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, 1999
----------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from _______________________ to _____________________
Commission file number
0-28380
---------------------------------------
CNL American Properties Fund, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 59-3239115
- ------------------------------------ -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- ----------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
-----------------------------------------
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.
43,495,919 shares of common stock, $.01 par value, outstanding as of November
12, 1999.
<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 and Comprehensive
Income/(Loss) 3
Condensed Consolidated Statements of Cash Flows 4-5
Notes to Condensed Consolidated Financial
Statements 6-24
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 25-39
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 39
Part II
Other Information 40-47
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
September 30, December 31,
1999 1998
----------------- -----------------
ASSETS
Land and buildings on operating leases, less accumulated
depreciation and allowance for loss on land and buildings $ 612,738,338 $ 393,339,334
Net investment in direct financing leases 143,742,922 91,675,650
Investment in joint venture 1,078,832 988,078
Mortgage notes receivable 80,233,625 19,631,693
Equipment and other notes receivable 42,065,567 19,377,380
Other investments 52,773,100 16,201,014
Cash and cash equivalents 5,695,904 123,199,837
Certificates of deposit -- 2,007,540
Receivables, less allowance for doubtful accounts
of $1,591,936 and $1,069,024 in 1999 and 1998, respectively 2,190,984 526,650
Accrued rental income 7,037,556 3,959,913
Due from related party 191,013 --
Intangibles and other assets 27,270,434 9,444,924
Goodwill, net of accumulated amortization 49,833,539 --
----------------- -----------------
$1,024,851,814 $ 680,352,013
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ 256,000,000 $ 10,143,044
Mortgage warehouse facility 44,484,588 --
Accrued construction costs payable 13,167,931 4,170,410
Accounts payable and accrued expenses 3,928,821 1,035,436
Due to related parties 2,916,161 1,308,464
Rents paid in advance 1,417,663 954,271
Deferred rental income 3,228,909 1,189,883
Other payables 2,081,812 458,402
----------------- -----------------
Total liabilities 327,225,885 19,259,910
----------------- -----------------
Minority interests 892,836 281,817
----------------- -----------------
Commitments and Contingencies (Note 15)
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 62,500,000
shares, issued 43,533,221 and 37,372,684 shares,
respectively, 434,958 373,379
outstanding 43,495,919 and 37,337,927 shares, respectively
Capital in excess of par value 792,885,350 669,983,438
Accumulated other comprehensive income/(loss) (215,934) --
Accumulated distributions in excess of net earnings (96,371,281) (9,546,531 )
----------------- -----------------
Total stockholders' equity 696,733,093 660,810,286
----------------- -----------------
$1,024,851,814 $ 680,352,013
================= =================
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Quarter Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
--------------- -------------- -------------- ---------------
Revenues:
Rental income from operating leases $ 12,771,149 $ 6,310,554 $ 34,959,700 $17,322,785
Earned income from direct
financing leases 3,348,946 2,829,024 9,061,289 5,624,414
Interest income from mortgage,
equipment and other notes
receivable 2,095,347 437,444 4,136,067 1,301,493
Investment and interest income 1,347,926 1,839,871 3,498,586 4,775,552
Other income 367,525 19,139 425,606 40,866
--------------- -------------- -------------- ---------------
19,930,893 11,436,032 52,081,248 29,065,110
--------------- -------------- -------------- ---------------
Expenses:
General operating and administrative 1,861,210 502,169 4,105,618 1,539,004
Interest expense 3,584,675 -- 3,584,675 --
Asset management fees to
related party 796,664 518,533 2,478,534 1,248,393
State and other taxes 93,250 214,866 558,216 397,569
Depreciation and amortization 2,555,424 1,044,193 6,267,098 2,693,020
Transaction costs 620,946 -- 1,103,951 --
Advisor acquisition expense 76,384,337 -- 76,384,337 --
--------------- -------------- -------------- ---------------
85,896,506 2,279,761 94,482,429 5,877,986
--------------- -------------- -------------- ---------------
Earnings/(Losses) Before Minority Interest in
Income of Consolidated Joint Ventures,
Equity in Earnings of Unconsolidated
Joint Venture, Loss on Sales
of Properties, and Provision for
Losses on Buildings (65,965,613 ) 9,156,271 (42,401,181 ) 23,187,124
Minority Interest in Income of
Consolidated Joint Ventures (8,008 ) (7,787 ) (25,618 ) (23,167 )
Equity in Earnings/(Loss) of Unconsolidated
Joint Venture 24,046 (104 ) 72,897 (104 )
Loss on Sales of Properties (368,963 ) -- (570,806 ) --
Provision for Losses on Buildings 136,904 -- (403,618 ) --
--------------- -------------- -------------- ---------------
Net Earnings/(Loss) $ (66,181,634 ) $ 9,148,380 $ (43,328,326 ) $ 23,163,853
=============== ============== ============== ===============
Earnings/(Loss) Per Share of Common
Stock (Basic and Diluted) $ (1.68 ) $ 0.32 $ (1.14 ) $ 0.97
=============== ============== ============== ===============
Weighted Average Number of Shares
of Common Stock Outstanding 39,353,069 28,210,966 38,023,623 23,816,954
=============== ============== ============== ===============
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME/(LOSS) Nine Months Ended September
30, 1999 and Year Ended December 31, 1998
Accumulated
Common stock distributions Accumulated
----------------------- Capital in in excess Other
Number Par excess of of net Comprehensive Comprehensive
of shares value par value earnings Income/(Loss) Total Income/(Loss)
----------- ---------- ------------- -------------- ------------- ------------- --------------
Balance at
December 31, 1997 18,096,486 $ 180,965 $323,706,926 $ (2,249,790 ) $ -- $321,638,101 $ --
Subscriptions received for
common stock through
public offerings
and distribution
reinvestment plan 19,276,198 192,762 385,331,204 -- -- 385,523,966 --
Retirement of
common stock (34,757 ) (348 ) (639,180 ) -- -- (639,528 ) --
Stock issuance costs -- -- (38,415,512 ) -- -- (38,415,512 ) --
Net earnings -- -- -- 32,152,408 -- 32,152,408 --
Distributions declared and
paid ($1.52 per share) -- -- -- (39,449,149 ) -- (39,449,149 ) --
----------- ---------- ------------- -------------- ------------ ------------- ------------
Balance at
December 31, 1998 37,337,927 373,379 669,983,438 (9,546,531 ) -- 660,810,286 --
Subscriptions received for
common stock through
public offering 10,537 105 210,631 -- -- 210,736 --
Stock issuance costs -- -- (196,354 ) -- -- (196,354 ) --
Common stock issued
through Merger 6,150,000 61,500 122,938,500 -- -- 123,000,000 --
Net earnings/(loss) -- -- -- (43,328,326 ) -- (43,328,326 ) $(43,328,326)
Other comprehensive
income/(loss), market
revaluation on
available for sale
securities -- -- -- -- (215,934 ) (215,934 ) (215,934)
Retirement of common
stock (2,545 ) (26 ) (50,865 ) -- -- (50,891 ) --
Distributions declared and
paid ($1.14 per share) -- -- -- (43,496,424 ) -- (43,496,424 ) --
----------- ---------- ------------- -------------- ------------ ------------- ------------
Balance at September 30,
1999 43,495,919 $ 434,958 $792,885,350 $ (96,371,281 ) $(215,934 ) $696,733,093 $(43,544,260)
=========== ========== ============= ============== ============ ============= =============
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1999 1998
------------------ -----------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 39,347,255 $ 26,950,631
------------------ -----------------
Cash Flows from Investing Activities:
Additions to land and buildings on operating leases (215,155,626 ) (103,003,646 )
Investment in direct financing leases (54,738,743 ) (73,492,036 )
Proceeds from sale of land, buildings and equipment
under direct financing leases 5,247,474 2,385,941
Investment in joint ventures (149,620 ) (633,101 )
Increase in other investments (33,538,228 ) (16,083,055 )
Investment in mortgage notes receivable (3,799,645 ) (1,090,000 )
Collections on mortgage notes receivable 393,468 222,879
Investment in equipment and other notes receivable (25,588,794 ) (3,363,600 )
Collections on equipment and other notes receivable 3,324,267 1,014,484
Proceeds from sale of loans 290,226,905 --
Redemption of certificates of deposit 2,000,000 --
Increase in intangibles and other assets (1,854,343 ) (2,705,428 )
------------------ -----------------
Net cash used in investing activities (33,632,885 ) (196,747,562 )
------------------ -----------------
Cash Flows from Financing Activities:
Reimbursement of acquisition and stock issuance costs
paid by related parties on behalf of the Company (1,492,231 ) (3,455,068 )
Proceeds from borrowing on line of credit 278,437,245 4,306,532
Payment on line of credit (32,580,289 ) --
Payments on mortgage warehouse facility (320,226,905 ) --
Payment of loan costs (3,869,432 ) --
Subscriptions received from stockholders 210,736 259,257,079
Distributions to minority interests (42,706 ) (25,429 )
Contributions from minority interests 628,107 --
Distributions to stockholders (43,496,424 ) (26,460,446 )
Retirement of shares of common stock (50,891 ) --
Payment of stock issuance costs (735,513 ) (22,653,996 )
Other -- (92,029 )
------------------ -----------------
Net cash provided by (used in) financing activities (123,218,303 ) 210,876,643
------------------ -----------------
Net Increase (Decrease) in Cash and Cash Equivalents (117,503,933 ) 41,079,712
Cash and Cash Equivalents at Beginning of Period 123,199,837 47,586,777
------------------ -----------------
Cash and Cash Equivalents at End of Period $ 5,695,904 $ 88,666,489
================== =================
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Nine Months Ended
September 30,
1999 1998
----------------- -----------------
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 $ 579,206 $ 799,419
Stock issuance costs 124,031 2,941,149
----------------- -----------------
$ 703,237 $ 3,740,568
================= =================
Land and buildings under operating leases
exchanged for land and buildings under
operating leases $ 652,356 $ 2,754,419
================= =================
</TABLE>
Detail of Acquisitions:
During the nine months ended September 30, 1999, the Company issued
3,800,000 shares of common stock ($76,000,000) to acquire the net assets of CNL
Fund Advisors, Inc. During the nine months ended September 30, 1999, the Company
also issued 2,350,000 shares of common stock ($47,000,000) to acquire the net
assets of CNL Financial Services, Inc. and CNL Financial Corporation and its
subsidiaries.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1999 and 1998
1. Organization and Nature of Business:
CNL American Properties Fund, Inc. was organized in Maryland on May 2,
1994. The term "Company" includes, unless the context otherwise
requires, CNL American Properties Fund, Inc., and its direct and
indirect subsidiaries. These subsidiaries include CNL APF Partners, LP,
a Delaware limited partnership formed in May 1998, and CNL APF GP Corp.
and CNL APF LP Corp., the general and limited partner, respectively, of
CNL APF Partners, LP. As a result of the mergers September 1, 1999 (See
Note 12), these subsidiaries also include CNL Fund Advisors, Inc., CNL
GP Holding Corp., CNL Financial LP Holding, LP, CNL Financial Services
GP Corp., and CNL Financial Services, LP. The Company offers financial,
development, advisory and other real estate services to operators of
selected national and regional fast food, family-style and
casual-dining restaurant chains.
2. Basis of Presentation:
The accompanying unaudited condensed 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, 1999, may not be
indicative of the results that may be expected for the year ending
December 31, 1999. Amounts as of December 31, 1998, 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, 1998.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
2. Basis of Presentation - Continued:
The Company determines the appropriate classification of other
investments at the time of purchase and re-evaluates such designation
at each balance sheet date. Investments classified as held to maturity
are carried at their amortized cost (which approximates market value).
Investments classified as available for sale securities are stated at
fair market value. The market value adjustment is included in the
accumulated other comprehensive income/(loss). Investments classified
as trading securities are recorded at the lower of cost or market,
using the aggregate loan basis. The Company recognizes interest income
using the effective interest method.
Goodwill represents the excess purchase price and related costs over
the fair value assigned to the net tangible assets/liabilities of CNL
Financial Services, Inc. and CNL Financial Corporation and Subsidiaries
acquired on September 1, 1999. (See Note 12). Goodwill is amortized on
a straight-line basis over 20 years. The Company reviews the impairment
of goodwill in accordance with Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". The measurement of
possible impairment is based primarily on the ability to recover the
balance of the goodwill from expected future operating cash flows on an
undiscounted basis. In management's opinion, no material impairment
exists at September 30, 1999.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display
of comprehensive income and its components in a full set of financial
statements. This statement requires the classification of items of
other comprehensive income by nature in a financial statement, and the
display of the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the
equity section of a consolidated balance sheet. The Company's only
component of other comprehensive income is the market revaluation on
available for sale securities.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
2. Basis of Presentation - Continued:
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities.
The Statement requires the recognition of all derivatives as either
assets or liabilities in the balance sheet and measurement of those
instruments at fair value. In June 1999, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of FASB Statement No. 133, an Amendment
of FASB Statement No. 133." Statement No. 137 defers the effective date
of Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" for one year. Statement No. 133, as amended is now
effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000.
Certain items in the prior year's financial statements have been
reclassified to conform with the 1999 presentation. These
reclassifications had no effect on stockholders' equity or net
earnings.
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 these 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.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
4. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at:
September 30, December 31,
1999 1998
--------------- --------------
Land $ 304,401,708 $ 210,451,742
Buildings 287,819,728 169,708,652
--------------- ---------------
592,221,436 380,160,394
Less accumulated depreciation (12,151,213 ) (6,242,782 )
--------------- ---------------
580,070,223 373,917,612
Construction in progress 33,465,819 20,033,256
--------------- ---------------
613,536,042 393,950,868
Less allowance for loss on
land and buildings (797,704 ) (611,534 )
--------------- ---------------
$ 612,738,338 $ 393,339,334
=============== ===============
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, 1999 and 1998, the Company recognized $3,887,459 and $2,315,968,
respectively (net of $188,970 and $431,270, respectively, in write-offs
and reserves during the nine months ended September 30, 1999), of such
rental income, $1,421,103 and $910,185 of which was earned during the
quarters ended September 30, 1999 and 1998, respectively.
At December 31, 1998, the Company had recorded provisions for losses on
land and buildings totaling $611,534 for financial reporting purposes
relating to two Shoney's Properties and two Boston Market Properties.
In addition, during the nine months ended September 30, 1999, the
Company recorded provisions for losses on buildings totaling $186,170
for financial reporting purposes relating to two additional Boston
Market Properties. The tenants of these Properties experienced
financial difficulties and ceased payment of rents under the terms of
their lease agreements. The allowances represented the difference
between the carrying value of the Properties at December 31, 1998 and
September 30, 1999, respectively, and the estimated net realizable
value for these Properties.
During the nine months ended September 30, 1999, the Company sold four
Properties, and received total net sale proceeds of $3,760,287,
resulting in a loss of $570,806 for financial reporting purposes.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
4. 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, 1999:
1999 $ 12,113,475
2000 48,974,183
2001 49,225,101
2002 50,053,971
2003 51,323,408
Thereafter 679,171,589
-------------------
$ 890,861,727
===================
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 15).
5. Net Investment in Direct Financing Leases:
The following lists the components of net investment in direct
financing leases at:
September 30, December 31,
1999 1998
-------------- ---------------
Minimum lease payments
receivable $287,959,885 $186,515,403
Estimated residual values 32,201,266 17,680,858
Interest receivable from
Secured Equipment Leases 103,178 81,690
Less unearned income (176,389,830 ) (112,602,301 )
Less allowance for loss on
direct financing leases (131,577 ) --
-------------- ---------------
Net investment in direct
financing leases $143,742,922 $ 91,675,650
============== ===============
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
5. 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, 1999:
1999 $ 4,968,647
2000 17,894,168
2001 17,666,640
2002 17,575,925
2003 17,425,770
Thereafter 212,428,735
------------------
$ 287,959,885
==================
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 4).
During the nine months ended September 30, 1999, the Company received
proceeds from various borrowers for the prepayment of nine Secured
Equipment Leases. The Company collected $1,487,187 which was
approximately equal to the net investment in the direct financing
leases at the time of the prepayment. As a result, no gain or loss was
recognized for financial reporting purposes.
6. Mortgage Notes Receivable:
Mortgage notes receivable consisted of the following at:
<TABLE>
<CAPTION>
<S> <C>
September 30, December 31,
1999 1998
----------------- ---------------
Outstanding principal $ 79,946,314 $ 19,272,171
Accrued interest income 367,607 79,034
Deferred financing income (108,800) (95,575 )
Unamortized loan costs 1,138,767 1,012,677
Provision for uncollectible
mortgage notes (948,560) (636,614 )
Allowance for lower of cost
or market (161,703) --
----------------- ---------------
$ 80,233,625 $ 19,631,693
================= ===============
</TABLE>
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
6. Mortgage Notes Receivable - Continued:
The amortization periods of the mortgage notes receivable range from
four to 20 years. The following is a schedule of the annual maturities
of the Company's outstanding mortgage notes receivable for the
remainder of 1999, each of the next four years and thereafter:
Fiscal Year Amount
----------------- -------------------
1999 $ 2,013,827
2000 4,043,704
2001 2,680,976
2002 3,259,590
2003 3,060,602
Thereafter 64,887,615
-------------------
$ 79,946,314
===================
The Company believes, based on current terms, that the carrying values
of the mortgage notes receivables at September 30, 1999 approximated
fair value. The fair value of the mortgage notes receivable is
estimated based on one of the following methods: (i) quoted market
prices, (ii) current rates for similar issues, or (iii) present value
of the expected cash flows.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
7. Other Investments:
During the nine months ended September 30, 1999, the Company reassessed
the classification of certain of its franchise loan certificates
purchased in a mortgage loan securitization (the "Certificates") and
transferred the Certificates from the available for sale category to
the held to maturity category for financial reporting purposes. The
estimated fair value of the Certificates of $16,199,792 represented the
carrying value at the time of transfer resulting in no unrealized gains
or losses at the time of transfer. At September 30, 1999 and December
31, 1998, the estimated fair values of the Certificates classified as
held to maturity approximated their carrying values. The balance at
September 30, 1999 is $16,668,155.
On August 25, 1999, the Company created a $500 million loan sale
facility syndicated with two third parties. This facility permits the
Company to sell loans on a regular basis to a trust at an agreed upon
advance rate. Upon the sale of such loans, the Company acts as servicer
for the loans. Immediately following the acquisition of the CNL
Restaurant Financial Services Group, the Company sold loans with an
approximate principal balance of $300 million to the trust. The Company
took back a residual interest of $29,997,000, which is included in the
accompanying consolidated balance sheet as other investments and is
classified as a trading security. As of September 30, 1999, the
carrying value of this residual interest approximated its fair market
value.
In connection with the merger on September 1, 1999, the Company
acquired an investment in franchise loan certificates in the amount of
$6,323,879. The securities are classified as available for sale and
carried at fair market value. The unrealized loss at September 30, 1999
was $215,934, and is shown as accumulated other comprehensive
income/(loss) on the condensed consolidated balance sheet.
8. Line of Credit:
At December 31, 1998, the Company had a revolving $35,000,000 unsecured
line of credit with a bank which enabled the Company to receive
advances to provide equipment financing, to purchase and develop
Properties and to fund Mortgage Loans. In March 1999, the Company
obtained a new unsecured revolving credit facility in an amount up to
$200,000,000 (the "Credit Facility"). In conjunction with obtaining the
Credit Facility, the Company terminated and repaid the balance of
approximately $12,600,000 under the previous line of credit. In June
1999, the Company amended the Credit Facility to increase the borrowing
amount up to $300,000,000. In connection with obtaining the amended
Credit Facility, the Company incurred commitment fees, legal fees and
closing costs of $3,548,744. Interest on advances under the Credit
Facility is determined according to (i) a tiered rate structure up to a
maximum rate of 200 basis points above
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
8. Line of Credit - Continued:
LIBOR (based upon the Company's overall leverage ratio) or (ii) the
lenders' prime rate plus 0.25%, whichever the Company selects at the
time of each advance. As of September 30, 1999, the weighted average
interest rate on the outstanding amount was 7.19%. Interest incurred on
prime rate advances on the Credit Facility is payable monthly. LIBOR
rate advances have interest payment periods of one, two, three or nine
months, with interest payable at the end of the selected period (except
for six month loans, on which interest is payable at the end of three
and nine months). The principal balance, together with all unpaid
interest, is due in full upon termination of the facility on June 9,
2002. The terms of the agreement for the amended Credit Facility
include financial covenants which provide for the maintenance of
certain financial ratios. The Company was in compliance with all such
covenants as of September 30, 1999.
As of September 30, 1999 and December 31, 1998, $256,000,000 and
$10,143,044, respectively, of principal was outstanding relating to the
respective lines of credit. The Company believes, based on current
terms, that the carrying values of its lines of credit at September 30,
1999 and December 31, 1998 approximated fair value.
For the nine months ended September 30, 1999 and 1998, the Company
incurred interest costs (including amortization of loan costs) of
$6,428,035 and $213,769, respectively, $2,843,360 and $213,769 of which
were capitalized as part of the cost of buildings under construction.
For the nine months ended September 30, 1999 and 1998, the Company paid
interest of $4,855,341 and $206,982, respectively.
In June 1999, in connection with the amended Credit Facility, the
Company entered into an interest rate swap agreement. The purpose of
the interest rate swap agreement is to reduce the impact of changes in
interest rates on its floating rate Credit Facility. The agreement
effectively changes the Company's interest rate on $75,000,000 of the
outstanding floating rate Credit Facility to a fixed rate of 6.17% plus
the spread above LIBOR on related debt per annum, as of September 30,
1999. The Company is exposed to credit loss in the event of
nonperformance by the other party to the interest rate swap agreement;
however, the Company does not anticipate nonperformance by the
counterparty as they maintain long-term credit ratings of "A" or
better, as rated by Moody's or Standard & Poors.
The effective interest rate for the outstanding balance under the line
of credit of $256,000,000, as of September 30, 1999, as a result of the
impact of the interest rate swap in the amount of $75,000,000 was 7.42%
per annum.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
9. Mortgage Warehouse Facility:
At September 30, 1999, the Company had a $300 million mortgage
warehouse facility ("Warehouse Facility"). The Warehouse Facility
provides the Company the ability to provide mortgage financing to
restaurant franchisees and periodically securitize the loans through
the securitization market. The facility bears interest at a rate of
LIBOR plus 95 basis points per annum. As of September 30, 1999, the
Company had $44,484,588 outstanding under this Warehouse Facility. The
Company believes, based on current terms, that the carrying value at
September 30, 1999 approximates fair value.
The Company has initiated several interest rate swap agreements with
which it hedges the mortgages funded under the Warehouse Facility. The
Company believes that its interest rate risk related to the Warehouse
Facility has been mitigated by the use of interest rate swaps.
10. Stockholders' Equity:
On May 27, 1999, the stockholders approved a one-for-two reverse split
of common stock that was effective on June 3, 1999 with the filing of
the amended Articles of Incorporation with the Maryland Department of
Assessments and Taxation. All share and per share amounts have been
restated herein to reflect the one-for-two reverse stock split.
11. Distributions:
For the nine months ended September 30, 1999 and 1998, approximately 87
percent and 86 percent, respectively, of the distributions paid to
stockholders were considered ordinary income and approximately 13
percent and 14 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,
1999 and 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. The characterization for tax purposes
of distributions declared for the nine months ended September 30, 1999
may not be indicative of the results that may be expected for the year
ending December 31, 1999.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
12. Merger:
On September 1, 1999, the Company acquired CNL Fund Advisors, Inc. (the
"Advisor") through the exchange of 100% of the outstanding shares of
common stock of the Advisor for 3.8 million shares ($76,000,000) of the
Company's common stock. The acquisition of this entity was recorded
under the purchase method of accounting. The Company expensed the
excess purchase price (plus costs incurred related to the acquisition)
over the fair value of the net tangible assets acquired of $76,384,337
in accordance with generally accepted accounting principles under APB
Opinion No. 16, "Business Combinations".
In addition, on September 1, 1999, the Company acquired CNL Financial
Services, Inc. and CNL Financial Corporation and subsidiaries
(collectively "CNL Restaurant Financial Services Group") through the
exchange of 100% of the outstanding shares of common stock of those
entities for 2.35 million shares ($47,000,000) of the Company's common
stock. The acquisition was recorded under the purchase method of
accounting. The Company recognized the excess purchase price (plus
costs incurred related to the acquisition) over the fair value of the
net tangible assets/(liabilities) acquired of $50,042,048 as goodwill
in accordance with generally accepted accounting principles. The
Company recorded amortization expense relating to goodwill of $208,509
as of September 30, 1999.
Upon consummation of the mergers on September 1, 1999, all employees of
the two acquired entities became employees of the Company, and any
obligations for the Company to pay the Advisor fees (such as
acquisition fees and asset management fees) under the advisory
agreement terminated.
As consideration in its acquisition of the Advisor and CNL Restaurant
Financial Services Group, the Company paid 6.15 million shares. Of the
6.15 million shares issued, 1.0 million are being held in escrow. The
shares held in escrow will be released to the former stockholders of
the Advisor and the CNL Restaurant Financial Services Group based on
the value of the restaurant Properties acquired, Mortgage Loans made
and development projects completed by the Company during the "escrow
term". The "escrow term" began on September 1, 1999 and ends 18 months
after the Company's shares are listed on the New York Stock Exchange.
If the Company fails, during the escrow term, to acquire restaurant
Properties, make Mortgage Loans and complete development projects of at
least $750 million in the aggregate, any shares remaining in escrow at
the end of the escrow term will be returned to the Company, and the
former stockholders of the Advisor and the CNL Restaurant Financial
Services Group will no longer have any rights to such Company shares.
The Company's Board of Directors may, in its reasonable discretion,
extend the escrow term for an additional six months following the
escrow term if it reasonably believes that it is in the Company's best
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
12. Merger - Continued:
interest to do so. Management believes that the total number shares
will be released from escrow during the term beyond a reasonable doubt,
and therefore, the shares have been included in the acquisition price
and included in issued and outstanding for financial reporting
purposes, even though the unearned shares are held in escrow at
September 30, 1999. As of September 30, 1999, approximately 33,000
shares were released from escrow.
The following unaudited pro forma financial information presents the
combined results of operations of the Company, the Advisor and the CNL
Restaurant Financial Services Group as if the acquisition had occurred
as of the beginning of each of the periods presented, after giving
effect to certain adjustments, including amortization of goodwill and
loan origination fees, expense of the Advisor, elimination of certain
intercompany expenses, and related income tax effects. The pro forma
financial information does not necessarily reflect the results of
operations that would have occurred had the Company, the Advisor and
the CNL Restaurant Financial Services Group constituted a single entity
during such periods.
<TABLE>
<CAPTION>
<S> <C>
Nine Months Ended September 30:
1999 1998
--------------------- ---------------------
(unaudited)
Total Revenues $ 64,758,300 $ 57,091,980
===================== =====================
Net Loss $ (57,700,004) $ (53,682,668 )
===================== =====================
Loss per Share (Basic and Diluted) $ (1.33) $ (1.79 )
===================== =====================
</TABLE>
13. Related Party Transactions:
During the nine months ended September 30, 1999 and September 30, 1998,
the Company incurred $15,805 and $19,444,281, respectively, in selling
commissions due to CNL Securities Corp. for services in connection with
a public offering of the Company's shares. A substantial portion of
these amounts ($14,751 and $18,148,849) were paid by CNL Securities
Corp. as commissions to other broker-dealers during the nine months
ended September 30, 1999 and 1998, respectively.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
13. Related Party Transactions - Continued:
In addition, CNL Securities Corp. received 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 was re-allowed to
other broker-dealers. During the nine months ended September 30, 1999
and September 30, 1998, the Company incurred $1,054 and $1,296,285,
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.
The Advisor prior to its acquisition by the Company, served as the
Company's advisor. The Advisor was entitled, until the merger,
effective September 1, 1999 (see Note 12) to receive certain fees
related to the operations and business acquisitions of the Company. The
fees paid to the Advisor described below were for the period January 1
through August 31, 1999.
Prior to the merger, the Advisor was 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 Mortgage Loans and other investments equal to 4.5% of the
total amount raised from the sale of shares through the Company's
public offerings. To the extent the Company used proceeds from its
Credit Facility to acquire Properties or make Mortgage Loans, the
Company also paid the Advisor an acquisition fee equal to 4.5% of the
purchase price paid by the Company for each Property or the amount of
each Mortgage Loan. During the nine months ended September 30, 1999 and
1998, the Company incurred $6,185,005 and $11,666,569, 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.
Prior to the merger, in connection with the acquisition of Properties,
subject to approval by the Company's Board of Directors, the Company
could incur development or construction management fees payable to a
subsidiary of the Advisor. Such fees were 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, 1999 and 1998, the Company incurred $56,352
and $166,876, respectively, of such fees relating to six and five
Properties, respectively.
In connection with the acquisition of Properties, subject to approval
by the Company's Board of Directors, the Company may incur advisory
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, 1999, the Company incurred $539,976 of
such fees relating to 25 Properties. No such fees were incurred for the
nine months ended September 30, 1998.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
13. Related Party Transactions - Continued:
Prior to the merger, for negotiating Secured Equipment Leases and
supervising the Secured Equipment Lease program, the Advisor was
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 each Secured Equipment Lease. During the nine months ended
September 30, 1999 and 1998, the Company incurred $77,317 and $22,426,
respectively, in Secured Equipment Lease servicing fees.
The Company and the Advisor entered had into an advisory agreement
pursuant to which the Advisor, prior to the merger, received 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
could not exceed competitive fees which were for similar services in
the same geographic area. During the nine months ended September 30,
1999 and 1998, the Company incurred $2,851,102 and $1,289,877,
respectively, of such fees, of which $372,568 and $41,484,
respectively, was capitalized as part of the cost of the buildings for
Properties under construction.
Prior to the merger, the Advisor and its affiliates provided
administrative services (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 relations) to the Company on a day-to-day basis as well as
services in connection with the offering of shares and services in
connection with the proposed mergers referred to in Notes 12 and 15.
The expenses incurred for these services were classified as follows for
the nine months ended September 30:
1999 1998
------------- ---------------
Stock issuance costs $ 56,634 $2,069,626
Transaction costs 463,050 --
General operating and
administrative expenses 1,160,524 773,806
------------- ---------------
$1,680,208 $2,843,432
============= ===============
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
13. Related Party Transactions - Continued:
During the nine months ended September 30, 1999 and 1998, the Company
acquired 41 Properties and two Properties, respectively, for
approximately $39,700,000 and $3,977,000, respectively, from affiliates
of 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. Of the 41 Properties
acquired from affiliates in 1999, 38 were acquired for a total purchase
price of approximately $36,800,000 from Commercial Net Lease Realty,
Inc. ("NNN"), a publicly traded real estate investment trust. James M.
Seneff, Jr., the Chairman of the Board of the Company, is the Chairman
of the Board and Chief Executive Officer of NNN and Robert A. Bourne,
Vice Chairman of the Board of the Company, is also Vice Chairman of the
Board of NNN. This transaction was approved by the Company's
independent directors.
The due to related parties consisted of the following at:
<TABLE>
<CAPTION>
<S> <C>
September 30, December 31, 1998
1999
------------------ -------------------
Due to the Advisor:
Expenditures incurred on behalf of the
Company and accounting and
administrative services $ -- $ 1,238,148
Acquisition fees -- 39,788
------------------ -------------------
-- 1,277,936
Due to CNL Securities Corp:
Commissions 30,528
--
Due to other affiliates 2,916,161 --
------------------ -------------------
$ 2,916,161 $ 1,308,464
================== ===================
</TABLE>
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
13. Related Party Transactions - Continued:
In connection with the mergers on September 1, 1999, the Company,
through acquisition of the Advisor on September 1, 1999, provides
certain services relating to management of related parties and their
properties pursuant to management agreements. Under these agreements,
the Company is responsible for collecting rental payments, inspecting
the properties and the tenants' books and records, assisting in
responding to tenant inquiries and notices and providing information to
the related parties about the status of the leases and the properties.
For these services, the related parties have agreed to pay the Company
an annual fee.
The due from related parties consisted of the following at:
September 30, December 31,
1999 1998
---------------- ----------------
Management Fee $ 126,429 $ --
Expenditures incurred on
behalf of the Company
for accounting and
administrative services 64,584 --
---------------- ----------------
$ 191,013 $ --
================ ================
14. Concentration of Credit Risk:
The following schedule presents rental, earned, investment 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, investment and interest income from its
Properties, Mortgage Loans, Secured Equipment Leases and Certificates
for each of the nine months ended September 30:
1999 1998
-------------- ------------
S & A Properties Corporation $5,291,312 $ N/A
Foodmaker, Inc. N/A 1,811,447
Phoenix Restaurant Group, Inc. N/A 1,771,121
Houlihan's Restaurants, Inc. N/A 1,650,339
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
14. Concentration of Credit Risk - Continued:
The information denoted by N/A indicates that for the applicable period
presented, the tenant or group of affiliated tenants did not represent
more than ten percent of the Company's total rental, earned, investment
and interest income.
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 lessees or
borrowers that contributes more than ten percent of the Company's
rental, earned, investment and interest income could significantly
impact the results of operations of the Company, if the Company is not
able to re-lease the Properties in a timely manner.
15. Commitments and Contingencies:
On March 11, 1999, the Company entered into agreements to acquire the
18 CNL Income Funds whose Properties are substantially the same type as
the Company's. In connection with these agreements, the Company agreed
to issue up to 30.5 million shares of common stock, after restatement
for the one-for-two reverse stock split.
Subsequent to entering into the merger agreements, the general partners
of the CNL Income Funds received a number of comments from
broker-dealers who sold units of CNL Income Fund XVII, Ltd. and CNL
Income Fund XVIII, Ltd. ("CNL Income Fund XVII and XVIII") concerning
the loss of passive income treatment in the event that those Income
Funds merged with the Company. On June 3, 1999, the general partners,
on behalf of CNL Income Funds XVII and XVIII, and the Company agreed
that it would be in the best interests of CNL Income Funds XVII and
XVIII and the Company that the Company not attempt to acquire CNL
Income Funds XVII and XVIII in the acquisition. Representatives of the
Company stated that they would, depending on market conditions, seek to
acquire CNL Income Funds XVII and XVIII after the Company was listed on
the New York Stock Exchange. The representatives further noted that
they would be willing to structure any future acquisition in a manner
so that the limited partners could retain passive income treatment most
likely by offering the limited partners an exchange offer whereby
limited partners would exchange their units of limited partnership
interest for the Company's common stock. Therefore, in June 1999, the
Company entered into termination agreements with CNL Income Funds XVII
and XVIII. The Company's Board of Directors accordingly reduced its
offer to acquire the 16 CNL Income Funds to an aggregate of
approximately 27.3 million shares of common stock. The acquisition of
each of the 16 CNL Income Funds is contingent upon certain conditions,
including approval by the Company's stockholders to increase the number
of authorized shares of common stock and approval of such acquisition
by greater than 50% of the outstanding limited partnership units of
such CNL Income Fund.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
15. Commitments and Contingencies - Continued:
On May 11, 1999, four limited partners in several CNL Income Funds
served a lawsuit against the general partners of the CNL Income Funds
and the Company in connection with the proposed merger with the CNL
Income Funds. On June 22, 1999, a limited partner in certain of the CNL
Income Funds served a lawsuit against the Company, the Advisors,
certain of its affiliates and the CNL Income Funds in connection with
the proposed merger with the CNL Income Funds.
On July 8, 1999, the plaintiffs in the lawsuit served on May 11, 1999
served and amended the complaint, naming three additional plaintiffs
and adding allegations of aiding and abetting and conspiring to breach
fiduciary duties and seeking additional equitable relief.
On September 23, 1999, the judge assigned to the two cases entered an
order consolidating the two cases. Pursuant to this order the
plaintiffs filed a consolidated and amended complaint on November 8,
1999. The various defendants, including the Company, have 45 days to
respond to that consolidated complaint. The Company and the general
partners of the CNL Income Funds believe that the lawsuits are without
merit and intend to defend vigorously against the claims. See Part II -
Item 1. Legal Proceedings.
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 or equipment
financing the Company has agreed to provide. 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. In addition,
through the acquisition of the Advisor, the Company has unfunded
letters of commitment to develop Properties for specific tenants. The
aggregate maximum development costs and unfunded letters of commitment
the Company has agreed to pay are approximately $266,492,526, of which
approximately $65,546,000 in land and other costs had been incurred as
of September 30, 1999. The buildings currently under construction or
renovation are expected to be operational by March 2000. In connection
with the purchase of each Property, the Company, as lessor, entered
into a long-term lease agreement.
In the ordinary course of business, the Company has outstanding loan
commitments to qualified borrowers that are not reflected in the
accompanying condensed consolidated financial statements. These
commitments, if accepted by the potential borrower, obligate the
Company to provide funding. The accepted and unfunded commitment
totaled approximately $223,969,000 at September 30, 1999.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED Quarters and Nine Months Ended September
30, 1999 and 1998
16. Subsequent Events:
On each of October 1, 1999 and November 1, 1999, the Company declared
distributions of $5,527,461, or $0.12708 per share of common stock,
payable in December 1999 to stockholders of record on October 1, 1999
and November 1, 1999, respectively.
During the period October 1, 1999 through November 5, 1999, the Company
obtained additional advances under its Credit Facility and acquired 20
Properties (11 of which are under construction) for cash at a total
cost of approximately $16,124,000. In connection with the purchase of
each of the 20 Properties, the Company, as lessor, entered into a
long-term lease agreement. In connection with the 11 Properties which
are under construction, the Company has committed to pay an additional
$7,158,000 in construction and development costs. The buildings under
construction are expected to be operational by May 2000.
On October 14, 1999, the Company entered into a line of credit
agreement in the amount of $147,000,000 which will expire in October
2002. The proceeds of the credit facility are intended to be used for
property acquisitions. Borrowings under the line of credit bear
interest at the rate of commercial paper plus 56 basis points per
annum. The credit facility is collateralized by a pledge of mortgages
on properties and an assignment of rents. Under the terms of the credit
facility, the Company is required to maintain certain financial ratios
and other financial covenants.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information, including, without limitation, the Year 2000
readiness disclosure and the quantitative and qualitative disclosures about
market risk 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. These statements generally are
characterized by the use of terms such as "believe," "expect" and "may."
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. Factors that might cause such a difference include:
changes in general economic conditions, changes in real estate conditions,
availability of capital from borrowings under the Company's credit facilities,
the availability of other debt and equity financing alternatives, increases in
interest rates under the Company's credit facility, Mortgage Warehouse line, an
additional line of credit and under any additional variable rate debt
arrangements that the Company may enter into the future, the ability of the
Company to refinance amounts outstanding under its credit facility at maturity
on terms favorable to the Company, the ability of the Company to locate suitable
tenants for its restaurant 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 and the ability of the
Company to re-lease properties that are currently vacant or that become vacant.
Given these uncertainties, readers are cautioned not to place undue reliance on
such statements.
The Company
CNL American Properties Fund, Inc. was organized in Maryland on May 2,
1994. The term "Company" includes, unless the context otherwise requires, CNL
American Properties Fund, Inc., and its direct and indirect subsidiaries. These
subsidiaries include CNL APF Partners, LP, a Delaware limited partnership formed
in May 1998, and CNL APF GP Corp. and CNL APF LP Corp. the general and limited
partner, respectively, of CNL APF Partners, LP. As a result of the mergers
September 1, 1999 (See "Merger"), these subsidiaries also include CNL Fund
Advisors, Inc., CNL GP Holding Corp., CNL Financial LP Holding, LP, CNL
Financial Services GP Corp., and CNL Financial Services, LP. The Company offers
financial, development, advisory and other real estate services to operators of
selected national and regional fast food, family-style and casual-dining
restaurant chains.
<PAGE>
Liquidity and Capital Resources
Common Share Offerings
The Company was formed in May 1994, at which time it received initial
capital contributions of $200,000 for 20,000 shares of common stock. Since
inception, the Company has completed three separate public offerings of shares
of common stock. The Company received the final proceeds of $210,736 from its
third public offering of common stock in January 1999, at which point the
Company had received aggregate subscription proceeds from its three offerings of
$747,464,420 (37,373,221 shares), including $5,572,261 (278,613 shares) issued
through the Company's reinvestment plan. Net proceeds to the Company from its
three offerings and the initial capital contributions, after deduction of stock
issuance costs, totaled $670,351,200, all of which have been invested in
Properties or Mortgage Loans.
On May 27, 1999, the stockholders approved a one-for-two reverse split
of common stock that was effective on June 3, 1999 with the filing of the
amended Articles of Incorporation with the Maryland Department of Assessments
and Taxation. All share and per share amounts have been restated herein to
reflect the one-for-two reverse stock split.
Debt Financing
Line of Credit
At December 31, 1998, the Company had a revolving $35,000,000 unsecured
line of credit with a bank which enabled the Company to receive advances to
provide equipment financing, to purchase and develop Properties and to fund
Mortgage Loans. In March 1999, the Company obtained a new unsecured revolving
credit facility in an amount up to $200,000,000 (the "Credit Facility"). In
conjunction with obtaining the Credit Facility, the Company terminated and
repaid the balance of approximately $12,600,000 under the previous line of
credit. In June 1999, the Company amended the Credit Facility to increase the
borrowing amount up to $300,000,000. In connection with obtaining the amended
Credit Facility, the Company incurred commitment fees, legal fees and closing
costs of $3,548,744. Interest on advances under the Credit Facility is
determined according to (i) a tiered rate structure up to a maximum rate of 200
basis points above LIBOR (based upon the Company's overall leverage ratio) or
(ii) the lenders' prime rate plus 0.25%, whichever the Company selects at the
time of each advance. As of September 30, 1999, the weighted average interest
rate on the outstanding amount was 7.19%. Interest incurred on prime rate
advances on the Credit Facility is payable monthly. LIBOR rate advances have
interest payment periods of one, two, three or nine months, with interest
payable at the end of the selected period (except for six month loans, on which
interest is payable at the end of three and nine months). The principal balance,
together with all unpaid interest, is due in full upon termination of the
facility on June 9, 2002. The terms of the agreement for the amended Credit
Facility include financial covenants which provide for the maintenance of
certain financial ratios. The Company was in compliance with all such covenants
as of September 30, 1999.
As of September 30, 1999 and December 31, 1998, $256,000,000 and
$10,143,044, respectively, of principal was outstanding relating to the
respective lines of credit. The Company believes, based on current terms, that
the carrying values of its lines of credit at September 30, 1999 and December
31, 1998 approximated fair value.
For the nine months ended September 30, 1999 and 1998, the Company
incurred interest costs (including amortization of loan costs) of $6,428,035 and
$213,769, respectively, $2,843,360 and $213,769 of which were capitalized as
part of the cost of buildings under construction. For the nine months ended
September 30, 1999 and 1998, the Company paid interest of $4,855,341 and
$206,982, respectively.
In June 1999, in connection with the amended Credit Facility, the
Company entered into an interest rate swap agreement. The purpose of the
interest rate swap agreement is to reduce the impact of changes in interest
rates on its floating rate Credit Facility. The agreement effectively changes
the Company's interest rate on $75,000,000 of the outstanding floating rate
Credit Facility to a fixed rate of 6.17% plus the spread above LIBOR on related
debt per annum, as of September 30, 1999. The Company is exposed to credit loss
in the event of nonperformance by the other party to the interest rate swap
agreement; however, the Company does not anticipate nonperformance by the
counterparty as they maintain long-term credit ratings of "A" or better, as
rated by Moody's or Standard & Poors.
The effective interest rate for the outstanding balance of
$256,000,000, as of September 30, 1999, as a result of the impact of the
interest rate swap in the amount of $75,000,000 was 7.42% per annum.
Mortgage Warehouse Facility
At September 30, 1999, the Company acquired a $300 million mortgage
warehouse facility ("Warehouse Facility"). The Warehouse Facility provides the
Company the ability to provide mortgage financing to restaurant franchisees and
periodically securitize the loans through the securitization market. The
facility bears an interest rate of LIBOR plus 95 basis points per annum. As of
September 30, 1999, the Company had approximately $44 million outstanding under
this Warehouse Facility. The Company believes, based on current terms, that the
carrying value at September 30, 1999 approximates fair value.
The Company has initiated several interest rate swap agreements with
which it hedges the mortgages funded under the Warehouse Facility. The Company
believes that its interest rate risk related to the Warehouse Facility has been
mitigated by the use of interest rate swaps.
Additional Line of Credit
On October 14, 1999, the Company entered into a line of credit
agreement in the amount of $147,000,000 which will expire in October 2002. The
proceeds of the credit facility are intended to be used for property
acquisitions. Borrowings under the line of credit bear interest at the rate of
commercial paper plus 56 basis points per annum. The credit facility is
collateralized by a pledge of mortgages on properties and an assignment of
rents. Under the terms of the credit facility, the Company is required to
maintain certain financial ratios and other financial covenants.
<PAGE>
Interest Rate Risk
As of September 30, 1999, the Company had $256,000,000 and $44,484,588
outstanding under its line of credit and Warehouse Facility, respectively. The
Company has exposure to interest rate risk associated with the Credit Facility
and Warehouse Facility due to the variable interest rates. The Company believes
this risk has been mitigated with the interest rate swap agreements to reduce
the impact of changes in interest rates on its floating rate debt (see "Debt
Financing").
Under interest rate swaps, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an agreed notional
principal amount. The table represents the notional amounts and expected
interest rates that exist by contractual dates; the notional amount is used to
calculate the payments to be exchanged under the contract. The variable rates
are estimated based on implied forward rates in the yield curve at the reporting
date.
2000 2001 2002
------------- ------------- ------------
Notional Amount $114,610,000 $113,280,000 $80,760,000
Average Pay Rate 6.41% 6.40% 6.48%
Average Receive Rate 6.00% 6.10% 6.25%
Property Acquisitions and Investments
During the nine months ended September 30, 1999, the Company used the
remaining net offering proceeds from its public offering of common stock,
proceeds from its Credit Facility, the net sales proceeds from the sale of four
Properties and cash collected from the prepayment of nine Secured Equipment
Leases to acquire 209 Properties (including 58 Properties on which a restaurant
was being constructed or renovated as of September 30, 1999), to fund Mortgage
Loans relating to Properties and to provide equipment financing. In connection
with the purchase of each Property, the Company, as lessor, entered into a
long-term lease agreement. The buildings under construction or renovation are
expected to be operational by March 2000.
During the nine months ended September 30, 1999, the Company incurred
$6,185,005 in acquisition fees, based on the amount of offering proceeds
received during the period and advances obtained from the Credit Facility, and
certain acquisition expenses payable to the Advisor in connection with the
acquisition of Properties, construction and renovation of Properties and
investment in Mortgage Loans. As a result of the acquisition of the Advisor on
September 1, 1999, the Company ceased to incur such acquisition fees, although,
it will continue to incur acquisition expenses.
During the period October 1, 1999 through November 5, 1999, the Company
used advances under its Credit Facility and additional line of credit totaling
approximately $16,124,000 to acquire 20 Properties (11 of which were under
construction or renovation as of November 5, 1999). In connection with the
purchase of each of the Properties, the Company, as lessor, entered into a
long-term lease agreement. The buildings under construction are expected to be
operational by May 2000.
The Company currently is negotiating to acquire additional Properties,
but as of November 5, 1999 had not acquired any such Properties.
Mergers
On September 1, 1999, the Company acquired CNL Fund Advisors, Inc. (the
"Advisor") through the exchange of 100% of the outstanding shares of common
stock of the Advisor for 3.8 million shares ($76,000,000) of the Company's
common stock. The acquisition of this entity was recorded under the purchase
method of accounting. The Company expensed the excess purchase price (plus costs
incurred related to the acquisition) over the fair value of the net tangible
assets acquired of $76,384,337 in accordance with generally accepted accounting
principles under APB Opinion No. 16, "Business Combinations".
In addition, on September 1, 1999, the Company acquired CNL Financial
Services, Inc. and CNL Financial Corporation and Subsidiaries (collectively,
"CNL Restaurant Financial Services Group") through the exchange of 100% of the
outstanding shares of common stock of these entities for 2.35 million shares
($47,000,000) of the Company's common stock. The acquisition was recorded under
the purchase method of accounting. The Company recognized the excess purchase
price (plus costs incurred related to the acquisition) over the fair value of
the net tangible assets acquired of $50,042,048 as goodwill in accordance with
generally accepted accounting principles. The Company recorded amortization
expense relating to goodwill of $208,509 as of September 30, 1999.
Upon consummation of the mergers on September 1, 1999, all employees of
the two acquired entities became employees of the Company, and any obligations
for the Company to pay the Advisor fees (such as acquisition fees and assets
management fees) to pay fees under the advisory agreement terminated.
As consideration in its acquisition of the Advisor and CNL Restaurant
Financial Services Group, the Company paid 6.15 million shares. Of the 6.15
million shares issued, 1.0 million are being held in escrow. The shares held in
escrow will be released to the former stockholders of the Advisor and the CNL
Restaurant Financial Services Group based on the value of the restaurant
Properties acquired, Mortgage Loans made and development projects completed by
the Company during the "escrow term". The "escrow term" began on September 1,
1999 and ends 18 months after the Company's shares are listed on the New York
Stock Exchange. If the Company fails, during the escrow term, to acquire
restaurant Properties, make Mortgage Loans and complete development projects of
at least $750 million in the aggregate, any shares remaining in escrow at the
end of the escrow term will be returned to the Company, and the former
stockholders of the Advisor and CNL Restaurant Financial Services Group will no
longer have any rights to such Company shares. The Company's Board of Directors
may, in its reasonable discretion, extend the escrow term for an additional six
months following the escrow term if it reasonably believes that it is in the
Company's best interest to do so. Management believes that the total number
shares will be released from escrow during the term beyond a reasonable doubt,
and therefore, the shares have been included in the acquisition price and
included in issued and outstanding for financial reporting purposes, even though
the unearned shares are held in escrow at September 30, 1999. As of September
30, 1999, approximately 33,000 shares have been released from escrow.
Other Investments
On August 25, 1999, the Company created a $500 million loan sale
facility syndicated with two third parties. This facility permits the Company to
sell loans on a regular basis to a trust at an agreed upon advance rate. Upon
the sale of such loans, the Company acts as servicer for the loans. Immediately
following the acquisition of the CNL Restaurant Financial Services Group on
September 1, 1999, the Company sold loans with an approximate principal balance
of $300 million to the trust. The Company took back a residual interest of
$29,997,000, which is included in the accompanying consolidated balance sheet in
other investments, and classified as a trading security. As of September 30,
1999, the carrying value of this residual interest approximated its fair market
value.
In connection with the merger on September 1, 1999, the Company
acquired an investment in franchise loan certificates in the amount of
$6,323,879. The securities are classified as available for sale and carried at
fair market value. The unrealized loss at September 30, 1999 was $215,934, and
is shown as accumulated other comprehensive income/(loss) on the condensed
consolidated balance sheet.
The Company is subject to market risk in the event the value of the
underlying mortgages decline.
Dispositions
During the nine months ended September 30, 1999, the Company sold four
properties and received total net sale proceeds of $3,760,287, resulting in a
total loss of $570,806 for financial reporting purposes.
During the second quarter of 1999, the Company received proceeds from
the prepayment of nine Secured Equipment Leases. The Company received net
proceeds totaling $1,487,187 which were approximately equal to the net
investment in the direct financing leases at the time of the prepayment. As a
result, no gain or loss was recognized for financial reporting purposes. The
Company used the net proceeds relating to the prepayment to repay amounts on the
line of credit.
Capital Commitments
In connection with the acquisition of the 58 Properties under
construction or renovation at September 30, 1999, the Company entered into
development agreements with tenants which provide terms and specifications for
the construction or renovation of buildings the tenants have agreed to lease or
equipment financing the Company has agreed to provide. 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. In addition, the Company, as a
result of the acquisition of the Advisor, has unfunded letters of commitment to
develop Properties for specific tenants. The aggregate maximum development costs
and unfunded letters of commitment the Company had agreed to pay as of September
30, 1999 were approximately $266,492,526, of which approximately $65,546,000 had
been incurred as of September 30, 1999. In addition, in connection with entering
into development agreements with tenants for the 11 Properties acquired during
the period October 1, 1999 through November 5, 1999, described above, which are
to be constructed, the Company has committed to pay an additional $7,158,000 in
construction and development costs.
In the ordinary course of business, the Company has outstanding
commitments to qualified borrowers that are not reflected in the accompanying
condensed consolidated financial statements. These commitments, if accepted by
the potential borrower, obligate the Company to provide funding. The accepted
and unfunded commitment totaled approximately $223,969,000 at September 30,
1999.
Cash and Cash Equivalents
At September 30, 1999 and December 31, 1998, the Company had $5,695,904
and $123,199,837, respectively, (including certificates of deposit of $2,007,540
at December 31, 1998), invested in short-term highly-liquid investments such as
demand deposits at commercial banks and money markets with less than a 30-day
maturity date. The decrease in the amount invested in short-term investments is
primarily attributable to the Company purchasing Properties during the nine
months ended September 30, 1999.
Liquidity Requirements
The Company expects to meet its short-term liquidity requirements,
other than for acquisition and development of Properties and investment in
Mortgage Loans and Secured Equipment Leases, through cash flow provided by
operating activities. The Company believes that cash flow provided by operating
activities will be sufficient to fund normal recurring operating expenses,
regular debt service requirements and distributions to stockholders. To the
extent that the Company's cash flow provided by operating activities is not
sufficient to meet such short-term liquidity requirements as a result, for
example, of unforeseen expenses due to tenants defaulting under the terms of
their lease agreements, the Company will use borrowings under its Credit
Facility or additional line of credit.
Due to the fact that the Company leases its Properties on a triple-net
basis, meaning that tenants are generally required to pay all repairs and
maintenance, property taxes, insurance and utilities, management does not
believe that working capital reserves are necessary at this time. Management
believes that the Properties are adequately covered by insurance. The Company
has obtained contingent liability and property coverage. 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 expects to meet its other short-term liquidity
requirements, including Property acquisition and development and investment in
Mortgage Loans and Secured Equipment Leases, with additional advances under its
Credit Facility, Warehouse Facility and additional line of credit. The Company
also intends to meet short-term liquidity requirements through using its
Warehouse Facility to fund the acquisition of Mortgage Loans and use the
proceeds from the sale of these Mortgage Loans to payoff the Warehouse Facility.
In addition, if the Company's common stock is listed on the New York Stock
Exchange in 2000, the Company may obtain additional debt and equity financing.
The Company expects to meet its long-term liquidity requirements
through short or long-term, unsecured or secured debt financing or equity
financing. As of November 5, 1999, the Company's only long-term liquidity
requirement was the maturities of its Credit Facility in June 2002 and the
additional line of credit in October 2002.
Distributions
During the nine months ended September 30, 1999 and 1998, 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
$39,347,255 and $26,460,446, respectively. Based primarily on cash from
operations, the Company declared and paid distributions to its stockholders of
$43,496,424 and $26,460,446 during the nine months ended September 30, 1999 and
1998, respectively. In addition, on each of October 1, 1999 and November 1,
1999, the Company declared distributions to its stockholders of $5,527,461,
payable in December 1999. For the nine months ended September 30, 1999 and 1998,
approximately 87 percent and 86 percent, respectively, of the distributions
received by stockholders were considered to be ordinary income and approximately
13 percent and 14 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 5, 1999, 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.
Amounts Due To Related Parties
During the nine months ended September 30, 1999 and 1998, the Advisor
and its affiliates incurred on behalf of the Company $124,031 and $2,941,149,
respectively, for certain offering expenses, $579,206 and $799,419,
respectively, for certain acquisition expenses, and $3,394,930 and $557,862,
respectively, for certain operating expenses. As of September 30, 1999 and 1998,
the Company owed its affiliates $2,916,161 and $2,552,411, 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 relations). As of November 5, 1999, the Company had
reimbursed all such amounts.
Proposed Mergers
On March 11, 1999, the Company entered into agreements to acquire the
18 CNL Income Funds and whose Properties are substantially the same type as the
Company's. In connection with these agreements, the Company agreed to issue up
to 30.5 million shares of common stock, after restatement for the one-for-two
reverse stock split.
Subsequent to entering into the merger agreements, the general partners
of the CNL Income Funds received a number of comments from broker-dealers who
sold units of CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII, Ltd. ("CNL
Income Fund XVII and XVIII") concerning the loss of passive income treatment in
the event that these Income Funds merged with the Company. On June 3, 1999, the
general partners, on behalf of CNL Income Funds XVII and XVIII, and the Company
agreed that it would be in the best interests of CNL Income Funds XVII and XVIII
and the Company that the Company not attempt to acquire CNL Income Funds XVII
and XVIII in the acquisition. Representatives of the Company stated that they
would, depending on market conditions, seek to acquire CNL Income Funds XVII and
XVIII after the Company was listed on the New York Stock Exchange. The
representatives further noted that they would be willing to structure any future
acquisition in a manner so that the limited partners could retain passive income
treatment most likely by offering the limited partners an exchange offer whereby
limited partners would exchange their units of limited partnership interest for
the Company's common stock. Therefore, in June 1999, the Company entered into
termination agreements with CNL Income Funds XVII and XVIII. The Company's Board
of Directors accordingly reduced its offer to acquire the 16 CNL Income Funds to
an aggregate of 27.3 million shares of common stock. The acquisition of each of
the 16 CNL Income Funds is contingent upon certain conditions, including
approval by the Company's stockholders to increase the number of authorized
shares of common stock and approval of such acquisition by greater than 50% of
the outstanding limited partnership units of such Income Fund.
On May 11, 1999, four limited partners in several CNL Income Funds
served a lawsuit against the general partners of the CNL Income Funds and the
Company in connection with the proposed merger with the CNL Income Funds. On
July 8, 1999, the plaintiffs amended the complaint to add three additional
limited partners as plaintiffs. Additionally, on June 22, 1999 a limited partner
in certain of the CNL Income Funds served a lawsuit against the Company, the
Advisor, certain of its affiliates and the CNL Income Funds in connection with
the proposed merger.
On September 23, 1999, the judge assigned to the two cases entered an
order consolidating the two cases. Pursuant to this order the plaintiffs in
these cases filed a consolidated and amended complaint on November 8, 1999. The
various defendants, including the Company, have 45 days to respond to that
consolidated complaint. The Company and the general partners of the CNL Income
Funds believe that the lawsuits are without merit and intend to defend
vigorously against the claims. See Part II - Item 1. Legal Proceedings.
Results of Operations
Revenues
The Company earned $44,020,989 in rental income from operating leases
and earned income from direct financing leases from 614 Properties and 61
Secured Equipment Leases structured as leases during the nine months ended
September 30, 1999, and $22,947,199 from 357 Properties and 30 Secured Equipment
Leases structured as leases during the nine months ended September 30, 1998
($16,120,095 and $9,139,578 of which was earned during the quarters ended
September 30, 1999 and 1998, respectively). The increase during the quarter and
nine months ended September 30, 1999, as compared to the quarter and nine months
ended September 30, 1998, was attributable to the Company investing in
additional Properties and Secured Equipment Leases. The increase in rental and
earned income was partially offset by the fact that the leases of 13 Boston
Market Properties were rejected subsequent to September 30, 1998, in connection
with the tenants filing for bankruptcy, as described below.
In October 1998, Boston Chicken, Inc. and its affiliates, which at that
time leased 28 Boston Market Properties from the Company, filed a voluntary
petition for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code.
Two additional Boston Market operators, which leased three Boston Market
Properties from the Company also filed voluntary petitions for bankruptcy
protection. As a result of these bankruptcy filings, the tenants had the legal
right to either reject or affirm one or more of their leases with the Company.
As of December 31, 1998, the tenants had closed 13 Properties, of these 13
Properties the tenants had rejected the related leases for 12 of the Properties
and continued paying rent in accordance with the lease for one of the
Properties. The rejected leases accounted for approximately three percent of the
Company's rental, earned and interest income for the year ended December 31,
1998. During the nine months ended September 30, 1999, the Company re-leased
four of the Properties to new tenants. In each of April and August 1999, the
Company sold one of the Properties to a third party, as described above in
"Liquidity and Capital Resources-Dispositions," and reinvested the net sales
proceeds in additional Properties. In April 1999, one of the Boston Market
tenants who had filed for bankruptcy during 1998, rejected the lease of an
additional Property. As of November 5, 1999, of the 28 Properties remaining in
the Company's portfolio relating to these tenants (excluding the two Properties
sold in 1999, described above), the Company had re-leased four Properties to new
tenants, as described above, had ceased receiving rental payments for seven
Properties, the leases of which had been rejected and which remained vacant, and
continued to receive rental payments for 17 Properties (including the Property
that was closed in October 1998 but the lease of which has not been rejected).
While the tenants have not rejected or affirmed the remaining 17 leases, there
can be no assurance that some or all of these leases will not be rejected in the
future. The lost revenues that would result from the seven vacant Properties
remaining in the portfolio whose leases were rejected and in the event the
remaining 17 leases are rejected could have an adverse effect on the liquidity
and results of operations of the Company, if the Company is unable to re-lease
or sell the Properties in a timely manner. Currently, the Company is actively
marketing the seven Properties with rejected leases to existing and prospective
clients and local and regional restaurant operators.
The Company also earned $4,136,067 and $1,301,493 in interest income
from Mortgage Loans and Secured Equipment Leases structured as loans during the
nine months ended September 30, 1999 and 1998, respectively ($2,095,347 and
$437,444 of which was earned during the quarters ended September 30, 1999 and
1998, respectively). The increase in interest income from Mortgage Loans and
Secured Equipment Leases during the quarter and nine months ended September 30,
1999, as compared to the quarter and nine months ended September 30, 1998, was
attributable to the Company investing in additional loans subsequent to
September 30, 1998.
During the nine months ended September 30, 1999 and 1998, the Company
earned $3,498,586 and $4,775,552, respectively, in investment and interest
income from investments in franchise loan certificates, residual interests in
loan sales, money market accounts or other short-term, highly liquid investments
($1,347,926 and $1,839,871 of which was earned during the quarters ended
September 30, 1999 and 1998, respectively). The decrease in investment and
interest income during the quarter and nine months ended September 30, 1999, as
compared to the quarter and nine months ended September 30, 1998, was primarily
attributable to lower cash balances maintained by the Company during the quarter
and nine months ended September 30, 1999 due to the acquisition of Properties
subsequent to September 30, 1998. The decrease was partially offset by the
acquisition of certain investment securities subsequent to September 30, 1998.
Because the Company expects to continue to acquire Properties and
invest in Mortgage Loans and Secured Equipment Leases, and because certain
Properties were under construction as of September 30, 1999, revenues for the
quarter and nine months ended September 30, 1999 represent only a portion of
revenues which the Company is expected to earn in future periods.
Significant Tenant
During the nine months ended September 30, 1999, one of the Company's
lessees, S & A Properties Corp., contributed more than ten percent of the
Company's total rental, earned, investment and interest income relating to its
Properties, Mortgage Loans, Secured Equipment Leases and Certificates. S & A
Properties Corp. is the lessee under leases relating to 38 Properties. Because
the Company has not completed its investment in Properties, Secured Equipment
Leases and Mortgage Loans, it is not possible to determine which lessees or
borrowers will contribute more than ten percent of the Company's rental, earned,
investment and interest income during the remainder of 1999 and in subsequent
years. In the event that certain lessees or borrowers contribute more than ten
percent of the Company's rental, earned, investment and interest income in
future years, any failure of such lessees or borrowers could materially affect
the Company's results of operations.
Expenses
Operating expenses, including depreciation and amortization expense,
were $94,482,429 and $5,877,986 for the nine months ended September 30, 1999 and
1998, respectively ($85,896,506 and $2,279,761 of which were incurred during the
quarters ended September 30, 1999 and 1998, respectively). Total operating
expenses increased primarily as a result of a $76,384,337 charge related to the
cost incurred in acquiring the Advisor from a related party. In addition, the
Company invested in additional Properties, Mortgage Loans and Secured Equipment
Leases subsequent to September 30, 1998, which resulted in increased
depreciation and amortization expense. Depreciation and amortization expense are
expected to increase as the Company invests in additional Properties and
Mortgage Loans. Pursuant to the merger, the Company acquired the Advisor and
became internally managed. Effective September 1, 1999, the advisory fee was
replaced with the actual personnel and other operating costs associated with
being internally managed. Costs relating to acquisitions and development
activities have been capitalized in accordance with generally accepted
accounting principles. The increase in operating expenses for the quarter and
nine months ended September 30, 1999 was also partially due to the fact that the
Company incurred $620,946 and $1,103,951, in transaction costs during the
quarter and nine months ended September 30, 1999, respectively, related to the
mergers as described above in "Liquidity and Capital Resources-Mergers."
Provisions for Losses on Buildings
During the nine months ended September 30, 1999, the Company recorded
provisions for losses on buildings totaling $403,618 for financial reporting
purposes. The tenants of five Properties experienced financial difficulties and
ceased payment of rents under the terms of their lease agreements. The
allowances represent the difference between the carrying value of the Properties
at September 30, 1999 and the estimated net realizable value for these
Properties.
Summary of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The Statement requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The Company is currently reviewing
the Statement to see what impact, if any, it will have on the Company's
consolidated financial statements.
In June 1999, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133, an Amendment of FASB Statement No. 133." Statement No. 137
defers the effective date of Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" for one year. Statement No. 133, as amended
is now effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000.
Year 2000 Readiness Disclosure
Overview of Year 2000 Problem
The year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. The failure to accurately
recognize the year 2000 could result in a variety of problems from data
miscalculations to the failure of entire systems.
Information and Non-Information Technology Systems
The information technology system of the Company consist of a network
of personal computers and servers built using hardware and software from
mainstream suppliers. The non-information technology systems of the Company are
primarily facility related and include building security systems, elevators,
fire suppressions, HVAC, electrical systems and other utilities. The Company has
no internally generated programmed software coding to correct, because
substantially all of the software utilized by the Company is purchased or
licensed from external providers. The maintenance of non-information technology
systems at the Company's restaurant properties is the responsibility of the
tenants of such properties in accordance with the terms of the Company's leases.
The Y2K Team
In early 1998, the Company and its affiliates formed a year 2000
committee (the "Y2K Team") for the purpose of identifying, understanding and
addressing the various issues associated with the year 2000 problem. The Y2K
Team consists of representatives from senior management, information systems,
telecommunications, legal, office management, accounting and property
management.
Assessing Year 2000 Readiness
The Y2K Team's initial step in assessing year 2000 readiness consisted
of identifying any systems that are date-sensitive and, accordingly, could have
potential year 2000 problems. The Y2K Team has conducted inspections, interviews
and tests to identify which of the Company's systems could have a potential year
2000 problem.
The information system of the Company is comprised of hardware and
software applications from mainstream suppliers. Accordingly, the Y2K Team has
contacted and is evaluating documentation from the respective vendors and
manufacturers to verify the year 2000 compliance of their products. The Y2K Team
has also requested and is evaluating documentation from the non-information
technology systems providers of the Company.
In addition, the Y2K Team has requested and is evaluating documentation
from other companies with which the Company has material third party
relationships. These third parties, in addition to the providers of information
and non-information technology systems, consist of the Company's transfer agent
and financial institutions. The Company depends on its transfer agent to
maintain and track investor information and its financial institutions for
availability of cash.
As of September 30, 1999, the Y2K Team had received responses from
approximately 62 percent of the third parties. All of the responses were in
writing. Of the third parties responding, all indicated that they are currently
year 2000 compliant or will be year 2000 compliant prior to the year 2000.
Although the Y2K Team continues to receive positive responses from the companies
with which the Company has third party relationships regarding their year 2000
compliance, the Company cannot be assured that the third parties have adequately
considered the impact of the year 2000.
In addition, the Y2K Team has requested documentation from the
Company's tenants and borrowers. As of September 30, 1999, the Y2K Team had
received responses from approximately 34 percent of the tenants and borrowers.
All of the responses were in writing. Of the tenants and borrowers responding,
all indicated that they are currently year 2000 compliant or will be year 2000
compliant prior to the year 2000. The Company cannot be assured that the tenants
and borrowers have adequately considered the impact of the year 2000. The
Company has also instituted a policy of requiring all new tenants and borrowers
to indicate that their systems are year 2000 compliant or are expected to be
year 2000 compliant prior to the year 2000.
Achieving Year 2000 Compliance
The Y2K Team has identified and completed upgrades for its hardware
equipment that was not year 2000 compliant. In addition, the Y2K Team has
identified and completed upgrades of the software applications that were not
year 2000 compliant, although the Company cannot be assured that the upgrade
solutions provided by the vendors have addressed all possible year 2000 issues.
As of September 30, 1999, the cost to the Company for these upgrades
and other remedial measures was approximately $5,000. The Y2K Team does not
expect that the Company will incur any additional costs in achieving year 2000
compliance. The Company does not expect the aggregate cost of the year 2000
remedial measures to have a material impact on its results of operations.
Assessing the Risks to the Company of Non-Compliance and Developing Contingency
Plans
Risk of Failure of Information and Non-Information Technology Systems Used by
the Company
The Y2K Team believes that the reasonably likely worst case scenario
with regard to the information and non-information technology systems used by
the Company is the failure of one or more of these systems as a result of year
2000 problems. Because the Company's major source of income is rental payments
under long-term triple-net leases and loan payments under mortgage loans and
secured equipment leases, any failure of information or non-information
technology systems used by the Company is not expected to have a material impact
on the results of operations of the Company. Even if such systems failed, the
payments under the Company's leases, mortgage loans and secured equipment leases
would not be affected. In addition, the Y2K Team is expected to correct any year
2000 problems within its control before the year 2000.
The Y2K Team has determined that a contingency plan to address this
risk is not necessary at this time. However, if the Y2K Team identifies
additional risks associated with the year 2000 compliance of the information or
non-information technology systems used by the Company, the Y2K Team will
develop a contingency plan if deemed necessary at that time.
Risk of Inability of Transfer Agent to Accurately Maintain Company Records
The Y2K Team believes that the reasonably likely worst case scenario
with regard to the Company's transfer agent is that the transfer agent will fail
to achieve year 2000 compliance of its systems and will not be able to
accurately maintain the records of the Company. This could result in the
inability of the Company to accurately identify its stockholders for purposes of
distributions, delivery of disclosure materials and transfer of common stock.
The Y2K Team has received certification from the Company's transfer agent of its
year 2000 compliance. Despite the positive response from the transfer agent, the
Company cannot be assured that the transfer agent has addressed all possible
year 2000 issues.
The Y2K Team has developed a contingency plan pursuant to which the
Company would maintain its stockholder records manually, in the event that the
systems of the transfer agent are not year 2000 compliant. The Company would
have to allocate resources to internally perform the functions of the transfer
agent. The Company does not anticipate that the additional cost of these
resources would have a material impact on its results of operations.
Risk of Loss of Short-Term Liquidity from Failure of Financial Institutions to
Achieve Year 2000 Compliance
The Y2K Team believes that the reasonably likely worst case scenario
with regard to the Company's financial institutions is that some or all of its
funds on deposit with such financial institutions may be temporarily
unavailable. The Y2K Team has received responses from 93% of the Company's
financial institutions indicating that their systems are currently year 2000
compliant or are expected to be year 2000 compliant prior to the year 2000.
Despite the positive responses from the financial institutions, the Company
cannot be assured that the financial institutions have addressed all possible
year 2000 issues. The loss of short-term liquidity could affect the Company's
ability to pay its expenses on a current basis. The Company does not anticipate
that a loss of short-term liquidity would have a material impact on the results
of operations of the Company.
Based upon the responses received from the Company's financial
institutions and the inability of the Y2K Team to identify a suitable
alternative for the deposit of funds that is not subject to potential year 2000
problems, the Y2K Team has determined not to develop a contingency plan to
address this risk.
Risks of Late Payment or Non-Payment by Tenants and Borrowers
The Y2K Team believes that the reasonably likely worst case scenario
with regard to the tenants under the Company's leases and the borrowers under
the Company's mortgage loans and secured equipment leases is that some of the
tenants or borrowers may make payments late as the result of the failure of the
tenants or borrowers to achieve year 2000 compliance of their systems used in
the payment of rent, the failure of the tenants' or borrowers' financial
institutions to achieve year 2000 compliance, or the temporary disruption of the
tenants' or borrowers' businesses. The Y2K Team is in the process of requesting
responses from the Company's tenants and borrowers indicating the extent to
which their systems are currently year 2000 compliant or are expected to be year
2000 compliant prior to the year 2000. The Company cannot be assured that the
tenants and borrowers have addressed all possible year 2000 issues. The late
payment by one or more tenants or borrowers would affect the results of
operations of the Company in the short-term. The Company is not able to estimate
the impact of late payments on its results of operations.
The Y2K Team is also aware of predictions that the year 2000 problem,
if uncorrected, may result in a global economic crisis. The Y2K Team is not able
to determine if such predictions are true. A widespread disruption of the
economy could affect the ability of the Company's tenants to make rental and
loan payments and, accordingly, could have a material impact on the results of
operations of the Company.
Because rental and loan payments are under the control of the Company's
tenants and borrowers, the Y2K Team is not able to develop a contingency plan to
address these risks. In the event of late payment or non-payment of rental or
loan payments, the Company will assess the remedies available to it under its
lease and loan agreements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information regarding the Company's market risk at December 31, 1998 is
included in its Annual Report on Form 10-K for the year ended December 31, 1998.
The material changes in the Company's market risk are discussed above.
Information regarding the Company's market risk relating to changes in interest
rates are incorporated herein by reference to Item 2. "Liquidity and Capital
Resources-Debt Financing-Interest Rate Risk."
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners of the CNL Income Funds and
APF in the Circuit Court of the Ninth Judicial Circuit of Orange
County, Florida, alleging that the general partners breached their
fiduciary duties and violated provisions of certain of the CNL
Income Fund partnership agreements in connection with the proposed
merger with the Income Funds. The plaintiffs are seeking
unspecified damages and equitable relief. On July 8, 1999, the
plaintiffs filed an amended complaint which, in addition to naming
three additional plaintiffs, includes allegations of aiding and
abetting and conspiring to breach fiduciary duties, negligence and
breach of duty of good faith against certain of the defendants and
seeks additional equitable relief. As amended, the caption of the
case is Jon Hale, Mary J. Hewitt, Charles A. Hewitt, Gretchen M.
Hewitt, Bernard J. Schulte, Edward M. and Margaret Berol Trust, and
Vicky Berol v. James M. Seneff, Jr., Robert A. Bourne, CNL Realty
Corporation, and CNL American Properties Fund, Inc., Case No.
CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999
against the general partners and APF, Ira Gaines, individually and
on behalf of a class of persons similarly situated, v. CNL American
Properties Fund, Inc., James M. Seneff, Jr., Robert A. Bourne, CNL
Realty Corporation, CNL Fund Advisors, Inc., CNL Financial
Corporation a/k/a CNL Financial Corp., CNL Financial Services, Inc.
and CNL Group, Inc., Case No. CIO-99-3796, in the Circuit Court of
the Ninth Judicial Circuit of Orange County, Florida, alleging that
the general partners breached their fiduciary duties and that APF
aided and abetted their breach of fiduciary duties in connection
with the proposed merger with the Income Funds. The plaintiff is
seeking unspecified damages and equitable relief.
On September 23, 1999, Judge Lawrence Kirkwood entered an order
consolidating the two cases under the caption In re: CNL Income
Funds Litigation, Case No. 99-3561. Pursuant to this order, the
plaintiffs in these cases filed a consolidated and amended
complaint on November 8, 1999, and the various defendants,
including the Company, have 45 days following service of the
consolidated and amended complaint to respond to that consolidated
complaint.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund, Ltd.,
dated March 11, 1999, as amended on June 4,
1999, and as amended on October 27, 1999
(Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund, Ltd.,
constituting a part of Amendment No. 3 to
the Registrant's Registration Statement on
Form S-4, File No. 333-74329 (the "Form
S-4"), and incorporated herein by
reference.)
2.2 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund II, Ltd.,
dated March 11, 1999, as amended on June 4,
1999, and as amended on October 27, 1999
(Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund II, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
2.3 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund III,
Ltd., dated March 11, 1999, as amended on
June 4, 1999, and as amended on October 27,
1999 (Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund III, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
2.4 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund IV, Ltd.,
dated March 11, 1999, as amended on June 4,
1999, and as amended on October 27, 1999
(Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund IV, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
2.5 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund V, Ltd.,
dated March 11, 1999, as amended on June 4,
1999, and as amended on October 27, 1999
(Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund V, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
2.6 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund VI, Ltd.,
dated March 11, 1999, as amended on June 4,
1999, and as amended on October 27, 1999
(Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund VI, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
<PAGE>
2.7 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund VII,
Ltd., dated March 11, 1999, as amended on
June 4, 1999, and as amended on October 27,
1999 (Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund VII, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
2.8 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund VIII,
Ltd., dated March 11, 1999, as amended on
June 4, 1999, and as amended on October 27,
1999 (Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund VIII, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
2.9 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund IX, Ltd.,
dated March 11, 1999, as amended on June 4,
1999, and as amended on October 27, 1999
(Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund IX, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
2.10 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund X, Ltd.,
dated March 11, 1999, as amended on June 4,
1999, and as amended on October 27, 1999
(Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund X, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
2.11 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XI, Ltd.,
dated March 11, 1999, as amended on June 4,
1999, and as amended on October 27, 1999
(Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund XI, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
2.12 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XII,
Ltd., dated March 11, 1999, as amended on
June 4, 1999, and as amended on October 27,
1999 (Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund XII, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
2.13 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XIII,
Ltd., dated March 11, 1999, as amended on
June 4, 1999, and as amended on October 27,
1999 (Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund XIII, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
2.14 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XIV,
Ltd., dated March 11, 1999, as amended on
June 4, 1999, and as amended on October 27,
1999 (Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund XIV, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
2.15 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XV, Ltd.,
dated March 11, 1999, as amended on June 4,
1999, and as amended on October 27, 1999
(Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund XV, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
2.16 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XVI,
Ltd., dated March 11, 1999, as amended on
June 4, 1999, and as amended on October 27,
1999 (Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund XVI, Ltd.,
constituting a part of Amendment No. 3 to
the Form S-4 and incorporated herein by
reference.)
2.17 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XVII,
Ltd., dated March 11, 1999 (Filed as
Appendix B to the Prospectus Supplement for
CNL Income Fund XVII, Ltd., constituting a
part of the Form S-4 as originally filed and
incorporated herein by reference.)
2.18 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XVIII,
Ltd., dated March 11, 1999 (Filed as
Appendix B to the Prospectus Supplement for
CNL Income Fund XVIII, Ltd., constituting a
part of the Form S-4 as originally filed and
incorporated herein by reference.)
2.19 Agreement and Plan of Merger, by and among
the Registrant, CFA Acquisition Corp., CNL
Fund Advisors, Inc. and CNL Group, Inc.,
dated March 11, 1999 (Filed as Exhibit 10.38
to the Form S-4 as originally filed and
incorporated herein by reference.)
2.20 Agreement and Plan of Merger, by and among
the Registrant, CFC Acquisition Corp., CFS
Acquisition Corp., CNL Financial Corp., CNL
Financial Services, Inc., CNL Group, Inc.,
Five Arrows Realty Securities L.L.C., Robert
A. Bourne, Curtis B. McWilliams and Brian
Fluck, dated March 11, 1999 (Filed as
Exhibit 10.39 to the Form S-4 as originally
filed and incorporated herein by reference.)
3.1 CNL American Properties Fund, Inc. Amended
and Restated Articles of Incorporation, as
amended (Filed as Exhibit 3.1 to the
Registrant's Form 10-Q for the quarter ended
June 30, 1999 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 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 19,
1999, between CNL American Properties Fund,
Inc. and CNL Fund Advisors, Inc. (Filed as
Exhibit 10.1 to the Registrant's Form 10-Q
for the quarter ended June 30, 1999 and
incorporated herein by reference.)
10.2 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 and incorporated herein by
reference.)
10.3 Amended and Restated Agreement of Limited
Partnership of CNL APF Partners, LP
(Included as Exhibit 10.50 to Amendment No.
2 to the Form S-4 and incorporated herein by
reference.)
10.4 Amended and Restated Credit Agreement by and
among CNL APF Partners, LP, Registrant,
First Union National Bank, First Union
Capital Markets Group, Banc of America
Securities LLC, NationsBank, N.A., The Chase
Manhattan Bank and other financial
institutions, dated June 9, 1999 (Included
as Exhibit 10.51 to Amendment No. 1 to the
Form S-4 and incorporated herein by
reference.)
10.5 1999 Performance Incentive Plan (Included as
Exhibit 10.1 to Amendment No. 1 to the Form
S-4 and incorporated herein by reference.)
10.6 Registration Rights Agreement by and among
the Registrant, Robert A. Bourne, Curtis B.
McWilliams, John T. Walker, Howard Singer,
Steven D. Shackelford and CNL Group, Inc.,
dated as of March 11, 1999 (Included as
Exhibit 10.40 to Amendment No. 1 to the Form
S-4 and incorporated herein by reference.)
<PAGE>
10.7 Registration Rights Agreement by and among
the Registrant, Five Arrows Realty
Securities L.L.C., James M. Seneff, Jr.,
Robert A. Bourne, Curtis B. McWilliams and
CNL Group, Inc., dated as of March 11, 1999
(Included as Exhibit 10.41 to Amendment No.
1 to the Form S-4 and incorporated herein by
reference.)
10.8 Termination Agreement by and between the
Registrant and CNL Income Fund XVII, Ltd.,
dated June 4, 1999 (Included as Exhibit
10.54 to Amendment No. 1 to the Form S-4 and
incorporated herein by reference.)
10.9 Termination Agreement by and between the
Registrant and CNL Income Fund XVIII, Ltd.,
dated June 4, 1999 (Included as Exhibit
10.55 to Amendment No. 1 to the Form S-4 and
incorporated herein by reference.)
10.10 Employment Agreement by and between Curtis
B. McWilliams and the Registrant, dated
September 15, 1999 (Included as Exhibit
10.42 to Amendment No. 2 to the Form S-4 and
incorporated herein by reference.)
10.11 Employment Agreement by and between Steven
D. Shackelford and the Registrant, dated
September 15, 1999 (Included as Exhibit
10.43 to Amendment No. 2 to the Form S-4 and
incorporated herein by reference.)
10.12 Employment Agreement by and between John T.
Walker and the Registrant, dated September
15, 1999 (Included as Exhibit 10.44 to
Amendment No. 2 to the Form S-4 and
incorporated herein by reference.)
10.13 Employment Agreement by and between Howard
J. Singer and the Registrant, dated
September 15, 1999 (Included as Exhibit
10.45 to Amendment No. 2 to the Form S-4 and
incorporated herein by reference.)
10.14 Employment Agreement by and between Barry L.
Goff and the Registrant, dated September 15,
1999 (Included as Exhibit 10.46 to Amendment
No. 2 to the Form S-4 and incorporated
herein by reference.)
10.15 Employment Agreement by and between Robert
W. Chapin and the Registrant, dated
September 15, 1999 (Included as Exhibit
10.47 to Amendment No. 2 to the Form S-4 and
incorporated herein by reference.)
10.16 Employment Agreement by and between Timothy
J. Neville and the Registrant, dated
September 15, 1999 (Included as Exhibit
10.48 to Amendment No. 2 to the Form S-4 and
incorporated herein by reference.)
10.17 Holdback Agreement by and among the
Registrant and Stockholders, dated August
31, 1999 (Included as Exhibit 10.56 to
Amendment No. 2 to the Form S-4 and
incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended
September 30, 1999.
<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 15th day of November, 1999
CNL AMERICAN PROPERTIES FUND, INC.
By: /s/ Curtis B. McWilliams
--------------------------------
CURTIS B. MCWILLIAMS
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Steven D. Shackelford
--------------------------------
STEVEN D. SHACKELFORD
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Number
2.1 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund, Ltd., dated March 11,
1999, as amended on June 4, 1999, and as amended on
October 27, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund, Ltd.,
constituting a part of Amendment No. 3 to the
Registrant's Registration Statement on Form S-4, File
No. 333-74329 (the "Form S-4"), and incorporated
herein by reference.)
2.2 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund II, Ltd., dated March
11, 1999, as amended on June 4, 1999, and as amended
on October 27, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund II, Ltd.,
constituting a part of Amendment No. 3 to the Form
S-4 and incorporated herein by reference.)
2.3 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund III, Ltd., dated March
11, 1999, as amended on June 4, 1999, and as amended
on October 27, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund III, Ltd.,
constituting a part of Amendment No. 3 to the Form
S-4 and incorporated herein by reference.)
2.4 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund IV, Ltd., dated March
11, 1999, as amended on June 4, 1999, and as amended
on October 27, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund IV, Ltd.,
constituting a part of Amendment No. 3 to the Form
S-4 and incorporated herein by reference.)
2.5 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund V, Ltd., dated March
11, 1999, as amended on June 4, 1999, and as amended
on October 27, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund V, Ltd.,
constituting a part of Amendment No. 3 to the Form
S-4 and incorporated herein by reference.)
2.6 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund VI, Ltd., dated March
11, 1999, as amended on June 4, 1999, and as amended
on October 27, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund VI, Ltd.,
constituting a part of Amendment No. 3 to the Form
S-4 and incorporated herein by reference.)
2.7 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund VII, Ltd., dated March
11, 1999, as amended on June 4, 1999, and as amended
on October 27, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund VII, Ltd.,
constituting a part of Amendment No. 3 to the Form
S-4 and incorporated herein by reference.)
2.8 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund VIII, Ltd., dated
March 11, 1999, as amended on June 4, 1999, and as
amended on October 27, 1999 (Filed as Appendix B to
the Prospectus Supplement for CNL Income Fund VIII,
Ltd., constituting a part of Amendment No. 3 to the
Form S-4 and incorporated herein by reference.)
2.9 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund IX, Ltd., dated March
11, 1999, as amended on June 4, 1999, and as amended
on October 27, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund IX, Ltd.,
constituting a part of Amendment No. 3 to the Form
S-4 and incorporated herein by reference.)
2.10 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund X, Ltd., dated March
11, 1999, as amended on June 4, 1999, and as amended
on October 27, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund X, Ltd.,
constituting a part of Amendment No. 3 to the Form
S-4 and incorporated herein by reference.)
2.11 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XI, Ltd., dated March
11, 1999, as amended on June 4, 1999, and as amended
on October 27, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund XI, Ltd.,
constituting a part of Amendment No. 3 to the Form
S-4 and incorporated herein by reference.)
2.12 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XII, Ltd., dated March
11, 1999, as amended on June 4, 1999, and as amended
on October 27, 1998 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund XII, Ltd.,
constituting a part of Amendment No. 3 to the Form
S-4 and incorporated herein by reference.)
2.13 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XIII, Ltd., dated
March 11, 1999, as amended on June 4, 1999, as
amended on October 27, 1999 (Filed as Appendix B to
the Prospectus Supplement for CNL Income Fund XIII,
Ltd., constituting a part of Amendment No. 3 to the
Form S-4 and incorporated herein by reference.)
2.14 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XIV, Ltd., dated March
11, 1999, as amended on June 4, 1999, and as amended
on October 27, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund XIV, Ltd.,
constituting a part of Amendment No. 3 to the Form
S-4 and incorporated herein by reference.)
2.15 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XV, Ltd., dated March
11, 1999, as amended on June 4, 1999, and as amended
on October 27, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund XV, Ltd.,
constituting a part of Amendment No. 3 to the Form
S-4 and incorporated herein by reference.)
2.16 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XVI, Ltd., dated March
11, 1999, as amended on June 4, 1999, and as amended
on October 27, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund XVI, Ltd.,
constituting a part of Amendment No. 3 to the Form
S-4 and incorporated herein by reference.)
2.17 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XVII, Ltd., dated
March 11, 1999 (Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund XVII, Ltd.,
constituting a part of the Form S-4 as originally
filed and incorporated herein by reference.)
2.18 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XVIII, Ltd., dated
March 11, 1999 (Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund XVIII, Ltd.,
constituting a part of the Form S-4 as originally
filed and incorporated herein by reference.)
2.19 Agreement and Plan of Merger, by and among the
Registrant, CFA Acquisition Corp., CNL Fund Advisors,
Inc. and CNL Group, Inc., dated March 11, 1999 (Filed
as Exhibit 10.38 to the Form S-4 as originally filed
and incorporated herein by reference.)
2.20 Agreement and Plan of Merger, by and among the
Registrant, CFC Acquisition Corp., CFS Acquisition
Corp., CNL Financial Corp., CNL Financial Services,
Inc., CNL Group, Inc., Five Arrows Realty Securities
L.L.C., Robert A. Bourne, Curtis B. McWilliams and
Brian Fluck, dated March 11, 1999 (Filed as Exhibit
10.39 to the Form S-4 as originally filed and
incorporated herein by reference.)
3.1 CNL American Properties Fund, Inc. Amended and
Restated Articles of Incorporation, as amended (Filed
as Exhibit 3.1 to the Registrant's Form 10-Q for the
quarter ended June 30, 1999 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 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 19, 1999,
between CNL American Properties Fund, Inc. and CNL
Fund Advisors, Inc. (Filed as Exhibit 10.1 to the
Registrant's Form 10-Q for the quarter ended June 30,
1999 and incorporated herein by reference.)
10.2 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 and incorporated
herein by reference.)
10.3 Amended and Restated Agreement of Limited Partnership
of CNL APF Partners, LP (Included as Exhibit 10.50 to
the Amendment No. 2 to the Form S-4 and incorporated
herein by reference.)
10.4 Amended and Restated Credit Agreement by and among
CNL APF Partners, LP, Registrant, First Union
National Bank, First Union Capital Markets Group,
Banc of America Securities LLC, NationsBank, N.A.,
The Chase Manhattan Bank and other financial
institutions, dated June 9, 1999 (Included as Exhibit
10.51 to Amendment No. 1 to the Form S-4 and
incorporated herein by reference.)
10.5 1999 Performance Incentive Plan (Included as Exhibit
10.1 to Amendment No. 1 to the Form S-4 and
incorporated herein by reference.)
<PAGE>
10.6 Registration Rights Agreement by and among the
Registrant, Robert A. Bourne, Curtis B. McWilliams,
John T. Walker, Howard Singer, Steven D. Shackelford
and CNL Group, Inc., dated as of March 11, 1999
(Included as Exhibit 10.40 to Amendment No. 1 to the
Form S-4 and incorporated herein by reference.)
10.7 Registration Rights Agreement by and among the
Registrant, Five Arrows Realty Securities L.L.C.,
James M. Seneff, Jr., Robert A. Bourne, Curtis B.
McWilliams and CNL Group, Inc., dated as of March 11,
1999 (Included as Exhibit 10.41 to Amendment No. 1 to
the Form S-4 and incorporated herein by reference.)
10.8 Termination Agreement by and between the Registrant
and CNL Income Fund XVII, Ltd., dated June 4, 1999
(Included as Exhibit 10.54 to Amendment No. 1 to the
Form S-4 and incorporated herein by reference.)
10.9 Termination Agreement by and between the Registrant
and CNL Income Fund XVIII, Ltd., dated June 4, 1999
(Included as Exhibit 10.55 to Amendment No. 1 to the
Form S-4 and incorporated herein by reference.)
10.10 Employment Agreement by and between Curtis B.
McWilliams and the Registrant, dated September 15,
1999 (Included as Exhibit 10.42 to Amendment No. 2 to
the Form S-4 and incorporated herein by reference.)
10.11 Employment Agreement by and between Steven D.
Shackelford and the Registrant, dated September 15,
1999 (Included as Exhibit 10.43 to Amendment No. 2 to
the Form S-4 and incorporated herein by reference.)
10.12 Employment Agreement by and between John T. Walker
and the Registrant, dated September 15, 1999
(Included as Exhibit 10.44 to Amendment No. 2 to the
Form S-4 and incorporated herein by reference.)
10.13 Employment Agreement by and between Howard J. Singer
and the Registrant, dated September 15, 1999
(Included as Exhibit 10.45 to Amendment No. 2 to the
Form S-4 and incorporated herein by reference.)
10.14 Employment Agreement by and between Barry L. Goff and
the Registrant, dated September 15, 1999 (Included as
Exhibit 10.46 to Amendment No. 2 to the Form S-4 and
incorporated herein by reference.)
10.15 Employment Agreement by and between Robert W. Chapin
and the Registrant, dated September 15, 1999
(Included as Exhibit 10.47 to Amendment No. 2 to the
Form S-4 and incorporated herein by reference.)
10.16 Employment Agreement by and between Timothy J.
Neville and the Registrant, dated September 15, 1999
(Included as Exhibit 10.48 to Amendment No. 2 to the
Form S-4 and incorporated herein by reference.)
10.17 Holdback Agreement by and among the Registrant and
Stockholders, dated August 31, 1999 (Included as
Exhibit 10.56 to Amendment No. 2 to the Form S-4 and
incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL American Properties Fund, Inc. and subsidiaries at September 30,
1999, 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. and subsidiaries for the nine months ended September 30,
1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,695,904
<SECURITIES> 52,773,100
<RECEIVABLES> 3,782,920
<ALLOWANCES> 1,591,936
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 624,889,551
<DEPRECIATION> 12,151,213
<TOTAL-ASSETS> 1,024,851,814
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 434,958
<OTHER-SE> 696,298,135
<TOTAL-LIABILITY-AND-EQUITY> 1,024,851,814
<SALES> 0
<TOTAL-REVENUES> 52,081,248
<CGS> 0
<TOTAL-COSTS> 90,897,754
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,584,675
<INCOME-PRETAX> (43,328,326)
<INCOME-TAX> 0
<INCOME-CONTINUING> (43,328,326)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,328,326)
<EPS-BASIC> (1.14)
<EPS-DILUTED> (1.14)
<FN>
<F1>Due to the nature of its industry, CNL American Properties Fund, Inc. and
subsidiaries has an unclassified balance sheet; therefore, no values are shown
above for current assets and current liabilities.
</FN>
</TABLE>
