PURSUANT TO RULE 424(B)(3)
FILE NUMBER 333-15411
CNL AMERICAN PROPERTIES FUND, INC.
Supplement No. 1, dated March 17, 1997
to Prospectus, dated January 31, 1997
This Supplement is part of, and should be read in conjunction with, the
Prospectus dated January 31, 1997. This Supplement replaces all prior
supplements to the Prospectus. Capitalized terms used in this Supplement have
the same meaning as in the Prospectus unless otherwise stated herein.
Information as to proposed properties for which the Company has
received initial commitments and as to the number and types of Properties
acquired by the Company is presented as of March 6, 1997, and all references to
commitments or Property acquisitions and to the attached pro forma information
should be read in that context. Proposed properties for which the Company
receives initial commitments, as well as property acquisitions that occur after
March 6, 1997, will be reported in a subsequent Supplement.
THE OFFERING
Following the completion of its Initial Offering on February 6, 1997,
the Company commenced this offering of up to 27,500,000 Shares. As of March 6,
1997, the Company had received aggregate subscription proceeds of $14,243,060
(1,424,306 Shares) from 649 stockholders. Net proceeds to the Company after
deduction of Selling Commissions, Marketing Support and Due Diligence Expense
Reimbursement Fees and Offering Expenses totalled approximately $12,600,000. As
of March 6, 1997, $640,938 of such amount had been incurred in Acquisition Fees
to the Advisor and the balance was available for investment in Properties and
Mortgage Loans.
As of the completion of its Initial Offering, the Company had received
subscription proceeds of $150,591,765 (15,059,177 shares), including $591,765
(59,177 shares) issued pursuant to the Reinvestment Plan and after deduction of
selling commissions, marketing support and due diligence expense reimbursement
fees and offering expenses, net proceeds to the Company from its Initial
Offering totalled approximately $134,000,000. As of March 6, 1997, the Company
had invested or committed for investment approximately $111,200,000 of net
proceeds from the Initial Offering in 110 Properties, in providing mortgage
financing to the tenants of the 35 Properties consisting of land only through
Mortgage Loans, and in paying acquisition fees to the Advisor totalling
$6,776,629 and certain acquisition expenses, leaving approximately $22,900,000
in net offering proceeds from the Initial Offering available for investment in
Properties and Mortgage Loans. The Company expects to use such amount and Net
Offering
<PAGE>
Proceeds from this offering to purchase additional Properties, to fund
construction costs relating to the Properties under construction, and to make
Mortgage Loans.
MANAGEMENT COMPENSATION
For information concerning compensation and fees paid to the Advisor
and its Affiliates since the date of inception of the Company, see"Certain
Transactions."
As of March 6, 1997, CNL Income Fund XVIII, Ltd. and CNL Income & Growth
Fund VIII, Ltd. had approximately $4,100,000 and $4,448,000, respectively,
available for investment.
BUSINESS
GENERAL
The Company purchases existing fast-food, family-style, and casual
dining restaurant Properties, including land and buildings, as well as
Properties upon which such restaurants are to be constructed, the land
underlying the restaurant building with the building owned by the tenant or a
third party, and the building only with the land owned by a third party. The
Company also provides financing (the "Mortgage Loans") for the purchase of
buildings, generally by tenants that lease the underlying land from the Company.
To a lesser extent, the Company offers furniture, fixture and equipment
("Equipment") financing to operators of Restaurant Chains pursuant to which the
Company will finance, through direct financing leases, the Equipment
(collectively, the "Secured Equipment Leases.")
As of March 6, 1997, the Company owned 110 Properties. It is
anticipated that the Company will acquire a total of 400 to 450 Properties if
the maximum number of Shares is sold in this offering (including 260 to 300
Properties to be acquired with the proceeds of this offering and 30 to 40
additional Properties to be acquired with the proceeds of the initial offering).
The Properties, which typically are freestanding and are located across
the United States, are leased on a "triple-net" basis to operators of the
Restaurant Chains selected by the Advisor and approved by the Board of
Directors. Each Property acquisition and Mortgage Loan commitment by the Company
is subject to the approval of the Board of Directors. Properties purchased by
the Company are leased under arrangements requiring base annual rent equal to a
specified percentage of the Company's cost of purchasing a particular Property,
with automatic rent increases, and/or percentage rent based on gross sales. See
"Description of Leases -- Computation of Lease Payments," below.
The Company invests in Properties of selected Restaurant Chains that
are national and regional restaurant chains, primarily fast-food, family-style,
and casual dining chains. Fast-food restaurants feature quality food and quick
service, which often includes drive-through service, and offer a variety of menu
items such as hamburgers, steaks, seafood, chili, pizza, pasta dishes, chicken,
hot and cold sandwiches, and salads. Family-style restaurants feature services
that generally are associated with full-service restaurants, such as full table
service and cooked-to-order food, but at more moderate prices. The casual dining
(or dinner house) concept features a variety of popular contemporary foods, full
table service, moderate prices, and surroundings that are appealing to families.
The casual dining segment of the restaurant industry, like the family-style
segment, features services that generally are associated with the full-service
restaurant category. According to forecasts appearing in the January 1, 1997
issue of Restaurants and Institutions, it is projected that the casual dining
segment of full-service restaurants sales will experience 3.8% real growth in
sales this year, with sales predicted to reach $49 billion. The top 15 casual
dining chains by sales have a total of 2,977 restaurants throughout the United
States.
The restaurant industry is one of the largest industries in the United
States in volume of sales and number of employees (more than 9 million persons)
and includes fast-food outlets, cafeterias, lunchrooms, convenience stores,
family-style restaurants, casual dining facilities, full-service restaurants,
and contract and industrial feeders. By the
-3-
<PAGE>
year 2000, food service sales are expected to exceed $392 billion. Industry
publications project that restaurant industry sales will increase from $173.7
billion in 1985 to $320 billion in 1997. Restaurant industry sales for 1996 are
projected to be $307.6 billion. In 1996, nominal growth, which is comprised of
real growth and inflationary growth, was 4.6% and is estimated to be 4.2% in
1997. Real growth of the restaurant industry in 1996 was 1.7%, and industry
analysts currently estimate that the restaurant industry will achieve 1.4% real
growth in 1997; however, according to the National Restaurant Association,
fast-food restaurants should outpace the industry average for real growth, with
a projected 2.5% increase over 1996. Sales in this segment of the restaurant
industry are projected to be $103.5 billion for 1997.
The Company invests in the fast-food, family-style, and casual dining
segments of the restaurant industry, the most rapidly growing segments in recent
years. According to the National Restaurant Association, 51% of adults eat at a
quick-service restaurant and 42% of adults patronize a moderately-priced family
restaurant at least once each week. In addition, the National Restaurant
Association indicates that Americans spend approximately 43 cents of every food
dollar on dining away from home. Surveys published in Restaurant Business
indicate that families with children choose quick-service restaurants four out
of every five times they dine out. Additionally, according to The Wall Street
Journal (May 11, 1992), the average American spends $19,791 on fast-food in a
lifetime. Further, according to Nation's Restaurant News, the 100 largest
restaurant chains are posting an average of 7.2% growth in their systemwide
sales figures for 1995. Casual-theme dining concepts are among the chains
showing the strongest growth. In 1995, the sandwich segment experienced sales
growth of 6.98% over 1994 figures, and, the casual dining segment experienced
systemwide sales growth in 1995 of 12.99%, compared to 14.6% in 1994. Management
believes that the Company will have the opportunity to participate in this
growth through the ownership of Properties leased to operators of the Restaurant
Chains.
The fast-food, family-style and casual dining segments of the
restaurant industry have demonstrated their ability to adapt to changes in
consumer preferences, such as health and dietary issues, decreases in the
disposable income of consumers and environmental awareness, through various
innovative techniques, including special value pricing and promotions, increased
advertising, menu changes featuring low-calorie, low-cholesterol menu items, and
new packaging and energy conservation techniques.
COMPLETED INVESTMENTS
As of March 6, 1997, the Company had invested or committed for
investment approximately $111,100,000 of the net proceeds from the Initial
Offering in 110 Properties (68 Properties which consist of land and building, 35
Properties which consist of land only and seven Properties which consist of
building only), in Mortgage Loans to the tenants of the 35 Properties consisting
of land only and to pay related Acquisition Fees and Acquisition Expense. See
"Certain Transactions." All of the Properties are owned directly by the Company,
except for one Property which is owned through a joint venture arrangement. All
of the Properties were acquired since the Company commenced operations on June
1, 1995 and have leases expiring from 12 to 20 years after the date on which
each lease commenced.
-4-
<PAGE>
The following tables set forth the number of Properties by Restaurant
Chain and by state owned by the Company as of March 6, 1997:
Restaurant Number of Properties
---------- --------------------
Applebee's 2
Arby's 2
Black-eyed Pea 1
Boston Market 14
Burger King 8
Denny's 5
Golden Corral 16
Jack in the Box 16
Kenny Rogers Roasters 1
Pizza Hut 35
Ryan's Family Steak House 1
Shoney's 1
TGI Friday's 4
Wendy's 4
----
Total 110
====
State Number of Properties
------ --------------------
California 13
Connecticut 2
Delaware 1
Florida 5
Georgia 1
Idaho 1
Illinois 4
Indiana 3
Iowa 1
Kentucky 2
Michigan 5
Minnesota 2
Missouri 4
Nebraska 1
Nevada 1
New Jersey 2
New Mexico 1
Ohio 27
Oklahoma 1
Oregon 1
Tennessee 6
Texas 16
Washington 1
West Virginia 9
----
Total 110
====
PROPERTY ACQUISITIONS
Between January 1, 1997 and March 6, 1997, the Company acquired 16
Properties (14 of which are under construction and consist of land and building
and two Properties which consist of land building). The Properties are ten Jack
in the Box Properties (one in each of Las Vegas, Nevada; Humble and Houston,
Texas; Moscow, Idaho; Kent, Washington; and Los Angeles, Hollister, Kingsburg,
Murrieta and Palmdale, California), a Shoney's Property (in Indian Harbour
Beach, Florida), two Burger King Properties (in Kent, Ohio; and Chattanooga,
Tennessee), two Golden Corral Properties (one in each of Winchester and
Hopkinsville, Kentucky) and a Denny's Property (in Tampa, Florida).
The Burger King Property in Kent, Ohio, and the Golden Corral Property
in Hopkinsville, Kentucky, were acquired from Affiliates of the Company. The
Affiliates had purchased and temporarily held title to these Properties in order
to facilitate their acquisition by the Company. The Properties were acquired by
the Company for an aggregate purchase price of $1,768,185, representing the cost
of the Properties to the Affiliates (including carrying costs) due to the fact
that these amounts were less than each Property's appraised value.
In connection with the purchase of these 16 Properties, the Company, as
lessor entered into long-term lease agreements with unaffiliated lessees. The
general terms of the lease agreements are described in "Business Description of
Property Leases." For the Properties that are to be constructed or renovated,
the Company has entered into development and indemnification and put agreements
with the lessees. The general terms of these agreements are described in
"Business - Site Selection and Acquisition of Properties - Construction and
Renovation."
The purchase prices for the Burger King Property in Chattanooga,
Tennessee, and the Golden Corral Property in Hopkinsville, Kentucky, include
development fees of $100,000 and $29,379, respectively, to an Affiliate of the
Advisor for services provided in connection with the development of the
Properties. The Company considers development fees, to the extent that they are
paid to Affiliates, to be Acquisition Fees. Such development fees must be
approved by a majority of the Directors (including a majority of the Independent
Directors) not otherwise interested in such transactions, subject to a
determination that such transactions are fair and reasonable to the Company and
on terms and conditions not less favorable to the Company than those available
from unaffiliated third parties and not less favorable than those available from
the Advisor or its Affiliates in transactions with unaffiliated third parties.
See "Management Compensation" and "Business - Site Selection and Acquisition of
Properties."
The following table sets forth the location of the 16 Properties
consisting of land and building, acquired by the Company, from January 1, 1997
through March 6, 1997, a description of the competition, and a summary of the
principal terms of the acquisition and lease of each Property.
-6-
<PAGE>
PROPERTY ACQUISITIONS
From January 1, 1997 through March 6, 1997
<TABLE>
<CAPTION>
Lease Expira-
Purchase Date tion and
Property Location and Competition Price (1) Acquired Renewal Options
- --------------------------------- --------- -------- ---------------
<S> <C>
Jack in the Box (7) $1,397,771 01/07/97 01/2015; four
(the "Los Angeles Property") (excluding five-year renewal
Restaurant to be constructed closing options
costs) (3)(6)
The Los Angeles Property is located at the
northwest corner of the intersection of
Wilshire Boulevard and Sycamore Avenue, in
Los Angeles, Los Angeles County,
California, in an area of mixed retail,
commercial, and residential development.
Other fast-food and family-style
restaurants located in proximity to the Los
Angeles Property include several
McDonald's, a KFC, several Burger Kings, a
Numero Uno Pizza, a Subway Sandwich Shop,
an El Pollo Loco, a Denny's, a Pizza Hut, a
Taco Bell, and several local restaurants.
Jack in the Box (7) $1,248,333 01/07/97 01/2015; four
(the "Las Vegas Property") (excluding five-year renewal
Restaurant to be constructed closing options
costs) (3)(6)
The Las Vegas Property is located at the
northeast corner of the intersection of
Sunset Road and Pecos Road, in Las Vegas,
Clark County, Nevada, in an area of mixed
retail, commercial, and residential
development. Other fast-food and family-
style restaurants located in proximity to
the Las Vegas Property include an Arby's, a
Burger King, a KFC, two Del Tacos, a
McDonald's, a Subway Sandwich Shop, an
Olive Garden, an Outback Steakhouse, two
Taco Bells, a Wendy's, a Dairy Queen, and
several local restaurants.
</TABLE>
<TABLE>
<CAPTION>
Minimum Option
Property Location and Competition Annual Rent (2) Percentage Rent To Purchase
- --------------------------------- --------------- --------------- -----------
<S> <C>
Jack in the Box (7) $143,272 (6); for each lease year, None
(the "Los Angeles Property") increases by 8% after (i) 5% of annual
Restaurant to be constructed the fifth lease year gross sales minus
and after every five (ii) the minimum
The Los Angeles Property is located at the years thereafter annual rent for such
northwest corner of the intersection of during the lease term lease year (5)
Wilshire Boulevard and Sycamore Avenue, in
Los Angeles, Los Angeles County,
California, in an area of mixed retail,
commercial, and residential development.
Other fast-food and family-style
restaurants located in proximity to the Los
Angeles Property include several
McDonald's, a KFC, several Burger Kings, a
Numero Uno Pizza, a Subway Sandwich Shop,
an El Pollo Loco, a Denny's, a Pizza Hut, a
Taco Bell, and several local restaurants.
Jack in the Box (7) $127,954 (6); for each lease year, None
(the "Las Vegas Property") increases by 8% after (i) 5% of annual
Restaurant to be constructed the fifth lease year gross sales minus
and after every five (ii) the minimum
The Las Vegas Property is located at the years thereafter annual rent for such
northeast corner of the intersection of during the lease term lease year (5)
Sunset Road and Pecos Road, in Las Vegas,
Clark County, Nevada, in an area of mixed
retail, commercial, and residential
development. Other fast-food and family-
style restaurants located in proximity to
the Las Vegas Property include an Arby's, a
Burger King, a KFC, two Del Tacos, a
McDonald's, a Subway Sandwich Shop, an
Olive Garden, an Outback Steakhouse, two
Taco Bells, a Wendy's, a Dairy Queen, and
several local restaurants.
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Lease Expira-
Purchase Date tion and
Property Location and Competition Price (1) Acquired Renewal Options
- --------------------------------- --------- -------- ---------------
<S> <C>
Jack in the Box (7) $910,814 01/22/97 01/2015; four
(the "Moscow Property") (excluding five-year renewal
Restaurant to be constructed closing options
costs) (3)(6)
The Moscow Property is located on the north
side of West Pullman Road and the south
side of A Street in Moscow, Latah County,
Idaho, in an area of mixed retail,
commercial, and residential development.
Other fast-food and family-style
restaurants located in proximity to the
Moscow Property include an Arby's, a
McDonald's, and several local restaurants.
Jack in the Box (7) $1,259,871 01/22/97 01/2015; four
(the "Kent "1 Property") (excluding five-year renewal
Restaurant to be constructed closing options
costs) (3)(6)
The Kent #1 Property is located at the
southeast corner of the intersection of
Southeast 272nd Street and Southeast 168th
Place, in Kent, King County, Washington, in
an area of mixed retail, commercial, and
residential development. Other fast-food
and family-style restaurants located in
proximity to the Kent #1 Property include a
KFC/Taco Bell, a Dairy Queen, an Arby's, a
Burger King, and a local restaurant.
</TABLE>
<TABLE>
<CAPTION>
Minimum Option
Property Location and Competition Annual Rent (2) Percentage Rent To Purchase
- --------------------------------- --------------- --------------- -----------
<S> <C>
Jack in the Box (7) $93,358 (6); increases for each lease year, at any time after
(the "Moscow Property") by 8% after the fifth (i) 5% of annual the seventh lease
Restaurant to be constructed lease year and after gross sales minus year
every five years (ii) the minimum
The Moscow Property is located on the north thereafter during the annual rent for such
side of West Pullman Road and the south lease term lease year (5)
side of A Street in Moscow, Latah County,
Idaho, in an area of mixed retail,
commercial, and residential development.
Other fast-food and family-style
restaurants located in proximity to the
Moscow Property include an Arby's, a
McDonald's, and several local restaurants.
Jack in the Box (7) $129,137 (6); for each lease year, at any time after
(the "Kent "1 Property") increases by 8% after (i) 5% of annual the seventh lease
Restaurant to be constructed the fifth lease year gross sales minus year
and after every five (ii) the minimum
The Kent #1 Property is located at the years thereafter annual rent for such
southeast corner of the intersection of during the lease term lease year (5)
Southeast 272nd Street and Southeast 168th
Place, in Kent, King County, Washington, in
an area of mixed retail, commercial, and
residential development. Other fast-food
and family-style restaurants located in
proximity to the Kent #1 Property include a
KFC/Taco Bell, a Dairy Queen, an Arby's, a
Burger King, and a local restaurant.
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Lease Expira-
Purchase Date tion and
Property Location and Competition Price (1) Acquired Renewal Options
- --------------------------------- --------- -------- ---------------
<S> <C>
Jack in the Box (7) $1,061,819 01/22/97 01/2015; four
(the "Hollister Property") (excluding five-year renewal
Restaurant to be constructed closing options
costs) (3)(6)
The Hollister Property is located at the
northeast corner of the intersection of
McCray Street and Meridian Street, in
Hollister, San Benito County, California,
in an area of mixed retail, commercial, and
residential development. Other fast-food
and family-style restaurants located in
proximity to the Hollister Property include
a Burger King, a McDonald's, and a local
restaurant.
Jack in the Box (7) $1,001,073 01/22/97 01/2015; four
(the "Kingsburg Property") (excluding five-year renewal
Restaurant to be constructed closing options
costs) (3)(6)
The Kingsburg Property is located at the
southwest quadrant of the intersection of
Sierra Street and Sixth Street, in
Kingsburg, Fresno County, California, in an
area of mixed retail, commercial, and
residential development. Other fast-food
and family-style restaurants located in
proximity to the Kingsburg Property include
a McDonald's, a Taco Bell, a Denny's, a
Burger King, a Subway Sandwich Shop, and
several local restaurants.
</TABLE>
<TABLE>
<CAPTION>
Minimum Option
Property Location and Competition Annual Rent (2) Percentage Rent To Purchase
- --------------------------------- --------------- --------------- -----------
<S> <C>
Jack in the Box (7) $108,836 (6); for each lease year, at any time after
(the "Hollister Property") increases by 8% after (i) 5% of annual the seventh lease
Restaurant to be constructed the fifth lease year gross sales minus year
and after every five (ii) the minimum
The Hollister Property is located at the years thereafter annual rent for such
northeast corner of the intersection of during the lease term lease year (5)
McCray Street and Meridian Street, in
Hollister, San Benito County, California,
in an area of mixed retail, commercial, and
residential development. Other fast-food
and family-style restaurants located in
proximity to the Hollister Property include
a Burger King, a McDonald's, and a local
restaurant.
Jack in the Box (7) $102,610 (6); for each lease year, at any time after
(the "Kingsburg Property") increases by 8% after (i) 5% of annual the seventh lease
Restaurant to be constructed the fifth lease year gross sales minus year
and after every five (ii) the minimum
The Kingsburg Property is located at the years thereafter annual rent for such
southwest quadrant of the intersection of during the lease term lease year (5)
Sierra Street and Sixth Street, in
Kingsburg, Fresno County, California, in an
area of mixed retail, commercial, and
residential development. Other fast-food
and family-style restaurants located in
proximity to the Kingsburg Property include
a McDonald's, a Taco Bell, a Denny's, a
Burger King, a Subway Sandwich Shop, and
several local restaurants.
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Lease Expira-
Purchase Date tion and
Property Location and Competition Price (1) Acquired Renewal Options
- --------------------------------- --------- -------- ---------------
<S> <C>
Shoney's $563,040 01/24/97 01/2017; two
(the "Indian Harbour Beach Property") (excluding five-year renewal
Restaurant to be constructed closing and options
development
The Indian Harbour Beach Property is costs) (3)
located within the northeast quadrant of
South Patrick Drive and Eau Gallie
Boulevard, in Indian Harbour Beach, Brevard
County, Florida, in an area of mixed
retail, commercial, and residential
development. Other fast-food and family-
style restaurants located in proximity to
the Indian Harbour Beach Property include a
Wendy's, a Krystal, a Miami Subs, a
McDonald's, an Italian Oven, a Friendly's,
and several local restaurants.
Jack in the Box (7) $952,485 01/31/97 01/2015; four
(the "Murrieta Property") (excluding five-year renewal
Restaurant to be constructed closing options
costs) (3)(6)
The Murrieta Property is located within the
southeast quadrant of Madison Avenue and
Kalmia Street, in Murrieta, Riverside
County, California, in an area of mixed
retail, commercial, and residential
development. Other fast-food and family-
style restaurants located in proximity to
the Murrieta Property include a KFC and a
McDonald's.
Jack in the Box (7) $296,034 02/03/97 02/2015; four
(the "Humble Property") (excluding five-year renewal
Restaurant to be constructed closing and options
development
The Humble Property is located on the north costs) (3)
side of Beltway 8 east of Old Humble Road,
in Houston, Harris County, Texas, in an
area of mixed retail, commercial, and
residential development.
</TABLE>
<TABLE>
<CAPTION>
Minimum Option
Property Location and Competition Annual Rent (2) Percentage Rent To Purchase
- --------------------------------- --------------- --------------- -----------
<S> <C>
Shoney's 11% of Total Cost (4); for each lease year, at any time after
(the "Indian Harbour Beach Property") increases by 10% after 6% of the amount by the seventh lease
Restaurant to be constructed the fifth lease year which annual gross year
and after every five sales exceed
The Indian Harbour Beach Property is years thereafter $1,500,000, but are
located within the northeast quadrant of during the lease term less than or equal to
South Patrick Drive and Eau Gallie $1,750,000, plus 4%
Boulevard, in Indian Harbour Beach, Brevard of the amount by
County, Florida, in an area of mixed which annual gross
retail, commercial, and residential sales exceed
development. Other fast-food and family- $1,750,000
style restaurants located in proximity to
the Indian Harbour Beach Property include a
Wendy's, a Krystal, a Miami Subs, a
McDonald's, an Italian Oven, a Friendly's,
and several local restaurants.
Jack in the Box (7) $97,630 (6); increases for each lease year, at any time after
(the "Murrieta Property") by 8% after the fifth (i) 5% of annual the seventh lease
Restaurant to be constructed lease year and after gross sales minus year
every five years (ii) the minimum
The Murrieta Property is located within the thereafter during the annual rent for such
southeast quadrant of Madison Avenue and lease term lease year (5)
Kalmia Street, in Murrieta, Riverside
County, California, in an area of mixed
retail, commercial, and residential
development. Other fast-food and family-
style restaurants located in proximity to
the Murrieta Property include a KFC and a
McDonald's.
Jack in the Box (7) 10.75% of Total Cost for each lease year, None
(the "Humble Property") (4); increases by 8% (i) 5% of annual
Restaurant to be constructed after the fifth lease gross sales minus
year and after every (ii) the minimum
The Humble Property is located on the north five years thereafter annual rent for such
side of Beltway 8 east of Old Humble Road, during the lease term lease year (5)
in Houston, Harris County, Texas, in an
area of mixed retail, commercial, and
residential development.
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
Lease Expira-
Purchase Date tion and
Property Location and Competition Price (1) Acquired Renewal Options
- --------------------------------- --------- -------- ---------------
<S> <C>
Golden Corral $302,363 02/03/97 02/2012; four
(the "Winchester Property") (excluding five-year renewal
Restaurant to be constructed closing and options
development
The Winchester Property is located on the costs) (3)
west side of the Winchester Bypass, in
Winchester, Clark County, Kentucky, in an
area of mixed, retail, commercial, and
residential development. Other fast-food
and family-style restaurants located in
proximity to the Winchester Property
include a Sonic Drive-In, a Papa John's,
and several local restaurants.
Burger King $872,861 02/03/97 02/2017; four
(the "Kent #2 Property") (excluding five-year renewal
Existing restaurant closing options
costs)
The Kent #2 Property is located on the east
side of South Water Street, in Kent,
Portage County, Ohio, in an area of mixed
retail, commercial, and residential
development. Other fast-food and family-
style restaurants located in proximity to
the Kent #2 Property include a Wendy's, a
Papa John's, two McDonald's, a Dairy Queen,
and a local restaurant.
</TABLE>
<TABLE>
<CAPTION>
Minimum Option
Property Location and Competition Annual Rent (2) Percentage Rent To Purchase
- --------------------------------- --------------- --------------- -----------
<S> <C>
Golden Corral 10.75% of Total Cost for each lease year, during the first
(the "Winchester Property") (4) 5% of the amount by through seventh
Restaurant to be constructed which annual gross lease years and
sales exceed the tenth through
The Winchester Property is located on the $2,161,048 (5) fifteenth lease
west side of the Winchester Bypass, in years only
Winchester, Clark County, Kentucky, in an
area of mixed, retail, commercial, and
residential development. Other fast-food
and family-style restaurants located in
proximity to the Winchester Property
include a Sonic Drive-In, a Papa John's,
and several local restaurants.
Burger King $89,688; increases by for each lease year, during the
(the "Kent #2 Property") 5% after the fifth (i) 6% of annual eighth, ninth,
Existing restaurant lease year and by 10% gross sales minus tenth, eleventh
after the tenth lease (ii) the minimum and twelfth lease
The Kent #2 Property is located on the east year and after every annual rent for such years only
side of South Water Street, in Kent, five years thereafter lease year
Portage County, Ohio, in an area of mixed during the lease term
retail, commercial, and residential
development. Other fast-food and family-
style restaurants located in proximity to
the Kent #2 Property include a Wendy's, a
Papa John's, two McDonald's, a Dairy Queen,
and a local restaurant.
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Lease Expira-
Purchase Date tion and
Property Location and Competition Price (1) Acquired Renewal Options
- --------------------------------- --------- -------- ---------------
<S> <C>
Burger King $791,984 02/10/97 02/2017; two
(the "Chattanooga Property") (excluding five-year renewal
Restaurant to be renovated closing and options
development
The Chattanooga Property is located on the costs) (3)
southwest corner of Hamilton Place
Boulevard and Bams Drive, in Chattanooga,
Hamilton County, Tennessee, in an area of
mixed retail, commercial, and residential
development. Other fast-food and family-
style restaurants located in proximity to
the Chattanooga Property include a
Krystal's, an Arby's, a Taco Bell, an Olive
Garden, a Wendy's, a McDonald's, and
several local restaurants.
Denny's $1,038,037 02/11/97 02/2017; two
(the "Tampa Property") (excluding five-year renewal
Restaurant to be renovated closing options
costs) (3)(6)
The Tampa Property is located at the
southeast quadrant of the intersection of
U.S. Highway 301 and Interstate 4, in
Tampa, Hillsborough County, Florida, in an
area of mixed retail, commercial, and
residential development. Other fast-food
and family-style restaurants located in
proximity to the Tampa Property include a
Waffle House and a Subway Sandwich Shop.
</TABLE>
<TABLE>
<CAPTION>
Minimum Option
Property Location and Competition Annual Rent (2) Percentage Rent To Purchase
- --------------------------------- --------------- --------------- -----------
<S> <C>
Burger King 11% of Total Cost (4) for each lease year, None
(the "Chattanooga Property") (i) 8.5% of annual
Restaurant to be renovated gross sales minus
(ii) the minimum
The Chattanooga Property is located on the annual rent for such
southwest corner of Hamilton Place lease year
Boulevard and Bams Drive, in Chattanooga,
Hamilton County, Tennessee, in an area of
mixed retail, commercial, and residential
development. Other fast-food and family-
style restaurants located in proximity to
the Chattanooga Property include a
Krystal's, an Arby's, a Taco Bell, an Olive
Garden, a Wendy's, a McDonald's, and
several local restaurants.
Denny's $110,291 (6); for each lease year, during the
(the "Tampa Property") increases by 11% after (i) 5% of annual eighth, tenth,
Restaurant to be renovated the fifth lease year gross sales minus and twelfth lease
and after every five (ii) the minimum years only
The Tampa Property is located at the years thereafter annual rent for such
southeast quadrant of the intersection of during the lease term lease year
U.S. Highway 301 and Interstate 4, in
Tampa, Hillsborough County, Florida, in an
area of mixed retail, commercial, and
residential development. Other fast-food
and family-style restaurants located in
proximity to the Tampa Property include a
Waffle House and a Subway Sandwich Shop.
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Lease Expira-
Purchase Date tion and
Property Location and Competition Price (1) Acquired Renewal Options
- --------------------------------- --------- -------- ---------------
<S> <C>
Jack in the Box (7) $1,125,244 02/11/97 02/2015; four
(the "Palmdale Property") (excluding five-year renewal
Restaurant to be constructed closing options
costs) (3)(6)
The Palmdale Property is located at the
southeast corner of Avenue P and Antelope
Valley Freeway 14, in Palmdale, Los Angeles
County, California, in an area of mixed
retail, commercial, and residential
development. Other fast-food and family-
style restaurants located in proximity to
the Palmdale Property include a McDonald's,
a Taco Bell, an Applebee's, a Boston
Market, a Chili's, and several local
restaurants.
Jack in the Box (7) $861,735 02/11/97 02/2015; four
(the "Houston #3 Property") (excluding five-year renewal
Restaurant to be constructed closing options
costs) (3)(6)
The Houston #3 Property is located on the
northwest corner of Airport Boulevard and
Ruthby Street, in Houston, Harris County,
Texas, in an area of mixed retail,
commercial, and residential development.
Golden Corral $895,324 02/19/97 09/2016; two
(the "Hopkinsville Property") (excluding five-year renewal
Existing restaurant closing options
costs)
The Hopkinsville Property is located on the
west side of Clinic Drive within the
quadrant formed by nearby Pennyrile Parkway
and U.S. Route 41A, in Hopkinsville,
Christian County, Kentucky, in an area of
mixed retail, commercial, and residential
development. Other fast-food and family-
style restaurants located in proximity to
the Hopkinsville Property include several
local restaurants.
</TABLE>
<TABLE>
<CAPTION>
Minimum Option
Property Location and Competition Annual Rent (2) Percentage Rent To Purchase
- --------------------------------- --------------- --------------- -----------
<S> <C>
Jack in the Box (7) $115,337 (6); for each lease year, at any time after
(the "Palmdale Property") increases by 8% after (i) 5% of annual the seventh lease
Restaurant to be constructed the fifth lease year gross sales minus year
and after every five (ii) the minimum
The Palmdale Property is located at the years thereafter annual rent for such
southeast corner of Avenue P and Antelope during the lease term lease year (5)
Valley Freeway 14, in Palmdale, Los Angeles
County, California, in an area of mixed
retail, commercial, and residential
development. Other fast-food and family-
style restaurants located in proximity to
the Palmdale Property include a McDonald's,
a Taco Bell, an Applebee's, a Boston
Market, a Chili's, and several local
restaurants.
Jack in the Box (7) $88,328 (6); increases for each lease year, at any time after
(the "Houston #3 Property") by 8% after the fifth (i) 5% of annual the seventh lease
Restaurant to be constructed lease year and after gross sales minus year
every five years (ii) the minimum
The Houston #3 Property is located on the thereafter during the annual rent for such
northwest corner of Airport Boulevard and lease term lease year (5)
Ruthby Street, in Houston, Harris County,
Texas, in an area of mixed retail,
commercial, and residential development.
Golden Corral $141,912; increases by for each lease year, at any time after
(the "Hopkinsville Property") 12% after the fifth (i) 6% of annual the seventh lease
Existing restaurant lease year and after gross sales minus year
every five years (ii) the minimum
The Hopkinsville Property is located on the thereafter during the annual rent for such
west side of Clinic Drive within the lease term lease year
quadrant formed by nearby Pennyrile Parkway
and U.S. Route 41A, in Hopkinsville,
Christian County, Kentucky, in an area of
mixed retail, commercial, and residential
development. Other fast-food and family-
style restaurants located in proximity to
the Hopkinsville Property include several
local restaurants.
</TABLE>
-13-
<PAGE>
- --------------------
FOOTNOTES:
(1) The estimated federal income tax basis of the depreciable portion (the
building portion) of each of the Properties acquired, and for
construction Properties, once the buildings are constructed, is set
forth below:
Property Federal Tax Basis
-------- -----------------
Los Angeles Property $567,000
Las Vegas Property 592,000
Moscow Property 744,000
Kent #1 Property 596,000
Hollister Property 586,000
Kingsburg Property 642,000
Indian Harbour Beach Property 474,000
Murrieta Property 617,000
Humble Property 627,000
Winchester Property 910,000
Kent #2 Property 686,000
Chattanooga Property 473,000
Tampa Property 695,000
Palmdale Property 559,000
Houston #3 Property 543,000
Hopkinsville Property 880,000
(2) Minimum annual rent for each of the Properties became payable on the
effective date of the lease, except as indicated below. For the Humble
Property, minimum annual rent will become due and payable on the
earlier of (i) 180 days after execution of the lease or (ii) the date
the restaurant opens for business to the public. For the Winchester
Property, minimum annual rent will become due and payable on the
earlier of (i) the date the certificate of occupancy for the restaurant
is issued, (ii) the date the restaurant opens for business to the
public or (iii) 180 days after execution of the lease. For the
Chattanooga Property, minimum annual rent will become due and payable
on the possession date, which is June 24, 1997 (the "Possession
Date"). During the period commencing with the effective date of the
lease to the date minimum annual rent becomes payable for the Humble
Property, as described above, the tenant shall pay monthly "interim
rent" equal to 10.75% per annum of the amount funded by the Company in
connection with the purchase and construction of the Property. During
the period commencing with the effective date of the lease to the date
minimum annual rent becomes payable for the Winchester Property, as
described above, "interim rent" equal to ten percent per annum of the
amount funded by the Company in connection with the purchase and
construction of the Property shall accrue and shall be payable in a
single lump sum on the date minimum annual rent becomes payable for
this Property.
(3) The development agreements for the Properties which are to be
constructed or renovated, provide that construction or renovation must
be completed no later than the dates set forth below. The maximum cost
to the Company, (including the purchase price of the land (if
applicable), development costs (if applicable), and closing and
acquisition costs) is not expected to, but may, exceed the amounts set
forth below:
-14-
<PAGE>
<TABLE>
<CAPTION>
Property Estimated Maximum Cost Estimated Final Completion Date
-------- ---------------------- -------------------------------
<S> <C>
Los Angeles Property $1,397,771 July 6, 1997
Las Vegas Property 1,248,333 July 6, 1997
Moscow Property 910,814 July 21, 1997
Kent #1 Property 1,259,871 July 21, 1997
Hollister Property 1,061,819 July 21, 1997
Kingsburg Property 1,001,073 July 21, 1997
Indian Harbour Beach Property 676,041 July 23, 1997
Murrieta Property 952,485 July 30, 1997
Humble Property 912,409 August 2, 1997
Winchester Property 1,272,678 August 2, 1997
Chattanooga Property 1,202,224 June 24, 1997
Tampa Property 1,038,037 August 10, 1997
Palmdale Property 1,125,244 August 10, 1997
Houston #3 Property 861,735 August 10, 1997
</TABLE>
(4) The "Total Cost" is equal to the sum of (i) the purchase price of the
Property, (ii) closing costs, and (iii) actual development costs
incurred under the development agreement.
(5) Percentage rent shall be calculated on a calendar year basis (January 1
to December 31).
(6) The Company paid for all construction or renovation costs in advance at
closing; therefore, minimum annual rent was determined on the date
acquired and is not expected to change.
(7) The lessee of the Los Angeles, Las Vegas, Moscow, Kent #1, Hollister,
Kingsburg, Murrieta, Humble, Palmdale and Houston #3 Properties is the
same unaffiliated lessee.
-15-
<PAGE>
PENDING INVESTMENTS
As of March 6, 1997, the Company had initial commitments to acquire 26
properties, including 12 properties consisting of land and building, five
properties consisting of building only and nine properties consisting of land
only. The acquisition of each of these properties is subject to the fulfillment
of certain conditions, including, but not limited to, a satisfactory
environmental survey and property appraisal. There can be no assurance that any
or all of the conditions will be satisfied or, if satisfied, that one or more of
these properties will be acquired by the Company. If acquired, the leases of all
26 of these properties are expected to be entered into on substantially the same
terms described in "Business - Description of Property Leases," except as
described below.
In connection with the nine Pizza Hut properties consisting of land
only, the Company anticipates acquiring the land and leasing it to the tenant,
Castle Hill, pursuant to a master lease agreement for these nine properties. The
tenant is expected to own the buildings for these nine properties. In connection
therewith, the Company anticipates providing mortgage financing to the tenant
which will be collateralized by the building improvements. If the mortgage note
is executed, it is expected to be executed under substantially the same terms
described in "Business - Mortgage Loans."
In addition, the Company has an initial commitment to provide mortgage
financing for two additional Pizza Hut properties in Weirton, West Virginia, and
Wintersville, Ohio, which will be collateralized by the building improvements.
The Company does not expect to own the land for these two properties. If the
mortgage note is executed, it is expected to be executed under substantially the
same terms described in "Business - Mortgage Loans."
In connection with the Black-eyed Pea properties in Bedford, Dallas and
Fort Worth, Texas; Oklahoma City, Oklahoma; and Scottsdale, Arizona, the Company
anticipates owning only the buildings and not the underlying land. However, the
Company anticipates entering into landlord estoppel agreements with the
landlords of the land and collateral assignments of the ground leases with the
lessees in order to provide the Company with certain rights with respect to the
land on which the buildings are located.
Set forth below are summarized terms expected to apply to the leases
for each of the properties. More detailed information relating to a property and
its related lease will be provided at such time, if any, as the property is
acquired.
-16-
<PAGE>
<TABLE>
<CAPTION>
Lease Term and
Property Renewal Options Minimum Annual Rent
- -------- --------------- -------------------
<S> <C>
Bennigan's 15 years; three five-year renewal 10.375% of the Company's total
Arvada, CO options cost to purchase the property;
Existing restaurant increases by 10% after the
fifth lease year and after
every five years thereafter
during the lease term
Black-eyed Pea (3) 16 years 12.83% of the Company's total
Bedford, TX cost to purchase the building
Existing restaurant
Black-eyed Pea (3) 19 years 12.12% of the Company's total
Dallas, TX cost to purchase the building
Existing restaurant
Black-eyed Pea (3) 14 years 13.59% of the Company's total
Fort Worth, TX cost to purchase the building
Existing restaurant
Black-eyed Pea (3) 15 years 13.24% of the Company's total
Oklahoma City, OK cost to purchase the building
Existing restaurant
Black-eyed Pea (3) 14 years 13.66% of Total Cost (1)
Scottsdale, AZ
Restaurant to be renovated
Burger King 20 years; two five-year renewal 11% of Total Cost (1)
Ooltewah, TN options
Restaurant to be constructed
Golden Corral 15 years; four five-year renewal 10.75% of Total Cost (1)
Jacksonville, FL options
Restaurant to be constructed
</TABLE>
<TABLE>
<CAPTION>
Property Percentage Rent Options to Purchase
- -------- --------------- -------------------
<S> <C>
Bennigan's for each lease year, (i) 6% at any time after lease
Arvada, CO of annual gross sales minus year five
Existing restaurant (ii) the minimum annual rent
for such lease year
Black-eyed Pea (3) None (6)
Bedford, TX
Existing restaurant
Black-eyed Pea (3) None (6)
Dallas, TX
Existing restaurant
Black-eyed Pea (3) None (6)
Fort Worth, TX
Existing restaurant
Black-eyed Pea (3) None (6)
Oklahoma City, OK
Existing restaurant
Black-eyed Pea (3) None (6)
Scottsdale, AZ
Restaurant to be renovated
Burger King for each lease year, (i) 8.5% None
Ooltewah, TN of annual gross sales minus
Restaurant to be constructed (ii) the minimum annual rent
for such lease year
Golden Corral for each lease year, 5% of during the first through
Jacksonville, FL the amount by which annual seventh lease years and the
Restaurant to be constructed gross sales exceed a to be tenth through fifteenth
determined breakpoint lease years only
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Lease Term and
Property Renewal Options Minimum Annual Rent
- -------- --------------- -------------------
<S> <C>
IHOP 20 years; three five-year renewal 10.125% of the Company's total
Fairfax, VA options cost to purchase the property;
Existing restaurant increases by 10% after the
fifth lease year and after
every five years thereafter
during the lease term
IHOP 20 years; three five-year renewal 10.125% of the Company's total
Hollywood, CA options cost to purchase the property;
Existing restaurant increases by 10% after the
fifth lease year and after
every five years thereafter
during the lease term
IHOP 20 years; three five-year renewal 10.125% of the Company's total
Leesburg, VA options cost to purchase the property;
Existing restaurant increases by 10% after the
fifth lease year and after
every five years thereafter
during the lease term
Jack in the Box 18 years; four five-year renewal 10.25% of Total Cost (1);
Bacliff, TX options increases by 8% after the fifth
Restaurant to be constructed lease year and after every five
years thereafter during the
lease term
Jack in the Box 18 years; four five-year renewal 10.25% of Total Cost (1);
Enunclaw, WA options increases by 8% after the fifth
Restaurant to be constructed lease year and after every five
years thereafter during the
lease term
Jack in the Box 18 years; four five-year renewal 10.25% of Total Cost (1);
Fresno, CA options increases by 8% after the fifth
Restaurant to be constructed lease year and after every five
years thereafter during the
lease term
</TABLE>
<TABLE>
<CAPTION>
Property Percentage Rent Options to Purchase
- -------- --------------- -------------------
<S> <C>
IHOP for each lease year, (i) 4% during the eleventh lease
Fairfax, VA of annual gross sales minus year and at the end of the
Existing restaurant (ii) the minimum annual rent initial lease term
for such lease year
IHOP for each lease year, (i) 4% during the eleventh lease
Hollywood, CA of annual gross sales minus year and at the end of the
Existing restaurant (ii) the minimum annual rent initial lease term
for such lease year
IHOP for each lease year, (i) 4% during the eleventh lease
Leesburg, VA of annual gross sales minus year and at the end of the
Existing restaurant (ii) the minimum annual rent initial lease term
for such lease year
Jack in the Box for each lease year, (i) 5% at any time after the
Bacliff, TX of annual gross sales minus seventh lease year (2)
Restaurant to be constructed (ii) the minimum annual rent
for such lease year
Jack in the Box for each lease year, (i) 5% at any time after the
Enunclaw, WA of annual gross sales minus seventh lease year (2)
Restaurant to be constructed (ii) the minimum annual rent
for such lease year
Jack in the Box for each lease year, (i) 5% at any time after the
Fresno, CA of annual gross sales minus seventh lease year (2)
Restaurant to be constructed (ii) the minimum annual rent
for such lease year
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Lease Term and
Property Renewal Options Minimum Annual Rent
- -------- --------------- -------------------
<S> <C>
Jack in the Box 18 years; four five-year renewal 10.25% of Total Cost (1);
Houston, TX (#4) options increases by 8% after the fifth
Restaurant to be constructed lease year and after every five
years thereafter during the
lease term
Jack in the Box 18 years; four five-year renewal 10.25% of Total Cost (1);
Oxnard, CA options increases by 8% after the fifth
Restaurant to be constructed lease year and after every five
years thereafter during the
lease term
Pizza Hut (4)(5) 20 years; two ten-year renewal 10.50% of the Company's total
Bolivar, OH options cost to purchase the land;
Land only increases by 10% after the
fifth and tenth lease years and
12% after the fifteenth lease
year
Pizza Hut (4)(5) 20 years; two ten-year renewal 10.50% of the Company's total
Carrolton, OH options cost to purchase the land;
Land only increases by 10% after the
fifth and tenth lease years and
12% after the fifteenth lease
year
Pizza Hut (4)(5) 20 years; two ten-year renewal 10.50% of the Company's total
Dover, OH options cost to purchase the land;
Land only increases by 10% after the
fifth and tenth lease years and
12% after the fifteenth lease
year
Pizza Hut (4)(5) 20 years; two ten-year renewal 10.50% of the Company's total
Millersburg, OH options cost to purchase the land;
Land only increases by 10% after the
fifth and tenth lease years and
12% after the fifteenth lease
year
Pizza Hut (4)(5) 20 years; two ten-year renewal 10.50% of the Company's total
New Philadelphia, OH options cost to purchase the land;
Land only increases by 10% after the fifth
and tenth lease years and 12%
after the fifteenth lease year
</TABLE>
<TABLE>
<CAPTION>
Property Percentage Rent Options to Purchase
- -------- --------------- -------------------
<S> <C>
Jack in the Box for each lease year, (i) 5% at any time after the
Houston, TX (#4) of annual gross sales minus seventh lease year (2)
Restaurant to be constructed (ii) the minimum annual rent
for such lease year
Jack in the Box for each lease year, (i) 5% at any time after the
Oxnard, CA of annual gross sales minus seventh lease year (2)
Restaurant to be constructed (ii) the minimum annual rent
for such lease year
Pizza Hut (4)(5) None at any time after the
Bolivar, OH seventh lease year
Land only
Pizza Hut (4)(5) None at any time after the
Carrolton, OH seventh lease year
Land only
Pizza Hut (4)(5) None at any time after the
Dover, OH seventh lease year
Land only
Pizza Hut (4)(5) None at any time after the
Millersburg, OH seventh lease year
Land only
Pizza Hut (4)(5) None at any time after the
New Philadelphia, OH seventh lease year
Land only
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
Lease Term and
Property Renewal Options Minimum Annual Rent
- -------- --------------- -------------------
<S> <C>
Pizza Hut (4)(5) 20 years; two ten-year renewal 10.50% of the Company's total
New Philadelphia-West, OH options cost to purchase the land;
Land only increases by 10% after the
fifth and tenth lease years and
12% after the fifteenth lease
year
Pizza Hut (4)(5) 20 years; two ten-year renewal 10.50% of the Company's total
Steubenville, OH options cost to purchase the land;
Land only increases by 10% after the
fifth and tenth lease years and
12% after the fifteenth lease
year
Pizza Hut (4)(5) 20 years; two ten-year renewal 10.50% of the Company's total
Uhrichsville, OH options cost to purchase the land;
Land only increases by 10% after the
fifth and tenth lease years and
12% after the fifteenth lease
year
Pizza Hut (4)(5) 20 years; two ten-year renewal 10.50% of the Company's total
Wellsburg, WV options cost to purchase the land;
Land only increases by 10% after the
fifth and tenth lease years and
12% after the fifteenth lease
year
Shoney's 20 years; two five-year renewal 11% of Total Cost; increases by
Phoenix, AZ options 10% after the fifth lease year
Restaurant to be constructed and after every five years
thereafter during the lease
term (1)
</TABLE>
<TABLE>
<CAPTION>
Property Percentage Rent Options to Purchase
- -------- --------------- -------------------
<S> <C>
Pizza Hut (4)(5) None at any time after the
New Philadelphia-West, OH seventh lease year
Land only
Pizza Hut (4)(5) None at any time after the
Steubenville, OH seventh lease year
Land only
Pizza Hut (4)(5) None at any time after the
Uhrichsville, OH seventh lease year
Land only
Pizza Hut (4)(5) None at any time after the
Wellsburg, WV seventh lease year
Land only
Shoney's for each lease year, (i) 6% at any time after the
Phoenix, AZ of annual gross sales minus seventh lease year
Restaurant to be constructed (ii) the minimum annual rent
for such lease year
</TABLE>
- ---------------------
FOOTNOTES:
(1) The "Total Cost" is equal to the sum of (i) the purchase price of the
property, (ii) closing costs, and (iii) actual development costs
incurred under the development agreement.
(2) In the event the Company purchases the property directly from the
lessee, the lessee will have no option to purchase the property.
-20-
<PAGE>
(3) The Company anticipates owning the building only for this property. The
Company will not own the underlying land; although, the Company
anticipates entering into a landlord estoppel agreement with the
landlord of the land and a collateral assignment of the ground lease
with the lessee in order to provide the Company with certain rights
with respect to the land on which the building is located.
(4) The lease relating to this property is a land lease only. The Company
anticipates entering into a master mortgage note receivable
collateralized by the Bolivar, Carrolton, Dover, Millersburg, New
Philadelphia, New Philadelphia-West, Steubenville and Uhrichsville,
Ohio, and Wellsburg, West Virginia building improvements.
(5) The Company anticipates entering into a master lease agreement for the
Bolivar, Carrolton, Dover, Millersburg, New Philadelphia, New
Philadelphia-West, Steubenville and Uhrichsville, Ohio, and Wellsburg,
West Virginia properties.
(6) The Company anticipates conveying the building to the tenant at the end
of the lease term for $1.
-21-
<PAGE>
DESCRIPTION OF PROPERTIES
The 110 Properties owned by the Company as of March 6, 1997 conform
generally to the following specifications of size, cost, and type of land and
buildings and based on these Properties and on past experience and knowledge of
the fast-food, family-style, and casual dining restaurant industry, the Advisor
expects that the Properties purchased by the Company with the remaining proceeds
of the Initial Offering and with the proceeds of this offering will also conform
generally to the following specifications. These specifications may vary
substantially if the Company invests in any full-service restaurant Properties.
BORROWING
The Company has obtained a $15,000,000 Loan to be used by the Company
to fund Secured Equipment Leases. As of March 6, 1997, approximately $5,203,000
had been advanced under the Loan to fund 12 Secured Equipment Leases, the
commitment fee, legal fees and closing costs related to the Loan. The Board of
Directors may determine to obtain additional financing to be used by the Company
to fund Secured Equipment Leases, provided that the amount of such additional
financing may not exceed 10% of Gross Proceeds of this offering and gross
proceeds of any subsequent offering.
SELECTED FINANCIAL DATA
The following table sets forth certain financial information for the
Company, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements included in Exhibit B to this Prospectus.
May 2,
1994 (Date
of Inception)
Year Ended through
December 31, December 31,
1996 1995 1994
------------ ------------ -----------
Revenues $6,206,684 $ 659,131 $ -
Net earnings 4,745,962 368,779 -
Cash distributions declared (1) 5,436,072 638,618 -
Funds from operations (2) 5,257,040 469,097 -
Earnings per Share 0.59 0.19 -
Cash distributions declared per Share 0.71 0.34 -
Weighted average number of Shares
outstanding (3) 8,071,670 1,898,350 -
December 31, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
Total assets $134,825,048 $33,603,084 $ 929,585
Total equity 122,867,427 31,980,648 200,000
(1) Approximately 11 percent and 40 percent of cash distributions ($0.06 and
$0.14 per Share) for the nine months ended September 30, 1996 and the year
ended December 31, 1995, respectively, represents a return of capital in
accordance with generally accepted accounting principles ("GAAP"). Cash
distributions treated as a return of capital on a GAAP basis represent the
amount of cash distributions in excess of accumulated net earnings on a
GAAP basis. The Company has not treated such amount as a return of capital
for purposes of calculating the stockholders' Invested Capital and the
Stockholders' 8% Return, as described in the Prospectus.
-22-
<PAGE>
(2) Funds from operations ("FFO"), based on the revised definition adopted by
the Board of Governors of NAREIT and as used herein, means net earnings
determined in accordance with generally accepted accounting principles
("GAAP"), excluding gains or losses from debt restructuring and sales of
property, plus depreciation and amortization of real estate assets, and
after adjustments for unconsolidated partnerships and joint ventures. FFO
was developed by NAREIT as a relative measure of performance and liquidity
of an equity REIT in order to recognize that income-producing real estate
historically has not depreciated on the basis determined under GAAP.
However, FFO (i) does not represent cash generated from operating
activities determined in accordance with GAAP (which, unlike FFO, generally
reflects all cash effects of transactions and other events that enter into
the determination of net earnings), (ii) is not necessarily indicative of
cash flow available to fund cash needs and (iii) should not be considered
as an alternative to net earnings determined in accordance with GAAP as an
indication of the Company's operating performance, or to cash flow from
operating activities determined in accordance with GAAP as a measure of
either liquidity or the Company's ability to make distributions.
Accordingly, the Company believes that in order to facilitate a clear
understanding of the consolidated historical operating results of the
Company, FFO should be considered in conjunction with the Company's net
earnings and cash flows as reported in the accompanying consolidated
financial statements and notes thereto.
(3) The weighted average number of Shares outstanding is based upon the period
the Company was operational.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE COMPANY
INTRODUCTION
The Company is a Maryland corporation that was organized on May 2,
1994, to acquire Properties, directly or indirectly through Joint Venture or
co-tenancy arrangements, to be leased on a long-term, "triple-net" basis to
operators of certain Restaurant Chains. In addition, the Company may provide
Mortgage Loans for the purchase of buildings, generally by borrowers that lease
the underlying land from the Company. To a lesser extent, the Company may offer
Secured Equipment Leases to operators of Restaurant Chains.
LIQUIDITY AND CAPITAL RESOURCES
The Company was formed in May 1994, at which time the Company received
initial capital contributions of $200,000 for 20,000 shares of common stock from
the Advisor. In April 1995, the Company commenced the Initial Offering of its
shares of common stock, the net proceeds of which are used to invest in
Properties and Mortgage Loans. The Company also registered 1,500,000 shares
($15,000,000) to be available for stockholders who elect to participate in the
Company's Reinvestment Plan. As of December 31, 1996, the Company had received
subscription proceeds of $139,247,149 (13,924,715 shares) from the Initial
Offering, including $591,765 (59,177 shares) through the Reinvestment Plan.
As of December 31, 1996, net proceeds to the Company from its Initial
Offering of Shares and capital contributions from the Advisor, after deduction
of Selling Commissions, Marketing Support and Due Diligence Expense
Reimbursement Fees and Offering Expenses, totalled $123,807,376. Approximately
$93,000,000 of such amount had been used to invest, or committed for investment,
in 94 Properties (nine of which were under construction as of December 31,
1996), in providing mortgage financing of $12,847,000 and to pay acquisition
fees to the Advisor totalling $6,266,122 and certain acquisition expenses as of
December 31, 1996. The Company acquired 13 of the 94 Properties from Affiliates,
for purchase prices totalling approximately $9,230,000. 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.
-23-
<PAGE>
In connection with the nine Properties under construction at December
31, 1996, 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. The agreements provide a maximum amount of
development costs (including the purchase price of the land and closing costs)
to be paid by the Company. The aggregate maximum development costs the Company
had agreed to pay was approximately $11,749,700, of which approximately
$7,495,200 in land and other costs had been incurred as of December 31, 1996.
The buildings under construction as of December 31, 1996, are expected to be
operational by August 1997. In connection with the purchase of each Property,
the Company, as lessor, entered into a long-term, triple-net lease agreement.
Following completion of its Initial Offering on February 6, 1997, the
Company commenced this offering of up to 27,500,000 Shares. Of the 27,500,000
Shares being offered, 2,500,000 are available only to stockholders purchasing
through the Reinvestment Plan. Until such time, if any, that the stockholders
approve an increase in the number of authorized shares of common stock of the
Company, this offering will be limited to 4,800,000 Shares. The Board of
Directors will submit for a vote of the stockholders at a meeting to be held on
April 4, 1997, a resolution to increase the number of authorized shares of
common stock of the Company from 20,000,000 to 75,000,000. Net proceeds from
this offering will also be invested in Properties and Mortgage Loans. The
Company is expected to have a total portfolio of approximates 400 to 450
Properties if the maximum number of Shares are sold. Management believes that
the increase in the amount of assets of the Company that will result from this
offering will 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, although there is no assurance
that listing will occur.
As of March 6, 1997, the Company had received aggregate subscription
proceeds of $14,243,060 (1,424,306 Shares). Net proceeds to the Company, after
deduction of Selling Commissions, Marketing Support and Due Diligence Expense
Reimbursement Fees and Offering Expenses, totalled approximately $12,600,000. As
of March 6, 1997, $640,938 of such amount had been incurred in Acquisition Fees
to the Advisor and the balance was available for investment in Properties and
Mortgage Loans.
As of the completion of its Initial Offering, the Company had received
subscription proceeds of $150,591,765 (15,059,177 shares), including $591,765
(59,177 shares) issued pursuant to the Reinvestment Plan and after deduction of
selling commissions, marketing support and due diligence expense reimbursement
fees and offering expenses, net proceeds to the Company from its Initial
Offering totalled approximately $134,000,000. As of March 6, 1997, the Company
had invested or committed for investment approximately $111,100,000 of net
proceeds from the Initial Offering in 110 Properties, in providing mortgage
financing to the tenants of the 35 Properties consisting of land only through
Mortgage Loans, and in paying acquisition fees to the Advisor totalling
$6,776,629 and certain acquisition expenses, leaving approximately $22,900,000
in net offering proceeds from the Initial Offering available for investment in
Properties and Mortgage Loans. The Company expects to use such amount and Net
Offering Proceeds from this offering 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. The Company presently is negotiating to acquire additional
Properties, but as of March 6, 1997, had not acquired any such Properties.
The Company plans to obtain short-term financing (the "Line of Credit")
in an amount up to $20,000,000, the proceeds of which will be used to acquire
Properties. Management believes that, during the offering period, the Line of
Credit will allow the Company to take advantage of investment opportunities that
might otherwise be lost if the Company was forced to delay making the
investments until it had raised a sufficient amount of offering proceeds. In
addition, management believes that the use of the Line of Credit will enable the
Company to reduce or eliminate the instances in which the Company will be
required to pay duplicate closing costs as a result of an affiliate of the
Advisor purchasing Properties, pending receipt by the Company of sufficient
offering proceeds, in order to preserve the investment opportunity for the
Company, and the Company subsequently purchasing the Properties from the
affiliate. The Line of Credit will be repaid from the proceeds of the Company's
offerings. No Properties will be encumbered in connection with the Line of
Credit. The Company is engaged in preliminary discussions with potential lenders
but has not yet obtained a commitment letter for the Line of Credit and may not
be able to obtain the Line of Credit on satisfactory terms.
-24-
<PAGE>
In March 1996, the Company entered into the Loan with a bank, the
proceeds of which are used by the Company to offer Secured Equipment Leases. The
Loan provides that the Company will be able to receive advances limited 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. 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 $53,533 relating to the Loan.
During 1996, the Company entered into interest rate swap agreements
with a commercial bank to reduce the impact of changes in interest rates on its
floating rate long-term debt. These agreements effectively change the Company's
interest rate exposure on notional amounts totalling approximately $2,110,000 of
the outstanding floating rate notes to fixed rates ranging from 8.75% to nine
percent per annum. The notional amounts of the interest rate swap agreements
amortize over the period of the agreements which approximate the term of the
related notes. 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.
As of December 31, 1996, the Company had obtained advances totalling
$3,666,896 under the Loan, the proceeds of which were used to fund nine Secured
Equipment Leases (including three partially funded Secured Equipment Leases as
of December 31, 1996) and to pay loan costs. As of March 6, 1997, the Company
had entered into a total of 12 Secured Equipment Leases and in connection
therewith had received advances under the Loan, including amounts to fund loan
costs, totalling $5,203,000. The Company intends to limit the amount of Secured
Equipment Leases it enters into to $15,000,000 available under the Loan. The
Board of Directors may determine to obtain additional financing to be used by
the Company to fund Secured Equipment Leases, provided that the amount of such
additional financing may not exceed 10% of Gross Proceeds of this offering and
gross proceeds of any subsequent 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, net
offering proceeds are held in short-term, highly liquid investments which
management believes to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate the Company's use of
these funds to acquire Properties at such time as Properties suitable for
acquisition are located or to fund Mortgage Loans. At December 31, 1996, the
Company had $42,450,088 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 through the Initial Offering during the year ended December 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 offering and acquisition costs, to pay Distributions to
stockholders, to meet Company expenses and, in management's discretion, to
create cash reserves.
During the years ended December 31, 1996 and 1995, and the period May
2, 1994 (date of inception) through December 31, 1994, Affiliates of the Company
incurred on behalf of the Company $804,617, $2,084,145 and $461,866,
respectively, for certain offering expenses in connection with its Initial
Offering. In addition, during the years ended December 31, 1996 and 1995,
Affiliates of the Company incurred on behalf of the Company $206,103 and
$131,629 for certain acquisition expenses and $243,402 and $54,234 for certain
operating expenses. As of December 31, 1996, the Company owed the Advisor and
its Affiliates $997,084 for such amounts, unpaid fees, and accounting and
administrative expenses. The Advisor has agreed to pay or reimburse to the
Company all Offering Expenses in excess of three percent of gross offering
proceeds.
During the years ended December 31, 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
$5,482,540 and $498,459, respectively. Based on current and anticipated future
cash from operations, the
-25-
<PAGE>
Company declared Distributions to the stockholders of $5,436,072 and $638,618
during 1996 and 1995, respectively. On January 1, 1997, February 1, 1997, and
March 1, 1997, the Company declared Distributions to its stockholders totalling
$827,967, $884,794 and $980,571, respectively, payable in March 1997. For the
years ended December 31, 1996 and 1995, 90.25% and 59.82%, respectively, of the
Distributions received by stockholders were considered to be ordinary income and
9.75% and 40.18%, respectively, were considered a return of capital for federal
income tax purposes. However, no amounts distributed or to be distributed to the
stockholders as of March 6, 1997, 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. During the operational
stage, management believes that the leases will continued to 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 the fact that the Properties are leased on a long-term,
triple-net basis, management does not believe that working capital reserves will
be necessary at this time. Management has the right to cause the Company to
maintain reserves if, in their discretion, they determine such reserves are
required to meet the Company's working capital needs.
Management expects that the cash generated from operations will be
adequate to pay Operating Expenses.
RESULTS OF OPERATIONS
No significant operations commenced until the Company received the
minimum offering proceeds of $1,500,000 on June 1, 1995.
As of December 31, 1996, the Company and its consolidated joint
venture, CNL/Corral South Joint Venture, had purchased and entered into
long-term, triple-net leases for 94 Properties. The leases provide for minimum
base annual rental payments (payable in monthly installments) ranging from
approximately $61,700 to $467,500. In addition, certain leases provide for
percentage rent based on sales in excess of a specified amount. The majority of
the leases also provide that, commencing in generally the sixth lease year, the
annual base rent required under the terms of the leases will increase. In
connection therewith, the Company earned a total of $4,357,298 and $539,776, in
rental income from operating leases, earned income from the direct financing
leases and contingent rental income from 85 Properties and six Secured Equipment
Leases in 1996 and from 16 Properties in 1995, respectively. Because the Company
did not commence significant operations until it received the minimum offering
proceeds from its Initial Offering on June 1, 1995, and has not yet acquired all
of its Properties, revenues for the year ended December 31, 1996, represent only
a portion of revenues which the Company is expected to earn in future years as
the Company acquires additional Properties and the construction Properties
acquired during 1996 become operational.
During 1996, the Company entered into three Mortgage Loans in the
principal sum of $12,847,000, collateralized by mortgages on the buildings
relating to 35 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 $130,427. In connection therewith, the Company earned $1,069,349 in
interest income relating to such Mortgage Loans during 1996.
During 1996, two of the Company's lessees and borrowers, or groups of
affiliated lessees and borrowers, Castle Hill Holdings V, L.L.C., Castle Hill
Holdings VI, L.L.C. and Castle Hill Holdings VII, L.L.C. (hereinafter referred
to as Castle Hill), and Golden Corral Corporation, each contributed more than
ten percent of the Company's total rental and interest income relating to its
Properties, Mortgage Loans and Secured Equipment Leases. Castle
-26-
<PAGE>
Hill is the lessee under leases relating to the land portion of 35 restaurants
and is the borrower on Mortgage Loans relating to the buildings on such
Properties. Golden Corral Corporation is the lessee under leases relating to
seven restaurants. In addition, three Restaurant Chains, Pizza Hut, Golden
Corral Family Steakhouse and Boston Market, each accounted for more than ten
percent of the Company's total rental and interest income relating to its
Properties, Mortgage Loans and Secured Equipment Leases in 1996. Because the
Company has not yet completed its investment in Properties and Mortgage Loans,
it is not possible to determine which lessees, borrowers or Restaurant Chains
will contribute more than ten percent of the Company's rental and interest
income during 1997 and subsequent years. In the event that certain lessees,
borrowers or Restaurant Chains contribute more than ten percent of the Company's
total rental and interest income in future years, any failure of such lessees,
borrowers or Restaurants Chains could materially affect the Company's income.
During the years ended December 31, 1996 and 1995, the Company also
earned $780,037 and $119,355, respectively, in interest income from investments
in money market accounts or other short-term, highly liquid investments and
other income. 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 received in the future in highly liquid
investments pending investment in Properties and 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 $1,430,795 and $290,276 for the years ended December 31, 1996 and 1995,
respectively. Operating expenses increased during the year ended December 31,
1996, as compared to the year ended December 31, 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, invests in
Mortgage Loans, and the Properties under construction become operational.
However, asset management fees and depreciation and amortization expense are
expected to increase as the Company invests in additional Properties and
Mortgage Loans.
The Company has made an election under Section 856(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), to be taxed as a real estate
investment trust ("REIT") under the Code beginning with its taxable year ended
December 31, 1995. As a REIT, for federal income tax purposes, the Company
generally will not be subject to federal income tax on income that it
distributes to its stockholders. If the Company fails to qualify as a REIT in
any taxable year, it will be subject to federal income tax on its taxable income
at regular corporate rates and will not be permitted to qualify for treatment as
a REIT for federal income tax purposes for four years following the year during
which qualification is lost. Such an event could materially affect the Company's
income. However, the Company believes that it is organized and operates in such
a manner as to qualify for treatment as a REIT for the years ended December 31,
1996 and 1995. In addition, the Company intends to continue to operate the
Company so as to remain qualified as a REIT for federal income tax purposes.
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.
All of the Company's leases as of December 31, 1996, are triple-net
leases and contain provisions that management believes will mitigate the adverse
effect of inflation. Such provisions include clauses requiring the payment of
percentage rent based on certain restaurant sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease. Management expects that increases in restaurant sales volumes due to
inflation and real sales growth should result in an increase in rental income
over time. Continued inflation also may cause capital appreciation of the
Company's Properties. Inflation and changing prices, however, also may have an
adverse impact on the sales of the restaurants and on potential capital
appreciation of the Properties.
This information 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
-27-
<PAGE>
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 this 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.
<PAGE>
CERTAIN TRANSACTIONS
The Managing Dealer is entitled to receive Selling Commissions
amounting to 7.5% of the total amount raised from the sale of Shares of common
stock for services in connection with the offering of Shares, a substantial
portion of which has been or will be paid as commissions to other
broker-dealers. For the years ended December 31, 1996 and 1995, in connection
with its Initial Offering, the Company incurred $7,559,474 and $2,884,062,
respectively, of such fees, of which approximately $7,059,000 and $2,682,000,
respectively, was paid by the Managing Dealer as commissions to other
broker-dealers. In addition, during the period January 1, 1997 through February
6, 1997, the Company incurred $850,846 in such fees in connection with its
Initial Offering, and during the period February 7, 1997 through March 6, 1997,
the Company incurred $1,068,230 in such fees in connection with this offering,
the majority of which has been or will be paid as commissions to other
broker-dealers.
In addition, the Managing Dealer 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. For the years ended December 31, 1996 and 1995, in
connection with its Initial Offering, the Company incurred $503,965 and
$192,271, respectively, of such fees, substantially all of which were reallowed
to other broker-dealers and from which all bona fide due diligence expenses were
paid. In addition, during the period January 1, 1997 through February 6, 1997,
the Company incurred $56,723 in such fees in connection with its Initial
Offering, and during the period February 7, 1997 through March 6, 1997, the
Company incurred $71,215 in such fees in connection with this offering,
substantially all of which were reallowed to other broker-dealers and from which
all bona fide due diligence expenses were paid.
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. For the years ended
December 31, 1996 and 1995, in connection with amounts received from the Initial
Offering, the Company incurred $4,535,685 and $1,730,437, respectively, of such
fees. For the period January 1, 1997 through February 6, 1997, the Company
incurred an additional $510,508 in such fees in connection with the Initial
Offering, and for the period February 7, 1997 through March 6, 1997, the Company
incurred $640,938 in such fees in connection with this offering.
For negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program, the Advisor is 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. For the
year ended December 31, 1996, the Company incurred $70,070 in such fees. In
addition, during the period January 1, 1997 through March 6, 1997, the Company
incurred $32,623 in 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, plus one-twelfth
of 0.60% of the total principal amount of the Company's 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. For the years ended December 31, 1996 and
1995, the Company incurred $278,902 and $27,950, respectively, of such fees,
$27,702 and $4,872, respectively, of which has been capitalized as part of the
cost of the buildings for Properties that have been or are being constructed.
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 years
ended December 31, 1996 and 1995, the Company incurred a total of $1,103,828 and
$782,690, respectively, for these services, $769,225 and $714,674, respectively,
of such costs representing stock issuance costs and $334,603 and $68,016,
respectively, representing general operating and administrative expenses,
including costs related to preparing and distributing reports required by the
Securities and Exchange Commission.
During 1996, the Company acquired four Properties from Affiliates for
an aggregate purchase price of approximately $2,609,800 and, in 1995, the
Company acquired nine Properties from Affiliates for an aggregate
-31-
<PAGE>
purchase price of approximately $6,621,000. In addition, during the period
January 1, 1997 through March 6, 1997, the Company acquired two Properties from
an Affiliate for an aggregate purchase price of approximately $1,768,000. 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.
In connection with the acquisition of three Properties in 1996 and two
Properties during the period January 1, 1997 through March 6, 1997, that were
constructed or renovated by Affiliates, the Company incurred
development/construction management fees totalling $159,350 and $129,379,
respectively. Such fees were included in the purchase price of Properties. No
such amounts were incurred in 1995.
The Advisor, the Managing Dealer and the Affiliates from which the
Company acquired Properties are wholly owned subsidiaries of CNL Group, Inc., of
which James M. Seneff, Jr., Chairman of the Board and Chief Executive Officer of
the Company, and his spouse are the sole stockholders.
All of these fees were paid in accordance with the provisions of the
Company's Articles of Incorporation.
PRIOR PERFORMANCE INFORMATION
The information presented in this section represents the historical
experience of certain real estate programs organized by certain officers and
directors of the Advisor. INVESTORS IN THE COMPANY SHOULD NOT ASSUME THAT THEY
WILL EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN
SUCH PRIOR REAL ESTATE PROGRAMS. INVESTORS WHO PURCHASE SHARES IN THE COMPANY
WILL NOT THEREBY ACQUIRE ANY OWNERSHIP INTEREST IN ANY PARTNERSHIPS TO WHICH THE
FOLLOWING INFORMATION RELATES.
Two Directors of the Company, Robert A. Bourne and James M. Seneff,
Jr., individually or with others have served as general partners of 84 and 85
real estate limited partnerships, respectively, including the 18 publicly
offered CNL Income Fund partnerships, which purchased properties similar to
those to be acquired by the Company, listed in the table below. None of these
limited partnerships has been audited by the IRS. Of course, there is no
guarantee that the Company will not be audited. Based on an analysis of the
operating results of the prior partnerships, the general partners of these
partnerships believe that each of such partnerships has met or is meeting its
principal investment objectives in a timely manner.
CNL Realty Corporation, which was organized as a Florida corporation in
November 1985 and whose sole stockholders are Messrs. Bourne and Seneff,
currently serves as the corporate general partner with Messrs. Bourne and Seneff
as individual general partners of 18 CNL Income Fund limited partnerships, all
of which were organized to invest in fast-food, family-style and, in the case of
two funds, casual dining restaurant properties similar to those that the Company
intends to acquire and have investment objectives similar to those of the
Company. As of December 31, 1996, these 18 partnerships had raised a total of
$588,421,815 from a total of 47,854 investors, and had invested in 668 fast-food
or family-style restaurant properties.
As of December 31, 1996, 17 of the 18 CNL public partnerships had
completed their offerings. As indicated in Exhibit C, the eight public
partnerships, the offerings which were fully subscribed between October 1991 and
September 1996, had made annualized cash distributions to limited partners in
amounts equal to from 4.5% to 9.1% of invested capital as of June 30, 1996. As
of June 30, 1996, an average of approximately .54% (ranging from zero to 2.4%)
of the cumulative cash distributions to limited partners from these partnerships
constituted cash distributions that exceeded accumulated net income on a GAAP
basis, primarily as the result of depreciation deductions. Accumulated net
income includes deductions for depreciation and amortization expense and income
from certain non-cash items. The partnerships do not treat these amounts, which
are presented as a "return of capital on a GAAP basis" in Table III of the Prior
Performance Tables included in Exhibit C, as a return of capital for any other
purpose. Certain additional information relating to the offerings and investment
history of the 18 public partnerships is set forth below.
-32-
<PAGE>
<TABLE>
<CAPTION>
Date 90% of Net
Number of Proceeds Fully
Maximum Limited Invested or
Name of Offering Partnership Committed to
Partnership Amount (1) Date Closed Units Sold Investment (2)
- ----------- ---------- ----------- ---------- --------------
<S> <C>
CNL Income $15,000,000 December 31, 1986 30,000 December 1986
Fund, Ltd. (30,000 Units)
CNL Income $25,000,000 August 21, 1987 50,000 November 1987
Fund II, Ltd. (50,000 Units)
CNL Income $25,000,000 April 29, 1988 50,000 June 1988
Fund III, Ltd. (50,000 Units)
CNL Income $30,000,000 December 6, 1988 60,000 February 1989
Fund IV, Ltd. (60,000 Units)
CNL Income $25,000,000 June 7, 1989 50,000 December 1989
Fund V, Ltd. (50,000 Units)
CNL Income $35,000,000 January 19, 1990 70,000 May 1990
Fund VI, Ltd. (70,000 Units)
CNL Income $30,000,000 August 1, 1990 30,000,000 January 1991
Fund VII, Ltd. (30,000,000 Units)
CNL Income $35,000,000 March 7, 1991 35,000,000 September 1991
Fund VIII, Ltd. (35,000,000 Units)
CNL Income $35,000,000 September 6, 1991 3,500,000 November 1991
Fund IX, Ltd. (3,500,000 Units)
CNL Income $40,000,000 March 18, 1992 4,000,000 June 1992
Fund X, Ltd. (4,000,000 Units)
CNL Income $40,000,000 September 28, 1992 4,000,000 September 1992
Fund XI, Ltd. (4,000,000 Units)
CNL Income $45,000,000 March 15, 1993 4,500,000 July 1993
Fund XII, Ltd. (4,500,000 Units)
CNL Income $40,000,000 August 26, 1993 4,000,000 August 1993
Fund XIII, Ltd. (4,000,000 Units)
CNL Income $45,000,000 February 22, 1994 4,500,000 May 1994
Fund XIV, Ltd. (4,500,000 Units)
CNL Income $40,000,000 September 1, 1994 4,000,000 December 1994
Fund XV, Ltd. (4,000,000 Units)
CNL Income $45,000,000 June 12, 1995 4,500,000 August 1995
Fund XVI, Ltd. (4,500,000 Units)
CNL Income $30,000,000 September 19, 1996 3,000,000 (3)
Fund XVII, Ltd. (3,000,000 Units)
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
Date 90% of Net
Number of Proceeds Fully
Maximum Limited Invested or
Name of Offering Partnership Committed to
Partnership Amount (1) Date Closed Units Sold Investment (2)
- ----------- ---------- ----------- ---------- --------------
<S> <C>
CNL Income $35,000,000 (4) (4) (4)
Fund XVIII, Ltd. (3,500,000 Units)
</TABLE>
- ------------------------------------
(1) The amount stated includes the exercise by the general partners of each
partnership of their option to increase by $5,000,000 the maximum size of
the offering of CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income
Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund VI, Ltd., CNL
Income Fund VIII, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XII, Ltd.,
CNL Income Fund XIV, Ltd., CNL Income Fund XVI, Ltd, and CNL Income Fund
XVIII, Ltd.
(2) For a description of the property acquisitions by these limited
partnerships during the last ten years, see the table set forth on the
following page.
(3) As of December 31, 1996, CNL Income Fund XVII, Ltd. had purchased 24
properties for approximately $23,753,600, representing an investment of 90%
of net proceeds received.
(4) As of December 31, 1996, CNL Income Fund XVIII, Ltd., which is offering a
maximum of 3,500,000 limited partnership units ($35,000,000), had received
subscriptions totalling $8,421,815 (842,182 units). As of such date, CNL
Income Fund XVIII, Ltd. had purchased two properties.
As of December 31, 1996, Mr. Seneff and Mr. Bourne, directly or through
affiliated entities, also had served as joint general partners of 65 nonpublic
real estate limited partnerships. The offerings of 63 of these 65 nonpublic
limited partnerships had terminated as of December 31, 1996. These 63
partnerships raised a total of $164,419,266 from approximately 4,111 investors,
and purchased, directly or through participation in a joint venture or limited
partnership, interests in a total of 200 projects as of December 31, 1996. These
200 projects consist of 19 apartment projects (comprising 11% of the total
amount raised by all 63 partnerships), 13 office buildings (comprising 5% of the
total amount raised by all 63 partnerships), 154 fast-food or family-style
restaurant property and business investments (comprising 69% of the total amount
raised by all 63 partnerships), one condominium development (comprising .5% of
the total amount raised by all 63 partnerships), four hotels/motels (comprising
5% of the total amount raised by all 63 partnerships), seven commercial/retail
properties (comprising 9% of the total amount raised by all 63 partnerships),
and two tracts of undeveloped land (comprising .5% of the total amount raised by
all 63 partnerships). The offering of the two remaining nonpublic limited
partnerships (offerings aggregating $16,550,000) had raised $4,675,000 from 95
investors (approximately 58.6% of the total offering amount) as of December 31,
1996.
Mr. Bourne also has served, without Mr. Seneff, as a general partner of
one additional nonpublic real estate limited partnership program which raised a
total of $600,000 from 13 investors and purchased, through participation in a
limited partnership, one apartment building located in Georgia with a purchase
price of $1,712,000.
Mr. Seneff also has served, without Mr. Bourne, as a general partner of
two additional nonpublic real estate limited partnerships which raised a total
of $240,000 from 12 investors and purchased two office buildings with an
aggregate purchase price of $928,390. Both of the office buildings are located
in Florida.
Of the 83 real estate limited partnerships whose offerings had closed
as of December 31, 1996 (including 17 CNL Income Fund limited partnerships) in
which Mr. Seneff and/or Mr. Bourne serve or have served as general partners in
the past ten years, 35 invested in restaurant properties leased on a
"triple-net" basis, including six which also invested in franchised restaurant
businesses (accounting for approximately 93% of the total amount raised by all
83 real estate limited partnerships).
The following table sets forth summary information, as of December 31,
1996 regarding property acquisitions during the ten preceding years by the 17
limited partnerships that, either individually or through a joint venture or
partnership arrangement, acquired restaurant properties and that have investment
objectives similar to those of the Company.
-34-
<PAGE>
<TABLE>
<CAPTION>
Name of Type of Method of Type of
Partnership Property Location Financing Program
- ----------- --------- -------- --------- --------
<S> <C>
CNL Income 20 fast-food or AL, AZ, CA, FL, All cash Public
Fund, Ltd. family-style GA, LA, MD, OK,
restaurants TX, VA
CNL Income 43 fast-food or AL, AZ, CO, FL, All cash Public
Fund II, Ltd. family-style GA, IL, IN, LA, MI,
restaurants MN, MO, NC, NM,
OH, TX, WY
CNL Income 32 fast-food or AZ, CA, FL, GA, All cash Public
Fund III, Ltd. family-style IA, IL, IN, KS, KY,
restaurants MD, MI, MN, MO,
NE, OK, TX
CNL Income 44 fast-food or AL, DC, FL, GA, All cash Public
Fund IV, Ltd. family-style IL, IN, KS, MA,
restaurants MD, MI, MS, NC,
OH, PA, TN, TX,
VA
CNL Income 30 fast-food or FL, GA, IL, IN, MI, All cash Public
Fund V, Ltd. family-style NH, NY, OH, SC,
restaurants TN, TX, UT, WA
CNL Income 46 fast-food or AR, AZ, FL, IN, All cash Public
Fund VI, Ltd. family-style MA, MI, MN, NC,
restaurants NE, NM, NY, OH,
OK, PA, TN, TX,
VA, WY
CNL Income 46 fast-food or AZ, CO, FL, GA, All cash Public
Fund VII, Ltd. family-style IN, LA, MI, MN,
restaurants OH, SC, TN, TX,
UT, WA
CNL Income 40 fast-food or AZ, FL, IN, LA, All cash Public
Fund VIII, Ltd. family-style MI, MN, NC, NY,
restaurants OH, TN, TX, VA
CNL Income 41 fast-food or AL, FL, GA, IL, IN, All cash Public
Fund IX, Ltd. family-style LA, MI, MN, MS,
restaurants NC, NH, NY, OH,
SC, TN, TX
CNL Income 49 fast-food or AL, CA, CO, FL, All cash Public
Fund X, Ltd. family-style ID, IL, LA, MI,
restaurants MO, MT, NC, NH,
NM, NY, OH, PA,
SC, TN, TX
CNL Income 39 fast-food or AL, AZ, CA, CO, All cash Public
Fund XI, Ltd. family-style CT, FL, KS, LA,
restaurants MA, MI, MS, NC,
NH, NM, OH, OK,
PA, SC, TX, VA,
WA
</TABLE>
-35-
<PAGE>
<TABLE>
<CAPTION>
Name of Type of Method of Type of
Partnership Property Location Financing Program
- ----------- --------- -------- --------- --------
<S> <C>
CNL Income 49 fast-food or AL, AZ, CA, FL, All cash Public
Fund XII, Ltd. family-style GA, LA, MO, MS,
restaurants NC, NM, OH, SC,
TN, TX, WA
CNL Income 48 fast-food or AL, AR, AZ, CA, All cash Public
Fund XIII, Ltd. family-style CO, FL, GA, IN,
restaurants KS, LA, MD, NC,
OH, PA, SC, TN,
TX, VA
CNL Income 61 fast-food or AL, AZ, CO, FL, All cash Public
Fund XIV, Ltd. family-style GA, KS, LA, MN,
restaurants MO, MS, NC, NJ,
NV, OH, SC, TN,
TX, VA
CNL Income 53 fast-food or CA, FL, GA, KS, All cash Public
Fund XV, Ltd. family-style KY, MN, MO, MS,
restaurants NC, NJ, NM, OH,
OK, PA, SC, TN,
TX, VA
CNL Income 44 fast-food or AZ, CA, CO, DC, All cash Public
Fund XVI, Ltd. family-style FL, GA, ID, IN, KS,
restaurants MN, MO, NC, NM,
NV, OH, TN, TX,
UT, WI
CNL Income 24 fast-food, CA, FL, GA, IL, IN, All cash Public
Fund XVII, Ltd. family-style or MI, NC, NV, OH,
casual dining SC, TN, TX
restaurants
CNL Income 2 fast-food, NC, TX All cash Public
Fund XVIII, Ltd. family-style or
casual dining
restaurants
</TABLE>
A more detailed description of the acquisitions by real estate limited
partnerships sponsored by Messrs. Bourne and Seneff is set forth in prior
performance Table VI, included in Part II of the registration statement filed
with the Securities and Exchange Commission for this offering. A copy of Table
VI is available to stockholders from the Company upon request, free of charge.
In addition, upon request to the Company, the Company will provide, without
charge, a copy of the most recent Annual Report on Form 10-K filed with the
Securities and Exchange Commission for CNL Income Fund, Ltd., CNL Income Fund
II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund
V, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund
VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund X, Ltd., CNL Income Fund
XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIII, Ltd., CNL Income Fund
XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., CNL Income Fund
XVII, Ltd., and CNL Income Fund XVIII, Ltd., as well as a copy, for a reasonable
fee, of the exhibits filed with such reports.
In order to provide potential purchasers of Shares in the Company with
information to enable them to evaluate the prior experience of the Messrs.
Seneff and Bourne as general partners of real estate limited partnerships,
including those set forth in the foregoing table, certain financial and other
information concerning those limited partnerships with investment objectives
similar to one or more of the Company's investment objectives in which Messrs.
Seneff and Bourne are general partners is provided in the Prior Performance
Tables included as Exhibit C. Information about the previous public
partnerships, the offerings of which were fully subscribed between October
-36-
<PAGE>
1991 and September 1996, is included therein. Potential stockholders are
encouraged to examine the Prior Performance Tables attached as Exhibit C (in
Table III), which include information as to the operating results of these prior
partnerships, for more detailed information concerning the experience of Messrs.
Seneff and Bourne.
DISTRIBUTION POLICY
DISTRIBUTIONS
The following table reflects the total Distributions and Distributions
per Share declared by the Company for each month since the Company commenced
operations.
Total Distributions
Month Distributions Per Share
- ------ ------------- --------------
June 1995 $ 15,148 $0.030000
July 1995 30,682 0.030000
August 1995 57,739 0.035000
September 1995 84,467 0.050000
-37-
<PAGE>
Total Distributions
Month Distributions Per Share
- ------ ------------- --------------
October 1995 104,733 0.050000
November 1995 155,665 0.058300
December 1995 190,184 0.058300
January 1996 225,354 0.058300
February 1996 255,649 0.058300
March 1996 287,805 0.058300
April 1996 323,721 0.058300
May 1996 368,155 0.058300
June 1996 407,803 0.058300
July 1996 458,586 0.059375
August 1996 517,960 0.059375
September 1996 559,599 0.059375
October 1996 615,914 0.059375
November 1996 683,907 0.059375
December 1996 731,569 0.059375
January 1997 827,967 0.059375
February 1997 884,794 0.059375
March 1997 980,571 0.060416
The Company intends to make regular Distributions to stockholders. The
payment of Distributions commenced in July 1995. Distributions will be made to
those stockholders who are stockholders as of the record date selected by the
Directors. Distributions will be declared monthly and paid on a quarterly basis
during the offering period and declared and paid quarterly thereafter. The
Company is required to distribute annually at least 95% of its real estate
investment trust taxable income to maintain its objective of qualifying as a
REIT. Generally, income distributed will not be taxable to the Company under
federal income tax laws if the Company complies with the provisions relating to
qualification as a REIT. If the cash available to the Company is insufficient to
pay such Distributions, the Company may obtain the necessary funds by borrowing,
issuing new securities, or selling assets. These methods of obtaining funds
could affect future Distributions by increasing operating costs. To the extent
that Distributions to stockholders exceed earnings and profits, such amounts
constitute a return capital for federal income tax purposes, although such
Distributions will not reduce stockholders' aggregate Invested Capital. For the
years ended December 31, 1996 and 1995, the Company declared and made
Distributions totalling $5,436,072 and $638,618, respectively, of which 90.25%
and 59.82%, respectively, of such amounts were characterized as ordinary income
and 9.75% and 40.18%, respectively, were characterized as return of capital for
federal income tax purposes. However, no amounts distributed to stockholders as
of March 6, 1997, 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. Due to the fact that the Company had not acquired all of its
Properties and was still in its offering period as of December 31, 1996 and
1995, the characterization of Distributions for federal income tax purposes is
not necessarily considered by management to be representative of the
characterization of Distributions in future years. Distributions in kind shall
not be permitted, except for distributions of readily marketable securities;
distributions of beneficial interests in a liquidating trust established for the
dissolution of the Company and the liquidation of its assets in accordance with
the terms of the Articles of Incorporation; or distributions of in-kind property
as long as the Directors (i) advise each stockholder of the risks associated
with direct ownership of the property; (ii) offer each stockholder the election
of receiving in-kind property distributions; and (iii) distribute in-kind
property only to those stockholders who accept the Directors' offer.
Distributions will be made at the discretion of the Directors,
depending primarily on net cash from operations (which includes cash received
from tenants except to the extent that such cash represents a return of
principal in regard to the lease of a Property consisting of building only,
distributions from joint ventures, and interest income from lessees of
Equipment and borrowers under Mortgage Loans, less expenses paid) and the
general financial condition of the Company, subject to the obligation of the
Directors to cause the Company to qualify and remain qualified as a REIT
for federal income tax purposes. The Company intends to increase Distributions
in accordance with increases in net cash from operations.
EXPERTS
The audited consolidated financial statements (including the financial
statement schedule) of the Company, as of December 31, 1996 and 1995, and for
the years ended December 31, 1996 and 1995, and for the period May 2, 1994 (date
of inception) through December 31, 1994, included in this Prospectus, have been
included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
DEFINITIONS
"Initial Offering" means the initial public offering of the Company
which commenced in April 1995 and terminated on February 6, 1997, at which time
this offering commenced.
"Loan" shall mean a line of credit, the maximum principal amount of
which is $15,000,000 and the proceeds of which are used to fund Secured
Equipment Leases.
-39-
<PAGE>
EXHIBIT B
FINANCIAL INFORMATION
----------------------------------------
| THE FINANCIAL STATEMENTS INCLUDED IN |
| THIS EXHIBIT B UPDATE AND REPLACE |
| EXHIBIT B TO THE ATTACHED |
| PROSPECTUS, DATED JANUARY 31, 1997. |
----------------------------------------
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
INDEX TO UPDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Pro Forma Consolidated Financial Information (unaudited):
Pro Forma Consolidated Balance Sheet as of December 31, 1996 B-2
Pro Forma Consolidated Statement of Earnings for the year ended December 31, 1996 B-3
Notes to Pro Forma Consolidated Financial Statements for the year ended
December 31, 1996 B-4
Audited Consolidated Financial Statements:
Report of Independent Accountants B-7
Consolidated Balance Sheets as of December 31, 1996 and 1995 B-8
Consolidated Statements of Earnings for the years ended December 31, 1996 and
1995 and the period May 2, 1994 (date of inception) through December 31, 1994 B-9
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1996 and 1995 and the period May 2, 1994 (date of inception)
through December 31, 1994 B-10
Consolidated Statements of Cash Flows for the years ended December 31, 1996
and 1995 and the period May 2, 1994 (date of inception) through December 31, 1994 B-11
Notes to Consolidated Financial Statements for the years ended December 31,
1996 and 1995 and the period May 2, 1994 (date of inception) through December 31, 1994 B-13
Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1996 B-31
Notes to Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1996 B-39
Schedule IV - Mortgage Loans on Real Estate as of December 31, 1996 B-41
</TABLE>
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Consolidated Balance Sheet of the Company gives
effect to (i) property acquisition transactions from inception through December
31, 1996, including the receipt of $139,247,150 in gross offering proceeds from
the sale of 13,924,715 shares of common stock pursuant to a Form S-11 under the
Securities Act of 1933, as amended, effective March 29, 1995, and the
application of such proceeds to purchase 94 properties (including 51 properties
which consist of land and building, one property through a joint venture
arrangement which consists of land and building, seven properties which consist
of building only and 35 properties consisting of land only), nine of which were
under construction at December 31, 1996, to provide mortgage financing to the
lessees of the 35 properties consisting of land only, and to pay organizational
and offering expenses, acquisition fees and miscellaneous acquisition expenses,
(ii) the receipt of $25,587,675 in gross offering proceeds from the sale of
2,558,768 additional shares of common stock during the period January 1, 1997
through March 6, 1997, and (iii) the application of such funds and $4,926,309 of
cash and cash equivalents at December 31, 1996, to purchase 16 additional
properties acquired during the period January 1, 1997 through March 6, 1997 (14
of which are under construction and consist of land and building and two
properties which consist of land and building), to pay additional costs for the
nine properties under construction at December 31, 1996, and to pay offering
expenses, acquisition fees and miscellaneous acquisition expenses, all as
reflected in the pro forma adjustments described in the related notes. The Pro
Forma Consolidated Balance Sheet as of December 31, 1996, includes the
transactions described in (i) above from its historical consolidated balance
sheet, adjusted to give effect to the transactions in (ii) and (iii) above, as
if they had occurred on December 31, 1996.
The Pro Forma Consolidated Statement of Earnings for the year ended
December 31, 1996, includes the historical operating results of the properties
described in (i) above from the dates of their acquisitions plus operating
results for the four of the properties that were acquired by the Company during
the period January 1, 1996 through March 6, 1997, and had a previous rental
history prior to the Company's acquisition of such properties, from (A) the
later of (1) the date the property became operational as a rental property by
the previous owner or (2) January 1, 1996, to (B) the earlier of (1) the date
the property was acquired by the Company or (2) the end of the pro forma period
presented. No pro forma adjustments have been made to the Pro Forma Consolidated
Statement of Earnings for the remaining properties acquired by the Company
during the period January 1, 1996 through March 6, 1997, due to the fact that
these properties did not have a previous rental history.
This pro forma consolidated financial information is presented for
informational purposes only and does not purport to be indicative of the
Company's financial results or condition if the various events and transactions
reflected therein had occurred on the dates, or been in effect during the
periods, indicated. This pro forma consolidated financial information should not
be viewed as predictive of the Company's financial results or conditions in the
future.
B-1
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Pro Forma
ASSETS Historical Adjustments Pro Forma
-------------- -------------- -------------
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation $ 60,243,146 $ 16,513,997 (a) $ 76,757,143
Net investment in direct
financing leases (b) 15,186,686 5,331,775 (a) 20,518,461
Cash and cash equivalents 42,450,088 (4,926,309)(a) 37,523,779
Receivables 160,675 160,675
Mortgage notes receivable 13,389,607 13,389,607
Organization costs, less
accumulated amortization 13,682 13,682
Loan costs, less accumulated
amortization 32,499 32,499
Accrued rental income 422,076 422,076
Other assets 2,926,589 40,643 (a)
(466,405)(b) 2,500,827
------------ ------------ ------------
$134,825,048 $ 16,493,701 $151,318,749
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable $ 3,521,816 $ 3,521,816
Accrued interest payable 13,164 13,164
Accrued construction costs payable 6,587,573 $ (6,587,573)(a) -
Accounts payable and other accrued
expenses 79,817 79,817
Due to related parties 997,084 997,084
Rents paid in advance 118,900 118,900
Deferred rental income 335,849 7,018 (a) 342,867
Other payables 15,117 15,117
------------ ------------ ------------
Total liabilities 11,669,320 (6,580,555) 5,088,765
------------ ------------ ------------
Minority interest 288,301 288,301
------------ ------------ ------------
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
13,944,715 shares; issued and
outstanding, as adjusted,
16,503,483 shares 139,447 25,588 (a) 165,035
Capital in excess of par value 123,687,929 23,515,073 (a)
(466,405)(b) 146,736,597
Accumulated distributions in
excess of net earnings (959,949) (959,949)
------------ ------------ ------------
122,867,427 23,074,256 145,941,683
------------ ------------ ------------
$134,825,048 $ 16,493,701 $151,318,749
============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
B-2
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------ ------------- -----------
<S> <C>
Revenues:
Rental income from
operating leases $3,717,886 $ 60,938 (1) $3,778,824
Earned income from
direct financing leases (2) 625,492 34,282 (1) 659,774
Contingent rental income 13,920 13,920
Interest income from
mortgage notes receivable 1,069,349 1,069,349
Other interest and income 780,037 (24,348)(3) 755,689
---------- ---------- ----------
6,206,684 70,872 6,277,556
---------- ---------- ----------
Expenses:
General operating and
administrative 542,564 542,564
Professional services 58,976 58,976
Asset and mortgage management
fees to related party 251,200 5,444 (4) 256,644
State and other taxes 56,184 1,218 (5) 57,402
Depreciation and amortization 521,871 6,537 (6) 528,408
---------- ---------- ----------
1,430,795 13,199 1,443,994
---------- ---------- ----------
Earnings Before Minority
Interest in Income of
Consolidated Joint Venture 4,775,889 57,673 4,833,562
Minority Interest in Income of
Consolidated Joint Venture (29,927) (29,927)
---------- ---------- ----------
Net Earnings $4,745,962 $ 57,673 $4,803,635
========== ========== ==========
Earnings Per Share of
Common Stock (7) $ .59 $ 0.60
========== ==========
Weighted Average Number of
Shares of Common Stock
Outstanding (7) 8,071,670 8,071,670
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
B-3
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
Pro Forma Consolidated Balance Sheet:
(a) Represents gross proceeds of $25,587,675 from the issuance of 2,558,768
shares of common stock during the period January 1, 1997 through March
6, 1997, the receipt of $7,018 of rental income during construction
(capitalized as deferred rental income) and $4,926,309 of cash and cash
equivalents used (i) to acquire 16 properties for $16,755,931, of which
the properties consist of land and building, (ii) to fund estimated
construction costs of $10,566,612 ($6,587,573 of which was accrued as
construction costs payable at December 31, 1996) relating to nine
wholly-owned properties under construction at December 31, 1996, (iii)
to pay acquisition fees of $1,151,445 ($1,110,802 of which was
allocated to properties and $40,643 of which was classified as other
assets and will be allocated to future properties) and to pay selling
commissions and offering expenses (stock issuance costs) of $2,047,014,
which have been netted against capital in excess of par value.
The pro forma adjustments to land and buildings on operating leases and
net investment in direct financing leases as a result of the above
transactions were as follows:
<TABLE>
<CAPTION>
Estimated
purchase price
(including con-
struction and Acquisition
closing costs) fees
and additional allocated
construction costs to property Total
------------------ ----------- -----------
<S> <C>
Jack in the Box in Las Vegas, NV $ 1,247,333 $ 66,822 $ 1,314,155
Jack in the Box in Los Angeles, CA 1,396,771 74,827 1,471,598
Jack in the Box in Moscow, ID 909,814 48,740 958,554
Jack in the Box in Kent, WA 1,258,871 67,439 1,326,310
Jack in the Box in Hollister, CA 1,060,819 56,830 1,117,649
Jack in the Box in Kingsburg, CA 1,000,073 53,575 1,053,648
Shoney's in Indian Harbour
Beach, FL 642,870 34,440 677,310
Jack in the Box in Murietta, CA 951,485 50,973 1,002,458
Jack in the Box in Humble, TX 882,362 47,270 929,632
Golden Corral in Winchester, KY 1,150,645 61,640 1,212,285
Burger King in Kent, OH 872,861 46,761 919,622
Burger King in Chattanooga, TN 1,110,330 59,482 1,169,812
Denny's in Tampa, FL 1,033,787 55,381 1,089,168
Jack in the Box in Palmdale, CA 1,124,244 60,228 1,184,472
Jack in the Box in Houston, TX 860,735 46,110 906,845
Golden Corral in Hopkinsville, KY 1,252,931 67,121 1,320,052
Nine wholly owned properties
under construction at
December 31, 1996 3,979,039 213,163 4,192,202
----------- ----------- -----------
$20,734,970 $ 1,110,802 $21,845,772
=========== =========== ===========
Adjustment classified
as follows:
Land and buildings on
operating leases $16,513,997
Net investment in
direct financing
leases 5,331,775
-----------
$21,845,772
===========
</TABLE>
(b) Represents reclassification of deferred stock issuance costs totalling
$466,405 at December 31, 1996, to stock issuance costs which have been
netted against capital in excess of par value.
B-4
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1996
Pro Forma Consolidated Balance Sheet - Continued:
(c) In accordance with generally accepted accounting principles, leases in
which the present value of future minimum lease payments equals or
exceeds 90 percent of the value of the related properties are treated
as direct financing leases rather than as land and buildings. The
categorization of the leases has no effect on rental revenues received.
Pro Forma Consolidated Statement of Earnings:
(1) Represents rental income from operating leases and earned income from
direct financing leases for four of the properties acquired during the
period January 1, 1996 through March 6, 1997, which had a previous
rental history prior to the acquisition of the property by the Company
(the "Pro Forma Properties"), for the period commencing (A) the later
of (i) the date the Pro Forma Property became operational as a rental
property by the previous owner or (ii) January 1, 1996, to (B) the
earlier of (i) the date the Pro Forma Property was acquired by the
Company or (ii) the end of the pro forma period presented. Each of the
four Pro Forma Properties was acquired from an affiliate who had
purchased and temporarily held title to the property. The
noncancellable leases for the Pro Forma Properties in place during the
period the affiliate owned the properties were assigned to the Company
at the time the Company acquired the properties. The following presents
the actual date the Pro Forma Properties were acquired or placed in
service by the Company as compared to the date the Pro Forma Properties
were treated as becoming operational as a rental property for purposes
of the Pro Forma Consolidated Statement of Earnings.
Date Pro Forma
Date Placed Property Became
in Service Operational as
By the Company Rental Property
-------------- ---------------
Denny's in Grand Rapids, MI March 1996 January 1996
Denny's in McKinney, TX June 1996 January 1996
Boston Market in Merced, CA October 1996 July 1996
Boston Market in
St. Joseph, MO December 1996 June 1996
In accordance with generally accepted accounting principles, lease
revenue from leases accounted for under the operating method is
recognized over the terms of the leases. For operating leases providing
escalating guaranteed minimum rents, income is reported on a
straight-line basis over the terms of the leases. For leases accounted
for as direct financing leases, future minimum lease payments are
recorded as a receivable. The difference between the receivable and the
estimated residual values less the cost of the properties is recorded
as unearned income. The unearned income is amortized over the lease
terms to provide a constant rate of return. Accordingly, pro forma
rental income from operating leases and earned income from direct
financing leases does not necessarily represent rental payments that
would have been received if the properties had been operational for the
full pro forma period.
B-5
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1996
Pro Forma Consolidated Statement of Earnings - Continued:
Generally, the leases provide for the payment of percentage rent in
addition to base rental income. However, due to the fact that no
percentage rent was due under the leases for the Pro Forma Properties
during the portion of 1996 that the previous owners held the
properties, no pro forma adjustment was made for percentage rental
income for the year ended December 31, 1996.
(2) See Note (c) under "Pro Forma Consolidated Balance Sheet" above for a
description of direct financing leases.
(3) Represents adjustment to interest income due to the decrease in the
amount of cash available for investment in interest bearing accounts
during the periods commencing (A) on the later of (i) the dates the Pro
Forma Properties became operational as rental properties by the
previous owners or (ii) January 1, 1996, through (B) the earlier of (i)
the actual dates of acquisition by the Company or the end of the pro
forma period presented, as described in Note (1) above. The estimated
pro forma adjustment is based upon the fact that interest income on
interest bearing accounts was earned at a rate of approximately four
percent per annum by the Company during the year ended December 31,
1996.
(4) Represents incremental increase in asset management fees relating to
the Pro Forma Properties for the period commencing (A) on the later of
(i) the date the Pro Forma Properties became operational as rental
properties by the previous owners or (ii) January 1, 1996 through (B)
the earlier of (i) the date the Pro Forma Properties were acquired by
the Company or (ii) the end of the pro forma period presented, as
described in Note (1) above. Asset management fees are equal to 0.60%
of the Company's Real Estate Asset Value (estimated to be approximately
$2,723,000 for the Pro Forma Properties for the year ended December 31,
1996), as defined in the Company's prospectus.
(5) Represents adjustment to state tax expense due to the incremental
increase in rental revenues of Pro Forma Properties. Estimated pro
forma state tax expense was calculated based on an analysis of state
laws of the various states in which the Company has acquired the Pro
Forma Properties. The estimated pro forma state taxes consist primarily
of income and franchise taxes ranging from zero to approximately two
percent of the Company's pro forma rental income of each Pro Forma
Property. Due to the fact that the Company's leases are triple net, the
Company has not included any amounts for real estate taxes in the pro
forma statement of earnings.
(6) Represents incremental increase in depreciation expense of the building
portions of the Pro Forma Properties accounted for as operating leases
using the straight-line method over an estimated useful life of 30
years.
(7) Historical earnings per share were calculated based upon the weighted
average number of shares of common stock outstanding during the year
ended December 31, 1996.
B-6
<PAGE>
Report of Independent Accountants
To the Board of Directors
CNL American Properties Fund, Inc.
We have audited the accompanying consolidated balance sheets of CNL American
Properties Fund, Inc. (a Maryland corporation) and its subsidiary as of December
31, 1996 and 1995, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the two years in the period
ended December 31, 1996 and for the period May 2, 1994 (date of inception)
through December 31, 1994 and the related financial statement schedules. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CNL American
Properties Fund, Inc. and its subsidiary as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1996 and for the period May 2,
1994 (date of inception) through December 31, 1994, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole present fairly, in all material respects,
the information required to be included therein.
/s/COOPERS & LYBRAND L.L.P.
Orlando, Florida
January 22, 1997
B-7
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31,
ASSETS 1996 1995
------------ ------------
<S> <C>
Land and buildings on operating leases,
less accumulated depreciation $ 60,243,146 $ 19,723,726
Net investment in direct financing leases 15,186,686 1,373,882
Cash and cash equivalents 42,450,088 11,508,445
Receivables 160,675 113,613
Mortgage notes receivable 13,389,607 -
Organization costs, less accumulated
amortization of $6,318 and $2,318 13,682 17,682
Loan costs, less accumulated amortization
of $22,034 at December 31, 1996 32,499 -
Accrued rental income 422,076 39,142
Other assets 2,926,589 826,594
------------ ------------
$134,825,048 $ 33,603,084
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $ 3,521,816 $ -
Accrued interest payable 13,164 -
Accrued construction costs payable 6,587,573 1,058,825
Accounts payable and other accrued expenses 79,817 79,904
Due to related parties 997,084 248,584
Rents paid in advance 118,900 25,351
Deferred rental income 335,849 -
Other payables 15,117 9,696
------------ ------------
Total liabilities 11,669,320 1,422,360
------------ ------------
Minority interest 288,301 200,076
------------ ------------
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 13,944,715 and 3,865,416,
respectively 139,447 38,654
Capital in excess of par value 123,687,929 32,211,833
Accumulated distributions in excess of
net earnings (959,949) (269,839)
------------ ------------
Total stockholders' equity 122,867,427 31,980,648
------------ ------------
$134,825,048 $ 33,603,084
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
B-8
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------
<TABLE>
<CAPTION>
May 2, 1994
(Date of
Inception)
Year Ended through
December 31, December 31,
1996 1995 1994
---------- ---------- ------------
<S> <C>
Revenues:
Rental income from operating
leases $3,717,886 $ 498,817 $ -
Earned income from direct
financing leases 625,492 28,935 -
Contingent rental income 13,920 12,024 -
Interest income from
mortgage notes receivable 1,069,349 - -
Other interest and income 780,037 119,355 -
---------- ---------- ---------
6,206,684 659,131 -
---------- ---------- ---------
Expenses:
General operating and
administrative 542,564 134,759 -
Professional services 58,976 8,119 -
Asset and mortgage manage-
ment fees to related party 251,200 23,078 -
State taxes 56,184 20,189 -
Depreciation and amorti-
zation 521,871 104,131 -
---------- ---------- ---------
1,430,795 290,276 -
---------- ---------- ---------
Earnings Before Minority
Interest in Income of
Consolidated Joint Venture 4,775,889 368,855 -
Minority Interest in Income of
Consolidated Joint Venture (29,927) (76) -
---------- ---------- ---------
Net Earnings $4,745,962 $ 368,779 $ -
========== ========== =========
Earnings Per Share of Common
Stock $ .59 $ .19 $ -
========== ========== =========
Weighted Average Number of
Shares of Common Stock
Outstanding 8,071,670 1,898,350 -
========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
B-9
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
Years Ended December 31, 1996 and 1995 and the
Period May 2, 1994 (Date of Inception) through
December 31, 1994
<TABLE>
<CAPTION>
Common stock Accumulated
----------------------- Capital in distributions
Number Par excess of in excess of
of shares value par value net earnings Total
---------- ---------- ----------- ------------- ------------
<S> <C>
Balance at May 2, 1994 - $ - $ - $ - $ -
Sale of common stock to
CNL Fund Advisors, Inc. 20,000 200 199,800 - 200,000
---------- -------- ------------ ----------- ------------
Balance at December 31,
1994 20,000 200 199,800 - 200,000
Subscriptions received
for common stock
through public offering
and distribution
reinvestment plan 3,845,416 38,454 38,415,704 - 38,454,158
Stock issuance costs - - (6,403,671) - (6,403,671)
Net earnings - - - 368,779 368,779
Distributions declared
($.31 per share) - - - (638,618) (638,618)
---------- -------- ------------ ----------- ------------
Balance at December 31,
1995 3,865,416 38,654 32,211,833 (269,839) 31,980,648
Subscriptions received
for common stock
through public offering
and distribution
reinvestment plan 10,079,299 100,793 100,692,198 - 100,792,991
Stock issuance costs - - (9,216,102) - (9,216,102)
Net earnings - - - 4,745,962 4,745,962
Distributions declared
($.71 per share) - - - (5,436,072) (5,436,072)
---------- -------- ------------ ----------- ------------
Balance at December 31,
1996 13,944,715 $139,447 $123,687,929 $ (959,949) $122,867,427
========== ======== ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
B-10
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
May 2, 1994
(Date of
Inception)
Year Ended through
December 31, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows From Operating Activities:
Cash received from tenants $ 4,543,506 $ 492,488 $ -
Cash paid for expenses (928,001) (113,384) -
Interest received 1,867,035 119,355 -
------------ ------------ -----------
Net cash provided by operating activities 5,482,540 498,459 -
------------ ------------ -----------
Cash Flows From Investing Activities:
Additions to land and buildings on operating
leases (36,104,148) (18,835,969) -
Increase in net investment in direct financing
leases (13,372,621) (1,364,960) -
Investment in mortgage notes receivable (13,547,264) - -
Collections on mortgage notes receivable 133,850 - -
Increase in other assets (1,103,896) (628,142) -
------------ ------------ -----------
Net cash used in investing activities (63,994,079) (20,829,071) -
------------ ------------ -----------
Cash Flows From Financing Activities:
Reimbursement of acquisition, organization,
deferred offering and stock issuance costs
paid by related parties on behalf of the
Company (939,798) (2,500,056) (199,036)
Proceeds of borrowing on line of credit 3,666,896 - -
Payment on line of credit (145,080) - -
Payment of loan costs (54,533) - -
Contribution from minority interest of
consolidated joint venture 97,419 200,000 -
Sale of common stock to CNL Fund Advisors, Inc. - - 200,000
Subscriptions received from stockholders 100,792,991 38,454,158 -
Distributions to minority interest (39,121) - -
Distributions to stockholders (5,439,404) (635,286) -
Payment of stock issuance costs (8,486,188) (3,680,704) (19)
------------ ------------ ------------
Net cash provided by financing activities 89,453,182 31,838,112 945
------------ ------------ ------------
Net Increase in Cash and Cash Equivalents 30,941,643 11,507,500 945
Cash and Cash Equivalents at Beginning of Period 11,508,445 945 -
------------ ------------ -----------
Cash and Cash Equivalents at End of Period $ 42,450,088 $ 11,508,445 $ 945
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
B-11
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
-------------------------------------------------
<TABLE>
<CAPTION>
May 2, 1994
(Date of
Inception)
Year Ended through
December 31, December 31,
1996 1995 1994
------------ ------------ -----------
<S> <C>
Reconciliation of Net Earnings to Net Cash Provided
by Operating Activities:
Net earnings $ 4,745,962 $ 368,779 $ -
------------ ------------ -----------
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 511,078 100,318 -
Amortization 69,886 3,813 -
Increase in receivables (160,984) (44,749) -
Decrease in net investment in direct
financing leases 259,740 1,078 -
Increase in accrued rental income (382,934) (39,142) -
Increase in other assets (4,293) (8,090) -
Increase in accrued interest payable 13,164 - -
Increase (decrease) in accounts payable and
other accrued expenses (2,896) 38,461 -
Increase (decrease) in due to related parties,
excluding reimbursement of acquisition,
organization, deferred offering and stock
issuance costs paid on behalf of the Company (30,929) 42,868 -
Increase in rents paid in advance 93,549 25,351 -
Increase in deferred rental income 335,849 - -
Increase in other payables 5,421 9,696 -
Increase in minority interest 29,927 76 -
------------ ------------ -----------
Total adjustments 736,578 129,680 -
------------ ------------ -----------
Net Cash Provided by Operating Activities $ 5,482,540 $ 498,459 $ -
============ ============ ===========
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Related parties paid certain acquisition, organization, deferred offering
and stock issuance costs on behalf of the Company as follows:
Acquisition costs $ 206,103 $ 131,629 $ -
Organization costs - 20,000 -
Deferred offering costs 466,405 - 461,866
Stock issuance costs 338,212 2,084,145 -
------------ ------------ -----------
$ 1,010,720 $ 2,235,774 $ 461,866
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
B-12
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund, Inc. (the
"Company") was organized in Maryland on May 2, 1994. Effective December
6, 1994, the Company changed its name to CNL Investment Fund, Inc. and
effective February 1, 1995, the Company changed its name to CNL
American Properties Fund, Inc. The Company was organized primarily for
the purpose of acquiring, directly or indirectly through joint venture
or co-tenancy arrangements, restaurant properties ("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. The Company may provide financing ("Mortgage Loans")
for the purchase of buildings, generally by tenants that lease the
underlying land from the Company. To a lesser extent, the Company may
offer furniture, fixtures and equipment financing ("Secured Equipment
Leases") to operators of restaurant chains.
The Company was a development stage enterprise from May 2, 1994 through
June 1, 1995. Since operations had not begun, activities through June
1, 1995, were devoted to organization of the Company.
Principles of Consolidation - The Company accounts for its 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.
Real Estate and Lease Accounting - The Company records the acquisition
of land, buildings and equipment at cost, including acquisition and
closing costs. In addition, interest costs incurred during construction
are capitalized in accordance with accounting standards. Land and
buildings are leased to unrelated third parties on a triple-net basis,
whereby the tenant is generally responsible for all operating expenses
relating to the Property, including property taxes, insurance,
maintenance and repairs. In addition, the Company leases equipment
subject to Secured Equipment Leases. The
B-13
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
1. Significant Accounting Policies - Continued:
leases are accounted for using either the direct financing or
the operating method. Such methods are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (Note 5). Unearned income is deferred and
amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Company's net
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals (including rental payments, if
any, required during the construction of a Property) vary
during the lease term, income is recognized on a straight-line
basis so as to produce a constant periodic rent over the lease
term commencing on the date the Property is placed in service.
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date. In contrast, deferred
rental income represents the aggregate amount of scheduled
rental payments to date (including rental payments due during
construction and prior to the Property being placed in
service) in excess of income recognized on a straight-line
basis over the lease term commencing on the date the Property
is placed in service.
When the Properties or equipment are sold, the related cost and
accumulated depreciation for operating leases and the net investment
for direct financing leases, plus any accrued rental income or deferred
rental income, will be removed from the accounts and gains or losses
from sales will be reflected in income. Management reviews its
Properties for impairment
B-14
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
1. Significant Accounting Policies - Continued:
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations.
Management determines whether an impairment in value has occurred by
comparing the estimated future undiscounted cash flows, including the
residual value of the Property, with the carrying cost of the
individual Property. If an impairment is indicated, a loss will be
recorded for the amount by which the carrying value of the assets
exceeds its fair market value.
Mortgage Loans - The Company accounts for loan origination fees and
costs incurred in connection with Mortgage Loans in accordance with
Statement of Financial Accounting Standards No. 91, "Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring
Loans and Initial Direct Costs of Leases." This statement requires the
deferral of loan origination fees and the capitalization of direct loan
costs. The costs capitalized, net of the fees deferred, are amortized
to interest income as an adjustment of yield over the life of the
loans. The unpaid principal and accrued interest on the Mortgage Loans,
plus the unamortized balance of such fees and costs are included in
mortgage notes receivable (see Note 6).
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, money market funds (some of which are
backed by government securities) and certificates of deposit. 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.
Organization Costs - Organization costs are amortized over five years
using the straight-line method.
B-15
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
1. Significant Accounting Policies - Continued:
Loan Costs - Loan costs incurred in connection with the Company's
$15,000,000 line of credit for equipment financing have been
capitalized and are being amortized over the term of the loan
commitment using the straight-line method.
Income or expense associated with interest rate swap agreements related
to equipment financing is recognized on the accrual basis as earned or
incurred through an adjustment to interest expense.
Income Taxes - The Company has made an election to be taxed as a real
estate investment trust ("REIT") under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, and related regulations. The
Company generally will not be subject to federal corporate income taxes
on amounts distributed to stockholders, providing it distributes at
least 95 percent of its REIT taxable income and meets certain other
requirements for qualifying as a REIT. Accordingly, no provision for
federal income taxes has been made in the accompanying consolidated
financial statements. Notwithstanding the Company's qualification for
taxation as a REIT, the Company is subject to certain state taxes on
its income and property.
Earnings Per Share - Earnings per share are calculated based upon the
weighted average number of shares of common stock outstanding during
the period the Company was operational.
Use of Estimates - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
New Accounting Standard - 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
B-16
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
1. Significant Accounting Policies - Continued:
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.
2. Public Offering:
The Company has a currently effective registration statement on Form
S-11 with the Securities and Exchange Commission for the sale of
15,000,000 shares ($150,000,000) of common stock. In addition, the
Company has registered an additional 1,500,000 shares ($15,000,000)
which is available only to stockholders who elect to participate in the
Company's reinvestment plan. The Company has adopted a reinvestment
plan pursuant to which stockholders may elect to have the full amount
of their cash distributions from the Company reinvested in additional
shares of common stock of the Company. As of December 31, 1996, the
Company had received subscription proceeds of $139,247,149 (13,924,715
shares), including $591,765 (59,177 shares) through the reinvestment
plan.
In addition, 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 additional
shares ($275,000,000) 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 ($48,000,000). The Board
of Directors expects to submit, for a vote of the stockholders at a
meeting expected to be held in April 1997, a resolution to increase the
number of authorized shares of common stock of the Company from
20,000,000 to 75,000,000.
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 82 of the
Company's
B-17
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
3. Leases - Continued:
Properties have been classified as operating leases (including the
leases relating to nine Properties under construction as of December
31, 1996) and the leases relating to 12 Properties and six 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 four of these leases are accounted for as operating
leases. Substantially all Property leases have initial terms of 15 to
20 years (expiring between 2007 and 2016) and provide for minimum
rentals. In addition, all of the Property leases provide for contingent
rentals and/or scheduled rent increases over the terms of the leases.
Each tenant also pays all property taxes and assessments, fully
maintains the interior and exterior of the building and carries
insurance coverage for public liability, property damage, fire and
extended coverage. The lease options for the Property leases generally
allow tenants to renew the leases for two to four successive five-year
periods subject to the same terms and conditions as the initial lease.
Most leases also allow the tenant to purchase the Property at the
greater of the Company's purchase price plus a specified percentage of
such purchase price or fair market value after a specified portion of
the lease has elapsed.
The Secured Equipment Leases placed in service as of December 31, 1996,
provide for minimum rentals payable monthly and have lease terms
ranging from five to seven years. The Secured Equipment Leases
generally include an option for the lessee to acquire the equipment at
the end of the lease term for a nominal fee.
B-18
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
4. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
1996 1995
----------- -------
Land $33,850,436 $ 8,890,471
Buildings 24,152,610 10,049,032
----------- -----------
58,003,046 18,939,503
Less accumulated depreci-
ation (611,396) (100,318)
----------- -----------
57,391,650 18,839,185
Construction in progress 2,851,496 884,541
----------- -----------
$60,243,146 $19,723,726
=========== ===========
Some leases provide for scheduled rent increases throughout the lease
term and/or rental payments during the construction of a Property prior
to the date it is placed in service. Such amounts are recognized on a
straight-line basis over the terms of the leases commencing on the date
the Property is placed in service. For the years ended December 31,
1996 and 1995, the Company recognized $517,067 and $39,142,
respectively, of such rental income.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at December 31, 1996:
1997 $ 5,359,617
1998 5,368,667
1999 5,383,078
2000 5,406,750
2001 5,591,865
Thereafter 73,053,334
------------
$100,163,311
============
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales. These
amounts also do not include minimum lease payments that will become due
when Properties under development are completed (see Note 12).
B-19
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
5. Net Investment in Direct Financing Leases:
The following lists the components of net investment in direct
financing leases at December 31:
1996 1995
------------ ------------
Minimum lease payments
receivable $ 30,162,465 $ 2,498,881
Estimated residual values 1,346,332 343,740
Less unearned income (16,322,111) (1,468,739)
------------ ------------
Net investment in direct
financing leases $ 15,186,686 $ 1,373,882
============ ============
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 1996:
1997 $ 2,329,762
1998 2,329,762
1999 2,329,762
2000 2,333,080
2001 2,276,690
Thereafter 18,563,409
-----------
$30,162,465
============
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 4).
6. Mortgage Notes Receivable:
During 1996, in connection with the acquisition of land for 35 Pizza
Hut restaurants, the Company accepted three promissory notes in the
aggregate principal sum of $12,847,000, collateralized by mortgages on
the buildings on the 35 Pizza Hut Properties. The promissory notes bear
interest at a rate of 10.75% per annum and are being collected in 240
equal
B-20
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
6. Mortgage Notes Receivable - Continued:
monthly installments totalling $130,426. Mortgage notes
receivable consisted of the following at December 31, 1996:
Outstanding principal $12,713,151
Accrued interest income 35,285
Deferred financing income (46,268)
Unamortized loan costs 687,439
-----------
$13,389,607
===========
Management believes that the estimated fair value of mortgage notes
receivable at December 31, 1996, approximates the outstanding principal
amount based on estimated current rates at which similar loans would be
made to borrowers with similar credit and for similar maturities.
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.
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 addition, in connection with the Loan, the Company
incurred a commitment fee, legal fees and closing costs of $54,533.
As of December 31, 1996, the Company had obtained advances totalling
$3,666,896 relating to the Loan. In general, the advances are fully
amortizing term loans repayable over six years and bear interest at a
rate per annum equal to 215 basis points above the Reserve Adjusted
LIBOR Rate (ranging from 7.71% to 7.82% as of December 31, 1996). As of
December 31,
B-21
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
7. Note Payable - Continued:
1996, $3,521,816 of principal was outstanding relating to the Loan,
plus $13,164 of accrued interest. The Company believes, based on
current terms, that the carrying value of its note payable at December
31, 1996 approximates fair value.
During 1996, the Company entered into interest rate swap agreements
with a commercial bank to reduce the impact of changes in interest
rates on its floating rate long-term debt. The agreements effectively
change the Company's interest rate exposure on notional amounts
totalling approximately $2,110,000 of the outstanding floating rate
notes to fixed rates ranging from 8.75% to nine percent per annum. The
notional amounts of the interest rate swap agreements amortize over the
period of the agreements which approximate the term of the related
notes. 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.
Interest costs (including amortization of loan costs) incurred for the
year ended December 31, 1996, were $127,012, all of which were
capitalized as part of the cost of buildings under construction.
8. Stock Issuance Costs:
The Company has incurred certain expenses of its offering of shares,
including commissions, marketing support and due diligence expense
reimbursement fees, filing fees, legal, accounting, printing and escrow
fees, which have been deducted from the gross proceeds of the offering.
Preliminary costs incurred prior to raising capital were advanced by an
affiliate of the Company, CNL Fund Advisors, Inc. (the "Advisor"). The
Advisor has agreed to pay all organizational and offering expenses
(excluding commissions and marketing support and due diligence expense
reimbursement fees) which exceed three percent of the gross offering
proceeds received from the sale of shares of the Company.
B-22
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
8. Stock Issuance Costs - Continued:
During the years ended December 31, 1996 and 1995, the Company had
incurred $9,216,102 and $6,423,671, respectively, in organizational and
offering costs, including $8,063,439 and $3,076,333, respectively, in
commissions and marketing support and due diligence expense
reimbursement fees (see Note 10). Of these amounts, as of December 31,
1996 and 1995, $15,619,773 and $6,403,671, respectively, have been
treated as stock issuance costs and $20,000 has been treated as
organization costs. The stock issuance costs have been charged to
stockholders' equity subject to the three percent cap described above.
9. Distributions:
For the years ended December 31, 1996 and 1995, 90.25% and 59.82%,
respectively, of the distributions received by stockholders were
considered to be ordinary income and 9.75% and 40.18%, respectively,
were considered a return of capital for federal income tax purposes. No
amounts distributed to stockholders for the years ended December 31,
1996 and 1995, are required to be or have been treated by the Company
as a return of capital for purposes of calculating the stockholders'
return on their invested capital.
10. Related Party Transactions:
Certain directors and officers of the Company hold similar positions
with the Advisor and the managing dealer of the Company's common stock
offerings, CNL Securities Corp. In addition, as of December 31, 1994,
the Advisor was the sole stockholder of the Company.
CNL Securities Corp. is entitled to receive selling commissions
amounting to 7.5% of the total amount raised from the sale of shares
for services in connection with the formation of the Company and the
offering of shares, a substantial portion of which has been or will be
paid as commissions to other broker-dealers. During the years ended
December 31, 1996 and 1995, the Company incurred $7,559,474 and
$2,884,062, respectively, of such fees, of which approximately
$7,059,000 and $2,682,000, respectively, were or will be paid by CNL
Securities Corp. as commissions to other broker-dealers.
B-23
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
10. Related Party Transactions - Continued:
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 years ended December
31, 1996 and 1995, the Company incurred $503,965 and $192,271,
respectively, of such fees, the majority of which were reallowed to
other broker-dealers and from which all bona fide due diligence
expenses were paid.
CNL Securities Corp. will also receive a soliciting dealer servicing
fee payable annually by the Company beginning on December 31 of the
year following the year in which the offering terminates in the amount
of 0.20% of the stockholders' investment in the Company. CNL Securities
Corp. in turn may reallow all or a portion of such fee to soliciting
dealers whose clients held shares on such date. As of December 31,
1996, no such fees had been incurred.
The Advisor is entitled to receive acquisition fees for services in
identifying the Properties and structuring the terms of the acquisition
and leases of the Properties and structuring the terms of the Mortgage
Loans equal to 4.5% of the total amount raised from the sale of shares.
During the years ended December 31, 1996 and 1995, the Company incurred
$4,535,685 and $1,730,437, respectively, of such fees. Such fees are
included in land and buildings on operating leases, net investment in
direct financing leases, mortgage notes receivable 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. Such fees are included in the purchase
price of the Properties and are therefore included in the basis on
which the Company charges rent on the Properties. During the year ended
December 31, 1996, the Company incurred $159,350 of such amounts
relating to three Properties. No such amounts were incurred for the
year ended December 31, 1995.
B-24
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
10. Related Party Transactions - Continued:
For negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program, the Advisor is entitled to receive 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 year ended December 31, 1996, the Company incurred
$70,070 in secured equipment lease servicing fees. No secured equipment
lease servicing fees were incurred for the year ended December 31,
1995.
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 0.60% 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 years ended December 31, 1996 and 1995, the Company incurred
$278,902 and $27,950, respectively, of such fees, $27,702 and $4,872,
respectively, of which has been capitalized as part of the cost of
buildings for Properties that have been or are being constructed.
Prior to such time, if any, as shares of the Company's common stock are
listed on a national securities exchange or over-the-counter market,
the Advisor is entitled to receive a deferred, subordinated real estate
disposition fee, payable upon the sale of one or more Properties based
on the lesser of one-half of a competitive real estate commission or
three percent of the sales price if the Advisor provides a substantial
amount of services in connection with the sale. The real estate
disposition fee is payable only after the stockholders receive
distributions equal to the sum of an annual, aggregate, cumulative,
noncompounded eight percent return on their invested capital
("Stockholders' 8% Return")
B-25
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
10. Related Party Transactions - Continued:
plus their aggregate invested capital. No deferred, subordinated real
estate disposition fees have been incurred to date.
A subordinated share of net sales proceeds will be paid to the Advisor
upon the sale of Company assets in an amount equal to ten percent of
net sales proceeds. This amount will be paid only after the
stockholders receive distributions equal to the sum of the
stockholders' aggregate invested capital and the Stockholders' 8%
Return. As of December 31, 1996, no such payments have been made to the
Advisor.
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 years ended December 31, 1996 and 1995, expenses
incurred for these services were classified as follows:
1996 1995
---------- ----------
Stock issuance costs $ 769,225 $ 714,674
General operating and
administrative expenses 334,603 68,016
---------- ----------
$1,103,828 $ 782,690
========== ==========
During 1996, the Company acquired four Properties for an aggregate
purchase price of approximately $2,609,800 from affiliates of the
Company and during 1995, the Company acquired nine Properties for an
aggregate purchase price of approximately $6,621,000 from affiliates of
the Company. The affiliates had purchased and temporarily held title to
these Properties in order to facilitate the acquisition of the
Properties by the Company. Each Property was acquired at a cost no
greater than the lesser of the cost of the Property to the affiliate
(including carrying costs) or the Property's appraised value.
B-26
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
10. Related Party Transactions - Continued:
The due to related parties consisted of the following at December 31:
1996 1995
-------- --------
Due to the Advisor:
Expenditures incurred on
behalf of the Company and
accounting and administra-
tive services $199,068 $108,316
Acquisition fees 383,210 45,118
Asset and mortgage manage-
ment fees - 9,108
Distributions - 3,332
-------- --------
582,278 165,874
-------- --------
Due to CNL Securities Corp:
Commissions 372,227 75,197
Marketing support and due
diligence expense reim-
bursement fees 42,579 5,013
-------- --------
414,806 80,210
-------- --------
Other - 2,500
-------- --------
$997,084 $248,584
======== ========
B-27
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
11. Concentration of Credit Risk:
The following schedule presents rental, earned and interest income from
individual lessees or borrowers, or affiliated groups of lessees or
borrowers, each representing more than ten percent of the Company's
total rental, earned and interest income from its Properties, Mortgage
Loans and Secured Equipment Leases for at least one of the years ended
December 31:
1996 1995
---------- ----------
Castle Hill Holdings V,
L.L.C., Castle Hill
Holdings VI, L.L.C. and
Castle Hill Holdings VII,
L.L.C. ("Castle Hill") $1,699,986 $ -
Golden Corral Corporation 577,003 212,406
DenAmerica Corp. 420,810 66,595
Foodmaker, Inc. 346,179 66,813
Northstar Restaurants, Inc. 329,117 73,219
Roasters Corp. 187,609 82,136
In addition, the following schedule presents total rental, earned and
interest income from individual restaurant chains, each representing
more than ten percent of the Company's total rental, earned and
interest income from its Properties, Mortgage Loans and Secured
Equipment Leases for at least one of the years ended December 31:
1996 1995
---------- ----------
Pizza Hut $1,699,986 $ -
Golden Corral Family
Steakhouse Restaurants 1,459,349 212,406
Boston Market 547,590 73,219
Denny's 420,810 66,595
Jack in the Box 346,179 66,813
Kenny Rogers' Roasters 187,609 82,136
B-28
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
11. Concentration of Credit Risk - Continued:
Although the Company's Properties are geographically diverse throughout
the United States and the lessees and borrowers operate a variety of
restaurant concepts, default by any lessee or borrower that contributes
more than ten percent of the Company's rental, earned and interest
income could significantly impact the results of the Company. However,
management believes that the risk of such a default is reduced due to
the essential or important nature of these Properties for the on-going
operations of the lessees and borrowers.
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. 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 $11,749,700, of which approximately $7,495,200 in land
and other costs had been incurred as of December 31, 1996. The
buildings currently under construction are expected to be operational
by August 1997. In connection with the purchase of each Property, the
Company, as lessor, entered into a long-term lease agreement. The
general terms of the lease agreements are substantially the same as
those described in Note 3.
During 1996, the Company entered into three temporary Secured Equipment
Leases, as lessor, with operators of family-style restaurants. In
connection therewith, the Company provided initial funding in the
aggregate amount of $455,637 for the equipment which is included in
other assets at December 31, 1996. The Company has agreed to fund the
remaining balance of the equipment purchase prices of approximately
$732,400. Upon funding the balance, which is expected to occur in
January 1997, the Company will enter into final Secured Equipment
Leases which are expected to have substantially the same terms as those
described in Note 3. Until final Secured Equipment Leases are entered
into, the tenants will pay monthly rent in accordance with the
temporary leases.
B-29
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
13. Subsequent Events:
During the period January 1, 1997 through January 22, 1997, the Company
received subscription proceeds for an additional 616,330 shares
($6,163,297) of common stock.
On January 1, 1997, the Company declared distributions of $827,967 or
$.0594 per share of common stock, payable on March 21, 1997, to
stockholders of record on January 1, 1997.
During the period January 1, 1997 through January 22, 1997, the Company
acquired six Properties for cash at a total cost of approximately
$6,879,700, excluding closing costs. The buildings under construction
are expected to be operational by July 1997. In connection with the
purchase of each Property, the Company, as lessor, has entered into a
long-term, triplenet lease agreement.
B-30
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent Gross Amount at Which Carried
Initial Cost To Acquisition at Close of Period (c)
----------------------- --------------------- ---------------------------------
Buildings Buildings
Encum- and Improve- Carrying and
brances Land Improvements ments Costs Land Improvements Total
-------- ----- ------------- --------- --------- --------- ------------ ---------
<S> <C>
Properties the Company
has Invested in Under
Operating Leases:
Applebee's Restaurants:
Montclair, California - $ 874,315 $ - $ - $ - $ 874,315 (g) $ 874,315
Salinas, California - 779,928 - 562,070 - 779,928 $ 562,070 1,341,998
Arby's Restaurants:
Kendallville, Indiana - 276,567 505,359 - - 276,567 505,359 781,926
Avon, Indiana - 338,486 497,282 - - 338,486 497,282 835,768
Black-eyed Pea Restaurant:
Hillsboro, Texas - 368,942 - 20,193 - 368,942 20,193 389,135
Boston Market Restaurants:
Franklin, Tennessee (k) - 566,562 442,992 - - 566,562 442,992 1,009,554
Grand Island, Nebraska - 234,685 644,615 - - 234,685 644,615 879,300
Dubuque, Iowa - 353,608 663,969 - - 353,608 663,969 1,017,577
Chanhassen, Minnesota - 376,929 639,875 - - 376,929 639,875 1,016,804
Ellisville, Missouri - 397,036 - 639,422 - 397,036 639,422 1,036,458
Golden Valley, Minnesota - 665,555 - 475,994 - 665,555 475,994 1,141,549
Corvallis, Oregon - 365,934 - 595,687 - 365,934 595,687 961,621
Rockwall, Texas - 528,118 - 340,297 - 528,118 340,297 868,415
Upland, California - 787,182 - 238,273 - 787,182 238,273 1,025,455
Florissant, Missouri - 705,522 - 626,845 - 705,522 626,845 1,332,367
La Quinta, California - 681,964 - 287,597 - 681,964 287,597 969,561
Merced, California - 573,163 - 402,636 - 573,163 402,636 975,799
Atlanta, Georgia - 538,580 - 33,151 - 538,580 33,151 571,731
St. Joseph, Missouri - 378,786 388,489 - - 378,786 388,489 767,275
Burger King Restaurants:
Burbank, Illinois - 543,095 - 620,617 - 543,095 620,617 1,163,712
Oaklawn, Illinois - 1,211,336 - 824,061 - 1,211,336 824,061 2,035,397
Highland, Indiana - 672,815 - 621,133 - 672,815 621,133 1,293,948
Indian Head Park, Illinois - 599,949 - 170,723 - 599,949 170,723 770,672
Chicago, Illinois - 907,636 - 460,692 - 907,636 460,692 1,368,328
Chattanooga, Tennessee - 516,447 - 152,178 - 516,447 152,178 668,625
Denny's Restaurants:
Pasadena, Texas - 466,555 240,925 265,169 - 466,555 506,094 972,649
Shawnee, Oklahoma - 528,090 373,427 252,225 - 528,090 625,652 1,153,742
Grand Rapids, Michigan - 320,594 559,433 - - 320,594 559,433 880,027
McKinney, Texas - 439,961 - - - 439,961 (g) 439,961
</TABLE>
B-31
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- CONTINUED
--------------------------------------------------------------------
December 31, 1996
<TABLE>
<CAPTION>
Life
on Which
Depreciation
in Latest
Date Income
Accumulated of Con- Date Statement is
Depreciation struction Acquired Computed
------------ --------- -------- -----------
<S> <C>
Properties the Company
has Invested in Under
Operating Leases:
Applebee's Restaurants:
Montclair, California (h) 1996 08/96 (h)
Salinas, California (c) (d) 09/96 (c)
Arby's Restaurants:
Kendallville, Indiana $ 8,077 1995 07/96 (e)
Avon, Indiana 4,769 1996 09/96 (e)
Black-eyed Pea Restaurant:
Hillsboro, Texas (c) (d) 06/96 (c)
Boston Market Restaurants:
Franklin, Tennessee (k) 20,238 1995 08/95 (e)
Grand Island, Nebraska 27,566 1995 09/95 (e)
Dubuque, Iowa 27,529 1995 10/95 (e)
Chanhassen, Minnesota 24,543 1995 11/95 (e)
Ellisville, Missouri 7,007 1996 06/96 (e)
Golden Valley, Minnesota 4,043 1996 06/96 (e)
Corvallis, Oregon 4,733 1996 07/96 (e)
Rockwall, Texas 2,051 1996 07/96 (e)
Upland, California 3,503 1996 07/96 (e)
Florissant, Missouri 172 1996 09/96 (e)
La Quinta, California 420 1996 09/96 (e)
Merced, California 3,199 1996 09/96 (e)
Atlanta, Georgia (c) (d) 12/96 (c)
St. Joseph, Missouri 532 1996 12/96 (e)
Burger King Restaurants:
Burbank, Illinois 8,275 1996 03/96 (e)
Oaklawn, Illinois 7,902 1996 03/96 (e)
Highland, Indiana 7,771 1996 04/96 (e)
Indian Head Park, Illinois (c) (d) 04/96 (c)
Chicago, Illinois (c) (d) 10/96 (c)
Chattanooga, Tennessee (c) (d) 12/96 (c)
Denny's Restaurants:
Pasadena, Texas 22,261 1981 09/95 (e)
Shawnee, Oklahoma 27,515 1987 09/95 (e)
Grand Rapids, Michigan 14,714 1967 03/96 (e)
McKinney, Texas (h) 1996 06/96 (h)
</TABLE>
B-32
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent Gross Amount at Which Carried
Initial Cost To Acquisition at Close of Period (c)
------------------------- --------------------- ----------------------------
Buildings Buildings
Encum- and Improve- Carrying and
brances Land Improvements ments Costs Land Improvements
------- -------- ------------ ---------- -------- ---------- ------------
<S> <C>
Golden Corral Family
Steakhouse Restaurants:
Carlsbad, New Mexico - 384,221 - 643,854 - 384,221 643,854
Cleburne, Texas - 359,455 - 653,853 - 359,455 653,853
Corsicana, Texas - 349,227 699,756 - - 349,227 699,756
Dover, Delaware - 1,043,108 - 977,508 - 1,043,108 977,508
Ft. Worth, Texas - 640,320 898,171 - - 640,320 898,171
Tampa, Florida - 825,065 - 1,222,843 - 825,065 1,222,843
Universal City, Texas - 357,429 - 650,249 - 357,429 650,249
Columbus, Ohio - 1,031,098 - 1,092,939 - 1,031,098 1,092,939
Port Richey, Florida - 627,739 - 1,025,611 - 627,739 1,025,611
Lufkin, Texas - 462,689 - 1,006,558 - 462,689 1,006,558
Columbia, Tennessee - 442,218 - - - 442,218 (g)
Moberly, Missouri - 373,214 - 9,317 - 373,214 9,317
Jack in the Box Restaurants:
Los Angeles, California - 603,354 602,630 - - 603,354 602,630
Houston, Texas - 545,485 - 527,020 - 545,485 527,020
Humble, Texas - 437,667 - 591,877 - 437,667 591,877
Houston, Texas - 376,267 - 574,359 - 376,267 574,359
Houston, Texas - 403,350 - 565,866 - 403,350 565,866
Dallas, Texas - 368,932 - 509,758 - 368,932 509,758
Kenny Rogers' Roasters
Restaurant:
Grand Rapids, Michigan - 282,806 599,309 - - 282,806 599,309
Pizza Hut Restaurants:
Adrian, Michigan - 242,239 - - - 242,239 -
Bedford, Ohio - 174,721 - - - 174,721 -
Bowling Green, Ohio - 200,442 - - - 200,442 -
Cleveland, Ohio - 116,849 - - - 116,849 -
Cleveland, Ohio - 226,163 - - - 226,163 -
Cleveland, Ohio - 126,494 - - - 126,494 -
Defiance, Ohio - 242,239 - - - 242,239 -
East Cleveland, Ohio - 194,012 - - - 194,012 -
Euclid, Ohio - 202,050 - - - 202,050 -
Fairview Park, Ohio - 142,570 - - - 142,570 -
Lambertville, Michigan - 99,166 - - - 99,166 -
Middleburg Heights, Ohio - 216,518 - - - 216,518 -
Monroe, Michigan - 152,215 - - - 152,215 -
Norwalk, Ohio - 261,529 - - - 261,529 -
North Olmstead, Ohio - 259,922 - - - 259,922 -
Sandusky, Ohio - 259,922 - - - 259,922 -
Seven Hills, Ohio - 239,023 - - - 239,023 -
Toledo, Ohio - 197,227 - - - 197,227 -
Toledo, Ohio - 176,170 - - - 176,170 -
Toledo, Ohio - 208,480 - - - 208,480 -
Mayfield Heights, Ohio - 202,552 - - - 202,552 -
Strongsville, Ohio - 186,476 - - - 186,476 -
</TABLE>
B-33
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
Life
Gross Amount at on Which
Which Carried Depreciation
at Close of in Latest
Period (c) Date Income
------------- Accumulated of Con- Date Statement is
Total Depreciation struction Acquired Computed
----------- ------------ --------- -------- -----------
<S> <C>
Golden Corral Family 1,028,075 28,953 1995 08/95 (e)
Steakhouse Restaurants: 1,013,308 26,600 1995 08/95 (e)
Carlsbad, New Mexico 1,048,983 32,558 1995 08/95 (e)
Cleburne, Texas 2,020,616 41,454 1995 08/95 (e)
Corsicana, Texas 1,538,491 41,033 1995 08/95 (e)
Dover, Delaware 2,047,908 36,734 1996 08/95 (e)
Ft. Worth, Texas 1,007,678 28,578 1995 08/95 (e)
Tampa, Florida 2,124,037 39,990 1995 11/95 (e)
Universal City, Texas 1,653,350 9,647 1996 05/96 (e)
Columbus, Ohio 1,469,247 460 1996 11/96 (e)
Port Richey, Florida 442,218 (h) 1996 12/96 (h)
Lufkin, Texas 382,531 (c) (d) 12/96 (c)
Columbia, Tennessee
Moberly, Missouri
1,205,984 30,184 1986 06/95 (e)
Jack in the Box Restaurants: 1,072,505 14,631 1996 11/95 (e)
Los Angeles, California 1,029,544 6,000 1996 06/96 (e)
Houston, Texas 950,626 5,140 1996 07/96 (e)
Humble, Texas 969,216 4,806 1996 08/96 (e)
Houston, Texas 878,690 (c) (d) 12/96 (c)
Houston, Texas
Dallas, Texas
Kenny Rogers' Roasters 882,115 28,146 1995 08/95 (e)
Restaurant:
Grand Rapids, Michigan
242,239 (f) 1989 01/96 (f)
Pizza Hut Restaurants: 174,721 (f) 1975 01/96 (f)
Adrian, Michigan 200,442 (f) 1985 01/96 (f)
Bedford, Ohio 116,849 (f) 1978 01/96 (f)
Bowling Green, Ohio 226,163 (f) 1987 01/96 (f)
Cleveland, Ohio 126,494 (f) 1986 01/96 (f)
Cleveland, Ohio 242,239 (f) 1977 01/96 (f)
Cleveland, Ohio 194,012 (f) 1986 01/96 (f)
Defiance, Ohio 202,050 (f) 1983 01/96 (f)
East Cleveland, Ohio 142,570 (f) 1977 01/96 (f)
Euclid, Ohio 99,166 (f) 1994 01/96 (f)
Fairview Park, Ohio 216,518 (f) 1975 01/96 (f)
Lambertville, Michigan 152,215 (f) 1994 01/96 (f)
Middleburg Heights, Ohio 261,529 (f) 1993 01/96 (f)
Monroe, Michigan 259,922 (f) 1976 01/96 (f)
Norwalk, Ohio 259,922 (f) 1978 01/96 (f)
North Olmstead, Ohio 239,023 (f) 1983 01/96 (f)
Sandusky, Ohio 197,227 (f) 1978 01/96 (f)
Seven Hills, Ohio 176,170 (f) 1985 01/96 (f)
Toledo, Ohio 208,480 (f) 1975 01/96 (f)
Toledo, Ohio 202,552 (f) 1980 04/96 (f)
Toledo, Ohio 186,476 (f) 1976 04/96 (f)
Mayfield Heights, Ohio
Strongsville, Ohio
</TABLE>
B-34
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent Gross Amount at Which Carried
Initial Cost To Acquisition at Close of Period (c)
-------------------------- -------------------- -------------------------------------
Buildings Buildings
Encum- and Improve- Carrying and
brances Land Improvements ments Costs Land Improvements Total
------- -------- ------------ -------- -------- ----------- ------------ -----------
<S> <C>
Toledo, Ohio - 128,604 - - - 128,604 - 128,604
Beaver, West Virginia - 212,053 - - - 212,053 - 212,053
Beckley, West Virginia - 209,432 - - - 209,432 - 209,432
Belle, West Virginia - 46,737 - - - 46,737 - 46,737
Bluefield, West Virginia - 120,449 - - - 120,449 - 120,449
Cross Lanes, West Virginia - 215,881 - - - 215,881 - 215,881
Huntington, West Virginia - 212,093 - - - 212,093 - 212,093
Hurricane, West Virginia - 180,803 - - - 180,803 - 180,803
Marietta, Ohio - 169,454 - - - 169,454 - 169,454
Milton, West Virginia - 99,815 - - - 99,815 - 99,815
Ronceverte, West Virginia - 99,733 - - - 99,733 - 99,733
Bowling Green, Ohio - 135,831 - - - 135,831 - 135,831
Toledo, Ohio - 194,097 - - - 194,097 - 194,097
Ryan's Family Steak House
Restaurant:
Spring Hill, Florida - 588,586 - 933,414 - 588,586 933,414 1,522,000
Wendy's Old Fashioned
Hamburgers Restaurants:
Knoxville, Tennessee - 357,760 - - - 357,760 (g) 357,760
Camarillo, California - 640,145 - 673,885 - 640,145 673,885 1,314,030
----------- ----------- ----------- ------- ----------- ----------- -----------
$33,850,436 $ 7,756,232 $19,247,874 $ - $33,850,436 $27,004,106 $60,854,542
=========== =========== =========== ======= =========== =========== ===========
</TABLE>
B-35
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
Life
on Which
Depreciation
in Latest
Date Income
Accumulated of Con- Date Statement is
Depreciation struction Acquired Computed
------------ --------- -------- ----------
<S> <C>
Toledo, Ohio (f) 1988 04/96 (f)
Beaver, West Virginia (f) 1986 05/96 (f)
Beckley, West Virginia (f) 1978 05/96 (f)
Belle, West Virginia (f) 1980 05/96 (f)
Bluefield, West Virginia (f) 1986 05/96 (f)
Cross Lanes, West Virginia (f) 1990 05/96 (f)
Huntington, West Virginia (f) 1978 05/96 (f)
Hurricane, West Virginia (f) 1978 05/96 (f)
Marietta, Ohio (f) 1986 05/96 (f)
Milton, West Virginia (f) 1986 05/96 (f)
Ronceverte, West Virginia (f) 1991 05/96 (f)
Bowling Green, Ohio (f) 1992 12/96 (f)
Toledo, Ohio (f) 1993 12/96 (f)
Ryan's Family Steak House
Restaurant:
Spring Hill, Florida (c) (d) 09/96 (c)
Wendy's Old Fashioned
Hamburgers Restaurants:
Knoxville, Tennessee (h) 1996 05/96 (h)
Camarillo, California 9,662 1996 06/96 (e)
--------
$611,396
========
</TABLE>
B-36
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
----------------------------- -----------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
-------- ------ ------------- --------- ---------
<S> <C>
Properties the Company
has Invested in Under
Direct Financing Leases:
Applebee's Restaurant:
Montclair, California - $ - $ - $ 823,193 $ -
Denny's Restaurant:
McKinney, Texas - - 655,052 - -
Golden Corral Family
Steakhouse Restaurants:
Brooklyn, Ohio - - 1,044,311 - -
Columbia, Tennessee - - 939,713 - -
Eastlake, Ohio - 256,332 1,473,306 - -
TGI Friday's Restaurants:
Orange, Connecticut - - - 1,379,330 -
Marlboro, New Jersey - - - 1,409,354 -
Hazlet, New Jersey - - - 1,370,519 -
Hamden, Connecticut - - - 1,272,835 -
Wendy's Old Fashioned
Hamburgers Restaurants:
Knoxville, Tennessee - - - 482,105 -
Sevierville, Tennessee - - - 529,941 -
San Diego, California - - - 653,753 -
----------- ----------- ----------- -------
$ 256,332 $ 4,112,382 $ 7,921,030 $ -
=========== =========== =========== =======
</TABLE>
B-37
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1996
<TABLE>
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (c) Depreciation
-------------------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
Properties the Company
has Invested in Under
Direct Financing Leases:
Applebee's Restaurant:
Montclair, California (g) (g) (g) (h) 1996 08/96 (h)
Denny's Restaurant:
McKinney, Texas (g) (g) (g) (h) 1996 06/96 (h)
Golden Corral Family
Steakhouse Restaurants:
Brooklyn, Ohio (j) (g) (g) (h) 1996 07/96 (h)
Columbia, Tennessee (g) (g) (g) (h) 1996 12/96 (h)
Eastlake, Ohio (g) (g) (g) (i) 1996 12/96 (i)
TGI Friday's Restaurants:
Orange, Connecticut (j) (g) (g) (h) 1995 07/95 (h)
Marlboro, New Jersey (j) (g) (g) (h) 1996 02/96 (h)
Hazlet, New Jersey (j) (g) (g) (h) 1996 03/96 (h)
Hamden, Connecticut (j) (g) (g) (h) 1996 04/96 (h)
Wendy's Old Fashioned
Hamburgers Restaurants:
Knoxville, Tennessee (g) (g) (g) (h) 1996 05/96 (h)
Sevierville, Tennessee (j) (g) (g) (h) 1996 06/96 (h)
San Diego, California (j) (g) (g) (h) 1996 10/96 (h)
</TABLE>
B-38
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------------------
December 31, 1996
(a) Transactions in real estate and accumulated depreciation during 1996
and 1995 are summarized as follows:
Accumulated
Cost (b) Depreciation
------------- ------------
Properties the Partnership
has Invested in Under
Operating Leases:
Balance, December 31, 1994 $ - $ -
Acquisitions (l) 19,824,044 -
Depreciation expense (e) - 100,318
----------- -----------
Balance, December 31, 1995 19,824,044 100,318
Acquisitions (l) 41,030,498 -
Depreciation expense - 511,078
----------- -----------
Balance, December 31, 1996 $60,854,542 $ 611,396
=========== ===========
(b) As of December 31, 1996 and 1995, the aggregate cost of the
Properties owned by the Company and its subsidiary for federal income
tax purposes was $73,144,286 and $21,199,004, respectively. All of
the leases are treated as operating leases for federal income tax
purposes.
(c) Property was not placed in service as of December 31, 1996;
therefore, no depreciation was taken.
(d) Scheduled for completion in 1997.
(e) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(f) The building portion of this property is owned by the tenant;
therefore, depreciation is not applicable.
(g) For financial reporting purposes, certain components of the lease
relating to land and building have been recorded as direct financing
lease. Accordingly, costs relating to these components of this lease
are not shown.
(h) For financial reporting purposes, the portion of this lease relating
to the building has been recorded as direct financing lease. The cost
of the building has been included in net investment in direct
financing leases; therefore, depreciation is not applicable.
(i) For financial reporting purposes, the lease for the land and building
has been recorded as direct financing lease. The cost of the land and
building has been included in net investment in direct financing
leases; therefore, depreciation is not applicable.
B-39
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1996
(j) The Company owns the building only relating to this Property. This
property is subject to a ground lease between the tenant and an
unaffiliated third party. In connection therewith, the Company
entered into either a tri-party agreement with the tenant and the
owner of the land or an assignment of interest in the ground lease
with the landlord of the land. The tri-party agreement or assignment
of interest each provide that the tenant is responsible for all
obligations under the ground lease and provide certain rights to the
Company to help protect its interest in the building in the event of
a default by the tenant under the terms of the ground lease.
(k) The restaurant on the property in Franklin, Tennessee, was converted
from a Kenny Rogers' Roasters restaurant to a Boston Market
restaurant in 1996.
(l) During the years ended December 31, 1996 and 1995, the Company (i)
incurred acquisition fees totalling $4,535,685 and $1,730,437,
respectively, paid to the Advisor, (ii) purchased land and buildings
from affiliates of the Company for an aggregate cost of approximately
$2,609,800 and $6,621,000, respectively, and (iii) paid
development/construction management fees to affiliates of the Company
totalling $159,350 during the year ended December 31, 1996. Such
amounts are included in land and buildings on operating leases, net
investment in direct financing leases and other assets at December
31, 1996 and 1995.
B-40
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount
of Loans
Subject to
Final Periodic Face Carrying Delinquent
Interest Maturity Payment Prior Amount of Amount of Principal
Description Rate Date Terms Liens Mortgages Mortgages or Interest
- ------------------------------ -------- ------------- -------- ----- ----------- ----------- -----------
<S> <C>
Castle Hill Holdings V, L.L.C.
First Mortgages 10.75% January, 2016 (1) $ - $ 8,475,000 $ 8,812,787 $ -
Pizza Hut Restaurants:
Bedford, OH
Middleburg Heights, OH
Fairview Park, OH
Strongsville, OH
Cleveland, OH
East Cleveland, OH
North Olmstead, OH
Norwalk, OH
Sandusky, OH
Mayfield Heights, OH
Euclid, OH
Seven Hills, OH
Cleveland, OH
Cleveland, OH
Toledo, OH
Toledo, OH
Defiance, OH
Toledo, OH
Bowling Green, OH
Monroe, MI
Lambertville, MI
Adrian, MI
Toledo, OH
Castle Hill Holdings VI, L.L.C.
First Mortgages 10.75% June, 2016 (1) - 3,888,000 4,071,755 -
Pizza Hut Restaurants:
Hurricane, WV
Marietta, OH
Bluefield, WV
Huntington, WV
Ronceverte, WV
Milton, WV
Beckley, WV
Belle, WV
Cross Lanes, WV
Beaver, WV
Castle Hill Holdings VII, L.L.C.
First Mortgages 10.75% January, 2017 (1) - 484,000 505,065 -
Pizza Hut Restaurants:
Bowling Green, OH
Toledo, OH
---- ----------- ------------- --------
Total
$ - $12,847,000 $13,389,607(3) $ -
===== =========== ============== =======
</TABLE>
B-41
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE IV - NOTES TO MORTGAGE LOANS ON REAL ESTATE
----------------------------------------------------
December 31, 1996
(1) Equal monthly payments of principal and interest at an annual rate of
10.75%.
(2) The tax carrying value of the notes is $13,389,607.
(3) The changes in the carrying amounts are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- --------- -------
<S> <C>
Balance at beginning of period $ - $ - $ -
New mortgage loans 12,847,000 - -
Accrued interest 35,286 - -
Collection of principal (133,850) - -
Deferred financing income (46,268) - -
Unamortized loan costs 687,439 - -
----------- --------- -------
Balance at end of period $13,389,607 $ - $ -
=========== ========= =======
</TABLE>
B-42
<PAGE>
EXHIBIT E
PRO FORMA ESTIMATE OF TAXABLE INCOME
BEFORE DIVIDENDS PAID DEDUCTION
<PAGE>
PRO FORMA ESTIMATE OF TAXABLE INCOME BEFORE DIVIDENDS PAID DEDUCTION OF
CNL AMERICAN PROPERTIES FUND, INC.
GENERATED FROM THE OPERATIONS OF PROPERTIES ACQUIRED FROM JANUARY 1, 1997
THROUGH MARCH 6, 1997
For a 12-Month Period (Unaudited)
The following schedule represents pro forma unaudited estimates of
taxable income before dividends paid deduction of each Property acquired by the
Company from January 1, 1997 through March 6, 1997, for the 12-month period
commencing on the date of the inception of the respective lease on such
Property. The schedule should be read in light of the accompanying footnotes.
These estimates do not purport to present actual or expected operations
of the Company for any period in the future. These estimates were prepared on
the basis described in the accompanying notes which should be read in
conjunction herewith. No single lessee or group of affiliated lessees lease
Properties or has borrowed funds from the Company with an aggregate purchase
price in excess of 20% of the expected total net offering proceeds of the
Company.
<TABLE>
<CAPTION>
Jack in the Box Jack in the Box Jack in the Box Jack in the Box
Los Angeles, CA (5)(6) Las Vegas, NV (5)(6) Moscow, ID (5)(6) Kent #1, WA (5)(6)
---------------------- -------------------- ----------------- ------------------
<S> <C>
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $ 143,272 $ 127,954 $ 93,358 $ 129,137
Asset Management Fees (3) (8,381) (7,484) (5,459) (7,553)
General and Administrative
Expenses (5) (8,883) (7,933) (5,788) (8,006)
---------- ---------- ---------- ----------
Estimated Cash Available from
Operations 126,008 112,537 82,111 113,578
Depreciation and Amortization
Expense (6) (14,548) (15,187) (19,077) (15,280)
---------- ---------- ---------- ----------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 111,460 $ 97,350 $ 63,034 $ 98,298
========== ========== ========== ==========
</TABLE>
See Footnotes
E-1
<PAGE>
<TABLE>
<CAPTION>
Jack in the Box Jack in the Box Shoney's
Hollister, CA (5)(6) Kingsburg, CA (5)(6) Indian Harbour Beach, FL (5)
-------------------- -------------------- ----------------------------
<S> <C>
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $ 108,836 $ 102,610 $ 71,504
Asset Management Fees (2) (6,365) (6,000) (3,857)
General and Administrative
Expenses (3) (6,748) (6,362) (4,433)
---------- ---------- ----------
Estimated Cash Available from
Operations 95,723 90,248 63,214
Depreciation and Amortization
Expense (4) (15,019) (16,464) (12,156)
---------- ---------- ----------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 80,704 $ 73,784 $ 51,058
========== ========== ==========
</TABLE>
See Footnotes
E-2
<PAGE>
<TABLE>
<CAPTION>
Jack in the Box Jack in the Box Golden Corral Burger King
Murrieta, CA (5)(6) Humble, TX (5)(6) Winchester, KY (5) Kent #2, OH
------------------- ----------------- ------------------ -----------
<S> <C>
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $ 97,630 $ 94,696 $ 126,063 $ 89,688
Asset Management Fees (2) (5,709) (5,294) (6,904) (5,237)
General and Administrative
Expenses (3) (6,053) (5,871) (7,816) (5,561)
---------- ---------- ---------- ----------
Estimated Cash Available from
Operations 85,868 83,531 111,343 78,890
Depreciation and Amortization
Expense (4) (15,822) (16,083) (23,332) (17,602)
---------- ---------- ---------- ----------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 70,046 $ 67,448 $ 88,011 $ 61,288
========== ========== ========== ==========
</TABLE>
See Footnotes
E-3
<PAGE>
<TABLE>
<CAPTION>
Burger King Denny's Jack in the Box Jack in the Box
Chattanooga, TN (5) Tampa, FL (5) Palmdale, CA (5)(6) Houston #3, TX (5)(6)
------------------- ------------- ------------------- ---------------------
<S> <C>
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $ 127,158 $ 110,291 $ 115,338 $ 88,328
Asset Management Fees (2) (6,662) (6,203) (6,745) (5,164)
General and Administrative
Expenses (3) (7,884) (6,838) (7,151) (5,476)
---------- ---------- ---------- ----------
Estimated Cash Available from
Operations 112,612 97,250 101,442 77,688
Depreciation and Amortization
Expense (4) (12,122) (17,818) (14,329) (13,923)
---------- ---------- ---------- ----------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 100,490 $ 79,432 $ 87,113 $ 63,765
========== ========== ========== ==========
</TABLE>
See Footnotes
E-4
<PAGE>
Golden Corral
Hopkinsville, KY Total
---------------- ----------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $ 141,912 $1,767,775
Asset Management Fees (2) (7,518) (100,535)
General and Administrative
Expenses (3) (8,799) (109,602)
---------- ----------
Estimated Cash Available from
Operations 125,595 1,556,638
Depreciation and Amortization
Expense (4) (22,573) (261,335)
---------- ----------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 103,022 $1,295,303
========== ==========
FOOTNOTES:
(1) Base rent does not include percentage rents which become due if
specified levels of gross receipts are achieved.
(2) The Properties will be managed pursuant to an advisory agreement
between the Company and CNL Fund Advisors, Inc. (the "Advisor"),
pursuant to which the Advisor will receive monthly asset management
fees in an amount equal to one-twelfth of .60% of the Company's Real
Estate Asset Value as of the end of the preceding month as defined in
such agreement. See "Management Compensation."
(3) Estimated at 6.2% of gross rental income based on the previous
experience of Affiliates of the Advisor with 18 public limited
partnerships which own properties similar to those owned by the
Company. Amount does not include soliciting dealer servicing fee due to
the fact that such fee will not be incurred until December 31 of the
year following the year in which the offering terminates.
(4) The estimated federal tax basis of the depreciable portion (the
building portion) of the Properties has been depreciated on the
straight-line method over 39 years.
E-5
<PAGE>
(5) The development agreements for the Properties which are to be
constructed or renovated, provide that construction or renovation must
be completed no later than the dates set forth below:
Property Estimated Final Completion Date
-------- -------------------------------
Los Angeles Property July 6, 1997
Las Vegas Property July 6, 1997
Moscow Property July 21, 1997
Kent #1 Property July 21, 1997
Hollister Property July 21, 1997
Kingsburg Property July 21, 1997
Indian Harbour Beach Property July 23, 1997
Murrieta Property July 30, 1997
Humble Property August 2, 1997
Winchester Property August 2, 1997
Chattanooga Property June 24, 1997
Tampa Property August 10, 1997
Palmdale Property August 10, 1997
Houston #3 Property August 10, 1997
(6) The lessee of the Los Angeles, Las Vegas, Moscow, Kent #1, Hollister,
Kingsburg, Murrieta, Humble, Palmdale and Houston #3 Properties is the
same unaffiliated lessee.
E-6
