FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended September 30, 2002
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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
0-15666
---------------------------------------
CNL Income Fund, Ltd.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2666264
- --------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- --------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
------------------------------
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 _________
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Item 4. Controls and Procedures 11
Part II.
Other Information 12-13
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
2002 2001
------------------ -------------------
ASSETS
Land and buildings on operating leases, net $ 4,730,155 $ 5,580,917
Investment in joint ventures 437,241 787,721
Cash and cash equivalents 474,139 414,999
Receivables -- 34,841
Due from related parties -- 1,574
Accrued rental income 49,995 43,559
Other assets 2,615 21,104
------------------ -------------------
$ 5,694,145 $ 6,884,715
================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 2,794 $ 4,840
Real estate taxes payable 18,397 13,688
Distributions payable 161,342 207,167
Due to related parties 172,369 130,278
Rents paid in advance and deposits 48,355 46,590
------------------ -------------------
Total liabilities 403,257 402,563
Partners' capital 5,290,888 6,482,152
------------------ -------------------
$ 5,694,145 $ 6,884,715
================== ===================
See accompanying notes to condensed financial statements.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
-------------- ------------- --------------- --------------
Revenues:
Rental income from operating leases $ 145,563 $ 170,813 $ 447,387 $ 543,475
Contingent rental income 12,345 4,366 28,947 13,636
Lease termination income -- -- -- 55,658
Interest and other income 786 3,253 7,745 23,732
-------------- ------------- --------------- --------------
158,694 178,432 484,079 636,501
-------------- ------------- --------------- --------------
Expenses:
General operating and administrative 31,038 22,595 111,768 111,264
Property expenses 297 2,003 4,026 6,345
State and other taxes -- -- 3,652 11,089
Depreciation and amortization 34,716 39,149 105,625 117,447
Provision for write-down of assets 79,245 -- 79,245 --
-------------- ------------- --------------- --------------
145,296 63,747 304,316 246,145
-------------- ------------- --------------- --------------
Income Before Loss on Dissolution of Joint Venture,
Gain on Sale of Assets and Equity in Earnings of
Joint Ventures 13,398 114,685 179,763 390,356
Loss on Dissolution of Joint Venture -- -- (30,579 ) --
Gain on Sale of Assets -- -- 348,026 --
Equity in Earnings of Joint Ventures 12,181 23,713 361,045 71,370
-------------- ------------- --------------- --------------
Net Income $ 25,579 $ 138,398 $ 858,255 $ 461,726
============== ============= =============== ==============
Net Income Per Limited Partner Unit $ 0.85 $ 4.61 $ 28.61 $ 15.39
============== ============= =============== ==============
Weighted Average Number of Limited Partner
Units Outstanding 30,000 30,000 30,000 30,000
============== ============= =============== ==============
See accompanying notes to condensed financial statements.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
2002 2001
---------------------- ------------------
General partners:
Beginning balance $ 340,768 $ 340,768
Net income -- --
---------------------- ------------------
340,768 340,768
---------------------- ------------------
Limited partners:
Beginning balance 6,141,384 6,943,735
Net income 858,255 626,317
Distributions ($68.31 and $47.62 per
limited partner unit, respectively) (2,049,519 ) (1,428,668 )
---------------------- ------------------
4,950,120 6,141,384
---------------------- ------------------
Total partners' capital $ 5,290,888 $ 6,482,152
====================== ==================
See accompanying notes to condensed financial statements.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2002 2001
--------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents:
Net Cash Provided by Operating Activities $ 476,671 $ 666,385
--------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of assets 1,064,259 --
Liquidating distribution from joint venture 613,554 --
--------------- ---------------
Net cash provided by investing activities 1,677,813 --
--------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (2,095,344 ) (1,228,791 )
--------------- ---------------
Net cash used in financing activities (2,095,344 ) (1,228,791 )
--------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents 59,140 (562,406 )
Cash and Cash Equivalents at Beginning of Period 414,999 1,019,821
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 474,139 $ 457,415
=============== ===============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Deferred real estate disposition fee incurred and
unpaid at end of period $ 32,215 $ --
=============== ===============
Distributions declared and unpaid at end of
period $ 161,342 $ 207,167
=============== ===============
See accompanying notes to condensed financial statements.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2002 and 2001
1. Basis of Presentation:
---------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. The financial statements reflect all
adjustments, consisting of normal recurring adjustments, which are, in the
opinion of management, necessary to a fair statement of the results for the
interim periods presented. Operating results for the quarter and nine
months ended September 30, 2002 may not be indicative of the results that
may be expected for the year ending December 31, 2002. Amounts as of
December 31, 2001, 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, Ltd. (the "Partnership") for the year ended December 31, 2001.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets." This statement requires that a long-lived asset be
tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying
amount of a long-lived asset is not recoverable if it exceeds the sum of
the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. The assessment is based on the carrying amount of
the asset at the date it is tested for recoverability. An impairment loss
is recognized when the carrying amount of a long-lived asset exceeds its
fair value. If an impairment is recognized, the adjusted carrying amount of
a long-lived asset is its new cost basis. The statement also requires that
the results of operations of a component of an entity that either has been
disposed of or is classified as held for sale be reported as a discontinued
operation if the disposal activity was initiated subsequent to the adoption
of the Standard.
2. Reclassification:
----------------
Certain items in prior years' financial statements have been reclassified
to conform to 2002 presentation. These reclassifications had no effect on
total partners' capital or net income.
3. Land and Building on Operating Leases:
-------------------------------------
During the nine months ended September 30, 2002, the Partnership sold its
property in Mesquite, Texas for $1,073,828 and received net sales proceeds
of approximately $1,032,000, resulting in a gain of $348,026. In connection
with the sale, the Partnership incurred a deferred, subordinated, real
estate disposition fee of $32,215 (see Note 6). As of December 31, 2001,
this property had been identified as held for sale.
4. Investment in Joint Ventures:
----------------------------
In June 2002, Sand Lake Road Joint Venture, in which the Partnership owned
a 50% interest, in accordance with the option under the lease agreement
sold its property to the tenant for $1,231,000 and received net sales
proceeds of approximately $1,227,100, resulting in a gain of approximately
$604,000. The joint venture was dissolved and as a result, the Partnership
received $613,554 representing its pro-rata share of the liquidation
proceeds. The Partnership recognized a $30,579 loss on the dissolution. The
financial results for this property are reflected as Discontinued
Operations in the condensed financial information presented below.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2002 and 2001
4. Investment in Joint Ventures - Continued:
----------------------------------------
As of September 30, 2002, Orange Avenue Joint Venture and the Partnership
and affiliates, as tenants-in-common, each owned and leased one property to
operators of fast-food or family-style restaurants. The following presents
the combined, condensed financial information for the joint ventures at:
September 30, December 31,
2002 2001
---------------- ----------------
Land and buildings on operating leases,
net $ 2,358,121 $ 2,398,707
Real estate held for sale -- 630,814
Cash 3,112 3,232
Receivables 380 1,539
Accrued rental income 109,380 92,131
Other assets -- 335
Liabilities 769 3,110
Partners' capital 2,470,224 3,123,648
Quarter Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
------------- -------------- ------------- ---------------
Revenues $ 75,694 $ 75,701 $ 227,083 $ 227,103
Expenses (13,779 ) (14,114 ) (41,975 ) (42,094 )
------------- -------------- ------------- ---------------
Income from continuing operations 61,915 61,587 185,108 185,009
------------- -------------- ------------- ---------------
Discontinued operations:
Revenues -- 29,294 54,963 87,897
Expenses -- (5,998 ) (9,525 ) (17,775 )
Gain on disposal of assets -- -- 604,015 --
------------- -------------- ------------- ---------------
-- 23,296 649,453 70,122
------------- -------------- ------------- ---------------
Net Income $ 61,915 $ 84,883 $ 834,561 $ 255,131
============= ============== ============= ===============
The Partnership recognized income of $361,045 and $71,370 during the nine
months ended September 30, 2002 and 2001, respectively, of which $12,181
and $23,713 was earned during the quarters ended September 30, 2002 and
2001, respectively, from these joint ventures.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2002 and 2001
5. Concentration of Credit Risk:
----------------------------
The following schedule presents total rental revenues from individual
lessees, each representing more than 10% of the Partnership's total rental
revenues (including the Partnership's share of rental revenues from joint
ventures and the property held as tenants-in-common with affiliates of the
general partners) for each of the nine months ended September 30:
2002 2001
------------ ------------
Wen-Atlanta, Inc. $ 69,469 $ 64,766
The Ground Round, Inc. 66,392 66,392
AJZ, Inc. 63,581 N/A
Wendy's Old Fashioned Hamburgers
of New York, Inc. 61,584 N/A
Golden Corral Corporation N/A 152,360
Wendy's International, Inc. N/A 67,221
In addition, the following schedule presents total rental revenues from
individual restaurant chains, each representing more than 10% of the
Partnership's total rental revenues (including the Partnership's share of
rental revenues from joint ventures and the property held as
tenants-in-common with affiliates of the general partners) for each of the
nine months ended September 30:
2002 2001
------------- --------------
Wendy's $ 240,017 $ 270,369
The Ground Round 66,392 66,392
A.J. Gators 63,581 N/A
Golden Corral Family
Steakhouse Restaurants N/A 152,360
The information denoted by N/A indicates that for each period presented,
the tenant or the chain did not represent more than 10% of the
Partnership's total rental revenues.
Although the Partnership's properties are geographically diverse throughout
the United States and the Partnership's lessees operate a variety of
restaurant concepts, default by any lessee or restaurant chain contributing
more than 10% of the Partnership's revenues will significantly impact the
results of operations of the Partnership if the Partnership is not able to
re-lease the properties in a timely manner.
6. Related Party Transactions:
--------------------------
An affiliate of the Partnership is entitled to receive a deferred,
subordinated real estate disposition fee, payable upon the sale of one or
more properties based on the lesser of one-half of a competitive real
estate commission or three percent of the sales price if the affiliate
provides a substantial amount of services in connection with the sale.
However, if the net sales proceeds are reinvested in a replacement
property, no such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are distributed.
The payment of the real estate disposition fee is subordinated to receipt
by the limited partners of their aggregate 10% preferred return, plus their
adjusted capital contributions. During the nine months ended September 30,
2002, the Partnership incurred a deferred, subordinated real estate
disposition fee of $32,215 as a result of the sale of a property (see Note
3).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on November 26, 1985 to acquire for cash, either
directly or through joint venture and tenancy in common 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
national and regional fast-food restaurant chains (collectively, the
"Properties"). The leases generally are triple-net leases, with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities. As of September 30, 2001, the Partnership owned 11 Properties
directly and owned three Properties indirectly through joint venture or tenancy
in common arrangements. As of September 30, 2002, the Partnership owned 10
Properties directly and owned two Properties indirectly through joint venture or
tenancy in common arrangements.
Capital Resources
For the nine months ended September 30, 2002 and 2001, the Partnership
generated cash from operating activities (which includes cash received from
tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses) of $476,671 and $666,385, respectively.
The decrease in cash from operating activities for the nine months ended
September 30, 2002 was primarily a result of changes in income and expenses, as
described below.
Other sources and uses of capital included the following during the nine
months ended September 30, 2002.
During the nine months ended September 30, 2002, the Partnership sold
its Property in Mesquite, Texas to an unrelated third party for $1,073,828 and
received net sales proceeds of approximately $1,032,000, resulting in a gain of
$348,026. The Partnership distributed the net sales proceeds as a special
distribution to the limited partners, as described below. The Partnership
anticipates that its distributions will be sufficient to enable the limited
partners to pay federal and state income taxes, if any (at a level reasonably
assumed by the general partners), resulting from the sale.
In June 2002, Sand Lake Road Joint Venture, in which the Partnership
owned a 50% interest, in accordance with the purchase option under the lease
agreement sold its Property to the tenant for $1,231,000, and received net sales
proceeds of approximately $1,227,100 resulting in a gain of approximately
$604,000. Sand Lake Road Joint Venture was dissolved in accordance with the
joint venture agreement. As a result, the Partnership received $613,554
representing its pro-rata share of the liquidation proceeds and recognized a
loss of $30,579 on the dissolution. The Partnership used the liquidation
proceeds it received to make distributions to the limited partners.
Currently, rental income from the Partnership's Properties and any net
sales proceeds held by the Partnership are invested in money market accounts or
other short-term, highly liquid investments such as demand deposit accounts at
commercial banks, money market accounts and certificates of deposit with less
than a 90-day maturity date, pending the Partnership's use of such funds to pay
Partnership expenses or to make distributions to the partners. At September 30,
2002, the Partnership had $474,139 invested in such short-term investments, as
compared to $414,999 at December 31, 2001. The funds remaining at September 30,
2002, after payment of distributions and other liabilities, will be used to meet
the Partnership's working capital needs.
Short-Term Liquidity
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 net cash flow in
excess of operating expenses.
The Partnership's short-term liquidity requirements consist primarily of
the operating expenses of the Partnership.
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.
Total liabilities of the Partnership, including distributions payable,
were $403,257 at September 30, 2002, as compared to $402,563 at December 31,
2001, primarily as a result of an increase in real estate taxes payable and
amounts due to related parties partially offset by a lower distribution payable.
The general partners believe that the Partnership has sufficient cash on hand to
meet current working capital needs.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent the
general partners determine that such funds are available for distribution. Based
on current and anticipated future cash from operations and for the nine months
ended September 30, 2002, net proceeds from the sales of the Properties
described above, and for the nine months ended September 30, 2001, net sales
proceeds from the 2000 sale of the Property in Salisbury, Maryland, the
Partnership declared distributions to limited partners of $2,049,519 and
$1,221,501 for the nine months ended September 30, 2002 and 2001, respectively,
($161,342 and $207,167 for the quarters ended September 30, 2002 and 2001,
respectively.) This represents distributions of $68.31 and $40.72 per unit for
the nine months ended September 30, 2002 and 2001, respectively, ($5.38 and
$6.91 per unit for the quarters ended September 2002 and 2001, respectively.)
The distribution for the nine months ended September 30, 2002, included
$1,550,000 of net sales proceeds from the 2002 sales of the Properties in
Mesquite, Texas, and Orlando, Florida and the distribution for the nine months
ended September 30, 2001, included $600,000 of net sales proceeds from the 2000
sale of the Property in Salisbury, Maryland. These special distributions during
2002 and 2001, were effectively a return of a portion of the limited partners
investment; although, in accordance with the Partnership agreement, $468,077 and
$183,820, respectively, were applied towards the 10% Preferred Return, on a
cumulative basis, and the balance of $1,081,923 and $416,180, respectively, were
treated as a return of capital for purposes of calculating the 10% Preferred
Return. As a result of the return of capital, the amount of the limited
partners' invested capital contributions (which generally is the limited
partners' capital contributions, less distributions from the sale of a property
that are considered to be a return of capital) was decreased; therefore, the
amount of the limited partners' invested capital contributions on which the 10%
Preferred Return is calculated was lowered accordingly. As a result of the sales
of the Properties, the Partnership's total revenue was reduced and is expected
to remain reduced in subsequent periods, while the majority of the Partnership's
operating expenses remained and are expected to remain fixed. Therefore,
distributions of net cash flow were adjusted commencing during the nine months
ended September 30, 2002 and 2001. No distributions were made to the general
partners for the nine months ended September 30, 2002 and 2001. The Partnership
intends to continue to make distributions of cash available for distribution to
the limited partners on a quarterly basis.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
Total rental revenues were $447,387 for the nine months ended September
30, 2002, as compared to $543,475, in the comparable period of 2001, of which
$145,563 and $170,813 were earned during the quarters ended September 30, 2002
and 2001, respectively. Rental revenue decreased during the quarter and nine
months ended September 30, 2002, as compared to the same periods of 2001,
because the Partnership re-leased the Properties in Virginia Beach, Virginia;
Jasper, Alabama and Eunice, Louisiana to three new tenants and rents under the
new leases are lower than rents due under the previous leases. Therefore, the
Partnership expects that rental revenue in future periods will remain at reduced
amounts. However, the general partners do not anticipate that the decrease in
rental revenue will have a material adverse affect on the Partnership's
financial position or results of operations. In addition, the decrease in rental
revenue during the quarter and nine months ended September 30, 2002 was
partially due to the sale of the Mesquite, Texas Property in February 2002.
During the nine months ended September 30, 2002 and 2001, the
Partnership also earned $28,947 and $13,636, respectively, in contingent rental
income, $12,345 and $4,366 of which was earned during the quarters ended
September 30, 2002 and 2001, respectively. The increase in contingent rental
income during the quarter and nine months ended September 30, 2002, was
attributable to an increase in gross sales of certain restaurant Properties, the
leases of which require the payment of contingent rent.
During the nine months ended September 30, 2001, the Partnership
recognized $55,658 in lease termination income from former tenants as
consideration for the Partnership releasing the former tenants from their
obligations under the terms of their respective leases.
During the nine months ended September 30, 2002 and 2001, the
Partnership earned $7,745 and $23,732, respectively, in interest and other
income, $786 and $3,253 of which was earned during the quarters ended September
30, 2002 and 2001, respectively. The decrease in interest and other income
during the quarter and nine months ended September 30, 2002 was primarily due to
a decrease in the average cash balance due to the payment of a special
distribution to the limited partners during 2001 of $600,000 and due to a
decline in interest rates.
During the nine months ended September 30, 2002, four lessees,
Wen-Atlanta Inc., The Ground Round, Inc., AJZ, Inc., and Wendy's Old Fashioned
Hamburgers of New York, Inc. each contributed more than 10% of the Partnership's
total rental revenues (including the Partnership's share of rental revenues from
Properties owned by joint ventures and a Property owned with affiliates of the
general partners as tenants-in-common). It is anticipated that based on the
minimum rental payments required by the leases, these four lessees will continue
to contribute more than 10% of the Partnership's total rental revenues. In
addition, during the nine months ended September 30, 2002, three restaurant
chains, Wendy's, The Ground Round, and A.J. Gators each accounted for more than
10% of the Partnership's total rental revenues (including the Partnership's
share of rental revenues from Properties owned by joint ventures and a Property
owned with affiliates as tenants-in-common). It is anticipated that these three
restaurant chains will each continue to account for more than 10% of the total
rental revenues to which the Partnership is entitled under the terms of the
leases. Any failure of these lessees or restaurant chains will materially affect
the Partnership's income if the Partnership is not able to re-lease the
Properties in a timely manner.
During the nine months ended September 30, 2002 and 2001, the
Partnership earned $361,045 and $71,370, respectively, attributable to net
income earned by joint ventures, $12,181 and $23,713 of which was earned during
the quarters ended September 30, 2002 and 2001, respectively. The increase in
net income earned by joint ventures during the nine months ended September 30,
2002, as compared to the same period of 2001, was due to the fact that in June
2002, Sand Lake Road Joint Venture, in which the Partnership owned a 50%
interest, sold its Property to the tenant in accordance with the purchase option
under the lease agreement.
Operating expenses, including depreciation and amortization expense, and
provision for write-down of assets were $304,316 and $246,145 for the nine
months ended September 30, 2002 and 2001, respectively, $145,296 and $63,747 of
which was incurred during the quarters ended September 30, 2002 and 2001,
respectively. Operating expenses were higher during the quarter and nine months
ended September 30, 2002 due to the fact that the Partnership recorded a
provision for write-down of assets in the amount of $79,245 in connection with
the anticipated sale of its Property in Angleton, Texas. The provision
represented the difference between the carrying value of the Property and its
fair value at September 30, 2002. Operating expenses were higher during the nine
months ended September 30, 2001 due to the fact that the Partnership sold the
Property in Maryland and, therefore is no longer incurring state tax expense in
this state. The decrease in operating expenses during the nine months ended
September 30, 2002, as compared to the same period of 2001, was also
attributable to the Partnership incurring less depreciation expense during 2002
as a result of the sale of the Property in Mesquite, Texas, as described above.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement requires that a long-lived asset
be tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when the
carrying amount of a long-lived asset exceeds its fair value. If an impairment
is recognized, the adjusted carrying amount of a long-lived asset is its new
cost basis. The statement also requires that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a discontinued operation if the disposal activity was
initiated subsequent to the adoption of the Standard.
During the nine months ended September 30, 2002, Sand Lake Joint Venture
identified and sold a Property that met the criteria of this standard. The
financial results of this Property are reflected as Discontinued Operations in
the condensed joint venture financial information presented in the footnotes to
the accompanying financial statements. The tenant exercised its option to
purchase the Property under the terms of the lease and the Partnership dissolved
the joint venture and received its pro-rata share of the liquidation proceeds.
As a result of the sale of the Property in Mesquite, Texas, the
Partnership recognized a gain of $348,026 during the nine months ended September
30, 2002. This Property was identified as held for sale as of December 31, 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
The general partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures within 90 days prior to the
filing of this Quarterly Report on Form 10-Q and have determined that such
disclosure controls and procedures are effective.
Subsequent to the above evaluation, there were no significant changes in
internal controls or other factors that could significantly affect these
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
-----------------
Item 2. Changes in Securities. Inapplicable.
---------------------
Item 3. Defaults upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
---------------------------------------------------
Item 5. Other Information. Inapplicable.
-----------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund,
Ltd., as amended. (Included as Exhibit 3.1 to
Amendment No. 1 to Registration Statement No. 33-2850
on Form S-11 and incorporated herein by reference.)
3.2 Amended and Restated Certificate and Agreement of
Limited Partnership of CNL Income Fund, Ltd. (Included
as Exhibit 3.2 to Form 10-K filed with the Securities
and Exchange Commission on March 27, 1998, and
incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund,
Ltd., as amended. (Included as Exhibit 4.1 to
Amendment No. 1 to Registration Statement No. 33-2850
on Form S-11 and incorporated herein by reference.)
4.2 Amended and Restated Certificate and Agreement of
Limited Partnership of CNL Income Fund, Ltd. (Included
as Exhibit 3.2 to Form 10-K filed with the Securities
and Exchange Commission on March 27, 1998, and
incorporated herein by reference.)
10.1 Property Management Agreement. (Included as Exhibit
10.1 to Form 10-K filed with the Securities and
Exchange Commission on March 27, 1998, and
incorporated herein by reference.)
10.2 Assignment of Property Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 30, 1995,
and incorporated herein by reference.)
10.3 Assignment of Property Management Agreement from CNL
Income Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on March 29, 1996,
and incorporated herein by reference.)
10.4 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Included as
Exhibit 10.4 to Form 10-Q filed with the Securities
and Exchange Commission on August 10, 2001, and
incorporated herein by reference.)
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Included
as Exhibit 10.5 to Form 10-Q filed with the Securities
and Exchange Commission on August 13, 2002, and
incorporated herein reference.)
99.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
99.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended September 30, 2002.
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 8th day of November, 2002.
CNL INCOME FUND, 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)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund, Ltd. (the
"registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the
registrant;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 8, 2002
/s/ James M. Seneff, Jr.
- ---------------------------
James M. Seneff, Jr.
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Bourne, President and Treasurer of CNL Realty Corporation,
the corporate general partner of CNL Income Fund, Ltd. (the "registrant")
certify that:
1. I have reviewed this quarterly report on Form 10-Q of the
registrant;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 8, 2002
/s/ Robert A. Bourne
- -------------------------
Robert A. Bourne
President and Treasurer
EXHIBIT INDEX
Exhibit Number
(c) Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund,
Ltd., as amended. (Included as Exhibit 3.1 to Amendment
No. 1 to Registration Statement No. 33-2850 on Form S-11
and incorporated herein by reference.)
3.2 Amended and Restated Certificate and Agreement of Limited
Partnership of CNL Income Fund, Ltd. (Included as Exhibit
3.2 to Form 10-K filed with the Securities and Exchange
Commission on March 27, 1998, and incorporated herein by
reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund,
Ltd., as amended. (Included as Exhibit 4.1 to Amendment
No. 1 to Registration Statement No. 33-2850 on Form S-11
and incorporated herein by reference.)
4.2 Amended and Restated Certificate and Agreement of Limited
Partnership of CNL Income Fund, Ltd. (Included as Exhibit
3.2 to Form 10-K filed with the Securities and Exchange
Commission on March 27, 1998, and incorporated herein by
reference.)
10.1 Property Management Agreement. (Included as Exhibit 10.1
to Form 10-K filed with the Securities and Exchange
Commission on March 27, 1998, and incorporated herein by
reference.)
10.2 Assignment of Property Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 30, 1995, and
incorporated herein by reference.)
10.3 Assignment of Property Management Agreement from CNL
Income Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on March 29, 1996, and
incorporated herein by reference.)
10.4 Assignment of Management Agreement from CNL Fund Advisors,
Inc. to CNL APF Partners, LP. (Included as Exhibit 10.4 to
Form 10-Q filed with the Securities and Exchange
Commission on August 10, 2001, and incorporated herein by
reference.)
10.5 Assignment of Management Agreement from CNL APF Partners,
LP to CNL Restaurants XVIII, Inc. (Included as Exhibit
10.5 to Form 10-Q filed with the Securities and Exchange
Commission on August 13, 2002, and incorporated herein
reference.)
99.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
99.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
EXHIBIT 99.1
EXHIBIT 99.2