Rule 424(b)(3)
No. 333-37657
CNL AMERICAN PROPERTIES FUND, INC.
This Supplement is part of, and should be read in conjunction with, the
Prospectus dated May 12, 1998. Capitalized terms used in this Supplement have
the same meaning as in the Prospectus unless otherwise stated herein.
THE OFFERINGS
Upon completion of its Initial Offering on February 6, 1997, the
Company had received subscription proceeds of $150,591,765 (15,059,177 shares),
including 59,177 shares ($591,765) issued pursuant to the Reinvestment Plan.
Following the completion of its Initial Offering, the Company commenced its 1997
Offering of up to 27,500,000 shares and upon completion of such offering on
March 2, 1998, had received subscription proceeds of $251,872,648 (25,187,265
shares), including 187,265 shares ($1,872,648) issued pursuant to the
Reinvestment Plan. Net offering proceeds received by the Company from the Prior
Offerings, after deduction of selling commissions, marketing support and due
diligence expense reimbursement fees and offering expenses, totalled
approximately $361,100,000. Following the completion of the 1997 Offering, the
Company commenced this offering of up to 34,500,000 Shares. As of May 15, 1998,
the Company had received subscription proceeds of $66,983,796 (6,698,380
Shares), including 81,266 Shares ($812,663) issued pursuant to the Reinvestment
Plan in connection with this offering. Net offering proceeds received by the
Company from this offering, after deduction of selling commissions, marketing
support and due diligence expense reimbursement fees and offering expenses,
totalled approximately $60,200,000. As of May 15, 1998, the Company had invested
or committed for investment approximately $297,600,000 of aggregate net proceeds
from its offerings in 260 Properties, in providing mortgage financing through
Mortgage Loans, and in paying acquisition fees and certain acquisition expenses,
leaving approximately $123,700,000 in aggregate net offering proceeds available
for investment in Properties and Mortgage Loans.
BUSINESS
GENERAL
The 260 Properties acquired through May 15, 1998 are owned directly by
the Company (except for one Property which is owned through a joint venture
arrangement). On May 15, 1998, the Company formed CNL APF Partners, LP, a wholly
owned Delaware limited partnership (the "Partnership"). Properties acquired
subsequent to May 15, 1998 are expected to be held by the Partnership and, as a
result, owned by the Company through the Partnership.
COMPLETED INVESTMENTS
As of May 15, 1998, the Company had invested or committed for
investment approximately $297,600,000 of net proceeds from the Prior Offerings
in 260 Properties, in providing mortgage financing through Mortgage Loans, and
to pay related acquisition fees and acquisition expenses. All of the Properties
are owned directly by the Company, except for one Property which is owned
through a joint venture arrangement. All of the Properties were acquired since
the Company commenced operations on June 1, 1995 and the leases generally
provide for initial terms ranging from 15 to 20 years and expire between 2002
and 2022.
June 1, 1998 Prospectus Dated May 12, 1998
<PAGE>
The following tables set forth information for the Properties owned by
the Company as of May 15, 1998, including the number of Properties by Restaurant
Chain and the number of Properties by state.
Restaurant Number of Properties
---------- --------------------
Applebee's 2
Arby's 12
Bennigan's 1
Black-eyed Pea 18
Boston Market 31
Burger King 8
Charley's Place 2
Chevy's Fresh Mex 5
Darryl's 15
Denny's 4
Einstein Bros. Bagels 2
Golden Corral 30
Ground Round 13
Houlihan's 3
IHOP 8
Jack in the Box 37
KFC 1
Mr. Fable's 1
On The Border 1
Pizza Hut 44
Popeyes 1
Ruby Tuesday's 2
Ruth's Chris Steak House 1
Ryan's Family Steak House 1
Shoney's 4
TGI Friday's 1
Tumbleweed Southwest Mesquite Grill & Bar 7
Wendy's 5
----
Total 260
====
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<PAGE>
State Number of Properties
----- --------------------
Alabama 5
Arizona 11
California 22
Colorado 5
Connecticut 1
Delaware 1
Florida 14
Georgia 3
Idaho 1
Illinois 5
Indiana 5
Iowa 4
Kansas 3
Kentucky 5
Maryland 7
Michigan 8
Minnesota 3
Missouri 8
Nevada 2
New Jersey 2
New Mexico 3
New York 1
North Carolina 9
Ohio 39
Oklahoma 6
Oregon 3
Pennsylvania 6
Rhode Island 1
Tennessee 14
Texas 40
Utah 1
Virginia 8
Washington 2
West Virginia 10
Wisconsin 2
----
Total 260
====
PROPERTY ACQUISITIONS
Between March 3, 1998 and May 15, 1998, the Company acquired 15
Properties consisting of land and building. In connection with the purchase of
these 15 Properties, the Company, as lessor, entered into long-term lease
agreements with unaffiliated lessees. The general terms of the lease agreements
are described in the section of the Prospectus entitled "Business - Description
of Property Leases." For the Properties that are to be constructed or renovated,
the Company has entered into development and indemnification and put agreements
with the lessees. The general terms of these agreements are described in the
section of the Prospectus entitled "Business - Site Selection and Acquisition of
Properties - Construction and Renovation."
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<PAGE>
The purchase price for the Shoney's Property in Phoenix, Arizona,
includes a Construction Fee of $37,500 to an Affiliate of the Advisor for
services provided in connection with the construction of the Property. The
Company considers Construction Fees, to the extent that they are paid to
Affiliates, to be Acquisition Fees. Such Construction Fees must be approved by a
majority of the Directors (including a majority of the Independent Directors)
not otherwise interested in such transactions, subject to a determination that
such transactions are fair and reasonable to the Company and on terms and
conditions not less favorable to the Company than those available from
unaffiliated third parties and not less favorable than those available from the
Advisor or its Affiliates in transactions with unaffiliated third parties. See
the sections of the Prospectus entitled "Management Compensation" and "Business
- - Site Selection and Acquisition of Properties."
The following table sets forth the location of the 15 Properties,
consisting of land and building, acquired by the Company from March 3, 1998
through May 15, 1998, a description of the competition, and a summary of the
principal terms of the acquisition and lease of each Property.
-4-
<PAGE>
<TABLE>
<CAPTION>
PROPERTY ACQUISITIONS
From March 3, 1998 through May 15, 1998
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
<S> <C>
Ruby Tuesday's $586,120 03/2013; two 11% of Total Cost for each lease at any
(the "Somerset (excluding 03/03/98 five-year (4); increases by year, (i) 5% of time after
Property") development renewal options 10% after the fifth annual gross the
Restaurant to be costs) (3) lease year and after sales minus (ii) seventh
constructed every five years the minimum lease year
thereafter during the annual rent for
The Somerset Property lease term such lease year
is located on the west
side of U.S. 27, west
of S.R. 1577, in
Somerset, Pulaski
County, Kentucky, in
an area of mixed
retail, commercial,
and residential
development. Other
fast-food, family-style,
and casual dining
restaurants located in
proximity to the Somerset
Property include a Sonic
Drive-In.
-5-
<PAGE>
Jack in the Box (5) $1,299,700 03/04/98 03/2016; four $126,721 (6); None at any
(the "Pflugerville (3) (6) five-year increases by 8% time after
Property") renewal options after the fifth lease the
Restaurant to be year and after every seventh
constructed five years thereafter lease year
during the lease
The Pflugerville term
Property is located on
the northwest quadrant
of F.M. 1825 and
Wells Branch Parkway,
in Pflugerville, Travis
County, Texas, in an area
of mixed retail, commercial,
and residential development.
Other fast-food, family-style,
and casual dining restaurants
located in proximity to the
Pflugerville Property
include a local restaurant.
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<PAGE>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
Jack in the Box (5) $973,022 03/2016; four $94,870 (6); None at any time
(the "Waxahachie (3) (6) 03/13/98 five-year increases by 8% after the
Property") renewal options after the fifth lease seventh
Restaurant to be year and after every lease year
constructed five years thereafter
during the lease
The Waxahachie term
Property is located on
the southeast quadrant
of U.S. Highway 287
Bypass and U.S.
Highway 77, in
Waxahachie, Ellis
County, Texas, in an
area of mixed retail,
commercial, and
residential
development. Other
fast-food, family-style,
and casual dining
restaurants located in
proximity to the
Waxahachie Property
include a KFC, a
McDonald's, a
Whataburger, a Taco
Bell, a Golden Corral,
a Schlotzsky's Deli,
and several local
restaurants.
-7-
<PAGE>
Jack in the Box (5) $895,688 03/16/98 03/2016; four $87,330 (6); None at any time
(the "Hutchins (3) (6) five-year increases by 8% after the
Property") renewal options after the fifth lease seventh
Restaurant to be year and after every lease year
constructed five years thereafter
during the lease
The Hutchins Property term
is located on the
southwest quadrant of
East Palestine Road
and South Interstate
Highway 45, in
Hutchins, Dallas
County, Texas, in an
area of mixed retail,
commercial, and
residential
development. Other
fast-food, family-style,
and casual dining
restaurants located in
proximity to the
Hutchins Property
include a Dairy Queen,
and a local restaurant.
-8-
<PAGE>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
Shoney's $507,605 03/2018; two 10.50% of Total for each lease at any time
(the "Phoenix #4 (excluding 03/24/98 five-year Cost (4); increases year, (i) 6% of after the
Property") development renewal options by 2% after the annual gross seventh
Restaurant to be costs) (3) second lease year sales minus (ii) lease year
constructed and after every two the minimum
years thereafter annual rent for
The Phoenix #4 during the lease such lease year
Property is located on term
the northeast quadrant
of West McDowell Road
and North 51st Avenue,
in Phoenix, Maricopa
County, Arizona, in an
area of mixed retail,
commercial, and
residential development.
Other fast-food, family-
style, and casual dining
restaurants located in
proximity to the Phoenix
#4 Property include a Burger
King, a McDonald's, a Sonic
Drive-In, a Waffle House, a
Taco Bell, an IHOP, and
several local restaurants.
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<PAGE>
Arby's (7) $411,487 04/2018; two (8) None at any time
(the "Columbus #2 (excluding 04/06/98 five-year after the
Property") development renewal options seventh
Restaurant to be costs) (3) lease year
constructed
The Columbus #2 Property
is located on the
southeast quadrant of
Rosehill Road and East
Broad Street, in Columbus,
Franklin County, Ohio, in
an area of mixed retail,
commercial, and residential
development. Other fast-food,
family-style, and casual
dining restaurants located
in proximity to the Columbus
#2 Property include a Taco
Bell, a Wendy's, a McDonald's,
a Subway Sandwich Shop, and a
local restaurant.
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<PAGE>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
Arby's (7) $643,757 04/2018; two (8) None at any time
(the "Atlanta #2 (excluding 04/07/98 five-year after the
Property") development renewal options seventh
Restaurant to be costs) (3) lease year
constructed
The Atlanta #2 Property
is located on the east
side of Georgia Highway
141, north of McGinnis
Ferry Road, in Atlanta,
Forsyth County, Georgia,
in an area of mixed
retail, commercial, and
residential development.
Other fast-food, family-
style, and casual dining
restaurants located in
proximity to the Atlanta
#2 Property include a
Chick-Fil-A, a McDonald's,
and a Wendy's.
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<PAGE>
Jack in the Box (5) $811,891 04/2016; four $79,159 (6); None at any time
(the "Gun Barrel City (3) (6) 04/13/98 five-year increases by 8% after the
Property") renewal options after the fifth lease seventh
Restaurant to be year and after every lease year
constructed five years thereafter
during the lease
The Gun Barrel City term
Property is located on
the north side of State
Highway 334, west of
the intersection of
Pleasureland Road, in
Gun Barrel City,
Henderson County,
Texas, in an area of
mixed retail,
commercial, and
residential
development. Other
fast-food, family-style,
and casual dining
restaurants located in
proximity to the Gun
Barrel City Property
include a Schlotzsky's
Deli, a Subway
Sandwich Shop, a
Taco Bell, a Burger
King, a Pizza Hut, a
Dairy Queen, a
McDonald's, a
Whataburger, and
several local
restaurants.
-12-
<PAGE>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
Jack in the Box (5) $999,670 04/2016; four $97,468 (6); None at any time
(the "Nacogdoches (3) (6) 04/13/98 five-year increases by 8% after the
Property") renewal options after the fifth lease seventh
Restaurant to be year and after every lease year
constructed five years thereafter
during the lease
The Nacogdoches term
Property is located on
the west side of U.S.
Highway 59, south of
College Street, in
Nacogdoches, Nacogdoches
County, Texas, in an
area of mixed retail,
commercial, and
residential development.
Other fast-food, family-
style, and casual dining
restaurants located in
proximity to the Nacogdoches
Property include a Taco Bell,
a Wendy's, a McDonald's, a
Long John Silver's, a
Schlotzsky's Deli, a Little
Caesar's Pizza, a Golden
Corral, and several local
restaurants.
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<PAGE>
Boston Market (9) $950,361 05/2015; two $102,164; increases for each lease at any time
(10) 04/14/98 five-year by 12% in 05/2002 year, (i) 5% of after
(the "Glendale renewal options and after every annual gross 05/2002
Property") seven years sales minus (ii)
Existing restaurant thereafter during the the minimum
lease term annual rent for
The Glendale Property such lease year
is located on the south (11)
side of West Peoria
Avenue, east of 59th
Avenue, in Glendale,
Maricopa County,
Arizona, in an area of
mixed retail, commercial,
and residential development.
Other fast-food, family-
style, and casual dining
restaurants located in
proximity to the Glendale
Property include a Taco Bell,
a KFC, a Popeye's, a Burger
King, an Applebee's, an
Arby's, a Jack in the Box,
a Long John Silver's, a
Wendy's, a McDonald's, and
several local restaurants.
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<PAGE>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
Boston Market (9) $837,656 09/2010; three $90,048; increases for each lease at any time
(10) 04/14/98 five-year by 10% in 09/2000 year, (i) 4% of after
(the "Warwick renewal options and after every five annual gross 09/2000
Property") years thereafter sales minus (ii)
Existing restaurant during the lease the minimum
term annual rent for
The Warwick Property such lease year
is located on the east
side of Bald Hill Road,
north of Route 117, in
Warwick, Kent County, Rhode
Island, in an area of mixed
retail, commercial, and
residential development.
Other fast-food, family-
style, and casual dining
restaurants located in
proximity to the Warwick
Property include a TGI
Friday's, an Olive Garden,
a Red Lobster, a Lone Star
Steakhouse & Saloon, a
McDonald's, a Burger King,
a Taco Bell, an Applebee's,
a Wendy's, and an East Side
Mario's.
-15-
<PAGE>
Jack in the Box (5) $1,150,008 04/2016; four $112,126 (6); None at any time
(the "St. Louis (3) (6) 04/14/98 five-year increases by 8% after the
Property") renewal options after the fifth lease seventh
Restaurant to be year and after every lease year
constructed five years thereafter
during the lease
The St. Louis Property term
is located on the
northeast quadrant of
Lusher Road and Redman
Road, in St. Louis, St.
Louis County, Missouri,
in an area of mixed retail,
commercial, and residential
development. Other fast-
food, family-style, and
casual dining restaurants
located in proximity to the
St. Louis Property include a
Subway Sandwich Shop, a
McDonald's, and an Arby's.
-16-
<PAGE>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
Jack in the Box (5) $1,175,298 04/2016; four $114,952 (6); None at any time
(the "Avondale (3) (6) 04/30/98 five-year increases by 8% after the
Property") renewal options after the fifth lease seventh
Restaurant to be year and after every lease year
constructed five years thereafter
during the lease
The Avondale Property term
is located on the
northeast corner of
Rancho Santa Fe
Boulevard and Dysart
Road, in Avondale,
Maricopa County,
Arizona, in an area
of mixed retail,
commercial, and
residential development.
Other fast-food, family-
style, and casual dining
restaurants located in
proximity to the Avondale
Property include a McDonald's,
a Waffle House, a Whataburger,
and a KFC.
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<PAGE>
Boston Market (9) $969,159 10/2010; three $104,185; increases for each lease at any time
(10) 05/08/98 five-year by 10% in 10/2000 year, (i) 4% of after
(the "Columbus #3 renewal options and after every five annual gross 10/2000
Property") years thereafter sales minus (ii)
Existing restaurant during the lease the minimum
term annual rent for
The Columbus #3 such lease year
Property is located on (11)
the northwest quadrant
of the intersection of
Bethel Road and Olentangy
River Road, in Columbus,
Franklin County, Ohio, in
an area of mixed retail,
commercial, and residential
development. Other fast-
food, family-style, and
casual dining restaurants
located in proximity to the
Columbus #3 Property include
a Bob Evans, a McDonald's,
a Wendy's, and a KFC.
-18-
<PAGE>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ----------- -------- --------------- --------------- --------------- -----------
Chevy's Fresh Mex $2,200,000 05/2013; two $209,000; increases for each lease at any time
(the "Naperville 05/15/98 ten-year renewal by 10% after the year, (i) 5% of during the
Property") options fifth lease year and annual gross lease term
Existing restaurant after every five sales minus (ii)
years thereafter the minimum
The Naperville during the lease annual rent for
Property is located on term such lease year
the southwest corner of
North Naper Boulevard
and Lincoln Road, in
Naperville, DuPage
County, Illinois, in an
area of mixed retail,
commercial, and
residential
development. Other
fast-food, family-style,
and casual dining
restaurants located in
proximity to the
Naperville Property
include a TGI Friday's,
a Pizza Hut, an
Applebee's, a Bob
Evans, and several
local restaurants.
</TABLE>
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<PAGE>
- -------------------------
FOOTNOTES:
(1) The estimated federal income tax basis of the depreciable portion (the
building portion) of each of the Properties acquired, and for
construction Properties, once the buildings are constructed, is set
forth below:
Property Federal Tax Basis
-------- -----------------
Somerset Property $609,000
Pflugerville Property 668,000
Waxahachie Property 558,000
Hutchins Property 680,000
Phoenix #4 Property 371,000
Columbus #2 Property 601,000
Atlanta #2 Property 646,000
Gun Barrel City Property 576,000
Nacogdoches Property 674,000
Glendale Property 494,000
Warwick Property 699,000
St. Louis Property 761,000
Avondale Property 639,000
Columbus #3 Property 730,000
Naperville Property 1,360,000
(2) Minimum annual rent for each of the Properties became payable on the
effective date of the lease, except as indicated below. For the
Somerset, Phoenix #4, Columbus #2 and Atlanta #2 Properties, minimum
annual rent will become due and payable on the earlier of (i) a
specific number of days (ranging from 120 to 180) after execution of
the lease, (ii) the date the certificate of occupancy for the
restaurant is issued, (iii) the date the restaurant opens for business
to the public or (iv) the date the tenant receives from the landlord
its final funding of the construction costs. During the period
commencing with the effective date of the lease to the date minimum
annual rent becomes payable for the Somerset and Phoenix #4 Properties,
as described above, the tenant shall pay monthly interim rent equal to
a specified rate per annum (ranging from 10.50% to 11%) of the amount
funded by the Company in connection with the purchase and construction
of the Properties. During the period commencing with the effective date
of the lease to the date minimum annual rent becomes payable for the
Columbus #2 and Atlanta #2 Properties, as described above, the tenant
shall pay monthly interim rent equal to the product of 325 basis points
over the "Applicable Treasury Rate" (US Treasuries with a maturity date
of 20 years) multiplied by the amounts funded by the Company in
connection with the purchase and construction of the Properties.
-20-
<PAGE>
(3) The development agreements or lease addendums for the Properties which
are to be constructed, provide that construction must be completed no
later than the dates set forth below. The maximum cost to the Company
(including the purchase price of the land, development costs, and
closing and acquisition costs) is not expected to, but may, exceed the
amounts set forth below:
<TABLE>
<CAPTION>
Property Estimated Maximum Cost Estimated Final Completion Date
-------- ---------------------- -------------------------------
<S> <C>
Somerset Property $1,129,565 July 1, 1998
Pflugerville Property 1,299,700 August 31, 1998
Waxahachie Property 973,022 September 9, 1998
Hutchins Property 895,688 September 12, 1998
Phoenix #4 Property 822,519 September 20, 1998
Columbus #2 Property 1,013,726 October 3, 1998
Atlanta #2 Property 1,244,240 October 4, 1998
Gun Barrel City Property 811,891 October 10, 1998
Nacogdoches Property 999,670 October 10, 1998
St. Louis Property 1,150,008 October 11, 1998
Avondale Property 1,175,298 October 27, 1998
</TABLE>
(4) The "Total Cost" is equal to the sum of (i) the purchase price of the
property, (ii) closing costs and (iii) actual development costs
incurred under the development agreement or lease addendum.
(5) The lessee of the Pflugerville, Waxahachie, Hutchins, Gun Barrel City,
Nacogdoches, St. Louis and Avondale Properties is the same unaffiliated
lessee.
(6) The Company paid for all construction costs in advance at closing;
therefore, minimum annual rent was determined on the date acquired and
is not expected to change.
(7) The lessee of the Columbus #2 and Atlanta #2 Properties is the same
unaffiliated lessee.
(8) Initial minimum annual rent shall equal the lease rate which is in
effect 15 business days prior to the commencement of the annual rent
(2), multiplied by the amount funded by the Company in connection with
the purchase and construction of the Property. Minimum annual rent
shall be adjusted upward at the end of every three years after the
Company's closing on the Property by the lower of (i) 4.14% of the
minimum annual rent or (ii) an amount equal to the product obtained by
multiplying the Consumer Price Index by three.
(9) The lessee of the Glendale, Warwick and Columbus #3 Properties is the
same unaffiliated lessee.
(10) The tenant of this Property exercised its option under the terms of its
lease agreement to substitute an existing Property with this
replacement Property. The replacement Property will continue under the
terms of the lease of the original Property.
(11) Percentage rent shall be calculated on a calendar year basis (January 1
to December 31).
-21-
<PAGE>
PENDING INVESTMENTS
As of May 15, 1998, the Company had initial commitments to acquire 48
properties with purchase prices aggregating approximately $71,000,000. These 48
properties include 46 properties consisting of land and building and two
properties consisting of building only. The acquisition of each of these
properties is subject to the fulfillment of certain conditions, including, but
not limited to, a satisfactory environmental survey and property appraisal.
There can be no assurance that any or all of the conditions will be satisfied
or, if satisfied, that one or more of these properties will be acquired by the
Company. If acquired, the leases of all 48 of these properties are expected to
be entered into on substantially the same terms described in "Business --
Description of Property Leases."
In connection with two of the 48 properties, the Company anticipates
owning only the buildings and not the underlying land. However, the Company
anticipates entering into a landlord estoppel agreement with the landlord of the
land and a collateral assignment of the ground lease with the lessee in
connection with one of the properties, and a tri-party agreement with the lessee
and the landlord of the land in connection with the other property, in order to
provide the Company with certain rights with respect to the land on which the
buildings are located. In addition, certain properties are expected to be
accounted for as capital leases for federal tax purposes; therefore, the Company
will not be entitled to depreciation expense on such properties.
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<PAGE>
PORTFOLIO ACQUISITIONS
The Company may from time to time consider the acquisition of existing
portfolios consisting primarily of net-leased restaurant properties, both from
unaffiliated third parties and from Affiliates of the Advisor. The acquisition
of such portfolios could be made either for cash or securities of the Company or
for a combination of both. Any acquisition of a portfolio of properties from an
Affiliate of the Advisor would be subject to the approval of the Independent
Directors of the Company and, depending upon the size of the potential
acquisition, an opinion by a third party that the consideration proposed to be
paid by the Company would be fair to the Company from a financial point of view.
DESCRIPTION OF PROPERTY LEASES
Term of Leases. The following table sets forth the number of Property
leases expiring in each year for the Properties owned by the Company as of May
15, 1998. Since lease renewal options are exercisable at the option of the
tenant, the table below only presents the year in which the initial lease term
expires.
Year of Initial Lease
Term Expiration Number of Properties
--------------- --------------------
2002 1
2006 1
2008 2
2009 1
2010 10
2011 21
2012 39
2013 10
2014 4
2015 31
2016 60
2017 72
2018 7
2022 1
----
Total 260
====
BORROWING
As of May 15, 1998, the Company had funded $23,774,559 in Secured
Equipment Leases and had used $19,000,000 of uninvested net offering proceeds
from the 1997 Offering to temporarily reduce the balance outstanding under the
Line of Credit pending the investment of such offering proceeds in Properties or
Mortgage Loans in order to reduce interest expense incurred by the Company.
SALE OF PROPERTIES
In May 1998, the Company sold two of its Properties to tenants for a
total of approximately $1,233,000. The Company intends to reinvest the net sales
proceeds from the sale of these Properties in additional Properties.
In April and May 1998, a tenant exercised its option under the terms of
its lease agreements to substitute three existing Properties with three
replacement Properties which were approved by the Company. In conjunction
therewith, the Company simultaneously exchanged three Boston Market Properties
in Grand
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<PAGE>
Island, Nebraska; Franklin, Tennessee; and Dubuque, Iowa for three replacement
Boston Market Properties in Warwick, Rhode Island; Glendale, Arizona; and
Columbus, Ohio, respectively. Under the simultaneous exchange agreement, each
replacement Property will continue under the terms of the leases of the original
properties. All closing costs were paid by the tenant. The Company accounted for
these transactions as non-monetary exchanges of similar productive assets and
recorded the acquisitions of the replacement Properties at the net book value of
the original Properties. No gain or loss was recognized due to these
transactions being accounted for as non-monetary exchanges of similar assets.
SELECTED FINANCIAL DATA
The following table sets forth certain financial information for the
Company, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements included in Exhibit B.
<TABLE>
<CAPTION>
May 2,
1994 (Date
of Inception)
Quarter Ended through
March 31, 1998 March 31, 1997 Year Ended December 31, December 31,
(Unaudited) (Unaudited) 1997 1996 1995 1994
-------------- -------------- ----------- ---------- ------------ -------------
<S> <C>
Revenues $8,327,804 $2,939,558 $19,457,933 $6,206,684 $659,131 $ -
Net earnings 6,520,029 2,251,842 15,564,456 4,745,962 368,779 -
Cash distributions declared (1) 7,281,343 2,693,357 16,854,297 5,436,072 638,618 -
Funds from operations (2) 7,292,795 2,489,181 17,348,723 5,257,040 469,097 -
Earnings per Share 0.17 0.14 0.66 0.59 0.19 -
Cash distributions declared per 0.19 0.18 0.74 0.71 0.31 -
Share
Weighted average number of Shares
outstanding (3) 39,240,871 15,630,532 23,423,868 8,071,670 1,898,350 -
March 31, 1998 March 31, 1997 December 31, December 31, December 31, December 31,
(Unaudited) (Unaudited) 1997 1996 1995 1994
-------------- -------------- ------------ ------------ ------------ ------------
Total assets $394,757,976 $167,722,361 $339,077,762 $134,825,048 $33,603,084 $ 929,585
Total stockholders' equity 379,958,008 155,890,787 321,638,101 122,867,427 31,980,648 200,000
</TABLE>
(1) Approximately 13 percent, 25 percent, eight percent, 13
percent and 42 percent of cash distributions ($0.02, $0.05,
$0.06, $0.09 and $0.13 per Share) for the quarters ended March
31, 1998 and 1997, and the years ended December 31, 1997, 1996
and 1995, respectively, represent a return of capital in
accordance with generally accepted accounting principles (
"GAAP "). Cash distributions treated as a return of capital on
a GAAP basis represent the amount of cash distributions in
excess of accumulated net earnings on a GAAP basis. The
Company has not treated such amount as a return of capital for
purposes of calculating Invested Capital and the Stockholders'
8% Return.
(2) Funds from operations ("FFO"), based on the revised definition
adopted by the Board of Governors of NAREIT and as used
herein, means net earnings determined in accordance with
generally accepted accounting principles ("GAAP"), excluding
gains or losses from debt restructuring and sales of property,
plus depreciation and amortization of real estate assets, and
after adjustments for unconsolidated partnerships and joint
ventures. (Net earnings determined in accordance with GAAP
include the noncash effect of straight-lining 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. Straight-lining rent is a GAAP convention requiring
real estate companies to report rental revenue based on the
average rent per year over the life of the lease. During the
quarters ended March 31, 1998 and 1997, and the years ended
December 31, 1997, 1996 and 1995, net earnings included
$756,198, $275,492, $1,941,054, $517,067 and $39,142,
respectively, of these amounts.) FFO was developed by NAREIT
as a relative measure of performance and liquidity of an
equity REIT in order to recognize that income-producing real
-24-
<PAGE>
estate historically has not depreciated on the basis
determined under GAAP. However, FFO (i) does not represent
cash generated from operating activities determined in
accordance with GAAP (which, unlike FFO, generally reflects
all cash effects of transactions and other events that enter
into the determination of net earnings), (ii) is not
necessarily indicative of cash flow available to fund cash
needs and (iii) should not be considered as an alternative to
net earnings determined in accordance with GAAP as an
indication of the Company's operating performance, or to cash
flow from operating activities determined in accordance with
GAAP as a measure of either liquidity or the Company's ability
to make distributions. Accordingly, the Company believes that
in order to facilitate a clear understanding of the
consolidated historical operating results of the Company, FFO
should be considered in conjunction with the Company's net
earnings and cash flows as reported in the accompanying
consolidated financial statements and notes thereto. See
Exhibit B.
(3) The weighted average number of Shares outstanding is based
upon the period the Company was operational.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE COMPANY
INTRODUCTION
The Company is a Maryland corporation that was organized on May 2,
1994, to acquire Properties, directly or indirectly through Joint Venture or
co-tenancy arrangements, to be leased on a long-term, "triple-net" basis to
operators of certain Restaurant Chains. In addition, the Company provides
Mortgage Loans for the purchase of buildings, generally by borrowers that lease
the underlying land from the Company. To a lesser extent, the Company offers
Secured Equipment Leases to operators of Restaurant Chains. The following
information should be read in conjunction with the section of the Prospectus
entitled "Management's Discussion and Analysis of Financial Condition of the
Company."
LIQUIDITY AND CAPITAL RESOURCES
The Company was formed in May 1994, at which time the Company received
initial capital contributions of $200,000 for 20,000 shares of Common Stock from
the Advisor. In April 1995, the Company commenced a public offering for the sale
of up to 16,500,000 Shares of Common Stock ($165,000,000), the net proceeds of
which were used to invest in Properties and Mortgage Loans. Of the 16,500,000
Shares of Common Stock offered, 1,500,000 Shares ($15,000,000) were available
only to stockholders who elected to participate in the Company's Reinvestment
Plan. Upon completion of its Initial Offering on February 6, 1997, the Company
had received subscription proceeds of $150,591,765 (15,059,177 Shares),
including 59,177 Shares ($591,765) issued pursuant to the Company's Reinvestment
Plan.
Following the completion of its Initial Offering, the Company commenced
the 1997 Offering of up to 27,500,000 Shares of Common Stock ($275,000,000), the
net proceeds of which were used or will be used to invest in Properties and
Mortgage Loans. Of the 27,500,000 Shares of Common Stock offered, 2,500,000
($25,000,000) were available only to stockholders who elected to participate in
the Company's Reinvestment Plan. Upon completion of its 1997 Offering on March
2, 1998, the Company had received subscription proceeds of $251,872,648
(25,187,265 Shares), including 187,265 Shares ($1,872,648) issued pursuant to
the Company's Reinvestment Plan.
Following the completion of its 1997 Offering, the Company commenced
this offering of up to 34,500,000 Shares of Common Stock ($345,000,000). Of the
34,500,000 Shares of Common Stock being offered, 2,000,000 ($20,000,000) are
available only to stockholders who elect to participate in the Company's
Reinvestment Plan. As of March 31, 1998, the Company had received subscription
proceeds of $25,040,047 (2,504,005 Shares) from this offering, including 81,266
Shares ($812,663) issued pursuant to the Reinvestment Plan.
-25-
<PAGE>
As of March 31, 1998, the Company had received aggregate subscription
proceeds of $427,504,460 (42,750,446 Shares) from its Initial Offering, 1997
Offering and this offering, including 327,708 Shares ($3,277,076) issued
pursuant to the Reinvestment Plan. Net proceeds to the Company from its Initial
Offering, 1997 Offering, and this offering, after deduction of selling
commissions, marketing support and due diligence expense reimbursement fees, and
organizational and offering expenses, totalled $382,949,112 as of March 31,
1998.
During the quarter ended March 31, 1998, approximately $19,900,000 of
net offering proceeds were used to invest, or committed for investment, in 11
Properties (all of which were under construction or renovation as of March 31,
1998) and to pay acquisition fees to the Advisor totalling $2,959,864, as well
as certain acquisition expenses.
In connection with the 17 Properties under construction or renovation
at March 31, 1998 (six of which were under construction at December 31, 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
$21,894,000, of which approximately $16,659,000 had been incurred as of March
31, 1998. The buildings under construction or renovation as of March 31, 1998,
are expected to be operational by September 1998. 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, 1998, the Company received advances
totalling $239,986 under the Line of Credit to provide equipment financing. The
balance of the Line of Credit was $2,699,029 as of March 31, 1998. The Company
expects to obtain additional advances under the Line of Credit to fund future
equipment financing requirements and from time to time may purchase Properties
and fund Mortgage Loans.
During the period April 1, 1998 through May 15, 1998, the Company
received subscription proceeds for an additional 4,194,375 Shares ($41,943,749)
of Common Stock. In addition, during the period April 1, 1998 through May 15,
1998, the Company acquired seven Properties (six of which are under
construction) for cash at a total cost of approximately $7,392,000, excluding
development and closing costs. The development costs (including the purchase of
the land and closing costs) to be paid by the Company relating to the six
Properties under construction are estimated to be approximately $6,395,000. In
connection with the purchase of each of the six Properties, the Company, as
lessor, entered into a long-term lease agreement. The buildings under
construction are expected to be operational by October 1998.
In May 1998, the Company sold two of its Properties to tenants for a
total of approximately $1,233,000. The Company intends to reinvest the net sales
proceeds from the sale of these Properties in additional Properties. In
addition, in April and May 1998, a tenant exercised its option under the terms
of its lease agreements to substitute three existing Properties with three
replacement Properties which were approved by the Company. In conjunction
therewith, the Company simultaneously exchanged three Boston Market Properties
in Grand Island, Nebraska; Franklin, Tennessee; and Dubuque, Iowa, for three
replacement Boston Market Properties in Warwick, Rhode Island; Glendale,
Arizona; and Columbus, Ohio, respectively. Under the simultaneous exchange
agreement, each replacement Property will continue under the terms of the leases
of the original properties. All closing costs were paid by the tenant. The
Company accounted for these transactions as non-monetary exchanges of similar
productive assets and recorded the acquisitions of the replacement Properties
at the net book value of the original Properties. No gain or loss was recognized
due to these transactions being accounted for as non-monetary exchanges of
similar assets.
As of May 15, 1998, the Company had received aggregate subscription
proceeds of $469,448,209 (46,944,821 Shares) from the Initial Offering, the 1997
Offering and this offering, including $3,277,076 (327,708 Shares) through its
Reinvestment Plan. As of May 15, 1998, the Company had invested or committed for
investment
-26-
<PAGE>
approximately $297,600,000 of aggregate net offering proceeds in 260 Properties,
in providing mortgage financing through Mortgage Loans and in paying acquisition
fees and certain acquisition expenses, leaving approximately $123,700,000 in
aggregate net offering proceeds available for investment in Properties and
Mortgage Loans.
The Company currently is negotiating to acquire additional Properties,
but as of May 15, 1998 had not acquired any such Properties.
The Company expects to use uninvested net offering proceeds from the
Prior Offerings and this offering, plus any Net Offering Proceeds from the sale
of additional Shares in this offering, to purchase additional Properties, to
fund construction and renovation 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 670 to 730 Properties if the
maximum number of Shares are sold in this offering. The Company intends to limit
equipment financing to ten percent of the aggregate gross offering proceeds from
its offerings.
Properties are 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 March
31, 1998, the Company had $91,674,397 invested in such short-term investments
(including a certificate of deposit in the amount of $2,000,000) as compared to
$49,595,001 (including a certificate of deposit in the amount of $2,000,000) at
December 31, 1997. The increase in the amount invested in short-term investments
is primarily attributable to the receipt of subscription proceeds during the
quarter ended March 31, 1998. 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 Line of Credit pending the investment of Net Offering Proceeds, to pay
Company expenses, and, in management's discretion, to create cash reserves.
During the quarters ended March 31, 1998 and 1997, Affiliates of the
Company incurred on behalf of the Company $773,668 and $593,489, respectively,
for certain Offering Expenses, $207,564 and $220,259, respectively, for certain
acquisition expenses, and $159,137 and $170,039, respectively, for certain
Operating Expenses. As of March 31, 1998, the Company owed the Advisor and its
Affiliates $2,047,740 for such amounts, unpaid fees and administrative expenses.
As of May 15, 1998, 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 gross proceeds from this offering. As of March 31, 1998,
the Offering Expenses had not exceeded this amount.
During the quarters ended March 31, 1998 and 1997, 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
$8,259,316 and $2,717,456, respectively. Based primarily on cash from
operations, the Company declared and paid Distributions to its stockholders of
$7,280,777 and $2,693,357 during the quarters ended March 31, 1998 and 1997,
respectively. In addition, on April 1, 1998 and May 1, 1998, the Company
declared Distributions to its stockholders totalling $2,728,560 and $2,902,652,
respectively, payable in June 1998. For the quarters ended March
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<PAGE>
31, 1998 and 1997, approximately 87 and 75 percent, respectively, of the
Distributions received by stockholders were considered to be ordinary income and
approximately 13 and 25 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 May 1, 1998, 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.
RESULTS OF OPERATIONS
As of March 31, 1998, 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 255
Properties. The Property leases provide for minimum base annual rental payments
ranging from approximately $58,900 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,
the Company earned $6,678,698 in rental income from operating leases and earned
income from direct financing leases from 255 Properties and 27 Secured Equipment
Leases during the quarter ended March 31, 1998, and $2,089,785 from 105
Properties and 11 Secured Equipment Leases during the quarter ended March 31,
1997. Because the Company has not yet acquired all of its Properties and certain
Properties were under construction as of March 31, 1998, revenues for the
quarter ended March 31, 1998, represent only a portion of revenues which the
Company is expected to earn in future periods.
During the quarters ended March 31, 1998 and 1997, the Company also
earned $1,216,029 and $474,416, respectively, in interest income from promissory
notes relating to Secured Equipment Leases entered into in October 1997, from
investments in money market accounts or other short-term, highly liquid
investments and other income. Interest income is expected to increase as the
Company invests Net Offering Proceeds received in the future relating to this
offering in short-term, highly liquid investments pending investment in
Properties and Mortgage Loans. However, as Net Offering Proceeds are invested in
Properties and used to make Mortgage Loans, interest income from investments in
money market accounts or other short-term, highly liquid investments is expected
to decrease.
Operating Expenses, including depreciation and amortization expense,
were $1,800,007 and $679,823 for the quarters ended March 31, 1998 and 1997,
respectively. Total Operating Expenses increased primarily as a result of the
Company owning additional Properties during the quarter ended March 31, 1998, as
compared to the quarter ended March 31, 1997. 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 and renovation become operational. However,
Asset Management Fees and depreciation and amortization expense are expected to
increase as the Company invests in additional Properties and Mortgage Loans.
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<PAGE>
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires the reporting of net earnings and all other changes to equity during
the period, except those resulting from investments by owners and distributions
to owners, in a separate statement that begins with net earnings. Currently, the
Company's only component of comprehensive income is net earnings.
CERTAIN TRANSACTIONS
The following presents information from March 3, 1998 through May 15,
1998, unless otherwise noted. For information for the years ended December 31,
1995, 1996 and 1997, and the period January 1, 1998 through March 2, 1998, see
the section of the Prospectus entitled "Certain Transactions."
The Managing Dealer is entitled to receive Selling Commissions
amounting to 7.5% of the total amount raised from the sale of Shares of Common
Stock for services in connection with the offering of Shares, a substantial
portion of which has been or will be paid as commissions to other
broker-dealers. For the period March 3, 1998 through May 15, 1998, the Company
incurred $5,023,785 of such fees in connection with this offering, of which
approximately $4,568,100 was paid by the Managing Dealer as commissions to other
broker-dealers.
In addition, the Managing Dealer is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of the total
amount raised from the sale of Shares, a portion of which may be reallowed to
other broker-dealers. For the period March 3, 1998 through May 15, 1998, the
Company incurred $334,919 of such fees in connection with this offering,
substantially all of which were reallowed to other broker-dealers and from which
all bona fide due diligence expenses were paid.
The Advisor is entitled to receive Acquisition Fees for services in
identifying the Properties and structuring the terms of the acquisition and
leases of the Properties and structuring the terms of the Mortgage Loans equal
to 4.5% of the total amount raised from the sale of Shares. For the period March
3, 1998 through May 15, 1998, the Company incurred $3,014,271 of such fees in
connection with this offering.
For negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program, the Advisor is entitled to receive from the Company a
one-time Secured Equipment Lease Servicing Fee of two percent of the purchase
price of the Equipment that is the subject of a Secured Equipment Lease. For the
period March 3, 1998 through May 15, 1998, the Company incurred $7,256 in such
fees.
The Company and the Advisor have entered into an Advisory Agreement
pursuant to which the Advisor will receive a monthly Asset Management Fee of
one-twelfth of 0.60% of the Company's Real Estate Asset Value, plus one-twelfth
of 0.60% of the total principal amount of the Company's Mortgage Loans, as of
the end of the preceding month. The Asset Management Fee, which will not exceed
fees which are competitive for similar services in the same geographic area, may
or may not be taken, in whole or in part as to any year, in the sole discretion
of the Advisor. All or any portion of the Asset Management Fee not taken as to
any fiscal year shall be deferred without interest and may be taken in such
other fiscal year as the Advisor shall determine. For the four months ended
April 30, 1998, the Company incurred $493,195 of such fees, $9,008 of which has
been capitalized as part of the cost of the buildings for Properties that have
been or are being constructed.
The Advisor and its Affiliates provide administrative services to the
Company (including administrative services in connection with the offering of
Shares) on a day-to-day basis. For the quarter ended March 31, 1998, the Company
incurred a total of $981,842 for these services, $718,948 of such costs
representing stock issuance costs and $262,894 representing general operating
and administrative expenses, including costs related to preparing and
distributing reports required by the Securities and Exchange Commission.
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<PAGE>
During the quarter ended March 31, 1998, the Company incurred
Construction Fees totalling $60,869 in connection with the acquisition of three
Properties that were constructed or renovated by an Affiliate. Such fees were
included in the purchase prices of the Properties and therefore included in the
basis on which the Company charges rent on the Properties.
The Advisor and the Managing Dealer are wholly owned subsidiaries of
CNL Group, Inc., of which James M. Seneff, Jr., Chairman of the Board and Chief
Executive Officer of the Company, and his spouse are the sole stockholders.
All of these fees were paid in accordance with the provisions of the
Company's Articles of Incorporation.
DISTRIBUTION POLICY
DISTRIBUTIONS
The following table reflects the total Distributions and Distributions
per Share declared and paid by the Company for each month since the Company
commenced operations.
<TABLE>
<CAPTION>
1995 1996 1997 1998
---- ---- ---- ----
Month Total Per Share Total Per Share Total Per Share Total Per Share
- ----- ----------- --------- ---------- --------- ----------- --------- --------- ---------
<S> <C>
January $ - $ - $225,354 $0.058300 $ 827,978 $0.059375 $2,299,704 $0.063540
February - - 255,649 0.058300 884,806 0.059375 2,423,262 0.063540
March - - 287,805 0.058300 980,573 0.060416 2,558,377 0.063540
April - - 323,721 0.058300 1,091,142 0.061458
May - - 368,155 0.058300 1,202,718 0.062500
June 15,148 0.030000 407,803 0.058300 1,295,253 0.062500
July 30,682 0.030000 458,586 0.059375 1,403,187 0.062500
August 57,739 0.035000 517,960 0.059375 1,516,980 0.062500
September 84,467 0.050000 558,394 0.059375 1,677,332 0.063540
October 104,733 0.050000 615,914 0.059375 1,844,923 0.063540
November 155,665 0.058300 683,907 0.059375 1,991,289 0.063540
December 190,184 0.058300 732,824 0.059375 2,138,116 0.063540
</TABLE>
The Company intends to make regular Distributions to stockholders. The
payment of Distributions commenced in July 1995. Distributions will be made to
those stockholders who are stockholders as of the record date selected by the
Directors. Distributions will be declared monthly and paid on a quarterly basis
during the offering period and declared and paid quarterly thereafter. The
Company is required to distribute annually at least 95% of its real estate
investment trust taxable income to maintain its objective of qualifying as a
REIT. Generally, income distributed will not be taxable to the Company under
federal income tax laws if the Company complies with the provisions relating to
qualification as a REIT. If the cash available to the Company is insufficient to
pay such Distributions, the Company may obtain the necessary funds by borrowing,
issuing new securities, or selling assets. These methods of obtaining funds
could affect future Distributions by increasing operating costs. To the extent
that Distributions to stockholders exceed earnings and profits, such amounts
constitute a return capital for federal income tax purposes, although such
Distributions will not reduce stockholders' aggregate Invested Capital. For the
quarter ended March 31, 1998 and the years ended December 31, 1997, 1996 and
1995, the Company declared and made Distributions totalling $7,281,343,
$16,854,297, $5,436,072 and $638,618, respectively, of which 87%, 93.33%, 90.25%
and 59.82%, respectively, of such amounts were characterized as ordinary income
and 13%, 6.67%, 9.75% and 40.18%, respectively, were characterized as return of
capital for federal income tax purposes. In addition, in April and May 1998, the
Company declared distributions to its stockholders totalling $2,728,560 and
$2,902,652, respectively, payable in June 1998. However, no amounts distributed
to stockholders as of March 31, 1998, are required to be or have been treated by
the Company as a return of capital for purposes of calculating the stockholders'
return on their Invested Capital. Due to the fact that the Company had not
acquired all of its Properties and was still in its offering period as of March
31, 1998, the characterization of Distributions for federal income tax purposes
is not necessarily considered by management to be representative of the
characterization of Distributions
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<PAGE>
in future years. Distributions in kind shall not be permitted, except for
distributions of readily marketable securities; distributions of beneficial
interests in a liquidating trust established for the dissolution of the Company
and the liquidation of its assets in accordance with the terms of the Articles
of Incorporation; or distributions of in-kind property as long as the Directors
(i) advise each stockholder of the risks associated with direct ownership of the
property; (ii) offer each stockholder the election of receiving in-kind property
distributions; and (iii) distribute in-kind property only to those stockholders
who accept the Directors' offer.
SUMMARY OF THE
ARTICLES OF INCORPORATION AND BYLAWS
DESCRIPTION OF CAPITAL STOCK
At the Company's annual meeting of stockholders held on May 4, 1998,
the stockholders approved amendments to the Company's Amended and Restated
Articles of Incorporation increasing the number of authorized shares of capital
stock from 156,000,000 shares (consisting of 75,000,000 shares of Common Stock,
3,000,000 shares of Preferred Stock and 78,000,000 Excess Shares) to 206,000,000
shares (consisting of 125,000,000 shares of Common Stock, 3,000,000 shares of
Preferred Stock and 78,000,000 Excess Shares). As of May 15, 1998, the Company
had 46,964,821 shares of Common Stock outstanding (including 20,000 issued to
the Advisor prior to the commencement of the Initial Offering and 327,708 issued
pursuant to the Reinvestment Plan) and no Preferred Stock or Excess Shares
outstanding.
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<PAGE>
EXHIBIT B
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
AND
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
THE PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS AND THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS INCLUDED IN THIS EXHIBIT B
UPDATE EXHIBIT B TO THE PROSPECTUS, DATED MAY
12, 1998.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
INDEX TO UPDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pro Forma Consolidated Financial Information (unaudited):
Pro Forma Consolidated Balance Sheet as of March 31, 1998 B-2
Pro Forma Consolidated Statement of Earnings for the quarter ended March 31, 1998 B-3
Pro Forma Consolidated Statement of Earnings for the year ended December 31, 1997 B-4
Notes to Pro Forma Consolidated Financial Statements for the quarter ended March 31,
1998 and the year ended December 31, 1997 B-5
Updated Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 B-8
Condensed Consolidated Statements of Earnings for the quarters ended March 31, 1998
and 1997 B-9
Condensed Consolidated Statements of Stockholders' Equity for the quarter
ended March 31, 1998 and the year ended December 31, 1997 B-10
Condensed Consolidated Statements of Cash Flows for the quarters ended March 31, 1998
and 1997 B-11
Notes to Condensed Consolidated Financial Statements for the quarters ended March 31,
1998 and 1997 B-13
</TABLE>
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Consolidated Balance Sheet of the Company gives
effect to (i) property acquisition transactions from inception through March 31,
1998, including the receipt of $427,504,460 in gross offering proceeds from the
sale of 42,750,446 shares of common stock and the application of such proceeds
to purchase 255 properties (including 190 properties which consist of land and
building, one property through a joint venture arrangement which consists of
land and building, 20 properties which consist of building only and 44
properties which consist of land only), 17 of which were under construction at
March 31, 1998, to provide mortgage financing to the lessees of the 44
properties consisting of land only, and to pay organizational and offering
expenses, acquisition fees and miscellaneous acquisition expenses, (ii) the
receipt of $41,943,749 in gross offering proceeds from the sale of 4,194,375
additional shares of common stock during the period April 1, 1998 through May
15, 1998, (iii) the receipt of net sales proceeds in the amount of $1,233,479
relating to the sale of two properties (both on which a restaurant was being
developed) during the period April 1, 1998 through May 15, 1998 (iv) the
application of such funds to purchase seven additional properties acquired
during the period April 1, 1998 through May 15, 1998 (six of which are under
construction and consist of land and building and one which consists of land and
building), to pay additional costs for the 17 properties under construction at
March 31, 1998, to pay offering expenses, acquisition fees and miscellaneous
acquisition expenses, and (v) the application of such funds to purchase 48
properties, including 46 properties consisting of land and building and two
properties consisting of building only, for which the Company has made initial
commitments to acquire as of May 15, 1998, all as reflected in the pro forma
adjustments described in the related notes. The Pro Forma Consolidated Balance
Sheet as of March 31, 1998, includes the transactions described in (i) above
from the historical consolidated balance sheet, adjusted to give effect to the
transactions in (ii), (iii), (iv) and (v) above, as if they had occurred on
March 31, 1998.
The Pro Forma Consolidated Statements of Earnings for the quarter ended
March 31, 1998 and the year ended December 31, 1997, include the historical
operating results of the properties described in (i) above from the dates of
their acquisitions plus operating results for three of the properties that were
acquired by the Company during the period January 1, 1997 through May 15, 1998,
and had a previous rental history prior to the Company's acquisition of such
properties, from (A) the later of (1) the date the property became operational
as a rental property by the previous owner or (2) January 1, 1997, to (B) the
earlier of (1) the date the property was acquired by the Company or (2) the end
of the pro forma period presented. No pro forma adjustments have been made to
the Pro Forma Consolidated Statements of Earnings for the remaining properties
acquired by the Company during the period January 1, 1997 through May 15, 1998,
or the properties for which the Company has made initial commitments to acquire
as of May 15, 1998, due to the fact that these properties did not have a
previous rental history.
This pro forma consolidated financial information is presented for
informational purposes only and does not purport to be indicative of the
Company's financial results or condition if the various events and transactions
reflected therein had occurred on the dates, or been in effect during the
periods, indicated. This pro forma consolidated financial information should not
be viewed as predictive of the Company's financial results or conditions in the
future.
B-1
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
Pro Forma
ASSETS Historical Adjustments Pro Forma
------ ---------- ----------- ---------
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation $214,371,528 $ 14,940,251 (a)
13,327,679 (b)
(1,233,479)(c) $241,405,979
Net investment in direct
financing leases (d) 50,282,444 61,491,575 (b) 111,774,019
Cash and cash equivalents 89,666,093 13,502,689 (a)
(71,014,885)(b)
1,233,479 (c) 33,387,376
Certificates of deposit 2,008,304 2,008,304
Receivables, less allowance for
doubtful accounts of $51,835
and $99,964 respectively 499,194 499,194
Mortgage notes receivable 17,537,978 17,537,978
Equipment notes receivable 13,005,058 13,005,058
Accrued rental income 2,410,494 2,410,494
Other assets 4,976,883 1,127,795 (a)
(3,804,369)(b) 2,300,309
------------ ------------ ------------
$394,757,976 $ 29,570,735 $424,328,711
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit $ 2,699,029 $ 2,699,029
Accrued construction costs
payable 7,759,202 $ (7,759,202)(a) -
Accounts payable and other
accrued expenses 319,573 319,573
Due to related parties 2,047,740 2,047,740
Rents paid in advance 871,957 871,957
Deferred rental income 776,016 776,016
Other payables 42,359 42,359
------------- ------------ -----------
Total liabilities 14,515,876 ( 7,759,202) 6,756,674
------------- ------------ -----------
Minority interest 284,092 284,092
------------- ------------ ------------
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
42,770,446 shares; issued and
outstanding, as adjusted,
46,964,821 shares 427,704 41,944 (a) 469,648
Capital in excess of par value 382,541,408 37,287,993 (a) 419,829,401
Accumulated distributions in
excess of net earnings (3,011,104) (3,011,104)
------------ ------------ ------------
379,958,008 37,329,937 417,287,945
------------ ------------ ------------
$394,757,976 $ 29,570,735 $424,328,711
============ ============ ============
See accompanying notes to unaudited pro forma consolidated
financial statements.
B-2
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
QUARTER ENDED MARCH 31, 1998
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
Revenues:
Rental income from
operating leases $ 5,316,026 $ - $ 5,316,026
Earned income from
direct financing leases (6) 1,362,672 1,362,672
Interest income from
mortgage notes receivable 433,077 433,077
Other interest income 1,205,687 1,205,687
Other income 10,342 10,342
----------- ---------- -----------
8,327,804 - 8,327,804
----------- ---------- -----------
Expenses:
General operating and
administrative 499,388 499,388
Professional services 52,939 52,939
Asset management fees
to related party 362,659 362,659
State taxes 105,523 105,523
Depreciation and amortization 779,498 779,498
----------- ---------- -----------
1,800,007 - 1,800,007
----------- ---------- -----------
Earnings Before Minority
Interest in Income of
Consolidated Joint Venture 6,527,797 6,527,797
Minority Interest in Income of
Consolidated Joint Venture (7,768) (7,768)
----------- ---------- -----------
Net Earnings $ 6,520,029 $ - $ 6,520,029
=========== ========== ===========
Earnings Per Share of
Common Stock (Basic
and Diluted) (5) $ 0.17 $ 0.17
=========== ===========
Weighted Average Number of
Shares of Common Stock
Outstanding (5) 39,240,871 39,240,871
=========== ===========
See accompanying notes to unaudited pro forma consolidated
financial statements.
B-3
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1997
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
Revenues:
Rental income from
operating leases $12,457,200 $ 20,249 (1) $12,477,449
Earned income from
direct financing leases (6) 3,033,415 3,033,415
Interest income from
mortgage notes receivable 1,687,456 1,687,456
Other interest income 2,254,375 (9,189)(2) 2,245,186
Other income 25,487 25,487
----------- --------- -----------
19,457,933 11,060 19,468,993
----------- --------- -----------
Expenses:
General operating and
administrative 944,763 944,763
Professional services 65,962 65,962
Asset and mortgage management
fees to related party 804,879 1,506 (3) 806,385
State taxes 251,358 251,358
Depreciation and amortization 1,795,062 4,321 (4) 1,799,383
----------- --------- -----------
3,862,024 5,827 3,867,851
----------- --------- -----------
Earnings Before Minority
Interest in Income of
Consolidated Joint Venture 15,595,909 5,233 15,601,142
Minority Interest in Income of
Consolidated Joint Venture (31,453) (31,453)
----------- --------- -----------
Net Earnings $15,564,456 $ 5,233 $15,569,689
=========== ========= ===========
Earnings Per Share of
Common Stock (Basic
and Diluted) (5) $ 0.66 $ 0.66
=========== ===========
Weighted Average Number of
Shares of Common Stock
Outstanding (5) 23,423,868 23,423,868
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated
financial statements.
B-4
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
Pro Forma Consolidated Balance Sheet:
(a) Represents gross proceeds of $41,943,749 from the issuance of 4,194,375
shares of common stock during the period April 1, 1998 through May 15,
1998 used (i) to acquire seven properties (six of which are under
construction and consist of land and building and one which consists of
land and building) for $8,534,581, (ii) to fund estimated construction
costs of $13,405,198 ($7,759,202 of which was accrued as construction
costs payable at March 31, 1998) relating to 17 wholly owned properties
under construction at March 31, 1998, (iii) to pay acquisition fees of
$1,887,469 ($759,674 of which was allocated to properties acquired
through May 15, 1998 and $1,127,795 of which was classified as other
assets and will be allocated to future properties) and (iv) to pay
selling commissions and offering expenses (stock issuance costs) of
$4,613,812, which have been netted against capital in excess of par
value, leaving $13,502,689 in cash and cash equivalents for future
investment.
The pro forma adjustment to land and buildings on operating leases as a
result of the above transactions were as follows:
<TABLE>
<CAPTION>
Estimated purchase
price (including
construction and
closing costs) Acquisition fees
and additional allocated to
construction costs property Total
------------------ ---------------- -----
<S> <C>
Arby's in Columbus, OH $ 973,987 $ 52,178 $ 1,026,165
Arby's in Atlanta, GA 1,225,727 65,664 1,291,391
Jack in the Box in Nacogdoches, TX 999,170 53,527 1,052,697
Jack in the Box in Gun Barrel City, TX 811,391 43,467 854,858
Jack in the Box in St. Louis, MO 1,149,508 61,581 1,211,089
Jack in the Box in Avondale, AZ 1,174,798 62,936 1,237,734
Chevy's Fresh Mex in Naperville, IL 2,200,000 117,857 2,317,857
17 wholly owned properties under
construction at March 31, 1998 5,645,996 302,464 5,948,460
----------- ----------- -----------
$14,180,577 $ 759,674 $14,940,251
=========== =========== ===========
</TABLE>
(b) Represents the use of the Company's net offering proceeds to acquire 48
properties (including 46 properties consisting of land and building and
two properties consisting of building only) for which the Company had
made initial commitments to purchase as of May 15, 1998, for an
estimated cost of $71,014,885, and the allocation of $3,804,369 of
acquisition fees to these 48 properties. See "Business - Pending
Investments" for a detailed description of these initial commitments.
The pro forma adjustment to land and buildings and net investment in
direct financing leases as a result of the above commitments were as
follows:
<TABLE>
<CAPTION>
Estimated purchase
price (including
construction and
closing costs) Acquisition fees
and additional allocated to
construction costs property Total
------------------ ---------------- -----
<S> <C>
Initial commitments to acquire 48
properties as of May 15, 1998 $71,014,885 $ 3,804,369 $74,819,254
=========== =========== ===========
Adjustment classified as follows:
Land and buildings on operating leases $13,327,679
Net investment in direct financing leases 61,491,575
$74,819,254
</TABLE>
(c) Represents net sales proceeds in the amount of $1,233,479 received in
conjunction with the sale of two properties (both on which a restaurant
was being developed), which were sold at approximately net carrying
value.
B-5
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR QUARTER ENDED MARCH 31, 1998 AND
THE YEAR ENDED DECEMBER 31, 1997
Pro Forma Consolidated Balance Sheet - Continued:
(d) In accordance with generally accepted accounting principles, leases in
which the present value of future minimum lease payments equals or
exceeds 90 percent of the value of the related properties are treated
as direct financing leases rather than as land and buildings. The
categorization of the leases has no effect on rental payments received.
Pro Forma Consolidated Statements of Earnings:
(1) Represents rental income from operating leases and earned income from
direct financing leases for three of the properties acquired during the
period January 1, 1997 through May 15, 1998, which had a previous
rental history prior to the acquisition of the property by the Company
(the "Pro Forma Properties "), for the period commencing (A) the later
of (i) the date the Pro Forma Property became operational as a rental
property by the previous owner or (ii) January 1, 1997, to (B) the
earlier of (i) the date the Pro Forma Property was acquired by the
Company or (ii) the end of the pro forma period presented. Each of the
three Pro Forma Properties was acquired from an affiliate who had
purchased and temporarily held title to the property. The
noncancellable leases for the Pro Forma Properties in place during the
period the affiliate owned the properties were assigned to the Company
at the time the Company acquired the properties. The following presents
the actual date the Pro Forma Properties were acquired or placed in
service by the Company as compared to the date the Pro Forma Properties
were treated as becoming operational as a rental property for purposes
of the Pro Forma Consolidated Statement of Earnings.
Date Pro Forma
Date Placed Property Became
in Service Operational as
By the Company Rental Property
-------------- ---------------
Burger King in Kent, OH February 1997 December 1996
Golden Corral in
Hopkinsville, KY February 1997 February 1997
Jack in the Box in
Folsom, CA October 1997 September 1997
In accordance with generally accepted accounting principles, lease
revenue from leases accounted for under the operating method is
recognized over the terms of the leases. For operating leases providing
escalating guaranteed minimum rents, income is reported on a
straight-line basis over the terms of the leases. For leases accounted
for as direct financing leases, future minimum lease payments are
recorded as a receivable. The difference between the receivable and the
estimated residual values less the cost of the properties is recorded
as unearned income. The unearned income is amortized over the lease
terms to provide a constant rate of return. Accordingly, pro forma
rental income from operating leases and earned income from direct
financing leases does not necessarily represent rental payments that
would have been received if the properties had been operational for the
full pro forma period.
Generally, the leases provide for the payment of percentage rent in
addition to base rental income. However, due to the fact that no
percentage rent was due under the leases for the Pro Forma Properties
during the portion of 1997 and 1998 that the previous owners held the
properties, no pro forma adjustment was made for percentage rental
income for the quarter ended March 31, 1998 and year ended December 31,
1997.
B-6
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE QUARTER ENDED MARCH 31, 1998 AND
THE YEAR ENDED DECEMBER 31, 1997
Pro Forma Consolidated Statements of Earnings - Continued:
(2) Represents adjustment to interest income due to the decrease in the
amount of cash available for investment in interest bearing accounts
during the periods commencing (A) the later of (i) the dates the Pro
Forma Properties became operational as rental properties by the
previous owners or (ii) January 1, 1997, through (B) the earlier of (i)
the actual dates of acquisition by the Company or (ii) the end of the
pro forma period presented, as described in Note (1) above. The
estimated pro forma adjustment is based upon the fact that interest
income from interest bearing accounts was earned at a rate of
approximately four percent per annum by the Company during the quarter
ended March 31, 1998 and year ended December 31, 1997.
(3) Represents incremental increase in asset management fees relating to
the Pro Forma Properties for the period commencing (A) the later of (i)
the date the Pro Forma Properties became operational as rental
properties by the previous owners or (ii) January 1, 1997, through (B)
the earlier of (i) the date the Pro Forma Properties were acquired by
the Company or (ii) the end of the pro forma period presented, as
described in Note (1) above. Asset management fees are equal to 0.60%
of the Company's Real Estate Asset Value (estimated to be approximately
$3,392,000 for the Pro Forma Properties for the quarter ended March 31,
1998 and the year ended December 31, 1997), as defined in the Company's
prospectus.
(4) Represents incremental increase in depreciation expense of the building
portions of the Pro Forma Properties accounted for as operating leases
using the straight-line method over an estimated useful life of 30
years.
(5) Historical earnings per share were calculated based upon the weighted
average number of shares of common stock outstanding during the quarter
ended March 31, 1998 and the year ended December 31, 1997.
(6) See Note (d) under "Pro Forma Consolidated Balance Sheet" for a
description of direct financing leases.
B-7
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 1998 1997
------ ------------ ------------
Land and buildings on operating leases,
less accumulated depreciation $214,371,528 $205,338,186
Net investment in direct financing leases 50,282,444 47,613,595
Cash and cash equivalents 89,666,093 47,586,777
Certificates of deposit 2,008,304 2,008,224
Receivables, less allowance for doubtful
accounts, of $51,835 and $99,964,
respectively 499,194 635,796
Mortgage notes receivable 17,537,978 17,622,010
Equipment notes receivable 13,005,058 13,548,044
Accrued rental income 2,410,494 1,772,261
Other assets 4,976,883 2,952,869
------------ ------------
$394,757,976 $339,077,762
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ 2,699,029 $ 2,459,043
Accrued construction costs payable 7,759,202 10,978,211
Accounts payable and accrued expenses 319,573 1,060,497
Due to related parties 2,047,740 1,524,294
Rents paid in advance 871,957 517,428
Deferred rental income 776,016 557,576
Other payables 42,359 56,878
------------ ------------
Total liabilities 14,515,876 17,153,927
------------ ------------
Minority interest 284,092 285,734
------------ ------------
Commitments (Note 10)
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 42,770,446 and
36,192,971, respectively 427,704 361,930
Capital in excess of par value 382,541,408 323,525,961
Accumulated distributions in excess of
net earnings (3,011,104) (2,249,790)
------------ ------------
Total stockholders' equity 379,958,008 321,638,101
------------ ------------
$394,757,976 $339,077,762
============ ============
See accompanying notes to condensed consolidated financial statements.
B-8
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Quarter Ended
March 31,
1998 1997
---------- ---------
Revenues:
Rental income from operating
leases $5,316,026 $1,643,074
Earned income from direct
financing leases 1,362,672 446,711
Interest income from mortgage
notes receivable 433,077 375,357
Other interest 1,205,687 465,494
Other income 10,342 8,922
---------- ----------
8,327,804 2,939,558
---------- ----------
Expenses:
General operating and administrative 499,388 255,456
Professional services 52,939 38,463
Asset management fees to related
party 362,659 110,516
State taxes 105,523 35,350
Depreciation and amortization 779,498 240,038
---------- ----------
1,800,007 679,823
---------- ----------
Earnings Before Minority Interest in
Income of Consolidated Joint Venture 6,527,797 2,259,735
Minority Interest in Income of
Consolidated Joint Venture (7,768) (7,893)
---------- ----------
Net Earnings $6,520,029 $2,251,842
========== ==========
Earnings Per Share of Common Stock
(Basic and Diluted) $ 0.17 $ 0.14
========== ==========
Weighted Average Number of Shares of
Common Stock Outstanding 39,240,871 15,630,532
========== ==========
See accompanying notes to condensed consolidated financial statements.
B-9
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Quarter Ended March 31, 1998 and
Year Ended December 31, 1997
<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, 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 22,248,256 222,483 222,260,077 - 222,482,560
Stock issuance
costs - - (22,422,045) - (22,422,045)
Net earnings - - - 15,564,456 15,564,456
Distributions
declared and
paid ($0.74
per share) - - - (16,854,297) (16,854,297)
---------- -------- ------------ ------------ ------------
Balance at
December 31, 1997 36,192,971 361,930 323,525,961 (2,249,790) 321,638,101
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment
plan 6,577,475 65,774 65,708,978 - 65,774,752
Stock issuance
costs - - (6,693,531) - (6,693,531)
Net earnings - - - 6,520,029 6,520,029
Distributions
declared and
paid ($0.19
per share) - - - (7,281,343) (7,281,343)
---------- -------- ------------ ------------ ------------
Balance at
March 31, 1998 42,770,446 $427,704 $382,541,408 $ (3,011,104) $379,958,008
========== ======== ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
B-10
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1998 1997
------------ -----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 8,259,316 $ 2,717,456
------------ ------------
Cash Flows From Investing Activities:
Additions to land and buildings
on operating leases (14,814,884) (23,400,414)
Investment in direct financing
leases (959,100) (5,206,508)
Increase in restricted cash - (231,787)
Investment in mortgage notes
receivable - (4,443,982)
Collection on mortgage notes
receivable 72,547 49,471
Investment in equipment notes
receivable (703,600) -
Collection on equipment notes
receivable 327,329 -
Increase in other assets (1,937,674) (95,969)
------------ ------------
Net cash used in investing
activities (18,015,382) (33,329,189)
------------ ------------
Cash Flows From Financing Activities:
Reimbursement of acquisition and
stock issuance costs paid by
related parties on behalf of the
Company (651,133) (768,733)
Proceeds from borrowing on line
of credit 239,986 2,207,299
Payment on line of credit - (259,466)
Subscriptions received from
stockholders 65,774,752 37,768,445
Distribution to minority interest (8,481) (8,547)
Distributions to stockholders (7,281,343) (2,693,357)
Payment of stock issuance costs (6,142,369) (4,003,576)
Other (96,030) 52,500
------------ ------------
Net cash provided by
financing activities 51,835,382 32,294,565
------------ ------------
Net Increase in Cash and Cash Equivalents 42,079,316 1,682,832
Cash and Cash Equivalents at Beginning
of Quarter 47,586,777 42,450,088
------------ ------------
Cash and Cash Equivalents at End
of Quarter $ 89,666,093 $ 44,132,920
============ ============
See accompanying notes to condensed consolidated financial statements.
B-11
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Quarter Ended
March 31,
1998 1997
------------ -----------
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 $ 207,564 $ 220,259
Stock issuance costs 773,668 593,489
------------ ------------
$ 981,232 $ 813,748
============ ============
See accompanying notes to condensed consolidated financial statements.
B-12
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Quarters Ended March 31, 1998
and 1997
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 also provides financing (the "Mortgage Loans") for the
purchase of buildings, generally by tenants that lease the underlying
land from the Company. In addition, the Company offers furniture,
fixtures and equipment financing through leases or loans (the "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, 1998, may not be indicative of the results
that may be expected for the year ending December 31, 1998. Amounts as
of December 31, 1997, 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, 1997.
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 1998 presentation. These
reclassifications had no effect on stockholders' equity or net
earnings.
B-13
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED Quarters Ended
March 31, 1998 and 1997
2. Basis of Presentation - Continued:
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement requires the reporting of net earnings and all other changes
to equity during the period, except those resulting from investments by
owners and distributions to owners, in a separate statement that begins
with net earnings. Currently, the Company's only component of
comprehensive income is net earnings.
3. Public Offerings:
The Company completed its offering of up to 27,500,000 shares of common
stock ($275,000,000) (the "1997 Offering"), which included 2,000,000
shares ($20,000,000) available only to stockholders who elected to
participate in the Company's reinvestment plan, on March 2, 1998.
Following the completion of the 1997 Offering, the Company commenced an
offering of up to 34,500,000 shares of common stock ($345,000,000) (the
"1998 Offering"). Of the 34,500,000 shares of common stock being
offered, 2,000,000 ($20,000,000) are available only to stockholders who
elect to participate in the Company's reinvestment plan. Net proceeds
from the 1998 Offering will be invested in additional Properties and
Mortgage Loans.
4. Leases:
The Company leases its land, buildings and equipment 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." For Property leases classified as direct financing leases, the
building portions of the majority of the leases are accounted for as
direct financing leases while the land portions of these leases are
accounted for as operating leases. The Company's Secured Equipment
Leases that are financed through leases are recorded as direct
financing leases.
B-14
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED Quarters Ended
March 31, 1998 and 1997
5. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at:
March 31, December 31,
1998 1997
--------- ------------
Land $112,747,202 $106,616,360
Buildings 96,874,529 95,518,149
------------ ------------
209,621,731 202,134,509
Less accumulated
depreciation (3,168,431) (2,395,665)
------------ ------------
206,453,300 199,738,844
Construction in
progress 7,918,228 5,599,342
------------ ------------
$214,371,528 $205,338,186
============ ============
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,
1998 and 1997, the Company recognized $756,198 and $275,492,
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, 1998:
1998 $ 14,679,890
1999 19,468,074
2000 19,497,885
2001 19,724,779
2002 20,522,634
Thereafter 271,873,412
------------
$365,766,674
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 10).
B-15
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED Quarters Ended
March 31, 1998 and 1997
6. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at:
March 31, December 31,
1998 1997
--------- ------------
Minimum lease payments
receivable $102,219,286 $ 98,121,853
Estimated residual
values 7,169,937 6,889,570
Interest receivable on
Secured Equipment
Leases 68,946 67,614
Less unearned income (59,175,725) (57,465,442)
------------ ------------
Net investment in
direct financing
leases $ 50,282,444 $ 47,613,595
============ ============
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at March 31, 1998:
1998 $ 5,433,997
1999 7,245,320
2000 7,297,374
2001 7,069,306
2002 6,972,175
Thereafter 68,201,114
------------
$102,219,286
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 5).
7. Stock Issuance Costs:
The Company has incurred certain expenses in connection with the public
offerings of its shares of common stock, 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 organizational and offering
B-16
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED Quarters Ended
March 31, 1998 and 1997
7. Stock Issuance Costs - Continued:
expenses (excluding commissions and marketing support and due diligence
expense reimbursement fees) which exceed three percent of the gross
offering proceeds received from the current offering of shares of
common stock of the Company.
During the quarter ended March 31, 1998 and the year ended December 31,
1997, the Company incurred $6,693,531 and $22,422,045, respectively, in
stock issuance costs, including $5,261,980 and $17,798,605,
respectively, in commissions and marketing support and due diligence
expense reimbursement fees (see Note 9). The stock issuance costs have
been charged to stockholders' equity subject to the three percent cap
described above.
8. Distributions:
For the quarters ended March 31, 1998 and 1997, approximately 87 and 75
percent, respectively, of the distributions paid to stockholders were
considered ordinary income and approximately 13 and 25 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, 1998 and 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. The
characterization for tax purposes of distributions declared for the
quarter ended March 31, 1998 may not be indicative of the results that
may be expected for the year ending December 31, 1998.
9. Related Party Transactions:
During the quarters ended March 31, 1998 and March 31, 1997, the
Company incurred $4,933,106 and $2,832,633, respectively, in selling
commissions due to CNL Securities Corp. for services in connection with
the offering of shares. Substantial portions of these amounts,
$4,616,072 and $2,576,708 were paid by CNL Securities Corp. as
commissions to other broker-dealers, during the quarters ended March
31, 1998 and 1997, respectively.
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 quarters ended March
31, 1998 and March
B-17
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED Quarters Ended
March 31, 1998 and 1997
9. Related Party Transactions - Continued:
31, 1997, the Company incurred $328,874 and $188,842, respectively, 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 equal to 4.5% of the total amount raised from the sale
of shares. During the quarters ended March 31, 1998 and March 31, 1997,
the Company incurred $2,959,864 and $1,699,580, respectively, of such
fees. Such fees are included in land and buildings on operating leases,
net investment in direct financing leases, mortgage notes receivable
and other assets.
In connection with the acquisition of Properties that are being or have
been constructed or renovated by affiliates, subject to approval by the
Company's Board of Directors, the Company may incur development or
construction management fees payable to affiliates of the Company. Such
fees are included in the purchase price of the Properties and are
therefore included in the basis on which the Company charges rent on
the Properties. During the quarters ended March 31, 1998 and 1997, the
Company incurred $60,869 of such fees relating to three Properties and
$129,379 of such fees relating to two 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 quarters ended March 31, 1998 and 1997, the Company
incurred $4,471 and $41,281, 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 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 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
B-18
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED Quarters Ended
March 31, 1998 and 1997
9. Related Party Transactions - Continued:
deferred without interest and may be taken in such other fiscal year as
the Advisor shall determine. During the quarters ended March 31, 1998
and 1997, the Company incurred $365,675 and $127,458, respectively, of
such fees, of which $3,015 and $16,942, respectively, was capitalized
as part of the cost of the buildings for Properties under construction.
The Advisor and its affiliates provide various administrative services
to the Company, including services related to accounting; financial,
tax and regulatory compliance and reporting; lease and loan compliance;
stockholder distributions and reporting; due diligence and marketing;
and investor relations (including administrative services in connection
with the offering of shares), on a day-to-day basis. The expenses
incurred for these services were classified as follows for the quarters
ended March 31:
1998 1997
--------- ---------
Stock issuance costs $ 718,948 $ 288,747
General operating and
administrative expenses 262,894 108,003
--------- ---------
$ 981,842 $ 396,750
========= =========
For 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 its
carrying costs, or the Property's appraised value. No Properties were
acquired from affiliates during the quarter ended March 31, 1998.
B-19
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED Quarters Ended
March 31, 1998 and 1997
9. Related Party Transactions - Continued:
The due to related parties consisted of the following at:
March 31, December 31,
1998 1997
--------- ------------
Due to the Advisor:
Expenditures incurred
on behalf of the
Company and accounting
and administrative
services $ 822,234 $ 126,205
Acquisition fees 589,452 386,972
---------- ----------
1,411,686 513,177
---------- ----------
Due to CNL Securities Corp:
Commissions 595,809 940,520
Marketing support and due
diligence expense reim-
bursement fees 40,245 63,097
---------- ----------
636,054 1,003,617
---------- ----------
Due to other affiliates - 7,500
---------- ----------
$2,047,740 $1,524,294
========== ==========
10. Commitments:
The Company has entered into various development agreements with
tenants which provide terms and specifications for the construction or
renovation 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 $21,894,000, of which approximately $16,659,000
in land and other costs had been incurred as of March 31, 1998. The
buildings currently under construction or renovation are expected to be
operational by September 1998. In connection with the purchase of each
Property, the Company, as lessor, entered into a long-term lease
agreement.
The Company entered into an agreement with an affiliate of the tenant
to sell a property to be developed in Indian Head Park, Illinois. The
anticipated sales price is approximately equal to the Company's cost
attributable to the property.
B-20
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED Quarters Ended
March 31, 1998 and 1997
11. Subsequent Events:
During the period April 1, 1998 through May 1, 1998, the Company
received subscription proceeds for an additional 2,911,837 shares
($29,118,371) of common stock.
On April 1, 1998 and May 1, 1998, the Company declared distributions of
$2,728,560 and $2,902,652, respectively, or $0.06354 per share of
common stock, payable in June 1998 to stockholders of record on April
1, 1998 and May 1, 1998, respectively.
During the period April 1, 1998 through May 1, 1998, the Company
acquired six Properties (all of which are under construction) for cash
at a total cost of approximately $5,192,000. In connection with the
purchase of each of the six Properties, the Company, as lessor, entered
into a long-term lease agreement. The buildings under construction are
expected to be operational by October 1998.
In April 1998, a tenant exercised its option under the terms of its
lease agreements, to substitute two existing Properties with two
replacement Properties which were approved by the Company. In
conjunction therewith, the Company simultaneously exchanged the two
Boston Market Properties in Grand Island, Nebraska and Franklin,
Tennessee with two replacement Boston Market Properties in Warwick,
Rhode Island and Glendale, Arizona, respectively. Under the
simultaneous exchange agreement, each replacement Property in Warwick,
Rhode Island and Glendale, Arizona will continue under the terms of the
leases of the original properties. All closing costs were paid by the
tenant. The Company accounted for these as non-monetary exchanges of
similar productive assets and recorded the acquisitions of the
replacement Properties in Warwick, Rhode Island and Glendale, Arizona
at the net book value of the original Properties in Grand Island,
Nebraska and Franklin, Tennessee, respectively. No gain or loss was
recognized due to these being accounted for as non-monetary exchanges
of similar assets.
B-21
<PAGE>
EXHIBIT E
STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
BEFORE DIVIDENDS PAID DEDUCTION
OF
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
THE STATEMENT OF ESTIMATED
TAXABLE OPERATING RESULTS BEFORE
DIVIDENDS PAID DEDUCTION UPDATES
EXHIBIT E TO THE PROSPECTUS, DATED
MAY 12, 1998.
<PAGE>
STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
BEFORE DIVIDENDS PAID DEDUCTION
CNL AMERICAN PROPERTIES FUND, INC.
PROPERTIES ACQUIRED FROM MARCH 3, 1998
THROUGH MAY 15, 1998
For the Year Ended December 31, 1997 (Unaudited)
The following schedule presents unaudited estimated taxable operating
results before dividends paid deduction of each Property acquired by the Company
from March 3, 1998 through May 15, 1998 and the total of all properties for
which the Company had an initial commitment as of May 15, 1998. The statement
presents unaudited estimated taxable operating results for each acquired
Property that was operational (or in the case of pending investments, the total
of all properties that were operational), as if the Property had been acquired
and operational on January 1, 1997 through December 31, 1997. The schedule
should be read in light of the accompanying footnotes.
These estimates do not purport to present actual or expected operations
of the Company for any period in the future. These estimates were prepared on
the basis described in the accompanying notes which should be read in
conjunction herewith. No single lessee or group of affiliated lessees lease
Properties or has borrowed funds from the Company with an aggregate purchase
price in excess of 20% of the expected total net offering proceeds of the
Company.
COMPLETED INVESTMENTS:
<TABLE>
<CAPTION>
Ruby Tuesday Jack in the Box Jack in the Box Jack in the Box
Somerset, KY Pflugerville, TX (7) Waxahachie, TX (7) Hutchins, TX (7)
------------ -------------------- ------------------ ----------------
<S> <C>
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Rental income (1) (6) (6) (6) (6)
Earned income (2) (6) (6) (6) (6)
Asset Management Fees (3) (6) (6) (6) (6)
General and Administrative
Expenses (4) (6) (6) (6) (6)
Estimated Cash Available from
Operations (6) (6) (6) (6)
Depreciation and Amortization
Expense (2)(5) (6) (6) (6) (6)
Estimated Taxable Operating
Results Before Dividends
Paid Deduction (6) (6) (6) (6)
See Footnotes
E-1
<PAGE>
Shoney's Arby's Arby's Jack in the Box
Phoenix #4, AZ Columbus #2, OH (8) Atlanta #2, GA (8) Gun Barrel City, TX (7)
-------------- ------------------- ------------------ -----------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Rental income (1) (6) (6) (6) (6)
Earned income (2) (6) (6) (6) (6)
Asset Management Fees (3) (6) (6) (6) (6)
General and Administrative
Expenses (4) (6) (6) (6) (6)
Estimated Cash Available from
Operations (6) (6) (6) (6)
Depreciation and Amortization
Expense (2)(5) (6) (6) (6) (6)
Estimated Taxable Operating
Results Before Dividends
Paid Deduction (6) (6) (6) (6)
See Footnotes
E-2
<PAGE>
Jack in the Box Boston Market Boston Market Jack in the Box
Nacogdoches, TX (7) Glendale, AZ (9) Warwick, RI (9) St. Louis, MO (7)
------------------- ---------------- --------------- -----------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Rental income (1) (6) $102,164 $90,048 (6)
Earned income (2) (6) - - (6)
Asset Management Fees (3) (6) (5,741) (5,058) (6)
General and Administrative
Expenses (4) (6) (6,334) (5,583) (6)
-------- ------
Estimated Cash Available from
Operations (6) 90,089 79,407 (6)
Depreciation and Amortization
Expense (2)(5) (6) (12,667) (17,921) (6)
-------- -------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction (6) $ 77,422 $61,486 (6)
======== =======
See Footnotes
E-3
<PAGE>
Jack in the Box Boston Market Chevy's Fresh Mex Completed Investments
Avondale, AZ (7) Columbus #3, OH (9) Naperville, IL Total
---------------- ------------------- ----------------- ---------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Rental income (1) (6) $104,185 $209,000 $505,397
Earned income (2) (6) - - -
Asset Management Fees (3) (6) (5,852) (13,200) (29,851)
General and Administrative
Expenses (4) (6) (6,459) (12,958) (31,334)
-------- -------- --------
Estimated Cash Available from
Operations (6) 91,874 182,842 444,212
Depreciation and Amortization
Expense (2)(5) (6) (18,725) (34,884) (84,197)
-------- -------- --------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction (6) $ 73,149 $147,958 $360,015
======== ======== ========
</TABLE>
See Footnotes
E-4
<PAGE>
Pending Investments
Total (10) Grand Total
------------------- -----------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Rental income (1) $1,180,268 $1,685,665
Earned income (2) 5,782,528 5,782,528
Asset Management Fees (3) (390,207) (420,058)
General and Administrative
Expenses (4) (431,695) (463,029)
---------- ----------
Estimated Cash Available from
Operations 6,140,894 6,585,106
Depreciation and Amortization
Expense (2)(5)(11) (189,806) (274,003)
---------- ----------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $5,951,088 $6,311,103
========== ==========
- ----------------------
FOOTNOTES:
(1) Base rent does not include percentage rents which become due if
specified levels of gross receipts are achieved.
(2) For pending investments, the Company anticipates that certain
properties will be accounted for as capital leases for federal tax
purposes; therefore, the Company will not be entitled to depreciation
expense on such properties. For leases accounted for as capital leases,
future minimum lease payments are recorded as a receivable. The
difference between the receivable and the estimated residual values
less the cost of the properties is recorded as unearned income. The
unearned income is amortized over the lease terms to provide a constant
rate of return.
(3) The Properties will be managed pursuant to an advisory agreement
between the Company and CNL Fund Advisors, Inc. (the "Advisor"),
pursuant to which the Advisor will receive monthly asset management
fees in an amount equal to one-twelfth of .60% of the Company's Real
Estate Asset Value as of the end of the preceding month as defined in
such agreement. See "Management Compensation."
(4) Estimated at 6.2% of gross rental income or in the case of pending
investments, estimated gross rental income, based on the previous
experience of the Company and of Affiliates of the Advisor with 18
public limited partnerships which own properties similar to those owned
by the Company. Amount does not include soliciting dealer servicing fee
due to the fact that such fee will not be incurred until December 31 of
the year following the year in which the offering terminates.
(5) The estimated federal tax basis of the depreciable portion (the
building portion) of each Property has been depreciated on the
straight-line method over 39 years.
E-5
<PAGE>
(6) The Property is under construction for the period presented. The
development agreements or lease addendums for the Properties which are
to be constructed, provide that construction must be completed no later
than the dates set forth below:
Property Estimated Final Completion Date
-------- -------------------------------
Somerset Property July 1, 1998
Pflugerville Property August 31, 1998
Waxahachie Property September 9, 1998
Hutchins Property September 12, 1998
Phoenix #4 Property September 20, 1998
Columbus #2 Property October 3, 1998
Atlanta #2 Property October 4, 1998
Gun Barrel City Property October 10, 1998
Nacogdoches Property October 10, 1998
St. Louis Property October 11, 1998
Avondale Property October 27, 1998
The Company anticipates the pending investments that are construction
properties will be operational within 180 days after acquisition.
(7) The lessee of the Pflugerville, Waxahachie, Hutchins, Gun Barrel City,
Nacogdoches, St. Louis and Avondale Properties is the same unaffiliated
lessee.
(8) The lessee of the Columbus #2 and Atlanta #2 Properties is the same
unaffiliated lessee.
(9) The lessee of the Glendale, Warwick and Columbus #3 Properties is the
same unaffiliated lessee.
(10) Information relating to pending investments is based on estimated
purchase prices for each of the 48 properties, except for three
properties that will be under construction once they are acquired.
(11) For pending investments that will be accounted for as operating leases,
for purposes of calculating depreciation, the allocation of the
estimated cost of the property between land and building is based upon
the average allocation of the actual cost of properties (consisting of
both land and building) acquired by the Company as of December 31,
1997.
E-6
<PAGE>
