FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-24095
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 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9-12
Part II
Other Information 13
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
CONDENSED BALANCE SHEETS
June 30, December 31,
ASSETS 1998 1997
----------- --------
Land and buildings on operating
leases, less accumulated
depreciation of $318,315 and
$140,380 $22,246,501 $21,311,062
Net investment in direct financing
leases 6,841,824 6,004,878
Cash and cash equivalents 1,993,441 4,143,327
Receivables, less allowance for
doubtful accounts of $8,767 in
1998 8,859 68,000
Prepaid expenses 13,045 -
Organization costs, less accumulated
amortization of $3,411 and $2,411 6,589 7,589
Accrued rental income 147,761 111,867
Other assets 208,910 160,532
----------- -----------
$31,466,930 $31,807,255
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 1,917 $ 10,456
Accrued construction costs payable - 1,108,627
Distributions payable 656,250 510,636
Due to related parties 5,491 118,231
Rents paid in advance 39,367 28,277
Deferred rental income 132,575 184,448
----------- -----------
Total liabilities 835,600 1,960,675
Partners' capital 30,631,330 29,846,580
----------- -----------
$31,466,930 $31,807,255
=========== ===========
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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------- --------- ---------- -------
<S> <C>
Revenues:
Rental income from
operating leases $ 619,878 $ 158,568 $1,146,507 $ 210,798
Earned income from direct
financing leases 153,835 61,623 300,179 62,736
Interest and other income 47,836 26,435 100,778 69,306
--------- --------- ---------- ----------
821,549 246,626 1,547,464 342,840
--------- --------- ---------- ----------
Expenses:
General operating and
administrative 36,552 38,421 71,261 55,106
Professional services 4,973 6,508 9,980 12,404
Management fees to related
party 7,102 3,313 13,529 4,525
State and other taxes 297 8 8,605 424
Depreciation and
amortization 94,314 24,351 178,935 34,179
--------- --------- ---------- ----------
143,238 72,601 282,310 106,638
--------- --------- ---------- ----------
Net Income $ 678,311 $ 174,025 $1,265,154 $ 236,202
========= ========= ========== ==========
Allocation of Net
Income:
General partners $ 920 $ (244) $ 74 $ (342)
Limited partners 677,391 174,269 1,265,080 236,544
--------- --------- ---------- ----------
$ 678,311 $ 174,025 $1,265,154 $ 236,202
========= ========= ========== ==========
Net Income Per Limited
Partner Unit $ 0.19 $ 0.09 $ 0.36 $ 0.15
========= ========= ========== ==========
Weighted Average Number
of Limited Partner
Units Outstanding 3,500,000 1,944,020 3,493,622 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
Six Months Ended Year Ended
June 30, December 31,
1998 1997
---------------- ------------
General partners:
Beginning balance $ (428) $ 993
Net income 74 (1,421)
----------- -----------
(354) (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 1,265,080 1,156,181
Distributions ($0.36 and $0.57
per weighted average limited
partner unit, respectively) (1,257,764) (1,310,885)
----------- -----------
30,631,684 29,847,008
----------- -----------
Total partners' capital $30,631,330 $29,846,580
=========== ===========
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
Six Months Ended
June 30,
1998 1997
----------- -----------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 1,459,212 $ 463,751
----------- -----------
Cash Flows From Investing
Activities:
Additions to land and
buildings on operating
leases (2,219,267) (12,412,836)
Investment in direct
financing leases (877,348) (2,750,670)
Increase in other assets (48,378) -
Other - 80
----------- -----------
Net cash used in
investing activities (3,144,993) (15,163,426)
----------- -----------
Cash Flows From Financing
Activities:
Reimbursement of acquisition
and syndication costs paid
by related parties on behalf
of the Partnership (35,055) (365,218)
Contributions from limited
partners 854,241 13,878,397
Distributions to limited
partners (1,112,150) (210,184)
Payment of syndication costs (161,141) (1,409,838)
Other (10,000) -
----------- ----------
Net cash provided by
(used in) financing
activities (464,105) 11,893,157
----------- -----------
Net Decrease in Cash and
Cash Equivalents (2,149,886) (2,806,518)
Cash and Cash Equivalents at
Beginning of Period 4,143,327 5,371,325
----------- -----------
Cash and Cash Equivalents at End of
Period $ 1,993,441 $ 2,564,807
=========== ===========
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
Six Months Ended
June 30,
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 $ 34,639 $ 108,841
Syndication costs - 210,866
----------- -----------
$ 34,639 $ 319,707
=========== ===========
Distributions declared and unpaid
at end of period $ 656,250 $ 266,570
=========== ===========
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, 1998 and 1997
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 1998, may not be indicative
of the results that may be expected for the year 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.
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.
In March 1998, the Financial Accounting Standards Board reached a
consensus in EITF 97-11, entitled "Accounting for Internal Costs
Relating to Real Estate Property Acquisitions." EITF 97-11 provides
that internal costs of identifying and acquiring operating Property
should be expensed as incurred. Due to the fact that the Partnership
does not have an internal acquisitions function and instead, contracts
these services from CNL Fund Advisors, Inc., an affiliate of the
general partners, the effectiveness of EITF 97-11 had no material
effect on the Company's financial position or results of operations.
The general partners are in the process of analyzing the effects of the
consensus reached by the Financial Accounting Standards Board in EITF
98-9, entitled "Accounting for Contingent Rent in the Interim Financial
Periods," issued in May 1998. The general partners do not expect that
the conclusions reached in this consensus will have a material effect
on the Partnership's financial position or results of operations.
6
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1998 and 1997
2. Related Party Transactions:
During the six months ended June 30, 1998 and 1997, the Partnership
incurred $72,610 and $1,170,484, respectively, in syndication costs due
to CNL Securities Corp. for services in connection with selling units
of limited partnership interest. During the six months ended June 30,
1998 and 1997, a substantial portion of these amounts ($67,539 and
$1,030,457, respectively) was reallowed to other broker-dealers.
In addition, during the six months ended June 30, 1998 and 1997, the
Partnership incurred $4,271 and $68,852, 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 $13,770,397,
received during the six months ended June 30, 1998 and 1997,
respectively. The majority of these fees was reallowed to other
broker-dealers for payment of bona fide due diligence expenses.
Additionally, during the six months ended June 30, 1998 and 1997, the
Partnership incurred $38,441 and $619,668, 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 six months ended June 30, 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 six months ended June 30, 1998 and 1997, the
Partnership incurred management fees of $13,529 and $4,525,
respectively, due to CNL Fund Advisors, Inc.
During the six months ended June 30, 1998 and 1997, certain affiliates
of the general partners provided various administrative services to the
Partnership, including services related to accounting; financial, tax
and regulatory compliance and reporting; lease and loan compliance;
limited partners distributions and reporting; due diligence and
marketing; and investor relations (including administrative services in
connection with selling units of limited partnership interest), on a
day-to-day basis. The expenses
7
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1998 and 1997
2. Related Party Transactions - Continued:
incurred for these services were classified as follows for the six
months ended June 30:
1998 1997
-------- --------
Syndication costs $ - $212,279
General operating and
administrative
expenses 58,088 43,670
-------- --------
$ 58,088 $255,949
======== ========
The amounts due to related parties consisted of the following at:
June 30, 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 1,638 1,737
Acquisition fees - 29,757
Accounting and admini-
strative services 3,129 1,921
Management fees 724 556
-------- --------
5,491 33,971
-------- --------
$ 5,491 $118,231
======== ========
8
<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 June 30, 1998, the Partnership owned 23 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 June 30, 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 $29,686,200 had been used to invest
or committed for investment in 23 Properties and to pay acquisition fees and
certain acquisition expenses, leaving approximately $1,113,800 of offering
proceeds available for investment in Properties. As of June 30, 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 July 20, 1998, had not acquired any such Properties.
During the six months ended June 30, 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 $1,459,212
and $463,751, respectively. The increase in cash from operations for the six
months ended June 30, 1998, as compared to the six months ended June 30, 1997,
is primarily a result of changes in income and expenses as described in "Results
of Operations" below, and changes in the Partnership's working capital.
9
<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 June 30, 1998, the Partnership had $1,993,441
invested in such short-term investments, as compared to $4,143,327 at December
31, 1997. The decrease in the amount invested in short-term investments is
primarily attributable to the acquisition of an additional Property during the
six months ended June 30, 1998 and as a result of the payment during the six
months ended June 30, 1998, of construction costs accrued for certain Properties
at December 31, 1997. The funds remaining at June 30, 1998, will be used to
purchase and develop additional Properties, to pay acquisition costs, to pay
limited partner distributions, to meet the Partnership's working capital and
other needs and, in the general partners' discretion, to create cash reserves.
During the six months ended June 30, 1997, affiliates of the general
partners incurred on behalf of the Partnership $210,866 for certain
organizational and offering expenses. In addition, during the six months ended
June 30, 1998 and 1997, affiliates of the general partners incurred on behalf of
the Partnership $34,639 and $108,841, respectively, for certain acquisition
expenses and $36,126 and $23,105, respectively, for certain operating expenses.
As of June 30, 1998 and 1997, the Partnership owed $5,491 and $74,235 to related
parties for such amounts, fees and other reimbursements. As of July 20, 1998,
the Partnership had reimbursed all such amounts. Amounts payable to other
parties, including distributions payable, decreased to $658,167 at June 30,
1998, from $1,629,719 at December 31, 1997, primarily as a result of the payment
during the six months ended June 30, 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 $1,257,764 and $421,046 for the six months ended June
30, 1998 and 1997, respectively ($656,250 and $266,570 for the quarters ended
June 30, 1998 and 1997, respectively). This represents distributions of $0.36
and $0.26 per weighted average limited partner unit outstanding for the six
months ended June 30, 1998 and 1997, respectively ($0.19 and $0.14 per unit for
the quarters ended June 30, 1998 and 1997, respectively). No distributions were
made to the general partners for the quarters and six months ended June 30, 1998
and 1997. No amounts distributed to the limited partners for the six months
ended June 30, 1998 and 1997, are required to be or have been treated by the
Partnership as a return of capital for purposes of calculating the limited
partners' return on their adjusted capital contributions. The Partnership
intends to continue to make distributions of cash available for distribution to
the limited partners on a quarterly basis.
10
<PAGE>
Liquidity and Capital Resources - Continued
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
Results of Operations
During the six months ended June 30, 1997, the Partnership owned and
leased 17 wholly owned Properties, seven of which were under construction, and
during the six months ended June 30, 1998, the Partnership owned and leased 23
wholly owned Properties, to operators of fast-food and family-style restaurant
chains. In connection therewith, during the six months ended June 30, 1998 and
1997, the Partnership earned $1,446,686 and $273,534, respectively, in rental
income from operating leases and earned income from direct financing leases from
these Properties, $773,713 and $220,191 of which was earned for the quarters
ended June 30, 1998 and 1997, respectively. The increase in rental and earned
income during the quarter and six months ended June 30, 1998, as compared to the
quarter and six months ended June 30, 1997, is primarily attributable to the
acquisition of additional Properties subsequent to June 30, 1997, and the fact
that Properties acquired during the quarter and six months ended June 30, 1997,
were operational for the full quarter and six months ended June 30, 1998, as
compared to a partial quarter and six months ended June 30, 1997.
Operating expenses, including depreciation and amortization, were
$282,310 and $106,638 for the six months ended June 30, 1998 and 1997,
respectively, $143,238 and $72,601 of which was incurred during the quarters
ended June 30, 1998 and 1997, respectively. The increase in operating expenses
during the quarter and six months ended June 30, 1998, as compared to the
quarter and six months ended June 30, 1997, is primarily attributable to an
increase in depreciation expense as the result of the acquisition of additional
Properties subsequent to June 30, 1997, and the fact that Properties acquired
during the quarter and six months ended June 30, 1997, were operational for the
full quarter and six months ended June 30, 1998, as compared to a partial
quarter and six months ended June 30, 1997.
11
<PAGE>
Results of Operations - Continued
Operating expenses also increased during the six months ended June 30,
1998 as a result of an increase in (i) administrative expenses for services
related to accounting; financial, tax and regulatory compliance and reporting;
lease and loan compliance; limited partner distributions and reporting; due
diligence and marketing; and investor relations (including administrative
services in connection with selling units of limited partnership interest) (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.
In March 1998, the Financial Accounting Standards Board reached a
consensus in EITF 97-11, entitled "Accounting for Internal Costs Relating to
Real Estate Property Acquisitions." EITF 97-11 provides that internal costs of
identifying and acquiring operating Property should be expensed as incurred. Due
to the fact that the Partnership does not have an internal acquisitions function
and instead, contracts these services from CNL Fund Advisors, Inc., an affiliate
of the general partners, the effectiveness of EITF 97-11 had no material effect
on the Company's financial position or results of operations.
The general partners are in the process of analyzing the effects of the
consensus reached by the Financial Accounting Standards Board in EITF 98-9,
entitled "Accounting for Contingent Rent in the Interim Financial Periods,"
issued in May 1998. The general partners do not expect that the conclusions
reached in this consensus will have a material effect on the Partnership's
financial position or results of operations.
12
<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 June
23, 1998, reporting property acquisitions.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 7th day of August, 1998.
CNL INCOME FUND 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, 1998, and its statement of
income for the six months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund XVIII, Ltd. for the six months
ended June 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,993,441
<SECURITIES> 0
<RECEIVABLES> 17,626
<ALLOWANCES> 8,767
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 22,564,816
<DEPRECIATION> 318,315
<TOTAL-ASSETS> 31,466,930
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30,631,330
<TOTAL-LIABILITY-AND-EQUITY> 31,466,930
<SALES> 0
<TOTAL-REVENUES> 1,547,464
<CGS> 0
<TOTAL-COSTS> 282,310
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,265,154
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,265,154
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,265,154
<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>
