UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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 of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407)
422-1574
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $10 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
The Form 10-K of CNL Income Fund XVII, Ltd. for the year ended December
31, 1997 is being amended to provide additional disclosure under Item 1.
Business, Item 2. Properties and Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Capital Resources, Short-Term
Liquidity and Long-Term Liquidity.
PART I
Item 1. Business
CNL Income Fund XVII, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on February 10, 1995. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on September 2, 1995, the
Partnership offered for sale up to $30,000,000 of limited partnership interests
(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. The offering terminated on September 19, 1996, at which date
the maximum offering proceeds of $30,000,000 had been received from investors
who were admitted to the Partnership as limited partners (the "Limited
Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of national and regional fast-food, family-style and casual dining
restaurant chains (the "Restaurant Chains"). Net proceeds to the Partnership
from its offering of Units, after deduction of organizational and offering
expenses, totalled $26,400,000. The Partnership acquired its first Property on
December 20, 1995. During the year ended December 31, 1996, the Partnership
acquired 23 additional Properties, including one Property owned by a joint
venture in which the Partnership is a co-venturer and one Property owned with an
affiliate, as tenants-in-common, at an aggregate cost of approximately
$23,406,500, including acquisition fees and certain acquisition expenses. During
1997, the Partnership used the majority of its remaining net offering proceeds
to acquire two additional Properties, as tenants-in-common, with two separate
affiliates, and to establish a working capital reserve of approximately $258,000
for Partnership purposes. In addition, the Partnership entered into two
additional joint ventures, CNL Mansfield Joint Venture and CNL Kingston Joint
Venture, with affiliates of the General Partners. As a result of the above
transactions, as of December 31, 1997, the Partnership owned 28 Properties. The
28 Properties include interests in three Properties owned through joint ventures
in which the Partnership is a co-venturer and three Properties owned with
affiliates as tenants-in-common. The Partnership leases the Properties on a
triple-net basis with the lessees responsible for all repairs and maintenance,
property taxes, insurance and utilities.
1
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The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. In general, the General Partners plan to seek the sale of the
Properties commencing seven to 12 years after their acquisition. The Partnership
has no obligation to sell all or any portion of a Property at any particular
time, except as may be required under property purchase options granted to
certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties provide for initial terms
ranging from 15 to 20 years (the average being 18 years) and expire between 2011
and 2017. All leases are on a triple-net basis, with the lessees responsible for
all repairs and maintenance, property taxes, insurance and utilities. The leases
of the Properties provide for minimum base annual rental payments (payable in
monthly installments) ranging from approximately $66,200 to $248,700. All of the
leases provide for percentage rent, based on sales in excess of a specified
amount. In addition, the majority of the leases provide that, commencing in
specified lease years (generally the sixth lease year), the annual base rent
required under the terms of the lease will increase.
Generally, the leases of the Properties provide for two to five -year
renewal options subject to the same terms and conditions as the initial lease.
Certain lessees also have been granted options to purchase Properties at the
Property's then fair market value after a specified portion of the lease term
has elapsed. Under the terms of certain leases, the option purchase price may
equal the Partnership's original cost to purchase the Property (including
acquisition costs), plus a specified percentage from the date of the lease or a
specified percentage of the Partnership's purchase price, if that amount is
greater than the Property's fair market value at the time the purchase option is
exercised.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to the terms of the lease, the Partnership
first must offer the lessee the right to purchase the Property on the same terms
and conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
Major Tenants
2
<PAGE>
During 1997, four lessees, or group of affiliated lessees, of the
Partnership and its consolidated joint venture, Golden Corral Corporation,
National Restaurant Enterprises, Inc., DenAmerica Corp. and Foodmaker, Inc.,
each contributed more than ten percent of the Partnership's total rental income
(including rental income from the Partnership's consolidated joint venture, the
Partnership's share of rental income from two Properties owned by unconsolidated
joint ventures and three Properties owned with affiliates as tenants-in-common).
As of December 31, 1997, Golden Corral Corporation and National Restaurant
Enterprises, Inc. were each the lessee under leases relating to three
restaurants and DenAmerica Corp. and Foodmaker, Inc. were each the lessee under
leases relating to four restaurants. It is anticipated that based on the minimum
rental payments required by the leases, these four lessees each will contribute
more than ten percent of the Partnership's total rental income in 1998 and
subsequent years. In addition, four Restaurant Chains, Golden Corral Family
Steakhouse Restaurants, ("Golden Corral"), Jack in the Box, Boston Market and
Burger King, each accounted for more than ten percent of the Partnership's total
rental income during 1997 (including rental income from the Partnership
consolidated joint venture, the Partnership's share of rental income from two
Properties owned by unconsolidated joint ventures and three Properties owned
with affiliates as tenants-in-common). In subsequent years, it is anticipated
that these four Restaurant Chains each will contribute more than ten percent of
the Partnership's rental income to which the Partnership is entitled under the
terms of the leases. Any failure of these lessees or Restaurant Chains could
materially adversely affect the Partnership's income. As of December 31, 1997,
no single tenant or group of affiliated tenants leased Properties with an
aggregate carrying value in excess of 20 percent of the total assets of the
Partnership.
Joint Venture Arrangements and Tenancy in Common Arrangements
In December 1996, the Partnership entered into a joint venture
arrangement, CNL/GC El Cajon Joint Venture, with an unaffiliated entity to
purchase and hold one Property. In addition, during 1997, the Partnership
entered into two joint venture arrangements: CNL Mansfield Joint Venture with
CNL Income Fund VII, Ltd., an affiliate of the General Partners, to purchase and
hold one Property; and CNL Kingston Joint Venture with CNL Income Fund XIV,
Ltd., an affiliate of the General Partners, to purchase and hold one Property.
Each joint venture arrangement provides for the Partnership and its
joint venture partners to share in all costs and benefits associated with the
joint venture in proportion to each partner's percentage interest in the joint
venture. The Partnership owns an 80 percent interest in CNL/GC El Cajon Joint
Venture, a 21 percent interest in CNL Mansfield Joint Venture and a 60.06%
interest in CNL Kingston Joint Venture. The Partnership and its joint venture
partners are also jointly and severally liable for all debts, obligations and
other liabilities of the joint venture. Each of the affiliates is a limited
partnership organized pursuant to the laws of the State of Florida.
3
<PAGE>
Each joint venture has an initial term of 20 years and, after the
expiration of the initial term, continues in existence from year to year unless
terminated at the option of either of the joint venturers or by an event of
dissolution. Events of dissolution include the bankruptcy, insolvency or
termination of either of the joint venturers, sale of the Property owned by the
joint venture and mutual agreement of the Partnership and its joint venture
partners to dissolve the joint venture.
The Partnership has management control of CNL/GC El Cajon Joint Venture
and shares management control equally with affiliates of the General Partners
for CNL Mansfield Joint Venture and CNL Kingston Joint Venture. The joint
venture agreements restrict any venturer's ability to sell, transfer or assign
its joint venture interest without first offering it for sale to its joint
venture partner, either upon such terms and conditions as to which the venturers
may agree or, in the event the venturers cannot agree, on the same terms and
conditions as any offer from a third party to purchase such joint venture
interest.
Net cash flow from operations of CNL/GC El Cajon Joint Venture, CNL
Mansfield Joint Venture and CNL Kingston Joint Venture is distributed 80
percent, 21 percent and 60.06%, respectively, to the Partnership and the balance
is distributed to each other joint venture partner in accordance with its
percentage ownership in the joint venture. Any liquidation proceeds, after
paying joint venture debts and liabilities and funding reserves for contingent
liabilities, will be distributed first to the joint venture partners with
positive capital account balances in proportion to such balances until such
balances equal zero, and thereafter in proportion to each joint venture
partner's percentage interest in the joint venture.
In addition to the above joint venture arrangements, in October 1996,
the Partnership entered into an agreement to hold a Property in Fayetteville,
North Carolina, as tenants-in-common with CNL Income Fund XVI, Ltd., an
affiliate of the General Partners. The agreement provides for the Partnership
and the affiliate to share in the profits and losses of the Property and net
cash flow from the Property in proportion to each co-tenant's percentage
interest in the Property. The Partnership owns a 19.73% interest in this
Property.
In addition, during 1997, the Partnership entered into an agreement to
hold a Property in Corpus Christi, Texas as tenants-in-common, with CNL Income
Fund XI, Ltd., an affiliate of the General Partners, and entered into another
agreement to hold a Property in Akron, Ohio, as tenants-in-common, with CNL
Income Fund XIII, Ltd., an affiliate of the General Partners. The agreements
provide for the Partnership and the affiliates to share in the profits and
losses of the Property in proportion to each co- tenant's percentage interest.
The Partnership owns an approximate 27 percent and 37 percent interest in the
Properties in Corpus Christi, Texas and Akron, Ohio, respectively.
4
<PAGE>
Each of the affiliates is a limited partnership organized pursuant to
the laws of the State of Florida. The tenancy in common agreement restricts each
co-tenant's ability to sell, transfer, or assign its interest in the tenancy in
common's Property without first offering it for sale to the remaining co-tenant.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
Management Services
CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership. Under this agreement,
CNL Fund Advisors, Inc. is responsible for collecting rental payments,
inspecting the Properties and the tenants' books and records, assisting the
Partnership in responding to tenant inquiries and notices and providing
information to the Partnership about the status of the leases and the
Properties. CNL Fund Advisors, Inc. also assists the General Partners in
negotiating the leases. For these services, the Partnership has agreed to pay
CNL Fund Advisors, Inc. an annual fee of one percent of the sum of gross rental
revenues from Properties wholly owned by the Partnership plus the Partnership's
allocable share of gross revenues of joint ventures in which the Partnership is
a co-venturer, but not in excess of competitive fees for comparable services.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who may
also perform certain services for the Partnership.
5
<PAGE>
Item 2. Properties
As of December 31, 1997, the Partnership owned 28 Properties. Of the 28
Properties, 22 are owned by the Partnership in fee simple, three are owned
through joint venture arrangements and three are owned through tenancy in common
arrangements. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation filed with this report for a listing of
the Properties and their respective costs, including acquisition fees and
certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites ranged from approximately 18,200
to 91,400 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
The following table lists the Properties owned by the Partnership as of
December 31, 1997 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation filed with this report.
State Number of Properties
California 4
Florida 2
Georgia 2
Illinois 3
Indiana 2
Michigan 1
North Carolina 1
Nevada 1
Ohio 2
South Carolina 1
Tennessee 3
Texas 6
------
TOTAL PROPERTIES: 28
======
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The buildings
generally are rectangular and are constructed from various combinations of
stucco, steel, wood, brick and tile. The sizes of the buildings owned by the
Partnership ranged from approximately 2,100 to 11,300 square feet. All buildings
on Properties acquired by the Partnership are freestanding and surrounded by
paved parking areas. Buildings are suitable for conversion to various uses,
although modifications may be required prior to use for other than restaurant
operations. As of December 31, 1997, the Partnership had no plans for renovation
of the Properties. Depreciation expense is computed for buildings and
improvements using
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<PAGE>
the straight line method using a depreciable life of 40 years for federal income
tax purposes. As of December 31, 1997, the aggregate cost basis of the
Properties owned by the Partnership and joint ventures (including Properties
owned through tenancy in common arrangements) for federal income tax purposes
was $24,986,419 and $2,205,549, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 1997 by Restaurant Chain.
Restaurant Chain Number of Properties
Arby's 3
Black-Eyed Pea 1
Boston Market 4
Burger King 4
Denny's 3
Fazoli's 1
Golden Corral 4
Jack in the Box 4
Popeye's 1
Taco Bell 1
Wendy's 2
------
TOTAL PROPERTIES 28
======
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
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 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 Property.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. Generally, a
lessee is required, under the terms of its lease agreement, to make such capital
expenditures, as may be reasonably necessary, to refurbish buildings, premises,
signs and equipment, so as to comply with the lessee's obligations, if
applicable, under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures are required to
7
<PAGE>
be paid by the lessee during the term of the lease. The terms of the leases of
the Properties owned by the Partnership are described in Item 1. Business -
Leases.
At December 31, 1997, 1996, and 1995, all of the Properties were
occupied. The following is a schedule of the average annual rent for each of the
years ended December 31:
<TABLE>
<CAPTION>
February 10,
1995 (date
of inception)
Year Ended Year Ended through
December 31, December 31, December 31,
1997 1996 1995 (2)
<S> <C>
Rental Revenues (1) $2,762,605 $1,190,656 -
Properties 28 24 1
Average Rent per Unit $98,664 $49,611 -
</TABLE>
(1) Rental revenues include the Partnership's share of rental revenues from the
three Properties owned through joint venture arrangements and the three
properties owned through tenancy in common arrangements. Rental revenues
have been adjusted, as applicable, for any amounts for which the Partnership
has established an allowance for doubtful accounts.
(2) Operations did not commence until November 4, 1995, the date following when
the Partnership received the minimum offering proceeds of $1,500,000, and
such proceeds were released from escrow. The Property owned by the
Partnership was not operational as of December 31, 1997.
The following is a schedule of lease expirations for leases in place as of
December 31, 1997 for each of the ten years beginning with 1998 and thereafter.
<TABLE>
<CAPTION>
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
<S> <C>
1998 - - -
1999 - - -
2000 - - -
2001 - - -
2002 - - -
2003 - - -
2004 - - -
2005 - - -
2006 - - -
2007 - - -
Thereafter 28 2,799,614 100.00%
------ ------------- -------------
Totals 28 2,799,614 100.00%
====== ============= =============
</TABLE>
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31,
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1997 (see Item 1. Business - Major Tenants), are substantially the same as those
described in Item 1. Business - Leases.
Golden Corral Corporation leases three Golden Corral restaurants. The
initial term of each lease is 15 years (expiring in 2011) and the average
minimum base annual rent is approximately $157,100 (ranging from approximately
$127,800 to $190,000).
National Restaurant Enterprises, Inc. leases three Burger King
restaurants. The initial term of each lease is 20 years (expiring between 2016
and 2017) and the average minimum base annual rent is approximately $140,400
(ranging from approximately $123,200 to $155,000).
DenAmerica Corp. leases three Denny's restaurants and one Black-eyed
Pea restaurant. The initial term of each lease is 20 years (expiring between
2015 and 2016) and the average minimum base annual rent is approximately
$118,500 (ranging from approximately $98,700 to $142,600).
Foodmaker, Inc. leases four Jack in the Box restaurants. The initial
term of each lease is 18 years (expiring between 2014 and 2015) and the average
minimum base annual rent is approximately $89,300 (ranging from approximately
$83,600 to $109,000).
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
At the time the Partnership elects to dispose of its Properties, other
than as a result of the exercise of tenant options to purchase Properties, the
Partnership will be in competition with other persons and entities to locate
purchasers for its Properties.
PART II
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Partnership 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 restaurant
Properties were to be constructed, which are leased primarily to operators of
selected national and regional fast-food, family-style and casual dining
Restaurant Chains. The leases are triple-net leases, with the lessees generally
responsible for all repairs and maintenance, property taxes, insurance and
utilities. As of December 31,
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1997, the Partnership owned 28 Properties, either directly or through joint
venture and tenancy in common arrangements.
Capital Resources
On September 2, 1995, the Partnership commenced an offering to the public
of up to 3,000,000 Units of limited partnership interest. The Partnership's
offering of Units terminated on September 19, 1996, at which time the maximum
proceeds of $30,000,000 (3,000,000 Units) had been received from investors. The
Partnership, therefore, will derive no additional capital resources from the
offering.
Net proceeds to the Partnership from its offering of Units, after
deduction of organizational and offering expenses, totalled $26,400,000. As of
December 31, 1995, approximately $1,539,000 had been used to invest in one
Property and to pay acquisition fees and certain acquisition expenses. During
1996, the Partnership acquired 23 additional Properties, including one Property
owned by a joint venture in which the Partnership is a co-venturer and one
Property, owned with an affiliate, as tenants-in-common, at a cost of
approximately $23,406,500, including acquisition fees and miscellaneous
acquisition expenses. During 1997, the Partnership used the majority of its
remaining net offering proceeds to acquire two additional Properties, as
tenants-in-common, with affiliates of the General Partners. In addition, the
Partnership entered into two joint ventures, CNL Mansfield Joint Venture and CNL
Kingston Joint Venture, with affiliates of the General Partners, to own an
approximate 21 percent interest and 60.06 percent interest, respectively, in two
Properties. As a result of the above transactions, as of December 31, 1997, the
Partnership had acquired 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, and had paid acquisition fees
totaling $1,350,000 to an affiliate of the General Partners. The remaining net
offering proceeds of approximately $258,000 from the Partnership's offering of
Units were reserved for Partnership purposes.
Until Properties were acquired by the Partnership, all Partnership
proceeds were held in short-term, highly liquid investments which the General
Partners believed to have appropriate safety of principal. This investment
strategy provided high liquidity in order to facilitate the Partnership's use of
these funds to acquire Properties at such time as Properties suitable for
acquisition were located.
Currently, the Partnership's primary source of capital is cash from
operations (which includes cash received from tenants, distributions from the
joint ventures and interest received, less cash paid for expenses). Cash from
operations was $2,495,114, $1,232,948 and $9,012 for the years ended December
31, 1997 and 1996 and the period February 10, 1995 (date of inception) through
December 31, 1995, respectively. The increase in cash from operations during
1997 and 1996, each as compared to the previous year, is primarily a result of
changes in income and expenses as described in "Results of Operations" below.
11
<PAGE>
None of the Properties owned by the Partnership, or the joint ventures or
tenancy in common arrangements in which the Partnership owns an interest, 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. The Partnership will not borrow for the
purpose of returning capital to the Limited Partners. The Partnership will not
borrow under arrangements that would make the Limited Partners liable to
creditors of the Partnership. The General Partners further have represented that
they will use their reasonable efforts to structure any borrowing so that it
will not constitute "acquisition indebtedness" for federal income tax purposes
and also will limit the Partnership's outstanding indebtedness to three percent
of the aggregate adjusted tax basis of its Properties. In addition, the
Partnership will not borrow unless it first obtains an opinion of counsel that
such borrowing will not constitute acquisition indebtedness. Affiliates of the
General Partners from time to time incur certain operating expenses on behalf of
the Partnership for which the Partnership reimburses the affiliates without
interest.
Currently, rental income from the Partnership's Properties and cash
reserves are invested in money market accounts or other short-term, highly
liquid investments such as demand deposit accounts at commercial banks, CDs and
money market accounts with less than a 30-day maturity date, pending the
Partnership's use of such funds to pay Partnership expenses or to make
distributions to partners. At December 31, 1997, the Partnership had $1,238,799
invested in such short-term investments as compared to $4,716,719 at December
31, 1996. The decrease in the amount invested in short-term investments during
1997, as compared to 1996, is primarily a result of the payment of construction
costs during 1997 relating to the Properties that were under construction at
December 31, 1996 and the acquisition of additional Properties through joint
ventures and with affiliates of the General Partners as tenants-in-common during
1997. As of December 31, 1997, the average interest rate earned on the rental
income deposited in demand deposit accounts at commercial banks was
approximately three percent annually. The funds remaining at December 31, 1997,
after payment of distribution and other liabilities, will be used to meet the
Partnership's working capital and other needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily of
the operating expenses of the Partnership.
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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 generate cash flow in excess of operating
expenses.
Due to low operating expenses and ongoing cash flow, the General Partners
do not believe that working capital reserves are necessary at this time. In
addition, because all 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 maintenance and repairs. The General Partners have the right to
cause the Partnership to maintain reserves if, in their discretion, they
determine such reserves are required 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.
The Partnership generally distributes cash from operations remaining
after the payment of the operating expenses of the Partnership, to the extent
that the General Partners determine that such funds are available for
distribution. Based on cash from operations, the Partnership declared
distributions to the Limited Partners of $2,287,500, $1,166,689 and $28,275 for
the years ended December 31, 1997 and 1996 and the period February 10, 1995
(date of inception) through December 31, 1995, respectively. This represents
distributions of $0.76, $0.55 and $0.08 per Unit for the years ended December
31, 1997 and 1996 and the period February 10, 1995 (date of inception) through
December 31, 1995, respectively. No amounts distributed or to be distributed to
the Limited Partners for the years ended December 31, 1997 and 1996 and the
period February 10, 1995 (date of inception) through December 31, 1995, 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 Limited Partners on a quarterly basis.
During the year ended December 31, 1996 and the period February 10,
1995 (date of inception) through December 31, 1995, affiliates of the General
Partners incurred on behalf of the Partnership $231,885 and $356,450,
respectively, for certain organizational and offering expenses. In addition,
during the years ended December 31, 1997 and 1996 and the period February 10,
1995 (date of inception) through December 31, 1995, the affiliates incurred on
behalf of the Partnership $11,262, $69,835 and $30,424, respectively, for
certain acquisition expenses and $59,451, $64,906 and $790, respectively, for
certain operating expenses. As of December 31, 1997 and 1996, the Partnership
owed
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<PAGE>
$2,875 and $17,153, respectively, to related parties for such amounts,
accounting and administrative services and management fees. As of February 28,
1998, the Partnership had reimbursed the affiliates all such amounts. Other
liabilities, including distributions payable, decreased to $865,877 at December
31, 1997, from $2,197,032 at December 31, 1996, as a result of the payment
during 1997, of construction costs accrued for certain Properties at December
31, 1996. The decrease is partially offset by an increase in distributions
payable to the Limited Partners and an increase in deferred rental income at
December 31, 1997. The General Partners believe that the Partnership has
sufficient cash on hand to meet its current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
No significant operations commenced until the Partnership received the
minimum offering proceeds of $1,500,000 on November 3, 1995.
The Partnership owned and leased one wholly owned Property during 1995 and
22 wholly owned Properties during 1996 and 1997. During 1996, the Partnership
owned and leased one Property through a joint venture arrangement in which the
Partnership is a co-venturer, and owned and leased one Property with an
affiliate of the General Partners, as tenants-in-common. During 1997 the
Partnership was a co-venturer in three joint ventures that each owned and leased
one Property and also owned and leased three Properties with affiliates of the
General Partners, as tenants-in-common. As of December 31, 1997, the Partnership
owned, either directly or through joint venture arrangements, 28 Properties
which are subject to long-term, triple-net leases. The leases of the Properties
provide for minimum base annual rental payments (payable in monthly
installments) ranging from approximately $66,200 to $248,700. All of the leases
provide for percentage rent based on sales in excess of a specified amount. In
addition, the majority of the leases provide that, commencing in specified lease
years (generally the sixth lease year), the annual base rent required under the
terms of the lease will increase. For further description of the Partnership's
leases and Properties, see Item 1. Business - Leases and Item 2.
Properties, respectively.
During the years ended December 31, 1997 and 1996, the Partnership and its
consolidated joint venture, CNL/GC El Cajon Joint Venture, earned $2,642,743 and
$1,185,279, respectively, in rental income from operating leases and earned
income from direct financing leases. The increase in rental and earned income
during 1997, as compared to 1996, is primarily attributable to the fact that the
majority of the Properties were operational for a full year in 1997, as compared
to a partial year in 1996. In addition, for the years ended December 31, 1997
and 1996, the
14
<PAGE>
Partnership earned $100,918 and $4,834, respectively, attributable to net income
earned by unconsolidated joint ventures in which the Partnership is a
co-venturer. The increase in net income earned by unconsolidated joint ventures
during 1997, as compared to 1996, is primarily attributable to the Partnership
investing in two Properties with affiliates of the General Partners as
tenants-in-common and in two joint ventures in which the Partnership is a
co-venturer, during 1997, as described above in "Capital Resources." Net income
earned by joint ventures is expected to increase in 1998 as the Properties owned
by the joint ventures or with affiliates as tenants-in-common will be
operational for a full year during 1998 as compared to a partial year during
1997.
During at least one of the years ended December 31, 1997 and 1996 and the
period February 10, 1995 (date of inception) through December 31, 1995, five
lessees, or group of affiliated lessees, of the Partnership, (i) Golden Corral
Corporation, (ii) National Restaurant Enterprises, Inc., (iii) DenAmerica Corp.
(iv) RTM Indianapolis, Inc. and RTM Southwest Texas, Inc., (hereinafter referred
to as RTM, Inc.) and (v) Foodmaker, Corp., each contributed more than ten
percent of the Partnership's total rental income (including rental and earned
income from the Partnership's consolidated joint venture and the Partnership's
share of rental income from two Properties owned by unconsolidated joint venture
and three Properties owned with separate affiliates as tenants-in-common). As of
December 31, 1997, RTM, Inc., Golden Corral Corporation and National Restaurant
Enterprises, Inc., were each lessee under leases relating to three restaurants
and DenAmerica Corp. and Foodmaker, Inc., were each the lessee under leases
relating to four restaurants. It is anticipated that based on the minimum rental
payments required by the leases, Golden Corral Corporation, National Restaurant
Enterprises, Inc., DenAmerica Corp. and Foodmaker, Inc. each will contribute
more than ten percent of the Partnership's total rental income in 1998 and
subsequent years. In addition, six Restaurant Chains, Golden Corral, Arby's,
Denny's, Burger King, Jack in the Box and Boston Market each accounted for more
than ten percent of the Partnership's total rental income during at least one of
the years ended December 31, 1997 and 1996 and the period February 10, 1995
(date of inception) through December 31, 1995 (including rental and earned
income from the Partnership's consolidated joint venture, the Partnership's
share of rental income from two Properties owned by unconsolidated joint
ventures and three Properties owned with separate affiliates of the General
Partners as tenants-in-common). In subsequent years, it is anticipated that
Golden Corral, Jack in the Box, Burger King and Boston Market, each will
contribute more than ten percent of the Partnership's rental income to which the
Partnership is entitled under the terms of the leases. Any failure of these
lessees or Restaurant Chains could materially adversely affect the Partnership's
income.
During the years ended December 31, 1997 and 1996 and the period February
10, 1995 (date of inception) through December 31, 1995, the Partnership also
earned $69,779, $244,406 and $12,153,
15
<PAGE>
respectively, in interest income from investments in money market accounts or
other short-term, highly liquid investments. The decrease in interest income
during 1997, as compared to 1996, is primarily attributable to the decrease in
the amount of funds invested in short-term, liquid investments due to the
payment during 1997, of construction costs accrued at December 31, 1996, the
acquisition of two Properties as tenants-in-common with affiliates, and as a
result of acquiring interests in two joint ventures as described above in
"Capital Resources." The increase in interest income during 1996, as compared to
1995, was primarily attributable to an increase in the amount of funds invested
in short-term liquid investments as a result of additional Limited Partner
contributions during 1996.
Operating expenses, including depreciation and amortization expense, were
$569,157, $348,744 and $3,802 for the years ended December 31, 1997 and 1996 and
the period February 10, 1995 (date of inception) through December 31, 1995,
respectively. The increase in operating expenses during 1996, as compared to
1995, is primarily attributable to an increase in depreciation expense as the
result of the acquisition of additional Properties during 1996. The increase
during 1997, as compared to 1996, is primarily attributable to the fact that the
Properties acquired during 1996 were operational for a full year in 1997, as
compared to a partial year during 1996. In addition, operating expenses
increased during 1997 and 1996, each as compared to the previous year, as a
result of an increase in management fees derived from the increased rental
revenues, as described above. Operating expenses also increased during 1997, as
compared to 1996, as a result of the Partnership incurring taxes relating to the
filing of various state tax returns during 1997. Operating expenses also
increased during 1996, as compared to 1995, as a result of an increase in
administrative expenses associated with operating the Partnership and its
Properties.
The General Partners of the Partnership are in the process of assessing
and addressing the impact of the year 2000 on their computer package software.
The hardware and built-in software are believed to be year 2000 compliant.
Accordingly, the General Partners do not expect this matter to materially impact
how the Partnership conducts business nor its current or future results of
operations or financial position.
The Partnership's leases as of December 31, 1997, are triple-net leases
and contain provisions that the General Partners believe mitigate the adverse
effect of inflation. Such provisions include clauses requiring the payment of
percentage rent based on certain restaurant sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease. Management expects that increases in restaurant sales volume due to
inflation and real sales growth should result in an increase in rental income
over time. Continued inflation also may cause capital appreciation of the
Partnership's Properties. Inflation and changing prices, however, also may have
an adverse impact on the sales of the restaurants and on potential capital
appreciation of the Properties.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 29th day of
July, 1999.
CNL INCOME FUND XVII, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
---------------------------
JAMES M. SENEFF, JR.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C>
/s/ Robert A. Bourne President, Treasurer and Director July 29, 1999
- -------------------------- (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Oficer and Director July 29, 1999
- -------------------------- (Principal Executive Officer)
James M. Seneff, Jr.
</TABLE>
