburse-
ment fees 9,629 5,013
-------- --------
154,026 80,210
-------- --------
Other - 2,500
-------- --------
$390,489 $248,584
======== ========
11. 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 September 30:
1996 1995
-------- --------
Castle Hill Holdings V,
L.L.C. and Castle Hill
Holdings VI, L.L.C.
("Castle Hill") $184,765 $ -
Golden Corral Corporation 143,214 37,568
Briad Restaurant Group, Inc. 129,775 -
Corral Northeast, Inc. 113,182 -
DenAmerica Corporation 109,270 18,977
Roasters Corp. 52,754 29,387
Foodmaker, Inc. 41,115 33,591
During the quarter ended September 30, 1996, the Company also earned
$330,880 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 September 30:
1996 1995
-------- --------
Golden Corral Family
Steakhouse Restaurants $306,106 $ 37,568
Pizza Hut 184,765 -
TGI Friday's 129,775 -
Denny's 109,270 18,977
Boston Market 108,111 3,265
Kenny Rogers' Roasters 52,754 29,387
Jack in the Box 41,115 33,591
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.
12. Commitments:
-----------
The Company has entered into various development agreements with tenants
which provide terms and specifications for the construction of buildings
the tenants have agreed to lease once construction is completed. The
agreements provide a maximum amount of development costs (including the
purchase price of the land and closing costs) to be paid by the Company.
The aggregate maximum development costs the Company has agreed to pay is
approximately $12,162,800, of which approximately $6,976,000 in land and
other costs had been incurred as of September 30, 1996. The buildings
currently under construction are expected to be operational by February
1997. In connection with the purchase of each Property, the Company, as
lessor, entered into a long-term, triple-net lease agreement.
In August 1996, the Company entered into a temporary Secured Equipment
Lease, as lessor, with an operator of a family-style restaurant. In
connection therewith, the Company provided initial funding of $102,570
for the equipment. The Company has agreed to fund the remaining balance
of the equipment purchase price of approximately $191,000. Upon funding
the balance, which is expected to occur in December 1996, the Company
will enter into a final Secured Equipment Lease. Until a final Secured
Equipment Lease is entered into, the tenant will pay monthly rent in
accordance with the temporary lease.
13. Subsequent Events:
-----------------
During the period October 1, 1996 through November 5, 1996, the Company
received subscription proceeds for an additional 1,315,769 shares
($13,157,688) of common stock.
Subsequent to September 30, 1996, the Company declared distributions of
$615,914 and $683,758, respectively, or $.059375 per share of common
stock, payable in December 1996, to stockholders of record on October 1,
1996 and November 1, 1996, respectively.
During the period October 1, 1996 through November 5, 1996, the Company
acquired two Properties (both of which are undeveloped land on which
restaurants are being constructed) for cash at a total cost of
approximately $940,934, excluding closing and development costs. The
development costs (including the purchase of the land and closing costs)
to be paid by the Company relating to the two properties under
construction are estimated to be approximately $2,253,000. The
buildings under construction are expected to be operational by February
1997. In connection with the purchase of each Property, the Company, as
lessor, entered into a long-term, triple-net lease agreement.
On November 1, 1996, the Company filed a registration statement with the
Securities and Exchange Commission in connection with the proposed sale
by the Company of up to 27,500,000 shares of common stock in a public
offering (the "Subsequent Offering") expected to commence immediately
following the termination of the Company's current $150,000,000
offering. Until such time, if any, as the stockholders approve an
increase in the number of authorized shares of Common Stock of the
Company, the subsequent offering will be limited to 4,800,000 shares.
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 a loan, in an amount up
to 10% of gross proceeds from the Company's current $150,000,000 offering.
As of September 30, 1996, the Company owned 82 Properties (including one
Property through a joint venture arrangement consisting of land and building,
42 consisting of land and building, six 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 82 Properties, ten were under construction at September
30, 1996. In addition, as of September 30, 1996, the Company had entered into
five secured equipment leases.
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Company believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, the Company's actual results could differ materially from those
set forth in the forward-looking statements. Certain factors that might cause
such a difference include the following: changes in general economic
conditions, changes in local real estate conditions, continued availability of
proceeds from the Company's current $150,000,000 offering, the ability of the
Company to locate suitable tenants for its Properties and borrowers for its
mortgage loans, and the ability of tenants and borrowers to make payments
under their respective leases or mortgage loans.
Liquidity and Capital Resources
- -------------------------------
In April 1995, the Company commenced an offering of its shares of common
stock. As of September 30, 1996, the Company had received subscription
proceeds of $102,960,892 (10,296,089 shares) from the offering, including
$391,348 (39,135 shares) through the reinvestment plan.
As of September 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 reimbursement fees and organizational and offering expenses,
totalled $90,224,022. As of September 30, 1996, approximately $80,872,000 had
been used to invest, or committed for investment, in 82 Properties (ten 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 $4,633,240 and certain acquisition expenses. During the nine months
ended September 30, 1996, the Company acquired three Properties from
affiliates, for purchase prices totalling approximately $2,358,000. 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 September 30, 1996, the Company had obtained advances totalling
$2,417,572 relating to the Loan. The proceeds were used to fund Secured
Equipment Leases at an aggregate cost of approximately $2,364,000 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 its current $150,000,000 offering.
During the quarter ended September 30, 1996, the Company entered into
interest rate swap agreements to reduce the impact of changes in interest
rates on its floating rate long-term debt. At September 30, 1996, the Company
had outstanding two interest rate swap agreements with a commercial bank,
having a total notional amount of approximately $2,206,000. Those agreements
effectively change the Company's interest rate exposure on approximately
$1,641,000 of the outstanding floating rate notes to a fixed nine percent per
annum and approximately $565,000 of the outstanding floating rate notes to a
fixed rate of 8.75% per annum. The Company is exposed to credit loss in the
event of nonperformance by the other party to the interest rate swap
agreements. However, the Company does not anticipate nonperformance by the
counterparty.
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 $12,162,800,
of which approximately $6,976,000 in land and other costs had been incurred as
of September 30, 1996. The buildings under construction as of September 30,
1996, are expected to be operational by February 1997. In connection with the
purchase of each Property, the Company, as lessor, entered into a long-term,
triple-net lease agreement.
During the period October 1, 1996 through November 5, 1996, the Company
acquired two additional Properties (both Properties consisting of undeveloped
land on which restaurants are being constructed) for cash at a total cost of
approximately $940,934, 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 two Properties under construction are
estimated to be approximately $2,253,000. The buildings under construction
are expected to be operational by February 1997.
The Company presently is negotiating to acquire additional Properties,
but as of November 5, 1996, had not acquired any such Properties.
On November 1, 1996, the Company filed a registration statement with the
Securities and Exchange Commission in connection with the proposed sale by the
Company of up to 27,500,000 shares of common stock in a public offering (the
"Subsequent Offering") expected to commence immediately following the
termination of the Company's current $150,000,000 offering. Of the 27,500,000
shares of common stock to be offered, 2,500,000 will be available only to
stockholders purchasing through the reinvestment plan. Until such time, if
any, as the stockholders approve an increase in the number of authorized
shares of common stock of the Company, the subsequent offering will be limited
to 4,800,000 shares. The Board of Directors expects to submit, for a vote of
the stockholders at a meeting expected to be held in March of 1997, a
resolution to increase the number of authorized shares of common stock of the
Company from 20,000,000 to 75,000,000. The price per share and the other
terms of the Subsequent Offering, including the percentage of gross proceeds
payable to the managing dealer for selling commissions and expenses in
connection with the offering, payable to the Advisor for acquisition fees and
acquisition expenses and reimbursable to the Advisor for organizational and
offering expenses, will be the same as those for the Company's current
offering. Net proceeds from the Subsequent Offering will be invested in
additional Properties and mortgage loans. Management believes that the
increase in the amount of assets of the Company that will result from the
Subsequent Offering will also increase the diversification of the Company's
assets and the likelihood of listing the Company's shares of common stock on a
national securities exchange or over-the-counter market ("Listing"), although
there is no assurance that Listing will occur.
As of November 5, 1996, the Company had received subscription proceeds
of $116,118,580 (11,611,858 shares), including $391,348 (39,135 shares) issued
pursuant to the reinvestment plan and after deduction of selling commissions,
marketing support and due diligence expense reimbursement fees and
organizational and offering expenses, net proceeds to the Company totalled
approximately $102,000,000. As of November 5, 1996, the Company had invested,
or committed for investment, approximately $81,128,000 of such net proceeds in
84 Properties, in providing mortgage financing to the tenants of the 33
Properties consisting of land only through mortgage loans, and in paying
acquisition fees to the Advisor totalling $5,225,336 and certain acquisition
expenses, leaving approximately $21,000,000 in net offering proceeds available
for investment in Properties and mortgage loans.
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
September 30, 1996, the Company had $22,256,995 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 nine months ended September 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 nine months ended September 30, 1996 and 1995, affiliates of
the Company incurred on behalf of the Company $615,600 and $1,974,281,
respectively, for certain organizational and offering expenses. In addition,
during the nine months ended September 30, 1996 and 1995, affiliates of the
Company incurred on behalf of the Company $136,341 and $75,501 for certain
acquisition expenses and $208,156 and $22,930 for certain operating expenses.
As of September 30, 1996, the Company owed the Advisor $236,463 for such
amounts, accounting and administrative expenses and acquisition fees. As of
November 5, 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 increased to $7,944,717 at September 30, 1996, from $1,256,486 at
December 31, 1995, primarily as a result of the accrual of construction costs
incurred and unpaid as of September 30, 1996.
During the nine months ended September 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
$3,244,519 and $124,187, respectively. Based on current and anticipated
future cash from operations, the Company declared distributions to the
stockholders of $3,403,427 and $187,684 during the nine months ended
September 30, 1996 and 1995, respectively, ($1,534,940 and $172,536 for the
quarters ended September 30, 1996 and 1995, respectively). On October 1, 1996
and November 1, 1996, the Company declared distributions to its stockholders
totalling $615,914 and $683,758, respectively, payable in December 1996. For
the nine months ended September 30, 1996, approximately 89 percent of the
distributions received by stockholders were considered to be ordinary income
and 11 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 November 5, 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. In addition, the Advisor has 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, and the fact that as of
November 5, 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 September 30, 1996, the Company and its consolidated joint venture
had purchased 82 Properties, including one which is owned through a joint
venture consisting of land and building, 42 Properties consisting of land and
building, six 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 $75,800 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 nine months ended September 30, 1996 and 1995, the Company
and its consolidated joint venture, CNL/Corral South Joint Venture, earned
$2,667,866 and $122,787, respectively, in rental income from operating leases
and earned income from the direct financing leases from 72 and 14 Properties,
respectively ($963,681 and $122,418 of which was earned during the quarters
ended September 30, 1996 and 1995, respectively). 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 nine months ended September 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 nine months ended September 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 $796,378 in interest income relating to such mortgage loans
during the nine months ended September 30, 1996, $330,880 of which was earned
during the quarter ended September 30, 1996.
During the quarter ended September 30, 1996, five lessees, or groups of
affiliated lessees of the Company, Golden Corral Corporation, Castle Hill
Holdings V, L.L.C. and Castle Hill Holdings VI, L.L.C. (hereinafter referred
to as Castle Hill), DenAmerica Corporation, TGI Friday's, Inc. and Corral
Northeast, Inc., 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, Castle Hill is the lessee under leases relating to 33
restaurants, DenAmerica Corporation is the lessee under leases relating to
five restaurants, Briad Restaurant Group, Inc. is the lessee under a lease
relating to four restaurants and two secured equipment leases and Corral
Northeast, Inc. is the lessee under leases relating two restaurants. During
the quarter ended September 30, 1996, the Company also earned $330,880 in
interest income from mortgage notes receivable under which Castle Hill is the
borrower. In addition, five restaurant chains, Golden Corral Family
Steakhouse, Pizza Hut, TGI Friday's, Denny's and Boston Market each accounted
for more than ten percent of the Company's total rental income during the
quarter ended September 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, Pizza Hut and Boston Market, each of which the
Company anticipates will contribute more than ten percent of the Company's
income during the remainder of 1996. 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 nine months ended September 30, 1996 and 1995, the Company
also earned $419,470 and $42,117, respectively, in interest income from
investments in money market accounts or other short-term, highly liquid
investments and other income, $207,681 and $34,289 of which was earned during
the quarters ended September 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 $1,104,368 and $78,564 for the nine months ended September 30, 1996 and
1995, respectively, of which $434,261 and $74,822 were incurred during the
quarters ended September 30, 1996 and 1995, respectively. Operating expenses
increased during the quarter and nine months ended September 30, 1996, as
compared to the quarter and nine months ended September 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, asset
management fees and 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.
---------------------------------------------------
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 July 3, 1996 and July 24,
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 13th day of November, 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)
