<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL American Properties Fund, Inc. at March 31, 1997, and its statement
of income for the three months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL American Properties Fund, Inc. for the three
months ended March 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 44,364,707<F1>
<SECURITIES> 0
<RECEIVABLES> 334,698
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 82,889,084
<DEPRECIATION> 848,735
<TOTAL-ASSETS> 167,722,361
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 0
0
0
<COMMON> 177,215
<OTHER-SE> 155,713,572
<TOTAL-LIABILITY-AND-EQUITY> 167,722,361
<SALES> 0
<TOTAL-REVENUES> 2,939,558
<CGS> 0
<TOTAL-COSTS> 679,823
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,251,842
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,251,842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,251,842
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.00
<FN>
<F1>Cash includes $231,787 of restricted cash.
<F2>Due to the nature of its industry, CNL American Properties Fund, Inc. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-28380
CNL American Properties Fund, Inc.
(Exact name of registrant as specified in its charter)
Maryland 59-3239115
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street, #500
Orlando, Florida 32801
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
19,126,583 shares of common stock, $.01 par value, outstanding as of April 30,
1997.
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of
Earnings 2
Condensed Consolidated Statements of
Stockholders' Equity 3
Condensed Consolidated Statements of
Cash Flows 4-5
Notes to Condensed Consolidated
Financial Statements 6-15
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 16-22
Part II
Other Information 23
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 1997 1996
------------ ------------
Land and buildings on operating leases,
less accumulated depreciation $ 82,040,349 $ 60,243,146
Net investment in direct financing leases 19,816,023 15,186,686
Cash and cash equivalents 44,132,920 42,450,088
Restricted cash 231,787 -
Receivables 334,698 160,675
Mortgage notes receivable 17,803,151 13,389,607
Organization costs, less accumulated
amortization of $7,318 and $6,318 12,682 13,682
Loan costs, less accumulated amortization
of $28,934 and $22,034 25,599 32,499
Accrued rental income 606,879 422,076
Other assets 2,718,273 2,926,589
------------ ------------
$167,722,361 $134,825,048
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $ 5,469,649 $ 3,521,816
Accrued interest payable 13,936 13,164
Accrued construction costs payable 4,409,764 6,587,573
Accounts payable and accrued expenses 83,986 79,817
Due to related parties 733,581 997,084
Rents paid in advance 227,391 118,900
Deferred rental income 592,125 335,849
Other payables 13,495 15,117
------------ ------------
Total liabilities 11,543,927 11,669,320
------------ ------------
Minority interest 287,647 288,301
------------ ------------
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 17,721,559 and
13,944,715, respectively 177,215 139,447
Capital in excess of par value 157,115,036 123,687,929
Accumulated distributions in excess of
net earnings (1,401,464) (959,949)
------------ ------------
Total stockholders' equity 155,890,787 122,867,427
------------ ------------
$167,722,361 $134,825,048
============ ============
See accompanying notes to condensed consolidated
financial statements.
1
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Quarter Ended
March 31,
1997 1996
---------- ----------
Revenues:
Rental income from operating leases $1,643,074 $ 763,155
Earned income from direct financing
leases 446,711 35,926
Interest income from mortgage notes
receivable 375,357 184,949
Other interest and income 474,416 75,849
---------- ----------
2,939,558 1,059,879
---------- ----------
Expenses:
General operating and administrative 255,456 129,107
Professional services 38,463 29,692
Asset and mortgage management fees
to related party 110,516 40,370
State taxes 35,350 2,898
Depreciation and amortization 240,038 98,472
---------- ----------
679,823 300,539
---------- ----------
Earnings Before Minority Interest in
Income of Consolidated Joint Venture 2,259,735 759,340
Minority Interest in Income of
Consolidated Joint Venture (7,893) (14,752)
---------- ----------
Net Earnings $2,251,842 $ 744,588
========== ==========
Earnings Per Share of Common Stock $ 0.14 $ 0.16
========== ==========
Weighted Average Number of Shares of
Common Stock Outstanding 15,630,532 4,649,040
========== ==========
See accompanying notes to condensed consolidated
financial statements.
2
<TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Quarter Ended March 31, 1997 and
Year Ended December 31, 1996
<CAPTION>
Accumulated
Common stock distributions
--------------------- Capital in in excess
Number Par excess of of net
of shares value par value earnings Total
---------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 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 and
paid ($.71 per share) - - - (5,436,072) (5,436,072)
---------- -------- ------------ ----------- ------------
Balance at December 31, 1996 13,944,715 139,447 123,687,929 (959,949) 122,867,427
Subscriptions received for
common stock through public
offering and distribution
reinvestment plan 3,776,844 37,768 37,730,677 - 37,768,445
Stock issuance costs - - (4,303,570) - (4,303,570)
Net earnings - - - 2,251,842 2,251,842
Distributions declared and
paid ($.18 per share) - - - (2,693,357) (2,693,357)
---------- -------- ------------ ----------- ------------
Balance at March 31, 1997 17,721,559 $177,215 $157,115,036 $(1,401,464) $155,890,787
========== ======== ============ =========== ============
See accompanying notes to condensed consolidated
financial statements.
3
</TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1997 1996
------------ ------------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 2,717,456 $ 710,678
------------ ------------
Cash Flows From Investing Activities:
Additions to land and buildings
on operating leases (23,400,414) (8,886,922)
Investment in direct financing
leases (5,206,508) (10,000)
Increase in restricted cash (231,787) -
Investment in mortgage notes
receivable (4,443,982) (8,445,337)
Collection on mortgage notes
receivable 49,471 10,119
Increase in other assets (95,969) (230,181)
------------ ------------
Net cash used in investing
activities (33,329,189) (17,562,321)
------------ ------------
Cash Flows From Financing Activities:
Reimbursement of acquisition and
stock issuance costs paid by
related parties on behalf of the
Company (768,733) (265,491)
Proceeds of borrowing on line
of credit 2,207,299 53,500
Payment on line of credit (259,466) -
Payment of loan costs - (53,500)
Contribution from minority
interest of consolidated
joint venture - 92,519
Subscriptions received from
stockholders 37,768,445 16,587,723
Distribution to minority interest (8,547) (14,018)
Distributions to stockholders (2,693,357) (771,465)
Payment of stock issuance costs (4,003,576) (1,515,764)
Other 52,500 15,000
------------ ------------
Net cash provided by
financing activities 32,294,565 14,118,504
------------ ------------
Net Increase (Decrease) in Cash and Cash
Equivalents 1,682,832 (2,733,139)
Cash and Cash Equivalents at Beginning
of Quarter 42,450,088 11,508,445
------------ ------------
Cash and Cash Equivalents at End
of Quarter $ 44,132,920 $ 8,775,306
============ ============
See accompanying notes to condensed consolidated
financial statements.
4
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Quarter Ended
March 31,
1997 1996
------------ ------------
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain
acquisition and stock issuance
costs on behalf of the Company
as follows:
Acquisition costs $ 220,259 $ 51,860
Stock issuance costs 593,489 264,484
------------ ------------
$ 813,748 $ 316,344
============ ============
See accompanying notes to condensed consolidated
financial statements.
5
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 1997 and 1996
1. Organization and Nature of Business:
CNL American Properties Fund, Inc. (the "Company") was organized in
Maryland on May 2, 1994, primarily for the purpose of acquiring,
directly or indirectly through joint venture or co-tenancy arrangements,
restaurant properties (the "Properties") to be leased on a long-term,
triple-net basis to operators of certain national and regional fast-
food, family-style and casual dining restaurant chains. 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.
2. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter ended March 31, 1997, may not be indicative of the results
that may be expected for the year ending December 31, 1997. Amounts as
of December 31, 1996, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 1996.
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.
Certain items in the prior year's financial statements have been
reclassified to conform to 1997 presentation. These reclassifications
had no effect on stockholders' equity or net earnings.
6
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1997 and 1996
2. Basis of Presentation - Continued:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per
Share." The Statement, which is effective for fiscal years ending after
December 15, 1997, provides for a revised computation of earnings per
share. The Company will adopt this Standard in 1997 and does not expect
compliance with such Standard to have a material effect, if any, on the
Company's earnings per share.
3. Leases:
The Company leases its land, buildings and equipment subject to Secured
Equipment Leases to operators or franchisees of national and regional
fast-food, family-style and casual dining restaurants. The leases are
accounted for under the provisions of Statement of Financial Accounting
Standards No. 13, "Accounting for Leases." The leases relating to 108
of the Company's Properties have been classified as operating leases
(including the leases relating to 18 properties under construction as of
March 31, 1997) and the leases relating to 15 Properties and 13 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.
4. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at:
March 31, December 31,
1997 1996
----------- ------------
Land $43,544,239 $33,850,436
Buildings 30,887,399 24,152,610
----------- -----------
74,431,638 58,003,046
Less accumulated
depreciation (848,735) (611,396)
----------- -----------
73,582,903 57,391,650
Construction in
progress 8,457,446 2,851,496
----------- -----------
$82,040,349 $60,243,146
=========== ===========
7
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1997 and 1996
4. Land and Buildings on Operating Leases - Continued:
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 quarters ended March 31,
1997 and 1996, the Company recognized $269,740 and $112,905,
respectively, of such rental income.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at March 31, 1997:
1997 $ 4,771,109
1998 6,383,324
1999 6,397,734
2000 6,421,406
2001 6,600,851
Thereafter 91,381,537
------------
$121,955,961
============
Since leases are renewable 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 rents which may be received on the leases based on the
percentage of the tenant's gross sales. These amounts do not include
minimum lease payments that will become due when Properties under
development are completed (See Note 12).
5. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at:
March 31, December 31,
1997 1996
------------ ------------
Minimum lease payments
receivable $ 37,029,377 $ 30,162,465
Estimated residual
values 1,362,487 1,346,332
Less unearned income (19,042,589) (16,322,111)
------------ ------------
Net investment in
direct financing
leases $ 19,349,275 $ 15,186,686
============ ============
8
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1997 and 1996
5. Net Investment in Direct Financing Leases - Continued:
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at March 31, 1997:
1997 $ 2,302,249
1998 3,075,579
1999 3,075,579
2000 3,078,897
2001 2,786,198
Thereafter 22,710,875
-----------
$37,029,377
===========
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:
In March 1997, in connection with the acquisition of land for eight
Pizza Hut restaurants, the Company accepted a promissory note in the
principal sum of $4,200,000, collateralized by a mortgage on the
buildings on eight Pizza Hut Properties and three additional Pizza Hut
buildings. The promissory note bears interest at a rate of 10.5% per
annum and is being collected in 240 equal monthly installments of
$41,943.
Mortgage notes receivable consisted of the following at:
March 31, December 31,
1997 1996
----------- ------------
Outstanding principal $16,863,680 $12,713,151
Accrued interest income 67,789 35,285
Deferred financing income (88,441) (46,268)
Unamortized loan costs 960,123 687,439
----------- -----------
$17,803,151 $13,389,607
=========== ===========
Management believes that the estimated fair value of mortgage notes
receivable at March 31, 1997, 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.
9
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1997 and 1996
7. Note Payable:
On March 5, 1996, the Company entered into a line of credit and security
agreement (the "Loan") with a bank to be used by the Company to offer
Secured Equipment Leases. The Loan provides that the Company will be
able to receive advances of up to $15,000,000 until March 4, 1998. As
of March 31, 1997, $5,469,649 of principal was outstanding relating to
the Loan, plus $13,936 of accrued interest. In general, advances under
the Loan 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 7.52% to 7.65% as of March 31,
1997). The Company believes, based on current terms, that the carrying
value of its note payable at March 31, 1997, approximates fair value.
Interest costs (including amortization of loan costs) incurred for the
quarter ended March 31, 1997, were $97,557, 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 offerings 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 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.
During the quarter ended March 31, 1997 and the year ended December 31,
1996, the Company incurred $4,303,570 and $9,216,102, respectively, in
stock issuance costs, including $3,021,476 and $8,063,439, respectively,
in commissions and marketing support and due diligence expense
reimbursement fees (see Note 10). The stock issuance costs have been
charged to stockholders' equity subject to the three percent cap
described above.
10
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1997 and 1996
9. Distributions:
For the quarters ended March 31, 1997 and 1996, approximately 75 and 90
percent, respectively, of the distributions paid to stockholders were
considered ordinary income and approximately 25 and ten percent,
respectively, were considered a return of capital to stockholders for
federal income tax purposes. No amounts distributed to the stockholders
for the quarters ended March 31, 1997 and 1996, are required to be or
have been treated by the Company as a return of capital for purposes of
calculating the stockholders' return on their invested capital. The
characterization for tax purposes of distributions declared for the
quarter ended March 31, 1997, may not be indicative of the results that
may be expected for the year ending December 31, 1997.
10. Related Party Transactions:
During the quarter ended March 31, 1997, the Company incurred $2,832,633
in selling commissions due to CNL Securities Corp. for services in
connection with the offering of shares. A substantial portion of this
amount ($2,570,708) was or will be paid by CNL Securities Corp. as
commissions to other broker-dealers.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of the
total amount raised from the sale of shares, a portion of which may be
reallowed to other broker-dealers. During the quarter ended March 31,
1997, the Company incurred $188,842 of such fees, the majority 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.
During the quarter ended March 31, 1997, the Company incurred $1,699,580
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 payable to affiliates of the
Company. Such fees are included
11
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1997 and 1996
10. Related Party Transactions - Continued
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 quarter ended March 31, 1997, the Company incurred $129,379 of such
amounts relating to two Properties. No such amounts were incurred for
the quarter ended March 31, 1996.
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 quarter ended March 31, 1997, the Company incurred $41,281 in
secured equipment lease servicing fees. No secured equipment lease
servicing fees were incurred for the quarter ended March 31, 1996.
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
quarters ended March 31, 1997 and 1996, the Company incurred $127,458
and $41,764, respectively, of such fees, $16,942 and $1,394,
respectively, of which was capitalized as part of the cost of building
for Properties under construction.
12
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1997 and 1996
10. Related Party Transactions - Continued
The Advisor and its affiliates provide accounting and administrative
services to the Company (including accounting and administrative
services in connection with the offerings of shares) on a day-to-day
basis. For the quarters ended March 31, 1997 and 1996, the expenses
incurred for these services were classified as follows:
1997 1996
-------- --------
Stock issuance costs $288,747 $185,113
General operating and
administrative expenses 108,003 74,032
-------- --------
$396,750 $259,145
======== ========
During the quarter ended March 31, 1997, the Company acquired two
Properties for approximately $1,773,300 from affiliates of the Company.
The affiliates had purchased and temporarily held title to the
Properties in order to facilitate the acquisition of the Properties by
the Company. The Properties were acquired at a cost no greater than the
lesser of the cost of each Property to the affiliate (including carrying
costs) or the Property's appraised value.
The due to related parties consisted of the following at:
March 31, December 31,
1997 1996
--------- ------------
Due to the Advisor:
Expenditures incurred
on behalf of the
Company and accounting
and administrative
services $194,140 $199,068
Acquisition fees 289,606 383,210
-------- --------
483,746 582,278
-------- --------
Due to CNL Securities Corp:
Commissions 232,385 372,227
Marketing support and due
diligence expense reim-
bursement fees 17,450 42,579
-------- --------
249,835 414,806
-------- --------
$733,581 $997,084
======== ========
13
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1997 and 1996
11. Concentration of Credit Risk:
During the quarter ended March 31, 1997, one affiliated group of lessees
and borrowers represented more than ten percent of the Company's total
rental, earned and interest income from its Properties, Mortgage Loans
and Secured Equipment Leases. The following schedule presents rental,
earned and interest income earned from this affiliated group for the
quarters ended March 31:
1997 1996
-------- --------
Castle Hill Holdings V,
L.L.C., Castle Hill
Holdings VI, L.L.C.,
and Castle Hill Holdings
VII, L.L.C. ("Castle Hill") $573,398 $282,525
In addition, during the quarter ended March 31, 1997, three restaurant
chains each contributed more than ten percent of the Company's total
rental, earned and interest income. The following schedule presents
rental, earned and interest income from each of these restaurants chains
for the quarters ended March 31:
1997 1996
-------- --------
Golden Corral Family
Steakhouse Restaurants $584,647 $371,290
Pizza Hut 573,398 282,525
Boston Market 328,515 82,341
Although the Company's Properties are geographically diverse and the
Company's lessees and borrowers operate a variety of restaurant
concepts, failure of any one of these restaurant chains or any lessee or
borrower that contributes more than ten percent of the Company's rental,
earned and interest income could significantly impact the results of
operations of the Company. However, management believes that the risk
of such a default is reduced due to the essential or important nature of
these Properties for the on-going operations of the lessees and
borrowers.
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)
14
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1997 and 1996
12. Commitments - Continued:
to be paid by the Company. The aggregate maximum development costs the
Company has agreed to pay is approximately $19,027,300, of which
approximately $15,888,300 in land and other costs had been incurred as
of March 31, 1997. The buildings currently under construction are
expected to be operational by September 1997. In connection with the
purchase of each Property, the Company, as lessor, entered into a long-
term lease agreement.
During the quarter ended March 31, 1997, the Company entered into a
commitment to sell four of its Properties and the equipment relating to
two Secured Equipment Leases to the tenant. Management anticipates that
the proceeds received from the sale will be sufficient to cover the
carrying value of the Properties and the equipment.
13. Subsequent Events:
During the period April 1, 1997 through April 30, 1997, the Company
received subscription proceeds for an additional 1,405,024 shares
($14,050,240) of common stock.
On April 1, 1997, the Company declared distributions of $1,091,133 or
$.0615 per share of common stock, payable in June 1997 to stockholders
of record on April 1, 1997.
During the period April 1, 1997 through April 30, 1997, the Company
acquired 16 Properties (13 on which restaurants are being constructed
and one on which a restaurant is being renovated) for cash at a total
cost of approximately $10,523,000, excluding closing and development
costs. In connection with the purchase of each Property, the Company,
as lessor, entered into a long-term lease agreement. The development
costs (including the purchase of the land and closing costs) to be paid
by the Company relating to the 13 Properties under construction and the
one Property to be renovated are estimated to be approximately
$14,503,700. The buildings under construction are expected to be
operational by November 1997.
At the Company's annual meeting of stockholders held on April 4, 1997,
the stockholders approved amendments to the Company's Amended and
Restated Articles of Incorporation increasing the number of authorized
shares of capital stock from 46,000,000 shares to 156,000,000 shares
(consisting of 75,000,000 common shares, 3,000,000 preferred shares and
78,000,000 excess shares).
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The Company is a Maryland corporation that was organized on May 2, 1994,
to acquire Properties, directly or indirectly through joint venture or co-
tenancy arrangements, to be leased on a long-term, "triple-net" basis to
operators of certain national and regional fast-food, family-style and casual
dining restaurant chains. In addition, the Company may provide financing
generally for the purchase of buildings 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.
As of March 31, 1997, the Company owned 123 Properties (including one
Property through a joint venture arrangement, 17 of which were under
construction at March 31, 1997.
Liquidity and Capital Resources
In April 1995, the Company commenced an offering of its shares of common
stock (the "Initial Offering"). During the period January 1, 1997 through
February 6, 1997, the Company received subscription proceeds of $11,344,616
(1,134,462 shares) from its Initial Offering, thereby completing such
offering. 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) pursuant to the reinvestment plan. Following the
completion of its Initial Offering on February 6, 1997, the Company commenced
an offering of up to 27,500,000 shares of common stock (the "Subsequent
Offering). As of March 31, 1997, the Company had received subscription
proceeds of $26,423,820 (2,642,382 shares) from the Subsequent Offering,
including $269,388 (26,939 shares) pursuant to the reinvestment plan. As a
result of these transactions, net proceeds to the Company from its offering of
shares, after deduction of offering expenses, totalled $33,464,875 for the
quarter ended March 31, 1997.
During the quarter ended March 31, 1997, approximately $27,000,000 was
used to invest, or committed for investment, in 29 Properties (17 on which a
restaurant was being constructed), in providing mortgage financing of
$4,200,000 and to pay acquisition fees to the Advisor totalling $1,699,580 and
certain acquisition expenses. The Company acquired two of the 29 Properties
from affiliates for purchase prices totalling approximately $1,773,300. 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.
16
Liquidity and Capital Resources - Continued
In connection with the 17 Properties under construction at March 31,
1997, 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 $19,027,300, of which approximately
$15,888,300 in land and other costs had been incurred as of March 31, 1997.
The buildings under construction as of March 31, 1997, are expected to be
operational by September 1997. In connection with the purchase of each
Property, the Company, as lessor, entered into a long-term lease agreement.
During the quarter ended March 31, 1997, the Company also received
advances totalling $2,207,299 under its Loan. Such amounts were used to fund
Secured Equipment Leases. The Company expects to obtain additional advances
under the Loan to fund the remaining amounts due for two Secured Equipment
Leases and any Secured Equipment Leases entered into in the future.
During the period April 1, 1997 through April 30, 1997, the Company
acquired 16 additional Properties (13 on which restaurants are being
constructed and one on which a restaurant is being renovated) for cash at a
total cost of approximately $10,523,200, excluding development and closing
costs. The development costs (including the purchase of the land and closing
costs) to be paid by the Company relating to the 13 Properties under
construction and the one Property to be renovated are estimated to be
approximately $14,503,700. The buildings under construction are expected to
be operational by November 1997.
The Company presently is negotiating to acquire additional Properties,
but as of April 30, 1997, had not acquired any such Properties.
As of April 30, 1997, the Company had received aggregate subscription
proceeds of $191,065,825 (19,106,583 shares) from its Initial Offering and
Subsequent Offering, including $861,153 (86,116 shares) through the
reinvestment plan. As of April 30, 1997, the Company had invested or
committed for investment approximately $137,000,000 of aggregate net proceeds
from the Initial Offering and the Subsequent Offering in 139 Properties, in
providing mortgage financing to the tenants of 44 Properties consisting of
land only through Mortgage Loans and in paying acquisition fees and certain
acquisition expenses, leaving approximately $32,000,000 in aggregate net
offering proceeds available for investment in Properties and Mortgage Loans.
17
Liquidity and Capital Resources - Continued
The Company expects to use uninvested net offering proceeds, plus any
net offering proceeds from the sale of additional shares, to purchase
additional Properties, to fund construction costs relating to the Properties
under construction and to make Mortgage Loans. The Company expects to use the
proceeds of the Loan to fund the Secured Equipment Lease program. 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, although
the Company is expected to have a total portfolio of 400 to 450 Properties if
the maximum number of shares are sold in the Subsequent Offering. The Company
intends to limit the amount of Secured Equipment Leases it enters into to ten
percent of gross offering proceeds from its offerings.
At the Company's annual meeting of stockholders held on April 4, 1997,
the stockholders approved amendments to the Company's Amended and Restated
Articles of Incorporation increasing the number of authorized shares of
capital stock from 46,000,000 shares to 156,000,000 shares (consisting of
75,000,000 common shares, 3,000,000 preferred shares and 78,000,000 excess
shares). As of April 30, 1997, the Company had 19,126,583 shares of common
stock outstanding (including 20,000 shares issued to the Advisor prior to the
commencement of the Initial Offering and 86,116 shares issued pursuant to the
Company's distribution reinvestment plan) and no preferred stock or excess
shares outstanding.
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
offering. 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.
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.
18
Liquidity and Capital Resources - Continued
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 March 31, 1997, the
Company had $44,132,920 invested in such short-term investments, as compared
to $42,450,088 at 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 quarters ended March 31, 1997 and 1996, affiliates of the
Company incurred on behalf of the Company $593,489 and $264,484, respectively,
for certain offering expenses, $220,259 and $51,860, respectively, for certain
acquisition expenses, and $170,039 and $69,442, respectively, for certain
operating expenses. As of March 31, 1997, the Company owed the Advisor
$483,746 for such amounts, unpaid fees and accounting and administrative
expenses. As of April 30, 1997, the Company had reimbursed all such amounts.
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 quarters ended March 31, 1997 and 1996, the Company generated
cash from operations (which includes cash received from tenants and interest
and other income received, less cash paid for operating expenses) of
$2,717,456 and $710,678, respectively. Based on current and anticipated
future cash from operations the Company declared distributions to the
stockholders of $2,693,357 and $768,133, respectively, during the quarters
ended March 31, 1997 and 1996. In addition, on April 1, 1997, the Company
declared distributions to its stockholders totalling $1,091,133, payable in
June 1997. For the quarters ended March 31, 1997 and 1996, approximately 75
and 90 percent, respectively, of the distributions received by stockholders
were considered to be ordinary income and 25 and ten percent, 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
April 30, 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 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
19
Liquidity and Capital Resources - Continued
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.
Due to the fact that the Properties are leased on a long-term, triple-
net basis, management does not believe that working capital reserves are
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
As of March 31, 1997, the Company and its consolidated joint venture,
CNL/Corral South Joint Venture (hereinafter, collectively referred to as the
Company) had purchased and entered into long-term, triple-net leases for 123
Properties. The leases provide for minimum base annual rental payments
(payable in monthly installments) ranging from approximately $34,700 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, during the quarters ended March 31, 1997 and 1996, the Company
earned $2,089,785 and $799,081, respectively, in rental income from operating
leases and earned income from direct financing lease from 105 Properties and
11 Secured Equipment Leases in 1997 and from 41 Properties in 1996. Because
the Company has not yet acquired all of its Properties, revenues for the
quarters ended March 31, 1997 and 1996, represent only a portion of revenues
which the Company is expected to earn during a full quarter in which the
Company's Properties are operational.
As of March 31, 1997, the Company had also entered into Mortgage Loans
in the principal sum of $17,047,000, collateralized by mortgages on the
buildings relating to 43 Pizza Hut Properties and three additional Pizza Hut
buildings. The Mortgage Loans bear interest at rates ranging from 10.5% to
10.75% per annum and are being collected in 240 equal monthly installments in
the aggregate amount of $167,455. In connection therewith, the Company earned
$375,357 and $184,949 in interest income relating to such Mortgage Loans
during the quarters ended March 31, 1997 and 1996, respectively.
During the quarter ended March 31, 1997, one affiliated group of lessees
and borrowers, Castle Hill, represented more than ten percent of the Company's
total rental, earned and interest income from its Properties, Mortgage Loans
and Secured Equipment Leases.
20
Results of Operations - Continued
Castle Hill is the lessee under leases relating to 43 restaurants and is the
borrower on Mortgage Loans relating to the buildings on such Properties. In
addition, during the quarter ended March 31, 1997, three restaurant chains,
Golden Corral Family Steakhouse, Pizza Hut and Boston Market, each accounted
for more than ten percent of the Company's total rental, earned and interest
income relating to its Properties, Mortgage Loans and Secured Equipment
Leases. Because the Company has not 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, earned and interest income during the remainder of 1997 and subsequent
years. In the event that certain lessees, borrowers or restaurant chains
contribute more than ten percent of the Company's rental and interest income
in the current and future years, any failure of such lessees, borrowers or
restaurants chains could materially affect the Company's income.
The Company also earned $474,416 and $75,849, respectively, in interest
income from investments in money market accounts or other short-term, highly
liquid investments and other income. 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 $679,823 and $300,539 for the quarters ended March 31, 1997 and 1996,
respectively. Operating expenses increased primarily as a result of the
Company being invested in additional Properties and Mortgage Loans during the
quarter ended March 31, 1997, as compared to the quarter ended March 31, 1996.
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 and mortgage management fees and depreciation and amortization
expense are expected to increase as the Company invests in additional
Properties and Mortgage Loans.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share." The
Statement, which is effective for fiscal years ending after December 15, 1997,
provides for a revised computation of earnings per share. The Company will
adopt this Standard in 1997 and does not expect compliance with such Standard
to have a material effect, if any, on the Company's earnings per share.
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 expectations
reflected in such forward-
21
Results of Operations - Continued
looking statements are based upon reasonable assumptions, the Company's actual
results could differ materially from those set forth in the forward-looking
statements. Certain factors that might cause such a difference include the
following: changes in general economic conditions, changes in local real
estate conditions, continued availability of proceeds from the Company's
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.
22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) The Company filed three reports on Form 8-K, reporting the
acquisition of Properties, on January 21, 1997, January 30,
1997 and March 18, 1997.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 13th day of May, 1997.
CNL AMERICAN PROPERTIES FUND, INC.
By: /s/ James M. Seneff, Jr.
-----------------------------
JAMES M. SENEFF, JR.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/Steven D. Shackelford
-----------------------------
STEVEN D. SHACKELFORD
Chief Financial Officer
(Principal Financial Officer)
