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, 1999
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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
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CNL Income Fund XVIII, Ltd.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-3295394
- ------------------------------------------------------ ------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
- ------------------------------------------------------ ------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
------------------------------------------------
</TABLE>
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
Condensed Statements of Income
Condensed Statements of Partners' Capital
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
Part II
Other Information
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- -------------------
<S> <C>
ASSETS
Landand buildings on operating leases,
less accumulated depreciation of
$706,385 and $512,853, respectively
and allowance for loss
on land of $197,466 in 1999 and 1998 $ 22,708,272 $ 22,876,012
Net investment in direct financing leases 5,895,805 5,937,312
Investment in joint ventures 687,443 160,395
Cash and cash equivalents 1,334,857 1,839,613
Receivables, less allowance for doubtful
accounts of $19,797 and $62,189, respectively 18,178 --
Due from related party 11,019 --
Prepaid expenses 12,022 3,653
Organization costs, less accumulated
amortization of $10,000 and $4,411, respectively -- 5,589
Accrued rental income 310,653 230,999
Other assets 59,161 59,044
------------------- -------------------
$ 31,037,410 $ 31,112,617
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 38,829 $ 2,558
Distributions payable 699,998 700,000
Due to related parties 10,463 32,775
Rents paid in advance 46,623 7,351
Deferred rental income 70,848 101,436
------------------- -------------------
Total liabilities 866,761 844,120
Contingencies (Note 4)
Partners' capital 30,170,649 30,268,497
------------------- -------------------
$ 31,037,410 $ 31,112,617
=================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------- ------------- -------------- --------------
<S> <C>
Revenues:
Rental income from operating leases $ 617,184 $ 619,878 $ 1,229,505 $ 1,146,507
Earned income from direct financing leases 174,200 153,835 323,001 300,179
Interest and other income 61,913 47,836 45,228 100,778
------------- ------------- -------------- --------------
853,297 821,549 1,597,734 1,547,464
------------- ------------- -------------- --------------
Expenses:
General operating and administrative 35,920 36,552 71,996 71,261
Professional services 11,420 4,973 21,400 9,980
Management fees to related party 7,728 7,102 15,065 13,529
Real estate taxes 2,630 -- 2,630 --
State and other taxes -- 297 14,139 8,605
Depreciation and amortization 96,701 94,314 199,121 178,935
------------- ------------- -------------- --------------
154,399 143,238 324,351 282,310
------------- ------------- -------------- --------------
Income Before Equity in Earnings of
Unconsolidated Joint Ventures 698,898 678,311 1,273,383 1,265,154
Equity in Earnings of Unconsolidated
Joint Ventures 19,740 -- 28,767 --
------------- ------------- -------------- --------------
Net Income $ 718,638 $ 678,311 $ 1,302,150 $ 1,265,154
============= ============= ============== ==============
Allocation of Net Income:
General partners $ 46 $ 920 $ (978 ) $ 74
Limited partners 718,592 677,391 1,303,128 1,265,080
------------- ------------- -------------- --------------
$ 718,638 $ 678,311 $ 1,302,150 $ 1,265,154
============= ============= ============== ==============
Net Income Per Limited Partner Unit $ 0.21 $ 0.19 $ 0.37 $ 0.36
============= ============= ============== ==============
Weighted Average Number of Limited
Partner Units Outstanding 3,500,000 3,500,000 3,500,000 3,493,622
============= ============= ============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1999 1998
----------------------- ----------------------
<S> <C>
General partners:
Beginning balance $ (2,010 ) $ (428 )
Net income (978 ) (1,582 )
------------------ ------------------
(2,988 ) (2,010 )
------------------ ------------------
Limited partners:
Beginning balance 30,270,507 29,847,008
Contributions -- 854,241
Syndication costs -- (76,882 )
Net income 1,303,128 2,303,904
Distributions ($0.40 and $0.76 per
weighted average limited partner unit,
respectively) (1,399,998 ) (2,657,764 )
------------------ ------------------
30,173,637 30,270,507
------------------ ------------------
Total partners' capital $30,170,649 $30,268,497
================== ==================
</TABLE>
See accompanying notes condensed financial statements.
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
---------------- ----------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 1,449,887 $ 1,459,212
---------------- ----------------
Cash Flows from Investing Activities:
Additions to land and buildings on operating leases (25,792 ) (2,219,267 )
Investment in direct financing leases -- (877,348 )
Increase in joint ventures (526,138 ) --
Investment in other assets (117 ) (48,378 )
---------------- ----------------
Net cash used in investing activities (552,047 ) (3,144,993 )
---------------- ----------------
Cash Flows from Financing Activities:
Reimbursement of acquisition and syndication costs
paid by related parties on behalf of the Partnership (2,596 ) (35,055 )
Contributions from limited partners -- 854,241
Distributions to limited partners (1,400,000 ) (1,112,150 )
Payment of syndication costs -- (161,141 )
Other -- (10,000 )
---------------- ----------------
Net cash used in financing activities (1,402,596 ) (464,105 )
---------------- ----------------
Net Decrease in Cash and Cash Equivalents (504,756 ) (2,149,886 )
Cash and Cash Equivalents at Beginning of Period 1,839,613 4,143,327
---------------- ----------------
Cash and Cash Equivalents at End of Period $ 1,334,857 $ 1,993,441
================ ================
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Related parties paid certain acquisition costs on
behalf of the Partnership as follows: $ -- $ 34,639
================ ================
Distributions declared and unpaid at end of period $ 699,998 $ 656,250
================ ================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
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, 1999, may not be indicative
of the results that may be expected for the year ending December 31,
1999. Amounts as of December 31, 1998, 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, 1998.
Effective January 1, 1999, the Partnership adopted Statement of
Position 98-5 "Reporting on the Costs of Start-Up Activities." The
Statement requires that an entity expense the costs of start-up
activities and organization costs as they are incurred. Adoption of
this statement did not have a material effect on the Partnership's
financial position or results of operations.
2. Investment in Joint Ventures:
In February 1999, the Partnership entered into a joint venture
arrangement, CNL Portsmouth Joint Venture, with CNL Income Fund XI,
Ltd., an affiliate of the general partners, to own and lease one
restaurant property. As of June 30, 1999, the Partnership had
contributed approximately $330,500 to the joint venture and owned a
57.2% interest in the profits and losses of the joint venture.
In August 1998, the Partnership formed Columbus Joint Venture with CNL
Income Fund XII, Ltd. and CNL Income Fund XVI, Ltd., affiliates of the
general partners. During the six months ended June 30, 1999, the
Partnership made additional contributions of approximately $195,700 to
Columbus Joint Venture pay construction costs. As of June 30, 1999, the
Partnership owned a 39.93% interest in this joint venture.
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
2. Investment in Joint Ventures - Continued:
The Partnership accounts for its investments in these joint ventures
using the equity method since the Partnership shares control with
affiliates. The following presents the combined, condensed financial
information for the joint ventures at:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- ------------------
<S> <C>
Land and buildings under
an operating lease, and
construction in progress,
less accumulated depreciation $ 1,150,822 $ 875,700
Net investment in direct
financing lease 322,625 --
Accrued rental income 9,626 --
Cash 8,098 3,935
Prepaid expenses 224 --
Liabilities 20,811 477,945
Partners' capital 1,470,584 401,690
Revenue 72,969 --
Net income 62,405 --
</TABLE>
The Partnership recognized income totaling $19,740 and $28,767 for the
quarter and six months ended June 30, 1999, respectively, from these
joint ventures. As of December 31, 1998, the property owned by Columbus
Joint Venture was not operational.
3. Merger Transaction:
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to
which the Partnership would be merged with and into a subsidiary of APF
(the "Merger"). Subsequent to entering into the Merger agreement, the
general partners received a number of comments from brokers who sold
the Partnership's units concerning the loss of passive income treatment
in the event the Partnership merged with APF. On June 3, 1999, the
general partners, on behalf of the Partnership, and APF agreed that it
would be in the best interests of the Partnership and APF that APF not
attempt to acquire the Partnership in the acquisition. Notwithstanding
this agreement, representatives of APF stated that they would attempt,
depending on market conditions, seek to acquire the Partnership after
APF was listed on the New York Stock Exchange. The representatives
further noted that they would be
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
3. Merger Transaction - Continued:
willing to structure any future acquisition in a manner so that the
limited partners could retain passive income treatment most likely by
offering the limited partners an exchange offer whereby limited
partners would exchange their units of limited partnership interest for
APF shares. Therefore, in June 1999, APF entered into a termination
agreement with the general partners of the Partnership.
4. Contingencies:
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in
connection with the proposed Merger. On July 8, 1999, the plaintiffs
amended the complaint to add three additional limited partners as
plaintiffs. Additionally, on June 22, 1999, a limited partners in
certain of the CNL Income Funds served a lawsuit against the general
partners, APF and CNL Fund Advisors, Inc. and certain of its affiliates
in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend
vigorously against the claims. See Part II - Item 1. Legal Proceedings.
<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 restaurants, as well as land upon which restaurants were to be
constructed (collectively, the "Properties"), which are leased primarily to
operators of selected national and regional fast-food, family-style and casual
dining restaurant chains. The leases generally are triple-net leases, with the
lessees responsible for all repairs and maintenance, property taxes, insurance
and utilities. As of June 30, 1999, the Partnership owned 25 Properties, which
included interests in two Properties owned by joint ventures in which the
Partnership is a co-venturer.
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, 1999, 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 $30,510,000 had been used to invest
or committed for investment, either directly or through joint venture
arrangements, in 25 Properties and to pay acquisition fees and certain
acquisition expenses. Upon completion of the Partnership's acquisitions in
February 1999, the remaining net offering proceeds of approximately $300,000
were reserved for Partnership purposes.
The Partnership's primary source of capital is cash from operations
(which includes cash received from tenants, distributions from joint ventures
and interest and other income received, less cash paid for expenses). Cash from
operations was $1,449,887 and $1,459,212 for the six months ended June 30, 1999
and 1998, respectively. The decrease in cash from operations for the six months
ended June 30, 1999, as compared to the six months ended June 30, 1998, was
primarily a result of changes in the Partnership's working capital.
Other sources and uses of capital included the following during the six
months ended June 30, 1999.
In August 1998, the Partnership formed Columbus Joint Venture with CNL
Income Fund XII, Ltd. and CNL Income Fund XVI, Ltd., affiliates of the general
partners. During the six months ended June 30, 1999, the Partnership made
additional contributions of approximately $195,700 to Columbus Joint Venture to
pay property construction costs. As of June 30, 1999, the Partnership owned a
39.93% interest in this joint venture.
<PAGE>
In February 1999, the Partnership entered into a joint venture
arrangement, CNL Portsmouth Joint Venture, with CNL Income Fund XI, Ltd., an
affiliate of the general partners, to own and lease one restaurant property. As
of June 30, 1999, the Partnership had contributed approximately $330,500 to the
joint venture and owned a 57.2% interest in the profits and losses of the joint
venture.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments such as
demand deposit accounts at commercial banks, certificates of deposit and money
market accounts with less than a 30-day maturity date, pending the Partnership's
use of such funds to pay Partnership expenses or to make distributions to
partners. At June 30, 1999, the Partnership had $1,334,857 invested in such
short-term investments, as compared to $1,839,613 at December 31, 1998. The
decrease in cash and cash equivalents at June 30, 1999 was primarily
attributable to the Partnership investing in CNL Portsmouth Joint Venture and
making additional capital contributions to Columbus Joint Venture, as described
above in "Capital Resources." The funds remaining at June 30, 1999, after the
payment of distributions and other liabilities, will be used to meet the
Partnership's working capital and other needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
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.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on cash from operations, the Partnership declared distributions to limited
partners of $1,399,998 and $1,257,764 for the six months ended June 30, 1999 and
1998, respectively ($699,998 and $656,250 for the quarters ended June 30, 1999
and 1998, respectively). This represents distributions of $0.40 per unit and
$0.36 per weighted average limited partner unit for the six months ended June
30, 1999 and 1998, respectively ($0.20 and $0.19 per unit for the quarters ended
June 30, 1999 and 1998, respectively). No distributions were made to the general
partners for the quarters and six months ended June 30, 1999 and 1998. No
amounts distributed to the limited partners for the six months ended June 30,
1999 and 1998 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.
<PAGE>
Total liabilities of the Partnership, including distributions payable,
increased to $866,761 at June 30, 1999, from $844,120 at December 31, 1998,
partially as a result of an increase in rents paid in advance at June 30, 1999.
The general partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the six months ended June 30, 1999 and 1998, the Partnership
owned and leased 23 wholly owned Properties to operators of fast-food and
family-style restaurant chains. During the six months ended June 30, 1999 and
1998, the Partnership earned $1,552,506 and $1,446,686, respectively, in rental
income from operating leases and earned income from direct financing leases from
these Properties, $791,384 and $773,713 of which was earned during the quarters
ended June 30, 1999 and 1998, respectively. The increase in rental and earned
income during the quarter and six months ended June 30, 1999, as compared to the
quarter and six months ended June 30, 1998, was partially attributable to the
fact that Properties acquired during the six months ended June 30, 1998, were
operational for the full period during the six months ended June 30, 1999, as
compared to a partial period during the six months ended June 30, 1998.
The increase in rental and earned income was also partially
attributable to the fact that during the quarter and six months ended June 30,
1999, the Partnership collected and recognized as income some of the past due
rental amounts for which the Partnership had previously established an allowance
for doubtful accounts relating to the Partnership's Property in Stow, Ohio.
The increase in rental and earned income was partially offset by a
decrease due to the fact that in 1998, three tenants, filed for bankruptcy. One
of these tenants rejected the lease relating to one of the Partnership's
Properties and ceased making rental payments to the Partnership for this lease.
The Partnership will not recognize any rental and earned income from this
Property until a new tenant for the Property is located, or until the Property
is sold and the proceeds from such a sale are reinvested in an additional
Property. The Partnership has continued to receive rental payments on the two
other Properties leased by these tenants. While the tenants have not rejected or
affirmed the remaining two leases, there can be no assurance that either or both
of the leases will not be rejected in the future. The lost revenues resulting
from the one lease that was rejected, as described above, and the possible
rejection of the remaining two leases, could have an adverse effect on the
results of operations of the Partnership if the Partnership is unable to
re-lease these Properties in a timely manner. The general partners are currently
seeking either a new tenant or purchaser for the rejected Property.
During the quarter and six months ended June 30, 1999, the Partnership
owned and leased two Properties indirectly through joint venture arrangements.
In connection with these joint venture arrangements, the Partnership earned
$19,740 and $28,767 during the quarter and six months ended June 30, 1999,
respectively. The Partnership did not own any Properties through joint venture
arrangements during the quarter and six months ended June 30, 1998.
<PAGE>
During the six months ended June 30, 1999 and 1998, the Partnership
also earned $45,228 and $100,778, respectively, in interest and other income,
$61,913 and $47,836 of which was earned during the quarters ended June 30, 1999
and 1998, respectively. The decrease in interest and other income during the six
months ended June 30, 1999, is primarily attributable to and the increase in
interest and other income for the quarter ended June 30, 1999, was partially
offset by, a decrease in interest income due to a decrease in the amount of
funds invested in short-term, liquid investments due to the Partnership using
these funds for the investment in two separate joint ventures subsequent to June
30, 1998.
In addition, the decrease in interest and other income during the six
months ended June 30, 1999 was partially offset by, and the increase in interest
and other income for the quarter ended June 30, 1999, was primarily due to, the
fact that the Partnership reversed $47,146 and $15,522 in transaction costs
during the quarter and six months ended June 30, 1999, respectively. These
represented amounts that had previously been expensed related to the general
partners retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed Merger with APF, as described below. The general
partners and APF agreed that it would be in the best interest of the Partnership
that it not be acquired in the acquisition due to the limited partners' loss of
passive income in the acquisition as described below. As a result of this
decision, the general partners have agreed to reimburse the Partnership for
these costs.
Operating expenses, including depreciation and amortization expense,
were $324,351 and $282,310 for the six months ended June 30, 1999 and 1998,
respectively, $154,399 and $143,238 of which was incurred during the quarters
ended June 30, 1999 and 1998, respectively. The increase in operating expenses
during the quarter and six months ended June 30, 1999, was primarily
attributable to an increase in depreciation expense as the result of the fact
that Properties acquired during the six months ended June 30, 1998, were
operational for the full period during the quarter and six months ended June 30,
1999, as compared to a partial period during the quarter and six months ended
June 30, 1998.
The increase in operating expenses for the quarter and six months ended
June 30, 1999 was also partially due to the fact that the Partnership accrued
real estate tax expense and legal fees as a result of the fact that a tenant
filing for bankruptcy and rejecting the lease relating to its Property, as
described above. The Partnership will continue to incur certain expenses, such
as real estate taxes, maintenance, and legal fees, relating to this Property
whose lease was rejected until a replacement tenant or purchaser is located. The
Partnership is currently seeking either a replacement tenant or purchaser for
this Property.
In addition, the increase in operating expenses for the six months
ended June 30, 1999 was due to the Partnership incurring additional taxes
relating to the filing of various state tax returns during 1999.
Merger Transaction
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
Subsequent to entering into the Merger agreement, the general partners received
a number of comments from brokers who sold the Partnership's units concerning
the loss of passive income treatment in the event the
<PAGE>
Partnership merged with APF. On June 3, 1999, the general partners, on behalf of
the Partnership, and APF agreed that it would be in the best interests of the
Partnership and APF that APF not attempt to acquire the Partnership in the
acquisition. Notwithstanding this agreement, representatives of APF stated that
they would attempt, depending on market conditions, seek to acquire the
Partnership after APF was listed on the New York Stock Exchange. The
representatives further noted that they would be willing to structure any future
acquisition in a manner so that the limited partners could retain passive income
treatment most likely by offering the limited partners an exchange offer whereby
limited partners would exchange their units of limited partnership interest for
APF shares. Therefore, in June 1999, APF entered into a termination agreement
with the general partners of the Partnership.
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in connection with
the proposed Merger. On July 8, 1999, the plaintiffs amended the complaint to
add three additional limited partners as plaintiffs. Additionally, on June 22,
1999, a limited partners in certain of the CNL Income Funds served a lawsuit
against the general partners, APF and CNL Fund Advisors, Inc. and certain of its
affiliates in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend vigorously
against the claims. See Part II - Item 1. Legal Proceedings.
Year 2000 Readiness Disclosure
The Year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. As of June 30, 1999 the
Partnership did not have any information or non-information technology systems.
The general partners and certain of the affiliates of the general partners
provide all services requiring the use of information and non-information
technology systems pursuant to a management agreement with the Partnership. The
information technology system of the affiliates of the general partners consists
of a network of personal computers and servers built using hardware and software
from mainstream suppliers. The non-information technology systems of the
affiliates of the general partners are primarily facility related and include
building security systems, elevators, fire suppressions, HVAC, electrical
systems and other utilities. The affiliates of the general partners have no
internally generated programmed software coding to correct because substantially
all of the software utilized by the general partners and affiliates is purchased
or licensed from external providers. The maintenance of non-information
technology systems at the Partnership's Properties is the responsibility of the
tenants of the Properties in accordance with the terms of the Partnership's
leases.
In early 1998, the general partners and affiliates formed a Year 2000
team, for the purpose of identifying, understanding and addressing the various
issues associated with the Year 2000 problem. The Y2K Team consists of the
general partners and members from certain of the affiliates of the general
partners, including representatives from senior management, information systems,
telecommunications, legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have potential Year 2000 problems. The Y2K Team is in the
process of conducting inspections, interviews and tests to identify which of the
Partnership's systems could have a potential Year 2000 problem.
<PAGE>
The information system of the affiliates of the general partners is
comprised of hardware and software applications from mainstream suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and manufacturers to verify the Year 2000 compliance of their products. In
addition, the Y2K Team has also requested and is evaluating documentation from
other companies with which the Partnership has a material third party
relationship, including the Partnership's tenants, vendors, financial
institutions and the Partnership's 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. The Y2K Team has also requested and is evaluating documentation
from the non-information technology systems providers of the affiliates of the
general partners. Although the general partners continue to receive positive
responses from the companies with which the Partnership has third party
relationships regarding their Year 2000 compliance, the general partners cannot
be assured that the tenants, financial institutions, transfer agent, other
vendors and system providers have adequately considered the impact of the Year
2000. The general partners are not able to measure the effect on the operations
of the Partnership of any third party's failure to adequately address the impact
of the Year 2000.
The general partners and their affiliates have identified and have
implemented upgrades for certain hardware equipment. In addition, the general
partners and their affiliates have identified certain software applications
which will require upgrades to become Year 2000 compliant. The general partners
expect that all of these upgrades, as well as any other necessary remedial
measures on the information technology systems used in the business activities
and operations of the Partnership, to be completed by September 30, 1999,
although, the general partners cannot be assured that the upgrade solutions
provided by the vendors have addressed all possible Year 2000 issues. The
general partners do not expect the aggregate cost of the Year 2000 remedial
measures to be material to the results of operations of the Partnership.
The general partners and their affiliates have received certification
from the Partnership's transfer agent of its Year 2000 compliance. Due to the
material relationship of the Partnership with its transfer agent, the Y2K Team
is evaluating the Year 2000 compliance of the systems of the transfer agent and
expects to have the evaluation completed by September 30, 1999. Despite the
positive response from the transfer agent and the evaluation of the transfer
agent's system by the Y2K Team, the general partners cannot be assured that the
transfer agent has addressed all possible Year 2000 issues. In the event that
the systems of the transfer agent are not Year 2000 compliant, the general
partners and their affiliates will have to allocate resources to internally
perform the functions of the transfer agent. The general partners do not
anticipate that the additional cost of these resources would have a material
impact on the Partnership.
Based upon the progress the general partners and their affiliates have
made in addressing the Year 2000 issues and their plan and timeline to complete
the compliance program, the general partners do not foresee significant risks
associated with Year 2000 compliance at this time. The general partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership being affected by them; therefore, we have not developed a
comprehensive contingency plan. However, if the general partners and their
affiliates identify significant risks related to their Year 2000 compliance, or
if their progress deviates from the anticipated timeline, the general partners
and their affiliates will develop contingency plans as deemed necessary at that
time.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8,
1999, the plaintiffs filed an amended complaint which, in addition
to naming three additional plaintiffs, includes allegations of
aiding and abetting and conspiring to breach fiduciary duties,
negligence and breach of duty of good faith against certain of the
defendants and seeks additional equitable relief. As amended, the
caption of the case is Jon Hale, Mary J. Hewitt, Charles A. Hewitt,
Gretchen M. Hewitt Bernard J. Schulte, Edward M. and Margaret Berol
Trust, and Vicky Berol v. James M. Seneff, Jr., Robert A. Bourne,
CNL Realty Corporation, and CNL American Properties Fund, Inc., Case
No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999 against
the general partners and APF, Ira Gaines, individually and on behalf
of a class of persons similarly situated, v. CNL American Properties
Fund, Inc., James M. Seneff, Jr., Robert A. Bourne, CNL Realty
Corporation, CNL Fund Advisors, Inc., CNL Financial Corporation
a/k/a CNL Financial Corp., CNL Financial Services, Inc. and CNL
Group, Inc., Case NO. CIO-99-3796, in the Circuit Court of the Ninth
Judicial Circuit of Orange County, Florida, alleging that the
general partners breached their fiduciary duties and that APF aided
and abetted their breach of fiduciary duties in connection with the
proposed Merger. The plaintiff is seeking unspecified damages and
equitable relief.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger by and between the
Registrant and CNL American Properties Fund,
Inc. ("APF") dated March 11, 1999 (filed as
Appendix B to the Prospectus Supplement for the
Registrant, constituting a part of the
Registration Statement of APF on Form S-4, File
No. 74329)
**3.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund XVIII, Ltd. (Filed as Exhibit
3.2 to the Registrant's Registration Statement
on Form S-11, No. 33-90998-01, incorporated
herein by reference.)
**3.2 Amended and Restated Agreement of Limited
Partnership of CNL Income Fund XVIII, Ltd.
(Included as Exhibit 4.2 to Form 10-K filed with
the Securities and Exchange Commission on March
21, 1996, and incorporated herein by reference.)
**4.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund XVIII, Ltd. (Filed as Exhibit
3.2 to Registrant's Registration Statement on
Form S-11, No. 33-90998-01 incorporated herein
by reference.)
**4.2 Amended and Restated Agreement of Limited
Partnership of CNL Income Fund XVIII, Ltd.
(Included as Exhibit 4.2 to Form 10-K filed with
the Securities and Exchange Commission on March
21, 1996, and incorporated herein by reference.)
**4.3 Form of Agreement between CNL Income Fund XVII,
Ltd. and MMS Escrow and Transfer Agency, Inc.
and between CNL Income Fund XVIII, Ltd. and MMS
Escrow and Transfer Agency, Inc. relating to the
Distribution Reinvestment Plans (Filed as
Exhibit 4.4 to the Registrant's Registration
Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**5.1 Opinion of Baker & Hostetler as to the legality
of the securities being registered by CNL Income
Fund XVIII, Ltd. (Filed as Exhibit 5.2 to
Amendment No. Three to the Registrant's
Registration Statements on Form S-11, No.
33-90998, incorporated herein by reference.)
**8.1 Opinion of Baker & Hostetler regarding certain
material tax issues relating to CNL Income Fund
XVIII, Ltd. (Filed as Exhibit 8.1 to Amendment
No. Three to the Registrant's Registration
Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**8.2 Opinion of Baker & Hostetler regarding certain
material issues relating to the Distribution
Reinvestment Plan of CNL Income Fund XVIII, Ltd.
(Filed as Exhibit 8.4 to Amendment No. Three to
the Registrant's Registration Statement on Form
S-11, No. 33-90998, incorporated herein by
reference.)
8.3 Amended Opinion of Baker & Hostetler regarding
certain material issues relating to CNL Income
Fund XVIII, Ltd. (Filed as Exhibit 8.5 to
Post-Effective Amendment No. Four to the
Registrant's Registration Statement on Form
S-11, No. 33-90998, incorporated herein by
reference.)
**10.1 Management Agreement between CNL Income Fund
XVIII, Ltd. and CNL Fund Advisors, Inc.
(Included as Exhibit 10.1 to Form 10-K filed
with the Securities and Exchange Commission on
March 20, 1997, and incorporated herein by
reference.)
**10.2 Form of Joint Venture Agreement for Joint
Ventures with Unaffiliated Entities (Filed as
Exhibit 10.2 to the Registrant's Registration
Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.3 Form of Joint Venture Agreement for Joint
Ventures with Affiliated Programs (Filed as
Exhibit 10.3 to the Registrant's Registration
Statement on Form S-11, No. 33-90998,
incorporated by reference.)
**10.4 Form of Development Agreement (Filed as Exhibit
10.5 to Registrant's Registration Statement on
Form S-11, No. 33-90998, incorporated herein by
reference.)
**10.5 Form of Indemnification and Put Agreement (Filed
as Exhibit 10.6 to the Registrant's Registration
Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.6 Form of Unconditional Guarantee of Payment and
Performance (Filed as Exhibit 10.7 to the
Registrant's Registration Statement on Form
S-11, No. 33-90998, incorporated herein by
reference.)
**10.7 Form of Lease Agreement for Existing Restaurant
(Filed as Exhibit 10.8 to the Registrant's
Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.8 Form of Lease Agreement for Restaurant to be
Constructed (Filed as Exhibit 10.9 to the
Registrant's Registration Statement on Form
S-11, No. 33-90998, incorporated herein by
reference.)
**10.9 Form of Premises Lease for Golden Corral
Restaurant (Filed as Exhibit 10.10 to the
Registrant's Registration Statement on Form
S-11, No. 33-90998, incorporated herein by
reference.)
**10.10 Form of Agreement between CNL Income Fund XVII,
Ltd. and MMS Escrow and Transfer Agency, Inc.
and between CNL Income Fund XVIII, Ltd. and MMS
Escrow and Transfer Agency, Inc. relating to the
Distribution Reinvestment Plans (Filed as
Exhibit 4.4 to the Registrant's Registration
Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.11 Form of Cotenancy Agreement with Unaffiliated
Entity (Filed as Exhibit 10.12 to Amendment No.
One to the Registrant's Registration Statement
on Form S-11, No. 33-90998, incorporated herein
by reference.)
**10.12 Form of Cotenancy Agreement with Affiliated
Entity (Filed as Exhibit 10.13 to Amendment No.
One to the Registrant's Registration Statement
on Form S-11, No. 33-90998, incorporated herein
by reference.)
**10.13 Form of Registered Investor Advisor Agreement
(Filed as Exhibit 10.14 to Amendment No. One to
the Registrant's Registration Statement on Form
S-11, No. 33-90998, incorporated herein by
reference.)
10.14 Termination Agreement by and between CNL Income
Fund XVIII, Ltd. and CNL American Properties
Fund, Inc. ("APF") dated June 4, 1999
(incorporated by reference hereby to Exhibit
10.55 of Amendment No. 1 to APF's Registrations
Statement on Form S-4, File No. 333-74329 filed
with the Securities and Exchange Commission
under the Securities Act of 1933, as amended)
**previously filed
27 Financial Data Schedule (Filed herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June
30, 1999.
<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 August, 1999.
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, 1999, and its statement of
income for the six months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Income Fund XVIII, Ltd. for the six months
ended June 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,334,857
<SECURITIES> 0
<RECEIVABLES> 37,975
<ALLOWANCES> 19,797
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 23,414,657
<DEPRECIATION> 706,385
<TOTAL-ASSETS> 31,037,410
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30,170,649
<TOTAL-LIABILITY-AND-EQUITY> 31,037,410
<SALES> 0
<TOTAL-REVENUES> 1,597,734
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 324,351
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,302,150
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,302,150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,302,150
<EPS-BASIC> 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>
