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, 1998
-------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-22485
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
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
<PAGE>
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 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8-11
Part II
Other Information 12
<PAGE>
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
ASSETS 1998 1997
----------- --------
Land and buildings on operating
leases, less accumulated
depreciation of $725,354 and
$553,968 $20,834,586 $21,328,869
Net investment in direct financing
leases 3,039,242 3,056,783
Investment in joint ventures 1,451,096 1,328,067
Cash and cash equivalents 1,466,750 1,238,799
Receivables, less allowance for
doubtful accounts of $14,333
in 1997 855 613
Prepaid expenses 10,151 20
Organization costs, less accumulated
amortization of $5,309 and $4,309 4,691 5,691
Accrued rental income 502,015 357,246
Other assets 118,720 104,391
----------- -----------
$27,428,106 $27,420,479
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 2,563 $ 2,922
Accrued construction costs payable 38,834 38,834
Distributions payable 600,000 600,000
Due to related parties 2,730 2,875
Rents paid in advance 58,854 55,762
Deferred rental income 52,298 64,690
----------- -----------
Total liabilities 755,279 765,083
Minority interest 425,986 419,193
Partners' capital 26,246,841 26,236,203
----------- -----------
$27,428,106 $27,420,479
=========== ===========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- -------
<S> <C>
Revenues:
Rental income from
operating leases $ 607,665 $ 589,954 $1,228,481 $1,106,061
Earned income from direct
financing leases 94,087 80,395 188,422 130,105
Interest and other income 14,864 19,168 25,539 50,269
---------- ---------- ---------- ----------
716,616 689,517 1,442,442 1,286,435
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 30,969 40,801 57,616 74,701
Professional services 6,433 3,776 10,629 10,065
Management fees to related
party 6,602 6,896 13,362 12,189
State and other taxes - 126 11,804 6,442
Depreciation and
amortization 78,126 92,449 176,959 188,038
---------- ---------- ---------- ----------
122,130 144,048 270,370 291,435
---------- ---------- ---------- ----------
Income Before Minority
Interest in Income of
Consolidated Joint Venture
and Equity in Earnings of
Unconsolidated Joint
Ventures 594,486 545,469 1,172,072 995,000
Minority Interest in Income
of Consolidated Joint
Venture (15,488) (10,673) (31,219) (10,432)
Equity in Earnings of
Unconsolidated Joint
Ventures 35,039 26,513 69,785 45,358
---------- ---------- ---------- ----------
Net Income $ 614,037 $ 561,309 $1,210,638 $1,029,926
========== ========== ========== ==========
Allocation of Net Income:
General partners $ 140 $ (12) $ 106 $ (576)
Limited partners 613,897 561,321 1,210,532 1,030,502
---------- ---------- ---------- ----------
$ 614,037 $ 561,309 $1,210,638 $1,029,926
========== ========== ========== ==========
Net Income Per Limited
Partner Unit $ 0.20 $ 0.19 $ 0.40 $ 0.34
========== ========== ========== ==========
Weighted Average Number of
Limited Partner Units
Outstanding 3,000,000 3,000,000 3,000,000 3,000,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
1998 1997
---------------- --------
General partners:
Beginning balance $ (551) $ 288
Net income 106 (839)
----------- -----------
(445) (551)
----------- -----------
Limited partners:
Beginning balance 26,236,754 26,319,858
Net income 1,210,532 2,204,396
Distributions ($0.40 and
$0.76 per limited partner
unit, respectively) (1,200,000) (2,287,500)
----------- -----------
26,247,286 26,236,754
----------- -----------
Total partners' capital $26,246,841 $26,236,203
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1998 1997
----------- -----------
Increase (Decrease) in Cash and
Cash Equivalents:
Net Cash Provided by Operating
Activities $ 1,274,084 $ 1,179,142
----------- -----------
Cash Flows From Investing
Activities:
Reimbursement from developer
of construction costs 322,897 -
Additions to land and build-
ings on operating leases - (1,978,419)
Investment in direct
financing leases - (1,009,775)
Investment in joint ventures (127,807) (934,196)
Other (16,797) -
----------- ----------
Net cash provided by (used
in) investing activities 178,293 (3,922,390)
----------- -----------
Cash Flows From Financing
Activities:
Reimbursement of acqui-
sition costs paid by
related parties on behalf
of the Partnership - (26,068)
Contributions from minority
interest - 278,170
Distributions to limited
partners (1,200,000) (1,015,084)
Distribution to holder of
minority interest (24,426) (16,943)
----------- -----------
Net cash used in financing
activities (1,224,426) (779,925)
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 227,951 (3,523,173)
Cash and Cash Equivalents at
Beginning of Period 1,238,799 4,716,719
----------- -----------
Cash and Cash Equivalents at End
of Period $ 1,466,750 $ 1,193,546
=========== ===========
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1998 1997
----------- ----------
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain
acquisition costs on behalf
of the Partnership as follows: $ - $ 10,619
=========== ===========
Land and building under operating
lease exchanged for land and
building under operating lease $ 899,654 $ -
=========== ==========
Distributions declared and unpaid
at end of period $ 600,000 $ 562,500
=========== ===========
See accompanying notes to condensed financial statements.
5
<PAGE>
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1998 and 1997
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, 1998, may not be indicative of the results that may be expected for
the year ending December 31, 1998. Amounts as of December 31, 1997,
included in the financial statements, have been derived from audited
financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund XVII, Ltd. (the "Partnership") for the year ended December
31, 1997.
The Partnership accounts for its 80 percent interest in the accounts of
CNL/GC El Cajon Joint Venture using the consolidation method. Minority
interest represents the minority joint venture partner's proportionate
share of the equity in the Partnership's consolidated joint venture.
All significant intercompany accounts and transactions have been
eliminated.
Certain items in the prior year's financial statements have been
reclassified to conform to 1998 presentation. These reclassifications
had no effect on partners' capital or net income.
The general partners are in the process of analyzing the effects of the
consensus reached by the Financial Accounting Standards Board in EITF
98-9, entitled "Accounting for Contingent Rent in the Interim Financial
Periods," issued in May 1998. The general partners do not expect that
the conclusions reached in this consensus will have a material effect
on the Partnership's financial position or results of operations.
6
<PAGE>
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1998 and 1997
2. Land and Buildings on Operating Leases:
In June 1998, the tenant of the property in Troy, Ohio, exercised its
option under the terms of its lease agreement, to substitute the
existing property for a replacement property. In conjunction therewith,
the Partnership exchanged the property in Troy, Ohio, with a property
in Inglewood, California. The lease for the property in Troy, Ohio, was
amended to allow the property in Inglewood, California to continue
under the terms of the original lease. All closing costs were paid by
the tenant. The Partnership accounted for this as a nonmonetary
exchange of similar assets and recorded the acquisition of the property
in Inglewood, California, at the net book value of the property in
Troy, Ohio. No gain or loss was recognized due to this being accounted
for as a nonmonetary exchange of similar assets.
3. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees, or affiliated groups of lessees, each representing
more than ten percent of the Partnership's total rental and earned
income (including the Partnership's share of total rental and earned
income from joint ventures and properties held as tenants-in-common),
for at least one of the six month periods ended June 30:
1998 1997
-------- ------
Golden Corral Corporation $229,474 $231,623
National Restaurant
Enterprises, Inc. 222,396 138,806
DenAmerica Corp. 216,026 211,734
Foodmaker, Inc. 174,757 152,362
San Diego Food Holdings, Inc. 158,150 54,613
RTM Indianapolis, Inc. and
RTM Southwest, Texas, Inc. 134,176 134,611
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees
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 ongoing operations of the lessees.
7
<PAGE>
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 are triple-net leases, with the lessee generally
responsible for all repairs and maintenance, property taxes, insurance and
utilities. As of June 30, 1998, the Partnership owned 28 Properties, including
three Properties owned by joint ventures in which the Partnership is a
co-venturer and three Properties owned with affiliates as tenants-in-common.
Liquidity and Capital Resources
The Partnership's primary source of capital is cash from operations
(which includes cash received from tenants, distributions from joint ventures,
and interest and other income received, less cash paid for expenses). Cash from
operations was $1,274,084 and $1,179,142 for the six months ended June 30, 1998
and 1997, respectively. The increase in cash from operations for the six months
ended June 30, 1998, as compared to the six months ended June 30, 1997, is
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital.
In September 1997, the Partnership entered into a joint venture
arrangement, CNL Kingston Joint Venture, with an affiliate of the Partnership
which has the same general partners, to construct and hold one restaurant
Property. As of June 30, 1998, the Partnership had contributed $311,048 to the
joint venture. Construction of the restaurant was completed in January 1998, and
as of June 30, 1998, the Partnership owned a 60.06% interest in the profits and
losses of the joint venture.
In addition, during the six months ended June 30, 1998, the Partnership
received approximately $322,900 from the developer of the Properties in Aiken,
South Carolina and Weatherford, Texas. This represents a reimbursement from the
developer upon final reconciliation of total construction costs, to the total
construction costs funded by the Partnership in accordance with the development
agreement.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to partners. At June 30, 1998, the Partnership had $1,466,750
invested in such short-term investments, as compared to $1,238,799 at December
31, 1997. The funds remaining at June 30, 1998, after the payment of
8
<PAGE>
Liquidity and Capital Resources - Continued
distributions and other liabilities, will be used to meet the Partnership's
working capital and other needs.
Total liabilities of the Partnership, including distributions payable,
decreased to $755,279 at June 30, 1998, from $765,083 at December 31, 1997. The
general partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.
Based on cash from operations, the Partnership declared distributions
to the limited partners of $1,200,000 and $1,087,500 for the six months ended
June 30, 1998 and 1997, respectively ($600,000 and $562,500 for the quarters
ended June 30, 1998 and 1997, respectively). This represents distributions of
$0.40 and $0.36 per unit for the six months ended June 30, 1998 and 1997,
respectively ($0.20 and $0.19 per unit for the quarters ended June 30, 1998 and
1997, respectively). No distributions were made to the general partners for the
quarters and six months ended June 30, 1998 and 1997. No amounts distributed to
the limited partners for the six months ended June 30, 1998 and 1997, 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 Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
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
During the six months ended June 30, 1998 and 1997, the Partnership and
its consolidated joint venture, CNL/GC El Cajon Joint Venture, owned and leased
23 wholly owned Properties, to operators of fast-food and family-style
restaurant chains. In connection therewith, during the six months ended June 30,
1998 and 1997, the Partnership earned $1,416,903 and $1,236,166, respectively,
in rental income from operating leases and earned income from direct financing
leases from these Properties, $701,752 and $670,349 of which was earned during
the quarters ended June 30, 1998 and 1997, respectively. The increase in rental
and earned income during the quarter and six months ended June 30, 1998, as
compared to the quarter and six months ended June 30, 1997, is
9
<PAGE>
Results of Operations - Continued
primarily attributable to the fact that two Properties were operational for a
partial quarter and six months ended June 30, 1997, as compared to a full
quarter and six months ended June 30, 1998.
In addition, during the six months ended June 30, 1997, the Partnership
owned and leased three Properties with affiliates as tenants-in-common and one
Property indirectly through a joint venture arrangement. During the six months
ended June 30, 1998, the Partnership owned and leased three Properties with
affiliates as tenants-in-common and two Properties indirectly through joint
venture arrangements. In connection therewith, during the quarters and six
months ended June 30, 1998 and 1997, the Partnership earned $69,785 and $45,358,
respectively, attributable to net income earned by these joint ventures, $35,039
and $26,513 of which were earned during the quarters ended June 30, 1998 and
1997, respectively. The increase in net income earned by these joint ventures is
primarily due to the fact that the Properties owned by the joint ventures and
the Properties held as tenants-in-common with affiliates of the general
partners, were operational for the full quarter and six months ended June 30,
1998, as compared to a partial quarter and six months ended June 30, 1997.
During at least one of the six months ended June 30, 1998 and 1997, six
lessees of the Partnership, (i) Golden Corral Corporation, (ii) National
Restaurant Enterprises, Inc., (iii) DenAmerica Corp., (iv) Foodmaker, Inc., (v)
San Diego Food Holdings, Inc. and (vi) RTM Indianapolis, Inc. and RTM Southwest,
Texas, Inc., (hereinafter referred to as RTM, Inc.) each contributed more than
ten percent of the Partnership's total rental income. As of June 30, 1998,
Golden Corral Corporation, National Restaurant Enterprises, Inc. and RTM, Inc.,
were each lessees under leases relating to three restaurants, DenAmerica
Corporation and Foodmaker, Inc., were each lessees under leases relating to four
restaurants and San Diego Holdings, Inc. was the lessee under a lease relating
to one restaurant. It is anticipated that, based on the minimum rental payments
required by the leases, Golden Corral Corporation, National Restaurants
Enterprises, Inc., DenAmerica, Corp., Foodmaker, Inc. and San Diego Food
Holdings, Inc., each will continue to contribute more than ten percent of the
Partnership's total rental income during the remainder of 1998 and subsequent
years. Any failure of these lessees could materially affect the Partnership's
income.
Operating expenses including depreciation and amortization expense,
were $270,370 and $291,435 for the six months ended June 30, 1998 and 1997,
respectively, of which $122,130 and $144,048 were incurred for the quarters
ended June 30, 1998 and 1997, respectively. The decrease in operating expenses
during the quarter and six months ended June 30, 1998, as compared to the
10
<PAGE>
Results of Operations - Continued
quarter and six months ended June 30, 1997, is primarily attributable to a
decrease in administrative expenses for services related to accounting;
financial, tax and regulatory compliance and reporting; lease and loan
compliance; limited partner distributions and reporting; and investor relations.
In addition, operating expenses also decreased due to a decrease in depreciation
expense as a result of the reimbursement from the developer of construction
costs relating to the Properties in Aiken, South Carolina and Weatherford,
Texas, as described above in "Liquidity and Capital Resources."
The general partners are in the process of analyzing the effects of the
consensus reached by the Financial Accounting Standards Board in EITF 98-9,
entitled "Accounting for Contingent Rent in the Interim Financial Periods,"
issued in May 1998. The general partners do not expect that the conclusions
reached in this consensus will have a material effect on the Partnership's
financial position or results of operations.
11
<PAGE>
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) No reports on Form 8-K were filed during the quarter
ended June 30, 1998.
12
<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 7th day of August, 1998.
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 financial information extracted from the balance
sheet of CNL Income Fund XVII, Ltd. at June 30, 1998, and its statement of
income for the six months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund XVII, Ltd. for the six months ended
June 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,466,750
<SECURITIES> 0
<RECEIVABLES> 15,188
<ALLOWANCES> (14,333)
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 21,559,940
<DEPRECIATION> 725,354
<TOTAL-ASSETS> 27,428,106
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 26,246,841
<TOTAL-LIABILITY-AND-EQUITY> 27,428,106
<SALES> 0
<TOTAL-REVENUES> 1,442,442
<CGS> 0
<TOTAL-COSTS> 270,370
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,210,638
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,210,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,210,638
<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>
