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, 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 of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 E. South Street
Orlando, Florida 32801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
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 10-15
Part II
Other Information 16
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------------- ------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $407,185
and $140,380 $22,157,631 $21,311,062
Net investment in direct financing leases 6,817,422 6,004,878
Investment in joint venture 166,224 --
Cash and cash equivalents 1,866,555 4,143,327
Receivables, less allowance for doubtful
accounts of $790 in 1998 -- 68,000
Prepaid expenses 11,203 --
Organization costs, less accumulated
amortization of $3,911 and $2,411 6,089 7,589
Accrued rental income 189,143 111,867
Other assets 212,132 160,532
----------------- -----------------
$31,426,399 $31,807,255
================= =================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 2,365 $ 10,456
Accrued construction costs payable -- 1,108,627
Accrued real estate taxes payable 23,500 --
Distributions payable 700,000 510,636
Due to related parties 14,652 118,231
Rents paid in advance 13,008 28,277
Deferred rental income 116,769 184,448
----------------- -----------------
Total liabilities 870,294 1,960,675
Partners' capital 30,556,105 29,846,580
----------------- -----------------
$31,426,399 $31,807,255
================= =================
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------ ------------ -------------- --------------
<S> <C>
Revenues:
Rental income from operating
leases $ 611,530 $ 314,510 $ 1,758,037 $ 525,308
Earned income from direct
financing leases 170,108 123,417 470,287 186,153
Interest and other income 14,189 32,728 114,967 102,034
------------ ------------ -------------- --------------
795,827 470,655 2,343,291 813,495
------------ ------------ -------------- --------------
Expenses:
General operating and
administrative 46,347 32,870 117,608 87,976
Professional services 4,184 5,863 14,164 18,267
Management fees to related parties 7,651 4,707 21,180 9,232
Real estate taxes 23,500 -- 23,500 --
State and other taxes -- -- 8,605 424
Depreciation and amortization 89,370 44,405 268,305 78,584
------------ ------------ -------------- --------------
171,052 87,845 453,362 194,483
------------ ------------ -------------- --------------
Net Income $ 624,775 $ 382,810 $ 1,889,929 $ 619,012
============ ============ ============== ==============
Allocation of Net Income:
General partners $ (752) $ (444) $ (678) $ (786)
Limited partners 625,527 383,254 1,890,607 619,798
------------ ------------ -------------- --------------
$ 624,775 $ 382,810 $ 1,889,929 $ 619,012
============ ============ ============== ==============
Net Income Per Limited Partner Unit $ 0.18 $ 0.15 $ 0.54 $ 0.32
============ ============ ============== ==============
Weighted Average Number of Limited
Partner Units Outstanding 3,500,000 2,507,828 3,496,435 1,945,482
============ ============ ============== ==============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
CNL INCOME FUND XVIII LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1998 1997
---------------------------- ------------------
<S> <C>
General partners:
Beginning balance $ (428) $ 993
Net income (678 ) (1,421 )
---------------- ---------------
(1,106 ) (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 1,890,607 1,156,181
Distributions ($0.56 and $0.57 per
weighted average limited
partner unit, respectively) (1,957,764 ) (1,310,885 )
---------------- ---------------
30,557,211 29,847,008
---------------- ---------------
Total partners' capital $30,556,105 $29,846,580
================ ===============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
--------------- ---------------
<S> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating Activities $ 2,158,678 $ 909,568
---------------- ---------------
Cash Flows from Investing Activities:
Additions to land and buildings on
operating leases (2,219,314 ) (13,810,648 )
Investment in direct financing leases (876,076 ) (5,838,231 )
Investment in joint venture (166,025 ) --
Increase in other assets (51,600 ) --
Other -- 80
---------------- ---------------
Net cash used in investing activities (3,313,015 ) (19,648,799 )
---------------- ---------------
Cash Flows from Financing Activities:
Reimbursement of acquisition and
syndication costs paid by related
parties on behalf of the Partnership (37,135 ) (338,567 )
Contributions from limited partners 854,241 19,964,832
Distributions to limited partners (1,768,400 ) (476,754 )
Payment of syndication costs (161,141 ) (2,037,781 )
Other (10,000 ) (77,000 )
---------------- ---------------
Net cash provided by (used
in) financing activities (1,122,435 ) 17,034,730
---------------- ---------------
Net Decrease in Cash and Cash Equivalents (2,276,772 ) (1,704,501 )
Cash and Cash Equivalents at Beginning
of Period 4,143,327 5,371,325
---------------- ---------------
Cash and Cash Equivalents at End of
Period $ 1,866,555 $ 3,666,824
================ ===============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
--------------- ----------------
<S> <C>
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 $ 35,864 $ 125,693
Syndication costs -- 210,866
--------------- ---------------
$ 35,864 $ 336,559
=============== ===============
Distributions declared and unpaid at
end of period $ 700,000 $ 379,266
=============== ===============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine months Ended September 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 nine months ended September 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, EITF 97-11 had no material effect on the
Partnership's financial position or results of operations.
In May 1998, the Financial Accounting Standards Board reached a
consensus in EITF 98-9, entitled "Accounting for Contingent Rent in the
Interim Financial Periods." Adoption of this consensus did not 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 Nine months Ended September 30, 1998 and 1997
2. Investment in Joint Venture:
In August 1998, the Partnership entered into a joint venture
arrangement, Columbus Joint Venture, with affiliates of the general
partners, to construct and hold one restaurant property. As of
September 30, 1998, the Partnership had contributed $166,025, to
purchase land and pay construction costs relating to the joint venture.
The Partnership has agreed to contribute approximately $225,811 in
additional construction costs to the joint venture. The Partnership
will have an approximate 40 percent interest in the profits and losses
of the joint venture. The Partnership accounts for its investment in
this property using the equity method since the Partnership shares
control with an affiliate, and amounts relating to its investment are
included in investment in joint ventures. The following presents the
combined, condensed financial information for the joint venture at:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------ -------------------
<S> <C>
Land and construction in progress $497,989 $ --
Cash 8,950 --
Liabilities 90,650 --
Partners' capital 416,289 --
</TABLE>
The Company did not recognize any income from this joint venture
because the property owned by the joint venture was not operational as
of September 30, 1998.
3. Related Party Transactions:
During the nine months ended September 30, 1998 and 1997, the
Partnership incurred $72,610 and $1,697,011, respectively, in
syndication costs due to CNL Securities Corp. for services in
connection with selling units of limited partnership interest. During
the nine months ended September 30, 1998 and 1997, a substantial
portion of these amounts ($67,539 and $1,591,343, respectively) was
reallowed to other broker-dealers.
In addition, during the nine months ended September 30, 1998 and 1997,
the Partnership incurred $4,271 and $99,824, 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
$19,964,832, received during the nine months ended September 30, 1998
and 1997, respectively. The majority of these fees were reallowed to
other broker-dealers for payment of bona fide due diligence expenses.
7
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine months Ended September 30, 1998 and 1997
3. Related Party Transactions - Continued:
Additionally, during the nine months ended September 30, 1998 and 1997,
the Partnership incurred $38,441 and $898,417, 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 nine months ended September 30, 1998
and 1997, and are included in land and buildings on operating leases,
net investment in direct financing leases, investment in joint venture,
and other assets.
In addition, during the nine months ended September 30, 1998 and 1997,
the Partnership incurred management fees of $21,180 and $9,232,
respectively, due to CNL Fund Advisors, Inc.
During the nine months ended September 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 incurred for these
services were classified as follows for the nine months ended September
30:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C>
Syndication costs $ -- $ 212,279
General operating and
administrative expenses 77,601 70,404
----------------- -----------------
$ 77,601 $ 282,683
================= =================
</TABLE>
8
<PAGE>
CNL INCOME FUND XVIII, LTD.
A Florida Limited Partnership
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Nine months Ended September 30, 1998 and 1997
3. Related Party Transactions - Continued:
The amounts due to related parties consisted of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------- ------------------
<S> <C>
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
behalf of the Partnership 10,220 1,737
Acquisition fees -- 29,757
Accounting and admini-
strative services 2,484 1,921
Management fees 1,948 556
------------- -------------
14,652 33,971
------------- -------------
$ 14,652 $118,231
============= =============
</TABLE>
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 September 30, 1998, the Partnership owned 24 Properties, which
included one Property owned by a joint venture in which the Partnership is a
co-venturer.
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 September 30, 1998, net proceeds to the Partnership from its
offering of units, after deduction of organizational and offering expenses,
totaled $30,800,000. Of this amount, approximately $29,855,600 had been used to
invest or committed for investment in 24 Properties, including one Property
owned by a joint venture in which the Partnership is a co-venturer, and to pay
acquisition fees and certain acquisition expenses, leaving approximately
$944,400 of offering proceeds available for investment in Properties. As of
September 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 October 20, 1998, had not acquired any such Properties.
During the nine months ended September 30, 1998 and 1997, the
Partnership generated cash from operations (which includes cash received from
tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses) of $2,158,678 and $909,568, respectively.
The increase in cash from operations for the nine months ended September 30,
1998, as compared to the nine months ended September 30, 1997, is primarily a
result of changes in income and expenses as described in "Results of Operations"
below.
Other sources and uses of capital included the following during the
nine months ended September 30, 1998.
In August 1998, the Partnership entered into a joint venture
arrangement, Columbus Joint Venture, with affiliates of the general partners to
construct and hold one restaurant Property. As of September 30, 1998, the
Partnership had contributed $166,025 to purchase land and pay for
10
<PAGE>
Liquidity and Capital Resources - Continued
construction costs relating to the joint venture. When construction is
completed, the Partnership will have an approximate 40 percent interest in the
profits and losses of the joint venture.
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, 1998, the Partnership had $1,866,555
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 acquiring one additional Property and investing in
Columbus Joint Venture, as described above, and as a result of the payment
during the nine months ended September 30, 1998, of construction costs accrued
for certain Properties at December 31, 1997. The funds remaining at September
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 nine months ended September 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 nine months ended
September 30, 1998 and 1997, affiliates of the general partners incurred on
behalf of the Partnership $35,864 and $125,693, respectively, for certain
acquisition expenses and $65,271 and $35,259, respectively, for certain
operating expenses. As of September 30, 1998 and 1997, the Partnership owed
$14,652 and $75,844, respectively, to related parties for such amounts, fees and
other reimbursements. As of October 20, 1998, the Partnership had reimbursed all
such amounts. Amounts payable to other parties, including distributions payable,
decreased to $725,865 at September 30, 1998, from $1,629,719 at December 31,
1997, primarily as a result of the payment during the nine months ended
September 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 $1,957,764 and $800,312 for the nine months ended
September 30, 1998 and 1997, respectively ($700,000 and $379,266 for the
quarters ended September 30, 1998 and 1997, respectively). This represents
distributions of $0.56 and $0.41 per weighted average limited partner unit
outstanding for the nine months ended September 30, 1998 and 1997, respectively
($0.20 and $0.15 per unit for the quarters ended September 30, 1998 and 1997,
respectively). No distributions were made to the general partners for the
quarters and nine months ended September 30, 1998 and 1997. No amounts
distributed to the limited partners for the nine months ended September 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.
11
<PAGE>
Liquidity and Capital Resources - Continued
The general partners have been informed by CNL American Properties Fund, Inc.
("APF"), an affiliate of the general partners, that it intends to significantly
increase its asset base by proposing to acquire affiliates of the general
partners which have similar restaurant property portfolios, including the
Partnership. APF is a real estate investment trust whose primary business is the
ownership of restaurant properties leased on a long-term, "triple-net" basis to
operators of national and regional restaurant chains. Accordingly, the general
partners anticipate that APF will make an offer to acquire the Partnership in
exchange for securities of APF. The general partners have recently retained
financial and legal advisors to assist them in evaluating and negotiating any
offer that may be proposed by APF. However, at this time, APF has made no such
offer. In the event that an offer is made, the general partners will evaluate it
and if the general partners believe that the offer is worth pursuing, the
general partners will promptly inform the limited partners. Any agreement to
sell the Partnership would be subject to the approval of the limited partners in
accordance with the terms of the partnership agreement.
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 nine months ended September 30, 1997, the Partnership owned
and leased 20 wholly owned Properties, three of which were under construction,
and during the nine months ended September 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 nine months ended
September 30, 1998 and 1997, the Partnership earned $2,228,324 and $711,461,
respectively, in rental income from operating leases and earned income from
direct financing leases from these Properties, $781,638 and $437,927 of which
was earned for the quarters ended September 30, 1998 and 1997, respectively. The
increase in rental and earned income during the quarter and nine months ended
September 30, 1998, as compared to the quarter and nine months ended September
30, 1997, is primarily attributable to the acquisition of additional Properties
subsequent to September 30, 1997, and the fact that Properties acquired during
the quarter and nine months ended September 30, 1997, were operational for the
full quarter and nine months ended September 30, 1998, as compared to a partial
quarter and nine months ended September 30, 1997.
In October 1998, the tenant of four Boston Market Properties filed for
bankruptcy. If the leases are eventually rejected, the Partnership anticipates
that rental income relating to these Properties will terminate until a new
tenant is located or until the Properties are sold and the
12
<PAGE>
Results of Operations - Continued
proceeds from such sales are reinvested in additional Properties. However, the
general partners do not anticipate that any decrease in rental income due to
lost revenues relating to these Properties will have a material effect on the
Partnership's financial position or results of operations.
Operating expenses, including depreciation and amortization, were
$453,362 and $194,483 for the nine months ended September 30, 1998 and 1997,
respectively, $171,052 and $87,845 of which was incurred during the quarters
ended September 30, 1998 and 1997, respectively. The increase in operating
expenses during the quarter and nine months ended September 30, 1998, as
compared to the quarter and nine months ended September 30, 1997, is primarily
attributable to an increase in depreciation expense as the result of the
acquisition of additional Properties subsequent to September 30, 1997, and the
fact that Properties acquired during the quarter and nine months ended September
30, 1997, were operational for the full quarter and nine months ended September
30, 1998, as compared to a partial quarter and nine months ended September 30,
1997.
Operating expenses also increased during the quarter and nine months
ended September 30, 1998 as a result of an increase in administrative expenses
for services related to accounting; financial, tax and regulatory compliance and
reporting; lease and loan compliance; limited partner distributions and
reporting; and investor relations (including administrative services in
connection with selling units of limited partnership interest) and management
fees as a result of the increase in rental revenues, as described above. The
increase during the nine months ended September 30, 1998 was also due to the
Partnership incurring additional taxes relating to the filing of various state
tax returns during 1998.
In addition, the increase in operating expenses during the quarter and
nine months ended September 30, 1998, as compared to the quarter and nine months
ended September 30, 1997, is partially attributable to the fact that during the
quarter and nine months ended September 30, 1998, the Partnership recorded
approximately $23,500 in real estate tax expenses due to the fact that in
October 1998, the tenant of the four Boston Market Properties filed for
bankruptcy, as described above. If the tenant decides to reject the leases, the
Partnership will continue to incur certain expenses, such as real estate taxes,
insurance and maintenance until a new tenant or buyer for these Properties is
located.
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, EITF 97-11 had no material effect on the Partnership's
financial position or results of operations.
13
<PAGE>
Results of Operations - Continued
In May 1998, the Financial Accounting Standards Board reached a
consensus in EITF 98-9, entitled "Accounting for Contingent Rent in the Interim
Financial Periods." Adoption of this consensus did not have a material effect on
the Partnership's financial position or results of operations.
The Year 2000 problem is the result of information technology systems
and embedded systems (products which are made with microprocessor (computer)
chips such as HVAC systems, physical security systems and elevators) using a
two-digit format, as opposed to four digits, to indicate the year. Such
information technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.
The Partnership does not have any information technology systems.
Affiliates of the general partners provide all services requiring the use of
information technology systems pursuant to a management agreement with the
Partnership. The maintenance of embedded systems, if any, at the Partnership's
properties is the responsibility of the tenants of the properties in accordance
with the terms of the Partnership's leases. The general partners and affiliates
have established a team dedicated to reviewing the internal information
technology systems used in the operation of the Partnership, and the information
technology and embedded systems and the Year 2000 compliance plans of the
Partnership's tenants, significant suppliers, financial institutions and
transfer agent.
The information technology infrastructure of the affiliates of the
general partners consists of a network of personal computers and servers that
were obtained from major suppliers. The affiliates utilize various
administrative and financial software applications on that infrastructure to
perform the business functions of the Partnership. The inability of the general
partners and affiliates to identify and timely correct material Year 2000
deficiencies in the software and/or infrastructure could result in an
interruption in, or failure of, certain of the Partnership's business activities
or operations. Accordingly, the general partners and affiliates have requested
and are evaluating documentation from the suppliers of the affiliates regarding
the Year 2000 compliance of their products that are used in the business
activities or operations of the Partnership. The costs expected to be incurred
by the general partners and affiliates to become Year 2000 compliant will be
incurred by the general partners and affiliates; therefore, these costs will
have no impact on the Partnership's financial position or results of operations.
The Partnership has material third party relationships with its
tenants, financial institutions and transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. If any of these third parties are unable to meet their obligations
to the Partnership because of the Year 2000 deficiencies, such a failure may
have a material impact on the Partnership. Accordingly, the general partners
have requested and are evaluating documentation from the Partnership's tenants,
financial institutions, and transfer agent relating to their Year 2000
compliance plans. At this time, the general partners have not yet received
sufficient certifications to be assured that the tenants, financial
institutions, and transfer agent
14
<PAGE>
Results of Operations - Continued
have fully considered and mitigated any potential material impact of the Year
2000 deficiencies. Therefore, the general partners do not, at this time, know of
the potential costs to the Partnership of any adverse impact or effect of any
Year 2000 deficiencies by these third parties.
The general partners currently expect that all year 2000 compliance
testing and any necessary remedial measures on the information technology
systems used in the business activities and operations of the Partnership will
be completed prior to June 30, 1999. Based on the progress the general partners
and affiliates have made in identifying and addressing the Partnership's Year
2000 issues and the plan and timeline to complete the compliance program, the
general partners do not foresee significant risks associated with the
Partnership's Year 2000 compliance at this time. Because the general partners
and affiliates are still evaluating the status of the systems used in business
activities and operations of the Partnership and the systems of the third
parties with which the Partnership conducts its business, the general partners
have not yet developed a comprehensive contingency plan and are unable to
identify "the most reasonably likely worst case scenario" at this time. As the
general partners identify significant risks related to the Partnership's Year
2000 compliance or if the Partnership's Year 2000 compliance program's progress
deviates substantially from the anticipated timeline, the general partners will
develop appropriate contingency plans.
15
<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
September 30, 1998.
16
<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 November, 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 September 30, 1998, 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, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,866,555
<SECURITIES> 0
<RECEIVABLES> 790
<ALLOWANCES> 790
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 22,564,816
<DEPRECIATION> 407,185
<TOTAL-ASSETS> 31,426,399
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30,556,105
<TOTAL-LIABILITY-AND-EQUITY> 31,426,399
<SALES> 0
<TOTAL-REVENUES> 2,343,291
<CGS> 0
<TOTAL-COSTS> 453,362
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,889,929
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,889,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,889,929
<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>
