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 March 31, 1998
-------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
33-90998-01
CNL Income Fund XVIII, Ltd.
(Exact name of registrant as specified in its charter)
Florida 59-3295394
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street
Orlando, Florida 32801
- ---------------------------- -----------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4-5
Notes to Condensed Financial Statements 6-9
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 10-13
Part II
Other Information 14
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
CONDENSED BALANCE SHEETS
March 31, December 31,
ASSETS 1998 1997
----------- --------
Land and buildings on operating
leases, less accumulated
depreciation of $224,501 and
$140,380 $21,099,189 $21,311,062
Net investment in direct financing
leases 5,989,585 6,004,878
Cash and cash equivalents 4,406,877 4,143,327
Receivables 47,721 68,000
Prepaid expenses 3,025 -
Organization costs, less accumulated
amortization of $2,911 and $2,411 7,089 7,589
Accrued rental income 115,055 111,867
Other assets 196,352 160,532
----------- -----------
$31,864,893 $31,807,255
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 837 $ 10,456
Accrued construction costs payable 345,971 1,108,627
Distributions payable 601,810 510,636
Due to related parties 17,594 118,231
Rents paid in advance 65,084 28,277
Deferred rental income 224,328 184,448
----------- -----------
Total liabilities 1,255,624 1,960,675
Partners' capital 30,609,269 29,846,580
----------- -----------
$31,864,893 $31,807,255
=========== ===========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
CONDENSED STATEMENTS OF INCOME
Quarter Ended
March 31,
1998 1997
--------- --------
Revenues:
Rental income from operating leases $ 526,629 $ 52,230
Earned income from direct financing
leases 146,344 1,113
Interest and other income 52,942 42,871
--------- ---------
725,915 96,214
--------- ---------
Expenses:
General operating and administrative 34,709 16,685
Professional services 5,007 5,896
Management fees to related party 6,427 1,212
State and other taxes 8,308 416
Depreciation and amortization 84,621 9,828
--------- ---------
139,072 34,037
--------- ---------
Net Income $ 586,843 $ 62,177
========= =========
Allocation of Net Income:
General partners $ (846) $ (98)
Limited partners 587,689 62,275
--------- ---------
$ 586,843 $ 62,177
========= =========
Net Income Per Limited Partner Unit $ 0.17 $ 0.05
========= =========
Weighted Average Number of Limited
Partner Units Outstanding 3,486,677 1,252,970
========= =========
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Quarter Ended Year Ended
March 31, December 31,
1998 1997
------------- -----------
General partners:
Beginning balance $ (428) $ 993
Net income (846) (1,421)
----------- -----------
(1,274) (428)
----------- -----------
Limited partners:
Beginning balance 29,847,008 6,995,220
Contributions 854,241 25,723,944
Syndication costs (76,881) (2,717,452)
Net income 587,689 1,156,181
Distributions ($0.17 and $0.57
per weighted average limited
partner unit, respectively) (601,514) (1,310,885)
----------- -----------
30,610,543 29,847,008
----------- -----------
Total partners' capital $30,609,269 $29,846,580
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1998 1997
----------- --------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 795,443 $ 189,772
----------- -----------
Cash Flows From Investing
Activities:
Additions to land and
buildings on operating
leases (691,344) (5,953,421)
Investment in direct
financing leases (4,272) (651,984)
Increase in other assets - (38,309)
Other - 107
----------- -----------
Net cash used in
investing activities (695,616) (6,643,607)
----------- -----------
Cash Flows From Financing
Activities:
Reimbursement of acquisition
and syndication costs paid
by related parties on behalf
of the Partnership (9,037) (177,493)
Contributions from limited
partners 854,241 8,258,063
Distributions to limited
partners (510,340) (55,708)
Payment of syndication costs (161,141) (863,175)
Other (10,000) -
----------- ----------
Net cash provided by
financing activities 163,723 7,161,687
----------- -----------
Net Increase in Cash and Cash
Equivalents 263,550 707,852
Cash and Cash Equivalents at
Beginning of Quarter 4,143,327 5,371,325
----------- -----------
Cash and Cash Equivalents at End of
Quarter $ 4,406,877 $ 6,079,177
=========== ===========
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
Quarter Ended
March 31,
1998 1997
----------- -----------
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 $ 12,519 $ 81,738
Syndication costs - 158,599
----------- -----------
$ 12,519 $ 240,337
=========== ===========
Distributions declared and unpaid
at end of quarter $ 601,810 $ 154,476
=========== ===========
See accompanying notes to condensed financial statements.
5
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1998 and 1997
1. Significant Accounting Policies:
Basis of Presentation - The accompanying unaudited condensed financial
statements have been prepared in accordance with the instructions to
Form 10-Q and do not include all of the information and note
disclosures required by generally accepted accounting principles. The
financial statements reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods
presented. Operating results for the quarter ended March 31, 1998, may
not be indicative of the results that may be expected for the year
ended December 31, 1998. Amounts as of December 31, 1997, included in
the financial statements, have been derived from audited financial
statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund XVIII, Ltd. (the "Partnership") for the year ended December
31, 1997.
Reclassification - Certain items in the prior year's financial
statements have been reclassified to conform to 1998 presentation.
These reclassifications had no effect on partners' capital or net
income.
2. Related Party Transactions:
During the quarters ended March 31, 1998 and 1997, the Partnership
incurred $72,610 and $706,781, respectively, in syndication costs due
to CNL Securities Corp. for services in connection with selling units
of limited partnership interest. During the quarters ended March 31,
1998 and 1997, a substantial portion of these amounts ($67,539 and
$599,493, respectively) was reallowed to other broker-dealers.
In addition, during the quarters ended March 31, 1998 and 1997, the
Partnership incurred $4,271 and $41,575, respectively, in due diligence
expense reimbursement fees due to CNL Securities Corp. These fees equal
0.5% of the limited partner contributions of $854,241 and $8,315,063,
received during the quarters ended March 31, 1998 and 1997,
respectively. The majority of these fees was reallowed to other
broker-dealers for payment of bona fide due diligence expenses.
6
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1998 and 1997
2. Related Party Transactions - Continued:
Additionally, during the quarters ended March 31, 1998 and 1997, the
Partnership incurred $38,441 and $374,178, respectively, 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 quarters ended March 31, 1998 and 1997, and are
included in land and buildings on operating leases, net investment in
direct financing leases and other assets.
In addition, during the quarters ended March 31, 1998 and 1997, the
Partnership incurred management fees of $6,427 and $1,212,
respectively, due to CNL Fund Advisors, Inc.
During the quarters ended March 31, 1998 and 1997, 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
quarters ended March 31:
1998 1997
-------- ------
Syndication costs $ - $ 82,682
General operating and
administrative
expenses 26,845 13,245
-------- --------
$ 26,845 $ 95,927
======== ========
7
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1998 and 1997
2. Related Party Transactions - Continued:
The amounts due to related parties consisted of the following at:
March 31, December 31,
1998 1997
Due to CNL Securities Corp.:
Commissions $ - $ 79,069
Due diligence expense
reimbursement fee - 5,191
-------- --------
- 84,260
-------- --------
Due to CNL Fund Advisors,
Inc.:
Expenditures incurred on
on behalf of the
Partnership 12,681 1,737
Acquisition fees - 29,757
Accounting and admini-
strative services 4,295 1,921
Management fees 618 556
-------- --------
17,594 33,971
-------- --------
$ 17,594 $118,231
======== ========
3. 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 at least one of the
quarters ended March 31:
1998 1997
-------- ------
Golden Corral Corporation $136,727 $ -
Foodmaker, Inc. 127,364 -
IHOP Properties, Inc. 70,844 -
Platinum Rotisserie, L.L.C. 35,480 27,153
Carrols Corporation 25,078 25,078
8
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1998 and 1997
3. Concentration of Credit Risk - Continued:
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
quarters ended March 31:
1998 1997
-------- ------
Golden Corral Family
Steakhouse Restaurant $188,192 $ -
Jack in the Box 127,364 -
Boston Market 92,486 27,153
IHOP 70,844 -
Burger King 25,078 25,078
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
1998 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.
9
<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"), 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 lessee generally
responsible for all repairs and maintenance, property taxes, insurance and
utilities. As of March 31, 1998, the Partnership owned 22 Properties.
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. The Partnership's offering of units
terminated on February 6, 1998 at which time the maximum offering proceeds of
3,500,000 units ($35,000,000) had been received from investors. The Partnership
therefore will derive no additional capital resources from the offering.
As of March 31, 1998, net proceeds to the Partnership from its offering
of units, after deduction of organizational and offering expenses, totalled
$30,800,000. Of this amount, approximately $27,560,700 had been used to invest
or committed for investment in 22 Properties and to pay acquisition fees and
certain acquisition expenses, leaving approximately $3,239,400 of offering
proceeds available for investment in Properties. As of March 31, 1998, the
Partnership had incurred $1,575,000 in acquisition fees to an affiliate of the
general partners.
The Partnership presently is negotiating to acquire additional
Properties, but as of April 16, 1998, had not acquired any such Properties. The
Partnership will use the remaining net offering proceeds to acquire additional
Properties, to pay certain acquisition expenses and in the discretion of the
general partners, to create operating reserves.
During the quarters ended March 31, 1998 and 1997, the Partnership
generated cash from operations (which includes cash received from tenants, and
interest and other income received, less cash paid for expenses) of $795,443 and
$189,772, respectively. The increase in cash from operations for the quarter
ended March 31, 1998, as compared to the quarter ended March 31, 1997, is
primarily a result of changes in income and expenses as described in "Results of
Operations" below, and changes in the Partnership's working capital.
10
<PAGE>
Liquidity and Capital Resources - Continued
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 March 31, 1998, the Partnership had $4,406,877
invested in such short-term investments, as compared to $4,143,327 at December
31, 1997. The increase in the amount invested in short-term investments is
primarily attributable to the receipt of additional capital contributions from
the sale of units during the quarter ended March 31, 1998. The funds remaining
at March 31, 1998, will be used to purchase and develop additional Properties,
to pay acquisition costs, to pay limited partner distributions and to meet the
Partnership's working capital and other needs and, in the general partners'
discretion, to create cash reserves.
During the quarter ended March 31, 1997, affiliates of the general
partners incurred on behalf of the Partnership $158,599 for certain
organizational and offering expenses. In addition, during the quarters ended
March 31, 1998 and 1997, affiliates of the general partners incurred on behalf
of the Partnership $12,519 and $81,738, respectively, for certain acquisition
expenses and $15,411 and $9,302, respectively, for certain operating expenses.
As of March 31, 1998, the Partnership owed $17,594 to related parties for such
amounts, fees and other reimbursements. As of April 16, 1998, the Partnership
had reimbursed all such amounts. Amounts payable to other parties, including
distributions payable, decreased to $948,618 at March 31, 1998, from $1,629,719
at December 31, 1997, primarily as a result of the payment during the quarter
ended March 31, 1998, of construction costs accrued for certain Properties at
December 31, 1997.
Based on cash from operations, the Partnership declared distributions
to the limited partners of $601,810 and $154,476 for the quarters ended March
31, 1998 and 1997, respectively. This represents distributions of $0.17 and
$0.12 per weighted average limited partner unit for the quarters ended March 31,
1998 and 1997. No distributions were made to the general partners for the
quarters ended March 31, 1998 and 1997. No amounts distributed to the limited
partners for the quarters ended March 31, 1998 and 1997, are required to be or
have been treated by the Partnership as a return of capital for purposes of
calculating the limited partners' return on their adjusted capital
contributions. The Partnership intends to continue to make distributions of cash
available for distribution to the limited partners on a quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who meet specified
financial standards is expected to minimize the Partnership's operating
expenses. Partnership net income is expected to increase throughout 1998, as
rental income increases,
11
<PAGE>
Liquidity and Capital Resources - Continued
due to the acquisition of additional Properties. Accordingly, the general
partners believe that any anticipated decrease in the Partnership's liquidity in
1998, due to its investment of available net offering proceeds in Properties,
will not have an adverse effect on the Partnership's operations.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
Results of Operations
During the quarter ended March 31, 1997, the Partnership owned and
leased eight wholly owned Properties, five of which were under construction, and
during the quarter ended March 31, 1998, the Partnership owned and leased 22
wholly owned Properties, to operators of fast-food and family-style restaurant
chains. In connection therewith, during the quarters ended March 31, 1998 and
1997, the Partnership earned $672,973 and $53,343, respectively, in rental
income from operating leases and earned income from direct financing leases from
these Properties. The increase in rental and earned income during the quarter
ended March 31, 1998, as compared to the quarter ended March 31, 1997, is
primarily attributable to the acquisition of additional Properties subsequent to
March 31, 1997, and the fact that Properties acquired during the quarter ended
March 31, 1997, were operational for the full quarter ended March 31, 1998, as
compared to a partial quarter ended March 31, 1997.
During at least one of the quarters ended March 31, 1998 and 1997, five
lessees of the Partnership, Golden Corral Corporation, Foodmaker, Inc., 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 March 31, 1998, Platinum Rotisserie, L.L.C. and Carrols Corporation were each
lessees under leases relating to one restaurant, Golden Corral Corporation and
Foodmaker Inc. were the lessees under leases relating to four restaurants and
IHOP Properties, Inc. was the lessee under leases relating to two restaurants.
It is anticipated that, based on the minimum annual rental payments required by
the leases, Golden Corral Corporation and Foodmaker, Inc. each will continue to
contribute more than ten percent of the Partnership's total rental income during
the remainder of 1998 and subsequent years. During at least one of the quarters
ended March 31, 1998 and 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. During the remainder of 1998 and subsequent years, it is anticipated
that Golden Corral Family Steakhouse Restaurants, Jack in the Box and Boston
Market each will continue to account for more than ten percent of the
Partnership's total rental income to which the Partnership is entitled under the
terms of the leases. Any failure of these lessees or restaurant chains could
materially affect the Partnership's income.
12
<PAGE>
Results of Operations - Continued
Operating expenses, including depreciation and amortization, were
$139,072 and $34,037 for the quarters ended March 31, 1998 and 1997,
respectively. The increase in operating expenses during the quarter ended March
31, 1998, as compared to the quarter ended March 31, 1997, is primarily
attributable to an increase in depreciation expense as the result of the
acquisition of additional Properties subsequent to March 31, 1997, and the fact
that Properties acquired during the quarter ended March 31, 1997, were
operational for the full quarter ended March 31, 1998, as compared to a partial
quarter ended March 31, 1997.
Operating expenses also increased during the quarter ended March 31,
1998, as a result of an increase in (i) accounting and administrative expenses
associated with operating the Partnership and its Properties, (ii) management
fees as a result of the increase in rental revenues, as described above, and
(iii) the Partnership incurring additional taxes relating to the filing of
various state tax returns during 1998. 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.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the quarter
ended March 31, 1998.
14
<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 11th day of May, 1998.
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 March 31, 1998, and its statement of
income for the three months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund XVIII, ltd. for the three months
ended March 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,406,877
<SECURITIES> 0
<RECEIVABLES> 47,721
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 21,323,690
<DEPRECIATION> 224,501
<TOTAL-ASSETS> 31,864,893
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30,609,269
<TOTAL-LIABILITY-AND-EQUITY> 31,864,893
<SALES> 0
<TOTAL-REVENUES> 725,915
<CGS> 0
<TOTAL-COSTS> 139,072
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 586,843
<INCOME-TAX> 0
<INCOME-CONTINUING> 586,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 586,843
<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>
