FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
-------------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------------------------------------
Commission file number
0-28380
----------------------------
CNL American Properties Fund, Inc.
--------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 59-3239115
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 E. South Street
Orlando, Florida 32801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 422-1574
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
69,382,570 shares of common stock, $0.01 par value, outstanding as of November
9, 1998.
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Earnings 2
Condensed Consolidated Statements of Stockholders' Equity 3
Condensed Consolidated Statements of Cash Flows 4-5
Notes to Condensed Consolidated Financial Statements 6-21
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 22-33
Part II
Other Information 34-35
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------------- ------------------
<S> <C>
ASSETS
Land and buildings on operating leases,
less accumulated depreciation $298,967,972 $205,338,186
Net investment in direct financing leases 117,028,760 47,613,595
Investment in joint venture 631,374 --
Other investments 16,200,316 --
Mortgage notes receivable 18,503,397 17,622,010
Equipment notes receivable 15,020,109 13,548,044
Cash and cash equivalents 88,666,489 47,586,777
Certificates of deposit 2,007,800 2,008,224
Receivables, less allowance for doubtful accounts
of $314,406 and $99,964, respectively 575,104 635,796
Accrued rental income 3,071,451 1,772,261
Other assets 5,711,195 2,952,869
----------------- -----------------
$566,383,967 $339,077,762
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ 6,765,575 $ 2,459,043
Accrued construction costs payable 3,045,304 10,978,211
Accounts payable and accrued expenses 156,916 1,060,497
Due to related parties 2,552,411 1,524,294
Rents paid in advance 437,497 517,428
Deferred rental income 1,015,758 557,576
Other payables 222,580 56,878
----------------- -----------------
Total liabilities 14,196,041 17,153,927
----------------- -----------------
Minority interest 282,544 285,734
----------------- -----------------
Commitments (Note 14)
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 125,000,000 and 75,000,000
shares, respectively, issued and outstanding
62,118,679 and 36,192,971, respectively 621,187 361,930
Capital in excess of par value 556,830,578 323,525,961
Accumulated distributions in excess of net (5,546,383 ) (2,249,790 )
earnings
----------------- -----------------
Total stockholders' equity 551,905,382 321,638,101
----------------- -----------------
$566,383,967 $339,077,762
================= =================
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
1
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------------- -------------- --------------- --------------
<S> <C>
Revenues:
Rental income from operating
leases $ 6,310,554 $ 3,819,866 $17,322,785 $ 7,826,671
Earned income from direct
financing leases 2,829,024 851,463 5,624,414 1,809,955
Interest income from mortgage
notes receivable 437,444 437,134 1,301,493 1,252,326
Other interest income 1,839,871 419,384 4,775,552 1,347,188
Other income 19,139 9,369 40,866 16,310
-------------- -------------- --------------- ---------------
11,436,032 5,537,216 29,065,110 12,252,450
-------------- -------------- --------------- ---------------
Expenses:
General operating and
administrative 471,568 183,374 1,443,295 664,585
Professional services 30,601 8,655 95,709 53,334
Asset management fees to
related party 518,533 234,665 1,248,393 493,921
State and other taxes 214,866 65,741 397,569 173,604
Depreciation and amortization 1,044,193 526,207 2,693,020 1,105,611
-------------- -------------- --------------- ---------------
2,279,761 1,018,642 5,877,986 2,491,055
-------------- -------------- --------------- ---------------
Earnings Before Minority Interest
in Income of Consolidated
Joint Venture and Equity in Loss 9,156,271 4,518,574 23,187,124 9,761,395
of Unconsolidated Joint Venture
Minority Interest in Income of
Consolidated Joint Venture (7,787 ) (7,860 ) (23,167 ) (23,586 )
Equity in Loss of Unconsolidated
Joint Venture (104 ) -- (104 ) --
-------------- -------------- --------------- ---------------
Net Earnings $ 9,148,380 $ 4,510,714 $23,163,853 $ 9,737,809
============== ============== =============== ===============
Earnings Per Share of Common
Stock (Basic and Diluted) $ 0.16 $ 0.18 $ 0.49 $ 0.48
============== ============== =============== ===============
Weighted Average Number of
Shares of Common Stock
Outstanding 56,421,932 25,371,886 47,633,909 20,368,867
============== ============== =============== ===============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
2
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1998 and Year Ended December 31, 1997
<TABLE>
<CAPTION>
Accumulated
distributions
Common Stock Capital in in excess
Number Par excess of of net
of Shares Value par value earnings Total
----------- --------- ------------- -------------- -------------
<S> <C>
Balance at
December 31, 1996 13,944,715 $139,447 $123,687,929 $ (959,949) $122,867,427
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment
plan 22,248,256 222,483 222,260,077 -- 222,482,560
Stock issuance
costs -- -- (22,422,045 ) -- (22,422,045 )
Net earnings -- -- -- 15,564,456 15,564,456
Distributions
declared and paid
($0.74 per share) -- -- -- (16,854,297 ) (16,854,297 )
------------ ---------- -------------- ------------- --------------
Balance at
December 31, 1997 36,192,971 361,930 323,525,961 (2,249,790 ) 321,638,101
Subscriptions
received for
common stock
through public
offerings and
distribution
reinvestment plan 25,925,708 259,257 258,997,822 -- 259,257,079
Stock issuance costs -- -- (25,693,205 ) -- (25,693,205 )
Net earnings -- -- -- 23,163,853 23,163,853
Distributions
declared and paid
($0.57 per share) -- -- -- (26,460,446 ) (26,460,446 )
------------ ---------- -------------- ------------- --------------
Balance at
September 30, 1998 62,118,679 $621,187 $556,830,578 $(5,546,383 ) $551,905,382
============ ========== ============== ============= ==============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
3
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
-------------- --------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Net Cash Provided by Operating Activities $ 26,950,631 $ 10,800,147
--------------- ---------------
Cash Flows from Investing Activities:
Additions to land and buildings on
operating leases (103,003,646 ) (106,915,605 )
Investment in direct financing leases (73,492,036 ) (28,977,515 )
Proceeds from sale of buildings and
equipment under direct financing leases 2,385,941 7,251,511
Investment in joint venture (633,101 ) --
Increase in other investments (16,083,055 ) --
Investment in mortgage notes receivable (1,090,000 ) (4,401,982 )
Collection on mortgage notes receivable 222,879 186,135
Investment in equipment notes receivable (3,363,600 ) --
Collection on equipment notes receivable 1,014,484 --
Increase in restricted cash -- (16,014,345 )
Increase in other assets (2,705,428 ) --
--------------- ---------------
Net cash used in investing activities (196,747,562 ) (148,871,801 )
--------------- ---------------
Cash Flows from Financing Activities:
Reimbursement of acquisition and stock
issuance costs paid by related parties
on behalf of the Company (3,455,068 ) (2,244,153 )
Proceeds from borrowing on line of credit 4,306,532 16,253,399
Payment on line of credit -- (1,784,577 )
Subscriptions received from stockholders 259,257,079 149,227,795
Distributions to minority interest (25,429 ) (25,515 )
Distributions to stockholders (26,460,446 ) (10,879,969 )
Payment of stock issuance costs (22,653,996 ) (13,584,558 )
Other (92,029 ) (16,101 )
--------------- ---------------
Net cash provided by financing
activities 210,876,643 136,946,321
--------------- ---------------
Net Increase (Decrease) in Cash and Cash
Equivalents 41,079,712 (1,125,333 )
Cash and Cash Equivalents at Beginning of Period 47,586,777 42,450,088
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 88,666,489 $ 41,324,755
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
4
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
--------------- ----------------
<S> <C>
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain acquisition
and stock issuance costs on
behalf of the Company as follows:
Acquisition costs $ 799,419 $ 428,114
Stock issuance costs 2,941,149 1,794,722
--------------- ---------------
$3,740,568 $2,222,836
=============== ===============
Land and buildings under operating
leases exchanged for land and
buildings under operating leases $2,754,419 $ --
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
5
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1998 and 1997
1. Organization and Nature of Business:
CNL American Properties Fund, Inc. was organized in Maryland on May 2,
1994. CNL APF GP Corp. and CNL APF LP Corp., organized in Delaware in
May 1998, are wholly owned subsidiaries of CNL American Properties
Fund, Inc. CNL APF Partners, LP is a Delaware limited partnership
formed in May 1998. CNL APF GP Corp. and CNL APF LP Corp. are the
general and limited partners, respectively, of CNL APF Partners, LP.
The term "Company" includes, unless the text otherwise requires, CNL
American Properties Fund, Inc., CNL APF GP Corp., CNL APF LP Corp. and
CNL APF Partners, LP. The Company was formed 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 national and
regional fast-food, family-style and casual dining restaurant chains.
The Company also provides financing (the "Mortgage Loans") for the
purchase of buildings, generally by tenants that lease the underlying
land from the Company. In addition, the Company offers furniture,
fixtures and equipment financing through leases or loans (the "Secured
Equipment Leases") to operators of restaurant chains.
2. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and nine months ended September 30, 1998, may not be
indicative of the results that may be expected for the year ending
December 31, 1998. Amounts as of December 31, 1997, included in the
financial statements, have been derived from audited financial
statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 1997.
The Company accounts for its 85.47% interest in CNL/Corral South Joint
Venture using the consolidation method. Minority interest represents
the minority joint venture partner's proportionate share of the equity
in the Company's consolidated joint venture. All significant
intercompany balances and transactions have been eliminated. The
Company accounts for its 44.29% interest in CNL/Lee Vista Joint Venture
using the equity method because it shares control with the other joint
venture partner.
6
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
2. Basis of Presentation - Continued:
The Company determines the appropriate classification of other
investments in certificates at the time of purchase and reevaluates
such designation at each balance sheet date. Other investments have
been classified as available-for-sale and are carried at fair value,
with unrealized holding gains and losses reported as a separate
component of stockholders' equity and in the statement of comprehensive
income, as applicable.
Certain items in the prior year's financial statements have been
reclassified to conform with the 1998 presentation. These
reclassifications had no effect on stockholders' equity or net
earnings.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement requires the reporting of net earnings and all other changes
to equity during the period, except those resulting from investments by
owners and distributions to owners, in a separate statement that begins
with net earnings. Currently, the Company's only component of
comprehensive income is net earnings.
In March 1998, the Emerging Issues Task Force of the Financial
Accounting Standards Board ("FASB") reached a consensus in EITF 97-11,
entitled "Accounting for Internal Costs Relating to Real Estate
Property Acquisitions." EITF 97-11 provides that internal costs of
identifying and acquiring operating properties should be expensed as
incurred. Due to the fact that the Company does not have an internal
acquisitions function and instead, contracts these services from an
external advisor, the effectiveness of EITF 97-11 had no material
effect on the Company's financial position or results of operations.
In May 1998, the Emerging Issues Task Force of the FASB reached a
consensus in EITF 98-9, entitled "Accounting for Contingent Rent in the
Interim Financial Periods." Adoption of this consensus did not have a
material effect on the Company's financial position or results of
operations.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"). FAS 133 is effective for all fiscal quarters
of all fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). FAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of
7
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
2. Basis of Presentation - Continued:
hedge transaction. Management of the Company anticipates that, due to
its limited use of interest rate swaps, the adoption of FAS 133 will
not have a significant effect on the Company's results of operations or
its financial position.
3. Public Offerings:
The Company completed its offering of up to 27,500,000 shares of common
stock ($275,000,000) (the "1997 Offering"), which included 2,500,000
shares ($25,000,000) available only to stockholders who elected to
participate in the Company's reinvestment plan, on March 2, 1998.
Following the completion of the 1997 Offering, the Company commenced an
offering of up to 34,500,000 shares of common stock ($345,000,000) (the
"1998 Offering"). Net proceeds from the 1998 Offering will be invested
in additional Properties and Mortgage Loans.
4. Leases:
The Company leases its land, buildings and equipment to operators of
national and regional fast-food, family-style and casual dining
restaurants. The leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for
Leases." For Property leases classified as direct financing leases, the
building portions of the majority of the leases are accounted for as
direct financing leases while the land portions of the majority of
these leases are accounted for as operating leases. The Company's
equipment financing offered pursuant to leases are recorded as direct
financing leases.
5. Land and Buildings on Operating Leases:
In April 1998, a tenant exercised its option under the terms of three
lease agreements to exchange three existing Properties for three
replacement Properties which were approved by the Company. In
connection therewith, the Company exchanged three Boston Market
Properties with three replacement Boston Market Properties. Under the
exchange agreements for each Property, each replacement Property will
continue under the terms of the leases of the original Properties. All
closing costs were paid by the tenant. The Company accounted for these
transactions as nonmonetary exchanges of similar productive assets and
recorded the acquisitions of the replacement Properties at the net book
value of the original Properties. No gain or loss was recognized due to
these transactions being accounted for as nonmonetary exchanges of
similar assets.
8
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
5. Land and Buildings on Operating Leases - Continued:
During the nine months ended September 30, 1998, the Company sold three
Properties to third parties. The Company received net sales proceeds of
approximately $2,386,000 which approximated the carrying value of the
Properties at the time of sale. As a result, no gain or loss was
recognized for financial reporting purposes.
Land and buildings on operating leases consisted of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------- -------------------
<S> <C>
Land $151,703,355 $106,616,360
Buildings 146,495,502 95,518,149
------------------ ------------------
298,198,857 202,134,509
Less accumulated
depreciation (5,033,392 ) (2,395,665 )
------------------ ------------------
293,165,465 199,738,844
Construction in progress 5,802,507 5,599,342
------------------ ------------------
$298,967,972 $205,338,186
================== ==================
</TABLE>
Some leases provide for scheduled rent increases throughout the lease
term and/or rental payments during the construction of a Property prior
to the date it is placed in service. Such amounts are recognized on a
straight-line basis over the terms of the leases commencing on the date
the Property is placed in service. For the nine months ended September
30, 1998 and 1997, the Company recognized $2,315,968 and $1,259,180,
respectively, of such rental income, $910,185 and $643,153 of which was
earned during the quarters ended September 30, 1998 and 1997,
respectively.
9
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
5. Land and Buildings on Operating Leases - Continued:
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at September 30, 1998:
1998 $ 6,410,842
1999 25,832,805
2000 25,862,843
2001 26,062,291
2002 26,822,220
Thereafter 386,335,781
------------------
$497,326,782
==================
Since leases are renewable at the option of the tenant, the above table
only presents future minimum lease payments due during the initial
lease terms. In addition, this table does not include any amounts for
future contingent rents which may be received on the leases based on
the percentage of the tenant's gross sales. These amounts do not
include minimum lease payments that will become due when Properties
under development are completed (see Note 14).
6. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------- -------------------
<S> <C>
Minimum lease payments
receivable $247,230,809 $ 98,121,853
Estimated residual values 44,974,064 6,889,570
Secured Equipment Lease
interest receivable 72,231 67,614
Less unearned income (175,248,344 ) (57,465,442 )
------------------ ------------------
Net investment in direct
financing leases $117,028,760 $ 47,613,595
================== ==================
</TABLE>
10
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
6. Net Investment in Direct Financing Leases - Continued:
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at September 30, 1998:
1998 $ 3,435,760
1999 13,742,634
2000 13,937,068
2001 13,709,001
2002 13,611,870
Thereafter 188,794,476
------------------
$247,230,809
==================
The above table does not include future minimum lease payments for
renewal periods or contingent rental payments that may become due in
future periods (see Note 5).
7. Investment in Joint Venture:
In June 1998, the Company entered into a joint venture arrangement,
CNL/Lee Vista Joint Venture, with a third party to construct and hold
one restaurant property. As of September 30, 1998, the Company had
contributed $631,374 to pay for construction relating to the Property
owned by the joint venture. The Company has agreed to contribute
approximately $854,140 in additional construction costs to the joint
venture. When construction is completed, the Company expects to have an
approximate 68 percent interest in the profits and losses of the joint
venture. The Company accounts for its investment in this joint venture
under the equity method because it shares control with the other joint
venture partner.
11
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
7. Investment in Joint Venture - Continued:
The following presents the condensed financial information for the
joint venture at:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------- -------------------
<S> <C>
Land on operating lease and
construction in progress $1,870,009 $ --
Cash 899 --
Receivables 28,900 --
Liabilities 648,884 --
Partners' capital 1,250,924 --
Net loss (428 ) --
</TABLE>
For the quarter and nine months ended September 30, 1998, the Company
recognized a loss of $104 for this joint venture. The Property owned by
the joint venture was not operational as of September 30, 1998.
8. Other Investments:
In August 1998, the Company acquired an investment in the Class F,
Class G, and Class H Franchise Loan Certificates, Series 1998-1
(collectively, the "Certificates") from CNL Funding 98-1, LP a mortgage
loan securitization entity sponsored by CNL Financial Corp., ("CFC") an
affiliate of CNL Fund Advisors, Inc. (the "Advisor"). CFC originated
and serviced mortgage loans on restaurant properties comparable to the
triple-net leased properties currently owned by the Company. After
originating the mortgage loans, CFC contributed the loans to CNL
Funding 98-1, LP, the securitization entity which subsequently issued
the Certificates representing beneficial ownership interests in the
pool of mortgage loans.
The Company paid an aggregate purchase price of approximately
$16,100,000 for the Certificates, representing an expected blended
yield of 12.3%. The Company classified the investments in these
Certificates as available for sale. At September 30, 1998, the
estimated fair value of the Certificates approximated their carrying
value; therefore, the Company did not record any unrealized gains or
losses relating to its investment in Certificates. The investment in
Certificates balance at September 30, 1998 includes $117,261 of accrued
interest.
12
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
8. Other Investments - Continued:
The Company acquired Class F-1, Class G-1, and Class H-1 Certificates
with fixed pass through rates of 8.4% per annum. These Certificates
commenced making payments of interest monthly in September 1998 and are
scheduled to make payments of principal and interest monthly during the
period September 2012 through June 2017.
The Company also acquired Class F-2, Class G-2, and Class H-2
Certificates with adjustable pass through rates of LIBOR (defined as
the per annum London interbank offered rate for 30 day dollar deposits)
plus 2.25% per annum (7.918% at September 30, 1998). These Certificates
commenced making payments of interest monthly in September 1998 and are
scheduled to make payments of principal and interest monthly during the
period April 2012 through March 2017.
9. Mortgage Notes Receivable:
During the nine months ended September 30, 1998, the Company accepted
two promissory notes in the aggregate principal sum of $1,090,000,
collateralized by mortgages on the buildings of two Taco Bell
Properties. The promissory notes bear interest at a rate of 9.50% per
annum and will be collected in consecutive monthly installments of
principal and interest totaling $11,382 beginning October 1, 1998, with
balloon payments due September 1, 2005 for the remaining unpaid
balances.
Mortgage notes receivable consisted of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------ ------------------
<S> <C>
Outstanding principal $17,529,539 $16,662,418
Accrued interest income 129,754 118,887
Deferred financing income (82,181 ) (85,448 )
Unamortized loan costs 926,285 926,153
--------------- ----------------
$18,503,397 $17,622,010
=============== ================
</TABLE>
Management believes that the estimated fair value of mortgage notes
receivable at September 30, 1998 and 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.
13
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
10. Equipment Notes Receivable:
In June 1998, the Company entered into a promissory note with a
borrower for equipment financing for $2,200,000, which is
collateralized by restaurant equipment. The promissory note bears
interest at a rate of ten percent per annum and is being collected in
consecutive monthly installments of principal and interest of $36,523
which commenced July 1, 1998, with a balloon payment due December 15,
1998 for the remaining unpaid balance.
In September 1998, the Company entered into two promissory notes with a
borrower for equipment financing for a total of $460,000, which are
collateralized by restaurant equipment. The two promissory notes bear
interest at a rate of ten percent per annum and will be collected in
consecutive monthly installments of principal and interest totaling
$7,636 beginning on October 1, 1998 for one promissory note and
November 1, 1998, for the other promissory note, with balloon payments
due September 1, 2003 and October 1, 2005, respectively, for the
remaining unpaid balances.
Equipment notes receivable consisted of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------ ------------------
<S> <C>
Outstanding principal $14,870,516 $13,225,000
Accrued interest income 149,593 323,044
---------------- -----------------
$15,020,109 $13,548,044
================ =================
</TABLE>
Management believes that the estimated fair value of equipment notes
receivable at September 30, 1998 and 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.
11. Stock Issuance Costs:
The Company has incurred certain expenses in connection with the public
offerings of its shares of common stock, including commissions,
marketing support and due diligence expense reimbursement fees, filing
fees, legal, accounting, printing and escrow fees, which have been
deducted from the gross proceeds of the offerings. 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
14
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
11. Stock Issuance Costs - Continued:
percent of the gross offering proceeds received from the current
offering of shares of common stock of the Company.
During the nine months ended September 30, 1998 and the year ended
December 31, 1997, the Company incurred $25,693,205 and $22,422,045,
respectively, in stock issuance costs, including $20,740,566 and
$17,798,605, respectively, in commissions and marketing support and due
diligence expense reimbursement fees (see Note 13). The stock issuance
costs have been charged to stockholders' equity subject to the three
percent cap described above.
12. Distributions:
For the nine months ended September 30, 1998 and 1997, approximately 86
and 92 percent, respectively, of the distributions paid to stockholders
were considered ordinary income and approximately 14 and eight percent,
respectively, were considered a return of capital to stockholders for
federal income tax purposes. No amounts distributed to the stockholders
for the nine months ended September 30, 1998 and 1997 are required to
be or have been treated by the Company as a return of capital for
purposes of calculating the stockholders' return on their invested
capital. The characterization for tax purposes of distributions
declared for the nine months ended September 30, 1998 may not be
indicative of the results that may be expected for the year ending
December 31, 1998.
13. Related Party Transactions:
During the nine months ended September 30, 1998 and 1997, the Company
incurred $19,444,281 and $11,192,085, respectively, in selling
commissions due to CNL Securities Corp. for services in connection with
the offering of shares. A substantial portion of these amounts
($18,148,849 and $10,427,281) were paid by CNL Securities Corp. as
commissions to other broker-dealers, during the nine months ended
September 30, 1998 and 1997, respectively.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of
the total amount raised from the sale of shares, a portion of which may
be re-allowed to other broker-dealers. During the nine months ended
September 30, 1998 and 1997, the Company incurred $1,296,285 and
$746,139, respectively, of such fees, the majority of which was
re-allowed to other broker-dealers and from which all bona fide due
diligence expenses were paid.
15
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
13. Related Party Transactions - Continued:
The Advisor is entitled to receive acquisition fees for services in
identifying the Properties and structuring the terms of the acquisition
and leases of these Properties and structuring the terms of the
Mortgage Loans equal to 4.5% of the total amount raised from the sale
of shares. During the nine months ended September 30, 1998 and 1997,
the Company incurred $11,666,569 and $6,715,251, respectively, of such
fees. Such fees are included in land and buildings on operating leases,
net investment in direct financing leases, mortgage notes receivable,
investment in joint venture and other assets.
In connection with the acquisition of Properties that are being or have
been constructed or renovated by affiliates, subject to approval by the
Company's Board of Directors, the Company may incur development or
construction management fees payable to affiliates of the Company. Such
fees are included in the purchase price of the Properties and are
therefore included in the basis on which the Company charges rent on
the Properties. During the nine months ended September 30, 1998 and
1997, the Company incurred $166,876 and $369,570, respectively, of such
fees relating to five and six Properties, respectively.
For negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program, the Advisor is entitled to receive a one-time
Secured Equipment Lease servicing fee of two percent of the purchase
price of the equipment that is the subject of a Secured Equipment
Lease. During the nine months ended September 30, 1998 and 1997, the
Company incurred $22,426 and $90,592, respectively, in Secured
Equipment Lease servicing fees.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor will receive a monthly asset management
fee of one-twelfth of 0.60% of the Company's real estate asset value
and the outstanding principal balance of the Mortgage Loans as of the
end of the preceding month. The management fee, which will not exceed
fees which are competitive for similar services in the same geographic
area, may or may not be taken, in whole or in part as to any year, in
the sole discretion of the Advisor. All or any portion of the
management fee not taken as to any fiscal year shall be deferred
without interest and may be taken in such other fiscal year as the
Advisor shall determine. During the nine months ended September 30,
1998 and 1997, the Company incurred $1,289,877 and $558,319,
respectively, of such fees, of which $41,484 and $64,398, respectively,
was capitalized as part of the cost of the buildings for Properties
under construction.
In August 1998, the Company acquired an investment of approximately
$16,100,000 in Certificates from CFC, as described in Note 8.
16
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
13. Related Party Transactions - Continued:
The Advisor and its affiliates provide various administrative services
to the Company, including services related to accounting; financial,
tax and regulatory compliance and reporting; lease and loan compliance;
stockholder distributions and reporting; due diligence and marketing;
and investor relations (including administrative services in connection
with the offering of shares), on a day-to-day basis. The expenses
incurred for these services were classified as follows for the nine
months ended September 30:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C>
Stock issuance costs $2,069,626 $1,259,411
General operating and
administrative expenses 773,806 389,806
--------------- ---------------
$2,843,432 $1,649,217
=============== ===============
</TABLE>
For each of the nine months ended September 30, 1998 and 1997, the
Company acquired two Properties for approximately $3,977,000 and
$1,773,300, respectively, from affiliates of the Company. The
Properties were acquired at a cost no greater than the lesser of the
cost of each Property to the affiliate, including its carrying costs,
or the Property's appraised value.
17
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
13. Related Party Transactions - Continued:
The due to related parties consisted of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------- ------------------
<S> <C>
Due to the Advisor:
Expenditures incurred
on behalf of the Company
and accounting and
administrative services $ 578,362 $ 126,205
Acquisition fees 939,339 386,972
--------------- ---------------
1,517,701 513,177
--------------- ---------------
Due to CNL Securities Corp:
Commissions 968,975 940,520
Marketing support and due
diligence expense reim-
bursement fees 65,735 63,097
--------------- ---------------
1,034,710 1,003,617
--------------- ---------------
Due to other affiliates -- 7,500
--------------- ---------------
$2,552,411 $1,524,294
=============== ===============
</TABLE>
14. Commitments:
The Company has entered into various development agreements with
tenants which provide terms and specifications for the construction or
renovation of buildings the tenants have agreed to lease. The
agreements provide a maximum amount of development costs (including the
purchase price of the land and closing costs) to be paid by the
Company. The aggregate maximum development costs the Company has agreed
to pay are approximately $20,245,000, of which approximately
$13,104,000 in land and other costs had been incurred as of September
30, 1998. The buildings currently under construction or renovation are
expected to be operational by March 1999. In connection with the
purchase of each Property, the Company, as lessor, has entered into a
long-term lease agreement.
18
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
15. Subsequent Events:
On October 13, 1998, the Board of Directors elected to terminate the
Company's reinvestment plan. The Board of Directors based this decision
on (i) the fact that the Company may issue shares under the
reinvestment plan only pursuant to an effective registration statement,
(ii) the likelihood that the 1998 Offering will be completed prior to
the next distribution date of the Company and (iii) a determination
that it is not in the best interest of the Company at this time to
obtain the effectiveness of a registration statement relating solely to
the issuance of shares pursuant to the reinvestment plan.
The Board of Directors may determine to reinstate the reinvestment plan
in the future subject to obtaining the effectiveness of a registration
statement relating solely to the issuance of shares pursuant to the
reinvestment plan.
The shares offered and previously reserved for issuance pursuant to the
reinvestment plan will be available for sale to the public through the
1998 Offering.
The Board of Directors also elected to implement the Company's
redemption plan. Under the redemption plan, the Company may elect to
redeem shares, subject to the conditions and limitations described in
the Company's prospectus (the "Prospectus") as modified by the
description below.
At any time, including any time during which the Company is engaged in
a public offering, and prior to such time, if any, as Listing occurs,
any stockholder who purchases shares in the Company's offering or
otherwise from the Company, may present all or any portion equal to at
least 25% of such stockholder's shares to the Company for redemption,
in accordance with the procedures outlined in the Prospectus. At such
time, the Company may, at its option, use up to the full amount of
proceeds, if any, from the sale of shares under the reinvestment plan
attributable to a calendar quarter to redeem shares presented for
redemption during such quarter. In addition, the Company may, at its
option, use up to $100,000 per calendar quarter of the proceeds of any
public offering of its shares to redeem shares. Any amount of offering
proceeds which is available for redemptions, but which is unused, may
be carried over to the next succeeding calendar quarter for use in
addition to the amount of offering proceeds and the full amount of
proceeds from the sale of shares under the reinvestment plan that would
otherwise be available for redemptions. At no time during a 12-month
period, however, may the number of shares redeemed by the Company
exceed 5% of the number of shares of the Company's outstanding common
stock at the beginning of such 12-month period, even if
19
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
15. Subsequent Events - Continued:
the amount of offering proceeds and proceeds from the sale of shares
under the reinvestment plan that would otherwise be available for
redemptions would allow the Company to redeem a greater number of
shares.
In addition, the Board of Directors approved an amendment to the
advisory agreement providing for the payment of acquisition fees to the
Advisor for acquisitions made by the Company after the completion of
the 1998 Offering and the investment of all of the proceeds received by
the Company from the 1998 Offering (the "Offering Completion Date").
After the Offering Completion Date, the Company intends to continue to
expand its Property portfolio by acquiring additional Properties using
funds from its line of credit. Under the previous advisory agreement,
the Advisor had no incentive to continue providing acquisition services
after the Offering Completion Date because acquisition fees were
limited to 4.5% of the gross proceeds raised by the Company from equity
offerings of the Company. The Advisor has not been paid an acquisition
fee for Properties acquired by the Company using funds from the line of
credit, and will not be paid an acquisition fee for Properties so
acquired prior to the Offering Completion Date, because it is expected
that a portion of the proceeds raised by the Company in the 1998
Offering (on which the Advisor will already have received an
acquisition fee) will be used to repay advances under the line of
credit used to acquire Properties prior to the Offering Completion
Date.
In order to provide incentive to the Advisor to continue providing
acquisition services after the Offering Completion Date, the Board of
Directors deemed it to be in the best interests of the Company that the
Company pay the Advisor an acquisition fee, in connection with
Properties acquired after the Offering Completion Date, equal to 4.5%
of the purchase price paid by the Company. The Board of Directors
believes that paying acquisition fees after the Offering Completion
Date will permit the Company to continue to benefit from the Advisor's
acquisition expertise and more effectively enhance stockholder value
through the continued expansion of the Company's Property portfolio.
During the period October 1, 1998 through November 2, 1998, the Company
received subscription proceeds for an additional 5,876,665 shares
($58,766,648) of common stock.
On October 1, 1998 and November 1, 1998, the Company declared
distributions of $4,015,395 and $4,303,336, respectively, or $0.06354
per share of common stock, payable in December 1998 to stockholders of
record on October 1, 1998 and November 1, 1998, respectively.
20
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1998 and 1997
15. Subsequent Events - Continued:
During the period October 1, 1998 through November 2, 1998, the Company
acquired five Properties (one of which is under construction) for cash
at a total cost of approximately $3,439,000. In connection with the
purchase of each of the five Properties, the Company, as lessor,
entered into a long-term lease agreement. The building under
construction is expected to be operational by April 1999.
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
CNL American Properties Fund, Inc. is a Maryland corporation that was
organized on May 2, 1994. CNL APF GP Corp. and CNL APF LP Corp., organized in
Delaware in May 1998, are wholly owned subsidiaries of CNL American Properties
Fund, Inc. CNL APF Partners, LP is a Delaware limited partnership formed in May
1998. CNL APF GP Corp. and CNL APF LP Corp. are the general and limited
partners, respectively, of CNL APF Partners, LP. The term "Company" includes,
unless the text otherwise requires, CNL American Properties Fund, Inc., CNL APF
GP Corp., CNL APF LP Corp., CNL APF Partners, LP and CNL/Corral South Joint
Venture. The Company was formed to acquire properties, directly or indirectly
through joint venture or co-tenancy arrangements (the "Properties"), to be
leased on a long-term, triple-net basis to operators of certain national and
regional fast-food, family-style and casual dining restaurant chains. In
addition, the Company provides financing (the "Mortgage Loans") for the purchase
of buildings, generally by tenants that lease the underlying land from the
Company. In addition, the Company offers furniture, fixtures and equipment
financing through leases or loans (the "Secured Equipment Leases") to operators
of restaurant chains.
Statements contained in this Form 10-Q, particularly in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" sections, including, without limitation, the Year 2000 compliance
disclosure that are not historical facts may be forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Although the Company believes that the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, the Company's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference include the following: changes in general economic
conditions, changes in real estate conditions, continued availability of
proceeds from the Company's offerings of common stock, the ability of the
Company to invest the proceeds of its offerings of common stock, the ability of
the Company to locate suitable tenants for its properties and borrowers for its
mortgage loans, and the ability of tenants and borrowers to make payments under
their respective leases, secured equipment leases or mortgage loans.
As of September 30, 1998, the Company owned 357 Properties, including
two Properties through two joint venture arrangements and 17 Properties which
were under construction or renovation.
Liquidity and Capital Resources
Upon completion of its first offering (the "Initial Offering") on
February 6, 1997, the Company had received subscription proceeds of $150,591,765
(15,059,177 shares), including 59,177 shares ($591,765) issued pursuant to the
Company's reinvestment plan. Following the completion of its Initial Offering,
the Company commenced a second offering (the "1997 Offering") of up to
27,500,000 shares and upon completion of such offering on March 2, 1998,
22
<PAGE>
Liquidity and Capital Resources - Continued
had received subscription proceeds of $251,872,648 (25,187,265 shares),
including 187,265 shares ($1,872,648) issued pursuant to the reinvestment plan.
Net offering proceeds received by the Company from the prior offerings, after
deduction of selling commissions, marketing support and due diligence expense
reimbursement fees and offering expenses, totaled approximately $361,100,000.
Following the completion of the 1997 Offering, the Company commenced an offering
of up to 34,500,000 shares (the "1998 Offering"). As of September 30, 1998, the
Company had received subscription proceeds of $218,522,374 (21,852,237 shares),
including 310,784 shares ($3,107,848) issued pursuant to the reinvestment plan
in connection with the 1998 Offering.
As of September 30, 1998, the Company had received aggregate
subscription proceeds of $620,986,787 (62,098,679 shares) from its Initial
Offering, 1997 Offering and 1998 Offering (collectively, the "Offerings"),
including 557,226 shares ($5,572,261) issued pursuant to the reinvestment plan.
As of September 30, 1998, net offering proceeds to the Company from its
Offerings, after deduction of selling commissions, marketing support, and due
diligence expense reimbursement fees, and organizational and offering expenses,
totaled $557,231,765. As of September 30, 1998, the Company had invested or
committed for investment approximately $461,532,000 of aggregate net offering
proceeds from its Offerings in 357 Properties (17 of which were under
construction or renovation as of September 30, 1998) in providing mortgage
financing through Mortgage Loans, in paying acquisition fees to the Advisor, as
well as certain acquisition expenses, leaving approximately $95,700,000 in
aggregate net offering proceeds available for investment in Properties and
Mortgage Loans.
During the nine months ended September 30, 1998, the Company acquired
two Properties from affiliates for purchase prices totaling approximately
$3,977,000. The Properties were acquired at a cost no greater than the lesser of
the cost of each Property to the affiliate, including its carrying costs, or the
Property's appraised value.
In connection with the 17 Properties under construction or renovation
at September 30, 1998 (none of which were under construction at December 31,
1997), the Company has entered into various development agreements with tenants
which provide terms and specifications for the construction of buildings. The
agreements provide a maximum amount of development costs (including the purchase
price of the land and closing costs) to be paid by the Company. The aggregate
maximum development costs the Company has agreed to pay are approximately
$20,245,000, of which approximately $13,104,000 had been incurred as of
September 30, 1998. The buildings under construction or renovation as of
September 30, 1998 are expected to be operational by March 1999. In connection
with the purchase of each Property, the Company, as lessor, has entered into a
long-term lease agreement.
During the nine months ended September 30, 1998, a tenant exercised its
option under the terms of its lease agreements to exchange three existing
Properties for three replacement Properties which were approved by the Company.
In conjunction therewith, the Company exchanged three Boston Market Properties
with three replacement Boston Market Properties. Under the exchange agreements
for each Property, each replacement Property will continue
23
<PAGE>
Liquidity and Capital Resources - Continued
under the terms of the leases of the original Properties. All closing costs were
paid by the tenant. The Company accounted for these transactions as nonmonetary
exchanges of similar productive assets and recorded the acquisitions of the
replacement Properties at the net book value of the original Properties. No gain
or loss was recognized due to these transactions being accounted for as
nonmonetary exchanges of similar assets.
During the nine months ended September 30, 1998, the Company sold three
Properties to third parties. The Company received net sales proceeds of
approximately $2,386,000 which approximated the carrying value of the Properties
at the time of sale. As a result, no gain or loss was recognized for financial
reporting purposes.
In June 1998, the Company entered into a joint venture arrangement,
CNL/Lee Vista Joint Venture, with a third party to construct and hold one
restaurant property. As of September 30, 1998, the Company had contributed
$631,374 to pay for construction relating to the Property owned by the joint
venture. The Company has agreed to contribute approximately $854,000 in
additional construction costs to the joint venture. When construction is
completed, the Company expects to have an approximate 68 percent interest in the
profits and losses of the joint venture.
In August 1998, the Company acquired Class F, Class G, and Class H
Franchise Loan Certificates, Series 1998-1, (collectively, the "Certificates")
from CNL Funding 98-1, LP, a mortgage loan securitization entity sponsored by
CNL Financial Corp. ("CFC"), an affiliate of the Advisor. The aggregate purchase
price paid for these Certificates was approximately $16,100,000, representing an
expected blended yield on the Certificates of 12.3%. The Class F and Class G
Certificates were rated BB and B, respectively, by two major rating agencies and
the Class H Certificates were not rated.
CFC originates and services mortgage loans on restaurant properties
comparable to the triple-net leased Properties currently owned by the Company.
The underwriting criteria utilized by CFC in connection with originating the
mortgage loans is at least as stringent as the underwriting standards applied by
the Company when determining whether to enter into a lease with a prospective
tenant. After originating the mortgage loans, CFC contributes the loans to a
securitization entity which subsequently issues trust certificates representing
beneficial ownership interests in the pool of mortgage loans and the proceeds
received by the securitization entity (less a placement fee and expenses) are
remitted to CFC. The interests in the pool of loans are either rated by
independent rating agencies or not rated and may be treated as investment grade
or non-investment grade depending on the relative risk of the security, taking
into account such factors as the likelihood of default on the underlying
mortgages constituting the loan pool, the level of subordination of the
interests as compared to other interests issued by the securitization entity,
and the protection afforded by the mortgage obligation in the event of a
bankruptcy or similar proceeding. The Certificates purchased by the Company are
not investment grade or are not rated, and therefore constitute an increased
degree of investment risk as compared to investment grade securities. Management
believes that the acquisition of the Certificates represents an opportunity for
the Company to achieve investment returns similar to those generated by its
triple-net leased restaurant Properties and that the investment risk inherent in
purchasing the Certificates has been properly reflected in the purchase price of
the Certificates.
24
<PAGE>
Liquidity and Capital Resources - Continued
During the nine months ended September 30, 1998, the Company accepted
two promissory notes in the aggregate principal sum of $1,090,000,
collateralized by mortgages on the buildings of two Taco Bell Properties. The
promissory notes bear interest at a rate of 9.50% per annum and will be
collected in consecutive monthly installments of principal and interest totaling
$11,382 beginning October 1, 1998, with balloon payments due September 1, 2005
for the remaining unpaid balances.
During the nine months ended September 30, 1998, the Company received
advances totaling $4,306,532 under its line of credit to provide equipment
financing. The balance of the line of credit was $6,765,575 as of September 30,
1998. The Company expects to obtain additional advances under the line of credit
to fund future equipment financing requirements and from time to time may use
the line of credit to purchase Properties and fund Mortgage Loans.
In June 1998, the Company entered into a promissory note with a
borrower for equipment financing for $2,200,000, which is collateralized by
restaurant equipment. The promissory note bears interest at a rate of ten
percent per annum and is being collected in consecutive monthly installments of
principal and interest of $36,523 which commenced July 1, 1998, with a balloon
payment due December 15, 1998 for the remaining unpaid balance.
In September 1998, the Company entered into two promissory notes with a
borrower for equipment financing for a total of $460,000, which are
collateralized by restaurant equipment. The two promissory notes bear interest
at a rate of ten percent per annum and will be collected in consecutive monthly
installments of principal and interest totaling $7,636 beginning on October 1,
1998 for one promissory note and November 1, 1998 for the other promissory note,
with balloon payments due September 1, 2003 and October 1, 2005, respectively,
for the remaining unpaid balances.
During the period October 1, 1998 through November 2, 1998, the Company
received subscription proceeds for an additional 5,876,665 shares ($58,766,648)
of common stock.
In addition, during the period October 1, 1998 through November 2,
1998, the Company acquired five Properties (one of which is under construction)
for cash at a total cost of approximately $3,439,000. In connection with the
purchase of each of the five Properties, the Company, as lessor, entered into a
long-term lease agreement. The building under construction is expected to be
operational by April 1999.
As of November 2, 1998, the Company had received aggregate subscription
proceeds of $679,753,435 (67,975,344 shares) from the Offerings, including
$5,572,261 (557,226 shares) through its reinvestment plan. As of November 2,
1998, the Company had invested or committed for investment approximately
$467,270,000 of aggregate net offering proceeds in 362 Properties, in providing
mortgage financing through Mortgage Loans and in paying acquisition fees and
certain acquisition expenses, leaving approximately $143,575,000 in aggregate
net offering proceeds available for investment in Properties and Mortgage Loans.
25
<PAGE>
Liquidity and Capital Resources - Continued
Additionally, the Company currently is negotiating to acquire
additional Properties, but as of November 2, 1998 had not acquired any such
Properties.
The Company expects to use uninvested net offering proceeds, plus any
net offering proceeds from the sale of additional shares, to purchase additional
Properties, to fund construction and renovation costs relating to the Properties
under construction and to make Mortgage Loans. The Company does not intend to
use net offering proceeds to fund Secured Equipment Leases; however, from time
to time the Company may use uninvested net offering proceeds to repay a portion
of or all of the balance outstanding under the line of credit pending the
investment of such offering proceeds in Properties or Mortgage Loans, in order
to reduce the Company's interest cost during such period. The Company expects to
fund the Secured Equipment Leases with proceeds from the line of credit. The
Company intends to limit equipment financing to ten percent of the aggregate
gross offering proceeds from its offerings.
Properties are and will be leased on a triple-net basis, meaning that
tenants are generally required to pay all repairs and maintenance, property
taxes, insurance and utilities. Rental payments under the leases are expected to
exceed the Company's operating expenses. For these reasons, no short-term or
long-term liquidity problems currently are anticipated by management.
Until Properties are acquired or Mortgage Loans are entered into, net
offering proceeds are held in short-term, highly liquid investments which
management believes to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate the Company's use of
these funds to acquire Properties or to fund Mortgage Loans at such time as
suitable Properties and investments in Mortgage Loans are identified.
At September 30, 1998 and December 31, 1997, the Company had
$90,674,289 and $49,595,001, respectively, invested in such short-term
investments (including a certificate of deposit in the amount of $2,007,800 and
$2,008,224, respectively). The increase in the amount invested in short-term
investments is primarily attributable to the receipt of additional subscription
proceeds during the nine months ended September 30, 1998. These funds will be
used primarily to purchase and develop or renovate Properties (directly or
indirectly through joint venture arrangements), to make Mortgage Loans, to pay
offering and acquisition costs, to pay distributions to stockholders, to
temporarily reduce amounts outstanding under the line of credit pending the
investment of net offering proceeds, to pay Company expenses, and, in
management's discretion, to create cash reserves.
During the nine months ended September 30, 1998 and 1997, the Advisor
and its affiliates incurred on behalf of the Company $2,941,149 and $1,794,722,
respectively, for certain offering expenses, $799,419 and $428,114,
respectively, for certain acquisition expenses, and $557,862 and $291,633,
respectively, for certain operating expenses. As of September 30, 1998 and 1997,
the Company owed the Advisor and its affiliates $2,552,411 and $1,219,457,
respectively, for such amounts, unpaid fees and administrative expenses
(including services for accounting; financial, tax and regulatory compliance and
reporting; lease and loan compliance; stockholder distributions and reporting;
due diligence and marketing; and investor
26
<PAGE>
Liquidity and Capital Resources - Continued
relations). As of November 2, 1998, the Company had reimbursed all such amounts.
The Advisor has agreed to pay or reimburse to the Company all offering expenses
in excess of three percent of the gross proceeds from the Company's 1998
Offering. As of September 30, 1998, the offering expenses had not exceeded this
amount.
During the nine months ended September 30, 1998 and 1997, the Company
generated cash from operations (which includes cash received from tenants and
interest and other income received, less cash paid for operating expenses) of
$26,950,631 and $10,800,147, respectively. Based on cash from operations, the
Company declared and paid distributions to its stockholders of $26,459,880 and
$10,879,969 during the nine months ended September 30, 1998 and 1997,
respectively. In addition, on October 1, 1998 and November 1, 1998, the Company
declared distributions to its stockholders totaling $4,015,395 and $4,303,336,
respectively, payable in December 1998. For the nine months ended September 30,
1998 and 1997, approximately 86 and 92 percent, respectively, of the
distributions received by stockholders were considered to be ordinary income and
approximately 14 and eight percent, respectively, were considered a return of
capital for federal income tax purposes. However, no amounts distributed or to
be distributed to the stockholders as of November 1, 1998, are required to be or
have been treated by the Company as a return of capital for purposes of
calculating the stockholders' return on their invested capital.
Management believes that the Properties are adequately covered by
insurance. In addition, the Advisor has obtained contingent liability and
property coverage for the Company. This insurance policy is intended to reduce
the Company's exposure in the unlikely event a tenant's insurance policy lapses
or is insufficient to cover a claim relating to a Property.
The Company's investment strategy of acquiring Properties for cash and
leasing them under triple-net leases to operators who meet specified financial
standards is expected to minimize the Company's other operating expenses.
Due to the fact that the Properties are leased on a long-term,
triple-net basis, management does not believe that working capital reserves are
necessary at this time. Management has the right to cause the Company to
maintain reserves if, in their discretion, they determine such reserves are
required to meet the Company's working capital needs.
Management expects that the cash generated from operations will be
adequate to pay operating expenses.
The Company formed a special committee (the "Special Committee")
consisting of the Independent Directors for the purpose of evaluating strategic
alternatives designed to maximize stockholder value. The Special Committee
retained the investment banking firms of Merrill Lynch, Pierce, Fenner & Smith,
Incorporated and Solomon Smith Barney Holdings, Inc. (the "Advising Firms") to
advise the Special Committee regarding its strategic alternatives. On July 17,
1998, the Advising Firms presented their findings and supporting financial
information to the Special Committee. Based on the reports of the Advising Firms
and its own analyses, on July 20,
27
<PAGE>
Liquidity and Capital Resources - Continued
1998, the Special Committee unanimously agreed to present the recommendations
described below to the full Board of Directors. The full Board of Directors
unanimously adopted the recommendations of the Special Committee at a meeting
held on July 24, 1998.
In summary, the Special Committee concluded that the best means to
maximize stockholder value would be for the Company to (i) significantly
increase the size of the Company by acquiring from affiliates of the Company's
Advisor portfolios of Properties similar to those currently held by the Company;
(ii) become internally advised and acquire internal real estate development
capability by acquiring the Advisor; (iii) expand its mortgage lending
capabilities by acquiring an affiliate of the Advisor, thus allowing the Company
to offer a full range of financing options to restaurant operators; and (iv)
list its common stock on a national stock exchange, assuming market conditions
are favorable.
The Special Committee recommended that the Company seek to list its
common stock either concurrently with the acquisitions described below or as
shortly thereafter as market conditions are deemed to be favorable for such
listing. The Special Committee further recommended that the Company evaluate a
public offering of its common stock concurrently with the listing of its shares.
The acquisitions of portfolios of restaurant Properties and certain
related restaurant businesses owned by affiliates are subject to the Company
negotiating acceptable purchase prices and other acquisition terms with each of
the sellers and obtaining approval of the acquisitions by the limited partners
and/or the shareholders of the affiliates. Accordingly, the acquisition of such
entities is not assured.
In addition, in order to effect the acquisitions, the Company will need
to increase its authorized common stock, which requires the approval of the
Company's stockholders. It is expected that the request for a vote on such
increase will be presented to the stockholders in early 1999. In connection with
such vote, complete information on the proposed transaction will be delivered to
the Company's stockholders. Prior to seeking that vote, the Company will obtain
and furnish to the stockholders an opinion of a third party that the
consideration proposed to be paid by the Company for the acquisitions is fair to
the Company from a financial point of view.
On October 13, 1998, the Board of Directors elected to terminate the
Company's reinvestment plan. The Board of Directors based this decision on (i)
the fact that the Company may issue shares under the reinvestment plan only
pursuant to an effective registration statement, (ii) the likelihood that the
1998 Offering will be completed prior to the next distribution date of the
Company and (iii) a determination that it is not in the best interest of the
Company at this time to obtain the effectiveness of a registration statement
relating solely to the issuance of shares pursuant to the reinvestment plan.
The Board of Directors may determine to reinstate the reinvestment plan
in the future subject to obtaining the effectiveness of a registration statement
relating solely to the issuance of shares pursuant to the reinvestment plan.
28
<PAGE>
Liquidity and Capital Resources - Continued
The shares offered and previously reserved for issuance pursuant to the
reinvestment plan will be available for sale to the public through the 1998
Offering.
The Board of Directors also elected to implement the Company's
redemption plan. Under the redemption plan, the Company may elect to redeem
shares, subject to the conditions and limitations described in the Company's
prospectus (the "Prospectus") as modified by the description below.
At any time, including any time during which the Company is engaged in
a public offering, and prior to such time, if any, as Listing occurs, any
stockholder who purchases shares in the Company's offering or otherwise from the
Company, may present all or any portion equal to at least 25% of such
stockholder's shares to the Company for redemption, in accordance with the
procedures outlined in the Prospectus. At such time, the Company may, at its
option, use up to the full amount of proceeds, if any, from the sale of shares
under the reinvestment plan attributable to a calendar quarter to redeem shares
presented for redemption during such quarter. In addition, the Company may, at
its option, use up to $100,000 per calendar quarter of the proceeds of any
public offering of its shares to redeem shares. Any amount of offering proceeds
which is available for redemptions, but which is unused, may be carried over to
the next succeeding calendar quarter for use in addition to the amount of
offering proceeds and the full amount of proceeds from the sale of shares under
the reinvestment plan that would otherwise be available for redemptions. At no
time during a 12-month period, however, may the number of shares redeemed by the
Company exceed 5% of the number of shares of the Company's outstanding common
stock at the beginning of such 12-month period, even if the amount of offering
proceeds and proceeds from the sale of shares under the reinvestment plan that
would otherwise be available for redemptions would allow the Company to redeem a
greater number of shares.
In addition, the Board of Directors approved an amendment to the
advisory agreement providing for the payment of acquisition fees to the Advisor
for acquisitions made by the Company after the completion of the 1998 Offering
and the investment of all of the proceeds received by the Company from the 1998
Offering (the "Offering Completion Date"). After the Offering Completion Date,
the Company intends to continue to expand its Property portfolio by acquiring
additional Properties using funds from its line of credit. Under the previous
advisory agreement, the Advisor had no incentive to continue providing
acquisition services after the Offering Completion Date because acquisition fees
were limited to 4.5% of the gross proceeds raised by the Company from equity
offerings of the Company. The Advisor has not been paid an acquisition fee for
Properties acquired by the Company using funds from the line of credit, and will
not be paid an acquisition fee for Properties so acquired prior to the Offering
Completion Date, because it is expected that a portion of the proceeds raised by
the Company in the 1998 Offering (on which the Advisor will already have
received an acquisition fee) will be used to repay advances under the line of
credit used to acquire Properties prior to the Offering Completion Date.
29
<PAGE>
Liquidity and Capital Resources - Continued
In order to provide incentive to the Advisor to continue providing
acquisition services after the Offering Completion Date, the Board of Directors
deemed it to be in the best interests of the Company that the Company pay the
Advisor an acquisition fee, in connection with Properties acquired after the
Offering Completion Date, equal to 4.5% of the purchase price paid by the
Company. The Board of Directors believes that paying acquisition fees after the
Offering Completion Date will permit the Company to continue to benefit from the
Advisor's acquisition expertise and more effectively enhance stockholder value
through the continued expansion of the Company's Property portfolio.
Results of Operations
As of September 30, 1998, the Company had purchased and entered into
long-term, triple-net leases for 357 Properties.
The Property leases provide for minimum base annual rental payments
ranging from approximately $61,900 to $467,500, which are payable in monthly
installments. In addition, certain leases provide for percentage rent based on
sales in excess of a specified amount. The majority of the leases also provide
that, commencing in generally the sixth lease year, the annual base rent
required under the terms of the leases will increase. In connection therewith,
the Company earned $22,947,199 in rental income from operating leases and earned
income from direct financing leases from 357 Properties and 30 Secured Equipment
Leases during the nine months ended September 30, 1998, and $9,636,626 from 219
Properties and 23 Secured Equipment Leases during the nine months ended
September 30, 1997 ($9,139,578 and $4,671,329 of which was earned during the
quarters ended September 30, 1998 and 1997, respectively). Because the Company
has not yet acquired all of its Properties and certain Properties were under
construction as of September 30, 1998, revenues for the nine months ended
September 30, 1998, represent only a portion of revenues which the Company is
expected to earn in future periods.
In October 1998, a tenant of 30 Boston Market Properties filed a
voluntary petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code.
For the nine months ended September 30, 1998, these Boston Market Properties
represented approximately 12 percent of the Company's total rental and earned
income. As a result of filing for bankruptcy, this tenant has the legal right to
reject or affirm one or more of its leases with the Company. To date, the tenant
has closed 13 Properties. Of the 13 Properties that have been closed, the tenant
has officially rejected nine leases which accounted for approximately four
percent of the Company's rental and earned income for the nine months ended
September 30, 1998. While the tenant has not rejected or affirmed the remaining
21 leases, there can be no assurance that the tenant will not reject some or all
of these leases in the future. The lost revenues resulting from the rejection by
the tenant of all 30 leases could have an adverse effect on the results and
operations of the Company if the Company is unable to re-lease the Properties in
a timely manner. Currently, the Company is actively marketing the 13 closed
Properties to existing and prospective clients and local and regional restaurant
operators.
30
<PAGE>
Results of Operations - Continued
As of September 30, 1998 and 1997, the Company had mortgage notes
receivable with carrying values of $18,503,397 and $17,657,131, respectively. In
connection therewith, the Company earned $1,301,493 and $1,252,326 in interest
income relating to such Mortgage Loans during the nine months ended September
30, 1998 and 1997, respectively, $437,444 and $437,134 of which was earned
during the quarters ended September 30, 1998 and 1997, respectively. The
increase during the nine months ended September 30, 1998, as compared to the
nine months ended September 30, 1997, was attributable to the Company entering
into new promissory notes in March 1997 and August 1998 in connection with
additional Mortgage Loans.
During the nine months ended September 30, 1998 and 1997, the Company
also earned $4,775,552 and $1,347,188, respectively, in interest income,
$1,839,871 and $419,384 of which was earned during the quarters ended September
30, 1998 and 1997, respectively, from promissory notes relating to Secured
Equipment Leases, from investments in certificates and from investments in money
market accounts or other short-term, highly liquid investments. The increase in
interest income is primarily attributable to the Company accepting additional
promissory notes relating to equipment loans and investing in Certificates
subsequent to September 30, 1997. Interest income is expected to increase as the
Company invests subscription proceeds received in the future relating to the
1998 Offering in short-term highly liquid investments pending investment in
Properties and Mortgage Loans. However, as net offering proceeds are invested in
Properties and used to make Mortgage Loans, interest income from investments in
money market accounts or other short-term, highly liquid investments is expected
to decrease.
Operating expenses, including depreciation and amortization expense,
were $5,877,986 and $2,491,055 for the nine months ended September 30, 1998 and
1997, respectively, of which $2,279,761 and $1,018,642 were incurred for the
quarters ended September 30, 1998 and 1997, respectively. Total operating
expenses increased primarily as a result of the Company owning additional
Properties during the quarter and nine months ended September 30, 1998, as
compared to the quarter and nine months ended September 30, 1997. General and
administrative expenses as a percentage of total revenues is expected to
decrease as the Company acquires additional Properties, invests in additional
Mortgage Loans and the Properties under construction and renovation become
operational. However, asset management fees, and depreciation and amortization
expense are expected to increase as the Company invests in additional Properties
and Mortgage Loans.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires the reporting of net earnings and all other changes to equity during
the period, except those resulting from investments by owners and distributions
to owners, in a separate statement that begins with net earnings. Currently, the
Company's only component of comprehensive income is net earnings.
31
<PAGE>
Results of Operations - Continued
In March 1998, the Emerging Issues Task Force of the Financial
Accounting Standards Board ("FASB") reached a consensus in EITF 97-11, entitled
"Accounting for Internal Costs Relating to Real Estate Property Acquisitions."
EITF 97-11 provides that internal costs of identifying and acquiring operating
Property should be expensed as incurred. Due to the fact that the Company does
not have an internal acquisitions function and instead, contracts these services
from an external advisor, the effectiveness of EITF 97-11 had no material effect
on the Company's financial position or results of operations.
In May 1998, the Emerging Issues Task Force of the FASB reached a
consensus in EITF 98-9, entitled "Accounting for Contingent Rent in the Interim
Financial Periods." Adoption of this consensus did not have a material effect on
the Company's financial position or results of operations.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"). FAS 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company).
FAS 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. Management of the Company anticipates that, due
to its limited use of interest rate swaps, the adoption of FAS 133 will not have
a significant effect on the Company's results of operations or its financial
position.
The Year 2000 problem is the result of information technology systems
and embedded systems (products which are made with microprocessor (computer)
chips such as HVAC systems, physical security systems and elevators) using a
two-digit format, as opposed to four digits, to indicate the year. Such
information technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.
The Company does not have any information technology systems. The
Advisor of the Company provides all services requiring the use of information
technology systems pursuant to a management agreement with the Company. The
maintenance of embedded systems, if any, at the Company's properties is the
responsibility of the tenants of the properties in accordance with the terms of
the Company's leases. The Advisor has established a team dedicated to reviewing
the internal information technology systems used in the operation of the
Company, and the information technology and embedded systems and the Year 2000
compliance plans of the Company's tenants, significant suppliers, financial
institutions and transfer agent.
The information technology infrastructure of the Advisor consists of a
network of personal computers and servers that were obtained from major
suppliers. The Advisor utilizes various administrative and financial software
applications on that infrastructure to perform the
32
<PAGE>
Results of Operations - Continued
business functions of the Company. The inability of the Advisor to identify and
timely correct material Year 2000 deficiencies in the software and/or
infrastructure could result in an interruption in, or failure of, certain of the
Company's business activities or operations. Accordingly, the Advisor has
requested and are evaluating documentation from the suppliers of the Advisor
regarding the Year 2000 compliance of their products that are used in the
business activities or operations of the Company. The costs expected to be
incurred by the Advisor to become Year 2000 compliant will be incurred by the
Advisor; therefore, these costs will have no impact on the Company's financial
position or results of operations.
The Company has material third party relationships with its tenants,
financial institutions and transfer agent. The Company depends on its tenants
for rents and cash flows, its financial institutions for availability of cash
and its transfer agent to maintain and track investor information. If any of
these third parties are unable to meet their obligations to the Company because
of the Year 2000 deficiencies, such a failure may have a material impact on the
Company. Accordingly, the Advisor has requested and is evaluating documentation
from the Company's tenants, financial institutions, and transfer agent relating
to their Year 2000 compliance plans. At this time, the Advisor has not yet
received sufficient certifications to be assured that the tenants, financial
institutions, and transfer agent have fully considered and mitigated any
potential material impact of the Year 2000 deficiencies. Therefore, the Advisor
does not, at this time, know of the potential costs to the Company of any
adverse impact or effect of any Year 2000 deficiencies by these third parties.
The Advisor currently expects that all year 2000 compliance testing and
any necessary remedial measures on the information technology systems used in
the business activities and operations of the Company will be completed prior to
June 30, 1999. Based on the progress the Advisor has made in identifying and
addressing the Company's Year 2000 issues and the plan and timeline to complete
the compliance program, the Advisor does not foresee significant risks
associated with the Company's Year 2000 compliance at this time. Because the
Advisor is still evaluating the status of the systems used in business
activities and operations of the Company and the systems of the third parties
with which the Company conducts its business, the Advisor has not yet developed
a comprehensive contingency plan and is unable to identify "the most reasonably
likely worst case scenario" at this time. As the Advisor identifies significant
risks related to the Company's Year 2000 compliance or if the Company's Year
2000 compliance program's progress deviates substantially from the anticipated
timeline, the Advisor will develop appropriate contingency plans.
33
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities and Use of Proceeds. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 CNL American Properties Fund, Inc. Amended
and Restated Articles of Incorporation, as
amended (Included as Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998 and
incorporated herein by reference.)
3.2 CNL American Properties Fund, Inc. Amended
and Restated Bylaws (Included as Exhibit 3.2
to Registration Statement No. 333-37657 on
Form S-11 and incorporated herein by
reference.)
4.1 Amended Reinvestment Plan (Included as
Exhibit 4.4 to Registration Statement No.
333-37657 on Form S-11 and incorporated
herein by reference.)
4.2 Form of Stock Certificate (Included as
Exhibit 4.5 to Registration Statement No.
33-78790 on Form S-11 and incorporated
herein by reference.)
10.1 Advisory Agreement, dated as of April 24,
1998, between CNL American Properties Fund,
Inc. and CNL Fund Advisors, Inc. (Included
as Exhibit 10.10 to Registration Statement
No. 333-37657 on Form S-11 and incorporated
herein by reference.)
10.2 Amended Reinvestment Plan (Included as
Exhibit 4.4 to Registration Statement No.
333-37657 on Form S-11 and incorporated
herein by reference.)
34
<PAGE>
10.3 Form of Indemnification Agreement dated as
of April 18, 1995, between CNL American
Properties Fund, Inc. and each of James M.
Seneff, Jr., Robert A. Bourne, G. Richard
Hostetter, J. Joseph Kruse, Richard C.
Huseman, John T. Walker, Jeanne A. Wall,
Lynn E. Rose and Edgar J. McDougall; dated
as of January 27, 1997 between CNL American
Properties Fund, Inc. and Steven D.
Shackelford; and dated as of February 18,
1998 between CNL American Properties Fund,
Inc. and Curtis B. McWilliams (Included as
Exhibit 10.9 to Registration Statement No.
333-15411 on Form S-11 and incorporated
herein by reference.)
10.4 Agreement of Limited Partnership of CNL APF
Partners, LP (Included as Exhibit 10.4 to
the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998 and
incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) The Company filed one report on Form 8-K, reporting
the formation and recommendations of a special
committee of the Board of Directors, on July 27,
1998. The recommendations of the special committee
are set forth in detail in this report on Form 10-Q
under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 13th day of November, 1998.
CNL AMERICAN PROPERTIES FUND, INC.
By: /s/ James M. Seneff, Jr.
------------------------------
JAMES M. SENEFF, JR.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Steven D. Shackelford
------------------------------
STEVEN D. SHACKELFORD
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL American Properties Fund, Inc. at September 30, 1998, and its
statement of income for the nine months then ended and is qualified in its
entirety by reference to the Form 10-Q of CNL American Properties Fund, Inc. for
the nine months ended September 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 90,674,289<F2>
<SECURITIES> 16,200,316
<RECEIVABLES> 889,510
<ALLOWANCES> 314,406
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 304,001,364
<DEPRECIATION> 5,033,392
<TOTAL-ASSETS> 566,383,967
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 621,187
<OTHER-SE> 551,284,195
<TOTAL-LIABILITY-AND-EQUITY> 566,383,967
<SALES> 0
<TOTAL-REVENUES> 29,065,110
<CGS> 0
<TOTAL-COSTS> 5,877,986
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,163,853
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,163,853
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,163,853
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
<FN>
<F1>Due to the nature of its industry, CNL American Properties Fund, Inc. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
<F2>Includes $2,007,800 in certificates of deposit.
</FN>
</TABLE>
