UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-90998-01
CNL INCOME FUND XVIII, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3295394
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 422-1574
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated byreference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $10 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
The Form 10-K of CNL Income Fund XVIII, Ltd. for the year ended
December 31, 1997 is being amended to provide additional disclosure under Item
1. Business, Item 2. Properties and Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Capital Resources, Short-Term
Liquidity and Long-Term Liquidity.
PART I
Item 1. Business
CNL Income Fund XVIII, Ltd. (the "Registrant" or the "Partnership") is
a limited partnership which was organized pursuant to the laws of the State of
Florida on February 10, 1995. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on September 20, 1996, the
Partnership offered for sale up to $35,000,000 of limited partnership interests
(the "Units") (3,500,000 Units at $10 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
August 11, 1995. As of December 31, 1997, the Partnership had accepted
subscriptions for 3,500,000 Units and had received subscription proceeds for
3,414,576 Units, representing $34,145,759 of capital contributed by limited
partners. The remaining proceeds of $854,241, representing the remaining 85,424
Units, were received during the period January 1, 1998 through February 6, 1998.
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of national and regional fast-food, family-style and casual dining
restaurant chains (the "Restaurant Chains"). As of December 31, 1997, net
proceeds to the Partnership from its offering of Units, after deduction of
organizational and offering expenses, totalled $30,022,641. During the year
ended December 31, 1996, the Partnership acquired two Properties. As of December
31, 1997, the Partnership had invested approximately $27,645,000 of the proceeds
described above in 22 Properties (one of which was under construction as of
December 31, 1997), and to pay acquisition fees and certain acquisition
expenses, leaving approximately $2,377,700 of net offering proceeds available
for investment in Properties. The Partnership will use the remaining net
offering proceeds, together with proceeds from the sale of Units subsequent to
December 31, 1997, to acquire additional Properties, to pay acquisition fees and
acquisition expenses and to pay expenses relating to the sale of Units. The
Properties are leased on a triple-net basis with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities.
The Partnership's primary investment objectives are to preserve,
protect and enhance Partnership capital, while providing (i) cash distributions
commencing in the initial year
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of Partnership operations in amounts which exceed current taxable income (due to
the fact that depreciation deductions attributable to the Properties reduce
taxable income even though depreciation is not a cash expenditure); (ii) an
anticipated minimum level of income through the long-term rental of Properties
to selected operators of certain national and regional fast-food, family-style
and casual dining restaurant chains; (iii) additional income and protection
against inflation by participation in certain restaurant gross sales through the
receipt of percentage rent payments and, typically, automatic increases in the
minimum annual rent; and (iv) capital appreciation through the potential
increase in value of the Properties.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. In general, the General Partners plan to seek the sale of the
Properties commencing seven to 12 years after their acquisition. The Partnership
has no obligation to sell all or any portion of a Property at any particular
time, except as may be required under property purchase options granted to
certain lessees.
2
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Description of Leases
The leases of the Properties owned by the Partnership as of December
31, 1997, provide for initial terms ranging from 15 to 26 years (the average
being 17 years) and expire between 2012 and 2023. All leases are on a triple-net
basis, with the lessees responsible for all repairs and maintenance, property
taxes, insurance and utilities. The leases for the Properties that were
operational as of December 31, 1997, provide for minimum base annual rental
payments (payable in equal monthly installments) ranging from approximately
$60,400 to $243,600. The majority of the leases provide for percentage rent
based on sales in excess of a specified amount. In addition, the majority of the
leases provide that, commencing in specified lease years (generally the sixth
lease year), the annual base rent required under the terms of the lease will
increase.
Generally, the leases provide for two to five -year renewal options
subject to the same terms and conditions as the initial lease. Certain lessees
also have been granted options to purchase the Properties after a specified
portion of the lease term has elapsed. The option purchase price is equal to the
Partnership's original cost of the Property (including acquisition costs), plus
a specified percentage or the Property's fair market value at the time the
purchase option is exercised, whichever is greater.
3
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The leases also generally provide that, in the event the Partnership
wishes to sell the Properties, the Partnership first must offer the lessees the
right to purchase the Properties on the same terms and conditions, and for the
same price, as any offer which the Partnership has received for the sale of the
Properties.
Major Tenants
During 1997, five lessees of the Partnership, Golden Corral
Corporation, Foodmaker, Inc., Tiffany, L.L.C., IHOP Properties, Inc. and
Platinum Rotisserie, L.L.C., each contributed more than ten percent of the
Partnership's total rental income. As of December 31, 1997, Golden Corral
Corporation and Foodmaker, Inc. were each the lessees under leases relating to
four restaurants, Tiffany, L.L.C. was the lessee under a lease relating to one
restaurant, IHOP Properties, Inc. was the lessee under leases relating to two
restaurants and Platinum Rotisserie, L.L.C. was the lessee under a lease
relating to one restaurant. In addition, four Restaurant Chains, Golden Corral
Family Steakhouse Restaurants ("Golden Corral"), Jack in the Box, Boston Market,
and IHOP each accounted for more than ten percent of the Partnership's total
rental income for 1997. Because the Partnership's first Property was not
purchased until December 1996, the foregoing information regarding the lessees
and Restaurant Chains which contributed a significant amount of the
Partnership's total rental income during 1997, may or may not be representative
of the lessees and Restaurant Chains which will account for more than ten
percent of the Partnership's rental income during 1998 and subsequent years.
Because the Partnership has not completed its acquisition of Properties as yet,
it is not possible to determine which lessees or Restaurant Chains will
contribute more than ten percent of the Partnership's rental income during 1998
and subsequent years. In the event that certain lessees or Restaurant Chains
contribute more than ten percent of the Partnership's rental income in the
future years, any failure of such lessees or Restaurant Chains could materially
adversely affect the Partnership's income. As of December 31, 1997, no single
tenant or group of affiliated tenants lease Properties with an aggregate
carrying value in excess of 20 percent of the anticipated total assets of the
Partnership upon completion of the offering of Units.
Management Services
CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain services relating to the management of the Partnership and its
Properties pursuant to a management agreement with the Partnership. Under this
agreement, CNL Fund Advisors, Inc. is responsible for collecting rental
payments, inspecting the Properties and the tenants' books and records,
assisting the Partnership in responding to tenant inquiries and notices and
providing information to the Partnership about the status of the leases and the
Properties. CNL Fund Advisors, Inc. also assists the General Partners in
negotiating the leases. For these services, the Partnership has agreed to pay
CNL Fund Advisors, Inc. an annual fee of one percent of the sum of gross
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rental revenues from Properties wholly owned by the Partnership, plus the
Partnership's allocable share of gross revenues of joint ventures in which the
Partnership is a co-venturer, but not in excess of competitive fees for
comparable services.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who may
also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 1997, the Partnership owned 22 Properties . Of the
22 Properties, 20 Properties are owned by the Partnership in fee simple and for
the remaining two Properties, the Partnership owns the building improvements.
Reference is made to the Schedule of Real Estate and Accumulated Depreciation
filed with this report for a listing of the Properties and their respective
costs, including acquisition fees and certain acquisition expenses.
The Partnership is negotiating to acquire additional Properties, but as
of March 13, 1998, had not acquired any such Properties.
Description of Properties
Land. As of December 31, 1997, the Partnership's Property sites ranged
from approximately 27,000 to 120,400 square feet depending upon building size
and local demographic factors. Sites purchased or to be purchased by the
Partnership are or will be in locations zoned for commercial use which have been
reviewed for traffic patterns and volume.
The following table lists the Properties owned by the Partnership as of
December 31, 1997 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation filed with this report.
State Number of Properties
Arizona 1
California 2
Florida 1
Georgia 1
Illinois 1
Kentucky 1
Maryland 1
Minnesota 1
North Carolina 3
Nevada 1
New York 1
Ohio 1
Tennessee 1
Texas 6
------
TOTAL PROPERTIES: 22
======
Buildings. The Properties owned by the Partnership as of December 31,
1997, currently include or will include a building that is one of a Restaurant
Chain's approved designs. The buildings to be acquired or constructed generally
will be rectangular and constructed from various combinations of stucco, steel,
wood, brick and tile. Building sizes range from approximately 2,200 to 9,700
square feet. All buildings on Properties acquired or to be acquired by the
Partnership will be freestanding and surrounded by paved parking areas.
Buildings will be suitable for conversion to various uses, although
modifications may be required prior to use for other than restaurant operations.
As of December 31, 1997, the Partnership had no plans for renovation of the
Properties. Depreciation expense is computed for buildings and improvements
using the straight line method using a depreciable life of 40 years for federal
income tax purposes. As of December 31, 1997, the aggregate cost basis of the
Properties owned by the Partnership for federal income tax purposes was
$26,322,788.
The following table lists the Properties owned by the Partnership as of
December 31, 1997 by Restaurant Chain.
Restaurant Chain Number of Properties
Arby's 1
Black-eyed Pea 1
Boston Market 4
Burger King 1
Chevy's Fresh Mex 1
Golden Corral 5
Ground Round 1
IHOP 2
Jack in the Box 4
On the Border 1
Wendy's 1
-------
TOTAL PROPERTIES 22
=======
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. Generally, a
lessee is required or is expected to be required, under the terms of its lease
agreement, to make such capital expenditures as may be reasonably necessary to
refurbish buildings, premises, signs and equipment so as to comply with the
lessee's obligations, if applicable, under the franchise agreement to reflect
the current commercial image of its Restaurant Chain. These capital expenditures
are required to be paid by the lessee during the term of the lease. The terms of
the leases of the Properties owned by the Partnership are described in Item 1.
Business Leases.
As of December 31, 1997 and 1996, all of the Properties were occupied.
The following is a schedule of the average annual rent for each of the years
ended December 31:
<TABLE>
<CAPTION>
For the Period
February 10, 1995
Year Ended Year Ended (Date of Inception)
December 31, December 31, through December 31,
1997 1996 1995
---------------- ---------------- -----------------------
<S> <C>
Rental Revenues $1,290,621 $1,373 $ -
Properties 22 2 -
Average Rent Per Unit $58,665 $687 -
</TABLE>
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The following is a schedule of lease expirations for leases in place as
of December 31, 1997 for each of the ten years beginning with 1998 and
thereafter.
<TABLE>
<CAPTION>
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
<S> <C>
1998 - - -
1999 - - -
2000 - - -
2001 - - -
2002 - - -
2003 - - -
2004 - - -
2005 - - -
2006 - - -
2007 - - -
Thereafter 22 1,756,439 100.00%
-------- --------------- --------------
Totals 22 1,756,439 100.00%
======== =============== ==============
</TABLE>
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants, as of December 31, 1997 (See Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Description of Leases.
Golden Corral Corporation leases four Golden Corral restaurants. The
initial term of each lease is 15 years (expiring in 2012) and the average
minimum base annual rent is approximately $160,300 (ranging from approximately
$148,400 to $170,400).
Foodmaker, Inc. leases four Jack in the Box restaurants. The initial
term of each lease is 18 years (expiring in 2015) and the average minimum base
annual rent is approximately $112,100 (ranging from approximately $77,900 to
$132,200).
Tiffany, L.L.C. leases one Golden Corral restaurant. The initial term
of the lease is 20 years (expiring in 2017) and the minimum base annual rent is
approximately $189,700.
IHOP Properties, Inc. leases two IHOP Restaurants. The initial term of
each lease is 20 years (expiring in 2017) and the average minimum base annual
rent is approximately $137,200 (ranging from approximately $130,200 to
$144,100).
Platinum Rotisserie, L.L.C. leases one Boston Market restaurant. The
initial term of the lease is 15 years (expiring in 2012) and the minimum base
annual rent is approximately $122,600.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned
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restaurants, restaurants which are part of local or regional chains, and
restaurants in other well-known national chains, including those offering
different types of food and service.
At the time the Partnership elects to dispose of its Properties, other
than as a result of the exercise of tenant options to purchase Properties, the
Partnership will be in competition with other persons and entities to locate
purchasers for its Properties.
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PART II
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Partnership 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 were to be constructed, 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 lessees generally
responsible for all repairs and maintenance, property taxes, insurance and
utilities. The Partnership's primary investment objectives are to preserve,
protect and enhance Partnership capital, while providing (i) cash distributions
commencing in the initial year of Partnership operations in amounts which exceed
current taxable income (due to the fact that depreciation deductions
attributable to the Properties reduce taxable income even though depreciation is
not a cash expenditure); (ii) an anticipated minimum level of income through the
long-term rental of Properties to selected operators of certain national and
regional fast-food, family-style and casual dining Restaurant Chains; (iii)
additional income and protection against inflation by participation in certain
restaurant gross sales through the receipt of percentage rent payments and,
typically, automatic increases in the minimum annual rent; and (iv) capital
appreciation through the potential increase in value of the Properties.
As of December 31, 1997, the Partnership owned 22 Properties, one of
which was under construction.
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. As of December 31, 1997, the Partnership had
accepted subscriptions for 3,500,000 Units and had received subscription
proceeds for 3,414,576 Units, representing $34,145,759 of capital contributed by
Limited Partners. The remaining proceeds of $854,241, representing the remaining
85,424 Units were received during the period January 1, 1998 through February 6,
1998.
10
<PAGE>
As of December 31, 1997, net proceeds to the Partnership from its
offering of Units, after deduction of organizational and offering expenses,
totalled $30,022,641. During 1996, the Partnership invested or committed for
investment approximately $2,960,800 of such proceeds in two Properties and to
pay acquisition fees and certain acquisition expenses. During 1997, the
Partnership completed construction of the Property under construction in 1996
and acquired 20 additional Properties (one of which was under construction as of
December 31, 1997). As a result of the above transactions, as of December 31,
1997, the Partnership had invested approximately $27,645,000 of the net proceeds
in 22 Properties, and to pay acquisition fees and miscellaneous acquisition
expenses, leaving approximately $2,377,700 of net offering proceeds available
for investment in Properties. As of December 31, 1997, the Partnership had paid
$1,536,559 in acquisition fees to an affiliate of the General Partners.
The building under construction at December 31, 1997, became
operational in February 1998. In connection with the purchase of this Property,
the Partnership, as lessor entered into a long-term lease agreement.
As of March 13, 1998, the Partnership had sold a total of 3,500,000
Units, for an aggregate of $35,000,000 in gross offering proceeds and had
invested or committed for investment approximately $28,056,645 of such proceeds
in 22 Properties and to pay acquisition fees and certain acquisition expenses,
leaving approximately $2,746,400 in net offering proceeds available for
investment in Properties. As of March 13, 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 March 13, 1998, had not acquired any such Properties. The
Partnership will use the remaining net offering proceeds, to acquire additional
Properties, to pay acquisition expenses and in the discretion of the General
Partners, to create operating reserves.
Currently, the Partnership's primary source of capital is cash from
operations (which includes cash received from tenants and interest received,
less cash paid for expenses). Cash from operations was $1,361,610 and $27,146
for the years ended December 31, 1997 and 1996. The increase in cash from
operations for the year ended December 31, 1997, as compared to the year ended
December 31, 1996, is primarily a result of changes in income and expenses as
described in "Results of Operations" below and changes in the Partnership's
working capital.
None of the Properties owned or to be acquired by the Partnership is or
may be encumbered. Subject to certain restrictions on borrowing, however, the
Partnership may borrow funds but will not encumber any of the Properties in
connection with any such borrowing. The Partnership will not borrow for the
purpose of returning capital to the Limited Partners or under arrangements that
would make the Limited Partners liable to
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creditors of the Partnership. The General Partners further have represented that
they will use their reasonable efforts to structure any borrowing so that it
will not constitute "acquisition indebtedness" for federal income tax purposes
and also will limit the Partnership's outstanding indebtedness to three percent
of the aggregate adjusted tax basis of its Properties. Affiliates of the General
Partners from time to time incur certain expenses on behalf of the Partnership
for which the Partnership reimburses the affiliates without interest.
Until Properties are acquired by the Partnership, all Partnership
proceeds are held in short-term, highly liquid investments such as demand
deposit accounts at commercial banks, CDs and money market accounts with less
than a 30-day maturity date, 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
December 31, 1997, the Partnership had $4,143,327 invested in such short-term
investments, as compared to $5,371,325 at December 31, 1996. The decrease in the
amount invested in short-term investments is primarily a result of the payment
during 1997, of costs relating to the Property that was under construction at
December 31, 1996 and the acquisition of additional Properties during 1997. As
of December 31, 1997, the average interest rate earned on the rental income
deposited in demand deposit accounts at commercial banks was approximately five
percent annually. The funds remaining at December 31, 1997 will be used to pay
construction costs relating to several Properties that were incurred but unpaid
at December 31, 1997, to purchase and develop additional Properties, to pay
acquisition costs, to pay distributions, to meet the Partnership's working
capital and other needs and, in the General Partners' discretion, to create cash
reserves.
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 generate cash flow in excess
of operating expenses. Partnership net income is expected to increase in 1998,
as rental income increases due to the acquisition of additional Properties
during 1998 and the fact that Properties acquired during 1997 will earn rental
income for a full year in 1998, as compared to a partial year in 1997.
Accordingly, the General Partners believe that the anticipated decrease in the
Partnership's liquidity in 1998, due to its investment of the remaining net
offering proceeds in additional
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Properties and the payment of construction costs relating to several Properties
incurred but unpaid at December 31, 1997, will not have an adverse effect on the
Partnership's operations during 1998.
Due to low operating expenses, ongoing cash flow from rental income
obtained from Properties after they are acquired and the fact that the
Partnership will not enter into a commitment to purchase a Property until
sufficient cash is available for such purchase, the General Partners do not
believe that working capital reserves are necessary at this time. In addition,
because all of the leases for the Partnership's Properties are on a triple-net
basis, it is not anticipated that a permanent reserve for maintenance and
repairs is necessary at this time. To the extent, however, that the Partnership
has insufficient funds for such purposes, the General Partners will contribute
to the Partnership an aggregate amount of up to one percent of the offering
proceeds for maintenance and repairs. The General Partners have the right to
cause the Partnership to maintain reserves if, in their discretion, they
determine such reserves are required to meet the Partnership's working capital
needs.
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 the 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 the Limited Partners of $1,310,885 and $57,846, respectively,
for the years ended December 31, 1997 and 1996 (representing distributions of
$0.57 and $0.11 per Unit, respectively, based on the weighted average number of
Units outstanding during the period the Partnership was operational). No amounts
distributed or to be distributed to the Limited Partners for the years ended
December 31, 1997 and 1996, 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, although some Limited Partners, in
accordance with their election, receive monthly distributions, for an annual
fee.
During the years ended December 31, 1997 and 1996, and the period
February 10, 1995 (date of inception) through December 31, 1995, affiliates of
the General Partners incurred on behalf of the Partnership $211,216, $285,858
and $196,174, respectively, for certain organizational and offering expenses. In
addition, during 1997 and 1996, affiliates incurred $134,138 and $18,036,
respectively, for certain acquisition expenses and $44,166 and $893,
respectively, for certain operating expenses. As of December 31, 1997 and 1996,
the Partnership owed $118,231 and $83,889, respectively, to related parties for
such amounts, fees and other reimbursements. As of March 13, 1998, the
Partnership had reimbursed the affiliates all such amounts. Amounts payable
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to other parties, including distributions payable, increased to $1,629,719 at
December 31, 1997, as compared to $160,222 at December 31, 1996, primarily as a
result of an increase in distributions payable to Limited Partners and an
increase in construction costs payable at December 31, 1997. 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
No significant operations commenced until the Partnership received and
released from escrow the minimum offering proceeds of $1,500,000 on October 11,
1996.
The Partnership owned and leased two Properties in 1996 and 22
Properties in 1997 (including one Property which was under construction at
December 31, 1997), which are subject to long-term triple-net leases. The leases
of the Properties provide for minimum base annual rental payments (payable in
monthly installments) ranging from approximately $60,400 to $243,600. The
majority of the leases provide for percentage rent based on sales in excess of a
specified amount. In addition, the majority of the leases provide that,
commencing in specified lease years (generally the sixth lease year), the annual
base rent required under the terms of the lease will increase. For a further
description of the Partnership's leases and Properties, see Item 1. Business
Leases and Item 2. Properties.
During the years ended December 31, 1997 and 1996, the Partnership
earned $1,290,621 and $1,373, respectively, in rental income from operating
leases and earned income from direct financing leases. The increase in rental
and earned income during 1997, as compared to 1996, is primarily attributable to
the acquisition of additional Properties subsequent to December 31, 1996.
Because the Partnership did not commence significant operations until it
received the minimum offering proceeds on October 11, 1996, and has not yet
acquired all of its Properties, Partnership revenues for the year ended December
31, 1997, represent only a portion of revenues which the Partnership is expected
to earn during the full year in which the Partnership's Properties are
operational.
During at least one of the years ended December 31, 1997 and 1996, six
lessees, or group of affiliated lessees, of the Partnership, Golden Corral
Corporation, Foodmaker, Inc., Tiffany, L.L.C., IHOP Properties, Inc., Platinum
Rotisserie, L.L.C. and Carrols Corporation each contributed more than ten
percent of the Partnership's total rental income. As of December 31, 1997,
Golden Corral Corporation and Foodmaker, Inc. were each the lessee under leases
relating to four restaurants, Tiffany, L.L.C. was the lessee under a lease
relating to one restaurant, IHOP Properties, Inc. was the lessee under leases
relating to two
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restaurants, Platinum Rotisserie, L.L.C. was the lessee under a lease relating
to one restaurant and Carrols Corporation was the lessee under a lease relating
to one restaurant. In addition, during at least one of the years ended December
31, 1997 and 1996, five Restaurant Chains, Golden Corral, Jack in the Box,
Boston Market, IHOP and Burger King each accounted for more than ten percent of
the Partnership's total rental income. Because the Partnership's first Property
was not purchased until December 1996, the foregoing information regarding the
lessees and Restaurant Chains which contributed a significant amount of the
Partnership's total rental income during the years ended December 31, 1997 and
1996, may or may not be representative of the lessees and Restaurant Chains
which will account for more than ten percent of the Partnership's rental income
during 1998 and subsequent years. Because the Partnership has not completed its
acquisition of Properties as yet, it is not possible to determine which lessees
or Restaurant Chains will contribute more than ten percent of the Partnership's
total rental income during 1998 and subsequent years. In the event that certain
lessees or Restaurant Chains contribute more than ten percent of the
Partnership's rental income in future years, any failure of such lessees or
Restaurant Chains could materially adversely affect the Partnership's income.
During the years ended December 31, 1997 and 1996, the Partnership
earned $162,621 and $30,241 in interest income from investments in money market
accounts or other short-term, highly liquid investments. The increase in
interest income during 1997, as compared to 1996, is primarily attributable to
the increase in the amount of funds invested in short-term liquid investments as
a result of additional Limited Partner capital contributions during 1997. As of
December 31, 1997, the majority of these funds had been invested in Properties;
therefore, the Partnership expects interest income to decrease in 1998.
Operating expenses, including depreciation and amortization expense,
were $298,482 and $4,704 for the years ended December 31, 1997 and 1996. The
increase in operating expenses during 1997 is primarily attributable to an
increase in depreciation expenses as the result of the acquisition of additional
Properties during 1997. Operating expenses also increased during 1997, as
compared to 1996, as a result of an increase in administrative expenses
associated with operating the Partnership and its Properties and an increase in
management fees as a result of the increase in rental revenues. The dollar
amount of operating expenses is expected to increase, and the amount of general
operating and administrative expenses as a percentage of total revenues is
expected to decrease, in 1998 as the Partnership acquires additional Properties
and the Property under construction becomes operational.
The General Partners of the Partnership are in the process of assessing
and addressing the impact of the year 2000 on their computer package software.
The hardware and built-in software are believed to be year 2000 compliant.
Accordingly, the General Partners do not expect this matter to materially impact
how the Partnership conducts business nor its current or future results of
operations or financial position.
The Partnership's leases as of December 31, 1997, and the leases the
Partnership expects to enter into, are or are expected to be on a triple-net
basis and contain provisions that management believes will mitigate the adverse
effect of inflation. Such provisions include clauses requiring the payment of
percentage rent based on certain restaurant sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease. Management expects that increases in restaurant sales volumes due to
inflation and real sales growth should result in an increase in rental income
over time. Continued inflation also may cause capital appreciation of the
Partnership's Properties. Inflation and changing prices, however, also may have
an adverse impact on the sales of the restaurants and on potential capital
appreciation of the Properties.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 29th day of
July, 1999.
CNL INCOME FUND XVIII, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
---------------------------
JAMES M. SENEFF, JR.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C>
/s/ Robert A. Bourne President, Treasurer and Director July 29, 1999
- -------------------------- (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Oficer and Director July 29, 1999
- -------------------------- (Principal Executive Officer)
James M. Seneff, Jr.
</TABLE>
