FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 juris- (I.R.S. Employer
diction of incorporation Identification No.)
or organization)
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
for 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.
31,407,011 shares of common stock, $.01 par value, outstanding as of November 3,
1997.
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of
Earnings 2
Condensed Consolidated Statements of
Stockholders' Equity 3
Condensed Consolidated Statements of
Cash Flows 4-5
Notes to Condensed Consolidated
Financial Statements 6-17
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 18-26
Part II
Other Information 27
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 1997 1996
------------- -----------
Land and buildings on operating leases,
less accumulated depreciation $170,249,188 $ 60,243,146
Net investment in direct financing leases 39,344,776 15,204,972
Cash and cash equivalents 41,324,755 42,450,088
Restricted cash 16,014,345 -
Receivables, less allowance for doubtful
accounts of $11,177 and $2,857 736,931 142,389
Mortgage notes receivable 17,657,131 13,389,607
Organization costs, less accumulated
amortization of $9,318 and $6,318 10,682 13,682
Loan costs, less accumulated amortization
of $54,420 and $22,034 46,214 32,499
Accrued rental income 1,320,957 422,076
Other assets 1,446,066 2,926,589
------------ ------------
$288,151,045 $134,825,048
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $ 17,990,638 $ 3,521,816
Accrued interest payable 28,456 13,164
Accrued construction costs payable 11,080,621 6,587,573
Accounts payable and accrued expenses 139,471 79,817
Due to related parties 1,148,881 997,084
Rents paid in advance 700,171 118,900
Deferred rental income 1,167,099 335,849
Other payables 6,058 15,117
------------ ------------
Total liabilities 32,261,395 11,669,320
------------ ------------
Minority interest 286,372 288,301
------------ ------------
Commitments (Note 13)
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000
shares - -
Excess shares, $0.01 par value per share.
Authorized and unissued 78,000,000
shares - -
Common stock, $0.01 par value per share.
Authorized 75,000,000 shares, issued
and outstanding 28,867,485 and
13,944,715, respectively 288,675 139,447
Capital in excess of par value 257,416,712 123,687,929
Accumulated distributions in excess of
net earnings (2,102,109) (959,949)
------------ ------------
Total stockholders' equity 255,603,278 122,867,427
------------ ------------
$288,151,045 $134,825,048
============ ============
See accompanying notes to condensed consolidated
financial statements.
1
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C>
Revenues:
Rental income from
operating leases $3,819,866 $ 724,958 $7,826,671 $2,342,959
Earned income from
direct financing
leases 851,463 238,723 1,809,955 324,907
Interest income from
mortgage notes
receivable 437,134 330,880 1,252,326 796,378
Other interest and
income 428,753 207,681 1,363,498 419,470
---------- ---------- ---------- ----------
5,537,216 1,502,242 12,252,450 3,883,714
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 183,374 176,418 664,585 449,315
Professional services 8,655 1,710 53,334 50,101
Asset and mortgage
management fees to
related party 234,665 78,100 493,921 175,773
State and other taxes 65,741 27,982 173,604 40,366
Depreciation and
amortization 526,207 150,051 1,105,611 388,813
---------- ---------- ---------- ----------
1,018,642 434,261 2,491,055 1,104,368
---------- ---------- ---------- ----------
Earnings Before Minority
Interest in Loss (Income)
of Consolidated Joint
Venture 4,518,574 1,067,981 9,761,395 2,779,346
Minority Interest in
Loss (Income) of
Consolidated Joint
Venture (7,860) 736 (23,586) (21,587)
---------- ---------- ---------- ----------
Net Earnings $4,510,714 $1,068,717 $9,737,809 $2,757,759
========== ========== ========== ==========
Earnings Per Share of
Common Stock $ 0.18 $ 0.12 $ 0.48 $ 0.41
========== ========== ========== ==========
Weighted Average Number
of Shares of Common
Stock Outstanding 25,371,886 8,993,595 20,368,867 6,771,120
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
2
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1997 and
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Accumulated
distributions
Common stock Capital in in excess
Number Par excess of of net
of shares value par value earnings Total
<S> <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 ($0.71
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 14,922,770 149,228 149,078,567 - 149,227,795
Stock issuance
costs - - (15,349,784) - (15,349,784)
Net earnings - - - 9,737,809 9,737,809
Distributions
declared and
paid ($0.55
per share) - - - (10,879,969) (10,879,969)
---------- -------- ------------ ------------ ------------
Balance at
September 30, 1997 28,867,485 $288,675 $257,416,712 $ (2,102,109) $255,603,278
========== ======== ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
3
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1997 1996
------------ -----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 10,800,147 $ 3,244,519
------------ ------------
Cash Flows From Investing Activities:
Additions to land and buildings
on operating leases (106,915,605) (27,023,938)
Investment in direct financing
leases (28,977,515) (9,406,953)
Proceeds from sale of buildings and
equipment under direct financing
leases 7,251,511 -
Investment in mortgage notes
receivable (4,443,982) (12,363,000)
Collection of deferred financing
income 42,000 43,270
Collection on mortgage notes
receivable 186,135 86,815
Increase in restricted cash (16,014,345) -
Increase in other assets - (877,463)
------------ ------------
Net cash used in investing
activities (148,871,801) (49,541,269)
------------ ------------
Cash Flows From Financing Activities:
Reimbursement of acquisition and
stock issuance costs paid by
related parties on behalf of
the Company (2,244,153) (765,996)
Proceeds of borrowing on line
of credit 16,253,399 2,417,572
Payment on line of credit (1,784,577) (41,337)
Payment of loan costs (46,101) (53,500)
Contribution from minority
interest of consolidated
joint venture - 97,419
Subscriptions received from
stockholders 149,227,795 64,506,734
Distributions to minority interest (25,515) (30,626)
Distributions to stockholders (10,879,969) (3,406,759)
Payment of stock issuance costs (13,584,558) (5,680,757)
Other 30,000 2,550
------------ ------------
Net cash provided by
financing activities 136,946,321 57,045,300
------------ ------------
Net Increase (Decrease) in Cash and Cash
Equivalents (1,125,333) 10,748,550
Cash and Cash Equivalents at Beginning
of Period 42,450,088 11,508,445
------------ ------------
Cash and Cash Equivalents at End
of Period $ 41,324,755 $ 22,256,995
============ ============
See accompanying notes to condensed consolidated
financial statements.
4
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Nine Months Ended
September 30,
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 $ 428,114 $ 136,341
Stock issuance costs 1,794,722 615,600
------------ ------------
$ 2,222,836 $ 751,941
============ ============
See accompanying notes to condensed consolidated
financial statements.
5
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 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 through leases or loans ("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 and nine months ended September 30, 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 balances and transactions have been eliminated.
Certain items in the prior year's financial statements have been
reclassified to conform with the 1997 presentation. These
reclassifications had no effect on stockholders' equity or net
earnings.
6
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 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
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 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 174 of the
Company's Properties have been classified as operating leases
(including the leases relating to 16 properties under construction as
of September 30, 1997) and the leases relating to 40 Properties and 21
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 26 of these leases are accounted for
as operating leases.
4. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at:
September 30, December 31,
1997 1996
Land $ 93,077,670 $ 33,850,436
Buildings 71,892,658 24,152,610
------------ ------------
164,970,328 58,003,046
Less accumulated
depreciation (1,707,889) (611,396)
------------ ------------
163,262,439 57,391,650
Construction in
progress 6,986,749 2,851,496
------------ ------------
$170,249,188 $ 60,243,146
============ ============
7
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 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 nine months ended September
30, 1997 and 1996, the Company recognized $1,259,180 and $275,422,
respectively, of such rental income, $643,153 and $99,342 of which was
earned during the quarters ended September 30, 1997 and 1996,
respectively.
In May 1997, the Company sold four of its Properties and the equipment
relating to two Secured Equipment Leases to a tenant. The Company
received net proceeds of approximately $6,216,400, which were equal to
the carrying value of the Properties and the equipment at the time of
the sale. As a result, no gain or loss was recognized for financial
reporting purposes. The Company used the net sales proceeds relating to
the sale of the equipment to repay amounts previously advanced under
its line of credit (see Note 8). The Company intends to reinvest the
proceeds from the sale of Properties in additional Properties.
In July 1997, the Company acquired a Property and then sold it to a
tenant. The Company received net proceeds of approximately $1,035,000,
which were equal to the carrying value of the Property at the time of
sale. As a result, no gain or loss was recognized for financial
reporting purposes. The Company intends to reinvest the proceeds from
the sale of this Property in an additional Property.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at September 30, 1997:
1997 $ 3,802,503
1998 15,515,073
1999 15,601,068
2000 15,557,858
2001 15,777,481
Thereafter 236,483,012
------------
$302,736,995
8
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
4. Land and Buildings on Operating Leases - Continued:
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 13).
5. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at:
September 30, December 31,
1997 1996
Minimum lease payments
receivable $ 82,112,142 $ 30,162,465
Estimated residual
values 6,465,836 1,346,332
Secured equipment lease
interest receivable 58,072 18,286
Less unearned income (49,291,274) (16,322,111)
------------ ------------
Net investment in
direct financing
leases $ 39,344,776 $ 15,204,972
============ ============
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at September 30, 1997:
1997 $ 1,400,937
1998 5,603,745
1999 5,603,745
2000 5,603,745
2001 5,375,677
Thereafter 58,524,293
-----------
$82,112,142
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).
9
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
6. Restricted Cash:
As of September 30, 1997, the proceeds from amounts advanced under the
line of credit (see Note 8) of $11,404,999 plus net offering proceeds
of $4,609,346, were being held in an interest-bearing, escrow account
pending the release of the funds to provide equipment financing and to
purchase seven Properties consisting of building only, respectively
(see Note 14).
7. Mortgage Notes Receivable:
In March 1997, in connection with the acquisition of land for nine
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 the nine Pizza Hut Properties and two 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:
September 30, December 31,
1997 1996
Outstanding principal $16,727,015 $12,713,151
Accrued interest income 78,705 35,285
Deferred financing
income (86,512) (46,268)
Unamortized loan costs 937,923 687,439
----------- -----------
$17,657,131 $13,389,607
=========== ===========
Management believes that the estimated fair value of mortgage notes
receivable at September 30, 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.
8. Note Payable:
On August 20, 1997, the Company's $15 million line of credit was
amended and restated to enable the Company to receive advances on a
revolving $35 million unsecured line of credit (the "Line of Credit")
to provide equipment financing and to purchase and develop Properties
and fund Mortgage Loans. The advances bear interest at a rate of LIBOR
plus 1.65% or the
10
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
8. Note Payable - Continued:
bank's prime rate, whichever the Company selects at the time of
borrowing. Interest only is repayable monthly until July 31, 1999, at
which time all remaining interest and principal shall be due. The Line
of Credit provides for two one-year renewal options.
As of September 30, 1997, $17,990,638 of principal was outstanding
relating to the Line of Credit, plus $28,456 of accrued interest. As of
September 30, 1997, the interest rate on amounts outstanding under the
Line of Credit was 7.306% (LIBOR plus 1.65%). The Company believes,
based on current terms, that the carrying value of the Line of Credit
at September 30, 1997, approximates fair value.
Interest costs (including amortization of loan costs) incurred for the
quarter and nine months ended September 30, 1997, were $114,546 and
$325,088, respectively, all of which were capitalized as part of the
cost of buildings under construction.
9. Stock Issuance Costs:
The Company has incurred certain expenses in connection with the public
offerings of its 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 offerings. CNL Fund Advisors, Inc. (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 aggregate gross
offering proceeds received from the sale of shares of the Company.
During the nine months ended September 30, 1997 and the year ended
December 31, 1996, the Company incurred $15,349,784 and $9,216,102,
respectively, in stock issuance costs, including $11,938,224 and
$8,063,439, respectively, in commissions and marketing support and due
diligence expense reimbursement fees (see Note 11). The stock issuance
costs have been charged to stockholders' equity subject to the three
percent cap described above.
11
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
10. Distributions:
For the nine months ended September 30, 1997 and 1996, approximately 92
and 88 percent, respectively, of the distributions paid to stockholders
were considered ordinary income and approximately 8 and 12 percent,
respectively, were considered a return of capital to stockholders for
federal income tax purposes. No amounts distributed to the stockholders
for the nine months ended September 30, 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 nine months ended September 30, 1997, may not be
indicative of the results that may be expected for the year ending
December 31, 1997.
11. Related Party Transactions:
During the nine months ended September 30, 1997, the Company incurred
$11,192,085 in selling commissions due to CNL Securities Corp. for
services in connection with the offering of shares. A substantial
portion of this amount ($10,427,281) 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 re-allowed to other broker-dealers. During the nine months ended
September 30, 1997, the Company incurred $746,139 of such fees, the
majority of which was 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 these Properties and structuring the terms of the
Mortgage Loans. This fee is equal to 4.5% of the total amount raised
from the sale of shares. During the nine months ended September 30,
1997, the Company incurred $6,715,251 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 fees
payable to affiliates of
12
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
11. Related Party Transactions - Continued:
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 nine months ended September
30, 1997, and 1996, the Company incurred $369,570 of such fees relating
to six Properties and $159,350 of such fees relating to three
Properties, respectively.
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 nine months ended September 30, 1997 and 1996, the
Company incurred $90,592 and $45,430, respectively, in Secured
Equipment Lease servicing fees.
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 and the outstanding principal balance of the Mortgage Loans
as of the end of the preceding month. The real estate asset value
represents the total amount invested in the Properties as of the end of
the preceding month, exclusive of acquisition fees and acquisition
expenses. 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 nine months ended September 30, 1997 and 1996, the Company
incurred $558,319 and $181,497, respectively, of such fees, $64,398 and
$5,724, respectively, of which was capitalized as part of the cost of
the buildings for Properties under construction.
13
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
11. Related Party Transactions - Continued
The Advisor and its affiliates provide accounting and administrative
services to the Company on a day-to-day basis as well as services in
connection with the offerings of shares. For the nine months ended
September 30, 1997 and 1996, the expenses incurred for these services
were classified as follows:
1997 1996
---------- ---------
Stock issuance costs $1,259,411 $ 558,383
General operating and
administrative expenses 389,806 236,191
---------- ---------
$1,649,217 $ 794,574
========== =========
For the periods ended September 30, 1997 and 1996, the Company acquired
two Properties for approximately $1,773,300 and three Properties for
approximately $2,358,000, respectively, 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 its
carrying costs, or the Property's appraised value.
The due to related parties consisted of the following at:
September 30, December 31,
1997 1996
Due to the Advisor:
Expenditures incurred
on behalf of the
Company and accounting
and administrative
services $ 158,971 $ 199,068
Acquisition fees 530,243 383,210
---------- ----------
689,214 582,278
---------- ----------
Due to CNL Securities Corp:
Commissions 427,142 372,227
Marketing support and due
diligence expense reim-
bursement fees 32,525 42,579
---------- ----------
459,667 414,806
---------- ----------
$1,148,881 $ 997,084
========== ==========
14
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
12. Concentration of Credit Risk:
The following schedule presents total rental, earned, and interest
income from individual lessees, or affiliated groups of lessees, 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 nine month periods
ended September 30:
1997 1996
---------- ----------
Castle Hill Holdings V,
L.L.C., Castle Hill
Holdings VI, L.L.C., and
Castle Hill Holdings VII, $1,950,890 $ 442,877
L.L.C.
Foodmaker, Inc. 1,181,907 176,582
Golden Corral Corporation 641,879 432,210
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 rental, earned, and interest
income, for at least one of the nine month periods ended September 30:
1997 1996
---------- ----------
Pizza Hut $1,950,890 $ 442,877
Golden Corral Family
Steakhouse Restaurants 1,767,534 827,289
Jack in the Box 1,162,274 176,582
Boston Market 1,482,990 276,370
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 one of
these lessees or borrowers 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.
15
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
13. Commitments:
The Company has entered into various development agreements with
tenants which provide terms and specifications for the construction of
buildings the tenants have agreed to lease. 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 $20,121,000, of which approximately $13,390,000 in land
and other costs had been incurred as of September 30, 1997. The
buildings currently under construction are expected to be operational
by March 1998. In connection with the purchase of each Property, the
Company, as lessor, entered into a long-term lease agreement.
14. Subsequent Events:
During the period October 1, 1997 through October 31, 1997, the Company
received subscription proceeds for an additional 2,472,810 shares
($24,728,101) of common stock.
On October 1, 1997, the Company declared distributions of $1,845,170 or
$0.06354 per share of common stock, payable in December 1997 to
stockholders of record on October 1, 1997.
On October 1, 1997, the escrow agent released the $16,014,345 that was
held in escrow as of on September 30, 1997 (see Note 6) to provide
equipment financing and to purchase seven Properties.
During the period October 1, 1997 through October 31, 1997, the Company
acquired 22 Properties (three on which restaurants are being
constructed and two Properties which were acquired from an affiliate
for approximately $2,340,000) for cash at a total cost of approximately
$19,700,000 (including the seven Properties acquired with proceeds held
in escrow at September 30, 1997, as described above). The affiliate had
purchased and temporarily held title to the two Properties in order to
facilitate the acquisition of the Properties by the Company. The two
Properties were acquired at a cost no greater than the lesser of the
cost of each Property to the affiliate, including its carrying costs,
or the Property's appraised value. In connection with the purchase of
each of the 22 Properties, the Company, as lessor, entered into a
long-term lease agreement. The buildings under construction are
expected to be operational by April 1998. Additionally, during this
period, the Company provided equipment financing with a total cost of
approximately $14,200,000.
16
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
14. Subsequent Events - Continued:
On October 10, 1997, the Company filed a registration statement with
the Securities and Exchange Commission in connection with the proposed
sale by the Company of up to 34,500,000 shares of common stock (the
"Subsequent Offering") in an offering expected to commence immediately
following the termination of the Company's current offering of shares.
Of the 34,500,000 shares of common stock to be offered, 2,000,000 will
be available only to stockholders purchasing shares through the
reinvestment plan. The price per share and the other terms of the
Subsequent Offering, including the percentage of gross proceeds payable
to the managing dealer for selling commissions and expenses in
connection with the offering, payable to the Advisor for acquisition
fees and acquisition expenses and reimbursable to the Advisor for
offering expenses, will be the same as those for the Company's current
offering. Net proceeds from the Subsequent Offering will be invested in
additional Properties and Mortgage Loans.
17
<PAGE>
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, (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. In addition, the Company
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, fixtures and equipment financing
through leases or loans (the "Secured Equipment Leases") to operators of
restaurant chains.
As of September 30, 1997, the Company owned 214 Properties, including
one Property through a joint venture arrangement and 16 Properties which were
under construction.
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 Company's 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 "1997 Offering"). As of
September 30, 1997, the Company had received subscription proceeds of
$137,883,078 (13,788,308 shares) from the 1997 Offering, including $1,183,289
(118,329 shares) pursuant to the reinvestment plan. Net proceeds to the Company
from the Initial Offering and the 1997 Offering, after deduction of offering
expenses, totalled $257,685,387 for the nine months ended September 30, 1997.
During the nine months ended September 30, 1997, approximately
$137,368,000 of net offering proceeds were used to invest, or committed for
investment, in 124 Properties (including 16 Properties on which a restaurant was
being constructed or renovated as of September 30, 1997), to provide mortgage
financing of $4,200,000 and to pay acquisition fees to the Advisor totalling
$6,715,251, as well as certain acquisition expenses. The Company acquired two of
the 124 Properties from affiliates for purchase prices totalling approximately
$1,773,300.
18
<PAGE>
Liquidity and Capital Resources - Continued
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 16 Properties under construction at September
30, 1997, the Company has entered into various development agreements with
tenants which provide terms and specifications for the construction of
buildings. 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
are approximately $20,121,000, of which approximately $13,390,000 had been
incurred as of September 30, 1997. The buildings under construction as of
September 30, 1997, are expected to be operational by March 1998. In connection
with the purchase of each Property, the Company, as lessor, entered into a
long-term lease agreement.
In May 1997, the Company sold four of its Properties and the equipment
relating to two Secured Equipment Leases to a tenant. The Company received net
proceeds of approximately $6,216,400, which were equal to the carrying value of
the Properties and the equipment at the time of the sale. As a result, no gain
or loss was recognized for financial reporting purposes. The Company intends to
reinvest the proceeds from the sale of Properties in additional Properties. The
Company used the net sales proceeds relating to the sale of the equipment to
repay amounts previously advanced under the line of credit.
In July 1997, the Company acquired a Property and then sold it to the
tenant. The Company received net proceeds of approximately $1,035,000, which
were equal to the carrying value of the Property at the time of sale. As a
result, no gain or loss was recognized for financial reporting purposes. The
Company intends to reinvest the proceeds from the sale of the Property in an
additional Property.
On August 20, 1997, the Company's $15 million line of credit was
amended and restated to enable the Company to receive advances on a revolving
$35 million unsecured line of credit (the "Line of Credit") to provide equipment
financing and to purchase and develop Properties and fund Mortgage Loans. The
advances bear interest at a rate of LIBOR plus 1.65% or the bank's prime rate,
whichever the Company selects at the time of borrowing. Interest only is
repayable monthly until July 31, 1999, at which time all remaining interest and
principal shall be due. The Line of Credit provides for two one-year renewal
options.
19
<PAGE>
Liquidity and Capital Resources - Continued
Advances used to fund Secured Equipment Leases will be repaid using
payments received from Secured Equipment Leases and will be refinanced in regard
to any Secured Equipment Lease not fully repaid at the end of the term of the
Line of Credit. Advances used to purchase and develop Properties and to fund
Mortgage Loans will be repaid using additional offering proceeds or refinanced
on a long-term basis.
The Company will not encumber Properties in connection with the Line of
Credit. Management believes that during the offering period the Line of Credit
will allow the Company to make investments that the Company otherwise would be
forced to delay until it raised a sufficient amount of proceeds from the sale of
shares to allow the Company to make the investments. By eliminating this delay
the Company will also eliminate the risk that these investments will no longer
be available, or the terms of the investment will be less favorable, when the
Company has raised sufficient offering proceeds. Alternatively, affiliates of
the Advisor could make such investments, pending receipt by the Company of
sufficient offering proceeds, in order to preserve the investment opportunities
for the Company. However, Properties acquired by the Company in this manner
would be subject to closing costs both on the original purchase by the affiliate
and on the subsequent purchase by the Company, which would increase the amount
of expenses associated with the acquisition of Properties and reduce the amount
of offering proceeds available for investment in income-producing assets.
Management believes that the use of the Line of Credit by the Company will
enable the Company to reduce or eliminate the instances in which the Company
will be required to pay duplicate closing costs.
During the nine months ended September 30, 1997, the Company received
advances totalling $16,253,399 under the Line of Credit to provide equipment
financing and the Company repaid $1,784,577 under the Line of Credit, a portion
of which was received from the sales proceeds of two Secured Equipment Leases,
as described above. The Company expects to obtain additional advances under the
Line of Credit to fund future equipment financing requirements and to purchase
Properties.
As of September 30, 1997, the proceeds from amounts advanced under the
Line of Credit of $11,404,999 plus net offering proceeds of $4,609,346, were
being held in an interest-bearing, escrow account pending the release of the
funds to provide equipment financing and to purchase seven Properties consisting
of building only. These funds were released from escrow in October 1997.
During the period October 1, 1997 through October 31, 1997, the Company
received subscription proceeds for an additional 2,472,810 shares ($24,728,101)
of common stock.
20
<PAGE>
Liquidity and Capital Resources - Continued
In addition, during the period October 1, 1997 through October 31,
1997, the Company acquired 22 Properties (three on which restaurants are being
constructed and two Properties which were acquired from an affiliate for
approximately $2,340,000) for cash at a total cost of approximately $19,700,000
(including the seven Properties acquired with proceeds in escrow at September
30, 1997, as described above). The affiliate had purchased and temporarily held
title to the two Properties in order to facilitate the acquisition of the
Properties by the Company. The two Properties were acquired at a cost no greater
than the lesser of the cost of each Property to the affiliate, including its
carrying costs, or the Property's appraised value. In connection with the
purchase of each of the 22 Properties, the Company, as lessor, entered into a
long-term lease agreement. The buildings under construction are expected to be
operational by April 1998. Additionally, during this period, the Company
provided equipment financing with a total cost of approximately $14,200,000.
Additionally, the Company presently is negotiating to acquire
additional Properties, but as of October 31, 1997, had not acquired any such
Properties.
On October 10, 1997, the Company filed a registration statement with
the Securities and Exchange Commission in connection with the proposed sale by
the Company of up to 34,500,000 shares of common stock (the "Subsequent
Offering"), which is expected to commence immediately following the termination
of the Company's current offering. Of the 34,500,000 shares of common stock to
be offered, 2,000,000 will be available only to stockholders purchasing shares
through the reinvestment plan. The price per share and the other terms of the
Subsequent Offering, including the percentage of gross proceeds payable to the
managing dealer for selling commissions and expenses in connection with the
offering, payable to the Advisor for acquisition fees and acquisition expenses
and reimbursable to the Advisor for offering expenses, will be the same as those
for the Company's current offering. Net proceeds from the Subsequent Offering
will be invested in additional Properties and Mortgage Loans.
As of October 31, 1997, the Company had received aggregate subscription
proceeds of $313,203,044 (31,320,304 shares) from its Initial Offering and the
1997 Offering, including $1,775,054 (177,506 shares) through its reinvestment
plan. As of October 31, 1997, the Company had invested or committed for
investment approximately $246,502,748 of aggregate net offering proceeds in 241
Properties, including five which were sold during 1997, in providing mortgage
financing to the tenants of 44 Properties
21
<PAGE>
Liquidity and Capital Resources - Continued
consisting of land only through Mortgage Loans and in paying acquisition fees
and certain acquisition expenses, leaving approximately $33,935,000 in aggregate
net offering proceeds available for investment in Properties and Mortgage Loans.
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 does not intend to use net
offering proceeds to fund Secured Equipment Leases; however, from time to time
the Company may use uninvested net offering proceeds to repay a portion of or
all of the balance outstanding under the Line of Credit pending the investment
of such offering proceeds in Properties or Mortgage Loans in order to reduce the
Company's interest cost during such period. The Company expects to fund the
Secured Equipment Leases with proceeds from the Line of Credit. 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 1997 Offering. The Company intends to
limit equipment financing to ten percent of the aggregate gross offering
proceeds from its offerings.
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 or to fund Mortgage Loans at such time as
suitable Properties and investments in Mortgage Loans are identified.
At September 30, 1997, the Company had $41,324,755 in cash and cash
equivalents, 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
temporarily reduce amounts outstanding under the Company's Line of Credit
pending the investment of net offering proceeds, to meet Company expenses, and,
in management's discretion, to create cash reserves. The decrease in the amount
invested in short-term investments is primarily attributable to the acquisition
of additional Properties, as described above, during the nine months ended
September 30, 1997.
22
<PAGE>
Liquidity and Capital Resources - Continued
During the nine months ended September 30, 1997 and 1996, affiliates of
the Company incurred on behalf of the Company $1,794,722 and $615,600,
respectively, for certain offering expenses, $428,114 and $136,341,
respectively, for certain acquisition expenses, and $291,633 and $208,156,
respectively, for certain operating expenses. As of September 30, 1997, the
Company owed the Advisor $689,214 for such amounts, unpaid fees of $530,243 and
accounting and administrative expenses. As of October 31, 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 the aggregate gross
proceeds from the Company's Offerings. As of September 30, 1997, the offering
expenses had not exceeded this amount.
During the nine months ended September 30, 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
$10,800,147 and $3,244,519, respectively. Based on current and anticipated
future cash from operations the Company declared distributions to the
stockholders of $10,879,969 and $3,403,427, respectively, during the nine months
ended September 30, 1997 and 1996. In addition, on October 1, 1997, the Company
declared distributions to its stockholders totalling $1,845,170, payable in
December 1997. For the nine months ended September 30, 1997 and 1996,
approximately 92 and 88 percent, respectively, of the distributions received by
stockholders were considered to be ordinary income and approximately 8 and 12
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 October 31, 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 a 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 other 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.
23
<PAGE>
Results of Operations
As of September 30, 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 219 Properties. (including five Properties which were sold in 1997).
The Property leases provide for minimum base annual rental payments
ranging from approximately $34,800 to $467,500, which are payable in monthly
installments. 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 nine months ended September 30, 1997 and 1996, the Company earned
$9,636,626 and $2,667,866, respectively, in rental income from operating leases
and earned income from direct financing leases from 219 Properties and 23
Secured Equipment Leases in 1997 (including five Properties and two Secured
Equipment Leases which were sold during the nine months ended September 30,
1997) and from 72 Properties and five Secured Equipment Leases in 1996
($4,671,329 and $963,681 of which was earned during the quarters ended September
30, 1997 and 1996, respectively). Because the Company has not yet acquired all
of its Properties and certain Properties were under construction as of September
30, 1997, revenues for the nine months ended September 30, 1997, represent only
a portion of revenues which the Company is expected to earn in future periods.
As of September 30, 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 44 Pizza Hut Properties and two 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
$1,252,326 and $796,378 in interest income relating to such Mortgage Loans
during the nine months ended September 30, 1997 and 1996, respectively, $437,134
and $330,880 of which was earned during the quarters ended September 30, 1997
and 1996, respectively.
During the nine months ended September 30, 1997, two affiliated groups
of lessees and borrowers, Castle Hill and Foodmaker, Inc., each represented more
than ten percent of the Company's total rental, earned and interest income from
its Properties, Mortgage Loans and Secured Equipment Leases. Castle Hill is the
lessee under leases relating to 44 restaurants and is the borrower on Mortgage
Loans relating to the buildings on such Properties. Foodmaker, Inc. is the
lessee under leases relating to 26 restaurants. In addition, during the nine
months ended September 30, 1997, four restaurant chains, Golden Corral Family
Steakhouse, Pizza Hut, Jack in the Box, and Boston Market, each accounted for
more than ten percent of the Company's total rental,
24
<PAGE>
Results of Operations - Continued
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.
During the nine months ended September 30, 1997 and 1996, the Company
also earned $1,363,498 and $419,470, respectively, in interest income from
investments in money market accounts or other short-term, highly liquid
investments and other income, $428,753 and $207,681 of which was earned during
the quarters ended September 30, 1997 and 1996, respectively. 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 $2,491,055 and $1,104,368 for the nine months ended September 30, 1997 and
1996, respectively, of which $1,018,642 and $434,261 were incurred for the
quarters ended September 30, 1997 and 1996, respectively. Total operating
expenses increased primarily as a result of the Company having invested in
additional Properties and Mortgage Loans during the quarter and nine months
ended September 30, 1997, as compared to the quarter and nine months ended
September 30, 1996. General and administrative expenses as a percentage of total
revenues is expected to decrease as the Company acquires additional Properties,
invests in additional 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 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- looking statements are based upon reasonable
assumptions, the Company's actual results could differ materially from those set
25
<PAGE>
Results of Operations - Continued
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 offerings, 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.
26
<PAGE>
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. Inapplicable.
(b) The Company filed two reports on Form 8-K on July 21,
1997 and September 4, 1997, reporting property
acquisitions.
27
<PAGE>
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 12th day of November, 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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL American Properties Fund, Inc. at September 30, 1997, and its
statement of income for the nine months then ended and is qualified in its
entirety by reference to the Form 10Q of CNL American Properties Fund, Inc. for
the nine months ended September 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 57,339,100<F2>
<SECURITIES> 0
<RECEIVABLES> 748,108
<ALLOWANCES> 11,177
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 171,957,077
<DEPRECIATION> 1,707,889
<TOTAL-ASSETS> 288,151,045
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
288,675
0
<COMMON> 0
<OTHER-SE> 255,314,603
<TOTAL-LIABILITY-AND-EQUITY> 288,151,045
<SALES> 0
<TOTAL-REVENUES> 12,252,450
<CGS> 0
<TOTAL-COSTS> 2,491,055
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,737,809
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,737,809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,737,809
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0
<FN>
<F2>Balance inclusive of $16,014,345 in restricted cash at September 30, 1997.
<F1>Due to the nature of its industry, CNL American Properties Fund, Inc. has an
unclassified balance sheet, therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
