FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 6-15
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 16-21
Part II
Other Information 22
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
ASSETS 1996 1995
------------- ------------
Land and buildings on operating
leases, less accumulated
depreciation $17,291,664 $ 402,244
Net investment in direct financing
leases 1,934,015 -
Cash and cash equivalents 9,407,094 4,198,859
Receivables 65,423 410
Prepaid expenses 8,350 -
Organization costs, less accumulated
amortization of $1,809 and $309 8,191 9,691
Accrued rental income 69,918 -
Other assets 443,404 267,217
----------- -----------
$29,228,059 $ 4,878,421
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 1,826 $ 42,609
Accrued construction costs payable 2,488,641 69,316
Distributions payable 349,912 27,076
Due to related parties 67,333 97,187
Rents paid in advance 119,398 -
----------- -----------
Total liabilities 3,027,110 236,188
Commitments (Note 8)
Partners' capital 26,200,949 4,642,233
----------- -----------
$29,228,059 $ 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
Nine Months Inception)
Quarter Ended Ended through
September 30, September 30, September 30,
1996 1995 1996 1995
--------- --------- ------------- -------------
Revenues:
Rental income from
operating leases $ 303,976 $ - $ 525,787 $ -
Earned income from
direct financing
leases 44,574 - 80,337 -
Interest 72,350 - 175,046 -
Other income 2,490 - 9,552 -
--------- --------- --------- ---------
423,390 - 790,722 -
--------- --------- --------- ---------
Expenses:
General operating
and administra-
tive 49,163 - 107,897 -
Professional
services 4,164 - 11,631 -
Management fees
to related
party 3,762 - 6,158 -
Depreciation and
amortization 57,928 - 90,859 -
--------- --------- --------- ---------
115,017 - 216,545 -
--------- --------- --------- ---------
Net Income $ 308,373 $ - $ 574,177 $ -
========= ========= ========= =========
Allocation of Net
Income:
General partners $ (579) $ - $ (908) $ -
Limited partners 308,952 - 575,085 -
--------- --------- --------- ---------
$ 308,373 $ - $ 574,177 $ -
========= ========= ========= =========
Net Income Per
Limited Partner
Unit $ 0.12 $ - $ 0.33 $ -
========= ========= ========= =========
Weighted Average
Number of Limited
Partner Units
Outstanding 2,530,985 - 1,748,248 -
========= ========= ========= =========
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
Nine Months Inception)
Ended through
September 30, December 31,
1996 1995
------------- -------------
General partners:
Beginning balance $ 997 $ -
Contributions - 1,000
Net income (908) (3)
----------- -----------
89 997
----------- -----------
Limited partners:
Beginning balance 4,641,236 -
Contributions 24,206,754 5,696,921
Syndication costs (2,545,567) (1,035,764)
Net income 575,085 8,354
Distributions ($0.39 and
$0.08 per limited partner
unit, respectively) (676,648) (28,275)
----------- -----------
26,200,860 4,641,236
----------- -----------
Total partners' capital $26,200,949 $ 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
Nine Months Inception)
Ended through
September 30, September 30,
1996 1995
------------- -------------
Increase (Decrease) in Cash and
Cash Equivalents:
Net Cash Provided by Operating
Activities $ 711,101 $ -
------------ ------------
Cash Flows From Investing Activities:
Additions to land and buildings
on operating leases (14,912,815) -
Investment in direct financing
leases (1,590,308) -
Increase in other assets (83,837) -
Other - (20)
------------ ------------
Net cash used in investing
activities (16,586,960) (20)
------------ ------------
Cash Flows From Financing Activities:
Reimbursement of acquisition and
syndication costs paid by related
parties on behalf of the
Partnership (323,419) -
Contributions from general partners - 1,000
Contributions from limited partners 24,206,754 -
Distributions to limited partners (353,812) -
Payment of syndication costs (2,445,429) -
------------ ------------
Net cash provided by
financing activities 21,084,094 1,000
------------ ------------
Net Increase in Cash and Cash Equivalents 5,208,235 980
Cash and Cash Equivalents at Beginning
of Period 4,198,859 -
------------ ------------
Cash and Cash Equivalents at End of
Period $ 9,407,094 $ 980
============ ============
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain acqui-
sition, organization and syndi-
cation costs on behalf of the
Partnership as follows:
Acquisition costs $ 67,840 $ -
Organization costs - 10,000
Syndication costs 231,885 197,992
------------ ------------
$ 299,725 $ 207,992
============ =============
Land, building and other costs
incurred and unpaid at end of
period $ 2,528,661 $ 1,395
============ ============
Construction in progress at
December 31, 1995, transferred
to net investment in direct
financing leases $ 90,561 $ -
============ ============
Commissions, due diligence expense
reimbursement fee, and other
syndication costs incurred and
unpaid at end of period $ 325 $ 64,108
============ ============
Distributions declared and unpaid
at end of period $ 349,912 $ -
============ ============
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended September 30, 1996 and 1995,
Nine Months Ended September 30, 1996 and the Period
February 10, 1995 (Date of Inception)
through September 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 nine months ended September 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.
Rents Paid in Advance - Rents paid in advance by lessees for future
periods are deferred upon receipt and are recognized as revenues during
the period in which the rental income is earned. Rents paid in advance
include "interim rent" payments required to be paid under the terms of
certain leases for construction properties, equal to a pre-determined rate
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. Once minimum annual rent becomes payable, the "interim
rent" payments are amortized and recorded as income either (i) over the
lease term so as to produce a constant periodic rate of return for leases
accounted for using the direct financing method, or (ii) over the lease
term using the straight-line method for leases accounted for using the
operating method, whichever is applicable.
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." Sixteen of the leases are classified as
operating leases and three 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:
September 30, December 31,
1996 1995
------------- ------------
Land $ 7,513,927 $ 311,683
Buildings 9,354,176 -
----------- -----------
16,868,103 311,683
Less accumulated
depreciation (89,359) -
----------- -----------
16,778,744 311,683
Construction in
progress 512,920 90,561
----------- -----------
$17,291,664 $ 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
nine months ended September 30, 1996, the Partnership recognized $47,505
and $69,918, respectively, of such rental income.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at September 30, 1996:
1996 $ 336,609
1997 1,640,675
1998 1,640,675
1999 1,648,998
2000 1,658,735
Thereafter 24,588,611
-----------
$31,514,303
===========
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:
September 30, December 31,
1996 1995
------------- ------------
Minimum lease payments
receivable $ 4,250,278 $ -
Estimated residual
values 485,917 -
Less unearned income (2,802,180) -
----------- -----------
Net investment in
direct financing
leases $ 1,934,015 $ -
=========== ===========
The following is a schedule of future minimum lease payments to be
received on direct financing leases at September 30, 1996:
1996 $ 54,763
1997 219,051
1998 219,051
1999 219,051
2000 219,051
Thereafter 3,319,311
----------
$4,250,278
==========
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 $3,581,331 and $1,035,764 at
September 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 nine months ended September 30, 1996, the Partnership incurred
$2,057,574 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 ($1,935,081) was or will be paid as
commissions to other broker-dealers.
In addition, during the nine months ended September 30, 1996, the
Partnership incurred $121,034 in due diligence expense reimbursement fees
due to CNL Securities Corp. These fees equal 0.5% of the limited partner
contributions of $24,206,754 received during the nine months ended
September 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 nine months ended September 30, 1996, the
Partnership incurred $1,089,304 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 nine months
ended September 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 nine months ended September 30, 1996,
the Partnership incurred management fees of $3,762 and $6,158,
respectively, due to CNL Fund Advisors, Inc.
During the quarter and nine months ended September 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 nine months ended September 30, 1996, the expenses
incurred for these services were classified as follows:
Nine Months
Quarter Ended Ended
September 30, September 30,
1996 1996
------------- -------------
Syndication costs $ - $177,683
General operating
and administrative
expenses 27,968 73,063
-------- --------
$ 27,968 $250,746
======== ========
The due to related parties consisted of the following at:
September 30, December 31,
1996 1995
------------- ------------
Due to CNL Securities
Corp.:
Commissions $ - $ 29,298
Due diligence expense
reimbursement fee 325 1,723
-------- --------
325 31,021
-------- --------
Due to CNL Fund Advisors,
Inc. and its affiliates:
Expenditures incurred
on behalf of the
Partnership 21,993 38,070
Acquisition fees 40,020 15,511
Accounting and admini-
strative services 4,381 12,585
Management fees 614 -
-------- --------
67,008 66,166
-------- --------
$ 67,333 $ 97,187
======== ========
During the nine months ended September 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
September 30, 1996:
Golden Corral Corporation
(operating Golden Corral
Family Steakhouse Restaurants) $93,371
DenAmerica Corporation (operating
Denny's Restaurants) 86,765
National Restaurant
Enterprises, Inc.
(operating Burger King
restaurants) 68,726
RTM Indianapolis, Inc. and RTM
Southwest, Texas, Inc.
(operating Arby's Restaurants) 44,146
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 two development agreements with the same
tenant 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 $1,389,400, of which
approximately $1,026,800 in land and other costs had been incurred as of
September 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 one tenant which
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, (iii) 120 days after the execution
of the lease or (iv) the date the tenant receives from the Partnership its
final funding of the construction costs. The leases for the two
properties under construction as of September 30, 1996, provide for the
tenant to pay "interim rent" equal to a pre-determined rate of 11.75%
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 October 1, 1996 through October 31, 1996, the
Partnership received capital contributions for an additional 9,633 units
($96,325) of limited partnership interest.
Between October 1, 1996 and October 31, 1996, the Partnership acquired one
additional property for cash, at a total cost of $807,718. The lease
agreement for the property is substantially the same as the leases
relating to the Partnership's other properties, as described in Note 2.
In addition, between October 1, 1996 and October 31, 1996, the Partnership
acquired an approximate 20 percent interest in a property in Fayetteville,
North Carolina, as tenants-in-common with an affiliate of the general
partners, at a total cost of $187,481. In connection therewith, the
Partnership and its affiliate entered into an agreement whereby each co-
venturer will share in the profits and losses of the property in
proportion to each co-venturer's interest.
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 September 30, 1996, the Partnership owned 19 Properties, two
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 September
30, 1996, the Partnership had accepted subscriptions for 3,000,000 Units and had
received subscription proceeds for 2,990,368 Units, representing $29,903,675 of
capital contributed by limited partners. The remaining proceeds of $96,325,
representing the remaining 9,633 Units were received as of October 10, 1996.
As of September 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
$26,312,344. Of this amount, approximately $20,130,700 had been used to invest
or committed for investment in 19 Properties, two of which were under
construction at September 30, 1996, and to pay acquisition fees and certain
acquisition expenses, leaving approximately $6,181,600 of offering proceeds
available for investment in Properties. As of September 30, 1996, the
Partnership had incurred $1,345,665 in acquisition fees to an affiliate of the
general partners.
As of September 30, 1996, the Partnership had entered into two development
agreements with one tenant which provide terms and specifications for the
construction of two 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 $1,389,400, of which
approximately $1,026,800 in land and other costs had been incurred as of
September 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 the tenant which 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, (iii) 120 days after the execution of the lease or (iv) the
date the tenant receives from the Partnership its final funding of the
construction costs. The leases for the two properties under construction as of
September 30, 1996, provide for the tenant to pay "interim rent" equal to a pre-
determined rate of 11.75% 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.
Between October 1, 1996 and October 31, 1996, the Partnership acquired one
additional Property for cash, at a total cost of $807,718. The lease agreement
for the existing Property is substantially the same as the leases relating to
the Partnership's other Properties.
In addition, between October 1, 1996 and October 31, 1996, the Partnership
acquired an approximate 20 percent interest in a Property in Fayetteville, North
Carolina, as tenants-in-common with an affiliate of the general partners, at a
total cost of $187,481. In connection therewith, the Partnership and its
affiliate entered into an agreement whereby each co-venturer will share in the
profits and losses of the Property in proportion to each co-venturer's interest.
The Partnership presently is negotiating to acquire additional properties,
but as of October 31, 1996, had not acquired any such properties.
As of October 31, 1996, the Partnership had received all proceeds from the
sale of 3,000,000 Units for an aggregate of $30,000,000 in gross offering
proceeds and had invested or committed for investment approximately $21,130,000
thereof in 21 Properties, including one Property owned with an affiliate as
tenants-in-common, leaving approximately $5,270,000 in net offering proceeds
available for investment in Properties. As of October 31, 1996, the Partnership
had incurred $1,350,000 in acquisition fees to an affiliate of the general
partners. The Partnership will use the remaining net offering proceeds to
acquire additional Properties. The number of Properties to be acquired will
depend upon the amount of net offering proceeds 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 September 30, 1996, the Partnership had $9,407,094 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 nine months
ended September 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 nine months ended September 30, 1996, affiliates of the general
partners incurred on behalf of the Partnership $231,885 for certain
organizational and offering expenses. In addition, during the quarter and nine
months ended September 30, 1996 affiliates of general partners incurred on
behalf of the Partnership $16,460 and $67,840, respectively, for certain
acquisition expenses and $27,131 and $50,680, respectively, for certain
operating expenses. As of September 30, 1996, the Partnership owed $67,333 to
related parties for such amounts, accounting and administrative services and
unpaid due diligence reimbursement fees, acquisition fees and management fees.
As of October 31, 1996, the Partnership had reimbursed the affiliates all such
amounts. Amounts payable to other parties, including distributions payable,
increased to $2,840,379 at September 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 September 30, 1996.
During the nine months ended September 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 $711,101. Based on cash
from operations, the Partnership declared distributions to the limited partners
of $676,648 for the nine months ended September 30, 1996 ($349,912 for the
quarter ended September 30, 1996). This represents distributions of $0.39 per
unit for the nine months ended September 30, 1996 ($0.14 per unit for the
quarter ended September 30, 1996). No distributions were made to the general
partners for the quarter and nine months ended September 30, 1996. No amounts
distributed or to be distributed to the limited partners for the quarter and
nine months ended September 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 have 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 September 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 September 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 September 30, 1996, the Partnership had purchased 19 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 $66,900 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 nine months ended September 30, 1996, the
Partnership earned $348,550 and $606,124, respectively, in rental income from
operating leases and earned income from direct financing leases from the 17
Properties which were operational at September 30, 1996. 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 nine months ended
September 30, 1996, represent only a portion of revenues which the Partnership
is expected to earn during a full quarter and nine months in which the
Partnership's Properties are operational.
During the quarter ended September 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 September 30,
1996, Golden Corral Corporation was the lessee under leases relating to three
restaurants, National Restaurant Enterprises, Inc., was the lessee under leases
relating to two restaurants, DenAmerica Corporation was the lessee under leases
relating to three 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 purchased 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 September 30, 1996, may or may not 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, with the exception of Golden Corral Corporation (operating
Golden Corral Family Steakhouse Restaurants), National Restaurant Enterprises,
Inc. (operating Burger King restaurants) and DenAmerica Corporation (operating
Denny's restaurants), each of which the Partnership anticipates will contribute
more then ten percent of the Partnership's income during the remainder of 1996
and subsequent years. In addition, the Partnership anticipates that Foodmaker,
Inc. (operating Jack in the Box restaurants) will contribute more then ten
percent of the Partnership's income in 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 nine months ended September 30, 1996, the
Partnership also earned $72,350 and $175,046, 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 $115,017
and $216,545, respectively, for the quarter and nine months ended September 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 July 2,
1996, July 24, 1996 and August 20, 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 November, 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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the balance sheet of
CNL Income Fund XVII, Ltd. at September 30, 1996, and its statement of income
for the nine months ended and is qualified in its entirety by reference to the
Form 10-Q of CNL Income Fund XVII, Ltd. for the nine months ended September 30,
1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,407,094
<SECURITIES> 0
<RECEIVABLES> 65,423
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 17,381,023
<DEPRECIATION> 89,359
<TOTAL-ASSETS> 29,228,059
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 26,200,949
<TOTAL-LIABILITY-AND-EQUITY> 29,228,059
<SALES> 0
<TOTAL-REVENUES> 790,722
<CGS> 0
<TOTAL-COSTS> 216,545
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 574,177
<INCOME-TAX> 0
<INCOME-CONTINUING> 574,177
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 574,177
<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; therfore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
