FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 Development Stage Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
ASSETS 1997 1996
------------- -----------
Land and buildings on operating
leases, less accumulated
depreciation $16,447,185 $ 1,530,768
Net investment in direct financing
leases 6,015,847 -
Cash and cash equivalents 3,666,824 5,371,325
Receivables 7,480 3,711
Prepaid expenses 890 -
Organization costs, less accumulated
amortization of $1,911 and $411 8,089 9,589
Accrued rental income 72,302 -
Other assets 201,999 324,931
----------- -----------
$26,420,616 $ 7,240,324
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ - $ 104,514
Accrued construction costs payable 1,120,440 -
Distributions payable 379,266 55,708
Due to related parties 75,844 83,889
Rents paid in advance 264,453 -
----------- -----------
Total liabilities 1,840,003 244,111
Commitments (Note 8)
Partners' capital 24,580,613 6,996,213
----------- -----------
$26,420,616 $ 7,240,324
=========== ===========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C>
Revenues:
Rental income from
operating leases $ 314,510 $ - $ 525,308 $ -
Earned income from
direct financing
leases 123,417 - 186,153 -
Interest and other
income 32,728 - 102,034 -
--------- --------- --------- --------
470,655 - 813,495 -
--------- --------- --------- --------
Expenses:
General operating
and administrative 32,870 - 87,976 -
Professional services 5,863 - 18,267 -
Management fees to
related party 4,707 - 9,232 -
State and other taxes - - 424 -
Depreciation and
amortization 44,405 - 78,584 -
--------- --------- --------- --------
87,845 - 194,483 -
--------- --------- --------- --------
Net Income $ 382,810 $ - $ 619,012 $ -
========= ========= ========= ========
Allocation of Net
Income:
General partners $ (444) $ - $ (786) $ -
Limited partners 383,254 - 619,798 -
--------- --------- --------- --------
$ 382,810 $ - $ 619,012 $ -
========= ========= ========= ========
Net Income Per Limited
Partner Unit $ 0.15 $ - $ 0.32 $ -
========= ========= ========= ========
Weighted Average Number
of Limited Partner
Units Outstanding 2,507,828 - 1,945,482 -
========= ========= ========= ========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
1997 1996
----------------- ------------
General partners:
Beginning balance $ 993 $ 1,000
Contributions - -
Net income (786) (7)
------------ ------------
207 993
------------ ------------
Limited partners:
Beginning balance 6,995,220 -
Contributions 19,964,832 8,421,815
Syndication costs (2,199,132) (1,395,666)
Net income 619,798 26,917
Distributions ($0.41 and $0.11
per weighted average limited
partner unit, respectively) (800,312) (57,846)
------------ ------------
24,580,406 6,995,220
------------ ------------
Total partners' capital $ 24,580,613 $ 6,996,213
============ ============
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1997 1996
----------- -----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 909,568 $ -
----------- -----------
Cash Flows From Investing
Activities:
Additions to land and
buildings on operating
leases (13,810,648) -
Investment in direct
financing leases (5,838,231) -
Other 80 -
----------- -----------
Net cash used in
investing activities (19,648,799) -
----------- -----------
Cash Flows From Financing
Activities:
Reimbursement of acquisition
and syndication costs paid
by related parties on behalf
of the Partnership (338,567) -
Contributions from limited
partners 19,964,832 -
Distributions to limited
partners (476,754) -
Payment of syndication costs (2,037,781) -
Other (77,000) (250)
----------- -----------
Net cash provided by
(used in) financing
activities 17,034,730 (250)
----------- -----------
Net Decrease in Cash and
Cash Equivalents (1,704,501) (250)
Cash and Cash Equivalents at
Beginning of Period 5,371,325 980
----------- -----------
Cash and Cash Equivalents at End of
Period $ 3,666,824 $ 730
=========== ===========
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
Nine Months Ended
September 30,
1997 1996
----------- -----------
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain
acquisition and syndication costs
on behalf of the Partnership as
follows:
Acquisition costs $ 125,693 $ -
Syndication costs 210,866 383,150
----------- -----------
$ 336,559 $ 383,150
=========== ===========
Distributions declared and unpaid
at end of period $ 379,266 $ -
=========== ==========
See accompanying notes to condensed financial statements.
5
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 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 nine months ended
September 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 Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 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, family-style and casual dining restaurants. The
leases are accounted for under the provisions of Statement of Financial
Accounting Standards No. 13, "Accounting for Leases." Fourteen of the
leases are classified as operating leases and six of the leases have
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
three of these leases are accounted for as operating leases. 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
7
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
2. Leases - Continued:
tenants to renew the leases for four successive five-year periods
subject to the same terms and conditions as the initial lease. Most
leases also allow the tenant to purchase the property at fair market
value after a specified portion of the lease has elapsed.
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at:
September 30, December 31,
1997 1996
Land $ 9,246,252 $ 852,578
Buildings 6,218,889 659,134
----------- ------------
15,465,141 1,511,712
Less accumulated
depreciation (77,385) (301)
----------- ------------
15,387,756 1,511,411
Construction in progress 1,059,429 19,357
----------- ------------
$16,447,185 $ 1,530,768
=========== ============
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 nine months ended September 30, 1997, the Partnership recognized
$46,531 and $72,156, 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 September 30, 1997:
1997 $ 328,067
1998 1,334,064
1999 1,343,165
2000 1,345,083
2001 1,346,611
Thereafter 19,010,705
-----------
$24,707,695
8
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 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:
September 30, December 31,
1997 1996
Minimum lease payments
receivable $13,410,496 $ -
Estimated residual
values 1,772,144 -
Less unearned income (9,166,793) -
----------- -----------
Net investment in direct
financing leases $ 6,015,847 $ -
=========== ===========
The following is a schedule of future minimum lease payments to be
received on direct financing leases at September 30, 1997:
1997 $ 169,122
1998 677,167
1999 677,167
2000 677,167
2001 677,167
Thereafter 10,532,706
-----------
$13,410,496
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 Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 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 $2,199,132 and
$1,395,666 for the nine months ended September 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
proceeds of the offering. All organizational and offering expenses, as
defined in the Partnership's prospectus, which exceed three percent of
the total gross proceeds received from the sale of units of the
Partnership will be paid or reimbursed by the general partners and will
not be the responsibility of the Partnership.
6. Related Party Transactions:
During the nine months ended September 30, 1997, the Partnership
incurred $1,697,011 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 ($1,591,343) was or
will be reallowed to other broker-dealers.
In addition, during the nine months ended September 30, 1997, the
Partnership incurred $99,824 in due diligence expense reimbursement
fees due to CNL Securities Corp. These fees equal 0.5% of the limited
partner contributions of $19,964,832 received during the nine months
ended September 30, 1997. The majority of these fees was reallowed to
other broker-dealers and from which all bona fide due diligence
expenses were paid.
Additionally, during the nine months ended September 30, 1997, the
Partnership incurred $898,417 in acquisition fees due to CNL Fund
Advisors, Inc. for services in finding, negotiating and acquiring
properties on behalf of the Partnership. These fees represent 4.5% of
the limited partner capital contributions received during the nine
months ended September 30, 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 Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
6. Related Party Transactions - Continued:
In addition, during the nine months ended September 30, 1997, the
Partnership incurred management fees of $9,232 due to CNL Fund
Advisors, Inc.
During the nine months ended September 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 nine months ended September 30:
1997 1996
-------- --------
Syndication costs $212,279 $ 29,980
General operating and
administrative
expenses 70,404 -
-------- --------
$282,683 $ 29,980
======== ========
The amounts due to related parties consisted of the following at:
September 30, December 31,
1997 1996
Due to CNL Securities Corp.:
Commissions $ 26,784 $ 44,186
Due diligence expense
reimbursement fee 1,678 2,599
-------- --------
28,462 46,785
-------- --------
Due to CNL Fund Advisors,
Inc.:
Expenditures incurred on
on behalf of the
Partnership 3,213 2,788
Acquisition fees 32,045 23,392
Accounting and admini-
strative services 9,679 10,912
Management fees 2,445 12
-------- --------
47,382 37,104
-------- --------
$ 75,844 $ 83,889
======== ========
11
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
7. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees, each representing more than ten percent of the
Partnership's total rental and earned income for the nine months ended
September 30:
1997 1996
-------- --------
Golden Corral Corporation $135,511 $ -
Foodmaker, Inc. 112,876 -
Tiffany, L.L.C. 102,617 -
Platinum Rotisserie, L.L.C. 98,112 -
IHOP Properties, Inc. 81,355 -
Carrols Corporation 75,234 -
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 the
nine months ended September 30:
1997 1996
-------- --------
Golden Corral Family
Steakhouse Restaurant $238,129 $ -
Boston Market 138,849 -
Jack in the Box 112,876 -
IHOP 81,355 -
Burger King 75,234 -
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.
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 or
restaurant chains could significantly impact the results of operations
of the Partnership. However, the general partners believe that the risk
of such a default is reduced due to the essential or important nature
of these properties for the ongoing operations of the lessees.
12
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine Months Ended September 30, 1997 and 1996
8. Commitments:
The Partnership has entered into three 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 $4,023,600, of which
approximately $2,526,000 in land and other costs had been incurred as
of September 30, 1997. The buildings under construction are expected to
be operational by March 1998. The lease agreements for these properties
are substantially the same as the leases relating to the Partnership's
other properties, as described in Note 2.
9. Subsequent Event:
During the period October 1, 1997 through October 31, 1997, the
Partnership received capital contributions for an additional 181,088
units ($1,810,881) of limited partnership interest.
In addition, during the period October 1, 1997 through October 31,
1997, the Partnership acquired one additional property for cash, at a
total cost of approximately $1,045,500. The lease agreement for the
property is substantially the same as the leases relating to the
Partnership's other properties, as described in Note 2.
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 September 30, 1997, the Partnership owned 20 Properties, three
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 September 30, 1997, the Partnership
had sold 2,838,665 units, representing $28,386,647 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 September 30, 1997, net proceeds to the Partnership from its
offering of units, after deduction of organizational and offering expenses,
totalled $24,781,850. Of this amount, approximately $24,429,400 had been used to
invest or committed for investment in 20 Properties, three of which were under
construction at September 30, 1997, and to pay acquisition fees and certain
acquisition expenses, leaving approximately $352,400 of offering proceeds
available for investment in Properties. As of September 30, 1997, the
Partnership had incurred $1,277,399 in acquisition fees to an affiliate of the
general partners.
As of September 30, 1997, the Partnership had entered into three
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 $4,023,600, of which
approximately $2,526,000 in land and other costs had been incurred as of
September 30, 1997. The buildings under construction are expected to be
operational by March 1998. 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 October 1, 1997 through October 31, 1997, the
Partnership acquired one additional Property for cash, at a total cost of
approximately $1,045,500. The lease agreement for the Property is substantially
the same as the leases relating to the Partnership's other Properties.
As of October 31, 1997, the Partnership had sold a total of 3,019,753
units, for an aggregate of $30,197,528 in gross offering proceeds and had
invested or committed for investment approximately $25,556,400 thereof in 21
Properties, leaving approximately $873,400 in net offering proceeds available
for investment in Properties and to pay acquisition fees and certain acquisition
expenses. As of October 31, 1997, the Partnership had incurred $1,358,889 in
acquisition fees to an affiliate of the general partners.
The Partnership presently is negotiating to acquire additional
properties, but as of October 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 October 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 September 30, 1997, the Partnership had $3,666,824
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 nine months ended September 30, 1997. The funds remaining at
September 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 nine months ended September 30, 1997 and 1996, affiliates of
the general partners incurred on behalf of the Partnership $210,866 and
$383,150, respectively, for certain organizational and offering expenses. In
addition, during the nine months ended September 30, 1997, affiliates of the
general partners incurred on behalf of the Partnership $125,693 for certain
acquisition expenses and $35,259 for certain operating expenses. As of September
30, 1997, the Partnership owed $75,844 to related parties for such amounts, fees
and other reimbursements. As of October 31, 1997, the Partnership had reimbursed
the affiliates all such amounts. Amounts payable to other parties, including
distributions payable, increased to $1,499,706 at September 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 September 30, 1997.
During the nine months ended September 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 $909,568.
Based on cash from operations, the Partnership declared distributions to the
limited partners of $800,312 for the nine months ended September 30, 1997
($379,266 for the quarter ended September 30, 1997). This represents
distributions of $0.41 per weighted average limited partner unit for the nine
months ended September 30, 1997 ($0.15 per weighted average limited partner unit
for the quarter ended September 30, 1997). No distributions were made to the
general partners for the quarter and nine months ended September 30, 1997. No
amounts distributed or to be distributed to the limited partners for the nine
months ended September 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 September 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 September 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 September 30, 1997, the Partnership had purchased 20 Properties
and entered into lease agreements relating to each of these Properties. The
leases of the Properties provide for minimum annual base rental payments
(payable in monthly installments) ranging from approximately $63,200 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 nine months ended September 30, 1997, the
Partnership earned $437,927 and $711,461, respectively, in rental income from
operating leases and earned income from direct financing leases from 17
Properties which were operational at September 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 nine months ended September 30, 1997,
represent only a portion of revenues which the Partnership is expected to earn
during a full quarter and nine months in which the Partnership's Properties are
operational.
17
<PAGE>
Results of Operations - Continued
During the nine months ended September 30, 1997, six lessees of the
Partnership, Golden Corral Corporation, Foodmaker, Inc., Tiffany, L.L.C.,
Platinum Rotisserie, L.L.C., IHOP Properties, Inc., and Carrols Corporation,
each contributed more than ten percent of the Partnership's total rental income.
As of September 30, 1997, Tiffany, L.L.C., Platinum Rotisserie, L.L.C., and
Carrols Corporation were each lessees under leases relating to one restaurant,
Golden Corral Corporation and IHOP Properties, Inc. were each lessees under
leases relating to two restaurants and Foodmaker, Inc. was the lessee under
leases relating to four restaurants. During the nine months ended September 30,
1997, five restaurant chains, Golden Corral Family Steakhouse Restaurants,
Boston Market, Jack in the Box, IHOP, and Burger King, 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 nine months ended
September 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 nine months ended September 30, 1997, the
Partnership also earned $32,728 and $102,034, 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
$87,845 and $194,483 for the quarter and nine months ended September 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 one report on Form 8-K on July
31, 1997, 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 November, 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 September 30, 1997, and its statement of
income for the nine months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund XVIII, Ltd. for the nine months
ended September 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,666,824
<SECURITIES> 0
<RECEIVABLES> 7,480
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 16,524,570
<DEPRECIATION> 77,385
<TOTAL-ASSETS> 26,420,616
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 24,580,613
<TOTAL-LIABILITY-AND-EQUITY> 26,420,616
<SALES> 0
<TOTAL-REVENUES> 813,495
<CGS> 0
<TOTAL-COSTS> 194,483
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 619,012
<INCOME-TAX> 0
<INCOME-CONTINUING> 619,012
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 619,012
<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>
