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 June 30, 2000
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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
001-15581
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CNL American Properties Fund, Inc.
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(Exact name of registrant as specified in its charter)
Maryland 59-3239115
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
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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 August 11,
2000.
CONTENTS
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Part I Page
<S><C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 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 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-20
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 20
Part II
Other Information 21-25
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CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------- -----------------
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ASSETS
Land, buildings and equipment on operating leases, less accumulated
depreciation of $18,668,131 and $14,742,596, respectively and
allowance for loss of $4,064,718 and $4,656,707, respectively $ 687,984,822 $ 681,210,344
Net investment in direct financing leases, less allowance for loss
of $3,250,067 and $3,734,022, respectively 162,650,767 145,743,195
Mortgage loans held for sale 126,726,355 63,466,474
Equipment and other notes receivable 44,906,101 42,748,420
Other investments 70,265,138 75,806,738
Cash and cash equivalents 35,300,846 46,011,592
Restricted Cash 3,467,086 --
Receivables, less allowance for doubtful accounts
of $5,687,186 and $2,660,069, respectively 5,188,920 3,329,557
Accrued rental income 11,000,083 8,116,794
Due from related parties 3,544,288 1,315,721
Intangibles and other assets 92,537,956 70,443,958
================= =================
$1,243,572,362 $1,138,192,793
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Credit Facility $ 270,000,000 $ 248,000,000
Note payable 147,000,000 140,504,000
Mortgage warehouse facilities 101,681,895 30,749,540
Subordinated note payable 26,905,000 --
Accrued construction costs payable 7,010,456 17,566,758
Accounts payable and accrued expenses 4,140,728 8,833,695
Due to related parties 9,204,873 10,626,929
Other payables 11,789,284 8,700,414
----------------- -----------------
----------------- -----------------
Total liabilities 577,732,236 464,981,336
----------------- -----------------
----------------- -----------------
Minority interests 18,623,433 997,353
----------------- -----------------
----------------- -----------------
Commitments and Contingencies (Note 7)
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 shares, outstanding 43,495,919 434,958 434,958
shares
Capital in excess of par value 791,418,955 791,418,955
Accumulated other comprehensive loss (44,156 ) (177,119 )
Accumulated distributions in excess of net earnings (144,593,064 ) (119,462,690 )
----------------- -----------------
Total stockholders' equity 647,216,693 672,214,104
----------------- -----------------
$ 1,243,572,362 $1,138,192,793
================= =================
See accompanying notes to condensed financial statements.
</TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
--------------- -------------- -------------- ---------------
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Revenues:
Rental income from operating leases $ 15,845,534 $ 12,433,749 $ 32,337,535 $ 22,188,551
Earned income from direct
financing leases 4,012,050 3,283,137 7,471,533 5,712,343
Interest income from mortgage,
equipment and other notes
receivable 2,371,804 1,186,184 5,118,981 2,040,720
Investment and interest income 2,418,348 793,313 4,991,254 2,150,660
Other income 1,225,898 55,201 2,466,337 58,081
--------------- -------------- -------------- ---------------
25,873,634 17,751,584 52,385,640 32,150,355
--------------- -------------- -------------- ---------------
Expenses:
General operating and administrative 4,489,252 1,877,534 9,075,180 3,482,853
Interest expense 9,596,563 -- 18,288,098 --
Property expense 1,205,823 302,780 1,668,222 443,425
State and other taxes 445,246 183,089 738,231 464,966
Depreciation and amortization 3,287,953 2,155,493 7,742,567 3,711,674
Transaction costs 5,807,934 357,079 6,702,955 483,005
--------------- -------------- -------------- ---------------
24,832,771 4,875,975 44,215,253 8,585,923
--------------- -------------- -------------- ---------------
Earnings Before Minority Interest in
Income of Consolidated Joint Ventures,
Equity in Earnings of Unconsolidated
Joint Venture, Gain/(Loss) on Sales
of Assets, and Provision for
Losses on Assets 1,040,863 12,875,609 8,170,387 23,564,432
Minority Interest in Income of
Consolidated Joint Ventures (178,826 ) (9,847 ) (208,663 ) (17,610 )
Equity in Earnings of Unconsolidated
Joint Venture 24,455 23,817 48,665 48,851
Gain/(Loss) on Sales of Assets (80,322 ) (201,843 ) 198,682 (201,843 )
Provision for Losses on Assets (151,244 ) (324,725 ) (174,641 ) (540,522 )
--------------- -------------- -------------- ---------------
Net Earnings $ 654,926 $ 12,363,011 $ 8,034,430 $ 22,853,308
=============== ============== ============== ===============
Earnings Per Share of Common
Stock (Basic and Diluted) $ 0.02 $ 0.33 $ 0.18 $ 0.61
=============== ============== ============== ===============
Weighted Average Number of Shares
of Common Stock Outstanding 43,495,919 37,348,464 43,495,919 37,347,883
=============== ============== ============== ===============
See accompanying notes to condensed financial statements.
</TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME/(LOSS)
Six Months Ended June 30, 2000 and Year Ended December 31, 1999
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Accumulated
distributions Accumulated
Common stock Capital in in excess Other
Number Par excess of of net Comprehensive Comprehensive
of shares value par value earnings Income/(Loss) Total Income/(Loss)
------------ ---------- ------------- -------------- ---------------- ------------- --------------
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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 offerings 10,537 105 210,631 -- -- 210,736 --
Stock issuance costs -- -- (1,662,749 ) -- -- (1,662,749 ) --
Common stock issued
through merger 6,150,000 61,500 122,938,500 -- -- 123,000,000 --
Net loss -- -- -- (49,837,334 ) -- (49,837,334 ) (49,837,334 )
Other comprehensive loss,
market revaluation on
available for sale
securities -- -- -- -- (177,119 ) (177,119 ) (177,119 )
------------
Comprehensive income
-- -- -- -- -- -- $ (50,014,453 )
------------
Retirement of common stock (2,545) (26 ) (50,865 ) -- -- (50,891 ) --
Distributions declared and
paid ($1.52 per share) -- -- -- (60,078,825 ) -- (60,078,825 ) --
------------ ---------- ------------- -------------- ---------------- -------------
Balance at
December 31, 1999 43,495,919 434,958 791,418,955 (119,462,690 ) (177,119 ) 672,214,104 --
Net earnings -- -- -- 8,034,430 -- 8,034,430 8,034,430
Other comprehensive
income, market
revaluation on
available -- -- -- -- 132,963 132,963 132,963
for sale securities
------------
Comprehensive Income -- -- -- -- -- --
$ 8,167,393
============
============
Distributions declared and
paid ($0.76 per share) -- -- -- (33,164,804 ) -- (33,164,804 ) --
------------ ---------- ------------- -------------- ---------------- -------------
Balance at June 30,
2000
43,495,919 $ 434,958 $791,418,955 $(144,593,064) $ (44,156 ) $647,216,693 --
============ ========== ============= ============== ================ =============
See accompanying notes to condensed financial statements
</TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
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Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by (Used in) Operating Activities $ (47,901,389 ) $ 28,256,292
------------------ -----------------
Cash Flows from Investing Activities:
Additions to land and buildings on operating leases (27,279,430 ) (170,153,724 )
Investment in direct financing leases (23,301,254 ) (44,186,644 )
Proceeds from sale of assets 6,970,613 3,673,907
Increase in restricted cash (3,467,086 ) --
Investment in joint ventures -- (117,663 )
Investment in mortgage notes receivable -- (2,596,244 )
Collections on mortgage notes receivable -- 224,373
Investment in equipment and other notes receivable (4,152,100 ) (22,358,869 )
Collections on equipment and other notes receivable 1,712,462 626,959
Increase in other assets (1,776,564 ) (3,198,326 )
------------------ -----------------
Net cash used in investing activities (51,293,359 ) (238,086,231 )
------------------ -----------------
Cash Flows from Financing Activities:
Reimbursement of costs paid by related parties on behalf of
the Company (1,422,056 ) (1,258,062 )
Proceeds from borrowing on line of credit and notes payable
333,401,000 151,437,245
Payment on line of credit (278,000,000 ) (12,580,289 )
Proceeds from borrowing on mortgage warehouse facilities
71,481,448 --
Payments on mortgage warehouse facilities (549,093 ) --
Payment of loan costs (3,209,908 ) (3,548,744 )
Subscriptions received from stockholders -- 210,736
Distributions to minority interests (52,585 ) (21,105 )
Contributions from minority interests -- 366,289
Distributions to stockholders (33,164,804 ) (28,476,150 )
Payment of stock issuance costs -- (735,785 )
------------------ -----------------
Net cash provided by financing activities 88,484,002 105,394,135
------------------ -----------------
Net Decrease in Cash and Cash Equivalents (10,710,746 ) (104,435,804 )
Cash and Cash Equivalents at Beginning of Period 46,011,592 123,199,837
------------------ -----------------
Cash and Cash Equivalents at End of Period $ 35,300,846 $ 18,764,033
================== =================
See accompanying notes to condensed financial statements
</TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
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Six Months Ended
June 30,
2000 1999
----------------- -----------------
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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: $ -- $ 392,301
Acquisition costs -- 124,031
================= =================
Stock issuance costs $ -- $ 516,332
================= =================
Contribution of properties in exchange for investment in a
non-controlled subsidiary $ 5,301,107 $ --
================= =================
Acquisition of buildings in exchange for cancellation of
mortgages $ 4,297,977 $ --
================= =================
See accompanying notes to condensed financial statements
</TABLE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
1. Organization and Nature of Business:
CNL American Properties Fund, Inc. ("APF" or the "Company") is a real
estate investment trust ("REIT") that provides a full range of
financial, development, advisory and other real estate services to
operators of national and regional restaurant chains.
In June, the Company formed a partnership by the name of CNL Franchise
Network, L.P. and transferred certain assets and operations to it in
exchange for a combined general and limited partnership interest of
84.39%. Limited partnership interests amounting to 9.18% were issued to
Bank of America in exchange for Bank of America's franchise finance
business unit based in Atlanta, Georgia. In addition, limited
partnership interests amounting to 6.43% were issued to CNL Financial
Group, a related entity, in exchange for the operations of a company
that specialized in merger, acquisition and other advisory services to
restaurant operators. CNL Franchise Network, L.P. accounted for the
issuance of the Bank of America and CNL Financial Group partnership
interests at the fair value of the assets acquired. The excess of the
purchase price over the fair value of the net tangible assets acquired
of approximately $17.5 million was recorded as goodwill and will be
amortized over a period of 20 years.
In addition to forming the partnership, CNL Franchise Network, L.P.
also entered into a Strategic Alliance Agreement as well as additional
mortgage warehouse and other credit facilities with Bank of America and
its affiliates as described below. Among other provisions, the
Strategic Alliance Agreement provides the Company with the ability to
offer additional financial related products and services to the
restaurant operators it serves as well as access to the portfolio
lending capabilities provided by Bank of America.
The condensed consolidated financial statements include the accounts of
CNL Franchise Network, L.P. Minority interests include the minority
partners proportionate share of the equity in the partnership.
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 six months ended June 30, 2000 may not be indicative of
the results that may be expected for the year ending December 31, 2000.
Amounts as of December 31, 1999 included in the financial statements,
have been derived from audited financial statements as of that date.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
2. Basis of Presentation-Continued:
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, 1999. Certain items in the
prior year's financial statements have been reclassified to conform
with the 2000 presentation. These reclassifications had no effect on
stockholders' equity or net earnings.
3. Credit Facility:
In June 1999, the Company obtained an unsecured revolving credit
facility in an amount up to $300,000,000 (the "Line of Credit"). In
June 2000, the Company obtained a new unsecured revolving credit
facility in an amount up to $300,000,000 ("the Credit Facility"). The
Credit Facility repaid and terminated the existing Line of Credit. In
connection with obtaining the Credit Facility, the Company incurred
commitment fees, legal fees and closing costs of approximately $2
million which were capitalized. Interest on advances under the Credit
Facility is determined according to (i) a tiered rate structure between
175 and 215 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.
The principal balance, together with all unpaid interest, is due in
full upon termination of the Credit Facility on June 15, 2002. The
Credit Facility includes financial covenants which provide for the
maintenance of certain financial ratios. The Company was in compliance
with all such covenants as of June 30, 2000. The Company believes,
based on current terms, that the carrying value of its Credit Facility
at June 30, 2000 approximates fair value.
In June 1999, in connection with the Line of Credit, the Company
entered into an interest rate swap agreement. In April 2000, the
Company terminated this swap agreement relating to the Line of Credit,
and purchased a two year interest rate cap for a $200,000,000 notional
principal balance (the "Cap"). The purpose of the Cap is to reduce the
impact of rising interest rates on its floating rate Credit Facility.
The amount paid to the Company is equal to $200,000,000 multiplied by
LIBOR for the periods outlined above. The combination of the Cap and
the Company's obligation result in the Company paying interest at a
variable rate plus the spread above LIBOR on up to $200,000,000 of the
outstanding line of credit balance for periods when LIBOR is below
7.50%. When LIBOR reaches 7.50%, the Company receives the spread above
LIBOR on up to $200,000,000.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
4. Mortgage Warehouse Facilities:
At June 30, 2000, the Company had two mortgage warehouse facilities
with a total borrowing capacity of $1 billion ("Mortgage Warehouse
Facilities"). Both of these Mortgage Warehouse Facilities enable the
Company to provide mortgage financing to franchised businesses and
periodically securitize the loans through the securitization market.
One of the facilities bears interest at LIBOR plus 95 basis points per
annum and the other facility bears interest at LIBOR plus 75 basis
points. As of June 30, 2000 the weighted average interest rates were
6.99% and 6.48%, respectively. As of June 30, 2000 the Company had
approximately $102 million outstanding under these Mortgage Warehouse
Facilities. The Company believes, based on current terms, that the
carrying value at June 30, 2000 approximates fair value.
The effective interest rate for the outstanding balance relating to the
Mortgage Warehouse Facilities as of June 30, 2000 was 7.77% and 6.48%,
respectively.
5. Subordinated Note Payable:
In June 2000, the Company entered into a $43,750,000 senior
subordinated convertible note payable ("Subordinated Note Payable")
with Bank of America which provides the Company additional working
capital and the ability to receive advances to purchase and develop
properties and to fund mortgage loans. This note is subordinated to the
existing senior debt of the Company. The principal amount outstanding
under the Subordinated Note Payable shall bear interest at a rate of
8.5% per annum payable quarterly. The principal balance, together with
all unpaid interest, is due in full upon maturity of the note in June
2007. The Company believes, based on current terms, that the carrying
value of its Subordinated Note Payable at June 30, 2000 approximates
fair value.
As more fully described above, Bank of America holds an equity interest
in CNL Franchise Network, L.P.. The Subordinated Note Payable has a
conversion feature to allow the bank, subsequent to a specified
conversion date, to have the outstanding note converted into an
additional 29.12% limited partnership interest in CNL Franchise
Network, L.P..
6. Stockholders' Equity:
As consideration in its acquisition on September 1, 1999 of CNL Fund
Advisors, Inc. ("Advisor"), CNL Financial Services, Inc. and CNL
Financial Corporation and subsidiaries, the Company paid 6.15 million
shares. Of the 6.15 million shares issued,
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
6. Stockholders' Equity-Continued:
1.0 million were 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. As of June 30, 2000, approximately
447,254 shares were released from escrow, with 552,746 shares
remaining.
7. Commitments and Contingencies:
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 Advisor, certain
of its affiliates and the general partners of 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
filed an amended 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, filed motions to
dismiss the consolidated complaint on December 22, 1999 and December
28, 1999. On March 6, 2000, all of the defendants filed a Joint Notice
of Filing Form 8-K Report and Suggestion of Mootness.
On April 25, 2000, a Stipulated Final Order of Dismissal of
Consolidated Action was issued, dismissing the action without
prejudice, with each party responsible for their own costs and
attorneys' fees.
8. Terminated Mergers:
On February 23, 2000, the Company and each of the 16 CNL Income Funds
mutually agreed to terminate the Agreement and Plan of Merger entered
into in March 1999.
9. Subsequent Events:
On August 1, 2000, the Company securitized certain leases on 257
properties aggregating approximately $ 331.2 million and bonds backed
by both the leases and the underlying
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2000 and 1999
9. Subsequent Events-Continued:
real estate were sold to investors. On the date of the securitization,
the properties were transferred to a special purpose bankruptcy-remote
entity and serve as collateral for the bonds. The majority of the bonds
were sold to third party investors, while the Company retained
subordinate investment securities with a market value of approximately
$14.7 million. The company also retained the servicing and property
management rights on the leases and properties securitized. The company
received gross proceeds of approximately $280.9 million from the
securitization transaction. The transaction was viewed as a long-term
financing and the proceeds were used to pay down portions of the
Company's Credit Facility and Note Payable.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information, including, without limitation, 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 current credit
facilities 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 facilities 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, the ability of
tenants and borrowers to make payments under their respective leases, secured
equipment leases or mortgage loans, the ability of the company to re-lease
properties that are currently vacant or that become vacant and the ability of
the company to securitize mortgage loans on a favorable and timely basis. Given
these uncertainties, readers are cautioned not to place undue reliance on such
statements.
The Company
Organization and Nature of Business
CNL American Properties Fund, Inc. ("APF" or the "Company") is a real
estate investment trust ("REIT") that provides a full range of financial,
development, advisory and other real estate services to operators of national
and regional restaurant chains.
In June, the Company formed a partnership by the name of CNL Franchise
Network, L.P. and transferred certain assets and operations to it in exchange
for a combined general and limited partnership interest of 84.39%. Limited
partnership interests amounting to 9.18% were issued to Bank of America in
exchange for Bank of America's franchise finance business unit based in Atlanta,
Georgia. In addition, limited partnership interests amounting to 6.43% were
issued to CNL Financial Group, a related entity, in exchange for the operations
of a company that specialized in merger, acquisition and other advisory services
to restaurant operators. CNL Franchise Network, L.P. accounted for the issuance
of the Bank of America and CNL Financial Group partnership interests at the fair
value of the assets acquired. The excess of the purchase price over the fair
value of the net tangible assets acquired of approximately $17.5 million was
recorded as goodwill and will be amortized over a period of 20 years.
In addition to forming the partnership, CNL Franchise Network, L.P.
also entered into a Strategic Alliance Agreement as well as additional mortgage
warehouse and other credit facilities with Bank of America and its affiliates as
described below. Among other provisions, the Strategic Alliance Agreement
provides the Company with the ability to offer additional financial related
products and services to the restaurant operators it serves as well as access to
the portfolio lending capabilities provided by Bank of America.
The condensed consolidated financial statements include the accounts of
CNL Franchise Network, L.P.. Minority interests includes the minority partners
proportionate share of the equity in the partnership.
In conjunction with the expanded services described above, the Company
provides a complete range of financial, development and other real estate
services to operators of national and regional restaurant chains. Management
believes that the Company's ability to offer complete "turn-key," build-to-suit
development services, from site selection to construction management, together
with its ability to provide its customers with financing options, such as
triple-net leasing, mortgage loans and secured equipment financing (the "Secured
Equipment Leases"), makes the Company a preferred provider for all of the real
estate related business needs of operators of national and regional restaurant
chains.
As of June 30, 2000, the Company had total assets of over $1.2 billion
and a portfolio consisting of investments in 1588 restaurant properties.
Generally, the real estate (the "Properties") owned by the Company consists of
land and buildings subject to triple-net leases. Triple-net leases generally
provide that the tenants bear responsibility for all of the costs and expenses
associated with the ongoing maintenance and operations of the leased restaurant
properties, including utilities, property taxes, insurance and structural
repairs. Mortgage financing (the "Mortgage Loans") involves lending money at a
specified interest rate to owners of restaurant properties and securing that
loan with a mortgage lien on the restaurant property. Securitizing mortgages
involves bundling a group of mortgages into an investment entity, usually a
trust, and selling securities of that entity to the public.
Liquidity and Capital Resources
Debt Financing
Credit Facility
In June 1999, the Company obtained an unsecured revolving credit
facility in an amount up to $300,000,000 (the "Line of Credit"). In June 2000,
the Company obtained a new unsecured revolving credit facility in an amount up
to $300,000,000 ("the Credit Facility"). The Credit Facility repaid and
terminated the existing Line of Credit. In connection with obtaining the Credit
Facility, the Company incurred commitment fees, legal fees and closing costs of
$2 million which were capitalized. Interest on advances under the Credit
Facility is determined according to (i) a tiered rate structure between 175 and
215 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.
The principal balance, together with all unpaid interest, is due in
full upon termination of the Credit Facility on June 15, 2002. The Credit
Facility includes financial covenants which provide for the maintenance of
certain financial ratios. The Company was in compliance with all such covenants
as of June 30, 2000. The Company believes, based on current terms, that the
carrying value of its Credit Facility at June 30, 2000 approximates fair value.
In June 1999, in connection with the Line of Credit, the Company
entered into an interest rate swap agreement. In April 2000, the Company
terminated this swap agreement relating to the Line of Credit, and purchased a
two year interest rate cap for a $200,000,000 notional principal balance (the
"Cap"). The purpose of the Cap is to reduce the impact of rising interest rates
on its floating rate Credit Facility. The amount paid to the Company is equal to
$200,000,000 multiplied by LIBOR for the periods outlined above. The combination
of the Cap and the Company's obligation result in the Company paying interest at
a variable rate plus the spread above LIBOR on up to $200,000,000 of the
outstanding line of credit balance for periods when LIBOR is below 7.50%. When
LIBOR reaches 7.50%, the Company receives the spread above LIBOR on up to
$200,000,000.
Note Payable
In October 1999, the Company entered into a secured credit facility
(the "Secured Credit Facility") in the amount of $147,000,000 which will expire
in October 2002. The proceeds of the Secured Credit Facility are intended to be
used for property acquisitions. Borrowings under the Secured Credit Facility
bear interest at the rate of commercial paper plus 56 basis points per annum. As
of June 30, 2000, the interest rate was 6.91%. The Secured Credit Facility is
collateralized by mortgages on 132 Properties and an assignment of rents. Under
the terms of the Secured Credit Facility, the Company is required to maintain
certain financial ratios and other financial covenants. The Company was in
compliance with all such covenants as of June 30, 2000.
The Company has initiated several interest rate swap agreements with
which it hedges the majority of the outstanding balance at June 30, 2000 against
fluctuations in interest rates. The Company believes that its interest rate risk
related to the Secured Credit Facility has been mitigated by the use of interest
rate swaps.
The effective interest rate for the outstanding balance relating to the
Secured Credit Facility as of June 30, 2000 was 7.03% per annum.
Management does not believe the impact of any payments of a termination
penalty, in the event the Company determines to terminate the swap agreements
prior to the end of their respective terms, would be material to the Company's
financial position or results of operations.
Mortgage Warehouse Facilities
At June 30, 2000, the Company had two mortgage warehouse facilities
with a total borrowing capacity of $1 billion ("Mortgage Warehouse Facilities").
Both of these Mortgage Warehouse Facilities enable the Company to provide
mortgage financing to franchised businesses and periodically securitize the
loans through the securitization market. One of the facilities bears interest at
LIBOR plus 95 basis points per annum and the other facility bears interest at
LIBOR plus 75 basis points. As of June 30, 2000 the weighted average interest
rates were 6.99% and 6.48%, respectively. As of June 30, 2000 the Company had
approximately $102 million outstanding under these Mortgage Warehouse
Facilities. The Company believes, based on current terms, that the carrying
value at June 30, 2000 approximates fair value.
The Company has initiated several interest rate swap agreements with
which it hedges the majority of the outstanding balance at June 30, 2000 against
fluctuations in interest rates. The Company believes that its interest rate risk
related to the Mortgage Warehouse Facilities has been mitigated by the use of
interest rate swaps.
The effective interest rate for the outstanding balance relating to the
Mortgage Warehouse Facilities as of June 30, 2000 was 7.77% and 6.48%,
respectively.
Management does not believe the impact of any payments of a termination
penalty, in the event the Company determines to terminate the swap agreements
prior to the end of the respective terms, would be material to the Company's
financial position or results of operations.
Subordinated Note Payable
In June 2000, the Company entered into a $43,750,000 senior
subordinated note payable ("Subordinated Note Payable") with Bank of America
which provides the Company additional working capital and the ability to receive
advances to purchase and develop properties and to fund mortgage loans. This
note is subordinated to the existing senior debt of the Company. The principal
amount outstanding under the Subordinated Note Payable shall bear interest at a
rate of 8.5% per annum payable quarterly. The principal balance, together with
all unpaid interest, is due in full upon maturity of the note in June 2007. The
Company believes, based on current terms, that the carrying value of its
Subordinated Note Payable at June 30, 2000 approximates fair value.
As more fully described above, Bank of America holds an equity interest
in CNL Franchise Network, L.P. The Subordinated Note Payable has a conversion
feature to allow the bank, subsequent to a specified conversion date, to have
the outstanding note converted into an additional 29.12% limited partnership
interest in CNL Franchise Network, L.P.
For the six months ended June 30, 2000 and 1999, the Company incurred
interest costs (including amortization of loan costs) of $19,851,423 and
$1,262,160, respectively, $1,563,325 and $1,262,160, respectively, of which were
capitalized as part of the cost of buildings under construction. For the six
months ended June 30, 2000 and 1999, the company paid interest of $19,033,420
and $994,253, respectively.
Interest Rate Risk
As of June 30, 2000, the Company had $270,000,000, $147,000,000 and
$101,681,895 outstanding under its Credit Facility, Secured Credit Facility and
Mortgage Warehouse Facilities, respectively. The Company has exposure to
interest rate risk associated with the Credit Facility, Secured Credit Facility
and Mortgage Warehouse Facilities due to the variable interest rates. The
Company believes this risk has been mitigated with interest rate swap agreements
and an interest rate cap agreement to reduce the impact of changes in interest
rates on its floating rate debt (see "Debt Financing").
The Company invests in certain financial instruments that are subject
to various forms of market risk such as interest rate fluctuations, credit risk
and prepayment risk. The Company believes that its primary exposure is the risk
of loss that may result from the potential change in the value of its mortgage
loans held for sale and investments held for sale as a result of changes in
interest rates.
Generally, from the time the fixed-rate mortgage loans are originated
and held until the time they are sold through a securitization, the Company
hedges against fluctuations in interest rates through the use of derivative
financial instruments (primarily interest rate swap contracts). The Company
terminates certain of these contracts upon securitization of the related
fixed-rate mortgage loans and, at that time, both the gain or loss on the sale
of the loans and the gain or loss on the termination of the interest rate swap
contracts will be measured and recognized in the consolidated statement of
operations. 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 upon
notional principal amount.
The Company estimates that a hypothetical one percentage point increase
in long-term interest rates at June 30, 2000 would impact the financial
instruments described above and result in a change to net earnings of
approximately $2 million. This sensitivity analysis contains certain simplifying
assumptions (for example, it does not consider the impact of changes in
prepayment risk or credit spread risk). Therefore, although it gives an
indication of the Company's exposure to interest rate changes at June 30, 2000,
it is not intended to predict future results and the Company's actual results
will likely vary.
Capital Commitments
In connection with the acquisition of the 20 Properties under
construction or renovation at June 30, 2000, 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 the ordinary course of business, the Company has outstanding
commitments to qualified borrowers and tenants that are not reflected in the
accompanying condensed consolidated financial statements. These commitments, if
accepted by the potential borrowers, obligate the Company to provide funding.
The accepted and unfunded commitment totaled approximately $154,000,000 at June
30, 2000 of which approximately $26,000,000 has been incurred as of June 30,
2000. The source of funding includes both the Mortgage Warehouse Facilities and
the loan sale facility.
Cash and Cash Equivalents
At June 30, 2000 and December 31, 1999, the Company had $38,767,932 and
$46,011,592, respectively, 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 investing in Properties and Mortgage Loans
during the six months ended June 30, 2000.
At June 30, 2000 $3.5 million in cash was received in connection with
securitized assets which is subject to certain restrictions until released by
the trustee by the end of the following month.
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, primarily through cash flow
provided by operating activities and the Company's Credit Facility. These
short-term liquidity requirements consist of normal recurring operating
expenses, regular debt service requirements and distributions to stockholders.
The Company also intends to meet short-term liquidity requirements for funding
of property acquisitions and loans prior to securitization using its Mortgage
Warehouse Facilities to fund the acquisition of Mortgage Loans and Properties.
The Company will use the proceeds from the subsequent securitization of these
Mortgage Loans and Properties to repay the Mortgage Warehouse Facilities.
On August 1, 2000, the Company securitized certain leases on 257 properties
aggregating approximately $331.2 million and bonds backed by both the leases and
the underlying real estate were sold to investors. On the date of the
securitization, the properties were transferred to a special purpose
bankruptcy-remote entity and serve as collateral for the bonds. The majority of
the bonds were sold to third party investors, while the Company retained
subordinate investment securities with a market value of approximately $14.7
million. The company also retained the servicing and property management rights
on the leases and properties securitized. The company received gross proceeds of
approximately $280.9 million from the securitization transaction. The
transaction was viewed as a long-term financing and the proceeds were used to
pay down portions of the Company's Credit Facility and Note Payable.
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. While management believes that the
Properties are adequately covered by insurance, it has also 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 meets its longer term liquidity requirements
through a combination of periodic securitizations of mortgage loans and
triple-net leases and short and long-term debt financing or equity financing.
Periodic securitization is an effective method for accessing capital and results
in the Company being less dependent on equity markets. In addition, the Company
will continue to evaluate an eventual listing of the Company's stock on the New
York Stock Exchange, which could permit the Company access to additional debt
and equity capital. As of August 11, 2000, the Company's long-term liquidity
requirements include the maturities of its Mortgage Warehouse Facilities in
2001, Credit Facility in June 2002, Secured Credit Facility in October 2002 and
Subordinated Note in 2007.
The Company has 100 percent interest in subsidiaries (including CNL
Funding 2000-A, LP, CNL Funding 2001-A, LP, and CNL Restaurant Bond Holdings,
LP) or investments in entities (including CNL Funding 99-1, LP and CNL Funding
98-1, LP) that were or may be established as bankruptcy remote entities to
facilitate asset securitization. In connection therewith, assets have been or
will be transferred directly or indirectly by the Company or an affiliate to
such subsidiaries or entities. These bankruptcy remote entities are separate
legal entities whose assets are not available to satisfy the claims of creditors
of the Company, any subsidiary or any other affiliates.
Distributions
During the six months ended June 30, 2000, the Company used cash from
operations (which includes cash received from tenants and interest and other
income received, less cash paid for operating expenses and funds used for
investment in mortgage loans) of $47,901,389 and during the six months ended
June 30, 1999, the Company generated cash from operations of $28,256,292. As a
result of the merger with CNL Financial Services, Inc. and CNL Financial
Corporation and subsidiaries, (collectively, "CNL Restaurant Financial Services
Group"), Generally Accepted Accounting Principles require that the Company's
investment in Mortgage Loans be classified as an operating activity for
financial reporting purposes. If the Company's investment in mortgage loans were
excluded from the six months operating activities, the Company would have
generated approximately $20 million in cash proceeds. The Company declared and
paid distributions to its stockholders of $33,164,804 and $28,476,150 during the
six months ended June 30, 2000 and 1999, respectively. For the six months ended
June 30, 2000 and 1999, approximately 67 percent and 85 percent, respectively,
of the distributions received by stockholders were considered to be ordinary
income and approximately 33 percent and 15 percent, respectively, were
considered a return of capital for federal income tax purposes. No amounts
distributed or to be distributed to the stockholders as of August 11, 2000, 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
Company intends to continue to make distributions on a quarterly basis to its
stockholders.
Commitments and Contingencies:
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 Advisor, certain of its affiliates and the
general partners of the CNL Income Funds in connection with the proposed merger
with the CNL Income Funds.
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 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 was
seeking unspecified damages and equitable relief.
On July 8, 1999, the plaintiffs in the lawsuit served on May 11, 1999
filed an amended 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, filed motions to dismiss the consolidated complaint on
December 22, 1999 and December 28, 1999.
On February 23, 2000, the Company and each of the 16 CNL Income Funds
mutually agreed to terminate the Agreement and Plan of Merger entered into in
March 1999. On March 6, 2000, all of the defendants filed a Joint Notice of
Filing Form 8-K Report and Suggestion of Mootness.
On April 25, 2000, a Stipulated Final Order of Dismissal of
Consolidated Action was issued, dismissing the action without prejudice, with
each party responsible for their own costs and attorneys' fees.
Results of Operations
Revenues
The Company earned $39,809,068 in rental income from operating leases
and earned income from direct financing leases from 676 Properties and 49
Secured Equipment Leases structured as leases during the six months ended June
30, 2000, and $27,900,894 from 578 Properties and 57 Secured Equipment Leases
structured as leases during the six months ended June 30, 1999 ($19,857,584 and
$15,716,886 of which was earned during the quarters ended June 30, 2000 and
1999, respectively). The increase during the quarter and six months ended June
30, 2000, as compared to the quarter and six months ended June 30, 1999, was
attributable to the Company's investment in restaurant properties increasing
from approximately $701,747,000 at June 30, 1999 to $850,636,000 at June 30,
2000.
The Company also earned $5,118,981 and $2,040,720 in interest income
from Mortgage Loans and Secured Equipment Leases structured as loans during the
six months ended June 30, 2000 and 1999, respectively ($2,371,804 and $1,186,184
of which was earned during the quarters ended June 30, 2000 and 1999,
respectively). The increase in interest income from Mortgage Loans and Secured
Equipment Leases during the quarter and six months ended June 30, 2000, as
compared to the quarter and six months ended June 30, 1999, was attributable to
the Company's increase in mortgage loans of approximately $171,632,000 at June
30, 2000 from $63,352,000 at June 30, 1999.
During the six months ended June 30, 2000 and 1999, the Company earned
$4,991,254 and $2,150,660, 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 ($2,418,348
and $793,313 of which was earned during the quarters ended June 30, 2000 and
1999, respectively). The increase in investment and interest income for the
quarter and six months ended June 30, 2000, as compared to the quarter and six
months ended June 30, 1999, was attributable to the acquisition of approximately
$53.6 million in investment securities resulting from the merger with CNL
Restaurant Financial Services Group and the November 1999 securitization.
During the six months ended June 30, 2000 and 1999, the Company earned
$2,466,337 and $58,081, respectively in other income ($1,225,898 and $55,201 of
which was earned during the quarters ended June 30, 2000 and 1999,
respectively). The increase in other income for the quarter and six months ended
June 30, 2000, as compared to the quarter and six months ended June 30, 1999,
was primarily attributable to servicing and fee income earned on the Company's
expanded loan portfolio resulting from the merger with CNL Restaurant Financial
Services Group on September 1, 1999.
Expenses
Operating expenses, including depreciation and amortization expense,
were $44,215,253 and $8,585,923 for the six months ended June 30, 2000 and 1999,
respectively ($24,832,771 and $4,875,975 of which were incurred during the
quarters ended June 30, 2000 and 1999, respectively). Total operating expenses
increased primarily as a result of the increase in interest expense resulting
from an increase in interest expense in the weighted average amounts outstanding
relating to the Credit Facility, Secured Credit Facility, Subordinated Note
Payable and Mortgage Warehouse Facilities of approximately $471,814,000, as
compared to $50,398,000, during the six months ended June 30, 2000 and 1999,
respectively, which resulted in the Company incurring $18,288,098 in interest
expense for the six months ended June 30, 2000. During the six months ended June
30, 1999, as a result of the lower weighted average debt outstanding, all
interest costs were capitalized in accordance with GAAP based on the level of
construction activity. The increase in operating expenses is also a result of
the Company investing in additional Properties subsequent to June 30, 1999,
which resulted in increased depreciation. On September 1, 1999, the Company
acquired the Advisor and became internally managed. Certain acquisition fees,
which were previously capitalized when the Company was externally advised, are
now internally generated costs required to be expensed. Additionally, operating
costs previously paid by the Advisor are now internal costs of the Company. The
increase in the operating expenses for the six months ended June 30, 2000, was
also partially attributable to the Company incurring $3.7 million in transaction
costs related to the terminated merger and the Bank of America transaction and
$3 million in debt issue costs related to the Company repaying and terminating
its former Line of Credit upon creation of the new Credit Facility. Finally, the
Company recorded approximately $1.1 million in bad debt expense related to
tenants experiencing financial difficulties and ceasing payment of rents under
the terms of their lease agreements.
Dispositions
During the six months ended June 30, 2000 and 1999, the Company sold
six and two properties, respectively, and received total net sale proceeds of
$6,970,613 and $3,673,907, respectively, resulting in a total gain of $198,682
at June 30, 2000 and a total loss of $201,843, at June 30,1999, for financial
reporting purposes. During each of the quarters ended June 30, 2000 and 1999,
the Company sold two properties and received total net sale proceeds of
$1,733,019 and $3,673,907, respectively, resulting in a total loss of $80,322
and $201,843, respectively. The Company sold three additional properties in June
of 2000 for which the net sales proceeds of $2,775,325 were not received until
July.
Provisions for Losses on Assets
During the six months ended June 30, 2000 and 1999, the Company
recorded provisions for losses on assets totaling $174,641 and $540,522,
respectively, for financial reporting purposes ($151,244 and $324,725 of which
was recorded during the quarters ended June 30, 2000 and 1999, respectively).
The allowances represent the difference between the carrying value of the
Properties at June 30, 2000 and 1999 and the fair market value for these
Properties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information regarding the Company's market risk at December 31, 1999 is
included in its Annual Report on Form 10-K for the year ended December 31, 1999.
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."
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 was 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. On
December 22, 1999, the General Partners and CNL Group, Inc.
filed motions to dismiss and motions to strike. On December
28, 1999, APF and CNL Fund Advisors, Inc. filed motions to
dismiss.
On March 6, 2000, all of the defendants filed a Joint
Notice of Filing Form 8-K Reports and Suggestion of Mootness.
On April 25, 2000, Judge Kirkwood issued a Stipulated Final
Order of Dismissal of Consolidated Action, dismissing the
actions without prejudice, with each party to bear its own
costs and attorneys' fees.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The regular annual meeting of stockholders of the
Company was held in Orlando, Florida on June 15, 2000
for the purpose of electing the board of directors
and voting on the proposals described below.
(b) Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities Exchange Act of 1934,
as amended, and the regulations promulgated
thereunder, and there was no solicitation in
opposition to management's solicitations. All of
management's nominees for director were elected.
(c) Three proposals were submitted to a vote of stockholders as follows:
(1) The stockholders approved the election of the following persons as directors
of the Company:
Name For Withheld
Robert A. Bourne 26,262,078 500,486
G. Richard Hostetter, Esq. 26,259,153 503,411
Richard C. Huseman 26,254,850 507,714
J. Joseph Kruse 26,246,226 516,338
James M. Seneff, Jr. 26,258,828 503,736
(2) The stockholders approved, with 25,939,620
affirmative votes, 299,287 negative votes
and 523,657 abstentions, the proposal to
amend and restate the Company's Articles of
Incorporation to modify certain provisions
to reflect that the Company became
internally advised
(3) The stockholders approved, with 25,957,463
affirmative votes, 247,718 negative votes,
and 557,383 abstentions, the proposal to
amend and restate the Company's Articles of
Incorporation to modify certain provisions
to reflect the fact that the Company was no
longer externally advised and to reflect the
fact that the Company was no longer
externally advised and to reflect certain
changes to the Company's business strategy.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 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
(Included as Exhibit 10.38 to the Registrant's
Registration Statement No. 333-74329 on Form S-4 (the
"Form S-4") as originally filed and incorporated
herein by reference).
2.2 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 (Included 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
(Included 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 the
Registrant's Registration Statement No. 333-37657 on
Form S-11 and incorporated herein by reference).
3.3 CNL American Properties Fund, Inc. Second Amended and
Restated Articles of Incorporation (filed herewith).
4.1 Form of Stock Certificate (Included as Exhibit 4.5 to
the Registrant's Registration Statement No. 33-78790
on Form S-11 and incorporated herein by reference).
10.1 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 the
Registrant's Registration Statement No. 333-15411 on
Form S-11 and incorporated herein by reference).
10.2 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).
10.3 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).
10.4 First Amendment to Amended and Restated Credit
Agreement dated as of December 31, 1999 between CNL
APF Partners, LP and First Union National Bank, as
Agent (Included as Exhibit 10.4 to the Registrant's
Form 10-K for the year ended December 31, 1999 (the
"1999 10-K") and incorporated herein by reference).
10.5 Franchise Receivable Funding and servicing Agreement
dated as of October 14, 1999 between CNL APF
Partners, LP and Neptune Funding Corporation (filed
as Exhibit 10.5 to the 1999 10-K and incorporated
herein by reference).
10.6 Interim Wholesale Mortgage Warehouse and Security
Agreement dated as of September 18, 1998, and Amended
Agreement dated as of August 30, 1999 between CNL APF
Partners, LP and Prudential Securities Credit
Corporation (filed as Exhibit 10.6 to the 1999 10-K
and incorporated herein by reference).
10.7 1999 Performance Incentive Plan (Included as Exhibit
10.1 to Amendment No. 1 to the Form S-4 and
incorporated herein by reference).
10.8 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).
10.9 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).
10.10 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).
10.18 Amended and Restated Credit and Reimbursement
Agreement by and among CNL APF Partners, LP, CNL APF
LP Corp., CNL APF GP Corp., Bank of America, N.A. and
Bank of America Securities LLC, dated as of June 15,
2000 (filed herewith).
27 Financial Data Schedule (Filed herewith).
(b) Reports on Form 8-K. Inapplicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 14th day of August, 2000.
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 among the
Registrant, CFA Acquisition Corp., CNL Fund Advisors,
Inc. and CNL Group, Inc., dated March 11, 1999
(Included as Exhibit 10.38 to the Registrant's
Registration Statement No. 333-74329 on Form S-4 (the
"Form S-4") as originally filed and incorporated
herein by reference).
2.2 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 (Included 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
(Included 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 the
Registrant's Registration Statement No. 333-37657 on
Form S-11 and incorporated herein by reference).
3.3 CNL American Properties Fund, Inc. Second Amended and
Restated Articles of Incorporation (filed herewith).
4.1 Form of Stock Certificate (Included as Exhibit 4.5 to
the Registrant's Registration Statement No. 33-78790
on Form S-11 and incorporated herein by reference).
10.1 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 the
Registrant's Registration Statement No. 333-15411 on
Form S-11 and incorporated herein by reference).
10.2 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).
10.3 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).
10.4 First Amendment to Amended and Restated Credit
Agreement dated as of December 31, 1999 between CNL
APF Partners, LP and First Union National Bank, as
Agent (Included as Exhibit 10.4 to the Registrant's
Form 10-K for the year ended December 31, 1999 (the
"1999 10-K") and incorporated herein by reference).
10.5 Franchise Receivable Funding and servicing Agreement
dated as of October 14, 1999 between CNL APF
Partners, LP and Neptune Funding Corporation (filed
as Exhibit 10.5 to the 1999 10-K and incorporated
herein by reference).
10.6 Interim Wholesale Mortgage Warehouse and Security
Agreement dated as of September 18, 1998, and Amended
Agreement dated as of August 30, 1999 between CNL APF
Partners, LP and Prudential Securities Credit
Corporation (filed as Exhibit 10.6 to the 1999 10-K
and incorporated herein by reference).
10.7 1999 Performance Incentive Plan (Included as Exhibit
10.1 to Amendment No. 1 to the Form S-4 and
incorporated herein by reference).
10.8 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).
10.9 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).
10.10 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).
10.18 Amended and Restated Credit and Reimbursement
Agreement by and among CNL APF Partners, LP, CNL APF
LP Corp., CNL APF GP Corp., Bank of America, N.A. and
Bank of America Securities LLC, dated as of June 15,
2000 (filed herewith).
27 Financial Data Schedule (Filed herewith).
(b) Reports on Form 8-K. Inapplicable.
