<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund XVII, Ltd. at June 30, 1996, and its statement of
income for the six months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Income Fund XVII, Ltd. for the six months
ended June 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,454,397
<SECURITIES> 0
<RECEIVABLES> 39,453
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 11,130,629
<DEPRECIATION> 31,931
<TOTAL-ASSETS> 19,483,711
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,261,049
<TOTAL-LIABILITY-AND-EQUITY> 19,483,711
<SALES> 0
<TOTAL-REVENUES> 367,332
<CGS> 0
<TOTAL-COSTS> 101,528
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 265,804
<INCOME-TAX> 0
<INCOME-CONTINUING> 265,804
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 265,804
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund XVII, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
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, 1996
-----------------------------------
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
33-90998
----------------------
CNL Income Fund XVII, Ltd.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-3295393
- ---------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street, #500
Orlando, Florida 32801
- ---------------------------- -------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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
------- -------
CONTENTS
--------
Part I Page
----
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4-5
Notes to Condensed Financial Statements 6-14
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 15-20
Part II
Other Information 21
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
ASSETS 1996 1995
----------- ------------
Land and buildings on operating
leases, less accumulated
depreciation $11,098,698 $ 402,244
Net investment in direct financing
leases 1,474,108 -
Cash and cash equivalents 6,454,397 4,198,859
Receivables 39,453 410
Organization costs, less accumulated
amortization of $1,309 and $309 8,691 9,691
Accrued rental income 22,413 -
Other assets 385,951 267,217
----------- -----------
$19,483,711 $ 4,878,421
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 2,543 $ 42,609
Accrued construction costs payable 930,121 69,316
Distributions payable 211,692 27,076
Due to related parties 71,245 97,187
Rents paid in advance 7,061 -
----------- -----------
Total liabilities 1,222,662 236,188
Commitments (Note 8)
Partners' capital 18,261,049 4,642,233
----------- -----------
$19,483,711 $ 4,878,421
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
February 10,
1995 (Date of
Six Months Inception)
Quarter Ended Ended through
June 30, June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- -------------
Revenues:
Rental income from
operating leases $ 189,965 $ - $ 221,811 $ -
Earned income from
direct financing
leases 33,795 - 35,763 -
Interest 49,146 102,696
Other income 561 - 7,062 -
---------- ---------- ---------- ----------
273,467 - 367,332 -
---------- ---------- ---------- ----------
Expenses:
General operating
and administrative 42,026 - 58,734 -
Professional services 6,526 - 7,467 -
Management fees to
related party 2,096 - 2,396 -
Depreciation and
amortization 26,891 - 32,931 -
---------- ---------- ---------- ----------
77,539 - 101,528 -
---------- ---------- ---------- ----------
Net Income $ 195,928 $ - $ 265,804 $ -
========== ========== ========== ==========
Allocation of Net
Income:
General partners $ (269) $ - $ (329) $ -
Limited partners 196,197 - 266,133 -
---------- ---------- ---------- ----------
$ 195,928 $ - $ 265,804 $ -
========== ========== ========== ==========
Net Income Per Limited
Partner Unit $ 0.12 $ - $ 0.20 $ -
========== ========== ========== ==========
Weighted Average Number
of Limited Partner
Units Outstanding 1,702,840 - 1,314,128 -
========== ========== ========== ==========
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
February 10,
1995 (Date of
Six Months Inception)
Ended through
June 30, December 31,
1996 1995
------------- -------------
General partners:
Beginning balance $ 997 $ -
Contributions - 1,000
Net income (329) (3)
----------- -----------
668 997
----------- -----------
Limited partners:
Beginning balance 4,641,236 -
Contributions 15,435,942 5,696,921
Syndication costs (1,756,194) (1,035,764)
Net income 266,133 8,354
Distributions ($0.25 and $0.08
per limited partner unit,
respectively) (326,736) (28,275)
----------- -----------
18,260,381 4,641,236
----------- -----------
Total partners' capital $18,261,049 $ 4,642,233
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
February 10,
1995 (Date of
Six Months Inception)
Ended through
June 30, June 30,
1996 1995
-------------- -------------
Increase (Decrease) in Cash and
Cash Equivalents:
Net Cash Provided by Operating
Activities $ 257,021 $ -
------------ -----------
Cash Flows From Investing Activities:
Additions to land and buildings
on operating leases (10,087,458) -
Investment in direct financing
leases (1,258,674) -
Increase in other assets (65,775) -
Other - (20)
------------ -----------
Net cash used in investing
activities (11,411,907) (20)
------------ -----------
Cash Flows From Financing Activities:
Reimbursement of acquisition and
syndication costs paid by related
parties on behalf of the
Partnership (339,105) -
Contributions from general partners - 1,000
Contributions from limited partners 15,435,942 -
Distributions to limited partners (142,120) -
Payment of syndication costs (1,544,293) -
------------ -----------
Net cash provided by
financing activities 13,410,424 1,000
------------ -----------
Net Increase in Cash and Cash Equivalents 2,255,538 980
Cash and Cash Equivalents at Beginning
of Period 4,198,859 -
------------ -----------
Cash and Cash Equivalents at End of
Period $ 6,454,397 $ 980
============ ===========
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain acqui-
sition and syndication costs on
behalf of the Partnership as
follows:
Acquisition costs $ 51,380 $ -
Syndication costs 231,885 -
----------- -----------
$ 283,265 $ -
=========== ===========
Land, building and other costs
incurred and unpaid at end of
period $ 947,208 $ -
=========== ===========
Construction in progress at
December 31, 1995, transferred
to net investment in direct
financing leases $ 90,561 $ -
=========== ===========
Commissions, marketing support
and due diligence expense
reimbursement fee and other
syndication costs incurred
and unpaid at end of period $ 32,293 $ -
=========== ===========
Distributions declared and unpaid
at end of period $ 211,692 $ -
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended June 30, 1996 and 1995,
Six Months ended June 30, 1996 and the Period
February 10, 1995 (Date of Inception) through June 30, 1995
1. Significant Accounting Policies:
-------------------------------
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, 1996,
may not be indicative of the results that may be expected for the year
ending December 31, 1996. Amounts as of December 31, 1995, 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 Form 10-K of CNL
Income Fund XVII, Ltd. (the "Partnership") for the year ended December
31, 1995.
The Partnership was a development stage enterprise from February 10,
1995 through November 3, 1995. Since operations had not begun,
activities through November 3, 1995, were devoted to organization of the
Partnership.
Land and Buildings on Operating Leases - Land and buildings on operating
leases are stated at cost. Buildings are depreciated using the
straight-line method over their estimated useful lives of 30 years.
When properties are sold, the related cost and accumulated depreciation
are removed from the accounts and gains or losses from sales are
reflected in income in accordance with Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate."
Effective January 1, 1996, the Partnership adopted 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
Statement requires that an entity review long-lived assets and certain
identifiable intangibles, to be held and used, for impairment whenever
events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. The general partners determine
whether an impairment in value has occurred by comparing the estimated
undiscounted future cash flows with the carrying cost of the individual
properties. Adoption of this standard had no material effect on the
Partnership's financial position or results of operations.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents. Cash and cash equivalents consist of demand deposits
at commercial banks, certificates of deposit, money market funds and
overnight repurchase agreements backed by government securities. Cash
equivalents are stated at cost plus accrued interest, which approximates
market value.
Cash accounts maintained on behalf of the Partnership in demand deposits
at commercial banks, money market funds and certificates of deposit may
exceed federally insured levels; however, the Partnership has not
experienced any losses in such accounts. The Partnership limits
investment of temporary cash investments to financial institutions with
high credit standing; therefore, the Partnership believes it is not
exposed to any significant credit risk on cash and cash equivalents.
Acquisition Fees and Miscellaneous Acquisition Expenses - Acquisition
fees and miscellaneous acquisition expenses attributable to the
Partnership's investment in properties are capitalized and allocated to
land and buildings, net investment in direct financing leases and other
assets.
Lease Accounting and Rental Income - Land and buildings are leased to
others on a triple-net lease basis, whereby the tenant is generally
responsible for all operating expenses relating to the property,
including property taxes, insurance, maintenance and repairs.
The leases are accounted for using either the direct financing or the
operating method. Such methods are described below:
Direct financing method - Leases accounted for using the
direct financing method are recorded at their net investment
(Note 4). Unearned income is deferred and amortized to
income over the lease terms so as to produce a constant
periodic rate of return on the Partnership's net investment
in the lease.
Operating method - Land and buildings are recorded at cost,
revenue is recognized as rentals are earned and depreciation
is charged to operations as incurred. When scheduled
rentals vary during the lease term, income is recognized on
a straight-line basis over the lease term so as to produce a
constant periodic rent. Accrued rental income is the
aggregate difference between the scheduled rents which vary
during the lease term and the income recognized on a
straight-line basis.
2. Leases:
------
The Partnership leases its land and buildings to operators of national
and regional fast-food and family-style restaurants. The leases are
accounted for under the provisions of Statement of Financial
Accounting Standards No. 13, "Accounting for Leases." Eleven of the
leases are classified as operating leases and two of the leases have
been classified as direct financing leases. For the leases classified
as direct financing leases, the building portions of the property leases
are accounted for as direct financing leases while the land portion of
the leases are operating leases. Substantially all leases are for 15 to
20 years and provide for minimum and contingent rentals. In addition,
the tenant pays all property taxes and assessments, fully maintains the
interior and exterior of the building and carries insurance coverage for
public liability, property damage, fire and extended coverage. The
lease options generally allow tenants to renew the leases for two to
four successive five-year periods subject to the same terms and
conditions as the initial lease. Most leases also allow the tenant to
purchase the property at fair market value after a specified portion of
the lease has elapsed.
3. Land and Buildings on Operating Leases:
--------------------------------------
Land and buildings on operating leases consisted of the following at:
June 30, December 31,
1996 1995
----------- ------------
Land $ 5,265,332 $ 311,683
Buildings 5,072,748 -
----------- -----------
10,338,080 311,683
Less accumulated
depreciation (31,931) -
----------- -----------
10,306,149 311,683
Construction in
progress 792,549 90,561
----------- -----------
$11,098,698 $ 402,244
=========== ===========
Some leases provide for escalating guaranteed minimum rents throughout
the lease term. Income from these scheduled rent increases is
recognized on a straight-line basis over the terms of the leases. For
the quarter and six months ended June 30, 1996, the Partnership
recognized $20,409 and $22,413, respectively, of such rental income.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at June 30, 1996:
1996 $ 434,052
1997 926,497
1998 926,497
1999 930,772
2000 937,144
Thereafter 13,458,362
-----------
$17,613,324
===========
These amounts do not include minimum lease payments that will become due
when properties under development are completed. (See Note 8.)
4. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at:
June 30, December 31,
1996 1995
----------- ------------
Minimum lease payments
receivable $ 3,211,108 $ -
Estimated residual
values 369,638 -
Less unearned income (2,106,638) -
----------- -----------
Net investment in
direct financing
leases $ 1,474,108 $ -
=========== ===========
The following is a schedule of future minimum lease payments to be
received on direct financing leases at June 30, 1996:
1996 $ 82,026
1997 164,052
1998 164,052
1999 164,052
2000 164,052
Thereafter 2,472,874
----------
$3,211,108
==========
5. Syndication Costs:
-----------------
Syndication costs consisting of legal fees, commissions, the due
diligence expense reimbursement fee, printing and other expenses
incurred in connection with the offering totalled $2,791,958 and
$1,035,764 at June 30, 1996 and December 31, 1995, respectively. These
offering expenses were charged to the limited partners' capital accounts
to reflect the net capital proceeds of the offering. All organizational
and offering expenses, as defined in the Partnership's prospectus, which
exceed three percent of the total gross proceeds received from the sale
of units of the Partnership will be paid or reimbursed by the general
partners and will not be the responsibility of the Partnership.
6. Related Party Transactions:
--------------------------
During the six months ended June 30, 1996, the Partnership incurred
$1,312,055 in syndication costs due to CNL Securities Corp. for services
in connection with selling units of limited partnership interest. A
substantial portion of these amounts ($1,238,345) was or will be paid as
commissions to other broker-dealers.
In addition, during the six months ended June 30, 1996, the Partnership
incurred $77,180 in due diligence expense reimbursement fees due to CNL
Securities Corp. These fees equal 0.5% of the limited partner
contributions of $15,435,942 received during the six months ended June
30, 1996. A portion of these fees has been or may be reallowed to other
broker-dealers and all due diligence expenses will be paid from such
fees.
Additionally, during the six months ended June 30, 1996, the Partnership
incurred $694,617 in acquisition fees due to CNL Fund Advisors, Inc. for
services in finding, negotiating and acquiring properties on behalf of
the Partnership. These fees represent 4.5% of the limited partner
capital contributions received during the six months ended June 30,
1996, and are included in land and buildings on operating leases, net
investment in direct financing leases and other assets.
In addition, during the quarter and six months ended June 30, 1996, the
Partnership incurred management fees of $2,096 and $2,396, respectively,
due to CNL Fund Advisors, Inc.
During the quarter and six months ended June 30, 1996, certain
affiliates of the general partners provided accounting and
administrative services to the Partnership (including accounting and
administrative services in connection with the offering of units) on a
day-to-day basis. For the quarter and six months ended June 30, 1996,
the expenses incurred for these services were classified as follows:
Quarter Six Months
Ended Ended
June 30, June 30,
1996 1996
-------- ----------
Syndication costs $ 89,883 $177,683
General operating
and administrative
expenses 30,810 45,095
-------- --------
$120,693 $222,778
======== ========
The due to related parties consisted of the following at:
June 30, December 31,
1996 1995
--------- ------------
Due to CNL Securities Corp.:
Commissions $ 30,455 $ 29,298
Due diligence expense
reimbursement fee 1,839 1,723
-------- --------
32,294 31,021
-------- --------
Due to CNL Fund Advisors,
Inc. and its affiliates:
Expenditures incurred
on behalf of the
Partnership 16,100 38,070
Acquisition fees 17,087 15,511
Accounting and admini-
strative services 3,969 12,585
Management fees 1,795 -
-------- --------
38,951 66,166
-------- --------
$ 71,245 $ 97,187
======== ========
During the six months ended June 30, 1996, the Partnership acquired one
property for a purchase price of $853,881 from an affiliate of the
general partners. The affiliate had purchased and temporarily held
title to the property in order to facilitate the acquisition of the
property by the Partnership. The purchase price paid by the Partnership
represented the costs incurred by the affiliate to acquire the property,
including closing costs.
7. Concentration of Credit Risk:
----------------------------
The following schedule presents total rental and earned income from
individual lessees, or affiliated groups of lessees, and the respective
restaurant chains, each representing more than ten percent of the
Partnership's total rental and earned income for the quarter ended June
30, 1996:
National Restaurant
Enterprises, Inc. 65,206
(operating Burger King
restaurants)
DenAmerica Corporation (operating
Denny's Restaurants) 62,296
Golden Corral Corporation 57,739
(operating Golden Corral
Family Steakhouse Restaurants)
RTM Indianapolis, Inc. and RTM
Southwest, Texas, Inc.
(operating Arby's Restaurants) 24,791
Although the Partnership's properties are geographically diverse and the
Partnership's lessees operate a variety of restaurant concepts, failure
of any of these lessees or restaurant chains could significantly impact
the results of operations of the Partnership. However, the general
partners believe that the risk of such a default is reduced due to the
essential or important nature of these properties for the on-going
operations of the lessees.
It is expected that the percentage of total rental and earned income
contributed by these lessees and restaurant chains will decrease as
additional Properties are acquired and leased in 1996 and subsequent
years.
8. Commitments:
-----------
The Partnership has entered into four development agreements with
tenants which provide terms and specifications for the construction of
buildings. The agreements provide a maximum amount of development costs
(including the purchase price of the land and closing costs) to be paid
by the Partnership. The aggregate maximum development costs the
Partnership has agreed to pay is approximately $3,492,900, of which
approximately $1,889,400 in land and other costs had been incurred as of
June 30, 1996. The buildings under construction are expected to be
operational by November 1996.
In connection with each of these properties, the Partnership, as lessor,
had entered into a long-term lease agreement with these tenants which
generally provides for the commencement of minimum annual rent the
earlier of (i) the date the restaurant opens for business to the public,
(ii) the date the certificate of occupancy is issued or (iii) a pre-
determined number of days after the execution of the lease (ranging from
120 to 180 days). The leases for three of the four properties under
construction as of June 30, 1996, provide for the tenant to pay "interim
rent" equal to a pre-determined rate (ranging from 10.25% to 10.75%)
times the amount funded by the Partnership during the period commencing
with the effective date of the lease to the date minimum annual rent
becomes payable. The other terms of the lease agreements for these
properties are substantially the same as the leases relating to the
Partnership's other properties as described in Note 2.
9. Subsequent Events:
-----------------
During the period July 1, 1996 through July 31, 1996, the Partnership
received capital contributions for an additional 222,840 units
($2,228,404) of limited partnership interest.
In addition, between July 1, 1996 and July 31, 1996, the Partnership
acquired three additional properties for cash, at a total cost of
$1,794,044. One of the properties consists of land and a building and
two of the properties are undeveloped land upon which restaurant
buildings will be constructed. The development costs (including the
purchase of the land and closing costs) to be paid by the Partnership
relating to the two properties upon which restaurants will be
constructed is estimated to be approximately $2,014,400 of which
approximately $930,100 in land and other costs had been paid by the
Partnership as of July 31, 1996. The buildings under construction are
expected to be operational by January 1997. The lease agreements for
the existing properties and the properties to be constructed are
substantially the same as the leases relating to the Partnership's other
properties, as described in Notes 2 and 8, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CNL Income Fund XVII, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on February 10, 1995, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant properties, as well as land upon which restaurants are
to be constructed, to be leased primarily to operators of national and
regional fast-food, family-style and casual dining restaurant chains
(collectively, the "Properties"). The leases will be triple-net leases, with
the lessee generally responsible for all repairs and maintenance, property
taxes, insurance and utilities. As of June 30, 1996, the Partnership owned 13
Properties, four of which were under construction.
Liquidity and Capital Resources
- -------------------------------
Beginning September 2, 1995, the Partnership offered for sale up to
3,000,000 units of limited partnership interest (the "Units") (3,000,000 Units
at $10 per Unit) pursuant to a registration statement on Form S-11 under the
Securities Act of 1933, as amended, effective August 11, 1995. As of June 30,
1996, the Partnership had sold 2,113,286 Units, representing $21,132,863 of
capital contributed by limited partners. Based on the general partners'
experience with 16 prior CNL Income Fund offerings (each of which sold the
entire amount of units offered for purchase), the Partnership anticipates
significant additional sales of Units prior to the termination of the
offering. In accordance with the Partnership's prospectus, the general
partners have elected to extend the offering of Units of the Partnership until
a date no later than August 11, 1997.
As of June 30, 1996, net proceeds to the Partnership from its offering
of Units, after deduction of selling commissions, due diligence expense
reimbursement fees and organizational and offering expenses, totalled
$18,330,905. Of this amount, approximately $14,598,700 had been used to
invest or committed for investment in 13 Properties, four of which were under
construction at June 30, 1996, and to pay acquisition fees and certain
acquisition expenses, leaving approximately $3,732,200 of offering proceeds
available for investment in Properties. As of June 30, 1996, the Partnership
had incurred $950,979 in acquisition fees to an affiliate of the general
partners.
As of June 30, 1996, the Partnership had entered into four development
agreements with tenants which provide terms and specifications for the
construction of buildings. The agreements provide a maximum amount of
development costs (including the purchase price of the land and closing costs)
to be paid by the Partnership. The aggregate maximum development costs the
Partnership has agreed to pay is approximately $3,492,900, of which
approximately $1,889,400 in land and other costs had been incurred as of June
30, 1996. The buildings under construction are expected to be operational by
November 1996.
In connection with each of these properties, the Partnership, as lessor,
has entered into a long-term lease agreement with these tenants which
generally provides for the commencement of minimum annual rent the earlier of
(i) the date the restaurant opens for business to the public, (ii) the date
the certificate of occupancy is issued or (iii) a pre-determined number of
days after the execution of the lease (ranging from 120 to 180 days). The
leases for three of the four properties under construction as of June 30,
1996, provide for the tenant to pay "interim rent" equal to a predetermined
rate (ranging from 10.25% to 10.75%) times the amount funded by the
Partnership during the period commencing with the effective date of the lease
to the date minimum annual rent becomes payable. The other terms of the lease
agreements for these Properties are substantially the same as the leases
relating to the Partnership's other Properties.
During the period July 1, 1996 and July 31, 1996, the Partnership
acquired three additional Properties for cash, at a total cost of $1,794,044.
One of the Properties consists of land and a building and two of the
Properties are undeveloped land upon which restaurant buildings will be
constructed. The development costs (including the purchase of the land and
closing costs) to be paid by the Partnership relating to the two Properties
upon which restaurants will be constructed is estimated to be approximately
$2,014,000 of which approximately $930,100 in land and other costs had been
paid by the Partnership as of July 31, 1996. The buildings under construction
are expected to be operational by January 1997. The lease agreements for the
existing Property and the Properties to be constructed are substantially the
same as the leases relating to the Partnership's other Properties.
The Partnership presently is negotiating to acquire additional
properties, but as of July 31, 1996, had not acquired any such properties.
As of July 31, 1996, the Partnership had sold 2,336,126 Units for an
aggregate of $23,361,267 in gross offering proceeds and had invested or
committed for investment approximately $17,577,000 thereof in 16 Properties,
leaving approximately $2,781,000 in net offering proceeds available for
investment in Properties. As of July 31, 1996, the Partnership had incurred
$1,051,257 in acquisition fees to an affiliate of the general partners. The
Partnership will use the remaining net offering proceeds, together with
proceeds from the sale of Units subsequent to July 31, 1996, to acquire
additional Properties, to pay acquisition fees and acquisition expenses and to
pay expenses relating to the sale of Units. The number of Properties to be
acquired will depend upon the amount of net offering proceeds (gross proceeds
less fees and expenses of the offering) available to the Partnership.
None of the Properties owned or to be acquired by the Partnership is or
may be encumbered. Subject to certain restrictions on borrowing, however,
the Partnership may borrow funds, but will not encumber any of the Properties
in connection with any such borrowing.
Until Properties are acquired by the Partnership, all Partnership
proceeds are held in short-term, highly liquid investments which the general
partners believe to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate the Partnership's use
of these funds to acquire Properties at such time as Properties suitable for
acquisition are located. At June 30, 1996, the Partnership had $6,454,397
invested in such short-term investments as compared to $4,198,859 at December
31, 1995. The increase in the amount invested in short-term investments is a
result of the receipt of capital contributions from the sale of Units during
the six months ended June 30, 1996. These funds will be used to purchase and
develop Properties (directly or indirectly through joint venture
arrangements), to pay syndication and acquisition costs, to pay limited
partner distributions, to meet Partnership expenses and, in the general
partners' discretion, to create cash reserves.
During the quarter and six months ended June 30, 1996, affiliates of the
general partners incurred on behalf of the Partnership $58,207 and $231,885,
respectively, for certain organizational and offering expenses. In addition,
during the quarter and six months ended June 30, 1996 affiliates of general
partners incurred on behalf of the Partnership $15,810 and $51,380,
respectively, for certain acquisition expenses and $18,839 and $23,549,
respectively, for certain operating expenses. As of June 30, 1996, the
Partnership owed $71,245 to related parties for such amounts, accounting and
administrative services and unpaid commissions, due diligence reimbursement
fees, acquisition fees and management fees. As of July 31, 1996, the
Partnership had reimbursed the affiliates all such amounts. Amounts payable
to other parties, including distributions payable, increased to $1,144,356 at
June 30, 1996, from $139,001 at December 31, 1995, as a result of an increase
in distributions payable to limited partners and costs incurred with respect
to the Properties under construction and unpaid at June 30, 1996.
During the six months ended June 30, 1996, the Partnership generated
cash from operations (which includes cash received from tenants, interest and
other income received, less cash paid for expenses) of $257,021. Based on
current and anticipated future cash from operations, the Partnership declared
distributions to the limited partners of $326,736 for the six months ended
June 30, 1996 ($211,692 for the quarter ended June 30, 1996). This represents
distributions of $0.25 per unit for the six months ended June 30, 1996 ($0.12
per unit for the quarter ended June 30, 1996). No distributions were made to
the general partners for the quarter and six months ended June 30, 1996. No
amounts distributed or to be distributed to the limited partners for the
quarter and six months ended June 30, 1996, are required to be or have been
treated by the Partnership as a return of capital for purposes of calculating
the limited partners' return on their adjusted capital contributions. The
Partnership intends to continue to make distributions of cash available for
distribution to the limited partners on a quarterly basis.
The general partners believe that the Properties are adequately covered
by insurance. In addition, the general partners obtained contingent liability
and property coverage for the Partnership. This insurance policy is intended
to reduce the Partnership's exposure in the unlikely event a tenant's
insurance policy lapses or is insufficient to cover a claim relating to the
Properties. The Partnership's investment strategy of acquiring Properties for
cash and leasing them under triple-net leases to operators who meet specified
financial standards is expected to minimize the Partnership's operating
expenses. Partnership net income is expected to increase throughout 1996, as
rental income increases, due to the acquisition of additional Properties and
due to the fact that the Properties that were under construction at June 30,
1996, will be operational. Accordingly, the general partners believe that any
anticipated decrease in the Partnership's liquidity in 1996, due to its
investment of available net offering proceeds in Properties and the payment
of additional costs relating to the Properties under construction at June 30,
1996, will not have an adverse effect on the Partnership's operations.
Due to anticipated low operating expenses, rental income expected to be
obtained from Properties after they are acquired, and the fact that the
Partnership will not purchase a Property until sufficient cash is available
for such purchase, the general partners do not believe that working capital
reserves are necessary at this time. In addition, due to the fact that the
leases of the Partnership's Properties are on a triple-net basis, it is not
anticipated that a permanent reserve for maintenance and repairs is necessary
at this time. To the extent, however, that the Partnership has insufficient
funds for such purposes, the general partners will contribute to the
Partnership an aggregate amount of up to one percent of the offering proceeds
for repairs and maintenance. The general partners have the right to cause the
Partnership to maintain reserves if, in their discretion, they determine such
reserves are necessary to meet the Partnership's working capital needs.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection
with the operations of the Partnership.
Results of Operations
- ---------------------
No significant operations commenced until the Partnership received the
minimum offering proceeds of $1,500,000 on November 3, 1995.
As of June 30, 1996, the Partnership had purchased 13 Properties and
entered into lease agreements relating to each of these Properties. The
leases of the Properties provide for minimum base annual rental payments
(payable in monthly installments) ranging from approximately $71,500 to
$190,000. All of the leases provide for percentage rent based on sales in
excess of a specified amount. In addition, some of the leases provide that,
commencing in specified lease years (ranging from the fourth to the sixth
lease year), the annual base rent required under the terms of the leases will
increase.
During the quarter and six months ended June 30, 1996, the Partnership
earned $223,760 and $257,574, respectively, in rental income from operating
leases and earned income from direct financing leases from nine Properties and
"interim rent" for three of the four Properties under construction at June 30,
1996, equal to a pre-determined rate (ranging from 10.25% to 10.75%) times the
amount funded by the Partnership during the period commencing with the
effective date of the lease to the date minimum annual rent becomes payable.
No rental income was earned for one of the four Properties under construction
as of June 30, 1996, due to the fact that rent does not commence until the
earlier of (i) the date the restaurant opens for business to the public,
(ii) the date the certificate of occupancy for the restaurant is issued or
(iii) 180 days after the execution of the lease. This Property is expected to
be operational by September 1996, at which time rental payments are expected
to commence. Because the Partnership did not commence significant operations
until it received the minimum offering proceeds on November 3, 1995, and has
not yet acquired all of its Properties, Partnership revenues for the quarter
and six months ended June 30, 1996, represent only a portion of revenues which
the Partnership is expected to earn during a full quarter and six months in
which the Partnership's Properties are operational.
During the quarter ended June 30, 1996, four lessees, or group of
affiliated lessees, of the Partnership and their respective restaurant chain,
(i) Golden Corral Corporation (operating Golden Corral Family Steakhouse
Restaurants), (ii) National Restaurant Enterprises, Inc. (operating Burger
King restaurants), (iii) DenAmerica Corporation (operating Denny's
restaurants), and (iv) RTM Indianapolis, Inc., and RTM Southwest Texas, Inc.,
(hereinafter referred to as RTM, Inc.) (operating Arby's restaurants), each
contributed more than ten percent of the Partnership's total rental income.
As of June 30, 1996, Golden Corral Corporation was the lessee under leases
relating to three restaurants (including one Property under construction as of
June 30, 1996), National Restaurant Enterprises, Inc., was the lessee under
leases relating to two restaurants, DenAmerica Corporation was the lessee
under leases relating to two restaurants and RTM, Inc. was the lessee under
leases relating to two restaurants. Because the Partnership did not commence
operations until November 1995, and its first Property was not purchase until
December 1995, the foregoing information regarding the lessees and restaurant
chains which contributed a significant amount of the Partnership's total
rental income during the quarter ended June 30, 1996, may or may note be
representative of the lessees which will account for more than ten percent of
the Partnership's rental income during the remainder of 1996 and subsequent
years. Because the Partnership has not completed its acquisition of
Properties as yet, it is not possible to determine which lessees or restaurant
chains will contribute more than ten percent of the Partnership's rental
income during the remainder of 1996 and subsequent years. In the event that
certain lessees or restaurant chains contribute more than ten percent of the
Partnership's rental income in the current and future years, any failure of
such lessees or restaurant chains could materially affect the Partnership's
income.
During the quarter and six months ended June 30, 1996, the Partnership
also earned $49,146 and $102,696, respectively, in interest income from
investments in money market accounts or other short-term, highly liquid
investments. As net offering proceeds are invested in additional Properties
and the Properties under construction became operational, the percentage of
total income representing interest income is expected to decrease.
Operating expenses, including depreciation and amortization, were
$77,539 and $101,528, respectively, for the quarter and six months ended June
30, 1996. The dollar amount of operating expenses is expected to increase and
the amount of general operating and administrative expenses as a percentage of
total revenues is expected to decrease, as the Partnership acquires additional
Properties and the Properties under construction become operational.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
-----------------
Item 2. Changes in Securities. Inapplicable.
---------------------
Item 3. Defaults upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Inapplicable.
Item 5. Other Information. Inapplicable.
-----------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits - None.
(b) The Partnership filed three reports on Form 8-K on April 4,
1996, May 3, 1996 and June 6, 1996, reporting property
acquisitions. In addition, the Partnership filed three
reports on Form 8-K/A on May 3, 1996, reporting property
acquisitions.
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 12th day of August, 1996.
CNL INCOME FUND XVII, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-----------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-----------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
