UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(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, 2003
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 Identification No.)
incorporation or organization)
450 South Orange Avenue
Orlando, Florida 32801-3336
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
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:
Units of limited partnership interest ($500 per Unit)
(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 by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2):Yes___ No X
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 30,000 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 $500 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
CNL Income Fund, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on November 26, 1985. 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 April 16, 1986, the
Partnership offered for sale up to $15,000,000 in limited partnership interests
(the "Units") (30,000 Units at $500 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended. The
offering terminated on December 31, 1986, as of which date the maximum offering
proceeds of $15,000,000 had been received from investors who were admitted to
the Partnership as limited partners (the "Limited Partners").
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 selected national and regional fast-food restaurant chains (the
"Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totaled
$13,284,970, and were used to acquire 20 Properties, including interests in
three Properties owned by joint ventures in which the Partnership is a
co-venturer.
As of December 31, 2000, the Partnership owned 11 Properties directly
and owned three Properties indirectly through joint venture or tenancy in common
arrangements. During 2001, the Partnership distributed the majority of the net
sales proceeds from the 2000 sale of the Property in Salisbury, Maryland as a
special distribution to the Limited Partners and used the remaining net sales
proceeds to pay Partnership liabilities. During 2002, the Partnership sold its
Property in Mesquite, Texas to a third party and distributed the net sales
proceeds as a special distribution to the Limited Partners. In addition, during
2002, the Partnership and the joint venture partner liquidated Sand Lake Joint
Venture and the Partnership received its pro rata share of the liquidation
proceeds from the joint venture. During 2003, the Partnership sold its Property
in Angleton, Texas to the tenant and distributed the net sales proceeds to the
Limited Partners. As of December 31, 2003, the Partnership owned nine Properties
directly and held interest in one Property owned by a joint venture in which the
Partnership is a co-venturer and one Property owned with affiliates of the
General Partners as tenants-in-common. Generally, 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 holds 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 consider factors such as potential capital
appreciation, net cash flow and federal income taxes. Certain lessees also have
been granted options to repurchase Properties, generally at the Property's then
fair market value after a specified portion of the lease term has elapsed. 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 or joint venture
purchase options granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
joint ventures in which the Partnership is a co-venturer provide for initial
lease terms, ranging from 10 to 20 years (the average being 16 years), and
expire between 2006 and 2018. Generally, the leases are on a triple-net basis,
with the lessees responsible for all repairs and maintenance, property taxes,
insurance and utilities. The leases of the Properties provide for minimum base
annual rental payments (payable in monthly installments) ranging from
approximately $16,000 to $222,800. Generally, the leases provide for percentage
rent, based on sales in excess of a specified amount, to be paid annually. In
addition, certain leases provide for increases in the annual base rent during
the lease term.
Generally, the leases of the Properties provide for two to five
successive five-year renewal options subject to the same terms and conditions as
the initial lease. Lessees of five of the Partnership's 11 Properties also have
been granted options to purchase Properties at the Property's then fair market
value, or pursuant to a formula based on the original cost of the Property,
after a specified portion of the lease term has elapsed. Fair market value will
be determined through an appraisal by an independent appraisal firm. Under the
terms of certain leases, the option purchase price may equal the Partnership's
original cost to purchase the Property (including acquisition costs), plus a
specified percentage from the date of the lease or a percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised. Additionally, certain
leases provide the lessees the option to purchase up to a 49% joint venture
interest in the Property, after a specified portion of the lease term has
elapsed, at an option purchase price similar to those described above multiplied
by the percentage interest in the Property with respect to which the option is
being exercised.
The leases provide that, in the event the Partnership wishes to sell
the Property subject to that lease, the Partnership first must offer the lessee
the right to purchase the Property on the same terms and conditions, and for the
same price, as any offer which the Partnership has received for the sale of the
Property.
In October 2003, Chevy's, Inc., the tenant of the property in
Vancouver, Washington which the Partnership owns as tenants-in-common with
affiliates of the general partners, filed for Chapter 11 bankruptcy protection.
The Partnership owns a 12.17% interest in this property. As of March 12, 2004,
Chevy's, Inc. had neither rejected nor affirmed the lease related to this
property.
In February 2004, American Hospitality Concepts, Inc., the parent
company of Ground Round, Inc., filed for Chapter 11 bankruptcy protection.
Ground Round, Inc. leases one Property from the Partnership. As of March 12,
2004, Ground Round, Inc. had neither rejected nor affirmed the lease related to
this Property.
Major Tenants
During 2003, AJZ, Inc., Wen-Atlanta, Inc., Wendy's Old Fashioned
Hamburgers of New York, Inc., The Ground Round, Inc. and JMJ, LLC., each
contributed more than 10% of the Partnership's total rental revenues (including
the Partnership's share of the total rental revenues from the Property owned by
the joint venture and the Property owned with affiliates of the General Partners
as tenants-in-common). As of December 31, 2003, AJZ, Inc., Wen-Atlanta, Inc.,
Wendy's Old Fashioned Hamburgers of New York, Inc., The Ground Round, Inc. and
JMJ, LLC., were each the lessee under a lease relating to one restaurant. It is
anticipated that based on the minimum rental payments required by the leases,
these five lessees will each continue to contribute 10% or more of the
Partnership's total rental revenues in 2004. In addition, three Restaurant
Chains, A.J. Gators Restaurants, Wendy's Old Fashioned Hamburger Restaurants
("Wendy's"), and The Ground Round each accounted for more than 10% of the
Partnership's total rental revenues in 2003 (including the Partnership's share
of the total rental revenues from the Property owned by the joint venture and
the Property owned with affiliates of the General Partners as
tenants-in-common). In 2004, it is anticipated that each of these Restaurant
Chains will continue to account for more than 10% of the total rental revenues
to which the Partnership is entitled under the terms of its leases. Any failure
of these lessees or Restaurant Chains will materially affect the Partnership's
operating results if the Partnership is not able to re-lease the Properties in a
timely manner. No single tenant or groups of affiliated tenants lease Properties
with an aggregate carrying value in excess of 20% of the total assets of the
Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into the following joint venture and
tenancy in common arrangements as of December 31, 2003:
Entity Name Year Ownership Partners Property
Orange Avenue Joint Venture 1986 50.00 % Various third party partners Orlando, FL
Entity Name Year Ownership Partners Property
CNL Income Fund, Ltd., CNL 1997 12.17 % CNL Income Fund II, Ltd. CNL Vancouver, WA
Income Fund II, Ltd., Income Fund V, Ltd. CNL Income
CNL Income Fund V, Ltd., Fund VI, Ltd.
and CNL Income Fund VI,
Ltd., Tenants in Common
Each joint venture or tenancy in common was formed to hold one
Property. Each CNL Income Fund is an affiliate of the General Partners and is a
limited partnership organized pursuant to the laws of the state of Florida. The
Partnership shares management control equally with the affiliates of the General
Partners
The joint venture and tenancy in common arrangements provide for the
Partnership and its joint venture or tenancy in common partners to share in all
costs and benefits in proportion to each partner's percentage interest in the
entity or Property. The Partnership and its partners are also jointly and
severally liable for all debts, obligations and other liabilities of the joint
venture or tenancy in common. Net cash flow from operations is distributed to
each joint venture or tenancy in common partner in accordance with its
respective percentage interest in the entity or Property.
The joint venture has an initial term of 20 years and, after the
expiration of the initial term, continues in existence from year to year unless
terminated at the option of either joint venturer or by an event of dissolution.
Events of dissolution include the bankruptcy, insolvency or termination of any
joint venturer, sale of the Property owned by the joint venture and mutual
agreement of the Partnership and its joint venture partner to dissolve the joint
venture. Any liquidation proceeds, after paying joint venture debts and
liabilities and funding reserves for contingent liabilities, will be distributed
first to the joint venture partners with positive capital account balances in
proportion to such balances until such balances equal zero, and thereafter in
proportion to each joint venture partner's percentage interest in the joint
venture.
The joint venture and tenancy in common agreements restrict each
party's ability to sell, transfer or assign its interest without first offering
it for sale to its partner, either upon such terms and conditions as to which
the parties may agree or, in the event the parties cannot agree, on the same
terms and conditions as any offer from a third party to purchase such joint
venture or tenancy in common interest.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional Property, or at times when a
suitable opportunity to purchase an additional Property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of Properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of a
Property if the proceeds are reinvested in an additional Property.
Certain Management Services
RAI Restaurants, Inc. ("the Advisor"), an affiliate of the General
Partners, provided certain services relating to management of the Partnership
and its Properties pursuant to a management agreement with the Partnership.
Under this agreement, the Advisor 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. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership has agreed to pay the Advisor an
annual fee of one-half of one percent of Partnership assets (valued at cost)
under management, not to exceed the lesser of one percent of gross rental
revenues or competitive fees for comparable services. Under the property
management agreement, the property management fee is subordinated to receipt by
the Limited Partners of an aggregate, ten percent, noncumulative, noncompounded
annual return on their adjusted capital contributions (the "10% Preferred
Return"), calculated in accordance with the Partnership's limited partnership
agreement (the "Partnership Agreement"). In any year in which the Limited
Partners have not received the 10% Preferred Return, no property management fee
will be paid.
The property 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.
During 2003, CNL Capital Management, Inc., ("CCM"), a wholly owned
subsidiary of CNL Financial Group, Inc., began providing certain strategic
advisory services to the General Partners relative to the Partnership's
business. CCM is not reimbursed for these services by the Partnership. CCM also
began providing some accounting and portfolio management services to the
Partnership during 2003, through a subcontract with the Advisor.
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 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.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation, the officers and employees of CNL Restaurant Properties, Inc.
(formerly CNL American Properties Fund, Inc.), the parent company of the
Advisor, and the officers and employees of CCM 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 Financial 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, 2003, the Partnership owned 11 Properties. Of the 11
Properties, nine are owned by the Partnership in fee simple, one is owned
through a joint venture arrangement and one is owned through a tenancy in common
arrangement. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its Partnership Agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs, including acquisition fees and certain acquisition
expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 16,200
to 58,500 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are 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,
either directly or indirectly, as of December 31, 2003 by state. More detailed
information regarding the location of the Properties is contained in the
Schedule of Real Estate and Accumulated Depreciation.
State Number of Properties
Alabama 1
Arizona 2
Florida 1
Georgia 1
Louisiana 1
Oklahoma 1
Pennsylvania 1
Texas 1
Virginia 1
Washington 1
--------------
TOTAL PROPERTIES 11
==============
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The Partnership's
buildings generally are rectangular and are constructed from various
combinations of stucco, steel, wood, brick and tile. Building sizes range from
approximately 1,900 to 7,400 square feet. All buildings on Properties acquired
by the Partnership are freestanding and surrounded by paved parking areas.
Buildings are suitable for conversion to various uses, although modifications
may be required prior to use for other than restaurant operations. As of
December 31, 2003, the Partnership had no plans for renovation of the
Properties. Depreciation expense is computed for buildings and improvements
using the straight line method using depreciable lives of 19, 31.5, and 39 years
for federal income tax purposes.
As of December 31, 2003, the aggregate cost of the Properties owned,
either directly or indirectly, by the Partnership and joint ventures (including
the Property owned through a tenancy in common arrangement) for federal income
tax purposes was $5,897,292 and $2,705,664, respectively.
The following table lists the Properties owned by the Partnership,
either directly or indirectly, as of December 31, 2003 by Restaurant Chain.
Properties Number of Properties
Chevy's Fresh Mex 1
Ground Round 1
Pizza Hut 2
Wendy's 4
Other 3
--------------
TOTAL PROPERTIES 11
==============
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 majority of the Properties to operators of
Restaurant Chains. The Properties are generally leased on a long-term "triple
net" basis, meaning that the tenant is responsible for repairs, maintenance,
property taxes, utilities and insurance.
The following is a schedule of the average annual rent per Property and
occupancy rates for each of the years ended December 31:
2003 2002 2001 2000 1999
------------- ------------ ------------- ------------- -------------
Rental Revenues (1) $ 651,706 $ 731,860 $ 871,579 $ 1,047,257 $ 1,126,114
Properties 11 12 14 14 16
Average Rent per
Property $ 59,246 $ 60,988 $ 62,256 $ 74,804 $ 70,382
Occupancy Rate 100% 100% 100% 100% 100%
(1) Rental revenues include the Partnership's share of rental revenues from
the Property owned indirectly through a joint venture and a tenancy in
common arrangement.
The following is a schedule of lease expirations for leases in place as
of December 31, 2003 for each year for the next ten years and thereafter.
Percentage of
Expiration Number Annual Rental Gross Annual
Year of Leases Revenues Rental Income
------------- ---------------- ------------------ --------------------------
2004 -- $ -- --
2005 -- -- --
2006 3 191,069 31.31%
2007 1 15,960 2.62%
2008 -- -- --
2009 -- -- --
2010 1 56,974 9.34%
2011 3 175,056 28.68%
2012 1 29,920 4.90%
2013 -- -- --
Thereafter 2 141,323 23.15%
---------------- ------------------ ----------------
Totals 11 $ 610,302 100.00%
================ ================== ================
Leases with Major Tenants
The terms of the leases with the Partnership's major tenants as of
December 31, 2003 (see Item 1. Business - Major Tenants), are substantially the
same as those described in Item 1. Business - Leases.
AJZ, Inc. leases one A.J. Gators restaurant. The initial term of the
lease is 10 years (expiring in 2011) and the minimum base annual rent is
approximately $78,900.
Wen-Atlanta, Inc. leases one Wendy's restaurant. The initial term of
the lease is 20 years (expiring in 2006) and the minimum base annual rent is
approximately $80,500.
Wendy's Old Fashioned Hamburgers of New York, Inc. leases one Wendy's
restaurant. The initial term of the lease is 17 years (expiring in 2006) and the
minimum base annual rent is approximately $82,000.
The Ground Round, Inc. leases one Ground Round restaurant. The initial
term of the lease is 20 years (expiring in 2017) and the minimum base annual
rent is approximately $88,500. In February 2004, American Hospitality Concepts,
Inc., the parent company of Ground Round, Inc., filed for bankruptcy, as
described above.
JMJ, LLC. leases one Wendy's restaurant. The initial term of the lease
is 19 years (expiring in 2018) and the minimum base annual rent is approximately
$52,800.
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners, nor any affiliate of
the Partnership, nor any of their respective properties, is a party to, or
subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 12, 2004, there were 1,048 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. During 2003, Limited Partners who
wished to sell their Units could have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase), could have done so pursuant to such
Plan. The General Partners have the right to prohibit transfers of Units. From
January 1997 through April 1998, due primarily to sales of Properties in prior
years, the price paid for any Unit transferred pursuant to the Plan was $422 per
Unit. Effective with the date of sale of the Property in Kissimmee, Florida, the
price paid for any Unit transferred pursuant to the Plan ranged from $246 to
$410. The price paid for any Unit transferred other than pursuant to the Plan
was subject to negotiation by the purchaser and the selling Limited Partner. The
Partnership will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 2003 and 2002 other than
pursuant to the Plan, net of commissions.
2003 (1) 2002 (1)
------------------------------- ----------------------------------
High Low Average High Low Average
------ ------- ---------- ------- ------- -----------
First Quarter (2) (2) (2) $232 $175 $195
Second Quarter $175 $175 $175 (2) (2) (2)
Third Quarter 246 183 225 209 209 209
Fourth Quarter 164 164 164 (2) (2) (2)
(1) A total of 180 and 160 Units were transferred other than pursuant to
the Plan for the years ended December 31, 2003 and 2002, respectively.
(2) No transfer of Units took place during the quarter other than pursuant
to the Plan.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For the years ended December 31, 2003 and 2002, the Partnership
declared cash distributions of $878,160 and $2,210,861 respectively, to the
Limited Partners. Distributions during the year ended December 31, 2003 included
$250,000 in a special distribution, as a result of the distribution of net sales
proceeds from the sale of the Property in Angleton, Texas. Distributions during
the year ended December 31, 2002 included $1,550,000 in a special distribution,
as a result of the distribution of net sales proceeds from the sale of the
Property in Mesquite, Texas and the liquidation proceeds from Sand Lake Joint
Venture. The special distribution in 2003 was effectively a return of the
limited partners' investment, although in accordance with the Partnership
agreement, it was applied to the limited partners' unpaid cumulative 10%
Preferred Return. The special distribution in 2002 was effectively a return of a
portion of the Limited Partners' investment; although, in accordance with the
Partnership agreement, $468,077, was applied towards the 10% Preferred Return,
on a cumulative basis, and the balance of $1,081,923 was treated as a return of
capital for purposes of calculating the 10% Preferred Return. As a result of the
return of capital and the returns of capital in prior years, the amount of the
Limited Partners' invested capital contributions (which generally is the Limited
Partners' capital contributions, less distributions from the sale of Properties
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 these Properties, the Partnership's total revenues were reduced during 2003
and 2002 and are expected to remain reduced in subsequent years, while the
majority of the Partnership's operating expenses remain fixed. Therefore,
distributions of net cash flow were adjusted commencing during the quarters
ended March 31, 2003 and 2002. No distributions have been made to the General
Partners to date.
As indicated in the chart below, distributions were declared at the
close of each of the Partnership's calendar quarters. These amounts include
monthly distributions made in arrears for the Limited Partners electing to
receive such distributions on this basis.
Quarter Ended 2003 2002
-------------------- -------------- -------------
March 31 $ 407,040 $1,069,399
June 30 157,040 818,778
September 30 157,040 161,342
December 31 157,040 161,342
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis.
(b) Not applicable.
Item 6. Selected Financial Data
Year Ended December 31: 2003 2002 2001 2000 1999
-------------- -------------- ------------- ------------ --------------
Continuing Operations (4):
Revenues $ 447,305 $ 473,348 $ 664,900 $ 830,665 $ 897,198
Equity in earnings of unconsolidated
joint ventures 47,643 373,110 95,251 95,658 95,251
Income from continuing operations (1) 271,156 919,870 496,695 981,192 945,653
Discontinued Operations (4):
Revenues 147,744 179,252 176,221 177,694 177,212
Income from and loss on disposal
of discontinued operations (3) 66,359 55,302 129,622 131,327 130,118
Net income 337,515 975,172 626,317 1,112,519 1,075,771
Income per Unit:
Continuing operations $ 9.04 $ 30.66 $ 16.56 $ 32.71 $ 31.52
Discontinued operations 2.21 1.85 4.32 4.37 4.34
-------------- -------------- ------------- ------------ --------------
$ 11.25 $ 32.51 $ 20.88 $ 37.08 $ 35.86
============== ============== ============= ============ ==============
Cash distributions declared (2): $ 878,160 $ 2,210,861 $1,428,668 $ 2,162,878 $1,067,928
Cash distributions declared per
Unit (2) 29.27 73.70 47.62 72.10 35.60
At December 31:
Total assets $ 5,082,704 $ 5,631,651 $ 6,884,715 $ 7,672,948 $8,825,685
Total partners' capital 4,705,818 5,246,463 6,482,152 7,284,503 8,334,862
(1) Income from continuing operations for the years ended December 31,
2002, 2000, and 1999 includes $348,026, $306,715, and $315,649,
respectively, from gains on sale of real estate properties.
(2) Income from discontinued operations for the years ended December 31,
2003 and 2002 include provisions for write-down of assets of $55,433
and $79,245, respectively.
(3) Certain items in the prior years' financial data have been reclassified
to conform to 2003 presentation. These reclassifications had no effect
on total net income. The results of operations relating to properties
that were identified for sale as of December 31, 2001 but sold
subsequently are reported as continuing operations. The results of
operations relating to properties that were either identified for sale
and disposed of subsequent to January 1, 2002 or were classified as
held for sale as of December 31, 2003 are reported as discontinued
operations for all periods presented.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on November 26, 1985, to acquire for
cash, either directly or through joint venture arrangements, both newly
constructed and existing restaurant Properties, as well as land upon which
restaurant Properties were to be constructed, which are leased primarily to
operators of Restaurant Chains. The leases are generally triple-net leases, with
the lessees generally responsible for all repairs and maintenance, property
taxes, insurance and utilities. The leases provide for minimum base annual
rental amounts (payable in monthly installments) ranging from approximately
$16,000 to $222,800. 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.
As of December 31, 2001, the Partnership owned 11 Properties directly
and owned three Properties indirectly through joint venture or tenancy in common
arrangements. As of December 31, 2002 and 2003, the Partnership directly owned
10 and nine Properties, respectively and owned two Properties indirectly through
joint venture or tenancy in common arrangements.
Capital Resources
Cash from operating activities was $490,794, $583,258, and $831,136 for
the years ended December 31, 2003, 2002, and 2001, respectively. The decrease in
cash from operating activities during 2003, as compared to the previous year,
was a result of changes in the Partnership's working capital, such as the timing
of transactions relating to the collection of receivables and the payment of
expenses, and changes in income and expenses, such as changes in rental revenues
resulting from the sales of Properties and changes in operating and Property
related expenses. The decrease in cash from operating activities during 2002 as
compared to the previous year, was primarily a result of changes in income and
expenses, such as changes in rental revenues.
Other sources and uses of cash included the following during the years
ended December 31, 2003, 2002, and 2001.
During 2002, the Partnership sold its Property in Mesquite, Texas to a
third party and received net sales proceeds of approximately $1,064,300,
resulting in a gain of $348,026. In connection with the sale, the Partnership
incurred deferred, real estate disposition fees of $32,215. Payment of the real
estate disposition fee is subordinated to receipt by the Limited Partners of
their 10% Preferred Return, plus their adjusted capital contributions. The
Partnership distributed the net sales proceeds as a special distribution to the
Limited Partners, as described below.
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 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 received to make
distributions to the Limited Partners.
In January 2003, the Partnership sold its Property in Angleton, Texas
and received net sales proceeds of approximately $297,900 resulting in a loss of
approximately $1,400. In connection with the sale, the Partnership incurred
deferred, real estate disposition fees of $9,000. Payment of the real estate
disposition fee is subordinated to receipt by the Limited Partners of their 10%
Preferred Return, plus their adjusted capital contributions. The Partnership
distributed the net sales proceeds as a special distribution to the Limited
Partners, as described below.
None of the Properties owned by the Partnership, or the joint ventures
and tenancy in common arrangements in which the Partnership owns an interest, is
or may be encumbered. Subject to certain restrictions on borrowings from the
General Partners, however, the Partnership may borrow, at the discretion of the
General Partners, for the purpose of maintaining the operations of the
Partnership. The Partnership will not encumber any of the Properties in
connection with any borrowings or advances. The Partnership will not borrow for
the purpose of returning capital to the Limited Partners. The Partnership also
will not borrow under circumstances which would make the Limited Partners liable
to creditors of the Partnership. Affiliates of the General Partners from time to
time incur certain operating expenses on behalf of the Partnership for which the
Partnership reimburses the affiliates without interest.
At December 31, 2003, the Partnership had $325,603 in cash and cash
equivalents as compared to $419,385 at December 31, 2002. At December 31, 2003,
these funds were held in a non-interest bearing demand deposit account at a
commercial bank. The funds remaining at December 31, 2003, will be used toward
the payment of distributions and other liabilities of the Partnership.
In October 2003, Chevy's, Inc., the tenant of the Property in
Vancouver, Washington which the Partnership owns as tenants-in-common with
affiliates of the general partners, filed for Chapter 11 bankruptcy protection.
The Partnership owns a 12.17% interest in this Property. As of March 12, 2004,
Chevy's, Inc. had neither rejected nor affirmed the lease related to this
Property. The lost revenues that would result if the lease were rejected, will
have an adverse effect on the equity in earnings of joint ventures of the
Partnership if the tenancy in common is not able to re-lease or sell the
Property in a timely manner.
In December 2003, the Partnership entered into an agreement with the
tenant to sell its Property in Oklahoma City, Oklahoma. In February 2004, the
Partnership sold the Property and received net sales proceeds of approximately
$447,600 resulting in no gain or loss on the sale. The Partnership had recorded
a provision for write-down of assets relating to this Property during 2003. The
General Partners intend to use the proceeds received from the sale for
distributions to the Limited Partners and to pay Partnership liabilities.
In February 2004, American Hospitality Concepts, Inc., the parent
company of Ground Round, Inc., filed for Chapter 11 bankruptcy protection.
Ground Round, Inc. leases one Property from the Partnership. As of March 12,
2004, Ground Round, Inc. had neither rejected nor affirmed the lease related to
this Property. The lost revenues that would result if the lease were to be
rejected would have an adverse effect on the results of operations of the
Partnership if the Partnership is not able to re-lease or sell the Property in a
timely manner.
Short-Term Liquidity
The Partnership's investment strategy of acquiring Properties for cash
and generally 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
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 or loans if they deem it appropriate in
connection with the operations of the Partnership.
Due to low ongoing operating expenses and ongoing cash flow, the
General Partners do not believe that working capital reserves are necessary at
this time. In addition, because the leases for the Partnership's Properties are
generally on a triple-net basis, it is not anticipated that a permanent reserve
for maintenance and repairs will be established at this time. The General
Partners may determine to establish reserves in the future. 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 Partnership generally distributes cash from operating activities
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 primarily on current and anticipated future cash from
operating activities, and for 2003, 2002 and 2001 proceeds from the sale of
Properties as described above, the Partnership declared distributions to Limited
Partners of $878,160, $2,210,861, and $1,428,668, for 2003, 2002 and 2001,
respectively. This represents distributions of $29.27, $73.70, and $47.62, per
Unit for the years ended December 31, 2003, 2002 and 2001, respectively.
Distributions during 2003, 2002 and 2001 included $250,000, $1,550,000 and
$600,000, respectively, of net sales proceeds from the sale of the Properties in
Angleton, Texas, Mesquite, Texas, and Salisbury, Maryland. These special
distributions were effectively a return of a portion of the Limited Partners
investment; although, in accordance with the Partnership Agreement, $250,000,
$468,077 and $183,820, respectively, was applied towards the 10% Preferred
Return, on a cumulative basis, and the balances of $1,081,923 and $416,180 in
2002 and 2001, respectively were treated as a return of capital for purposes of
calculating the 10% Preferred Return. As a result of the sales of these
Properties, the Partnership's total revenues were reduced during 2003, 2002, and
2001, and are expected to remain reduced in subsequent years, while the majority
of the Partnership's operating expenses remained fixed. Therefore, distributions
of net cash flow were adjusted commencing during the quarters ended March 31,
2001, 2002 and 2003. The Partnership intends to continue to make distributions
of cash available for distribution to the Limited Partners on a quarterly basis.
During 2000, the General Partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the General
Partners' capital account as of December 31, 1999. Accordingly, the General
Partners were not allocated any net income and did not receive any distributions
during the years ended December 31, 2003, 2002, and 2001.
As of December 31, 2003, 2002, and 2001, the Partnership owed $5,659,
$7,846, and $3,783, respectively, to affiliates for operating expenses and
accounting and administrative services. As of March 12, 2004, the Partnership
had reimbursed the affiliates for these amounts. In addition, as of December 31,
2003, the Partnership owed affiliates $167,710 in real estate disposition fees
as a result of services rendered in connection with the sales of one Property in
2003 and six Properties in previous years. The payment of such fees is deferred
until the Limited Partners have received the sum of their cumulative 10%
Preferred Return and their adjusted capital contributions. Other liabilities,
including distributions payable, decreased to $203,517 at December 31, 2003,
from $218,632 at December 31, 2002. The decrease was primarily the result of a
decrease in real estate taxes payable and distributions payable at December 31,
2003. Liabilities to the extent they exceed cash and cash equivalents will be
paid from anticipated future cash from operating activities, or in the event the
general partners elect to make additional capital contributions or loans, from
the general partner's future contributions or loans.
Off-Balance Sheet Transactions
The Partnership holds interests in various unconsolidated joint venture
and tenancy in common arrangements that are accounted for using the equity
method. The General Partners do not believe that any such interest would
constitute an off-balance sheet arrangement requiring any additional disclosures
under the provisions of the Sarbanes-Oxley Act of 2002.
Contractual Obligations, Contingent Liabilities, and Commitments
The Partnership has no contractual obligations, contingent liabilities,
or commitments as of December 31, 2003.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for Leases"
("FAS 13"), and have been accounted for using either the direct financing or the
operating method. FAS 13 requires management to estimate the economic life of
the leased property, the residual value of the leased property and the present
value of minimum lease payments to be received from the tenant. In addition,
management assumes that all payments to be received under its leases are
collectible. Changes in management's estimates or assumption regarding
collectibility of lease payments could result in a change in accounting for the
lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is appropriate for entities that are partially
owned by the Partnership, but for which operations of the investee are shared
with other partners. The Partnership's joint venture agreements require the
consent of all partners on all key decisions affecting the operations of the
underlying Property.
Management reviews the Partnership's Properties and investments in
unconsolidated entities for impairment at least once a year or whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. The assessment is based on the carrying amount of the
Property or investment at the date it is tested for recoverability compared to
the sum of the estimated future cash flows expected to result from its operation
and sale through the expected holding period. If an impairment is indicated, the
asset is adjusted to its estimated fair value.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." Accordingly, when the Partnership makes the
decision to sell or commits to a plan to sell a Property within one year, its
operating results are reported as discontinued operations.
Results of Operations
Comparison of year ended December 31, 2003 to year ended December 31, 2002
Rental revenues from continuing operations were $406,462 for the year
ended December 31, 2003 as compared to $417,164 for the same period of 2002. The
decrease in rental revenue from continuing operations during 2003 was due to the
sale of the Mesquite, Texas Property in February 2002. Rental revenues from
continuing operations are expected to remain at reduced amounts because the
Partnership used the net sales proceeds to pay liabilities of the Partnership
and to make distributions to the limited partners.
The Partnership also earned $40,617 in contingent rental income for the
year ended December 31, 2003 as compared to $49,919 for the same period of 2002.
The decrease in contingent rental income was primarily attributable to the sale
of the Mesquite, Texas Property in 2002, the lease of which required the payment
of contingent rent. The decrease during 2003 was partially offset by an increase
in gross sales of certain restaurant Properties, the leases of which require the
payment of contingent rent.
For the years ended December 31, 2003 and 2002, the Partnership earned
$47,643 and $373,110, respectively, attributable to net income earned by the
joint venture and one Property owned indirectly with affiliates of the General
Partners. Net income in 2002 was higher 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 and received net sales proceeds of $1,227,100, resulting
in a gain of approximately $604,000. The Partnership dissolved the joint venture
in accordance with the joint venture agreement and recorded an approximate
$30,600 loss on the dissolution. The Partnership received $613,554 representing
its pro rata share of the liquidation proceeds from the joint venture.
During 2003, AJZ, Inc., Wen-Atlanta, Inc., Wendy's Old Fashioned
Hamburgers of New York, Inc., The Ground Round, Inc. and JMJ, LLC., each
contributed more than 10% of the Partnership's total rental revenues (including
the Partnership's share of the total rental revenues from the Property owned by
the joint venture and the Property owned with affiliates of the General Partners
as tenants-in-common). As of December 31, 2003, AJZ, Inc., Wen-Atlanta, Inc.,
Wendy's Old Fashioned Hamburgers of New York, Inc., The Ground Round, Inc. and
JMJ, LLC., were each the lessee under a lease relating to one restaurant. It is
anticipated that based on the minimum rental payments required by the leases,
these five lessees will each continue to contribute 10% or more of the
Partnership's total rental revenues in 2004. In addition, three Restaurant
Chains, A.J. Gators Restaurants, Wendy's Old Fashioned Hamburger Restaurants
("Wendy's"), and The Ground Round each accounted for more than 10% of the
Partnership's total rental revenues in 2003 (including the Partnership's share
of the total rental revenues from the Property owned by the joint venture and
the Property owned with affiliates of the General Partners as
tenants-in-common). In 2004, it is anticipated that each of these Restaurant
Chains will continue to account for more than 10% of the total rental revenues
to which the Partnership is entitled under the terms of its leases. Any failure
of these lessees or Restaurant Chains will materially affect the Partnership's
operating results if the Partnership is not able to re-lease the Properties in a
timely manner.
During the years ended December 31, 2003 and 2002, the Partnership also
earned $226 and $6,265, respectively, in interest and other income. The decrease
in interest and other income during 2003, as compared to the same period of
2002, was primarily attributable to a decrease in the average cash balance due
to the payment of a special distribution of $250,000 to the limited partners,
during 2003 and due to a decline in interest rates.
Operating expenses, including depreciation and amortization expense,
were $223,792 and $244,035 for the years ended December 31, 2003 and 2002,
respectively. The decrease in operating expenses during 2003 was primarily due
to a decrease in the costs incurred for administrative expenses for servicing
the Partnership and its Properties. The decrease in operating expenses was
partially offset by higher state tax expense relating to several states in which
the Partnership conducts business.
As a result of the sale of the Property in Mesquite, Texas, during
2002, the Partnership recognized a gain of $348,026. As of December 31, 2001,
this Property had been identified as held for sale. Because this Property was
identified for sale prior to the January 2002 implementation of Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets", the results of operations relating to this
Property were included as income from continuing operations in the accompanying
financial statements.
As of December 31, 2003, the Partnership identified and sold one
Property and identified two additional Properties that are classified as
discontinued operations in the accompanying financial statements. During 2003,
the Partnership sold its Property in Angleton, Texas, resulting in a loss of
approximately $1,400. As of December 31 2003, the Partnership was negotiating
separate agreements with the tenants to sell the Properties in Camp Hill,
Pennsylvania and Oklahoma City, Oklahoma. During 2003, the Partnership recorded
a provision for write-down of assets in the amount of $55,433 related to the
Property in Oklahoma City. The provision represented the difference between the
carrying value of the Property and its estimated fair value. The financial
results of these Properties were classified as discontinued operations in the
accompanying financial statements.
Comparison of year ended December 31, 2002 to year ended December 31, 2001
Rental revenues from continuing operations were $417,164 for the year
ended December 31, 2002 as compared to $534,261 for the same period of 2001.
Rental revenues from continuing operations were lower because during 2001 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 from continuing operations in future
periods will remain at reduced amounts. However, the General Partners do not
anticipate that the decrease in rental revenue from continuing operations will
have a material adverse affect on the Partnership's financial position or
results of operations. In addition, the decrease in rental revenue from
continuing operations during 2002 was partially due to the sale of the Mesquite,
Texas Property in February 2002.
The Partnership also earned $49,919 in contingent rental income for the
year ended December 31, 2002 as compared to $44,692 for the same period of 2001.
The increase in contingent rental income during 2002 was attributable to an
increase in gross sales of certain restaurant Properties, the leases of which
require the payment of contingent rent.
For the years ended December 31, 2002 and 2001, the Partnership earned
$373,110 and $95,251, respectively, attributable to net income earned by the
joint ventures and one Property owned indirectly with affiliates of the General
Partners. The increase in net income in 2002 as compared to 2001 was
attributable 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 at a
gain, as described above.
During the years ended December 31, 2002 and 2001, the Partnership also
earned $6,265 and $25,189 respectively, in interest and other income. The
decrease in interest and other income during 2002, as compared to the same
period of 2001, was primarily attributable to a decrease in the average cash
balance due to the payment of a special distribution of $1,550,000 to the
limited partners, during 2002 and due to a decline in interest rates.
Operating expenses, including depreciation and amortization expense,
were $244,035 and $263,456 for the years ended December 31, 2002 and 2001,
respectively. The decrease in operating expenses during 2002 was primarily due
to a decrease in depreciation expense as the result of the sale of the Property
in Mesquite, Texas.
The General Partners continuously evaluate strategic alternatives for
the Partnership, including alternatives to provide liquidity to the Limited
Partners.
The Partnership's leases as of December 31, 2003, are, in general,
triple-net leases and contain provisions that the General Partners believe
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. Inflation has had a minimal effect on results of
operations of the Partnership. Continued inflation 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.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting guidance
that addresses when a company should include the assets, liabilities and
activities of another entity in its financial statements. To improve financial
reporting by companies involved with variable interest entities, FIN 46 requires
that a variable interest entity be consolidated by a company if that company is
subject to a majority risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns or
both. Prior to FIN 46, a company generally included another entity in its
consolidated financial statements only if it controlled the entity through
voting interests. In December 2003, the FASB issued FASB Interpretation No. 46R
("FIN 46R"), to clarify some of the provisions of FIN 46. Under FIN 46R, special
effective date provisions apply to entities that have fully or partially applied
FIN 46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests in
structures that are commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Application by public entities, other than small
business issuers, for all other types of variable interest entities is required
in financial statements for periods ending after March 15, 2004. The Partnership
did not fully or partially apply FIN 46 prior to the issuance of FIN 46R. Also,
the Partnership does not have interests in structures commonly referred to as
special-purpose entities. Therefore, application of FIN 46R is required in the
Partnership's financial statements for periods ending after March 15, 2004. The
General Partners believe adoption of this standard may result in either
consolidation or additional disclosure requirements of the Partnership's
unconsolidated joint venture, which is currently accounted for under the equity
method. However, such consolidation is not expected to significantly impact the
Partnership's results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 18
Financial Statements:
Balance Sheets 19
Statements of Income 20
Statements of Partners' Capital 21
Statements of Cash Flows 22-23
Notes to Financial Statements 24-35
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund, Ltd.
In our opinion, the accompanying balance sheets and the related statements of
income, of partners' capital and of cash flows present fairly, in all material
respects, the financial position of CNL Income Fund, Ltd. (a Florida limited
partnership) at December 31, 2003 and 2002, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2003 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedule
listed in the index appearing under item 15(a)(2) presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related financial statements. These financial statements and financial
statement schedule are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, on January 1, 2002, the
Partnership adopted Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
March 24, 2004
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2003 2002
------------------ -------------------
ASSETS
Real estate properties with operating leases, net $ 3,076,606 $ 3,168,873
Real estate held for sale 1,193,335 1,567,239
Investment in joint ventures 430,221 435,495
Cash and cash equivalents 325,603 419,385
Receivables 24,353 19,656
Accrued rental income 29,034 16,831
Other assets 3,552 4,172
------------------ -------------------
$ 5,082,704 $ 5,631,651
================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 2,652 $ 831
Real estate taxes payable 3,700 13,433
Distributions payable 157,040 161,343
Due to related parties 173,369 166,556
Rents paid in advance and deposits 40,125 43,025
------------------ -------------------
Total liabilities 376,886 385,188
Partners' capital 4,705,818 5,246,463
------------------ -------------------
$ 5,082,704 $ 5,631,651
================== ===================
See accompanying notes to financial statements.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2003 2002 2001
---------------- --------------- ----------------
Revenues:
Rental income from operating leases $ 406,462 $ 417,164 $ 534,261
Contingent rental income 40,617 49,919 44,692
Lease termination income -- -- 60,758
Interest and other income 226 6,265 25,189
---------------- --------------- ----------------
447,305 473,348 664,900
---------------- --------------- ----------------
Expenses:
General operating and administrative 120,203 136,719 122,338
Property related 3,723 9,832 20,032
State and other taxes 7,599 3,743 11,089
Depreciation and amortization 92,267 93,741 109,997
---------------- --------------- ----------------
223,792 244,035 263,456
---------------- --------------- ----------------
Income before gain on sale of assets, equity in earnings
of unconsolidated joint ventures and loss on dissolution
of joint ventures 223,513 229,313 401,444
Gain on sale of assets -- 348,026 --
Equity in earnings of unconsolidated joint ventures 47,643 373,110 95,251
Loss on dissolution of joint venture -- (30,579 ) --
---------------- --------------- ----------------
Income from continuing operations 271,156 919,870 496,695
---------------- --------------- ----------------
Discontinued operations
Income from discontinued operations 67,751 55,302 129,622
Loss on disposal of discontinued operations (1,392 ) -- --
---------------- --------------- ----------------
66,359 55,302 129,622
---------------- --------------- ----------------
Net income $ 337,515 $ 975,172 $ 626,317
================ =============== ================
Income per limited partner unit
Continuing operations $ 9.04 $ 30.66 $ 16.56
Discontinued operations 2.21 1.85 4.32
---------------- --------------- ----------------
$ 11.25 $ 32.51 $ 20.88
================ =============== ================
Weighted average number of
limited partner units outstanding 30,000 30,000 30,000
================ =============== ================
See accompanying notes to financial statements.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2003, 2002, and 2001
General Partners Limited Partners
-------------------------------------- --------------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2000 $ 193,400 $ 147,368 $ 12,254,281 $ (19,832,876 ) $ 16,185,470
Distributions to limited
partners ($47.62 per
limited partner unit) -- -- (416,180 ) (1,012,488 ) --
Net income -- -- -- -- 626,317
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2001 193,400 147,368 11,838,101 (20,845,364 ) 16,811,787
Distributions to limited
partners ($73.70 per
limited partner unit) -- -- (1,081,923 ) (1,128,938 ) --
Net income -- -- -- -- 975,172
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2002 193,400 147,368 10,756,178 (21,974,302 ) 17,786,959
Distributions to limited
partners ($29.27 per
limited partner unit) -- -- -- (878,160 ) --
Net income -- -- -- -- 337,515
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2003 $ 193,400 $ 147,368 $ 10,756,178 $ (22,852,462 ) $ 18,124,474
================== ================ ================= ================ =================
See accompanying notes to financial statements.
- ----------------
Syndication
Costs Total
-------------- --------------
$ (1,663,140 ) $7,284,503
-- (1,428,668 )
-- 626,317
-------------- --------------
(1,663,140 ) 6,482,152
-- (2,210,861 )
-- 975,172
-------------- --------------
(1,663,140 ) 5,246,463
-- (878,160 )
-- 337,515
-------------- --------------
$ (1,663,140 ) $4,705,818
============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
2003 2002 2001
--------------- --------------- --------------
Cash Flows from Operating Activities:
Net income $ 337,515 $ 975,172 $ 626,317
--------------- --------------- --------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 116,827 137,107 154,096
Amortization -- 208 2,500
Equity in earnings of unconsolidated joint
ventures, net of distributions 5,274 (291,907 ) 17,136
Loss (gain) on sale of assets 1,392 (348,026 ) --
Provision for write-down of assets 55,433 79,245 --
Loss on dissolution of joint venture -- 30,579 --
Decrease (increase) in receivables (4,712 ) 15,200 8,927
Increase in due from related parties 15 1,559 --
Increase in accrued rental income (8,571 ) (10,920 ) (5,688 )
Decrease (increase) in other assets 620 (1,193 ) 6,440
Increase (decrease) in accounts
payable and accrued expenses and
escrowed real estate taxes payable (7,912 ) (4,264 ) 4,582
Increase (decrease) in due to related parties (2,187 ) 4,063 1,299
Increase (decrease) in rents paid in
advance and deposits (2,900 ) (3,565 ) 15,527
--------------- --------------- --------------
Total adjustments 153,279 (391,914 ) 204,819
--------------- --------------- --------------
Net cash provided by operating activities 490,794 583,258 831,136
Cash Flows from Investing Activities:
Proceeds from sale of real estate properties 297,887 1,064,259 --
Liquidating distribution from joint venture -- 613,554 --
--------------- --------------- --------------
Net cash provided by investing activities 297,887 1,677,813 --
--------------- --------------- --------------
Cash Flows from Financing Activities:
Distributions to limited partners (882,463 ) (2,256,685 ) (1,435,958 )
--------------- --------------- --------------
Net cash used in financing activities (882,463 ) (2,256,685 ) (1,435,958 )
--------------- --------------- --------------
Net increase (decrease) in cash and cash equivalents (93,782 ) 4,386 (604,822 )
Cash and cash equivalents at beginning of year 419,385 414,999 1,019,821
--------------- --------------- --------------
Cash and cash equivalents at end of year $ 325,603 $ 419,385 $ 414,999
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31,
2003 2002 2001
--------------- --------------- --------------
Supplemental schedule of non-cash investing and financing activities:
Deferred real estate disposition fee
incurred and unpaid at end of year $ 9,000 $ 32,215 $ --
=============== =============== ==============
Distributions declared and unpaid at
December 31 $ 157,040 $ 161,343 $ 207,167
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies
Organization and Nature of Business - CNL Income Fund, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50% shareholders of the
Corporate General Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisitions of real estate properties at cost, including acquisition
and closing costs. Real estate properties are generally leased to third
parties on a triple-net basis, whereby the tenant is generally
responsible for all operating expenses relating to the property,
including property taxes, insurance, maintenance and repairs. During
the years ended December 2003, 2002 and 2001 tenants paid, or are
expected to pay, directly to real estate taxing authorities
approximately $68,200, $75,600 and $73,900 in estimated real estate
taxes in accordance with the terms of their leases.
The leases of the Partnership provide for base minimum annual rental
payments payable in monthly installments. In addition, certain leases
provide for contingent rental revenues based on the tenants' gross
sales in excess of a specified threshold. The Partnership defers
recognition of the contingent rental revenues until the defined
thresholds are met. Leases are accounted for using the operating
method. Under the operating method, property leases are recorded at
cost, revenue is recognized as rentals are earned and depreciation is
charged to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30 years.
When scheduled rentals vary during the lease term, income is recognized
on a straight-line basis so as to produce a constant periodic rent over
the lease term commencing on the date the property is placed in
service.
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled rental
payments to date.
The leases are for 10 to 20 years and provide for minimum and
contingent rentals. The lease options generally allow tenants to renew
the leases for two to five successive five-year periods subject to the
same terms and conditions as the initial lease. Most leases also allow
the tenant to purchase the property at fair market value after a
specified portion of the lease has elapsed.
When the properties are sold, the related cost and accumulated
depreciation plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review the properties for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through
operations. The general partners determine whether an impairment in
value has occurred by comparing the estimated future undiscounted cash
flows, including the residual value of the property, with the carrying
cost of the individual property. If an impairment is indicated, the
assets are adjusted to their estimated fair value.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
When the collection of amounts recorded as rental or other income is
considered to be doubtful, a provision is made to increase the
allowance for doubtful accounts. If amounts are subsequently determined
to be uncollectible, the corresponding receivable and the allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership's investments in Orange
Avenue Joint Venture and the property in Vancouver, Washington, which
is held as tenants-in-common with affiliates of the General Partners
are accounted for using the equity method since each joint venture
agreement requires the consent of all partners on all key decisions
affecting the operations of the underlying property.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts.
Lease Costs - Other assets include lease incentive costs and brokerage
and legal fees associated with negotiating leases and are amortized
over the terms of the new leases using the straight-line method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment.
Syndication costs represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment.
Rents Paid in Advance - Rents paid in advance by lessees for future
periods are deferred upon receipt and are recognized as revenues during
the period in which the rental income is earned.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 2003 presentation.
These reclassifications had no effect on partners capital, net income
or cash flows.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
Statement of Financial Accounting Standards No. 144 - 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.
FASB Interpretation No. 46 - In January 2003, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and
strengthen existing accounting guidance that addresses when a company
should include the assets, liabilities and activities of another entity
in its financial statements. To improve financial reporting by
companies involved with variable interest entities, FIN 46 requires
that a variable interest entity be consolidated by a company if that
company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. In December 2003,
the FASB issued FASB Interpretation No. 46R ("FIN 46R"), to clarify
some of the provisions of FIN 46. Under FIN 46R, special effective date
provisions apply to entities that have fully or partially applied FIN
46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests
in structures that are commonly referred to as special-purpose entities
for periods ending after December 15, 2003. Application by public
entities, other than small business issuers, for all other types of
variable interest entities is required in financial statements for
periods ending after March 15, 2004. The Partnership did not fully or
partially apply FIN 46 prior to the issuance of FIN 46R. Also, the
Partnership does not have interests in structures commonly referred to
as special-purpose entities. Therefore, application of FIN 46R is
required in the Partnership's financial statements for periods ending
after March 15, 2004. The general partners believe adoption of this
standard may result in either consolidation or additional disclosure
requirements of the Partnership's unconsolidated joint venture, which
is currently accounted for under the equity method. However, such
consolidation is not expected to significantly impact the Partnership's
results of operations.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
2. Real Estate Properties with Operating Leases
Real estate properties with operating leases consisted of the following
at December 31:
2003 2002
----------------- -----------------
Land $ 1,890,380 $
1,890,380
Buildings 2,767,941 2,767,941
----------------- -----------------
4,658,321 4,658,321
Less accumulated depreciation (1,581,715 ) (1,489,448 )
----------------- -----------------
$ 3,076,606 $
3,168,873
================= =================
During 2002, the Partnership sold its property in Mesquite, Texas to a
third party and received net sales proceeds of approximately
$1,064,300, 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. As of December 31, 2001, this property had
been identified as held for sale.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2003:
2004 394,259
2005 394,259
2006 338,403
2007 255,411
2008 240,081
Thereafter 992,802
------------------
$ 2,615,215 (1)
==================
(1) Excludes two properties which were classified as real estate held
for sale.
3. Investment in Joint Ventures
As of December 31, 2003, the Partnership had a 50% interest in the
profits and losses of Orange Avenue Joint Venture and owned a 12.17%
interest in a property in Vancouver, Washington, with affiliates of the
general partners. This joint venture, and the tenancy-in-common with
affiliates of the general partners, as tenants-in-common, each owns one
property.
In June 2002, Sand Lake Road Joint Venture, in accordance with the
option under the lease agreement, sold its property to the tenant and
received net sales proceeds of approximately $1,227,100, resulting in a
gain of approximately $604,000. The Partnership owned a 50% interest in
this joint venture. 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 FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
3. Investment in Joint Ventures - Continued
The following presents the combined, condensed financial information
for the joint venture and property held as tenants-in-common with
affiliates at:
December 31,
2003 2002
--------------- ---------------
Real estate properties with operating leases, net $ 2,290,485 2,344,593
Cash 41,382 4,442
Accrued rental income 115,842 115,129
Other assets -- 24
Liabilities 5,620 2,250
Partners' capital 2,442,089 2,461,938
Years Ended December 31,
2003 2002 2001
--------------- -------------- ---------------
Continuing Operations:
Revenues $ 297,796 $ 303,278 $ 302,778
Expenses (57,392 ) (57,212 ) (56,533 )
--------------- -------------- ---------------
Income from continuing operations 240,404 246,066 246,245
--------------- -------------- ---------------
Discontinued Operations:
Revenues -- 54,993 117,162
Expenses -- (9,525 ) (23,476 )
Gain on disposal of real estate -- 604,015 --
properties
--------------- -------------- ---------------
-- 649,483 93,686
--------------- -------------- ---------------
Net Income $ 240,404 $ 895,549 $ 339,931
=============== ============== ===============
The Partnership recognized income totaling $47,643, $373,110 and
$95,251 for the years ended December 31, 2003, 2002 and 2001,
respectively, from these joint ventures.
4. Allocations and Distributions
From inception through December 31, 1999, all net income and net losses
of the Partnership, excluding gains and losses from the sale of
properties, were allocated 99% to the limited partners and one percent
to the general partners. From inception through December 31, 1999,
distributions of net cash flow were made 99% to the limited partners
and one percent to the general partners. However, the one percent of
net cash flow to be distributed to the general partners was
subordinated to receipt by the limited partners of an aggregate, 10%,
noncumulative, noncompounded annual return on their adjusted capital
contributions (the "10% Preferred Return").
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
4. Allocations and Distributions - Continued
From inception through December 31, 1999, generally, net sales proceeds
from the sale of properties not in liquidation of the Partnership, to
the extent distributed, were distributed first to the limited partners
in an amount sufficient to provide them with their cumulative 10%
Preferred Return, plus the return of their adjusted capital
contributions. The general partners then received, to the extent
previously subordinated and unpaid, a one percent interest in all prior
distributions of net cash flow and a return of their capital
contributions. Any remaining sales proceeds were distributed 95% to the
limited partners and five percent to the general partners. Any gain
from the sale of a property not in liquidation of the Partnership was,
in general, allocated in the same manner as net sales proceeds are
distributable. Any loss from the sale of a property was, in general,
allocated first, on a pro rata basis, to partners with positive
balances in their capital accounts; and thereafter, 95% to the limited
partners and five percent to the general partners.
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: (i) first to pay and discharge all
of the Partnership's liabilities to creditors, (ii) second, to
establish reserves that may be deemed necessary for any anticipated or
unforeseen liabilities or obligations of the Partnership, (iii) third,
to pay all of the Partnership's liabilities, if any, to the general and
limited partners, (iv) fourth, after allocations of net income, gains
and/or losses, to distribute to the partners with positive capital
account balances, in proportion to such balances, up to amounts
sufficient to reduce such positive balances to zero, and (v)
thereafter, any funds remaining shall then be distributed 95% to the
limited partners and five percent to the general partners.
Effective January 2000, the general partners waived their right to
receive future distributions from the Partnership, including both
distributions of operating cash flow and distributions of liquidation
proceeds, to the extent that the cumulative amount of such
distributions would exceed the balance in the general partners' capital
account as of December 31, 1999. Accordingly, for years commencing
January 1, 2000 and after, the Partnership's net income will be
allocated entirely among the limited partners. However, if losses are
allocated to the general partners in a year, an amount of income equal
to the sum of such losses may be allocated to the general partners in
succeeding years. Accordingly, the general partners were not allocated
any net income and did not receive any distributions during the years
ended December 31, 2003, 2002 and 2001.
During the years ended December 31, 2003, 2002, and 2001, the
Partnership declared distributions to the limited partners of $878,160,
$2,210,861, and $1,428,668, respectively. Distributions during the year
ended December 31, 2003 included $250,000 in a special distribution, as
a result of the distribution of net sales proceeds from the sale of the
Property in Angleton, Texas. Distributions during the year ended
December 31, 2002 included $1,550,000 in a special distribution, as a
result of the distribution of net sales proceeds from the sales of
Properties in Mesquite, Texas and the liquidation proceeds from Sand
Lake Joint Venture. Distributions for the year ended December 31, 2001
included $600,000 in a special distribution, as a result of the
distribution of net sales proceeds from the sale of the property in
Salisbury, Maryland. These special distributions in 2003, 2002 and
2001, were effectively a return of a portion of the limited partners'
investment, although in accordance with the partnership agreement,
$250,000, $468,077 and $183,820, respectively, were applied toward the
limited partners' 10% Preferred Return and the balances of $1,081,923
and $416,180 in 2002 and 2001, were treated as a return of capital for
purposes of calculating the limited partners' 10% Preferred Return. As
a result of the returns of capital in 2002 and 2001, 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
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
4. Allocations and Distributions - Continued
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, while the majority of the
Partnership's operating expenses remained fixed. Therefore,
distributions of net cash flow were adjusted during the quarters ended
March 31, 2003, 2002 and 2001. No distributions have been made to the
general partners to date.
5. Income Taxes
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
2003 2002 2001
------------ ------------- -------------
Net income for financial reporting purposes $ 337,515 $ 975,172 $ 626,317
Effect of timing differences relating
to depreciation (45,520 ) (52,986 ) (54,364 )
Effect of timing differences relating to
gains 65,042 136,917 --
on real estate property sales
Effect of timing differences relating to
equity in earnings of
unconsolidated joint venures 2,853 96,749 (10,061 )
Provision for write-down of assets 55,433 79,245 --
Accrued rental income (8,571 ) (8,497 ) (5,688 )
Rents paid in advance (2,900 ) 435 (1,044 )
------------ ------------- -------------
Net income for federal income tax purposes $ 403,852 $ 1,227,035 $ 555,160
============ ============= =============
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
6. Discontinued Operations
During 2002, the Partnership identified for sale one property that is
classified as discontinued operations in the accompanying financial
statements. In January 2003, the Partnership sold the property in
Angleton, Texas resulting in a loss on disposal of discontinued
operations of approximately $1,400. The Partnership had recorded a
provision for write-down of assets in a previous year related to this
property. As of December 31, 2003, the Partnership was negotiating
separate agreements with the tenants to sell its properties in Camp
Hill, Pennsylvania and Oklahoma City, Oklahoma. As a result, the
properties were reclassified from real estate properties with operating
leases to real estate held for sale. The reclassified assets were
recorded at the lower of their carrying amounts or fair value, less
cost to sell. The Partnership recorded a provision for write-down of
assets related to the property in Oklahoma City, Oklahoma. The
financial results for these properties are reflected as discontinued
operations in the accompanying financial statements.
The operating results of the discontinued operations for the above
properties are as follows:
Year Ended December 31,
2003 2002 2001
---------------- ------------------ ---------------
Rental revenues $ 147,744 $ 179,252 $ 176,221
Expenses (24,560 ) (44,705 ) (46,599 )
Provision for write-down of assets (55,433 ) (79,245 ) --
---------------- ------------------ ---------------
Income from discontinued
operations $ 67,751 $ 55,302 $ 129,622
================ ================== ===============
7. Related Party Transactions
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Holdings, Inc. The other individual
general partner, Robert A. Bourne, serves as President and Treasurer of
CNL Financial Group, Inc., a wholly owned subsidiary of CNL Holdings,
Inc. CNL APF Partners, LP, a wholly owned subsidiary of CNL Restaurant
Properties, Inc. (formerly known as CNL American Properties Fund, Inc.)
served as the Partnership's advisor until January 1, 2002, when it
assigned its rights and obligations under a management agreement to RAI
Restaurants, Inc. ("the Advisor"). The Advisor is a wholly owned
subsidiary of CNL Restaurant Properties, Inc. ("CNL-RP"). The
individual general partners are stockholders and directors of CNL-RP.
The Advisor provides services pursuant to a management agreement with
the Partnership. In connection therewith, the Partnership has agreed to
pay the Advisor an annual, noncumulative, subordinated property
management fee of one-half of one percent of the Partnership assets
under management (valued at cost) annually. The property management fee
is limited to one percent of the sum of gross operating revenues from
properties wholly owned by the Partnership and the Partnership's
allocable share of gross operating revenues from joint ventures or
competitive fees for comparable services. In addition, these fees will
be incurred and will be payable only after the limited partners receive
their aggregate, noncumulative 10% Preferred Return. Due to the fact
that these fees are noncumulative, if the limited partners do not
receive their 10% Preferred Return in any particular year, no
management fees will be due or payable for such year. As a result of
such threshold, no management fees were incurred during the years ended
December 31, 2003, 2002, and 2001.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
7. Related Party Transactions - Continued:
The Advisor is also 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 Advisor 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. Payment of the real estate disposition fee is subordinated
to the receipt by the limited partners of their aggregate 10% Preferred
Return on a cumulative basis, plus their adjusted capital
contributions. For the years ended December 31, 2003 and 2002, the
Partnership incurred $9,000 and $32,215 in deferred, subordinated real
estate disposition fees as a result of the sale of one property in each
year. No deferred, subordinated real estate disposition fees were
incurred for the year ended December 31, 2001.
During the years ended December 31, 2003, 2002, and 2001, the
Partnership's advisor and its affiliates provided accounting and
administrative services to the Partnership. The Partnership incurred
$76,748, $108,019 and $93,447, for the years ended December 31, 2003,
2002, and 2001, respectively, for such services.
The due to related parties consisted of the following at December 31:
2003 2002
-------------- -------------
Deferred, subordinated real estate
disposition fee $ 167,710 $ 158,710
Accounting and administrative services 5,659 7,846
-------------- -------------
$ 173,369 $ 166,556
============== =============
The deferred, subordinated real estate disposition fees will not be
paid until after the limited partners have received their cumulative
10% Preferred Return, plus their adjusted capital contributions.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
8. 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 the joint venture and the property held as tenants-in-common with
affiliates of the general partners) for each of the years ended
December 31:
2003 2002 2001
--------------- -------------- --------------
Wen - Atlanta Inc. $ 89,058 $ 89,603 $ N/A
The Ground Round, Inc. 88,523 88,523 88,523
AJZ, Inc. 84,774 84,774 N/A
Wendy's Old Fashioned
Hamburgers of New York, Inc. 82,112 82,112 N/A
JMJ, LLC. 68,917 N/A N/A
Golden Corral Corporation N/A N/A 165,460
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 the joint venture and the property held as
tenants-in-common with an affiliate of the general partners) for each
of the years ended December 31:
2003 2002 2001
------------- ------------ ------------
Wendy's Old Fashioned Hamburger Restaurants $297,061 $312,432 $374,154
Ground Round 88,523 88,523 88,523
A.J. Gators Restaurant 84,774 84,774 N/A
Golden Corral Buffet and Grill N/A N/A 165,460
The information denoted by N/A indicates that for each period
presented, the tenant or restaurant chain did not represent more than
10% of the Partnership's total rental revenues.
Although the Partnership's properties have some geographic diversity in
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.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
9. Selected Quarterly Financial Data
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2003 and
2002:
2003 Quarter First Second Third Fourth Year
------------------------------- ----------- ------------- -------------- ------------- -------------
Continuing Operations (1):
Revenues $ 103,940 $ 101,615 $ 115,781 $ 125,969 $ 447,305
Equity in earnings of
unconsolidated joint 12,111 12,071 12,117 11,344 47,643
ventures
Income from continuing
operations 46,025 58,744 76,256 90,131 271,156
Discontinued Operations (1):
Revenues 38,539 36,292 36,292 36,621 147,744
Income (loss) from and
loss on disposal of
discontinued operations 29,242 28,387 30,042 (21,312 ) 66,359
Net income 75,267 87,131 106,298 68,819 337,515
Income (loss) per limited
partner unit:
Continuing operations $ 1.53 $ 1.96 $ 2.54 $ 3.01 $ 9.04
Discontinued operations 0.98 0.94 1.00 (0.71 ) 2.21
----------- ------------- -------------- ------------- -------------
$ 2.51 $ 2.90 $ 3.54 $ 2.30 $ 11.25
=========== ============= ============== ============= =============
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
9. Selected Quarterly Financial Data - Continued
2002 Quarter First Second Third Fourth Year
------------------------------- ----------- ------------- -------------- ------------- -------------
Continuing Operations (1):
Revenues $ 130,131 $ 107,362 $ 114,748 $ 121,107 $ 473,348
Equity in earnings of
unoconsolidated joint 23,410 325,454 12,181 12,065 373,110
ventures
Income from continuing
operations 427,440 341,375 72,928 78,127 919,870
Discontinued Operations (1):
Revenues 43,946 43,946 43,946 47,414 179,252
Income (loss) from
discontinued operations 31,565 32,296 (47,349 ) 38,790 55,302
Net income 459,005 373,671 25,579 116,917 975,172
Income (loss) per limited partner
unit:
Continuing operations $ 14.25 $ 11.38 $ 2.43 $ 2.60 $ 30.66
Discontinued operations 1.05 1.08 (1.58 ) 1.30 1.85
----------- ------------- -------------- ------------- -------------
$ 15.30 $ 12.46 $ 0.85 $ 3.90 $ 32.51
=========== ============= ============== ============= =============
(1) Certain items in the quarterly financial data have been reclassified to
conform to 2003 presentation. This reclassification had no effect on
net income. The results of operations relating to properties that were
identified for sale as of December 31, 2001 but sold subsequently are
reported as continuing operations. The results of operations relating
to properties that were either identified for sale and disposed of
subsequent to January 1, 2002 or were classified as held for sale as of
December 31, 2003 are reported as discontinued operations for all
periods presented.
10. Subsequent Events
In February 2004, the Partnership sold the property in Oklahoma City,
Oklahoma for $450,000 and received net sales proceeds of approximately
$447,500. Because the Partnership had recorded a provision for
write-down of assets relating to this property during 2003, no gain or
loss will be recognized relating to the sale of this property.
In February 2004, American Hospitality Concepts, Inc., the parent
company of Ground Round, Inc., filed for Chapter 11 bankruptcy
protection. Ground Round, Inc. leases one property from the
Partnership. As of March 12, 2004, Ground Round, Inc. had neither
rejected nor affirmed the lease related to this property.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. 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 as of the end of the period
covered by this Annual Report on Form 10-K and have determined that such
disclosure controls and procedures are effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL-RP, CCM, CNL Financial Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 57. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL-RP, a public, unlisted real
estate investment trust since 1994. Mr. Seneff served as Chief Executive Officer
of CNL-RP from 1994 through August 1999 and as Co-Chief Executive Officer from
December 2000 through September 2003. Mr. Seneff served as Chairman of the Board
and Chief Executive Officer of CNL Fund Advisors, Inc., formerly the
Partnership's advisor, from its inception in 1990 until it merged with a
wholly-owned subsidiary of CNL-RP in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. CNL Fund Advisors,
Inc., formerly CNL Institutional Advisors, Inc., is a registered investment
advisor. Mr. Seneff is a principal stockholder of CNL Holdings, Inc., the parent
company of CNL Financial Group, Inc., a diversified real estate company, and has
served as a Director, Chairman of the Board and Chief Executive Officer of CNL
Financial Group, Inc. since 1973. CNL Financial Group, Inc. is and is the parent
company, either directly or indirectly through subsidiaries, of CNL Real Estate
Services, Inc., CNL Capital Markets, Inc., CNL Investment Company and CNL
Securities Corp., all of which are engaged in the business of real estate
finance. Mr. Seneff also serves as a Director and Chairman of the Board of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust;
and served as Chief Executive Officer of CNL Hospitality Properties, Inc. from
its inception in 1997 until 2003 and served as Co-Chief Executive Officer from
February 2003 until May 1, 2003. Mr. Seneff has served as Chairman of the Board
of CNL Hospitality Corp., the advisor to CNL Hospitality Properties, Inc., since
its inception in 1997. Mr. Seneff also served as Chief Executive Officer from
its inception in 1997 through February 2003, and currently serves as Co-Chief
Executive Officer of CNL Hospitality Corp. Mr. Seneff has served as Director and
Chairman of the Board of CNL Retirement Corp. since 1997 and served as Chief
Executive Officer of CNL Retirement Corp. from 1997 through 2003. CNL Retirement
Corp. is the advisor to CNL Retirement Properties, Inc., a public, unlisted real
estate investment trust. Mr. Seneff has also served as Director and Chairman of
the Board of Commercial Net Lease Realty, Inc., a public real estate investment
trust that is listed on the New York Stock Exchange, since 1992 and served as
Chief Executive Officer of Commercial Net Lease Realty, Inc. from 1992 through
February 2004. Mr. Seneff has served as a Director, Chairman of the Board, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff has
served as Chairman of the Board and Chief Executive Officer of CNL Commercial
Finance, Inc. since 2000. Mr. Seneff also serves as Chairman of the Board of
CNLBank, an independent, state-chartered commercial bank. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment Advisory Council, which recommends
to the Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of the
Florida state retirement plan. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 56. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne has
served as a Director and Vice Chairman of the Board of CNL-RP since 1994. Mr.
Bourne also served as President of CNL-RP from 1994 through February 1999 and
served as Treasurer from February 1999 through August 1999 and from May 1994
through December 1994. Mr. Bourne served in various executive positions with CNL
Fund Advisors, Inc. prior to its merger with a wholly-owned subsidiary of CNL-RP
including, President from 1994 through September 1997, and Director from 1994
through August 1999. Mr. Bourne serves as President and Treasurer of CNL
Financial Group, Inc. Mr. Bourne serves as Director, Vice Chairman of the Board
and Treasurer and from 1997 until June 2002 served as President of CNL
Hospitality Properties, Inc. and as Director, President and Treasurer of CNL
Hospitality Corp. Mr. Bourne also serves as Director and Treasurer of CNL
Retirement Properties, Inc. and as Director and Treasurer of CNL Retirement
Corp. Mr. Bourne serves as a Director of CNLBank. Mr. Bourne has also served as
a Director since 1992, Vice Chairman of the Board since February 1996, Secretary
and Treasurer from February 1996 through 1997, and President from July 1992
through February 1996, of Commercial Net Lease Realty, Inc. Mr. Bourne serves as
Director, President and Treasurer for various affiliates of CNL Financial Group,
Inc. including, CNL Investment Company, CNL Securities Corp. and CNL
Institutional Advisors, Inc. Mr. Bourne began his career as a certified public
accountant employed by Coopers & Lybrand, Certified Public Accountants, from
1971 through 1978, where he attained the position of Tax Manager in 1975. Mr.
Bourne graduated from Florida State University in 1970 where he received a B.A.
in Accounting, with honors.
Curtis B. McWilliams, age 48. Mr. McWilliams has served as President of
CNL-RP since May 2001 and as Chief Executive Officer of CNL-RP since September
2003. Mr. McWilliams served as Co-Chief Executive Officer of CNL-RP from
December 2000 through September 2003 and served as Chief Executive Officer from
September 1999 through December 2000. Mr. McWilliams also served as President
and Chief Executive Officer of CNL Franchise Network Corp., a wholly owned
subsidiary of CNL-RP since August 2002 and served as President of CNL-RP from
February 1999 until September 1999 and as Executive Vice President of CNL-RP
from 1997 through February 1999. Mr. McWilliams served as an Executive Vice
President of CNL Financial Group, Inc. from the time he joined the company in
April 1997 until September 1999. Mr. McWilliams served as President of CNL Fund
Advisors, Inc. and CNL Financial Services, Inc., a corporation engaged in the
business of real estate financing, from April 1997 until the acquisition of such
entities by wholly owned subsidiaries of CNL-RP in September 1999. From
September 1983 through March 1997, Mr. McWilliams was employed by Merrill Lynch
& Co. The majority of his career at Merrill Lynch & Co. was in the Investment
Banking division where he served as a Managing Director. Mr. McWilliams received
a B.S.E. in Chemical Engineering from Princeton University in 1977 and a Master
of Business Administration degree with a concentration in finance from the
University of Chicago in 1983.
Steven D. Shackelford, age 40. Mr. Shackelford was promoted to
Executive Vice President and Chief Operating Officer of CNL-RP in September
2003. Mr. Shackelford has also served as Chief Financial Officer since January
1997. He served as Senior Vice President of CNL-RP from January 1997 through
July 2000, when he was promoted to Executive Vice President. Mr. Shackelford has
also served as Secretary and Treasurer of CNL-RP since September 1999. He also
served as Chief Financial Officer of CNL Fund Advisors, Inc. from September 1996
to September 1999. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse LLP where he was responsible
for advising foreign clients seeking to raise capital and a public listing in
the United States. From August 1992 to March 1995, he was a manager in the
Paris, France office of Price Waterhouse, serving several multi-national
clients. Mr. Shackelford was an audit staff and senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a Bachelor
of Arts degree in Accounting, with honors, and a Master of Business
Administration degree from Florida State University and is a certified public
accountant.
Thomas Arasi, age 46. Mr. Arasi has served as President of CCM since it
was formed in July 2003 to provide strategic advisory services to the General
Partners. He has served in various consulting capacities to CNL Hospitality Corp
and other CNL affiliates since January 2003. Since November 2001 he has been an
independent consultant working for a variety of operating and investment
companies in the hospitality industry. Until October 2001, Mr. Arasi was
President & Chief Executive Officer, and a member of the Board of Directors of
Lodgian, Inc., a New York Stock Exchange traded company, one of the largest
independent hotel owner/operators in North America, with hotel properties under
most brand names including Marriott, Courtyard by Marriott, Fairfield Inn by
Marriott, Crowne Plaza, Holiday Inn, Hilton, and Radisson. From June 1997
through November 2000, Mr. Arasi was a member of the Management Committee and
held several top operating positions with Bass Hotels & Resorts, one of the
leading international owners, operators and franchisors of hotels, most recently
serving as President, Bass Hotels & Resort--The Americas. Mr. Arasi was formerly
President of Tishman Hotel Corporation, Vice President of Salomon Brothers,
Inc., in New York, Tokyo and Los Angeles and held positions with Sheraton,
Westin and HVS International. Mr. Arasi graduated from Cornell University in
January 1981, where he received a Bachelor's degree in Hotel and Restaurant
Administration.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the General Partners, the
officers of the corporate General Partner, and persons who own more than ten
percent of a registered class of the Partnership's equity securities
(collectively, the "Reporting Persons"), to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC. Reporting Persons are
required by SEC regulation to furnish the Partnership with copies of all Forms
3, 4 and 5 that they file.
Based solely on the General Partners' review of the copies of such
forms the Partnership has received and written representations from certain
Reporting Persons that they were not required to file Forms 5 for the last
fiscal year, the General Partners believe that all Reporting Persons complied
with all filing requirements applicable to them with respect to transactions
during fiscal 2003.
Code of Business Conduct
The Partnership does not have employees and, accordingly, has not
adopted a code of business conduct applicable exclusively to the Partnership.
However, employees of the General Partners or their affiliates, including the
individual General Partners, are bound by the Code of Business Conduct adopted
November 11, 2003 by CNL Holdings, Inc. Separately, the employees of the Advisor
are bound by the similar Code of Business Conduct adopted by CNL Restaurant
Properties, Inc. Each of these codes of business conduct will be made available
to any person who writes the Partnership requesting a copy.
Audit Committee Financial Expert
Due to its organization as a limited partnership, the Partnership does
not have an audit committee that is responsible for supervising the
Partnership's relationship with its independent auditors. For the Partnership,
this role is performed by the General Partners. Based on his previous service as
the principal financial officer of companies with businesses similar to that of
the Partnership, Robert A. Bourne, one of the General Partners, has the
requisite experience to be considered an "audit committee financial expert" as
defined in the rules under the Securities Exchange Act of 1934, if the
Partnership had an audit committee. As a General Partner, Mr. Bourne is not
independent of the Partnership.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
As of March 12, 2004, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 12, 2004, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
The Partnership does not have any equity compensation plans.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2003, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2003
- ------------------------------------ ---------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are Accounting and
operating expenses reimbursed at the lower of cost administrative services:
or 90% of the prevailing rate at $76,748
which comparable services could
have been obtained in the same
geographic area. If the General
Partners or their affiliates
loan funds to the Partnership,
the General Partners or their
affiliates will be reimbursed
for the interest and fees
charged to them by unaffiliated
lenders for such loans.
Affiliates of the General
Partners from time to time incur
certain operating expenses on
behalf of the Partnership for
which the Partnership reimburses
the affiliates without interest.
Annual, subordinated property One-half of one percent per year $-0-
management fee to affiliates of Partnership assets under
management (valued at cost),
subordinated to certain minimum
returns to the Limited Partners. The
property management fee will not
exceed the lesser of one percent of
gross operating revenues or
competitive fees for comparable
services. Due to the fact that these
fees are non-cumulative, if the
Limited Partners do not receive their
10% Preferred Return in any
particular year, no property
management fees will be due or
payable for such year.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2003
- ------------------------------------ ---------------------------------- ------------------------------
Deferred, subordinated real estate A deferred, subordinated real $9,000
disposition fee payable to estate disposition fee, payable
affiliates upon sale of one or more
Properties, in an amount equal to the
lesser of (i) one-half of a
competitive real estate commission,
or (ii) three percent of the sales
price of such Property or Properties.
Payment of such fee shall be made
only if affiliates of the General
Partners provide a substantial amount
of services in connection with the
sale of a Property or Properties and
shall be subordinated to certain
minimum returns to the Limited
Partners. However, if the net sales
proceeds are reinvested in a
replacement Property, no such real
estate disposition fee will be
incurred until such replacement
Property is sold and the net sales
proceeds are distributed.
General Partners' deferred, A deferred, subordinated share $-0-
subordinated share of Partnership equal to one percent of
net cash flow Partnership distributions of net
cash flow, subordinated to
certain minimum returns to the
Limited Partners.
General Partners' deferred, A deferred, subordinated share $-0-
subordinated share of Partnership equal to five percent of
net sales proceeds from a sale or Partnership distributions of
sales not in liquidation of the such net sales proceeds,
Partnership subordinated to certain minimum
returns to the Limited Partners.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2003
- ------------------------------------ ---------------------------------- ------------------------------
General Partners' share of Distributions of net sales $-0-
Partnership net sales proceeds proceeds from a sale or sales of
from a sale or sales in substantially all of the
liquidation of the Partnership Partnership's assets will be
distributed in the following order or
priority: (i) first, to pay all debts
and liabilities of the Partnership
and to establish reserves; (ii)
second, to Partners with positive
capital account balances, determined
after the allocation of net income,
net loss, gain and loss, in
proportion to such balances, up to
amounts sufficient to reduce such
balances to zero; and (iii)
thereafter, 95% to the Limited
Partners and 5% to the General
Partners.
Item 14. Principal Accountant Fees and Services
The following table outlines the only fees paid or accrued by the Partnership
for the audit and other services provided by the Partnership's independent
certified public accountants, PricewaterhouseCoopers LLP, for the years ended
December 31:
2003 2002
----------------- -----------------
Audit Fees (1) $ 5,222 $ 3,000
Tax (2) 3,386 4,766
----------------- -----------------
Total $ 8,608 $ 7,766
================= =================
(1) Audit services of PricewaterhouseCoopers LLP for 2003 and 2002
consisted of the examination of the financial statements of the
Partnership and quarterly review of financial statements.
(2) Tax Fees relates to tax consulting and compliance services.
Each of the non-audit services described above was approved by the
General Partners. Due to its organization as a limited partnership, the
Partnership does not have an audit committee.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2003 and 2002
Statements of Income for the years ended December 31, 2003, 2002,
and 2001
Statements of Partners' Capital for the years ended December 31,
2003, 2002, and 2001
Statements of Cash Flows for the years ended December 31, 2003,
2002, and 2001
Notes to Financial Statements
2. Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation at December
31, 2003
Notes to Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2003
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or notes
thereto.
3. 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 Form of 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 between CNL Income Fund,
Ltd. and CNL Investment Company. (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 9, 2001, and incorporated herein by
reference.)
10.5 Assignment of 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 April 1, 1996, and incorporated
herein by reference.)
10.6 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 14, 2002, and incorporated herein by
reference.)
31.1 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.
(Filed herewith.)
31.2 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.
(Filed herewith.)
32.1 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.)
32.2 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) The Registrant filed no reports on Form 8-K during the period from October
1, 2003 through December 31, 2003.
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 24th day of
March, 2004.
CNL INCOME FUND, 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.
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.
Signature Title Date
/s/ Robert A. Bourne President, Treasurer and Director March 24, 2004
- --------------------------- (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 24, 2004
- --------------------------- (Principal Executive Officer)
James M. Seneff, Jr.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
Costs Capitalized
Subsequent To Net Cost Basis at Which
Initial Cost Acquisition Carried at Close of Period (c)
------------------------ ------------------ ----------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
---------- ------------ ---------------------- ------- ----------- ----------- ---------
Properties the Partnership
has Invested in:
Pizza Hut Restaurant:
Bowie, Texas - 29,683 106,042 10,897 - 29,683 116,939 146,622
Wendy's Old Fashioned
Hamburger Restaurants:
Mesa, Arizona - 440,339 328,579 - - 440,339 328,579 768,918
Stockbridge, Georgia - 282,482 363,008 - - 282,482 363,008 645,490
Payson, Arizona - 391,076 427,218 - - 391,076 427,218 818,294
Other:
Eunice, Louisiana - 186,009 477,947 - - 186,009 477,947 663,956
Jasper, Alabama - 220,665 473,818 - - 220,665 473,818 694,483
Virginia Beach, Virginia - 340,126 580,432 - - 340,126 580,432 920,558
------------ ----------- --------- ------- ----------- ----------- -----------
$1,890,380 $2,757,044 $10,897 $1,890,380 $2,767,941 $4,658,321
============ =========== ========= ======= =========== =========== ===========
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Depreciation struction Acquired Computed
- ---------- --------- ----- ------------
62,534 1976 12/87 (b)
190,762 1986 08/86 (b)
210,742 1986 08/86 (b)
243,281 1986 12/86 (b)
270,841 1987 01/87 (b)
269,811 1986 12/86 (b)
333,744 1986 10/86 (b)
----------
$1,581,715
==========
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
(a) Transactions in real estate and accumulated depreciation are summarized
below. The balances in 2001, 2002, and 2003 have been adjusted to
reflect the reclassification of properties accounted for as discontinued
operations.
Accumulated
Cost Depreciation
----------------- ------------------
Properties the Partnership has Invested in:
Balance, December 31, 2000 $ 5,559,260 $ 1,523,254
Depreciation expense -- 107,497
----------------- ------------------
Balance, December 31, 2001 5,559,260 1,630,751
Dispositions (900,939) (234,837)
Depreciation expense -- 93,534
----------------- ------------------
Balance, December 31, 2002 4,658,321 1,489,448
Depreciation expense -- 92,267
----------------- ------------------
Balance, December 31, 2003 $ 4,658,321 $ 1,581,715
================= ==================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2003, the aggregate cost of the Partnership's wholly
owned Properties was $5,897,292 for federal income tax purposes. All of
the leases are treated as operating leases for federal income tax
purposes.
EXHIBIT INDEX
Exhibit Number
(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 Form of 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 between CNL Income Fund, Ltd. and
CNL Investment Company. (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 9,
2001, and incorporated herein by reference.)
10.5 Assignment of 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 April 1, 1996, and incorporated herein by
reference.)
10.6 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
14, 2002, and incorporated herein by reference.)
31.1 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. (Filed herewith.)
31.2 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. (Filed herewith.)
32.1 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.)
32.2 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 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2