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 January 26, 1998. Capitalized terms used in this Supplement
have the same meaning as in the Prospectus unless otherwise stated herein.
THE PRIOR 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 $591,765 (59,177 shares) issued pursuant to the Reinvestment Plan and
after deduction of selling commissions, marketing support and due diligence
expense reimbursement fees and offering expenses, net proceeds to the Company
from its Initial Offering totalled approximately $134,000,000. Following the
completion of its Initial Offering, the Company commenced its 1997 Offering of
up to 27,500,000 shares. Upon completion of its 1997 Offering on March 2, 1998,
the Company had received aggregate subscription proceeds of $251,872,648
(25,187,265 shares), including $1,872,648 (187,265 shares) issued pursuant to
the Reinvestment Plan. Net offering proceeds to the Company after deduction of
selling commissions, marketing support and due diligence expense reimbursement
fees and offering expenses totalled approximately $227,100,000. As of March 2,
1998, the Company had invested or committed for investment approximately
$282,900,000 of aggregate net proceeds from the Initial Offering and the 1997
Offering in 250 Properties, in providing mortgage financing to the tenants of
the 44 Properties consisting of land only to purchase the buildings on these
Properties and the buildings on two additional properties through Mortgage
Loans, and in paying acquisition fees and certain acquisition expenses, leaving
approximately $78,200,000 in aggregate net offering proceeds available for
investment in Properties and Mortgage Loans.
BUSINESS
COMPLETED INVESTMENTS
As of March 2, 1998, the Company had invested or committed for
investment approximately $282,900,000 of net proceeds from the Prior Offerings
in 250 Properties (185 Properties which consist of land and building, 44
Properties which consist of land only and 21 Properties which consist of
building only), in providing mortgage financing to the tenants of the 44
Properties consisting of land only to purchase the buildings on these Properties
and the buildings on two additional properties 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 have leases expiring from 9 to 25 years
after the date on which each lease commenced.
March 26, 1998 Prospectus Dated January 26, 1998
<PAGE>
The following tables set forth information for the Properties owned by
the Company as of March 2, 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 10
Bennigan's 1
Black-eyed Pea 18
Boston Market 32
Burger King 9
Charley's Place 2
Chevy's Fresh Mex 4
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 30
KFC 1
Mr. Fable's 1
On The Border 1
Pizza Hut 44
Popeyes 1
Ruby Tuesday's 1
Ruth's Chris Steak House 1
Ryan's Family Steak House 1
Shoney's 3
TGI Friday's 1
Tumbleweed Southwest Mesquite Grill & Bar 7
Wendy's 5
----
Total 250
-2-
<PAGE>
State Number of Properties
----- --------------------
Alabama 5
Arizona 8
California 23
Colorado 5
Connecticut 1
Delaware 1
Florida 14
Georgia 2
Idaho 1
Illinois 5
Indiana 5
Iowa 5
Kansas 3
Kentucky 4
Maryland 7
Michigan 8
Minnesota 3
Missouri 7
Nebraska 1
Nevada 2
New Jersey 2
New Mexico 3
New York 1
North Carolina 9
Ohio 37
Oklahoma 6
Oregon 3
Pennsylvania 6
Tennessee 15
Texas 35
Utah 1
Virginia 8
Washington 2
West Virginia 10
Wisconsin 2
----
Total 250
-3-
PROPERTY ACQUISITIONS
Between January 1, 1998 and March 2, 1998, the Company acquired six
Properties consisting of land and building. These Properties are two Golden
Corral Properties (one in each of Dubuque, Iowa; and Edmond, Oklahoma), two
Tumbleweed Southwest Mesquite Grill & Bar Properties (one in each of Clarksville
and Hermitage, Tennessee), one Arby's Property (in Jacksonville, Florida) and
one Jack in the Box Property (in Los Angeles, California).
In connection with the purchase of the two Golden Corral Properties,
the two Tumbleweed Southwest Mesquite Grill & Bar Properties, the one Arby's
Property and the one Jack in the Box Property, which are land and building, 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 -
<PAGE>
Description of Property Leases." In addition, in connection with the purchase of
these Properties, which are to be constructed, the Company has entered into
development and indemnification and put agreements with the lessee. 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."
The following table sets forth the location of the six Properties
consisting of land and building, acquired by the Company, from January 1, 1998
through March 2, 1998, a description of the competition, and a summary of the
principal terms of the acquisition and lease of each Property.
PROPERTY ACQUISITIONS
From January 1, 1998 through March 2, 1998
<TABLE>
<CAPTION>
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>
Golden Corral (6) $520,186 01/20/98 07/2013; four 10.75% of Total for each lease during the
(the "Dubuque #2 (excluding five-year Cost (4) year, 5% of first through
Property") development renewal options the amount by seventh
Restaurant to be costs) (3) which annual lease years
constructed gross sales and the
exceed tenth
The Dubuque #2 $2,833,105 (5) through
Property is located on fifteenth
the northeast corner of lease years
the intersection of only
Northwest Arterial and
Chavenelle Road, in
Dubuque, Dubuque
County, Iowa, in an
area of mixed retail,
commercial, and
residential
development.
<PAGE>
Golden Corral (6) $546,484 01/20/98 07/2013; four 10.75% of Total for each lease during the
(the "Edmond (excluding five-year Cost (4) year, 5% of first through
Property") development renewal options the amount by seventh
Restaurant to be costs) (3) which annual lease years
constructed gross sales and the
exceed tenth
The Edmond Property $2,776,470 (5) through
is located on the fifteenth
northwest corner of lease years
Broadway Extension only
and Comfort Drive, in
Edmond, Oklahoma
County, Oklahoma, in
an area of mixed
retail, commercial,
and residential
development. Other
fast-food and family-
style restaurants
located in proximity
to the Edmond Property
include an Applebee's,
a Chili's, an Outback
Steak House, a Perkins,
a Chick-Fil-A, a Taco
Bell, a McDonald's, a
Burger King, a Hardee's,
and several local
restaurants.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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>
Tumbleweed $565,440 02/10/98 02/2018; two 11% of Total Cost for each lease at any time
Southwest Mesquite (excluding five-year (4); increases by year, (i) 5% of after the
Grill & Bar (7) development renewal options 10% after the fifth annual gross seventh
(the "Clarksville costs) (3) lease year and after sales minus lease year
Property") every five years (ii) the
Restaurant to be thereafter during the minimum
constructed lease term annual rent for
such lease year
The Clarksville
Property is located
on the northwest
corner of Wilma-
Rudolph Boulevard
and SR 374, in
Clarksville,
Montgomery County,
Tennessee, in an area
of mixed retail,
commercial, and
residential development.
Tumbleweed $511,103 02/10/98 02/2018; two 11% of Total Cost for each lease at any time
Southwest Mesquite (excluding five-year (4); increases by year, (i) 5% of after the
Grill & Bar (7) development renewal options 10% after the fifth annual gross seventh
(the "Hermitage costs) (3) lease year and after sales minus (ii) lease year
Property") every five years the minimum
Restaurant to be thereafter during the annual rent for
constructed lease term such lease year
The Hermitage Property
is located on the east
side of Old Hickory
Boulevard, in Hermitage,
Davidson County,
Tennessee, in an area
of mixed retail,
commercial, and residential
development. Other fast-
food and family-style
restaurants located in
proximity to the Hermitage
Property include an Applebee's
and a Schlotzsky's Deli.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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>
Arby's $424,738 02/20/98 02/2018; two (8) None at any time
(the "Jacksonville (excluding five-year after the
Property") development renewal options seventh
Restaurant to be costs) (3) lease year
constructed
The Jacksonville Property
is located on the
northwest corner of
DeBarry Avenue and Wells
Road, in Jacksonville,
Clay County, Florida, in
an area of mixed retail,
commercial, and
residential development.
Other fast-food and
family- style restaurants
located in proximity to
the Jacksonville Property
include a Steak-n-Shake,
a Chili's, an Outback
Steak House, a Burger
King, a Ruby Tuesday, a
Tony Roma's, and several
local restaurants.
<PAGE>
Jack in the Box $1,380,250 02/23/98 02/2016; four $134,574 (9); None at any time
(the "Los Angeles #4 (3) (9) 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 Los Angeles #4 term
Property is located on
the southeast corner of
Pico Boulevard and
Hoover Street, in Los
Angeles, Los Angeles
County, California, in
an area of mixed retail,
commercial, and
residential development.
Other fast-food and
family-style restaurants
located in proximity to
the Los Angeles #4 Property
include a Wendy's, a
Domino's Pizza and several
local restaurants.
</TABLE>
<PAGE>
- -------------------------
FOOTNOTES:
(1) The estimated federal income tax basis of the depreciable portion (the
building portion) of each of the construction Properties acquired, once
the buildings are constructed, is set forth below:
Property Federal Tax Basis
-------- -----------------
Dubuque #2 Property $1,074,000
Edmond Property 1,012,000
Clarksville Property 926,000
Hermitage Property 926,000
Jacksonville Property 599,000
Los Angeles #4 Property 620,000
(2) For the Dubuque #2 and Edmond Properties, minimum annual rent will
become due and payable on the earlier of (i) 180 days after execution
of the lease, (ii) the date the certificate of occupancy for the
restaurant is issued, or (iii) the date the restaurant opens for
business to the public. For the Clarksville, Hermitage and Jacksonville
Properties, minimum annual rent will become due and payable on the
earlier of (i) 180 days 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 Dubuque
#2 and Edmond Properties, as described above, interim rent equal to ten
percent per annum of the amount funded by the Company in connection
with the purchase and construction of the Properties shall accrue and
be payable in a single lump sum at the time of 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 Clarksville and Hermitage Properties, as described above, the
tenant shall pay monthly "interim rent" equal to 11% per annum 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 Jacksonville Property, as described above, the tenant
shall pay "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 Property.
(3) The development agreements for the Properties which are to be
constructed, provides 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 amount set
forth below:
<TABLE>
<CAPTION>
Property Estimated Maximum Cost Estimated Final Completion Date
-------- ---------------------- -------------------------------
<S> <C>
Dubuque #2 Property $1,647,329 July 19, 1998
Edmond Property 1,616,169 July 19, 1998
Clarksville Property 1,488,802 August 9, 1998
Hermitage Property 1,432,291 August 9, 1998
Jacksonville Property 1,025,168 August 19, 1998
Los Angeles #4 Property 1,380,250 August 22, 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.
<PAGE>
(5) Percentage rent shall be calculated on a calendar year basis (January 1
to December 31).
(6) The lessee of the Dubuque #2 and Edmond Properties is the same
unaffiliated lessee.
(7) The lessee of the Clarksville and Hermitage Properties is the same
unaffiliated lessee.
(8) Initial minimum annual rent shall equal the rate which is in effect 15
business days prior to the commencement of the annual rent (2),
multiplied by the amounts 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 each 36 month period 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 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.
PENDING INVESTMENTS
As of March 2, 1998, the Company had initial commitments to acquire ten
properties, including eight properties consisting of land and building and two
properties consisting of building only. In connection with one of the properties
in which the Company anticipates owning only the building and not the underlying
land, the Company anticipates entering into a landlord estoppel agreement with
the landlord of the land and a collateral assignment of the ground lease with
the lessee in order to provide the Company with certain rights with respect to
the land on which the building is located. In connection with the other property
in which the Company anticipates owning only the building and not the underlying
land, the Company anticipates entering into a tri-party agreement with the
lessee and the landlord of the land in order to provide the Company with certain
rights with respect to the land on which the building is located. 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 ten
of these properties are expected to be entered into on substantially the same
terms described in "Business -- Description of Property Leases."
SELECTED FINANCIAL DATA
The following table sets forth certain financial information for the
Company, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements included in Exhibit B to this Supplement.
<TABLE>
<CAPTION>
May 2,
1994 (Date
of Inception)
through
Year Ended December 31, December 31,
1997 1996 1995 1994
------------- ----------- ------------ ------------
<S> <C>
Revenues $ 19,457,933 $6,206,684 $ 659,131 $ -
Net earnings 15,564,456 4,745,962 368,779 -
Cash distributions declared (1) 16,854,297 5,436,072 638,618 -
Funds from operations (2) 17,348,723 5,257,040 469,097 -
Earnings per Share 0.66 0.59 0.19 -
Cash distributions declared per Share 0.74 0.71 0.31 -
Weighted average number of Shares
outstanding (3) 23,423,868 8,071,670 1,898,350 -
December 31, December 31, December 31, December 31,
1997 1996 1995 1994
------------ ------------ ------------ ------------
Total assets $339,077,762 $134,825,048 $ 33,603,084 $ 929,585
Total stockholders' equity 321,638,101 122,867,427 31,980,648 200,000
</TABLE>
(1) Approximately eight percent, 13 percent and 42 percent of cash
distributions ($0.06, $0.09 and $0.13 per Share) for 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.
-4-
<PAGE>
(2) Funds from operations ("FFO"), based on the revised definition
adopted by the Board of Governors of NAREIT and as used
herein, means net earnings determined in accordance with
generally accepted accounting principles ("GAAP"), excluding
gains or losses from debt restructuring and sales of property,
plus depreciation and amortization of real estate assets, and
after adjustments for unconsolidated partnerships and joint
ventures. (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
years ended December 31, 1997, 1996 and 1995, net earnings
included $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 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 -
Financial Information.
(3) The weighted average number of Shares outstanding is based
upon the period the Company was operational.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE COMPANY
INTRODUCTION
The Company is a Maryland corporation that was organized on May 2,
1994, to acquire Properties, directly or indirectly through Joint Venture or
co-tenancy arrangements, to be leased on a long-term, "triple-net" basis to
operators of certain Restaurant Chains. In addition, the Company may provide
Mortgage Loans for the purchase of buildings, generally by borrowers that lease
the underlying land from the Company. To a lesser extent, the Company may offer
Secured Equipment Leases to operators of Restaurant Chains.
LIQUIDITY AND CAPITAL RESOURCES
The Company was formed in May 1994, at which time the Company received
initial capital contributions of $200,000 for 20,000 shares of common stock from
the Advisor. In April 1995, the Company commenced a public offering for the sale
of up to 16,500,000 Shares ($165,000,000) of common stock, 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 $591,765 (59,177 Shares) 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. Of the 27,500,000
Shares of common stock being offered, 2,500,000 are available only to
stockholders who elect to participate in the Company's Reinvestment Plan. As of
December 31, 1997, the Company had received subscription proceeds of
$361,729,707 (36,172,971 Shares) from the
-5-
<PAGE>
Initial Offering and 1997 Offering, including $2,464,413 (246,441 Shares) issued
pursuant to the Reinvestment Plan.
As of December 31, 1997, net proceeds to the Company from its Initial
Offering, 1997 Offering and capital contributions from the Advisor, after
deduction of organizational and offering expenses, totalled $323,867,890.
Approximately $272,140,000 of such amount had been used to invest, or committed
for investment, in 244 Properties (including ten Properties on which a
restaurant was being constructed as of December 31, 1997), which includes
mortgage financing of $17,047,000, acquisition fees to the Advisor totalling
$16,277,837 and certain acquisition expenses as of December 31, 1997. The
Company acquired 18 of the 244 Properties from Affiliates for purchase prices
totalling approximately $14,681,000. The Affiliates had purchased and
temporarily held title to these Properties in order to facilitate the
acquisition of the Properties by the Company. Each Property acquired from an
Affiliate was purchased at a cost no greater than the lesser of the cost of the
Property to the Affiliate (including carrying costs) or the Property's appraised
value.
In connection with the ten Properties 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 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 are approximately $14,495,000, of which approximately
$10,202,000 had been incurred as of December 31, 1997. The buildings currently
under construction are expected to be operational by June 1998. In connection
with the purchase of each Property, the Company, as lessor, entered into a
long-term lease agreement.
During the period January 1, 1998 through March 2, 1998, the Company
acquired six additional Properties (all on which restaurants are being
constructed) for cash at a total cost of approximately $3,948,200. 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 August 1998. The Company currently is negotiating to
acquire additional Properties, but as of March 2, 1998, had not acquired any
such Properties.
The Company completed its 1997 Offering on March 2, 1998, at which time
the Company had received subscription proceeds of $402,464,413 (40,246,441
Shares) from its Initial Offering and 1997 Offering, including $2,464,413
(246,441 Shares) issued pursuant to the Company's Reinvestment Plan. As of March
2, 1998, the Company had invested, or committed for investment, a total of
approximately $282,900,000 of such proceeds in 250 Properties, in providing
mortgage financing for Mortgage Loans relating to 44 Properties consisting of
land only and the buildings on two additional Properties through Mortgage Loans
and to pay acquisition fees and expenses totalling $18,110,898 to the Advisor,
leaving approximately $78,200,000 in aggregate net offering proceeds available
for investment in Properties and Mortgage Loans.
Following the completion of its 1997 Offering, the Company commenced
the sale of up to 34,500,000 Shares of Common Stock. Of the 34,500,000 Shares of
Common Stock being offered, 2,000,000 are available only to stockholders
purchasing shares through the Reinvestment Plan. Management believes that the
increase in the amount of assets of the Company that will result from this
offering will increase the diversification of the Company's assets and the
likelihood of Listing the Company's Shares on a national securities exchange or
over-the-counter market, although there is no assurance that Listing will occur.
If the Shares are not listed on a national securities exchange or
over-the-counter market by December 31, 2005, as to which there can be no
assurance, the Company will commence orderly sale of its assets and the
distribution of the proceeds. Listing does not assure liquidity.
The Company expects to use uninvested net offering proceeds from the
Prior Offerings, plus any Net Offering Proceeds from the sale of Shares in this
offering, to purchase additional Properties, to fund construction costs relating
to the Properties under construction and to make Mortgage Loans. The Company
does not intend to use net offering proceeds to fund Secured Equipment Leases;
however, from time to time the Company may use uninvested net offering proceeds
to repay a portion of or all of the balance outstanding under the Line of Credit
pending the investment of such offering proceeds in Properties or Mortgage Loans
in order to reduce the Company's interest cost during such period. The Company
expects to fund the Secured Equipment Leases with proceeds from the Line of
Credit. The number of Properties to be acquired and Mortgage Loans to be entered
into will depend
-6-
<PAGE>
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 is sold in this offering. The Company intends to limit
equipment financing to ten percent of the aggregate gross offering proceeds from
its offerings.
During 1996, the Company entered into three Mortgage Loans in the
aggregate principal sum of $12,847,000, collateralized by mortgages on the
buildings relating to 35 Pizza Hut Properties. The Mortgage Loans bear interest
at a rate of 10.75% per annum and are being collected in 240 equal installments
totalling $130,426. In February 1997, the Company entered into an additional
Mortgage Loan in the principal sum of $4,200,000, collateralized by mortgages on
the buildings on nine Pizza Hut Properties and two additional Pizza Hut
buildings. The Mortgage Loan bears interest at a rate of 10.5% per annum and is
being collected in 240 monthly installments of $41,943. Mortgage notes
receivable at December 31, 1997 and 1996 of $17,622,010 and $13,389,607,
respectively, include accrued interest of $118,887 and $35,285, respectively.
During 1997, the Company sold five of its Properties and the Equipment
relating to two Secured Equipment Leases to tenants. The Company received net
proceeds of approximately $7,252,000, which were equal to the carrying value of
the Properties and the Equipment at the time of the sales. As a result, no gain
or loss was recognized for financial reporting purposes. The Company used the
net sales proceeds relating to the sale of the Equipment to repay amounts
previously advanced under its Line of Credit. The Company reinvested the
proceeds from the sale of Properties in additional Properties.
In October 1997, the Company entered into two Secured Equipment Leases
with a borrower for equipment financing totalling $13,225,000, which are
collateralized by Equipment. The Secured Equipment Leases bear interest at a
rate of ten percent per annum and will be collected in 84 equal monthly
installments totalling $219,550 beginning January 1, 1998. As of December 31,
1997, the Company had advanced $12,521,400 to the borrower and had a remaining
balance to fund of $703,600. Notes receivable at December 31, 1997, include
principal amounts of $13,225,000 and accrued interest of $323,044 relating to
these two Secured Equipment Leases.
In March 1996, the Company entered into a line of credit and security
agreement with a bank, the proceeds of which were to be used by the Company to
fund Secured Equipment Leases. The line of credit provided that the Company
would be able to receive advances of up to $15,000,000 until March 4, 1998.
Generally, all advances under the line of credit bore interest at either (i) a
rate per annum equal to 215 basis points above the Reserve Adjusted LIBOR Rate
(as defined in the line of credit) or (ii) a rate per annum equal to the bank's
prime rate, whichever the Company selected at the time advances were made. As a
condition of obtaining the line of credit, the Company agreed to grant to the
bank a first security interest in the Secured Equipment Leases.
In August 1997, the Company's $15,000,000 line of credit was amended
and restated to enable the Company to receive advances on a revolving
$35,000,000 uncollateralized Line of Credit to provide equipment financing, to
purchase and develop Properties and to fund Mortgage Loans. The advances bear
interest at a rate of LIBOR plus 1.65% or the bank's prime rate, whichever the
Company selects at the time of borrowing. Interest only is repayable monthly
until July 31, 1999, at which time all remaining interest and principal shall be
due. The Line of Credit provides for two one-year renewal options.
During 1996, the Company entered into interest rate swap agreements
with a commercial bank to reduce the impact of changes in interest rates on its
floating rate long-term debt. These agreements effectively change the Company's
interest rate exposure on notional amounts totalling approximately $2,110,000 of
the outstanding floating rate notes to fixed rates ranging from 8.75% to nine
percent per annum. The notional amounts of the interest rate swap agreements
amortize over the period of the agreements which approximate the term of the
related notes. As of December 31, 1997, the notional balances were approximately
$1,750,000. The Company is exposed to credit loss in the event of nonperformance
by the other party to the interest rate swap agreements; however, the Company
does not anticipate nonperformance by the counterparty.
Advances used to fund Secured Equipment Leases will be repaid using
payments received from Secured Equipment Leases and will be refinanced in regard
to any Secured Equipment Lease not fully repaid at the end of the term of the
Line of Credit. The Company, from time to time, may use uninvested net offering
proceeds to
-7-
<PAGE>
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. Advances used
to purchase and develop Properties and to fund Mortgage Loans will be repaid
using additional offering proceeds or refinanced on a long-term basis.
The Company will not encumber Properties in connection with the Line of
Credit. Management believes that during the offering period the Line of Credit
will allow the Company to make investments in Properties and Mortgage Loans that
the Company otherwise would be forced to delay until it raised a sufficient
amount of proceeds from the sale of shares to allow the Company to make the
investments. By eliminating this delay the Company will also eliminate the risk
that these investments will no longer be available, or the terms of the
investments will be less favorable, when the Company has raised sufficient
offering proceeds. Alternatively, Affiliates of the Advisor could make such
investments, pending receipt by the Company of sufficient offering proceeds, in
order to preserve the investment opportunities for the Company. However,
Properties acquired by the Company in this manner would be subject to closing
costs both on the original purchase by the Affiliate and on the subsequent
purchase by the Company, which would increase the amount of expenses associated
with the acquisition of Properties and reduce the amount of offering proceeds
available for investment in income-producing assets. Management believes that
the use of the Line of Credit by the Company will enable the Company to reduce
or eliminate the instances in which the Company will be required to pay
duplicate closing costs.
During the years ended December 31, 1997 and 1996, the Company obtained
advances totalling $19,721,804 and $3,666,896, respectively, under the Line of
Credit, the proceeds of which were used to fund Secured Equipment Leases and to
pay loan costs. During the year ended December 31, 1997, the Company used
proceeds relating to the sale of Equipment during 1997, as described above, and
uninvested net offering proceeds, to repay $20,784,577 of amounts advanced under
the Line of Credit. During the year ended December 31, 1996, the Company used
amounts collected under the terms of the Secured Equipment Leases to repay
$145,080 of amounts advanced under the Line of Credit. The Company expects to
obtain additional advances under the Line of Credit to fund future Equipment
financings and to purchase Properties and to invest in Mortgage Loans.
Properties are and will be leased on a long-term, triple-net basis,
meaning that tenants are generally required to pay all repairs and maintenance,
property taxes, insurance and utilities. Rental payments under the leases are
expected to exceed the Company's Operating Expenses. For these reasons, no
short-term or long-term liquidity problems currently are anticipated by
management.
Until Properties are acquired, or Mortgage Loans are entered into, net
offering proceeds are held in short-term, highly liquid investments which
management believes to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate the Company's use of
these funds to acquire Properties at such time as Properties suitable for
acquisition are located or to fund Mortgage Loans. At December 31, 1997, the
Company had $49,595,001 invested in such short-term investments (including a
certificate of deposit in the amount of $2,000,000) as compared to $42,450,088
at December 31, 1996. The increase in the amount invested in short-term
investments reflects subscription proceeds derived from the sale of Shares
during the year ended December 31, 1997, net of the repayment of amounts
advanced under the Line of Credit, as described above. These funds will be used
primarily to purchase and develop or renovate Properties (directly or indirectly
through joint venture arrangements), to make Mortgage Loans, to pay offering and
acquisition costs, to pay Distributions to stockholders, to temporarily reduce
amounts outstanding under the Company's Line of Credit pending the investment of
net offering proceeds, to meet Company expenses and, in management's discretion,
to create cash reserves.
During the years ended December 31, 1997, 1996 and 1995, Affiliates of
the Company incurred on behalf of the Company $2,351,244, $804,617 and
$2,084,145, respectively, for certain organizational and offering expenses. In
addition, during the years ended December 31, 1997, 1996 and 1995, Affiliates of
the Company incurred on behalf of the Company $514,908, $206,103 and $131,629,
respectively, for certain acquisition expenses and $368,516, $243,402 and
$54,234, respectively, for certain operating expenses. As of December 31, 1997,
the Company owed
-8-
<PAGE>
the Advisor and its Affiliates $1,524,294 for such amounts, unpaid fees and
accounting and administrative expenses. The Advisor has agreed to pay or
reimburse to the Company all organizational and offering expenses in excess of
three percent of gross offering proceeds from each of the Initial Offering, 1997
Offering and this offering.
During the years ended December 31, 1997, 1996 and 1995, the Company
generated cash from operations (which includes cash received from tenants and
interest and other income received, less cash paid for operating expenses) of
$17,076,214, $5,482,540 and $498,459, respectively. Based on current and
anticipated future cash from operations, the Company declared Distributions to
the stockholders of $16,854,297, $5,436,072 and $638,618 during 1997, 1996 and
1995, respectively. In addition, in January 1998, February 1998 and March 1998,
the Company declared Distributions to its stockholders totalling $2,298,433,
$2,421,992 and $2,556,539, respectively, payable in March 1998. For the years
ended December 31, 1997, 1996 and 1995, 93.33%, 90.25% and 59.82%, respectively,
of the Distributions received by stockholders were considered to be ordinary
income and 6.67%, 9.75% and 40.18%, respectively, were considered a return of
capital for federal income tax purposes. However, no amounts distributed or to
be distributed to the stockholders as of January 22, 1998, are required to be or
have been treated by the Company as a return of capital for purposes of
calculating the Stockholders' 8% Return on their Invested Capital.
Management believes that the Properties are adequately covered by
insurance. In addition, the Advisor has obtained contingent liability and
property coverage for the Company. This insurance policy is intended to reduce
the Company's exposure in the unlikely event a tenant's insurance policy lapses
or is insufficient to cover a claim relating to the Property. The Company's
investment strategy of acquiring Properties for cash and leasing them under
triple-net leases to operators who meet specified financial standards is
expected to minimize the Company's Operating Expenses.
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
No significant operations commenced until the Company received the
minimum offering proceeds of $1,500,000 on June 1, 1995.
As of December 31, 1997, the Company and its consolidated joint
venture, CNL/Corral South Joint Venture, had purchased and entered into
long-term, triple-net leases for 244 Properties. The leases provide for minimum
annual base rental payments (payable in monthly installments) ranging from
approximately $61,900 to $467,500. In addition, certain leases provide for
percentage rent based on sales in excess of a specified amount. The majority of
the leases also provide that, commencing in generally the sixth lease year, the
annual base rent required under the terms of the leases will increase. In
connection therewith, during the years ended December 31, 1997, 1996, and 1995,
the Company earned a total of $15,490,615, $4,357,298 and $539,776,
respectively, in rental income from operating leases, earned income from the
direct financing leases and contingent rental income from 244 Properties and 27
Secured Equipment Leases in 1997, from 85 Properties and six Secured Equipment
Leases in 1996 and from 16 Properties in 1995, respectively. Because the Company
did not commence significant operations until it received the minimum offering
proceeds on June 1, 1995, and intends to make additional investments in
Properties, Mortgage Loans and Secured Equipment Leases, revenues for the years
ended December 31, 1997, 1996 and 1995, represent only a portion of revenues
which the Company is expected to earn during future years in which the Company
has completed additional investments and the Company's Properties are
operational (and other investments in place) for the full period.
-9-
<PAGE>
During the years ended December 31, 1997 and 1996, the Company earned
$1,687,456 and $1,069,349, respectively, in mortgage interest income relating to
the Mortgage Loans collateralized by Pizza Hut Properties, as described above in
"Liquidity and Capital Resources". The increase during the year ended December
31, 1997, is attributable to investing in an additional Mortgage Loan during
1997.
During 1997, three of the Company's lessees and borrowers, or
affiliated groups of lessees and borrowers, Castle Hill, Foodmaker, Inc. and
Houlihan's Restaurants Inc., each contributed more than ten percent of the
Company's total rental, earned income and interest income relating to its
Properties, Mortgage Loans and Secured Equipment Leases. Castle Hill is the
lessee under leases relating to the land portion of 44 restaurants and is the
borrower on Mortgage Loans relating to the buildings on such Properties, as well
as two additional properties. Foodmaker, Inc. is the lessee under leases
relating to 29 restaurants and Houlihan's Restaurants, Inc. is the lessee under
leases relating to 20 restaurants. In addition, four Restaurant Chains, Pizza
Hut, Golden Corral Family Steakhouse, Jack in the Box and Boston Market, each
accounted for more than ten percent of the Company's total rental, earned income
and interest income relating to Properties, Mortgage Loans and Secured Equipment
Leases during 1997. Because the Company has not completed its investment in
Properties, Mortgage Loans and Secured Equipment Leases as yet, it is not
possible to determine which lessees, borrowers or Restaurant Chains will
contribute more than ten percent of the Company's rental, earned income and
interest income during 1998 and subsequent years. In the event that certain
lessees, borrowers or Restaurant Chains contribute more than ten percent of the
Company's rental, earned income and interest income in future years, any failure
of such lessees, borrowers or Restaurant Chains could materially affect the
Company's income.
During the years ended December 31, 1997, 1996 and 1995, the Company
earned $2,254,375, $773,404 and $118,859, respectively, in interest income
earned on Secured Equipment Leases, as described above in "Liquidity and Capital
Resources", and 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 this offering in highly liquid investments pending investment in
Properties and Mortgage Loans. However, as net offering proceeds are invested in
Properties and used to make Mortgage Loans, interest income from investments in
money market accounts or other short-term, highly liquid investments is expected
to decrease.
Operating expenses, including depreciation and amortization expense,
were $3,862,024, $1,430,795 and $290,276 for the years ended December 31, 1997,
1996 and 1995, respectively. Total operating expenses increased during each of
the years ended December 31, 1997 and 1996, as compared to the prior year,
primarily as a result of the Company having invested in additional Properties
and Mortgage Loans during each year. General and administrative expenses as a
percentage of total revenues is expected to decrease as the Company acquires
additional Properties, invests in additional Mortgage Loans and the Properties
under construction become operational. However, asset management fees and
depreciation and amortization expense are expected to increase as the Company
invests in additional Properties and Mortgage Loans.
The Company has made an election under Section 856(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), to be taxed as a REIT under the
Code beginning with its taxable year ended December 31, 1995. As a REIT, for
federal income tax purposes, the Company generally will not be subject to
federal income tax on income that it distributes to its stockholders. If the
Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax on its taxable income at regular corporate rates and will not
be permitted to qualify for treatment as a REIT for federal income tax purposes
for four years following the year during which qualification is lost. Such an
event could materially affect the Company's net income. However, the Company
believes that it is organized and operates in such a manner as to qualify for
treatment as a REIT for the years ended December 31, 1997, 1996 and 1995. In
addition, the Company intends to continue to operate the Company so as to remain
qualified as a REIT for federal income tax purposes.
-10-
<PAGE>
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share." The
statement, which is effective for fiscal years ending after December 15, 1997,
provides for a revised computation of earnings per share. The Company adopted
this standard during the year ended December 31, 1997. Adoption of this standard
had no material effect on the Company's financial position or results of
operations.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure." The statement, which is effective for fiscal years
ending after December 15, 1997, provides for disclosure of the Company's capital
structure. At this time, the Company's Board of Directors has not determined the
relative rights, preferences, and privileges of each class or series of
preferred stock authorized. Since the Company has not issued preferred shares,
the disclosures to this standard are not applicable.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130 "Reporting Comprehensive Income." The statement, which is effective for
fiscal years beginning after December 15, 1997, 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. The Company does not believe that
adoption of this standard will have a material effect on the Company's financial
position or results of operations.
The Advisor of the Company is in the process of assessing and
addressing the impact of the year 2000 on its computer package software. The
hardware and built-in software are believed to be year 2000 compliant.
Accordingly, the Company does not expect this matter to materially impact how it
conducts business nor its future results of operations or financial position.
All of the Company's leases as of December 31, 1997, are triple-net
leases and contain provisions that management believes will mitigate the adverse
effect of inflation. Such provisions include clauses requiring the payment of
percentage rent based on certain restaurant sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease. Management expects that increases in restaurant sales volumes due to
inflation and real sales growth should result in an increase in rental income
over time. Continued inflation also may cause capital appreciation of the
Company's Properties. Inflation and changing prices, however, also may have an
adverse impact on the sales of the restaurants and on potential capital
appreciation of the Properties.
This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Company believes that the 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 this
offering, the ability of the Company to locate suitable tenants for its
Properties and borrowers for its Mortgage Loans, and the ability of such tenants
and borrowers to make payments under their respective leases, Secured Equipment
Leases or Mortgage Loans.
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 January 1, 1998 through March 2, 1998, and the
years ended December 31, 1997, 1996 and 1995, the Company incurred $3,055,103,
$16,686,192, $7,559,474 and $2,884,062, respectively, of such fees in connection
with the Prior Offerings, of which approximately $2,900,400, $15,563,500,
$7,059,000 and $2,682,000, respectively, was paid by the Managing Dealer as
commissions to other broker-dealers.
-11-
<PAGE>
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 January 1, 1998 through March 2, 1998, and
the years ended December 31, 1997, 1996 and 1995, the Company incurred $203,673,
$1,112,413, $503,965 and $192,271, respectively, of such fees in connection with
the Prior Offerings, 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
January 1, 1998 through March 2, 1998, and the years ended December 31, 1997,
1996 and 1995, the Company incurred $1,833,062, $10,011,715, $4,535,685 and
$1,730,437, respectively, of such fees in connection with the Prior Offerings.
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
years ended December 31, 1997 and 1996, the Company incurred $366,865 and
$70,070, respectively, in such fees. No such amounts were incurred in 1995.
The Company and the Advisor have entered into an Advisory Agreement
pursuant to which the Advisor will receive a monthly asset management fee of
one-twelfth of 0.60% of the Company's Real Estate Asset Value, plus one-twelfth
of 0.60% of the total principal amount of the Company's Mortgage Loans, as of
the end of the preceding month. The management fee, which will not exceed fees
which are competitive for similar services in the same geographic area, may or
may not be taken, in whole or in part as to any year, in the sole discretion of
the Advisor. All or any portion of the management fee not taken as to any fiscal
year shall be deferred without interest and may be taken in such other fiscal
year as the Advisor shall determine. For the years ended December 31, 1997, 1996
and 1995, the Company incurred $881,668, $278,902 and $27,950, respectively, of
such fees, $76,789, $27,702 and $4,872, respectively, of which has been
capitalized as part of the cost of the buildings for Properties that have been
or are being constructed.
The Advisor and its Affiliates provide accounting and administrative
services to the Company (including accounting and administrative services in
connection with the offering of Shares) on a day-to-day basis. For the years
ended December 31, 1997, 1996 and 1995, the Company incurred a total of
$2,232,466, $1,103,828 and $782,690, respectively, for these services,
$1,676,226, $769,225 and $714,674, respectively, of such costs representing
stock issuance costs and $556,240, $334,603 and $68,016, respectively,
representing general operating and administrative expenses, including costs
related to preparing and distributing reports required by the Securities and
Exchange Commission.
During the years ended December 31, 1997, 1996 and 1995, the Company
acquired five, four and nine Properties, respectively, for approximately
$5,450,000, $2,610,000 and $6,621,000, respectively, from Affiliates of the
Company. The Affiliates had purchased and temporarily held title to these
Properties in order to facilitate the acquisition of the Properties by the
Company. Each Property was acquired at a cost no greater than the lesser of the
cost of the Property to the Affiliate (including carrying costs) or the
Property's appraised value.
In connection with the acquisition of six Properties in 1997 and three
Properties in 1996 that were constructed or renovated by Affiliates, the Company
incurred development/construction management fees totalling $369,570 and
$159,350, respectively. Such fees were included in the purchase price of
Properties and therefore included in the basis on which the Company charges rent
on the Properties. No such amounts were incurred in 1995.
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.
-12-
<PAGE>
DISTRIBUTION POLICY
DISTRIBUTIONS
The following table reflects the total Distributions and Distributions
per Share declared by the Company for each month since the Company commenced
operations.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
Month Total Per Share Total Per Share Total Per Share
- ----- ----------- --------- ---------- --------- ----------- ---------
<S> <C>
January $ - $ - $225,354 $0.058300 $ 827,978 $0.059375
February - - 255,649 0.058300 884,806 0.059375
March - - 287,805 0.058300 980,573 0.060416
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
years ended December 31, 1997, 1996 and 1995, the Company declared and made
Distributions totalling $16,854,297, $5,436,072 and $638,618, respectively, of
which 93.33%, 90.25% and 59.82%, respectively, of such amounts were
characterized as ordinary income and 6.67%, 9.75% and 40.18%, respectively, were
characterized as return of capital for federal income tax purposes. In addition,
in January 1998, February 1998 and March 1998, the Company declared
distributions to its stockholders totalling $2,298,433, $2,421,992 and
$2,556,539, respectively, payable in March 1998. However, no amounts distributed
to stockholders as of December 31, 1997, are required to be or have been treated
by the Company as a return of capital for purposes of calculating the
stockholders' return on their Invested Capital. Due to the fact that the Company
had not acquired all of its Properties and was still in its offering period as
of December 31, 1997, the characterization of Distributions for federal income
tax purposes is not necessarily considered by management to be representative of
the characterization of Distributions in future years. Distributions in kind
shall not be permitted, except for distributions of readily marketable
securities; distributions of beneficial interests in a liquidating trust
established for the dissolution of the Company and the liquidation of its assets
in accordance with the terms of the Articles of Incorporation; or distributions
of in-kind property as long as the Directors (i) advise each stockholder of the
risks associated with direct ownership of the property; (ii) offer each
stockholder the election of receiving in-kind property distributions; and (iii)
distribute in-kind property only to those stockholders who accept the Directors'
offer.
-13-
<PAGE>
SUMMARY OF THE
ARTICLES OF INCORPORATION AND BYLAWS
DESCRIPTION OF CAPITAL STOCK
The Company's annual meeting of stockholders is scheduled to be held on
May 4, 1998, at which time the stockholders will vote regarding an amendment to
the Company's Amended and Restated Articles of Incorporation to increase 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). Upon completion of the Prior Offerings, the Company had
40,266,441 shares of Common Stock outstanding (including 20,000 issued to the
Advisor prior to the commencement of the Initial Offering and 246,441 issued
pursuant to the Reinvestment Plan) and no Preferred Stock or Excess Shares
outstanding.
-14-
<PAGE>
EXHIBIT B
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
AND
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED
IN THIS EXHIBIT B UPDATE AND REPLACE EXHIBIT
B TO THE PROSPECTUS, DATED JANUARY 26, 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 December 31, 1997 B-2
Pro Forma Consolidated Statement of Earnings for the year ended December 31, 1997 B-3
Notes to Pro Forma Consolidated Financial Statements for the year ended December
31, 1997 B-4
Audited Consolidated Financial Statements:
Report of Independent Accountants B-7
Consolidated Balance Sheets as of December 31, 1997 and 1996 B-8
Consolidated Statements of Earnings for the years ended December 31, 1997,
1996 and 1995 B-9
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995 B-10
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995 B-11
Notes to Consolidated Financial Statements for the years ended December
31, 1997, 1996 and 1995 B-13
Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1997 B-32
Notes to Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1997 B-48
Schedule IV - Mortgage Loans on Real Estate as of December 31, 1997 B-50
Notes to Schedule IV - Mortgage Loans on Real Estate as of December 31, 1997 B-51
</TABLE>
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Consolidated Balance Sheet of the Company gives
effect to (i) property acquisition transactions from inception through December
31, 1997, including the receipt of $361,729,709 in gross offering proceeds from
the sale of 36,172,971 shares of common stock and the application of such
proceeds to purchase 244 properties (including 178 properties which consist of
land and building, one property through a joint venture arrangement which
consists of land and building, 21 properties which consist of building only and
44 properties which consist of land only), ten of which were under construction
at December 31, 1997, 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 $40,734,704 in gross offering proceeds from the sale of 4,073,470
additional shares of common stock during the period January 1, 1998 through
March 2, 1998, (iii) the application of such funds at December 31, 1997, to
purchase six additional properties acquired during the period January 1, 1998
through March 2, 1998 (all six of which are under construction), to pay
additional costs for the ten properties under construction at December 31, 1997,
and to pay offering expenses, acquisition fees and miscellaneous acquisition
expenses, all as reflected in the pro forma adjustments described in the related
notes. The Pro Forma Consolidated Balance Sheet as of December 31, 1997,
includes the transactions described in (i) above from the historical
consolidated balance sheet, adjusted to give effect to the transactions in (ii),
and (iii) above, as if they had occurred on December 31, 1997.
The Pro Forma Consolidated Statement of Earnings for the year ended
December 31, 1997, includes 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 March 2, 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 Statement of
Earnings for the remaining properties acquired by the Company during the period
January 1, 1997 through March 2, 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
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Pro Forma
ASSETS Historical Adjustments Pro Forma
------------ ----------- ---------
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation $205,338,186 $ 12,897,271 (a) $218,235,457
Net investment in direct
financing leases (b) 47,613,595 47,613,595
Cash and cash equivalents 47,586,777 11,239,389 (a) 58,826,166
Certificates of deposit 2,008,224 2,008,224
Receivables, less allowance for
doubtful accounts 635,796 635,796
Notes receivable 13,548,044 13,548,044
Mortgage notes receivable 17,622,010 17,622,010
Accrued rental income 1,772,261 1,772,261
Intangibles and other assets 2,952,869 1,177,268 (a) 4,130,137
------------ ------------ ------------
$339,077,762 $ 25,313,928 $364,391,690
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit $ 2,459,043 $ 2,459,043
Accrued construction costs
payable 10,978,211 $(10,978,211)(a) -
Accounts payable and other
accrued expenses 1,060,497 1,060,497
Due to related parties 1,524,294 1,524,294
Rents paid in advance 517,428 517,428
Deferred rental income 557,576 38,252 (a) 595,828
Other payables 56,878 56,878
------------- ------------ -----------
Total liabilities 17,153,927 (10,939,959) 6,213,968
------------- ------------ -----------
Minority interest 285,734 285,734
------------- ------------ -----------
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
36,192,971 shares; issued and
outstanding, as adjusted,
40,266,441 shares 361,930 40,734 (a) 402,664
Capital in excess of par value 323,525,961 36,213,153 (a) 359,739,114
Accumulated distributions in
excess of net earnings (2,249,790) (2,249,790)
------------ ------------ -----------
321,638,101 36,253,887 357,891,988
------------ ------------ ------------
$339,077,762 $ 25,313,928 $364,391,690
============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
B-2
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C>
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-3
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
Pro Forma Consolidated Balance Sheet:
(a) Represents gross proceeds of $40,734,704 from the issuance of 4,073,471
shares of common stock during the period January 1, 1998 through March
2, 1998 and the receipt of $38,252 of rental income during construction
(capitalized as deferred rental income) used (i) to acquire six
properties (all of which consist of land and building) for $8,166,301,
(ii) to fund estimated construction costs of $15,053,387 ($10,978,211
of which was accrued as construction costs payable at December 31,
1997) relating to ten wholly owned properties under construction at
December 31, 1997, (iii) to pay acquisition fees of $1,833,062
($655,794 of which was allocated to properties and $1,177,268 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 $4,480,817, which have been netted against
capital in excess of par value, leaving $11,239,389 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>
Golden Corral in Edmond, OK 1,495,908 80,138 1,576,046
Golden Corral in Dubuque, IA 1,527,271 81,818 1,609,089
Tumbleweed Southwest Mesquite
Grill & Bar in Hermitage, TN 1,362,770 73,006 1,435,776
Tumbleweed Southwest Mesquite
Grill & Bar in Clarksville, TN 1,416,585 75,888 1,492,473
Arby's in Jacksonville, FL 984,017 52,715 1,036,732
Jack in the Box in Los Angeles, CA 1,379,750 73,915 1,453,665
Ten wholly owned properties under
construction at December 31, 1997 4,075,176 218,314 4,293,490
----------- ----------- -----------
$12,241,477 $ 655,794 $12,897,271
=========== =========== ===========
</TABLE>
(b) In accordance with generally accepted accounting principles, leases in
which the present value of future minimum lease payments equals or
exceeds 90 percent of the value of the related properties are treated
as direct financing leases rather than as land and buildings. The
categorization of the leases has no effect on rental revenues received.
B-4
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1997
Pro Forma Consolidated Statement 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 March 2, 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 that the previous owners held the
properties, no pro forma adjustment was made for percentage rental
income for the year ended December 31, 1997.
(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) on 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 on interest bearing accounts was earned at a rate of
approximately four percent per annum by the Company during the year
ended December 31, 1997.
B-5
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1997
Pro Forma Consolidated Statement of Earnings - Continued:
(3) Represents incremental increase in asset management fees relating to
the Pro Forma Properties for the period commencing (A) on the later of
(i) the date the Pro Forma Properties became operational as rental
properties by the previous owners or (ii) January 1, 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 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 year
ended December 31, 1997.
(6) See Note (b) under "Pro Forma Consolidated Balance Sheet" for a
description of direct financing leases.
B-6
<PAGE>
Report of Independent Accountants
To the Board of Directors
CNL American Properties Fund, Inc.
We have audited the accompanying consolidated balance sheets of CNL American
Properties Fund, Inc. (a Maryland corporation) and its subsidiary as of December
31, 1997 and 1996, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997 and the related financial statement schedules. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CNL American
Properties Fund, Inc. and its subsidiary as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole present fairly, in all material
respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
Orlando, Florida
January 22, 1998
B-7
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
December 31,
ASSETS 1997 1996
------------ ------------
Land and buildings on operating leases,
less accumulated depreciation $205,338,186 $ 60,243,146
Net investment in direct financing leases 47,613,595 15,204,972
Cash and cash equivalents 47,586,777 42,450,088
Certificates of deposit 2,008,224 -
Receivables, less allowance for doubtful
accounts of $99,964 and $2,857 635,796 142,389
Notes receivable 13,548,044 -
Mortgage notes receivable 17,622,010 13,389,607
Accrued rental income 1,772,261 422,076
Intangibles and other assets 2,952,869 2,972,770
------------ ------------
$339,077,762 $134,825,048
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ 2,459,043 $ 3,521,816
Accrued construction costs payable 10,978,211 6,587,573
Accounts payable and other accrued expenses 1,060,497 79,817
Due to related parties 1,524,294 997,084
Rents paid in advance 517,428 118,900
Deferred rental income 557,576 335,849
Other payables 56,878 28,281
------------ ------------
Total liabilities 17,153,927 11,669,320
------------ ------------
Minority interest 285,734 288,301
------------ ------------
Commitments (Note 13)
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000
shares - -
Excess shares, $0.01 par value per share.
Authorized and unissued 78,000,000
and 23,000,000 shares, respectively - -
Common stock, $0.01 par value per share.
Authorized 75,000,000 and 20,000,000
shares, respectively, issued and
outstanding 36,192,971 and 13,944,715,
respectively 361,930 139,447
Capital in excess of par value 323,525,961 123,687,929
Accumulated distributions in excess of
net earnings (2,249,790) (959,949)
------------ ------------
Total stockholders' equity 321,638,101 122,867,427
------------ ------------
$339,077,762 $134,825,048
============ ============
See accompanying notes to consolidated financial statements.
B-8
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------- ----------- -----------
<S> <C>
Revenues:
Rental income from operating
leases $12,457,200 $ 3,731,806 $ 510,841
Earned income from direct
financing leases 3,033,415 625,492 28,935
Interest income from
mortgage notes receivable 1,687,456 1,069,349 -
Other interest income 2,254,375 773,404 118,859
Other income 25,487 6,633 496
----------- ----------- -----------
19,457,933 6,206,684 659,131
----------- ----------- -----------
Expenses:
General operating and
administrative 944,763 542,564 134,759
Professional services 65,962 58,976 8,119
Asset and mortgage manage-
ment fees to related party 804,879 251,200 23,078
State taxes 251,358 56,184 20,189
Depreciation and amorti-
zation 1,795,062 521,871 104,131
----------- ----------- -----------
3,862,024 1,430,795 290,276
----------- ----------- -----------
Earnings Before Minority
Interest in Income of
Consolidated Joint Venture 15,595,909 4,775,889 368,855
Minority Interest in Income of
Consolidated Joint Venture (31,453) (29,927) (76)
----------- ----------- -----------
Net Earnings $15,564,456 $ 4,745,962 $ 368,779
=========== =========== ===========
Earnings Per Share of Common
Stock (Basic and Diluted) $ 0.66 $ 0.59 $ 0.19
=========== =========== ===========
Weighted Average Number of
Shares of Common Stock
Outstanding 23,423,868 8,071,670 1,898,350
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
B-9
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Accumulated
Common stock Capital in distributions
Number Par excess of in excess of
of shares value par value net earnings Total
--------- ----- --------- ------------ -----
<S> <C>
Balance at December 31,
1994 20,000 $ 200 $ 199,800 $ - $ 200,000
Subscriptions received
for common stock
through public offering
and distribution
reinvestment plan 3,845,416 38,454 38,415,704 - 38,454,158
Stock issuance costs - - (6,403,671) - (6,403,671)
Net earnings - - - 368,779 368,779
Distributions declared
($0.31 per share) - - - (638,618) (638,618)
---------- -------- ------------ ----------- ------------
Balance at December 31,
1995 3,865,416 38,654 32,211,833 (269,839) 31,980,648
Subscriptions received
for common stock
through public offering
and distribution
reinvestment plan 10,079,299 100,793 100,692,198 - 100,792,991
Stock issuance costs - - (9,216,102) - (9,216,102)
Net earnings - - - 4,745,962 4,745,962
Distributions declared
($0.71 per share) - - - (5,436,072) (5,436,072)
---------- -------- ------------ ----------- ------------
Balance at December 31,
1996 13,944,715 139,447 123,687,929 (959,949) 122,867,427
Subscriptions received
for common stock
through public offering
and distribution
reinvestment plan 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
($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
========== ======== ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
B-10
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
------------ ------------ --------
<S> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows From Operating Activities:
Cash received from tenants $ 15,440,803 $ 4,543,506 $ 492,488
Cash paid for expenses (1,903,876) (928,001) (113,384)
Interest received 3,539,287 1,867,035 119,355
------------ ------------ ------------
Net cash provided by operating
activities 17,076,214 5,482,540 498,459
------------ ------------ ------------
Cash Flows From Investing Activities:
Additions to land and buildings on
operating leases (143,542,667) (36,104,148) (18,835,969)
Increase in net investment in direct
financing leases (39,155,974) (13,372,621) (1,364,960)
Proceeds from sale of buildings and
equipment under direct financing
leases 7,251,510 - -
Investment in certificates of deposit (2,000,000) - -
Investment in notes receivable (12,521,401) - -
Investment in mortgage notes
receivable (4,401,982) (13,547,264) -
Collections on mortgage notes
receivable 250,732 133,850 -
Increase in intangibles and other
assets - (1,103,896) (628,142)
------------ ------------ ------------
Net cash used in investing
activities (194,119,782) (63,994,079) (20,829,071)
------------ ------------ ------------
Cash Flows From Financing Activities:
Reimbursement of acquisition,
organization, deferred offering and
stock issuance costs paid by related
parties on behalf of the Company (2,857,352) (939,798) (2,500,056)
Proceeds from borrowing on line of
credit 19,721,804 3,666,896 -
Payment on line of credit (20,784,577) (145,080) -
Contribution from minority interest
of consolidated joint venture - 97,419 200,000
Subscriptions received from
stockholders 222,482,560 100,792,991 38,454,158
Distributions to minority interest (34,020) (39,121) -
Distributions to stockholders (16,854,297) (5,439,404) (635,286)
Payment of stock issuance costs (19,542,862) (8,486,188) (3,680,704)
Other 49,001 (54,533) -
------------ ------------ -----------
Net cash provided by financing
activities 182,180,257 89,453,182 31,838,112
------------ ------------ ------------
Net Increase in Cash and Cash Equivalents 5,136,689 30,941,643 11,507,500
Cash and Cash Equivalents at Beginning of
Year 42,450,088 11,508,445 945
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $ 47,586,777 $ 42,450,088 $ 11,508,445
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
B-11
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
-------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C>
Reconciliation of Net Earnings to Net Cash
Provided by Operating Activities:
Net earnings $ 15,564,456 $ 4,745,962 $ 368,779
------------ ------------ ------------
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 1,784,268 511,078 100,318
Amortization 10,794 69,886 3,813
Increase in receivables (905,339) (160,984) (44,749)
Decrease in net investment in direct
financing leases 1,130,095 259,740 1,078
Increase in accrued rental income (1,350,185) (382,934) (39,142)
Increase in intangibles and other
assets (6,869) (4,293) (8,090)
Increase (decrease) in accounts
payable and other accrued expenses 153,223 (2,896) 38,461
Increase (decrease) in due to related
parties, excluding reimbursement of
acquisition, organization, deferred
offering and stock issuance costs
paid on behalf of the Company 15,466 (30,929) 42,868
Increase in rents paid in advance 398,528 93,549 25,351
Increase in deferred rental income 221,727 335,849 -
Increase in other payables 28,597 18,585 9,696
Increase in minority interest 31,453 29,927 76
------------ ------------ ------------
Total adjustments 1,511,758 736,578 129,680
------------ ------------ ------------
Net Cash Provided by Operating Activities $ 17,076,214 $ 5,482,540 $ 498,459
============ ============ ============
Supplemental Schedule of Non-Cash Investing
and Financing Activities:
Related parties paid certain acquisition,
organization, deferred offering
and stock issuance costs on behalf
of the Company as follows:
Acquisition costs $ 514,908 $ 206,103 $ 131,629
Organization costs - - 20,000
Deferred offering costs - 466,405 -
Stock issuance costs 2,351,244 338,212 2,084,145
------------ ------------ ------------
$ 2,866,152 $ 1,010,720 $ 2,235,774
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
B-12
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies:
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 ("Secured Equipment Leases") to operators of restaurant
chains.
The Company was a development stage enterprise from May 2, 1994 through
June 1, 1995. Since operations had not begun, activities through June
1, 1995, were devoted to organization of the Company.
Principles of Consolidation - The Company accounts for its 85.47%
interest in CNL/Corral South Joint Venture using the consolidation
method. Minority interest represents the minority joint venture
partner's proportionate share of the equity in the Company's
consolidated joint venture. All significant intercompany accounts and
transactions have been eliminated.
Real Estate and Lease Accounting - The Company records the acquisition
of land, buildings and equipment at cost, including acquisition and
closing costs. In addition, interest costs incurred during construction
are capitalized in accordance with accounting standards. Land and
buildings are leased to unrelated third parties on a triple-net basis,
whereby the tenant is generally responsible for all operating expenses
relating to the Property, including property taxes, insurance,
maintenance and repairs. In addition, the Company offers equipment
financing through leases or loans. The Property leases are accounted
for using either the direct financing or the operating method. The
Secured Equipment Leases are accounted for using the direct financing
method. Such methods are described below:
B-13
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (Note 5). Unearned income is deferred and
amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Company's net
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals (including rental payments, if
any, required during the construction of a Property) vary
during the lease term, income is recognized on a straight-line
basis so as to produce a constant periodic rent over the lease
term commencing on the date the Property is placed in service.
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date. In contrast, deferred
rental income represents the aggregate amount of scheduled
rental payments to date (including rental payments due during
construction and prior to the Property being placed in
service) in excess of income recognized on a straight-line
basis over the lease term commencing on the date the Property
is placed in service.
When the Properties or equipment are sold, the related cost and
accumulated depreciation for operating leases and the net investment
for direct financing leases, plus any accrued rental income or deferred
rental income, will be removed from the accounts and any gains or
losses from sales will be reflected in income. Management reviews its
Properties for
B-14
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through
operations. Management determines whether an impairment in value has
occurred by comparing the estimated future undiscounted cash flows,
including the residual value of the Property, with the carrying cost of
the individual Property. If an impairment is indicated, the assets are
adjusted to their fair value.
Mortgage Loans - The Company accounts for loan origination fees and
costs incurred in connection with Mortgage Loans in accordance with
Statement of Financial Accounting Standards No. 91, "Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring
Loans and Initial Direct Costs of Leases". This statement requires the
deferral of loan origination fees and the capitalization of direct loan
costs. The costs capitalized, net of the fees deferred, are amortized
to interest income as an adjustment of yield over the life of the
loans. The unpaid principal and accrued interest on the Mortgage Loans,
plus the unamortized balance of such fees and costs are included in
mortgage notes receivable (see Note 7).
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks, money market funds (some of which are
backed by government securities) and certificates of deposit (with
maturities of three months or less when purchased). Cash equivalents
are stated at cost plus accrued interest, which approximates market
value.
Cash accounts maintained on behalf of the Company in demand deposits at
commercial banks, money market funds and certificates of deposit may
exceed federally insured levels; however, the Company has not
experienced any losses in such accounts. The Company limits investment
of temporary cash investments to financial institutions with high
credit standing; therefore, management believes it is not exposed to
any significant credit risk on cash and cash equivalents.
B-15
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
Organization Costs - Organization costs are amortized over five years
using the straight-line method and are included in intangibles and
other assets. For the years ended December 31, 1997 and 1996,
accumulated amortization of $10,318 and $6,318, respectively, was
recorded.
Loan Costs - Loan costs incurred in connection with the Company's
$35,000,000 line of credit have been capitalized and are being
amortized over the term of the loan commitment using the effective
interest method. Income or expense associated with interest rate swap
agreements related to the line of credit is recognized on the accrual
basis as earned or incurred through an adjustment to interest expense.
Loan costs are included in intangibles and other assets. As of December
31, 1997 and 1996, the Company had aggregate gross loan costs of
$100,634 and $54,533, respectively. For the years ended December 31,
1997 and 1996, accumulated amortization of $61,783 and $22,034,
respectively, was recorded.
Income Taxes - The Company has made an election to be taxed as a real
estate investment trust ("REIT") under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, and related regulations. The
Company generally will not be subject to federal corporate income taxes
on amounts distributed to stockholders, providing it distributes at
least 95 percent of its REIT taxable income and meets certain other
requirements for qualifying as a REIT. Accordingly, no provision for
federal income taxes has been made in the accompanying consolidated
financial statements. Notwithstanding the Company's qualification for
taxation as a REIT, the Company is subject to certain state taxes on
its income and property.
Earnings Per Share - Basic earnings per share are calculated based upon
net earnings (income available to common stockholders) divided by the
weighted average number of shares of common stock outstanding during
the reporting period. The Company does not have any dilutive potential
common shares.
Use of Estimates - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
B-16
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform with the 1997
presentation. These reclassifications had no effect on stockholders'
equity or net earnings.
New Accounting Standards - In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
128, "Earnings Per Share". The statement, which is effective for fiscal
years ending after December 15, 1997, provides for a revised
computation of earnings per share (see Earnings Per Share). Adoption of
this standard had no material effect on the Company's financial
position or results of operations.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure". The statement, which is effective
for fiscal years ending after December 15, 1997, provides for
disclosure of the Company's capital structure. At this time, the
Company's Board of Directors has not determined the relative rights,
preferences, and privileges of each class or series of preferred stock
authorized. Since the Company has not issued preferred shares, the
disclosures to this standard are not applicable.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income". The statement, which is effective for fiscal years beginning
after December 15, 1997, 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 its net earnings. The Company does
not believe that adoption of this standard will have a material effect
on the Company's financial position or results of operations.
2. Public Offering:
The Company has a currently effective registration statement on Form
S-11 with the Securities and Exchange Commission for the sale of
27,500,000 shares ($275,000,000) of common stock (the "1997 Offering").
Of the 27,500,000 shares of common
B-17
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
2. Public Offering - Continued:
stock, the Company has registered, 2,500,000 shares ($25,000,000) are
available only to stockholders who elect to participate in the
Company's reinvestment plan. The Company has adopted a reinvestment
plan pursuant to which stockholders may elect to have the full amount
of their cash distributions from the Company reinvested in additional
shares of common stock of the Company. Prior to the 1997 Offering, the
Company received proceeds from its initial offering (the "Initial
Offering"), of $150,591,765 (15,059,177 shares), including $591,765
(59,177 shares) issued pursuant to the Company's reinvestment plan. As
of December 31, 1997, the Company had received aggregate subscription
proceeds from its Initial Offering and 1997 Offering of $361,729,709
(36,172,971 shares), including $2,464,413 (246,441 shares) issued
through the reinvestment plan.
On October 10, 1997, the Company filed a registration statement with
the Securities and Exchange Commission in connection with the proposed
sale by the Company of up to 34,500,000 shares of common stock (the
"1998 Offering") in an offering expected to commence immediately
following the completion of the Company's 1997 Offering. Of the
34,500,000 shares of common stock to be offered, 2,000,000 will be
available only to stockholders purchasing shares through the
reinvestment plan. The price per share and the other terms of the 1998
Offering, including the percentage of gross proceeds payable to the
managing dealer for selling commissions and expenses in connection with
the offering, payable to the advisor for acquisition fees and
acquisition expenses and reimbursable to the advisor for offering
expenses, will be the same as those for the Company's 1997 Offering.
Net proceeds from the 1998 Offering will be invested in additional
Properties and Mortgage Loans.
3. 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
B-18
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
3. Leases - Continued:
accounted for as operating leases. Substantially all Property leases
have initial terms of 15 to 20 years (expiring between 2006 and 2017)
and provide for minimum rentals. In addition, the majority of the
Property leases provide for contingent rentals and/or scheduled rent
increases over the terms of the leases. Each tenant also pays all
property taxes and assessments, fully maintains the interior and
exterior of the building and carries insurance coverage for public
liability, property damage, fire and extended coverage. The lease
options for the Property leases generally allow tenants to renew the
leases for two to four successive five-year periods subject to the same
terms and conditions as the initial lease. Most leases also allow the
tenant to purchase the Property at the greater of the Company's
purchase price plus a specified percentage of such purchase price or
fair market value after a specified portion of the lease has elapsed.
The Secured Equipment Leases recorded as direct financing leases as of
December 31, 1997 provide for minimum rentals payable monthly and have
lease terms ranging from four to seven years. The Secured Equipment
Leases generally include an option for the lessee to acquire the
equipment at the end of the lease term for a nominal fee.
4. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
1997 1996
------------ ------------
Land $106,616,360 $ 33,850,436
Buildings 95,518,149 24,152,610
------------ ------------
202,134,509 58,003,046
Less accumulated
depreciation (2,395,665) (611,396)
------------ ------------
199,738,844 57,391,650
Construction in
progress 5,599,342 2,851,496
------------ ------------
$205,338,186 $ 60,243,146
============ ============
B-19
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
4. Land and Buildings on Operating Leases - Continued:
Some leases provide for scheduled rent increases throughout the lease
term and/or rental payments during the construction of a Property prior
to the date it is placed in service. Such amounts are recognized on a
straight-line basis over the terms of the leases commencing on the date
the Property is placed in service. For the years ended December 31,
1997, 1996 and 1995, the Company recognized $1,941,054, $517,067 and
$39,142, respectively, of such rental income.
During 1997, the Company sold five of its Properties and the equipment
relating to two Secured Equipment Leases to tenants. The Company
received net proceeds of approximately $7,252,000, which were equal to
the carrying value of the Properties and the net investment in the
direct financing leases for the equipment at the time of the sales. As
a result, no gain or loss was recognized for financial reporting
purposes. The Company used the net sales proceeds relating to the sale
of the equipment to repay amounts previously advanced under its line of
credit (see Note 8). The Company reinvested the proceeds from the sale
of Properties in additional Properties.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at December 31, 1997:
1998 $ 18,891,310
1999 18,931,518
2000 18,960,643
2001 19,187,537
2002 19,982,822
Thereafter 265,518,312
------------
$361,472,142
============
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales. These
amounts also do not include minimum lease payments that will become due
when Properties under development are completed (see Note 13).
B-20
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
5. Net Investment in Direct Financing Leases:
The following lists the components of net investment in direct
financing leases at December 31:
1997 1996
------------ ------------
Minimum lease payments
receivable $ 98,121,853 $ 30,162,465
Estimated residual values 6,889,570 1,346,332
Secured equipment lease
interest receivable 67,614 18,286
Less unearned income (57,465,442) (16,322,111)
------------ ------------
Net investment in direct
financing leases $ 47,613,595 $ 15,204,972
============ ============
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 1997:
1998 6,820,081
1999 6,820,081
2000 6,872,134
2001 6,644,067
2002 6,546,936
Thereafter 64,418,554
-----------
$98,121,853
===========
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 4).
6. Notes Receivable:
In October 1997, the Company entered into two promissory notes with a
borrower for equipment financing, totalling $13,225,000 which are
collateralized by restaurant equipment. The promissory notes bear
interest at a rate of ten percent per annum and will be collected in 84
equal monthly installments totalling $219,550 beginning January 1,
1998. At December 31, 1997, the Company had advanced $12,521,400 to the
borrower and had a remaining balance to fund of $703,600 (included in
accounts payable and other accrued expenses at December 31, 1997).
Notes receivable at December 31, 1997, include accrued interest of
$323,044.
B-21
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
6. Notes Receivable - Continued:
Management believes that the estimated fair value of notes receivable
at December 31, 1997 approximated the outstanding principal amount
based on estimated current rates at which similar loans would be made
to borrowers with similar credit and for similar maturities.
7. Mortgage Notes Receivable:
During 1996, in connection with the acquisition of land for 35 Pizza
Hut restaurants, the Company accepted three promissory notes in the
aggregate principal sum of $12,847,000, collateralized by mortgages on
the buildings on the 35 Pizza Hut Properties. The promissory notes bear
interest at a rate of 10.75% per annum and are being collected in 240
equal monthly installments totalling $130,426.
During 1997, in connection with the acquisition of land for nine Pizza
Hut restaurants, the Company accepted a promissory note in the
principal sum of $4,200,000, collateralized by a mortgage on the
buildings on the nine Pizza Hut Properties and two additional Pizza Hut
buildings. The promissory note bears interest at a rate of 10.5% per
annum and is being collected in 240 equal monthly installments of
$41,943.
Mortgage notes receivable consisted of the following at December 31:
1997 1996
----------- -----------
Outstanding principal $16,662,418 $12,713,151
Accrued interest income 118,887 35,285
Deferred financing income (85,448) (46,268)
Unamortized loan costs 926,153 687,439
----------- -----------
$17,622,010 $13,389,607
=========== ===========
Management believes that the estimated fair value of mortgage notes
receivable at December 31, 1997 and 1996 approximated the outstanding
principal amount based on estimated current rates at which similar
loans would be made to borrowers with similar credit and for similar
maturities.
B-22
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
8. Line of Credit:
In March 1996, the Company entered into a line of credit and security
agreement with a bank, the proceeds of which were to be used by the
Company to offer Secured Equipment Leases. The line of credit provided
that the Company would be able to receive advances of up to $15,000,000
until March 4, 1998. Generally, all advances under the line of credit
bore interest at either (i) a rate per annum equal to 215 basis points
above the Reserve Adjusted LIBOR Rate (as defined in the line of
credit) or (ii) a rate per annum equal to the bank's prime rate,
whichever the Company selected at the time advances were made. As a
condition of obtaining the line of credit, the Company agreed to grant
to the bank a first security interest in the Secured Equipment Leases.
In August 1997, the Company's $15,000,000 line of credit was amended
and restated to enable the Company to receive advances on a revolving
$35,000,000 uncollateralized line of credit (the "Line of Credit") to
provide equipment financing, to purchase and develop Properties and to
fund Mortgage Loans. The advances bear interest at a rate of LIBOR plus
1.65% or the bank's prime rate, whichever the Company selects at the
time of borrowing. Interest only is repayable monthly until July 31,
1999, at which time all remaining interest and principal shall be due.
The Line of Credit provides for two one-year renewal options.
During the years ended December 31, 1997 and 1996, the Company obtained
advances totalling $19,721,804 and $3,666,896, respectively, under the
Line of Credit and made principal payments totalling $20,784,577 and
$145,080, respectively. As of December 31, 1997 and 1996, $2,459,043
and $3,521,816, respectively, of principal was outstanding relating to
the Line of Credit, plus $14,430 and $13,164, respectively, of accrued
interest. As of December 31, 1997, the interest rate on amounts
outstanding under the Line of Credit was 7.373% (LIBOR plus 1.65%). As
of December 31, 1996, the interest rate on amounts outstanding under
the Line of Credit ranged from 7.71% to 7.82% (215 basis points above
the Reserve Adjusted LIBOR Rate). The Company believes, based on
current terms, that the carrying value of its note payable at December
31, 1997 and 1996 approximated fair value. The terms of the Line of
Credit include financial covenants which provide for the maintenance of
certain financial ratios. The Company was in compliance with such
covenants as of December 31, 1997.
B-23
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
8. Line of Credit - Continued:
During 1996, the Company entered into interest rate swap agreements
with a commercial bank to reduce the impact of changes in interest
rates on its floating rate long-term debt. The agreements effectively
change the Company's interest rate exposure on notional amounts
totalling approximately $2,110,000 of the outstanding floating rate
notes to fixed rates ranging from 8.75% to nine percent per annum. The
notional amounts of the interest rate swap agreements amortize over the
period of the agreements which approximate the term of the related
notes. As of December 31, 1997, the notional balance was approximately
$1,750,000. The Company is exposed to credit loss in the event of
nonperformance by the other party to the interest rate swap agreements;
however, the Company does not anticipate nonperformance by the
counterparty. Management does not believe the impact of any payments of
a termination penalty, in the event the Company determines to terminate
the swap agreements prior to the end of their respective terms, would
be material to the Company's financial position or results of
operations.
Interest costs (including amortization of loan costs) incurred for the
years ended December 31, 1997 and 1996, were $544,788 and $127,012,
respectively, all of which were capitalized as part of the cost of
buildings under construction. For the years ended December 31, 1997,
and 1996, the Company paid interest of $502,680 and $91,757,
respectively. No interest was paid during the year ended December 31,
1995.
9. Stock Issuance Costs:
The Company has incurred certain expenses in connection with the public
offerings of its shares, including commissions, marketing support and
due diligence expense reimbursement fees, filing fees, legal,
accounting, printing and escrow fees, which have been deducted from the
gross proceeds of the offerings. CNL Fund Advisors, Inc. (the
"Advisor") has agreed to pay all organizational and offering expenses
(excluding commissions and marketing support and due diligence expense
reimbursement fees) which exceed three percent of the gross offering
proceeds received from the sale of shares of the Company.
During the years ended December 31, 1997, 1996 and 1995, the Company
incurred $22,422,045, $9,216,102 and $6,423,671, respectively, in
organizational and offering costs, including
B-24
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
9. Stock Issuance Costs - Continued:
$17,798,605, $8,063,439 and $3,076,333, respectively, in commissions
and marketing support and due diligence expense reimbursement fees (see
Note 11). Of these amounts, as of December 31, 1997, 1996 and 1995,
$38,041,818, $15,619,773 and $6,403,671, respectively, have been
treated as stock issuance costs and $20,000 has been treated as
organization costs. The stock issuance costs have been charged to
stockholders' equity subject to the three percent cap described above.
10. Distributions:
For the years ended December 31, 1997, 1996 and 1995, 93.33%, 90.25%
and 59.82%, respectively, of the distributions received by stockholders
were considered to be ordinary income and 6.67%, 9.75% and 40.18%,
respectively, were considered a return of capital for federal income
tax purposes. No amounts distributed to stockholders for the years
ended December 31, 1997, 1996 and 1995 are required to be or have been
treated by the Company as a return of capital for purposes of
calculating the stockholders' return on their invested capital.
11. Related Party Transactions:
Certain directors and officers of the Company hold similar positions
with the Advisor and the managing dealer of the Company's common stock
offerings, CNL Securities Corp.
CNL Securities Corp. is entitled to receive selling commissions
amounting to 7.5% of the total amount raised from the sale of shares
for services in connection with the offering of shares, a substantial
portion of which has been or will be paid as commissions to other
broker dealers. During the years ended December 31, 1997, 1996 and
1995, the Company incurred $16,686,192, $7,559,474 and $2,884,062,
respectively, of such fees, of which approximately $15,563,500,
$7,059,000 and $2,682,000, respectively, were or will be paid by CNL
Securities Corp. as commissions to other broker-dealers.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of
the total amount raised from the sale of shares, a portion of which may
be reallowed to other broker-dealers. During the years ended December
31, 1997, 1996 and 1995, the Company incurred $1,112,413, $503,965 and
$192,271, respectively, of such fees, the majority of which were
reallowed to other broker-dealers and from which all bona fide due
diligence expenses were paid.
B-25
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
11. Related Party Transactions - Continued:
CNL Securities Corp. will also receive, in connection with each common
stock offering, a soliciting dealer servicing fee payable annually by
the Company beginning on December 31 of the year following the year in
which the offering terminates in the amount of 0.20% of the
stockholders' investment in the Company. CNL Securities Corp. in turn
may reallow all or a portion of such fee to soliciting dealers whose
clients purchased shares in such offering held shares on such date. As
of December 31, 1997, no such fees had been incurred.
The Advisor is entitled to receive acquisition fees for services in
identifying the Properties and structuring the terms of the acquisition
and leases of the Properties and structuring the terms of the Mortgage
Loans equal to 4.5% of the total amount raised from the sale of shares.
During the years ended December 31, 1997, 1996 and 1995, the Company
incurred $10,011,715, $4,535,685 and $1,730,437, respectively, of such
fees. Such fees are included in land and buildings on operating leases,
net investment in direct financing leases, mortgage notes receivable
and other assets.
In connection with the acquisition of Properties that are being or have
been constructed or renovated by affiliates, subject to approval by the
Company's Board of Directors, the Company may incur
development/construction management fees, 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 years ended December 31, 1997 and
1996, the Company incurred $369,570 and $159,350, respectively, of such
amounts relating to six and three Properties, respectively. No such
amounts were incurred for the year ended December 31, 1995.
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 years ended December 31, 1997 and 1996, the Company
incurred $366,865 and $70,070, respectively, in Secured Equipment Lease
servicing fees. No such amounts were incurred for the year ended
December 31, 1995.
B-26
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
11. Related Party Transactions - Continued:
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor will receive a monthly asset and mortgage
management fee of one-twelfth of 0.60% of the Company's real estate
asset value and the outstanding principal balance of the Mortgage Loans
as of the end of the proceeding month. The management fee, which will
not exceed fees which are competitive for similar services in the same
geographic area, may or may not be taken, in whole or in part as to any
year, in the sole discretion of the Advisor. All or any portion of the
management fee not taken as to any fiscal year shall be deferred
without interest and may be taken in such other fiscal year as the
Advisor shall determine. During the years ended December 31, 1997, 1996
and 1995, the Company incurred $881,668, $278,902 and $27,950
respectively, of such fees, $76,789, $27,702 and $4,872, respectively,
of which has been capitalized as part of the cost of buildings for
Properties that have been or are being constructed.
Prior to such time, if any, as shares of the Company's common stock are
listed on a national securities exchange or over-the-counter market,
the Advisor is entitled to receive a deferred, subordinated real estate
disposition fee, payable upon the sale of one or more Properties based
on the lesser of one-half of a competitive real estate commission or
three percent of the sales price if the Advisor provides a substantial
amount of services in connection with the sale. However, if the sales
proceeds are reinvested in a replacement property, no such real estate
disposition fees will be incurred until such replacement property is
sold and the net sales proceeds are distributed. The real estate
disposition fee is payable only after the stockholders receive
distributions equal to the sum of an annual, aggregate, cumulative,
noncompounded eight percent return on their invested capital
("Stockholders' 8% Return") plus their aggregate invested capital. No
deferred, subordinated real estate disposition fees have been incurred
to date.
A subordinated share of net sales proceeds will be paid to the Advisor
upon the sale of Company assets in an amount equal to ten percent of
net sales proceeds. However, if net sales proceeds are reinvested in
replacement properties or replacement Secured Equipment Leases, no such
share of net sales proceeds will be paid to the Advisor until such
replacement property or Secured Equipment Lease is sold. This amount
will be paid only after the stockholders receive distributions equal to
the sum of the stockholders' aggregate
B-27
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
11. Related Party Transactions - Continued:
invested capital and the Stockholders' 8% Return. As of December 31,
1997, no such payments have been made to the Advisor.
The Advisor and its affiliates provide accounting and administrative
services to the Company on a day-to-day basis as well as services in
connection with the offering of shares. For the years ended December
31, 1997, 1996 and 1995, expenses incurred for these services were
classified as follows:
1997 1996 1995
---------- ---------- ----------
Stock issuance costs $1,676,226 $ 769,225 $ 714,674
General operating and
administrative expenses 556,240 334,603 68,016
---------- ---------- ----------
$2,232,466 $1,103,828 $ 782,690
========== ========== ==========
During the years ended December 31, 1997, 1996 and 1995, the Company
acquired five, four and nine Properties, respectively, for
approximately $5,450,000, $2,610,000 and $6,621,000, respectively, from
affiliates of the Company. The affiliates had purchased and temporarily
held title to these Properties in order to facilitate the acquisition
of the Properties by the Company. Each Property was acquired at a cost
no greater than the lesser of the cost of the Property to the
affiliate, including carrying costs, or the Property's appraised value.
B-28
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
11. Related Party Transactions - Continued:
The due to related parties consisted of the following at December 31:
1997 1996
---------- ----------
Due to the Advisor:
Expenditures incurred on
behalf of the Company
and accounting and
administrative services $ 126,205 $ 199,068
Acquisition fees 386,972 383,210
---------- ----------
513,177 582,278
---------- ----------
Due to CNL Securities Corp.:
Commissions 940,520 372,227
Marketing support and
due diligence expense
reimbursement fees 63,097 42,579
---------- ----------
1,003,617 414,806
---------- ----------
Due to other affiliates 7,500 -
---------- ---------
$1,524,294 $ 997,084
========== ==========
12. Concentration of Credit Risk:
The following schedule presents rental, earned and interest income from
individual lessees or borrowers, or affiliated groups of lessees or
borrowers, each representing more than ten percent of the Company's
total rental, earned income and interest income from its Properties,
Mortgage Loans and Secured Equipment Leases for at least one of the
years ended December 31:
1997 1996 1995
---------- ---------- ----------
Castle Hill Holdings V,
L.L.C., Castle Hill
Holdings VI, L.L.C.
and Castle Hill Holdings
VII, L.L.C. $2,636,004 $1,699,986 $ -
Foodmaker, Inc. 1,980,338 346,179 66,813
Houlihan's Restaurants,
Inc. 1,847,574 - -
DenAmerica Corp. 1,120,534 420,810 66,595
Golden Corral Corporation 1,064,801 577,003 212,406
Northstar Restaurants,
Inc. 328,914 329,117 73,219
Roasters Corp. 47,264 187,609 82,136
B-29
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
12. Concentration of Credit Risk - Continued:
In addition, the following schedule presents total rental, earned, and
interest income from individual restaurant chains, each representing
more than ten percent of the Company's total rental, earned income and
interest income from its Properties, Mortgage Loans and Secured
Equipment Leases and financing for at least one of the years ended
December 31:
1997 1996 1995
---------- ---------- ---------
Pizza Hut $2,636,004 $1,699,986 $ -
Golden Corral Family
Steakhouse Restaurants 2,531,941 1,459,349 212,406
Boston Market 2,338,949 547,590 73,219
Jack in the Box 1,980,338 346,179 66,813
Denny's 931,752 420,810 66,595
Kenny Rogers' Roasters 47,264 187,609 82,136
Although the Company's Properties are geographically diverse throughout
the United States and the Company's lessees and borrowers operate a
variety of restaurant concepts, failure of any one of these restaurant
chains or any one of these lessees or borrowers that contributes more
than ten percent of the Company's rental, earned income and interest
income could significantly impact the results of operations of the
Company. However, management believes that the risk of such a default
is reduced due to the essential or important nature of these Properties
for the on-going operations of the lessees and borrowers.
13. Commitments:
The Company has entered into various development agreements with
tenants which provide terms and specifications for the construction of
buildings the tenants have agreed to lease. The agreements provide a
maximum amount of development costs (including the purchase price of
the land and closing costs) to be paid by the Company. The aggregate
maximum development costs the Company has agreed to pay are
approximately $14,495,000, of which approximately $10,202,000 in land
and other costs had been incurred as of December 31, 1997. The
buildings currently under construction are expected to be operational
by June 1998. In connection with the purchase of each Property, the
Company, as lessor, entered into a long-term lease agreement. The
general terms of the lease agreements are substantially the same as
those described in Note 3.
B-30
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995
14. Subsequent Events:
During the period January 1, 1998 through January 22, 1998, the Company
received subscription proceeds for an additional 1,231,779 shares
($12,317,791) of common stock.
On January 1, 1998, the Company declared distributions of $2,299,701 or
$.06354 per share of common stock, payable on March 23, 1998, to
stockholders of record on January 1, 1998.
During the period January 1, 1998 through January 22, 1998, the Company
acquired two Properties (both on which restaurants are being
constructed) for cash at a total cost of approximately $1,067,000. The
buildings under construction are expected to be operational by July
1998. In connection with the purchase of each Property, the Company as
lessor, has entered into a long-term, triple-net lease agreement.
B-31
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
--------------------------- ----------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- ---- ------------ -------- --------
<S> <C>
Properties the Company
has Invested in Under
Operating Leases:
Applebee's Restaurants:
Montclair, California - $ 874,094 $ - $ - $ -
Salinas, California - 786,475 - - -
Arby's Restaurants:
Avon, Indiana - 338,486 497,282 - -
Greensboro, North Carolina - 363,478 404,650 - -
Greenville, North Carolina - 277,986 490,143 - -
Jonesville, North Carolina - 228,364 539,764 - -
Kendallville, Indiana - 276,567 505,359 - -
Kernersville, North Carolina - 273,325 413,077 - -
Kinston, North Carolina - 268,545 485,160 - -
Lexington, North Carolina - 320,924 463,347 - -
Barb Wires Steakhouse and Saloon
Restaurants:
Cookeville, Tennessee - 511,084 - - -
Lawrence, Kansas - 493,489 - - -
Murfreesboro, Tennessee - 514,900 - - -
Nashville, Tennessee - 420,176 - - -
Bennigan's Restaurant:
Arvada, Colorado - 714,194 1,302,733 - -
Black-eyed Pea Restaurants:
Hillsboro, Texas - 403,885 - - -
Mesa, Arizona - 784,939 - - -
Boston Market Restaurants:
Arvada, Colorado - 569,452 - 641,644 -
Atlanta, Georgia - 775,523 - 456,458 -
Baltimore, Maryland - 585,818 - 866,641 -
Cedar Park, Texas - 569,769 - 296,976 -
Chanhassen, Minnesota - 376,929 639,875 - -
Collinsville, Illinois - 507,544 - 328,353 -
Corvallis, Oregon - 365,784 - 605,763 -
Dubuque, Iowa - 353,608 663,969 - -
Edgewater, Colorado - 320,463 627,371 - -
Ellisville, Missouri - 397,036 - 639,422 -
Florissant, Missouri - 705,522 - 626,845 -
Franklin, Tennessee (k) - 566,562 442,992 - -
Gambrills, Maryland - 667,992 - 661,776 -
Golden Valley, Minnesota - 665,422 - 481,311 -
Grand Island, Nebraska - 234,685 644,615 - -
Hoover, Alabama - 493,536 619,786 - -
Indianapolis, Indiana - 885,234 - 867,523 -
Jessup, Maryland - 630,950 - 720,642 -
Lansing, Michigan - 515,827 - 572,706 -
</TABLE>
B-32
<PAGE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried Life
at Close of Period (b) on Which
--------------------------------------------------- Depreciation
in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ------------ ----------- ------------ --------- -------- ------------
<S> <C>
$ 874,094 (g) $ 874,094 (h) 1997 08/96 (h)
786,475 (g) 786,475 (h) 1997 09/96 (h)
338,486 497,282 835,768 $ 21,345 1996 09/96 (e)
363,478 404,650 768,128 5,515 1990 08/97 (e)
277,986 490,143 768,129 6,681 1995 08/97 (e)
228,364 539,764 768,128 7,357 1995 08/97 (e)
276,567 505,359 781,926 24,922 1995 07/96 (e)
273,325 413,077 686,402 5,630 1994 08/97 (e)
268,545 485,160 753,705 6,613 1995 08/97 (e)
320,924 463,347 784,271 7,162 1992 07/97 (e)
511,084 (g) 511,084 (h) 1994 08/97 (h)
493,489 (g) 493,489 (h) 1994 08/97 (h)
514,900 (g) 514,900 (h) 1995 08/97 (h)
420,176 (g) 420,176 (h) 1978 08/97 (h)
714,194 1,302,733 2,016,927 32,539 1997 04/97 (e)
403,885 (g) 403,885 (h) 1996 06/96 (h)
784,939 (g) 784,939 (h) 1994 09/97 (h)
569,452 641,644 1,211,096 10,566 1997 04/97 (e)
775,523 456,458 1,231,981 11,776 1997 12/96 (e)
585,818 866,641 1,452,459 11,625 1997 05/97 (e)
569,769 296,976 866,745 4,238 1997 04/97 (e)
376,929 639,875 1,016,804 45,872 1995 11/95 (e)
507,544 328,353 835,897 5,135 1997 04/97 (e)
365,784 605,763 971,547 26,005 1996 07/96 (e)
353,608 663,969 1,017,577 49,661 1995 10/95 (e)
320,463 627,371 947,834 7,692 1997 08/97 (e)
397,036 639,422 1,036,458 29,321 1996 06/96 (e)
705,522 626,845 1,332,367 22,067 1996 09/96 (e)
566,562 442,992 1,009,554 35,004 1995 08/95 (e)
667,992 661,776 1,329,768 7,691 1997 05/97 (e)
665,422 481,311 1,146,733 21,132 1996 06/96 (e)
234,685 644,615 879,300 49,053 1995 09/95 (e)
493,536 619,786 1,113,322 6,637 1997 09/97 (e)
885,234 867,523 1,752,757 9,527 1997 04/97 (e)
630,950 720,642 1,351,592 12,270 1997 05/97 (e)
515,827 572,706 1,088,533 4,759 1997 05/97 (e)
</TABLE>
B-33
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
--------------------------- ----------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- -------- ------------ -------- --------
<S> <C>
La Quinta, California - 688,147 - 351,810 -
Liberty, Missouri - 469,049 - 334,826 -
Merced, California - 573,163 - 402,636 -
Newport News, Virginia - 473,596 586,377 - -
Riverdale, Maryland - 525,389 - 574,019 -
Rockwall, Texas - 528,118 - 340,297 -
San Antonio, Texas - 481,952 - 315,486 -
Saint Joseph, Missouri - 378,786 - 388,489 -
Stafford, Texas - 448,185 681,598 - -
Taylorsville, Utah - 901,777 - 475,260 -
Upland, California - 788,248 - 209,449 -
Vacaville, California - 751,576 - 757,026 -
Waldorf, Maryland - 651,867 - 775,634 -
Burger King Restaurants:
Burbank, Illinois - 543,095 - 620,617 -
Chattanooga, Tennessee - 680,192 - 575,426 -
Chattanooga, Tennessee - 769,842 - 411,012 -
Chicago, Illinois - 917,717 - 784,590 -
Highland, Indiana - 672,815 - 621,133 -
Indian Head Park, Illinois - 618,715 - 134,394 -
Kent, Ohio - 233,468 689,696 - -
Oak Lawn, Illinois - 1,211,346 - 829,339 -
Ooltewah, Tennessee - 546,261 - 714,114 -
Charley's Restaurants:
King of Prussia, Pennsylvania - 965,223 549,565 - -
McLean, Virginia - 944,585 689,363 - -
Chevy's Fresh Mex Restaurants:
Arapahoe, Colorado - 986,426 1,680,312 - -
Beaverton, Oregon - 938,162 1,681,670 - -
Greenbelt, Maryland - 945,234 1,475,339 - -
Lake Oswego, Oregon - 963,047 1,505,671 - -
Darryl's Restaurants:
Evansville, Indiana - 563,479 - - -
Hampton, Virginia - 698,367 570,468 - -
Huntsville, Alabama - 777,842 663,941 - -
Knoxville, Tennessee - 589,574 - - -
Louisville, Kentucky - 647,375 - - -
Mobile, Alabama - 495,195 - - -
Montgomery, Alabama - 346,380 - - -
Nashville, Tennessee - 513,218 - - -
Orlando, Florida - 1,485,631 772,853 - -
Pensacola, Florida - 389,394 - - -
Raleigh, North Carolina - 840,525 505,176 - -
Raleigh, North Carolina - 1,131,164 719,865 - -
Richmond, Virginia - 618,125 - - -
Richmond, Virginia - 311,196 - - -
Winston-Salem, North Carolina - 436,867 - - -
</TABLE>
B-34
<PAGE>
<TABLE>
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (b) Depreciation
--------------------------------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
688,147 351,810 1,039,957 12,379 1996 09/96 (e)
469,049 334,826 803,875 4,136 1997 04/97 (e)
573,163 402,636 975,799 16,620 1996 09/96 (e)
473,596 586,377 1,059,973 9,010 1997 07/97 (e)
525,389 574,019 1,099,408 4,508 1997 05/97 (e)
528,118 340,297 868,415 13,394 1996 07/96 (e)
481,952 315,486 797,438 2,802 1997 04/97 (e)
378,786 388,489 767,275 13,482 1996 12/96 (e)
448,185 681,598 1,129,783 11,344 1997 07/97 (e)
901,777 475,260 1,377,037 8,908 1997 04/97 (e)
788,248 209,449 997,697 9,637 1996 07/96 (e)
751,576 757,026 1,508,602 11,839 1997 05/97 (e)
651,867 775,634 1,427,501 12,130 1997 05/97 (e)
543,095 620,617 1,163,712 28,962 1996 03/96 (e)
680,192 575,426 1,255,618 13,403 1997 12/96 (e)
769,842 411,012 1,180,854 8,111 1997 02/97 (e)
917,717 784,590 1,702,307 21,908 1996 10/96 (e)
672,815 621,133 1,293,948 29,476 1996 04/96 (e)
618,715 134,394 753,109 (c) (d) 04/96 (c)
233,468 689,696 923,164 20,833 1970 02/97 (e)
1,211,346 829,339 2,040,685 35,597 1996 03/96 (e)
546,261 714,114 1,260,375 11,104 1997 04/97 (e)
965,223 549,565 1,514,788 10,163 1977 06/97 (e)
944,585 689,363 1,633,948 12,748 1971 06/97 (e)
986,426 1,680,312 2,666,738 153 1994 12/97 (e)
938,162 1,681,670 2,619,832 154 1995 12/97 (e)
945,234 1,475,339 2,420,573 135 1994 12/97 (e)
963,047 1,505,671 2,468,718 138 1995 12/97 (e)
563,479 (g) 563,479 (h) 1983 06/97 (h)
698,367 570,468 1,268,835 10,550 1983 06/97 (e)
777,842 663,941 1,441,783 12,278 1981 06/97 (e)
589,574 (g) 589,574 (h) 1983 06/97 (h)
647,375 (g) 647,375 (h) 1983 06/97 (h)
495,195 (g) 495,195 (h) 1983 06/97 (h)
346,380 (g) 346,380 (h) 1984 06/97 (h)
513,218 (g) 513,218 (h) 1981 06/97 (h)
1,485,631 772,853 2,258,484 14,292 1983 06/97 (e)
389,394 (g) 389,394 (h) 1983 06/97 (h)
840,525 505,176 1,345,701 9,342 1980 06/97 (e)
1,131,164 719,865 1,851,029 13,313 1972 06/97 (e)
618,125 (g) 618,125 (h) 1982 06/97 (h)
311,196 (g) 311,196 (h) 1982 06/97 (h)
436,867 (g) 436,867 (h) 1978 06/97 (h)
</TABLE>
B-35
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
--------------------------- ----------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- ---- ------------ -------- --------
<S> <C>
Denny's Restaurants:
McKinney, Texas - 439,961 - - -
Pasadena, Texas - 466,555 506,094 - -
Shawnee, Oklahoma - 528,090 625,653 - -
Tampa, Florida - 397,302 - - -
Einstein Brothers' Bagels
Restaurants:
Dearborn, Michigan - 464,102 - 236,674 -
Springfield, Virginia - 628,804 - 36,311 -
Golden Corral Family
Steakhouse Restaurants:
Carlsbad, New Mexico - 384,221 - 643,854 -
Cleburne, Texas - 359,455 - 653,853 -
Columbia, Tennessee - 442,218 - - -
Columbus, Ohio - 1,031,098 - 1,092,939 -
Corpus Christi, Texas - 576,319 - 967,482 -
Corsicana, Texas - 349,227 699,756 - -
Council Bluffs, Iowa - 482,178 - 11,844 -
Dover, Delaware - 1,043,108 - 977,508 -
Duncan, Oklahoma - 161,573 - 955,184 -
Enid, Oklahoma - 364,860 - 790,942 -
Fort Walton Beach, Florida - 591,440 - 1,034,541 -
Fort Worth, Texas - 640,320 898,171 - -
Hopkinsville, Kentucky - 455,534 - - -
Jacksonville, Florida - 616,450 - 1,010,728 -
Jacksonville, Florida - 541,510 - 1,132,450 -
Liberty, Missouri - 409,209 - 930,147 -
Lufkin, Texas - 463,303 - 994,467 -
Moberly, Missouri - 581,989 - 664,344 -
Mobile, Alabama - 429,268 - 1,032,335 -
Muskogee, Oklahoma - 393,435 - 15,109 -
Olathe, Kansas - 547,126 - 916,145 -
Palatka, Florida - 322,919 - 950,722 -
Port Richey, Florida - 626,999 - 1,130,692 -
Tampa, Florida - 825,065 - 1,222,843 -
Universal City, Texas - 357,429 - 650,249 -
Winchester, Kentucky - 303,823 - 923,607 -
Ground Round Restaurants:
Allentown, Pennsylvania - 405,631 884,954 - -
Cincinnati, Ohio - 282,099 534,632 - -
Crystal, Minnesota - 370,667 431,642 - -
Dubuque, Iowa - 693,733 810,458 - -
Ewing, New Jersey - 371,254 685,847 - -
Gloucester, New Jersey - 422,489 528,849 - -
Janesville, Wisconsin - 451,235 548,178 - -
Kalamazoo, Michigan - 287,331 712,081 - -
</TABLE>
B-36
<PAGE>
<TABLE>
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (b) Depreciation
--------------------------------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
439,961 (g) 439,961 (h) 1996 06/96 (h)
466,555 506,094 972,649 39,131 1981 09/95 (e)
528,090 625,653 1,153,743 48,370 1987 09/95 (e)
397,302 (g) 397,302 (h) 1997 02/97 (h)
464,102 236,674 700,776 3,723 1997 04/97 (e)
628,804 36,311 665,115 588 1997 05/97 (e)
384,221 643,854 1,028,075 50,415 1995 08/95 (e)
359,455 653,853 1,013,308 48,395 1995 08/95 (e)
442,218 (g) 442,218 (h) 1996 12/96 (h)
1,031,098 1,092,939 2,124,037 77,421 1995 11/95 (e)
576,319 967,482 1,543,801 8,681 1997 05/97 (e)
349,227 699,756 1,048,983 55,883 1995 08/95 (e)
482,178 11,844 494,022 (c) (d) 12/97 (c)
1,043,108 977,508 2,020,616 75,038 1995 08/95 (e)
161,573 955,184 1,116,757 2,704 1997 08/97 (e)
364,860 790,942 1,155,802 2,745 1997 06/97 (e)
591,440 1,034,541 1,625,981 (c) (d) 08/97 (c)
640,320 898,171 1,538,491 70,972 1995 08/95 (e)
455,534 (g) 455,534 (h) 1996 02/97 (h)
616,450 1,010,728 1,627,178 9,069 1997 05/97 (e)
541,510 1,132,450 1,673,960 12,333 1997 06/97 (e)
409,209 930,147 1,339,356 5,946 1997 06/97 (e)
463,303 994,467 1,457,770 34,603 1997 11/96 (e)
581,989 664,344 1,246,333 14,349 1997 12/96 (e)
429,268 1,032,335 1,461,603 189 1997 09/97 (e)
393,435 15,109 408,544 (c) (d) 12/97 (c)
547,126 916,145 1,463,271 (c) (d) 10/97 (c)
322,919 950,722 1,273,641 434 1997 09/97 (e)
626,999 1,130,692 1,757,691 48,325 1996 05/96 (e)
825,065 1,222,843 2,047,908 77,496 1995 08/95 (e)
357,429 650,249 1,007,678 51,253 1995 08/95 (e)
303,823 923,607 1,227,430 17,586 1997 02/97 (e)
405,631 884,954 1,290,585 5,900 1983 10/97 (e)
282,099 534,632 816,731 3,564 1981 10/97 (e)
370,667 431,642 802,309 2,878 1981 10/97 (e)
693,733 810,458 1,504,191 5,403 1982 10/97 (e)
371,254 685,847 1,057,101 2,756 1979 11/97 (e)
422,489 528,849 951,338 3,526 1981 10/97 (e)
451,235 548,178 999,413 3,655 1982 10/97 (e)
287,331 712,081 999,412 4,747 1980 10/97 (e)
</TABLE>
B-37
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
--------------------------- ----------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- -------- ------------ -------- --------
<S> <C>
Nanuet, New Jersey - 375,116 605,067 - -
Parma, Ohio - 388,699 793,475 - -
Reading, Pennsylvania - 728,574 793,410 - -
Waterloo, Iowa - 436,471 659,089 - -
Wauwatosa, Wisconsin - 627,680 804,399 - -
Houlihan's Restaurants:
Bethel Park, Pennsylvania - 846,183 595,600 - -
Langhorne, Pennsylvania - 817,039 648,765 - -
Plymouth Meeting, Pennsylvania - 1,181,460 908,880 - -
International House of Pancakes
Restaurants:
Elk Grove, California - 584,766 - - -
Fairfax, Virginia - 1,096,763 705,345 - -
Houston, Texas - 645,365 856,532 - -
Lake Jackson, Texas - 460,167 802,640 - -
Leesburg, Virginia - 665,015 580,798 - -
Loveland, Colorado - 488,259 - - -
Stockbridge, Georgia - 765,743 707,406 - -
Victoria, Texas - 319,237 - - -
Jack in the Box Restaurants:
Bacliff, Texas - 419,488 - 697,861 -
Channelview, Texas - 361,238 - 711,595 -
Corinth, Texas - 396,864 - 620,042 -
Dallas, Texas - 369,886 - 513,533 -
Enumclaw, Washington - 124,468 - 773,506 -
Florissant, Missouri - 388,820 - 773,834 -
Folsom, California - 635,343 703,067 - -
Fresno, California - 286,850 - 606,547 -
Garland, Texas - 382,042 - 613,690 -
Hollister, California - 537,223 - 592,536 -
Houston, Texas - 545,485 - 527,020 -
Houston, Texas - 403,002 - 610,815 -
Houston, Texas - 375,776 - 643,445 -
Houston, Texas - 370,342 - 548,107 -
Houston, Texas - 420,521 - 543,338 -
Humble, Texas - 437,667 - 591,877 -
Humble, Texas - 390,509 - 596,872 -
Kent, Washington - 737,038 - 604,806 -
Kingsburg, California - 415,880 - 649,681 -
Las Vegas, Nevada - 730,674 - 600,180 -
Los Angeles, California - 603,354 602,630 - -
Los Angeles, California - 911,754 - 581,552 -
Los Angeles, California - 740,616 678,189 - -
Moscow, Idaho - 217,851 - 751,664 -
Murrieta, California - 387,455 - 625,933 -
Oxnard, California - 681,663 - 642,924 -
Palmdale, California - 631,275 - 567,912 -
West Sacramento, California - 523,089 - 617,131 -
Woodland, California - 358,130 - 668,383 -
</TABLE>
B-38
<PAGE>
<TABLE>
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (b) Depreciation
--------------------------------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ------------ ----------- ------------ --------- -------- ------------
<S> <C>
375,116 605,067 980,183 1,658 1982 12/97 (e)
388,699 793,475 1,182,174 5,290 1977 10/97 (e)
728,574 793,410 1,521,984 5,289 1982 10/97 (e)
436,471 659,089 1,095,560 4,394 1982 10/97 (e)
627,680 804,399 1,432,079 5,363 1977 10/97 (e)
846,183 595,600 1,441,783 11,015 1972 06/97 (e)
817,039 648,765 1,465,804 11,998 1976 06/97 (e)
1,181,460 908,880 2,090,340 16,808 1974 06/97 (e)
584,766 (g) 584,766 (h) 1997 08/97 (h)
1,096,763 705,345 1,802,108 12,593 1995 06/97 (e)
645,365 856,532 1,501,897 14,256 1996 07/97 (e)
460,167 802,640 1,262,807 9,767 1997 08/97 (e)
665,015 580,798 1,245,813 11,855 1994 05/97 (e)
488,259 (g) 488,259 (h) 1997 08/97 (h)
765,743 707,406 1,473,149 11,774 1997 07/97 (e)
319,237 (g) 319,237 (h) 1997 08/97 (h)
419,488 697,861 1,117,349 9,576 1997 04/97 (e)
361,238 711,595 1,072,833 6,580 1997 07/97 (e)
396,864 620,042 1,016,906 6,016 1997 06/97 (e)
369,886 513,533 883,419 15,527 1997 12/96 (e)
124,468 773,506 897,974 10,826 1997 04/97 (e)
388,820 773,834 1,162,654 (c) (d) 10/97 (c)
635,343 703,067 1,338,410 4,880 1997 10/97 (e)
286,850 606,547 893,397 6,772 1997 05/97 (e)
382,042 613,690 995,732 5,338 1997 07/97 (e)
537,223 592,536 1,129,759 14,421 1997 01/97 (e)
545,485 527,020 1,072,505 32,199 1996 11/95 (e)
403,002 610,815 1,013,817 26,930 1996 07/96 (e)
375,776 643,445 1,019,221 27,207 1996 07/96 (e)
370,342 548,107 918,449 13,540 1997 02/97 (e)
420,521 543,338 963,859 9,949 1997 03/97 (e)
437,667 591,877 1,029,544 26,729 1996 06/96 (e)
390,509 596,872 987,381 18,025 1997 02/97 (e)
737,038 604,806 1,341,844 14,388 1997 01/97 (e)
415,880 649,681 1,065,561 15,693 1997 01/97 (e)
730,674 600,180 1,330,854 16,285 1997 01/97 (e)
603,354 602,630 1,205,984 50,272 1986 06/95 (e)
911,754 581,552 1,493,306 12,720 1997 01/97 (e)
740,616 678,189 1,418,805 124 1997 12/97 (e)
217,851 751,664 969,515 19,157 1992 01/97 (e)
387,455 625,933 1,013,388 14,948 1997 01/97 (e)
681,663 642,924 1,324,587 10,642 1997 04/97 (e)
631,275 567,912 1,199,187 11,695 1997 02/97 (e)
523,089 617,131 1,140,220 5,312 1997 07/97 (e)
358,130 668,383 1,026,513 5,127 1997 07/97 (e)
</TABLE>
B-39
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
--------------------------- ----------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- ---- ------------ -------- --------
<S> <C>
Kenny Rogers' Roasters
Restaurant:
Grand Rapids, Michigan - 282,806 599,309 - -
Kentucky Fried Chicken
Restaurant:
Putnam, Connecticut - 301,723 - - -
Mr. Fables's Restaurant:
Grand Rapids, Michigan - 320,594 559,433 - -
On The Border Restaurant:
San Antonio, TX - - - 1,305,075 -
Pizza Hut Restaurants:
Adrian, Michigan - 242,239 - - -
Beaver, West Virginia - 212,053 - - -
Beckley, West Virginia - 209,432 - - -
Bedford, Ohio - 174,721 - - -
Belle, West Virginia - 46,737 - - -
Bluefield, West Virginia - 120,449 - - -
Bolivar, Ohio - 190,009 - - -
Bowling Green, Ohio - 200,442 - - -
Bowling Green, Ohio - 135,831 - - -
Carrollton, Ohio - 187,082 - - -
Cleveland, Ohio - 116,849 - - -
Cleveland, Ohio - 126,494 - - -
Cleveland, Ohio - 226,163 - - -
Cross Lanes, West Virginia - 215,881 - - -
Defiance, Ohio - 242,239 - - -
Dover, Ohio - 245,145 - - -
East Cleveland, Ohio - 194,012 - - -
Euclid, Ohio - 202,050 - - -
Fairview Park, Ohio - 142,570 - - -
Huntington, West Virginia - 212,093 - - -
Hurricane, West Virginia - 180,803 - - -
Lambertville, Michigan - 99,166 - - -
Marietta, Ohio - 169,454 - - -
Mayfield Heights, Ohio - 202,552 - - -
Middleburg Heights, Ohio - 216,518 - - -
Millersburg, Ohio - 213,090 - - -
Milton, West Virginia - 99,815 - - -
Monroe, Michigan - 152,215 - - -
New Philadelphia, Ohio - 149,206 - - -
New Philadelphia, Ohio - 223,981 - - -
North Olmsted, Ohio - 259,922 - - -
Norwalk, Ohio - 261,529 - - -
Ronceverte, West Virginia - 99,733 - - -
Sandusky, Ohio - 259,922 - - -
Seven Hills, Ohio - 239,023 - - -
Steubenville, Ohio - 228,199 - - -
Strongsville, Ohio - 186,476 - - -
</TABLE>
B-40
<PAGE>
<TABLE>
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (b) Depreciation
--------------------------------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ------------ ----------- ------------ --------- -------- ------------
<S> <C>
282,806 599,309 882,115 48,123 1995 08/95 (e)
301,723 (g) 301,723 (h) 1997 07/97 (h)
320,594 559,433 880,027 33,362 1967 03/96 (e)
- 1,305,075 1,305,075 (c) (d) 10/97 (c)
242,239 - 242,239 (f) 1989 01/96 (f)
212,053 - 212,053 (f) 1986 05/96 (f)
209,432 - 209,432 (f) 1978 05/96 (f)
174,721 - 174,721 (f) 1975 01/96 (f)
46,737 - 46,737 (f) 1980 05/96 (f)
120,449 - 120,449 (f) 1986 05/96 (f)
190,009 - 190,009 (f) 1996 03/97 (f)
200,442 - 200,442 (f) 1985 01/96 (f)
135,831 - 135,831 (f) 1992 12/96 (f)
187,082 - 187,082 (f) 1990 03/97 (f)
116,849 - 116,849 (f) 1978 01/96 (f)
126,494 - 126,494 (f) 1986 01/96 (f)
226,163 - 226,163 (f) 1987 01/96 (f)
215,881 - 215,881 (f) 1990 05/96 (f)
242,239 - 242,239 (f) 1977 01/96 (f)
245,145 - 245,145 (f) 1975 05/97 (f)
194,012 - 194,012 (f) 1986 01/96 (f)
202,050 - 202,050 (f) 1983 01/96 (f)
142,570 - 142,570 (f) 1996 01/96 (f)
212,093 - 212,093 (f) 1978 05/96 (f)
180,803 - 180,803 (f) 1978 05/96 (f)
99,166 - 99,166 (f) 1994 01/96 (f)
169,454 - 169,454 (f) 1986 05/96 (f)
202,552 - 202,552 (f) 1980 04/96 (f)
216,518 - 216,518 (f) 1975 01/96 (f)
213,090 - 213,090 (f) 1989 03/97 (f)
99,815 - 99,815 (f) 1986 05/96 (f)
152,215 - 152,215 (f) 1994 01/96 (f)
149,206 - 149,206 (f) 1975 03/97 (f)
223,981 - 223,981 (f) 1983 03/97 (f)
259,922 - 259,922 (f) 1976 01/96 (f)
261,529 - 261,529 (f) 1993 01/96 (f)
99,733 - 99,733 (f) 1991 05/96 (f)
259,922 - 259,922 (f) 1978 01/96 (f)
239,023 - 239,023 (f) 1983 01/96 (f)
228,199 - 228,199 (f) 1983 03/97 (f)
186,476 - 186,476 (f) 1976 04/96 (f)
</TABLE>
B-41
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
--------------------------- ----------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- -------- ------------ -------- --------
<S> <C>
Toledo, Ohio - 128,604 - - -
Toledo, Ohio - 194,097 - - -
Toledo, Ohio - 208,480 - - -
Toledo, Ohio - 176,170 - - -
Toledo, Ohio - 197,227 - - -
Uhrichsville, Ohio - 279,779 - - -
Wellsburg, West Virginia - 167,170 - - -
Ruby Tuesday's Restaurant:
London, Kentucky - 354,415 - - -
Ruth's Chris Steak House
Restaurant:
Tampa, Florida - 1,076,442 1,062,751 - -
Ryan's Family Steak House
Restaurant:
Spring Hill, Florida - 591,371 - 1,175,273 -
Shoney's Restaurants:
Indian Harbor Beach, Florida - 309,101 - 420,249 -
Las Vegas, Nevada - 656,316 - 970,452 -
Guadalupe, Arizona - 623,725 - - -
TGI Friday's Restaurant:
Mesa, Arizona - 903,876 - 284,913 -
Wendy's Old Fashioned
Hamburgers Restaurants:
Camarillo, California - 640,061 - 687,385 -
Knoxville, Tennessee - 358,027 - 444,622 -
Westlake Village, California - 763,232 - 153,034 -
------------ ----------- ----------- -------
$106,616,360 $43,045,117 $58,072,374 $ -
============ =========== =========== =======
</TABLE>
B-42
<PAGE>
<TABLE>
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (b) Depreciation
--------------------------------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ------------ ----------- ------------ --------- -------- ------------
<S> <C>
128,604 - 128,604 (f) 1988 04/96 (f)
194,097 - 194,097 (f) 1993 12/96 (f)
208,480 - 208,480 (f) 1975 01/96 (f)
176,170 - 176,170 (f) 1985 01/96 (f)
197,227 - 197,227 (f) 1978 01/96 (f)
279,779 - 279,779 (f) 1983 03/97 (f)
167,170 - 167,170 (f) 1980 03/97 (f)
354,415 (g) 354,415 (h) 1997 08/97 (h)
1,076,442 1,062,751 2,139,193 20,236 1996 06/97 (e)
591,371 1,175,273 1,766,644 38,505 1996 09/96 (e)
309,101 420,249 729,350 11,312 1997 01/97 (e)
656,316 970,452 1,626,768 (c) (d) 08/97 (c)
623,725 (g) 623,725 (h) 1997 04/97 (h)
903,876 284,913 1,188,789 (c) (d) 09/97 (c)
640,061 687,385 1,327,446 33,167 1996 06/96 (e)
358,027 444,622 802,649 19,300 1996 05/96 (e)
763,232 153,034 916,266 (c) (d) 11/97 (c)
------------ ------------ ------------ ----------
$106,616,360 $101,117,491 $207,733,851 $2,395,665
============ ============ ============ ==========
</TABLE>
B-43
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
--------------------------- ----------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- ---- ------------ -------- --------
<S> <C>
Properties the Company
has Invested in Under
Direct Financing Leases:
Applebee's Restaurants:
Montclair, California - $ - $ - $ 890,100 $ -
Salinas, California - - - 794,058 -
Barb Wires Steakhouse and
Saloon Restaurants:
Cookeville, Tennessee - - 1,029,717 - -
Hendersonville, Tennessee - - 782,282 - -
Lawrence, Kansas - - 1,022,607 - -
Murfreesboro, Tennessee - - 976,699 - -
Nashville, Tennessee - - 949,367 - -
Black-Eyed Pea Restaurants:
Albuquerque, New Mexico - - 705,746 - -
Albuquerque, New Mexico - - 704,757 - -
Bedford, Texas - - 655,028 - -
Dallas, Texas - - 655,011 - -
Dallas, Texas - - 698,827 - -
Forestville, Maryland - - 681,034 - -
Fort Worth, Texas - - 655,014 - -
Hillsboro, Texas - - - 849,816 -
Houston, Texas - - 685,977 - -
Mesa, Arizona - - 906,740 - -
Oklahoma City, Oklahoma - - 651,523 - -
Phoenix, Arizona - - 677,681 - -
Phoenix, Arizona - - 677,805 - -
Phoenix, Arizona - - 682,141 - -
Scottsdale, Arizona - - - 823,188 -
Tucson, Arizona - - 678,333 - -
Waco, Texas - - 699,815 - -
Wichita, Kansas - - 698,827 - -
Darryl's Restaurants:
Evansville, Indiana - - 974,401 - -
Knoxville, Tennessee - - 709,047 - -
Louisville, Kentucky - - 915,201 - -
Mobile, Alabama - - 1,009,042 - -
Montgomery, Alabama - - 952,382 - -
Nashville, Tennessee - - 736,400 - -
Pensacola, Florida - - 725,709 - -
Richmond, Virginia - - 775,617 - -
Richmond, Virginia - - 650,175 - -
Winston-Salem, North Carolina - - 812,752 - -
Denny's Restaurants:
McKinney, Texas - - - 655,052 -
Tampa, Florida - - - 715,957 -
</TABLE>
B-44
<PAGE>
<TABLE>
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (b) Depreciation
-------------------------------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
(g) (g) (g) (h) 1997 08/96 (h)
(g) (g) (g) (h) 1997 09/96 (h)
(g) (g) (g) (h) 1994 08/97 (h)
(j) (g) (g) (h) 1974 08/97 (h)
(g) (g) (g) (h) 1994 08/97 (h)
(g) (g) (g) (h) 1995 08/97 (h)
(g) (g) (g) (h) 1978 08/97 (h)
(j) (g) (g) (h) 1993 10/97 (h)
(j) (g) (g) (h) 1993 10/97 (h)
(j) (g) (g) (h) 1993 03/97 (h)
(j) (g) (g) (h) 1996 03/97 (h)
(j) (g) (g) (h) 1991 10/97 (h)
(j) (g) (g) (h) 1989 10/97 (h)
(j) (g) (g) (h) 1991 03/97 (h)
(g) (g) (g) (h) 1996 06/96 (h)
(j) (g) (g) (h) 1990 10/97 (h)
(g) (g) (g) (h) 1994 09/97 (h)
(j) (g) (g) (h) 1992 03/97 (h)
(j) (g) (g) (h) 1991 09/97 (h)
(j) (g) (g) (h) 1993 09/97 (h)
(j) (g) (g) (h) 1994 09/97 (h)
(j) (g) (g) (h) 1997 04/97 (h)
(j) (g) (g) (h) 1995 09/97 (h)
(j) (g) (g) (h) 1991 10/97 (h)
(j) (g) (g) (h) 1992 10/97 (h)
(g) (g) (g) (h) 1983 06/97 (h)
(g) (g) (g) (h) 1983 06/97 (h)
(g) (g) (g) (h) 1983 06/97 (h)
(g) (g) (g) (h) 1983 06/97 (h)
(g) (g) (g) (h) 1984 06/97 (h)
(g) (g) (g) (h) 1981 06/97 (h)
(g) (g) (g) (h) 1983 06/97 (h)
(g) (g) (g) (h) 1982 06/97 (h)
(g) (g) (g) (h) 1982 06/97 (h)
(g) (g) (g) (h) 1978 06/97 (h)
(g) (g) (g) (h) 1996 06/96 (h)
(g) (g) (g) (h) 1997 02/97 (h)
</TABLE>
B-45
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
--------------------------- ----------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- ---- ------------ -------- --------
<S> <C>
Golden Corral Family
Steakhouse Restaurants:
Brooklyn, Ohio - - 1,044,311 - -
Columbia, Tennessee - - - 939,712 -
Eastlake, Ohio - 256,332 1,473,307 - -
Hopkinsville, Kentucky - - - 869,221 -
International House of
Pancakes Restaurants:
Elk Grove, California - - 1,039,584 - -
Loveland, Colorado - - 963,597 - -
Victoria, Texas - - 814,015 - -
Kentucky Fried Chicken
Restaurant:
Putnam, Connecticut - - 530,846 - -
Popeye's Chicken Restaurant:
Starke, Florida - 208,910 - 427,067 -
Ruby Tuesday's Restaurant:
London, Kentucky - - - 845,249 -
Shoney's Restaurant:
Guadalupe, Arizona - - - 919,322 -
Wendy's Old Fashioned
Hamburgers Restaurants:
San Diego, California - - - 590,058 -
Sevierville, Tennessee - - - 531,726 -
----------- ----------- ----------- -------
$ 465,242 $ 30,001,317 $ 9,850,526 $ -
=========== ============ =========== =======
</TABLE>
B-46
<PAGE>
<TABLE>
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (b) Depreciation
--------------------------------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ------------ ----------- ------------ --------- -------- ------------
<S> <C>
(j) (g) (g) (h) 1995 08/96 (h)
(g) (g) (g) (h) 1996 12/96 (h)
(g) (g) (g) (i) 1996 12/96 (i)
(g) (g) (g) (h) 1996 02/97 (h)
(g) (g) (g) (h) 1997 08/97 (h)
(g) (g) (g) (h) 1997 08/97 (h)
(g) (g) (g) (h) 1997 08/97 (h)
(g) (g) (g) (h) 1997 07/97 (h)
(g) (g) (g) (i) 1997 05/97 (i)
(g) (g) (g) (h) 1997 08/97 (h)
(g) (g) (g) (h) 1997 04/97 (h)
(j) (g) (g) (h) 1996 10/96 (h)
(j) (g) (g) (h) 1996 06/96 (h)
</TABLE>
B-47
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------------------
December 31, 1997
(a) Transactions in real estate and accumulated depreciation during 1997,
1996 and 1995 are summarized as follows:
Accumulated
Cost (b) Depreciation
------------ ------------
Properties the Company
has Invested in Under
Operating Leases:
Balance, December 31, 1994 $ - $ -
Acquisitions (l) 19,824,044 -
Depreciation expense (e) - 100,318
------------ ------------
Balance, December 31, 1995 19,824,044 100,318
Acquisitions (l) 41,030,498 -
Depreciation expense (e) - 511,078
------------ ------------
Balance, December 31, 1996 60,854,542 611,396
Acquisitions (1) 146,879,309 -
Depreciation expense (e) - 1,784,269
------------ ------------
Balance, December 31, 1997 $207,733,851 $ 2,395,665
============ ============
(b) As of December 31, 1997, 1996 and 1995, the aggregate cost of the
Properties owned by the Company and its subsidiary for federal income
tax purposes was $248,050,936, $73,144,286 and $21,199,004,
respectively. All of the leases are treated as operating leases for
federal income tax purposes.
(c) Property was not placed in service as of December 31, 1997;
therefore, no depreciation was taken.
(d) Scheduled for completion in 1998.
(e) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(f) The building portion of this Property is owned by the tenant;
therefore, depreciation is not applicable.
(g) For financial reporting purposes, certain components of the lease
relating to land and/or building have been recorded as a direct
financing lease. Accordingly, costs relating to these components of
this lease are not shown.
(h) For financial reporting purposes, the portion of this lease relating
to the building has been recorded as direct financing lease. The cost
of the building has been included in net investment in direct
financing leases; therefore, depreciation is not applicable.
(i) For financial reporting purposes, the lease for the land and building
has been recorded as direct financing lease. The cost of the land and
building has been included in net investment in direct financing
leases; therefore, depreciation is not applicable.
B-48
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
---------------------------------------------------
DEPRECIATION - CONTINUED
------------------------
December 31, 1997
(j) The Company owns the building only relating to this Property. This
Property is subject to a ground lease between the tenant and an
unaffiliated third party. In connection therewith, the Company entered
into either a tri-party agreement with the tenant and the owner of the
land or an assignment of interest in the ground lease with the landlord
of the land. The tri-party agreement or assignment of interest each
provide that the tenant is responsible for all obligations under the
ground lease and provide certain rights to the Company to help protect
its interest in the building in the event of a default by the tenant
under the terms of the ground lease.
(k) The restaurant on the property in Franklin, Tennessee, was converted
from a Kenny Rogers' Roasters restaurant to a Boston Market restaurant
in 1996.
(l) During the years ended December 31, 1997, 1996 and 1995, the Company
(i) incurred acquisition fees totalling $10,011,715, $4,535,685 and
$1,730,437, respectively, paid to the Advisor, (ii) purchased land and
buildings from affiliates of the Company for an aggregate cost of
approximately $5,450,000, $2,610,000 and $6,621,000, respectively, and
(iii) paid development/construction management fees to affiliates of
the Company totalling $369,570 and $159,350 during the years ended
December 31, 1997 and 1996, respectively. No development/construction
management fees were paid to affiliates during the year ended December
31, 1995. Such amounts are included in land and buildings on operating
leases, net investment in direct financing leases and other assets at
December 31, 1997, 1996 and 1995.
B-49
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
-------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Principal
Amount
of Loans
Subject to
Final Periodic Face Carrying Delinquent
Interest Maturity Payment Prior Amount of Amount of Principal
Description Rate Date Terms Liens Mortgages Mortgages or Interest
- ------------------------------ -------- ------------- -------- ----- ----------- ----------- -----------
<S> <C>
Castle Hill Holdings V, L.L.C.
First Mortgages 10.75% January, 2016 (1) $ - $ 8,475,000 $ 8,700,023 $ -
Pizza Hut Restaurants:
Adrian, MI
Bedford, OH
Bowling Green, OH
Cleveland, OH
Cleveland, OH
Cleveland, OH
Defiance, OH
East Cleveland, OH
Euclid, OH
Fairview Park, OH
Lambertville, MI
Mayfield Heights, OH
Middleburg Heights, OH
Monroe, MI
North Olmstead, OH
Norwalk, OH
Sandusky, OH
Seven Hills, OH
Strongsville, OH
Toledo, OH
Toledo, OH
Toledo, OH
Toledo, OH
Castle Hill Holdings VI, L.L.C.
First Mortgages 10.75% June, 2016 (1) - 3,888,000 4,030,612 -
Pizza Hut Restaurants:
Beaver, WV
Beckley, WV
Belle, WV
Bluefield, WV
Cross Lanes, WV
Huntington, WV
Hurricane, WV
Marietta, OH
Milton, WV
Ronceverte, WV
Castle Hill Holdings VII, L.L.C.
First Mortgages 10.75% January, 2017 (1) - 484,000 503,900 -
Pizza Hut Restaurants:
Bowling Green, OH
Toledo, OH
Castle Hill Holdings VII (Phase II), L.L.C.
First Mortgages 10.50% April, 2017 (2) - 4,200,000 4,387,475 -
Pizza Hut Restaurants:
Bolivar, OH
Carrollton, OH
Dover, OH
Millersburg, OH
New Philadelphia, OH
New Philadelphia, OH
Steubenville, OH
Uhrichsville, OH
Weirton, WV
Wellsburg, WV
Wintersville, OH
Total $ - $17,047,000 $17,622,010 (4) $
===== =========== =========== =====
</TABLE>
B-50
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE IV - NOTES TO MORTGAGE LOANS ON REAL ESTATE
----------------------------------------------------
December 31, 1997
(1) Equal monthly payments of principal and interest at an annual rate of
10.75%.
(2) Equal monthly payments of principal and interest at an annual rate of
10.50%.
(3) The tax carrying value of the notes is $17,622,010.
(4) The changes in the carrying amounts are summarized as follows:
1997 1996 1995
----------- ----------- ----------
Balance at beginning of period $13,389,607 $ - $ -
New mortgage loans 4,200,000 12,847,000 -
Accrued interest 83,601 35,286 -
Collection of principal (250,732) (133,850) -
Deferred financing income (39,180) (46,268) -
Unamortized loan costs 238,714 687,439 -
----------- ----------- ----------
Balance at end of period $17,622,010 $13,389,607 $ -
=========== =========== ==========
B-51
<PAGE>
EXHIBIT E
STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
BEFORE DIVIDENDS PAID DEDUCTION
OF
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
<PAGE>
STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
BEFORE DIVIDENDS PAID DEDUCTION
CNL AMERICAN PROPERTIES FUND, INC.
PROPERTIES ACQUIRED FROM JANUARY 1, 1998
THROUGH MARCH 2, 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 January 1, 1998 through March 2, 1998. The statement presents unaudited
estimated taxable operating results for each Property that was 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.
<TABLE>
<CAPTION>
Tumbleweed Southwest Tumbleweed Southwest
Golden Corral Golden Corral Mesquite Grill & Bar (7) Mesquite Grill & Bar (7)
Dubuque #2, IA (6) Edmond, OK (6) Clarkesville, TN Hermitage, TN
------------------ --------------- ------------------------ ------------------
<S> <C>
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Base Rent (1) (5) (5) (5) (5)
Asset Management Fees (2) (5) (5) (5) (5)
General and Administrative
Expenses (3) (5) (5) (5) (5)
Estimated Cash Available from
Operations (5) (5) (5) (5)
Depreciation and Amortization
Expense (4) (5) (5) (5) (5)
Estimated Taxable Operating
Results Before Dividends
Paid Deduction (5) (5) (5) (5)
</TABLE>
See Footnotes
<PAGE>
Arby's Jack in the Box
Jacksonville, FL Los Angeles #4, CA
---------------- ------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Base Rent (1) (5) (5)
Asset Management Fees (2) (5) (5)
General and Administrative
Expenses (3) (5) (5)
Estimated Cash Available from
Operations (5) (5)
Depreciation and Amortization
Expense (4) (5) (5)
Estimated Taxable Operating
Results Before Dividends
Paid Deduction (5) (5)
- -----------------
FOOTNOTES:
(1) Base rent does not include percentage rents which become due if
specified levels of gross receipts are achieved.
(2) The Properties will be managed pursuant to an advisory agreement
between the Company and CNL Fund Advisors, Inc. (the "Advisor"),
pursuant to which the Advisor will receive monthly asset management
fees in an amount equal to one-twelfth of .60% of the Company's Real
Estate Asset Value as of the end of the preceding month as defined in
such agreement. See "Management Compensation."
(3) Estimated at 6.2% of gross rental income based on the previous
experience of Affiliates of the Advisor with 17 public limited
partnerships which own properties similar to those owned by the
Company. Amount does not include soliciting dealer servicing fee due to
the fact that such fee will not be incurred until December 31 of the
year following the year in which the offering terminates.
(4) The estimated federal tax basis of the depreciable portion (the
building portion) of each Property has been depreciated on the
straight-line method over 39 years.
<PAGE>
(5) The Property is under construction for the period presented. The
development agreements 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
-------- -------------------------------
Dubuque #2 Property July 19, 1998
Edmond Property July 19, 1998
Clarksville Property August 9, 1998
Hermitage Property August 9, 1998
Jacksonville Property August 19, 1998
Los Angeles #4 Property August 22, 1998
(6) The Lessee of the Dubuque #2 and Edmond Properties is the same
unaffiliated lessee.
(7) The Lessee of the Clarksville and Hermitage Properties is the same
unaffiliated lessee.
