FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended March 31, 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
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</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>
March 31, December 31,
1999 1998
------------------ ------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $609,684 and
$512,853 and allowance for loss on land of $ 22,779,181 $ 22,876,012
$197,466 in 1999 and 1998
Net investment in direct financing leases 5,916,821 5,937,312
Investment in joint ventures 674,082 160,395
Cash and cash equivalents 1,340,975 1,839,613
Receivables, less allowance for doubtful
accounts of $64,560 and $62,189 -- --
Prepaid expenses 11,269 3,653
Organization costs, less accumulated
amortization of $10,000 and $4,411 -- 5,589
Accrued rental income 271,200 230,999
Other assets 59,161 59,044
------------------ ------------------
$ 31,052,689 $ 31,112,617
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 35,047 $ 2,558
Distributions payable 700,000 700,000
Due to related parties 16,432 32,775
Rents paid in advance 63,099 7,351
Deferred rental income 86,102 101,436
------------------ ------------------
Total liabilities 900,680 844,120
Partners' capital 30,152,009 30,268,497
------------------ ------------------
$ 31,052,689 $ 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
March 31,
1999 1998
--------------- --------------
<S> <C>
Revenues:
Rental income from operating leases $ 612,321 $ 526,629
Earned income from direct financing leases 148,801 146,344
Interest and other income 14,939 52,942
--------------- --------------
776,061 725,915
--------------- --------------
Expenses:
General operating and administrative 36,076 34,709
Professional services 9,980 5,007
Management fees to related party 7,337 6,427
State and other taxes 14,139 8,308
Depreciation and amortization 102,420 84,621
Transaction costs 31,624 --
--------------- --------------
201,576 139,072
--------------- --------------
Income Before Equity in Earnings of Unconsolidated
Joint Ventures 574,485 586,843
Equity in Earnings of Unconsolidated Joint Ventures 9,027 --
--------------- --------------
Net Income $ 583,512 $ 586,843
=============== ==============
Allocation of Net Income:
General partners $ (1,024 ) $ (846 )
Limited partners 584,536 587,689
--------------- --------------
$ 583,512 $ 586,843
=============== ==============
Net Income Per Limited Partner Unit $ 0.17 $ 0.17
=============== ==============
Weighted Average Number of Limited Partner
Units Outstanding 3,500,000 3,486,677
=============== ==============
</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>
Quarter Ended Year Ended
March 31, December 31,
1999 1998
------------------- ------------------
<S> <C>
General partners:
Beginning balance $ (2,010 ) $ (428 )
Net income (1,024 ) (1,582 )
------------------- ------------------
(3,034 ) (2,010 )
------------------- ------------------
Limited partners:
Beginning balance 30,270,507 29,847,008
Contributions -- 854,241
Syndication costs -- (76,882 )
Net income 584,536 2,303,904
Distributions ($0.20 and $0.76 per
weighted average limited partner unit,
respectively) (700,000 ) (2,657,764 )
------------------- ------------------
30,155,043 30,270,507
------------------- ------------------
Total partners' capital $ 30,152,009 $ 30,268,497
=================== ==================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1999 1998
--------------- --------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 713,825 $ 795,443
--------------- --------------
Cash Flows from Investing Activities:
Additions to land and buildings on operating leases -- (691,344 )
Investment in direct financing lease -- (4,272 )
Investment in joint venture (509,750 )
Other (117 ) --
--------------- --------------
Net cash used in investing activities (509,867 ) (695,616 )
--------------- --------------
Cash Flows from Financing Activities:
Reimbursement of acquisition and syndication costs
paid by related parties on behalf of the Partnership (2,596 ) (9,037 )
Contributions from limited partners -- 854,241
Distributions to limited partners (700,000 ) (510,340 )
Payment of syndication costs -- (161,141 )
Other -- (10,000 )
--------------- --------------
Net cash provided by (used in) financing (702,596 ) 163,723
activities
--------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents (498,638 ) 263,550
Cash and Cash Equivalents at Beginning of Quarter 1,839,613 4,143,327
--------------- --------------
Cash and Cash Equivalents at End of Quarter $ 1,340,975 $ 4,406,877
=============== ==============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Related parties paid certain acquisition costs on behalf
of the Partnership: $ -- $ 12,519
=============== ==============
Distributions declared and unpaid at end of quarter $ 700,000 $ 601,810
=============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership) NOTES
TO CONDENSED FINANCIAL STATEMENTS Quarters
Ended March 31, 1999 and 1998
1. Significant Accounting Policies:
Basis of Presentation - The accompanying unaudited condensed financial
statements have been prepared in accordance with the instructions to
Form 10-Q and do not include all of the information and note
disclosures required by generally accepted accounting principles. The
financial statements reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods
presented. Operating results for the quarter ended March 31, 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 purchase and hold one
restaurant property. As of March 31, 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. As of December 31, 1998, the property owned by
Columbus Joint Venture was not operational. During the three months
ended March 31, 1999, the Partnership made additional contributions of
approximately $179,300 to Columbus Joint Venture. The joint venture
used the contributions to pay construction costs relating to the
property owned by the
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership) NOTES
TO CONDENSED FINANCIAL STATEMENTS Quarters
Ended March 31, 1999 and 1998
2. Investment in Joint Ventures:
joint venture. As of March 31, 1999, the Partnership owned a 39.93%
interest in this joint venture. 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>
March 31, December 31,
1999 1998
------------------- ------------------
<S> <C>
Land and buildings under
an operating lease, and
construction in progress,
less accumulated depreciation $ 1,154,978 $ 875,700
Net investment in direct
financing lease 323,424 --
Accrued rental income 904 --
Cash 16,653 3,935
Liabilities 60,618 477,945
Partners' capital 1,435,341 401,690
Revenue 25,539 --
Net income 19,895 --
</TABLE>
The Partnership recognized income totalling $9,027 for the quarter
ended March 31, 1999 from these joint ventures.
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"). As consideration for the Merger, APF has agreed to
issue 3,299,149 shares of its common stock, par value $0.01 per share
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the
price paid by APF investors in three previous public offerings, the
most recent of which was completed in December 1998. In order to assist
the general partners in evaluating the proposed merger consideration,
the general partners retained Valuation Associates, a nationally
recognized real estate appraisal firm, to appraise the Partnership's
restaurant property portfolio. Based on Valuation Associates'
appraisal, the Partnership's property portfolio and other
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
3. Merger Transaction - Continued:
assets were valued on a going concern basis (meaning the Partnership
continues unchanged) at $32,493,818 as of December 31, 1998. Legg Mason
Wood Walker, Incorporated has rendered a fairness opinion that the APF
Share consideration, payable by APF, is fair to the Partnership from a
financial point of view. The APF Shares are expected to be listed for
trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and, therefore, if such listing is
accomplished, the APF Shares would be freely tradable at the option of
the former limited partners. At a special meeting of the partners that
is expected to be held in the third quarter of 1999, limited partners
holding in excess of 50% of the Partnership's outstanding limited
partnership interests must approve the Merger prior to consummation of
the transaction. If the limited partners at the special meeting approve
the Merger, APF will own the properties and other assets of the
Partnership. The general partners intend to recommend that the limited
partners of the Partnership approve the Merger. In connection with
their recommendation, the general partners will solicit the consent of
the limited partners at the special meeting. If the limited partners
reject the Merger, the Partnership will bear the portion of the
transaction costs based upon the percentage of "For" votes and the
general partners will bear the portion of such transaction costs based
upon the percentage of "Against" votes and abstentions.
On May 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in
connection with the proposed Merger (see Part II - Item 1. Legal
Proceedings). The general partners and APF believe that the lawsuit is
without merit and intend to defend vigorously against the claims.
Because the lawsuit was so recently filed, it is premature to further
comment on the lawsuit at this time.
<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 March 31, 1999, the Partnership owned 25 Properties, which
included interests in two Properties owned by joint ventures 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 March 31, 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 $30,513,600 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 $286,400
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 $713,825 and $795,443 for the quarters ended March 31, 1999 and
1998, respectively. The decrease in cash from operations for the quarter ended
March 31, 1999, as compared to the quarter ended March 31, 1998, is primarily a
result of changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
quarter ended March 31, 1999.
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 purchase and hold one restaurant property.
As of March 31, 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.
<PAGE>
Liquidity and Capital Resources - Continued
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. As of December 31, 1998, the property owned by Columbus Joint Venture
was not operational. During the three months ended March 31, 1999, the
Partnership made additional contributions of approximately $179,300 to Columbus
Joint Venture. The joint venture used the contributions to pay construction
costs relating to the property owned by the joint venture. As of March 31, 1999,
the Partnership owned a 39.93% interest in this joint venture.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to partners. At March 31, 1999, the Partnership had $1,340,975
invested is such short-term investments, as compared to $1,839,613 at December
31, 1998. The decrease in cash and cash equivalents at March 31, 1999 is
primarily attributable to the Partnership using net offering proceeds to enter
into CNL Portsmouth Joint Venture and making additional capital contributions to
Columbus Joint Venture, as described above in "Liquidity and Capital Resources."
The funds remaining at March 31, 1999, after the payment of distributions and
other liabilities, will be used to meet the Partnership's working capital and
other needs.
Total liabilities of the Partnership, including distributions payable,
increased to $900,680 at March 31, 1999, from $844,120 at December 31, 1998,
partially as a result of an increase in rents paid in advance at March 31, 1999.
Based on cash from operations, the Partnership declared distributions
to limited partners of $700,000 and $601,810 for the quarters ended March 31,
1999 and 1998, respectively. This represents distributions of $0.20 per unit and
$0.17 per weighted average limited partner unit for the quarters ended March 31,
1999 and 1998, respectively. No distributions were made to the general partners
for the quarters ended March 31, 1999 and 1998. No amounts distributed to the
limited partners for the quarters ended March 31, 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.
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.
<PAGE>
Liquidity and Capital Resources - Continued
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").
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. APF has agreed to issue shares of its
common stock, par value $0.01 per share (the "APF Shares"), as consideration for
the Merger. APF has agreed to issue 3,299,149 APF Shares which, for the purposes
of valuing the merger consideration, have been valued by APF at $10.00 per APF
Share, the price paid by APF investors in three previous public offerings, the
most recent of which was completed in December 1998. In order to assist the
general partners in evaluating the proposed merger consideration, the general
partners retained Valuation Associates, a nationally recognized real estate
appraisal firm, to appraise the Partnership's restaurant property portfolio.
Based on Valuation Associates' appraisal, the Partnership's property portfolio
and other assets were valued on a going concern basis (meaning the Partnership
continues unchanged) at $32,493,818 as of December 31, 1998. Legg Mason Wood
Walker, Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a financial point
of view. The APF Shares are expected to be listed for trading on the New York
Stock Exchange concurrently with the consummation of the Merger, and therefore,
if such listing is accomplished, the APF Shares would be freely tradable at the
option of the former limited partners. At a special meeting of the partners that
is expected to be held in the third quarter of 1999, limited partners holding in
excess of 50% of the Partnership's outstanding limited partnership interests
must approve the Merger prior to consummation of the transaction. If the limited
partners at the special meeting approve the Merger, APF will own the Properties
and other assets of the Partnership. The general partners intend to recommend
that the limited partners of the Partnership approve the Merger. In connection
with their recommendation, the general partners will solicit the consent of the
limited partners at the special meeting. If the limited partners reject the
Merger, the Partnership will bear the portion of the transaction costs based
upon the percentage of "For" votes and the general partners will bear the
portion of such transaction costs based upon the percentage of "Against" votes
and abstentions.
On May 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in connection with
the proposed Merger (see Part II - Item 1. Legal Proceedings). The general
partners and APF believe that the lawsuit is without merit and intend to defend
vigorously against the claims. Because the lawsuit was so recently filed, it is
premature to further comment on the lawsuit at this time.
Results of Operations
During the quarter ended March 31, 1998, the Partnership owned and
leased 22 wholly owned Properties, and during the quarter ended March 31, 1999,
the Partnership owned and leased 23 wholly owned Properties to operators of
fast-food and family-style restaurant chains. In connection therewith, during
the quarters ended March 31, 1999 and 1998, the Partnership earned $761,122 and
$672,973, respectively, in rental income from operating leases and earned
<PAGE>
Results of Operations - Continued
income from direct financing leases from these Properties. The increase in
rental and earned income during the quarter ended March 31, 1999, as compared to
the quarter ended March 31, 1998, is primarily attributable to the acquisition
of an additional Property subsequent to March 31, 1998, and the fact that a
Property acquired during the quarter ended March 31, 1998, was operational for
the full quarter in March 1999, as compared to a partial quarter in 1998.
In 1998, three tenants, Boston Chicken Inc., Finest Foodservice,
L.L.C., and WMJ Texas, Inc., filed for bankruptcy. In connection therewith, one
of the tenants rejected the lease relating to one of the Partnership's
Properties. 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 quarters ended March 31, 1999 and 1998, the Partnership also
earned $14,939 and $52,942, respectively, in interest and other income. The
decrease in interest and other income during the quarter ended March 31, 1999,
is primarily attributable to the decrease in the amount of funds invested in
short-term, liquid investments due to the Partnership using these funds for
payment after March 31, 1998, of construction costs relating to several
Properties, the acquisition of an additional Property, and the investment in two
separate joint ventures subsequent to March 31, 1998.
During the quarter ended March 31, 1999, the Partnership owned and
leased two Properties indirectly through joint venture arrangements. In
connection therewith, the Partnership earned $9,027 attributable to net income
earned by these joint ventures, during the quarter ended March 31, 1999. The
Partnership did not own any Properties indirectly during the three months ended
March 31, 1998.
Operating expenses, including depreciation and amortization expense,
were $201,576 and $139,072 for the quarters ended March 31, 1999 and 1998,
respectively. The increase in operating expenses during the quarter ended March
31, 1999, as compared to the quarter ended March 31, 1998, is primarily
attributable to an increase in depreciation expense as the result of the
acquisition of an additional Property subsequent to March 31, 1998, and the fact
that a Property acquired during the quarter ended March 31, 1998, was
operational for the full quarter in 1999, as compared to a partial quarter in
March 1998. Operating expenses also increased during the quarter ended March 31,
1999, as a result of an increase in management fees as a result of the increase
in rental revenues, as described above, and the Partnership incurring additional
taxes relating to the filing of various state tax returns during 1999.
<PAGE>
Results of Operations - Continued
The increase in operating expenses for the quarter ended March 31,
1999, is also partially due to the fact that the Partnership incurred $31,624 in
transaction costs related to the general partners retaining financial and legal
advisors to assist them in evaluating and negotiating the proposed Merger with
APF, as described above in "Liquidity and Capital Resources." If the limited
partners reject the Merger, the Partnership will bear the portion of the
transaction costs based upon the percentage of "For" votes and the general
partners will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
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. The Partnership does not have any
information or non-information technology systems. The general partners and
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
committee (the "Y2K 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 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.
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
<PAGE>
Year 2000 Readiness Disclosure - Continued
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 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 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 would 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 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, they 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 5, 1999, four limited partners in several of the CNL
Income Funds filed a lawsuit, Jon Hale, Mary J. Hewitt,
Charles A. Hewitt, and Gretchen M. Hewitt v. James M. Seneff,
Jr., Robert A. Bourne, CNL Realty Corporation, and CNL
American Properties Fund, Inc., Case No. CIO-99-0003561, in
the Circuit Court of the Ninth Judicial Circuit of Orange
County, Florida, alleging that the Messrs. Seneff and Bourne
and CNL Realty Corporation, as general partners of the CNL
Income Funds, breached their fiduciary duties and violated the
provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed acquisition of the
CNL Income Funds by APF. The plaintiffs are seeking
unspecified damages and equitable relief. The general partners
and APF believe that the lawsuit is without merit and intend
to defend vigorously against such claims. Because the lawsuit
was so recently filed, it is premature to further comment on
the lawsuit at this time.
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.
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.)
<PAGE>
**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.)
<PAGE>
**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.)
27 Financial Data Schedule (Filed herewith.)
(b) Reports on Form 8-K
Current Report on Form 8-K dated March 11, 1999 and
filed March 12, 1999, describing the proposed Merger
of the Partnership with and into a subsidiary of CNL
American Properties Fund, Inc.
<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 14th day of May, 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 March 31, 1999, and its statement of
income for the three months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund XVIII, Ltd. for the three months
ended March 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,340,975
<SECURITIES> 0
<RECEIVABLES> 64,560
<ALLOWANCES> 64,560
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 23,388,865
<DEPRECIATION> 609,684
<TOTAL-ASSETS> 31,052,689
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30,152,009
<TOTAL-LIABILITY-AND-EQUITY> 31,052,689
<SALES> 0
<TOTAL-REVENUES> 776,061
<CGS> 0
<TOTAL-COSTS> 201,576
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 583,512
<INCOME-TAX> 0
<INCOME-CONTINUING> 583,512
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 583,512
<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>
