FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-28380
CNL American Properties Fund, Inc.
(Exact name of registrant as specified in its charter)
Maryland 59-3239115
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street
Orlando, Florida 32801
- ---------------------------- -----------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
45,682,283 shares of common stock, $.01 par value, outstanding as of May 1,
1998.
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of
Earnings 2
Condensed Consolidated Statements of
Stockholders' Equity 3
Condensed Consolidated Statements of
Cash Flows 4-5
Notes to Condensed Consolidated
Financial Statements 6-14
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 15-21
Part II
Other Information 22
<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.
1
<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.
2
<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.
3
<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.
4
<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.
5
<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.
6
<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.
7
<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).
8
<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
9
<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
10
<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
11
<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.
12
<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.
13
<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.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Company believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, the Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference include the following: changes in general economic conditions,
changes in real estate conditions, continued availability of proceeds from the
Company's offerings of common stock, the ability of the Company to invest the
proceeds of its offerings of common stock, the ability of the Company to locate
suitable tenants for its properties and borrowers for its mortgage loans, and
the ability of tenants and borrowers to make payments under their respective
leases, secured equipment leases or mortgage loans.
Introduction
CNL American Properties Fund, Inc. (the "Company") is a Maryland
corporation that was organized on May 2, 1994 to acquire properties, directly or
indirectly through joint venture or co-tenancy arrangements (the "Properties"),
to be leased on a long-term, "triple-net" basis to operators of certain national
and regional fast-food, family-style and casual dining restaurant chains. In
addition, the Company provides financing (the "Mortgage Loans") for the purchase
of buildings, generally by tenants that lease the underlying land from the
Company. In addition, the Company offers furniture, fixtures and equipment
financing through leases or loans (the "Secured Equipment Leases") to operators
of restaurant chains.
As of March 31, 1998, the Company owned 255 Properties, including one
Property through a joint venture arrangement and 17 Properties which were under
construction or renovation.
Liquidity and Capital Resources
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 "Initial Offering"),
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.
15
<PAGE>
Liquidity and Capital Resources - Continued
Following the completion of its Initial Offering, the Company commenced
an offering of up to 27,500,000 shares of common stock ($275,000,000) (the "1997
Offering"), 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 under the 1997 Offering.
Following the completion of its 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. As of March 31, 1998, the Company had received
subscription proceeds of $22,575,634 (2,257,563 shares) from its 1998 Offering,
including 81,266 shares ($812,663) issued pursuant to the reinvestment plan.
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 1998 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 1998 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.
16
<PAGE>
Liquidity and Capital Resources - Continued
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 1, 1998, the Company
received subscription proceeds for an additional 2,911,837 shares ($29,118,371)
of common stock.
In addition, 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 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.
As of May 1, 1998, the Company had received aggregate subscription
proceeds of $456,622,831 (45,662,283 shares) from the Initial Offering, the 1997
Offering and the 1998 Offering, including $3,277,076 (327,708 shares) through
its reinvestment plan. As of May 1, 1998, the Company had invested or committed
for investment approximately $295,438,000 of aggregate net offering proceeds in
261 Properties in providing mortgage financing through Mortgage Loans and in
paying acquisition fees and certain acquisition expenses, leaving approximately
$114,300,000 in aggregate net offering proceeds available for investment in
Properties and Mortgage Loans.
Additionally, the Company currently is negotiating to acquire
additional Properties, but as of May 1, 1998 had not acquired any such
Properties.
17
<PAGE>
Liquidity and Capital Resources - Continued
The Company expects to use uninvested net offering proceeds, plus any
net offering proceeds from the sale of additional shares, to purchase additional
Properties, to fund construction 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 the 1998 Offering. The
Company intends to limit equipment financing to ten percent of the aggregate
gross offering proceeds from its offerings.
Properties are and will be leased on a triple-net basis, meaning that
tenants are generally required to pay all repairs and maintenance, property
taxes, insurance and utilities. Rental payments under the leases are expected to
exceed the Company's operating expenses. For these reasons, no short-term or
long-term liquidity problems currently are anticipated by management.
Until Properties are acquired or Mortgage Loans are entered into, net
offering proceeds are held in short-term, highly liquid investments which
management believes to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate the Company's use of
these funds to acquire Properties or to fund Mortgage Loans at such time as
suitable Properties and investments in Mortgage Loans are identified.
At 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.
18
<PAGE>
Liquidity and Capital Resources - Continued
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
(including accounting; financial, tax and regulatory compliance and reporting;
lease and loan compliance; stockholder distributions and reporting; due
diligence and marketing; and investor relations). As of May 1, 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 the Company's 1998 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 on current and anticipated future
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 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.
19
<PAGE>
Liquidity and Capital Resources - Continued
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 subscription proceeds received in the future relating to the
1998 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.
20
<PAGE>
Results of Operations - Continued
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.
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.
21
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) The Company filed one report on Form 8-K, reporting
the acquisition of Properties, on January 16, 1998.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 14th day of May, 1998.
CNL AMERICAN PROPERTIES FUND, INC.
By: /s/ James M. Seneff, Jr.
-------------------------------
JAMES M. SENEFF, JR.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/Steven D. Shackelford
------------------------------
STEVEN D. SHACKELFORD
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL American Properties Fund, Inc. at March 31, 1998, and its statement
of income for the three months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL American Properties Fund, Inc. for the three
months ended March 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 91,674,397<F2>
<SECURITIES> 0
<RECEIVABLES> 551,029
<ALLOWANCES> (51,835)
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 217,539,959
<DEPRECIATION> (3,168,431)
<TOTAL-ASSETS> 394,757,976
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 427,704
<OTHER-SE> 379,530,304
<TOTAL-LIABILITY-AND-EQUITY> 394,757,976
<SALES> 0
<TOTAL-REVENUES> 8,327,804
<CGS> 0
<TOTAL-COSTS> 1,800,007
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,520,029
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,520,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,520,029
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
<FN>
<F2>Cash included certificates of deposit of $2,008,304.
<F1>Due to the nature of its industry, CNL American Properties Fund, Inc. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
