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, 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
33-90998-01
CNL Income Fund XVIII, Ltd.
(Exact name of registrant as specified in its charter)
Florida 59-3295394
(State or other juris- (I.R.S. Employer
diction of incorporation Identification No.)
or organization)
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
<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 6-13
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 14-18
Part II
Other Information 19
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
<S> <C> ----------- ------------
Land and buildings on operating
leases, less accumulated
depreciation $15,592,297 $ 1,530,768
Net investment in direct financing
leases 2,781,218 -
Cash and cash equivalents 2,564,807 5,371,325
Receivables 42,542 3,711
Prepaid expenses 1,991 -
Organization costs, less accumulated
amortization of $1,411 and $411 8,589 9,589
Accrued rental income 25,771 -
Other assets 110,070 324,931
----------- -----------
$21,127,285 $ 7,240,324
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 186,371 $ 104,514
Accrued construction costs payable 1,412,051 -
Distributions payable 266,570 55,708
Due to related parties 74,235 83,889
Rents paid in advance 247,925 -
----------- -----------
Total liabilities 2,187,152 244,111
Commitments (Note 8)
Partners' capital 18,940,133 6,996,213
----------- -----------
$21,127,285 $ 7,240,324
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
--------- --------- --------- ----------
<S> <C>
Revenues:
Rental income from
operating leases $ 158,568 $ - $210,798 $ -
Earned income from
direct financing
leases 61,623 - 62,736 -
Interest and other
income 26,435 - 69,306 -
--------- --------- -------- ---------
246,626 - 342,840 -
--------- --------- -------- ---------
Expenses:
General operating
and administrative 38,421 - 55,106 -
Professional services 6,508 - 12,404 -
Management fees to
related party 3,313 - 4,525 -
State and other taxes 8 - 424 -
Depreciation and
amortization 24,351 - 34,179 -
--------- --------- --------- ---------
72,601 - 106,638 -
--------- --------- --------- ---------
Net Income $ 174,025 $ - $ 236,202 $ -
========= ========= ========= =========
Allocation of Net
Income:
General partners $ (244) $ - $ (342) $ -
Limited partners 174,269 - 236,544 -
--------- --------- --------- ---------
$ 174,025 $ - $ 236,202 $ -
========= ========= ========= =========
Net Income Per Limited
Partner Unit $ 0.09 $ - $ 0.15 $ -
========= ========= ========= =========
Weighted Average Number
of Limited Partner
Units Outstanding 1,944,020 - 1,617,280 -
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1997 1996
----------------- --------------
<S> <C>
General partners:
Beginning balance $ 993 $ 1,000
Contributions - -
Net income (342) (7)
---------------- -------------
651 993
---------------- -------------
Limited partners:
Beginning balance 6,995,220 -
Contributions 13,770,397 8,421,815
Syndication costs (1,641,633) (1,395,666)
Net income 236,544 26,917
Distributions ($0.26 and $0.11
per weighted average limited
partner unit, respectively) (421,046) (57,846)
--------------- -------------
18,939,482 6,995,220
--------------- -------------
Total partners' capital $ 18,940,133 $ 6,996,213
=============== =============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
------------ ------------
<S> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 463,751 $ -
------------ ------------
Cash Flows From Investing
Activities:
Additions to land and
buildings on operating
leases (12,412,836) -
Investment in direct
financing leases (2,750,670) -
Other 80 -
------------ ------------
Net cash used in
investing activities (15,163,426) -
------------ ------------
Cash Flows From Financing
Activities:
Reimbursement of acquisition
and syndication costs paid
by related parties on behalf
of the Partnership (365,218) -
Contributions from limited
partners 13,878,397 -
Distributions to limited
partners (210,184) -
Payment of syndication costs (1,409,838) -
Other - (250)
------------ -----------
Net cash provided by
(used in) financing
activities 11,893,157 (250)
------------ -----------
Net Decrease in Cash and
Cash Equivalents (2,806,518) (250)
Cash and Cash Equivalents at
Beginning of Period 5,371,325 980
------------ -----------
Cash and Cash Equivalents at End of
Period $ 2,564,807 $ 730
============ ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
------------ -----------
<S> <C>
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain acqui-
sition and syndication costs on
behalf of the Partnership as
follows:
Acquisition costs $ 108,841 $ -
Syndication costs 210,866 309,340
----------- -----------
$ 319,707 $ 309,340
=========== ===========
Distributions declared and unpaid
at end of period $ 266,570 $ -
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1997 and 1996
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, 1997, may not be
indicative of the results that may be expected for the year ended December
31, 1997. Amounts as of December 31, 1996, 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 XVIII, Ltd. (the "Partnership") for the year ended December
31, 1996.
The Partnership was a development stage enterprise from February 10, 1995
through October 11, 1996. Since operations had not begun, activities
through October 11, 1996, were devoted to the organization of the
Partnership.
Real Estate and Lease Accounting - The Partnership records the acquisition
of land and buildings at cost, including acquisition and closing costs.
Land and buildings are leased to unrelated third parties on a triple-net
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 methods. Such methods are described
below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (see 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 leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals
6
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
1. Significant Accounting Policies - Continued:
are earned and depreciation is charged to operations as
incurred. Buildings are depreciated on the straight-line
method over their estimated useful lives of 30 years. When
scheduled rentals (including rental payments, if any, required
during the construction of a property) vary during the lease
term, income is recognized on a straight-line basis so as to
produce a constant periodic rent over the lease term
commencing on the date the property is placed in service.
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." 14 of the leases are classified as
operating leases and three of the leases has been classified as direct
financing leases. For the leases classified as direct financing leases,
the building portions of the leases are accounted for as direct financing
leases while the land portion of one of these leases is accounted for as
an operating lease. The leases have initial terms of 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 the tenants to renew the leases for four
7
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
2. Leases - Continued:
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 building on operating leases consisted of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
<S> <C>
Land $ 8,401,294 $ 852,578
Buildings 4,581,399 659,134
----------- ------------
12,982,693 1,511,712
Less accumulated
depreciation (33,480) (301)
----------- ------------
12,949,213 1,511,411
Construction in progress 2,643,084 19,357
----------- ------------
$15,592,297 $ 1,530,768
=========== ============
</TABLE>
Some of the leases provide for scheduled rent increases throughout the
lease term and/or rental payments during the construction of a property
prior to the date it is placed in service. Such amounts are recognized on
a straight-line basis over the terms of the leases. For the quarter and
six months ended June 30, 1997, the Partnership recognized $19,121 and
$25,625, respectively, of such rental income.
The following is a schedule of the future minimum lease payments to be
received on the noncancellable operating leases for the properties that
were operational as of June 30, 1997:
1997 $ 391,395
1998 918,090
1999 927,191
2000 928,018
2001 928,018
Thereafter 13,192,940
-----------
$17,285,652
===========
8
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
3. Land and Buildings on Operating Leases - Continued:
Since lease renewal periods are exercisable at the option of the tenant,
the above table only presents future minimum lease payments due during the
initial lease terms. In addition, this table does not include any amounts
for future contingent rentals which may be received on the leases
based on a percentage of tenant's gross sales. The amounts also do not
include minimum lease payments that will become due when the 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:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ -------------
<S> <C>
Minimum lease payments
receivable $ 6,807,456 $ -
Estimated residual
values 696,533 -
Less unearned income (4,722,771) -
------------ ------------
Net investment in direct
financing leases $ 2,781,218 $ -
============ ============
</TABLE>
The following is a schedule of future minimum lease payments to be
received on the direct financing lease at June 30, 1997:
1997 $ 159,198
1998 318,396
1999 318,396
2000 318,396
2001 318,396
Thereafter 5,374,674
----------
$6,807,456
==========
The above table does not include future minimum lease payments for renewal
periods or for contingent rental payments that may become due in future
periods (see Note 3).
9
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
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 $1,641,633 and $1,395,666 for the
six months ended June 30, 1997 and the year ended December 31, 1996,
respectively. These offering expenses were charged to the limited
partners' capital accounts to reflect the net capital proceeds of the
offering. All organizational and offering expenses, as defined in the
Partnership's prospectus, which exceed three percent of the total gross
proceeds received from the sale of units of the Partnership will be paid
or reimbursed by the general partners and will not be the responsibility
of the Partnership.
6. Related Party Transactions:
During the six months ended June 30, 1997, the Partnership incurred
$1,170,484 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 ($1,030,457) was or will be
re-allowed to other broker-dealers.
In addition, during the six months ended June 30, 1997, the Partnership
incurred $68,852 in due diligence expense reimbursement fees due to CNL
Securities Corp. These fees equal 0.5% of the limited partner
contributions of $13,770,397 received during the six months ended June 30,
1997. The majority of these fees was re-allowed to other broker-dealers
and from which all bona fide due diligence expenses were paid.
Additionally, during the six months ended June 30, 1997, the Partnership
incurred $619,668 in acquisition fees due to CNL Fund Advisors, Inc. for
services in finding, negotiating and acquiring properties on behalf of the
Partnership. These fees represent 4.5% of the limited partner capital
contributions received during the six months ended June 30, 1997, and are
included in land and buildings on operating leases, net investment in
direct financing leases and other assets.
10
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
6. Related Party Transactions - Continued:
In addition, during the six months ended June 30, 1997, the Partnership
incurred management fees of $3,313 due to CNL Fund Advisors, Inc.
During the six months ended June 30, 1997 and 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. The
expenses incurred for these services were classified as follows for the
six months ended June 30:
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C>
Syndication costs $ 212,279 $ 6,605
General operating and
administrative
expenses 43,670 -
------------ ------------
$ 255,949 $ 6,605
============ ============
The amounts due to related parties consisted of the following at:
June 30, December 31,
1997 1996
---------- -----------
Due to CNL Securities Corp.:
Commissions $ 23,970 $ 44,186
Due diligence expense
reimbursement fee 1,410 2,599
---------- -----------
25,380 46,785
---------- -----------
Due to CNL Fund Advisors,
Inc.:
Expenditures incurred on
on behalf of the
Partnership 2,654 2,788
Acquisition fees 12,690 23,392
Accounting and admini-
strative services 31,553 10,912
Management fees 1,958 12
--------- -----------
48,855 37,104
--------- -----------
$ 74,235 $ 83,889
========= ===========
</TABLE>
11
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
7. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees and the respective restaurant chains, each representing
more than ten percent of the Partnership's total rental and earned income
for the six months ended June 30:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C>
Platinum Rotisserie, L.L.C. $62,632 $ -
Golden Corral Corporation 55,828 -
Tiffany, L.L.C. 50,947 -
Carrols Corporation 50,156 -
</TABLE>
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 during the remainder of 1997
and in subsequent years.
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than ten
percent of the Partnership's total rental and earned income for at least
one of the six months ended June 30:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C>
Golden Corral Family
Steakhouse Restaurant $ 106,775 -
Boston Market 62,632 -
Burger King 50,156 -
</TABLE>
8. Commitments:
The Partnership has entered into seven development agreements with tenants
which provide terms and specifications for the construction of buildings
that the tenants have agreed to lease once construction is completed. 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 $7,536,200, of which approximately
$5,774,700 in land and other costs had been incurred as of June 30, 1997.
The buildings under construction are expected to be operational by
November 1997. 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.
12
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
9. Subsequent Event:
During the period July 1, 1997 through July 31, 1997, the Partnership
received capital contributions for an additional 167,822 units
($1,678,215) of limited partnership interest.
In addition, during the period July 1, 1997 through July 31, 1997, the
Partnership acquired two additional properties for cash, at a total cost
of approximately $2,055,400. The lease agreements for the two properties
are substantially the same as the leases relating to the Partnership's
other properties, as described in Note 2.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CNL Income Fund XVIII, 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 (the "Properties"), to be leased primarily to operators of selected
national and regional fast-food, family-style and casual dining restaurant
chains. The leases will be triple-net leases, with the lessee generally
responsible for all repairs and maintenance, property taxes, insurance and
utilities. As of June 30, 1997, the Partnership owned 17 Properties, seven of
which were under construction.
Liquidity and Capital Resources
On September 20, 1996, the Partnership commenced an offering to the public
of up to 3,500,000 Units of limited partnership interest pursuant to a
registration statement on Form S-11 under the Securities Act of 1933, as
amended, effective August 11, 1995. As of June 30, 1997, the Partnership had
sold 2,219,221 Units, representing $22,192,212 of capital contributed by the
limited partners. Based on the general partners' experience with 17 prior CNL
Income Fund offerings (each of which sold the entire amount of units offered for
purchase), the Partnership anticipates significant additional sales of Units
prior to the termination of the offering. The general partners have elected to
extend the offering of Units of the Partnership until a date no later than
August 11, 1998.
As of June 30, 1997, net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totalled
$19,144,913 and had been invested or committed for investment in 17 Properties
(seven of which were under construction at June 30, 1997), and to pay
acquisition fees and certain acquisition expenses. As of June 30, 1997, the
Partnership had incurred $998,650 in acquisition fees to an affiliate of the
general partners.
As of June 30, 1997, the Partnership had entered into seven development
agreements with tenants which provide terms and specifications for the
construction of buildings. The agreements provide a maximum amount of
development costs (including the purchase price of the land and closing costs)
to be paid by the Partnership. The aggregate maximum development costs the
Partnership has agreed to pay is approximately $7,536,200, of which
approximately $5,774,700 in land and other costs had been incurred as of June
30, 1997. The buildings under construction are expected to be operational by
November 1997. In connection with the acquisition of each of these Properties,
the Partnership entered into a long-term, triple-net lease.
14
<PAGE>
Liquidity and Capital Resources - Continued
During the period July 1, 1997 through July 31, 1997, the Partnership
acquired two additional Properties for cash, at a total cost of approximately
$2,055,400. The lease agreements for the two properties are substantially the
same as the leases relating to the Partnership's other Properties.
As of July 31, 1997, the Partnership had sold a total of 2,387,043 Units,
for an aggregate of $23,870,427 in gross offering proceeds and had invested or
committed for investment such proceeds in 17 Properties and to pay acquisition
fees and certain acquisition expenses. As of July 31, 1997, the Partnership had
incurred $1,074,169 in acquisition fees to an affiliate of the general partners.
The Partnership presently is negotiating to acquire additional properties,
but as of July 31, 1997, had not acquired any such properties. The Partnership
will use the remaining net offering proceeds, together with proceeds from the
sale of Units subsequent to July 31, 1997, to acquire additional Properties, to
pay acquisition fees and certain acquisition expenses and to pay expenses
relating to the sale of Units. The number of Properties to be acquired will
depend upon the amount of net offering proceeds (gross proceeds less fees and
expenses of the offering) available to the Partnership.
None of the Properties owned or to be acquired by the Partnership is or
may be encumbered. Subject to certain restrictions on borrowing, however,
the Partnership may borrow funds, but will not encumber any of the Properties
in connection with any such borrowing.
Until Properties are acquired by the Partnership, all Partnership proceeds
are held in short-term, highly liquid investments which the general partners
believe to have appropriate safety of principal. This investment strategy
provides high liquidity in order to facilitate the Partnership's use of these
funds to acquire Properties at such time as Properties suitable for acquisition
are located. At June 30, 1997, the Partnership had $2,564,807 invested in such
short-term investments, as compared to $5,371,325 at December 31, 1996. The
decrease in the amount invested in short-term investments is primarily
attributable to the acquisition of additional Properties, as described above,
during the six months ended June 30, 1997. The funds remaining at June 30,
1997, after the payment of accrued acquisition and construction costs and other
liabilities, will be used to purchase and develop additional Properties, to pay
limited partner distributions and to meet the Partnership's working capital and
other needs.
15
<PAGE>
Liquidity and Capital Resources - Continued
During the six months ended June 30, 1997 and 1996, affiliates of the
general partners incurred on behalf of the Partnership $210,866 and $309,340,
respectively, for certain organizational and offering expenses. In addition,
during the six months ended June 30, 1997, affiliates of general partners
incurred on behalf of the Partnership $108,841 for certain acquisition expenses
and $23,105, for certain operating expenses. As of June 30, 1997, the
Partnership owed $74,235 to related parties for such amounts, fees and other
reimbursements. As of July 31, 1997, the Partnership had reimbursed the
affiliates all such amounts. Amounts payable to other parties, including
distributions payable, increased to $1,864,992 at June 30, 1997, from $160,222
at December 31, 1996, as a result of an increase in distributions payable to
limited partners and costs incurred with respect to the Properties under
construction and unpaid at June 30, 1997.
During the six months ended June 30, 1997, the Partnership generated cash
from operations (which includes cash received from tenants, interest and other
income received, less cash paid for expenses) of $463,751. Based on cash from
operations, the Partnership declared distributions to the limited partners of
$421,046 for the six months ended June 30, 1997 ($266,570 for the quarter ended
June 30, 1997). This represents distributions of $0.26 per weighted average
limited partner unit for the six months ended June 30, 1997 ($0.14 per weighted
average limited partner unit for the quarter ended June 30, 1997). No
distributions were made to the general partners for the quarter and six months
ended June 30, 1996. No amounts distributed or to be distributed to the limited
partners for the six months ended June 30, 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 meet specified financial
standards is expected to minimize the Partnership's operating expenses.
Partnership net income is expected to increase throughout 1997, as rental income
increases, due to the acquisition of additional Properties and due to the fact
that the Properties that were under construction at June 30, 1997, will be
operational. Accordingly, the general partners believe that any anticipated
decrease in the Partnership's liquidity in 1997, due to its investment of
available net offering proceeds in Properties and the payment of additional
costs relating to the Properties under construction at June 30, 1997, will not
have an adverse effect on the Partnership's operations.
16
<PAGE>
Liquidity and Capital Resources - Continued
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 and
released from escrow the minimum offering proceeds of $1,500,000 on October 11,
1996.
As of June 30, 1997, the Partnership had purchased 17 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 $65,700 to $189,700. Most 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 (generally the sixth lease year), the annual base rent required
under the terms of the lease will increase.
During the quarter and six months ended June 30, 1997, the Partnership
earned $220,191 and $273,534, respectively, in rental income from operating
leases and earned income from direct financing leases from ten Properties which
were operational at June 30, 1997. Because the Partnership did not commence
significant operations until it received the minimum offering proceeds on
October 11, 1996, and has not yet acquired all of its Properties, Partnership
revenues for the quarter and six months ended June 30, 1997, represent only a
portion of revenues which the Partnership is expected to earn during a full
quarter and six months in which the Partnership's Properties are operational.
17
<PAGE>
Results of Operations - Continued
During the six months ended June 30, 1997, four lessees of the Partnership
(i) Platinum Rotisserie, L.L.C., (ii) Carrols Corpora-tion, (iii) Tiffany,
L.L.C., and (iv) Golden Corral Corporation each contributed more than ten
percent of the Partnership's total rental income. As of June 30, 1997, Platinum
Rotisserie, L.L.C., Carrols Corporation, and Tiffany L.L.C. were each lessees
under leases relating to one restaurant and Golden Corral Corporation was the
lessee under leases relating to two restaurants. During the six months ended
June 30, 1997, three restaurant chains, Golden Corral Family Steakhouse
Restaurants, Burger King, and Boston Market, each accounted for more than ten
percent of the Partnership's total rental income. Because the Partnership did
not commence operations until October 1996, and its first Property was not
purchased until December 1996, the foregoing information regarding the lessees
and restaurant chains which contributed a significant amount of the
Partnership's total rental income during the six months ended June 30, 1997, 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 1997 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 1997 and subsequent years. In the event that certain
lessees or restaurant chains contribute more than ten percent of the
Partnership's rental income in the current and future years, any failure of such
lessees or restaurant chains could materially affect the Partnership's income.
During the quarter and six months ended June 30, 1997, the Partnership
also earned $26,435 and $69,306, 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 become operational, the percentage of total
income representing interest income is expected to decrease.
Operating expenses, including depreciation and amortization, were $72,601
and $106,638 for the quarter and six months ended June 30, 1997, respectively.
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.
18
<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) The Partnership filed six reports on Form 8-K on April 17,
1997, May 2, 1997, May 9, 1997, May 27, 1997, June 5, 1997,
and July 31, 1997, reporting property acquisitions, and three
reports on Form 8-K/A, one filed on May 9, 1997, and two filed
on June 19, 1997, amending previous reports filed reporting
property acquisitions.
19
<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 12th day of August, 1997.
CNL INCOME FUND XVIII, 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 XVIII, Ltd. at June 30, 1997, and its statement of
income for the six months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Income Fund XVIII, Ltd. for the six months
ended June 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,564,807
<SECURITIES> 0
<RECEIVABLES> 42,542
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 15,625,777
<DEPRECIATION> 33,480
<TOTAL-ASSETS> 21,127,285
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,940,133
<TOTAL-LIABILITY-AND-EQUITY> 21,127,285
<SALES> 0
<TOTAL-REVENUES> 342,840
<CGS> 0
<TOTAL-COSTS> 106,638
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 236,202
<INCOME-TAX> 0
<INCOME-CONTINUING> 236,202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 236,202
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund XVIII, Ltd. has an
unclassified balance sheet, therefore; no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
