FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the quarterly period ended September 30, 2004
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from ______________________ to _______________________
Commission file number
0-15666
---------------------------------------
CNL Income Fund, Ltd.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2666264
- --------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- ----------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes____ No X
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Item 4. Controls and Procedures 11
Part II.
Other Information 12-13
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
2004 2003
------------------- -------------------
ASSETS
Real estate properties with operating leases, net $ 3,747,515 $ 3,835,891
Real estate held for sale -- 434,050
Investment in joint ventures 413,851 430,221
Cash and cash equivalents 626,193 325,603
Receivables, less allowance for doubtful
accounts of $4,960 in 2004 10,193 24,353
Accrued rental income 38,185 29,034
Other assets 9,721 3,552
------------------- -------------------
$ 4,845,658 $ 5,082,704
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 46,199 $ 2,652
Real estate taxes payable 13,557 3,700
Distributions payable 157,040 157,040
Due to related parties 217,846 173,369
Rents paid in advance and deposits 46,122 40,125
------------------- -------------------
Total liabilities 480,764 376,886
Partners' capital 4,364,894 4,705,818
------------------- -------------------
$ 4,845,658 $ 5,082,704
=================== ===================
See accompanying notes to condensed financial statements.
1
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------------- ------------- -------------- -------------
Revenues:
Rental income from operating leases $ 102,376 $ 124,134 $ 321,250 $ 371,239
Contingent rental income 26,263 13,778 32,378 16,264
Interest and other income 62 -- 126 226
------------- ------------- -------------- -------------
128,701 137,912 353,754 387,729
------------- ------------- -------------- -------------
Expenses:
General operating and administrative 57,748 26,340 141,054 95,908
Property related 10,281 1,655 19,466 3,322
State and other taxes -- -- 5,412 7,599
Depreciation and amortization 29,194 26,017 93,481 81,001
------------- ------------- -------------- -------------
97,223 54,012 259,413 187,830
------------- ------------- -------------- -------------
Income before equity in earnings of unconsolidated joint
ventures 31,478 83,900 94,341 199,899
Equity in earnings of unconsolidated joint ventures 12,027 12,117 35,855 36,299
------------- ------------- -------------- -------------
Income from continuing operations 43,505 96,017 130,196 236,198
------------- ------------- -------------- -------------
Discontinued operations:
Income from discontinued operations -- 10,281 -- 33,890
Loss on disposal of discontinued operations -- -- -- (1,392)
------------- ------------- -------------- -------------
-- 10,281 -- 32,498
------------- ------------- -------------- -------------
Net income $ 43,505 $ 106,298 $ 130,196 $ 268,696
============= ============= ============== =============
Income per limited partner unit:
Continuing operations $ 1.45 $ 3.20 $ 4.34 $ 7.87
Discontinued operations -- 0.34 -- 1.09
------------- ------------- -------------- -------------
$ 1.45 $ 3.54 $ 4.34 $ 8.96
============= ============= ============== =============
Weighted average number of limited partner
units outstanding 30,000 30,000 30,000 30,000
============= ============= ============== =============
See accompanying notes to condensed financial statements.
2
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
2004 2003
---------------------- ------------------
General partners:
Beginning balance $ 340,768 $ 340,768
Net income -- --
---------------------- ------------------
340,768 340,768
---------------------- ------------------
Limited partners:
Beginning balance 4,365,050 4,905,695
Net income 130,196 337,515
Distributions ($15.70 and $29.27 per
limited partner unit, respectively) (471,120) (878,160)
---------------------- ------------------
4,024,126 4,365,050
---------------------- ------------------
Total partners' capital $ 4,364,894 $ 4,705,818
====================== ==================
See accompanying notes to condensed financial statements.
3
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2004 2003
--------------- ---------------
Net cash provided by operating activities $ 324,160 $ 360,381
--------------- ---------------
Cash flows from investing activities:
Proceeds from sale of assets 447,550 297,887
--------------- ---------------
Net cash provided by investing activities 447,550 297,887
--------------- ---------------
Cash flows from financing activities:
Distributions to limited partners (471,120) (725,423)
--------------- ---------------
Net cash used in financing activities (471,120) (725,423)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 300,590 (67,155)
Cash and cash equivalents at beginning of period 325,603 419,385
--------------- ---------------
Cash and cash equivalents at end of period $ 626,193 $ 352,230
=============== ===============
Supplemental schedule of non-cash investing and financing activities:
Deferred real estate disposition fee incurred and
unpaid at end of period $ 13,500 $ 9,000
=============== ===============
Distributions declared and unpaid at end of
period $ 157,040 $ 157,040
=============== ===============
See accompanying notes to condensed financial statements.
4
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2004 and 2003
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of the general partners, necessary for a fair
statement of the results for the interim periods presented. Operating
results for the quarter and nine months ended September 30, 2004 may
not be indicative of the results that may be expected for the year
ending December 31, 2004. Amounts as of December 31, 2003, included in
the financial statements, have been derived from audited financial
statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund, Ltd. (the "Partnership") for the year ended December 31,
2003.
In December 2003, the Financial Accounting Standards Board issued a
revision to FASB Interpretation No. 46 (originally issued in January
2003) ("FIN 46R"), "Consolidation of Variable Interest Entities"
requiring existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries. Application of FIN 46R is
required in financial statements of public entities that have interests
in variable interest entities for periods ending after March 15, 2004.
The Partnership adopted FIN 46R during the quarter ended March 31,
2004. The Partnership was not the primary beneficiary of a variable
interest entity at the time of adoption of FIN 46R, therefore the
adoption had no effect on the balance sheet, partners' capital or net
income.
2. Discontinued Operations
During 2002, the Partnership identified for sale one property that was
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 during the nine months ended
September 30, 2003. The Partnership had recorded a provision for
write-down of assets in a previous year related to this property.
During 2003, the Partnership identified two additional Properties for
sale. In February 2004, the Partnership sold the property in Oklahoma
City, Oklahoma. Because the Partnership recorded a provision for
write-down of assets in the previous year relating to this property, no
gain or loss was recognized on the sale. In June 2004, the contract for
the sale of the property in Camp Hill, Pennsylvania was terminated, and
as a result, the Partnership reclassified the assets from real estate
held for sale to real estate properties with operating leases. The
Partnership recorded $13,275 of depreciation expense at the time of the
reclassification related to the period of time that the asset was
classified as real estate held for sale.
The operating results of the discontinued operations for the properties
in Angleton, Texas and Oklahoma City, Oklahoma are as follows:
Quarter Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
-------------- -------------- ------------ ------------
Rental revenues $ -- $ 14,161 $ -- $ 44,730
Expenses -- (3,880) -- (10,840)
-------------- -------------- ------------ ------------
Income from discontinued
operations $ -- $ 10,281 $ -- $ 33,890
============== ============== ============ ============
5
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2004 and 2003
3. 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 total rental
revenues from the joint venture and the property held as
tenants-in-common with affiliates of the general partners) for each of
the nine months ended September 30:
2004 2003
--------------- --------------
Wen-Atlanta, Inc. $ 74,974 $ 68,925
AJZ, Inc. 70,296 63,581
Wendy's Old Fashioned Hamburgers
of New York, Inc. 61,584 61,584
Darrin Cobb 41,079 N/A
The Ground Round, Inc. N/A 66,392
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 total rental revenues from the joint venture and the property held
as tenants-in-common with affiliates of the general partners) for each
of the nine months ended September 30:
2004 2003
-------------- --------------
Wendy's Old Fashioned Hamburger
Restaurants $ 168,247 $ 215,078
A.J. Gators Restaurant 70,296 63,581
D.C. Sportsbar and Steakhouse Restaurant 41,079 N/A
Ground Round N/A 66,392
The information denoted by N/A indicates that for each period
presented, the tenant or chain did not represent more than 10% of the
Partnership's total rental revenues.
Although the properties have some geographic diversity in the United
States and the 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 if the Partnership is not able to re-lease the properties in
a timely manner.
In February 2004, American Hospitality Concepts, Inc., the parent
company of The Ground Round, Inc., filed for Chapter 11 bankruptcy
protection, and rejected the lease relating to the property it leased
from the Partnership. The Partnership re-leased the property during
September 2004 with rental revenues to commence by January 1, 2005.
4. Related Party Transactions
An affiliate of the Partnership is entitled to receive a deferred,
subordinated real estate disposition fee, payable upon the sale of one
or more properties based on the lesser of one-half of a competitive
real estate commission or three percent of the sales price if the
affiliate provides a substantial amount of services in connection with
the sale. However, if the net sales proceeds are reinvested in a
replacement property, no such real estate disposition fees will be
incurred until such replacement property is sold and the net sales
proceeds are distributed. The payment of the real estate disposition
fee is subordinated to receipt by the limited partners of their
aggregate 10% preferred return, plus their adjusted capital
contributions. During the nine months ended September 30, 2004 and
2003, the Partnership incurred deferred, subordinated real estate
disposition fees of $13,500 and $9,000, respectively, as a result of
the sale of one property during each period.
6
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2004 and 2003
5. Merger Transaction
On August 9, 2004, the Partnership entered into a definitive Agreement
and Plan of Merger pursuant to which the Partnership will be merged
with a subsidiary of U.S. Restaurant Properties, Inc. (NYSE: USV). The
merger is one of multiple concurrent transactions pursuant to which 17
other affiliated limited partnerships also will be merged with a
subsidiary of U.S. Restaurant Properties, Inc. and in which CNL
Restaurant Properties, Inc., an affiliate, also will be merged with
U.S. Restaurant Properties, Inc. CNL Restaurant Properties, Inc.
currently provides property management and other services to the
Partnership. The merger of the Partnership (and each of the 17 other
affiliated mergers) is subject to certain conditions including approval
by a majority of the limited partners, consummation of a minimum number
of limited partnership mergers representing at least 75.0% in value (as
measured by the value of the merger consideration) of all limited
partnerships, consummation of the merger between U.S. Restaurant
Properties, Inc. and CNL Restaurant Properties, Inc., approval of the
shareholders of U.S. Restaurant Properties, Inc., and availability of
financing. The transaction is expected to be consummated in the first
quarter of 2005.
Under the terms of the merger agreement, if the transaction is
approved, the limited partners will receive total consideration of
approximately $5.54 million, consisting of approximately $4.63 million
in cash and approximately $0.91 million in U.S. Restaurant Properties,
Inc. Series A Convertible Preferred Stock that is listed on the New
York Stock Exchange. The general partners will receive total
consideration of approximately $243,000 consisting of approximately
$203,000 in cash and approximately $40,000 in preferred stock.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund, Ltd. (the "Partnership," which may be referred to as
"we," "us," or "our") is a Florida limited partnership that was organized on
November 26, 1985 to acquire for cash, either directly or through joint venture
and tenancy in common arrangements, both newly constructed and existing
restaurant properties, as well as land upon which restaurants were to be
constructed, which are leased primarily to operators of national and regional
fast-food restaurant chains (collectively, the "Properties"). The leases
generally are triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance and utilities. As of September 30,
2003 and 2004, we owned nine and eight Properties directly, respectively, one
Property indirectly through a joint venture arrangement and one Property
indirectly through a tenancy in common arrangement.
Merger Transaction
The general partners believe their primary objective is to maintain
current operations with restaurant operators as successfully as possible, while
evaluating strategic alternatives, including alternatives that may provide
liquidity to the limited partners. Real estate markets are strong throughout
much of the nation, and the performance of restaurants has generally improved
after several challenging years. As a result, the general partners believe that
this is an attractive period for a strategic event to monetize the interests of
the limited partners.
In furtherance of this, on August 9, 2004, we entered into a definitive
Agreement and Plan of Merger pursuant to which we will be merged with a
subsidiary of U.S. Restaurant Properties, Inc. (NYSE: USV). The merger is one of
multiple concurrent transactions pursuant to which 17 other affiliated limited
partnerships also will be merged with a subsidiary of U.S. Restaurant
Properties, Inc. and in which CNL Restaurant Properties, Inc., an affiliate,
also will be merged with U.S. Restaurant Properties, Inc. Our merger (and each
of the 17 other affiliated mergers) is subject to certain conditions including
approval by a majority of the limited partners, consummation of a minimum number
of limited partnership mergers representing at least 75.0% in value (as measured
by the value of the merger consideration) of all limited partnerships,
consummation of the merger between U.S. Restaurant Properties, Inc. and CNL
Restaurant Properties, Inc., approval of the shareholders of U.S. Restaurant
Properties, Inc., and availability of financing. U.S. Restaurant Properties,
Inc. is a real estate investment trust (REIT) that focuses primarily on
acquiring, owning and leasing restaurant properties. The transaction is expected
to be consummated in the first quarter of 2005.
Under the terms of the merger agreement, if the transaction is
approved, our limited partners will receive total consideration of approximately
$5.54 million, consisting of approximately $4.63 million in cash and
approximately $0.91 million in U.S. Restaurant Properties, Inc. Series A
Convertible Preferred Stock that is listed on the New York Stock Exchange. The
general partners will receive total consideration of approximately $243,000
consisting of approximately $203,000 in cash and approximately $40,000 in
preferred stock.
We received an opinion from Wachovia Capital Markets, LLC that as of
August 9, 2004 the merger consideration to be received by the holders of our
general and limited partnership interests is fair, from a financial point of
view, to such holders.
As reflected above, the contemplated transactions are complex, and
contingent upon certain conditions. The restaurant marketplace, the real estate
industry, and the equities markets, all individually or taken as a whole, could
impact the economics of this transaction. As a result, there is no assurance
that we will be successful in completing the contemplated transaction.
Capital Resources
For the nine months ended September 30, 2004 and 2003, net cash
provided by operating activities was $324,160 and $360,381, respectively. The
decrease in cash from operating activities during the nine months ended
September 30, 2004, as compared to the previous year, was a result of 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.
8
During the nine months ended September 30, 2004, we sold the Property
in Oklahoma City, Oklahoma to the tenant and received net sales proceeds of
approximately $447,600. Because we recorded a provision for write-down of assets
in the previous year relating to this Property, no gain or loss was recognized
on the sale. In connection with the sale, we incurred a deferred, subordinated
disposition fee of $13,500. Payment of the real estate disposition fee is
subordinated to the receipt by the limited partners of their aggregate,
cumulative 10% Preferred Return, plus their adjusted capital contributions. The
general partners intend to distribute the net sales proceeds to the limited
partners or use the proceeds to pay liabilities.
At September 30, 2004, we had $626,193 in cash and cash equivalents, as
compared to $325,603 at December 31, 2003. At September 30, 2004, these funds
were held in a demand deposit account at a commercial bank. The increase at
September 30, 2004 was primarily the result of holding the net sales proceeds
received from the sale of the Property in Oklahoma City, Oklahoma. The funds
remaining at September 30, 2004, after payment of distributions and other
liabilities, will be used to meet our working capital needs.
Short-Term Liquidity
Our investment strategy of acquiring Properties for cash and leasing
them under triple-net leases to operators who generally meet specified financial
standards minimizes our operating expenses. The general partners believe that
the leases will continue to generate cash flow in excess of operating expenses.
Our short-term liquidity requirements consist primarily of our
operating expenses.
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 our operations.
We generally distribute cash from operations remaining after the
payment of operating expenses to the extent the general partners determine that
such funds are available for distribution. Based on current cash from operations
and net proceeds from the sale of a Property in 2003 and 2004, we declared
distributions to limited partners of $471,120 and $721,120 for the nine months
ended September 30, 2004 and 2003, respectively, ($157,040 for each of the
quarters ended September 30, 2004 and 2003). This represents distributions of
$15.70 and $24.04 per unit for the nine months ended September 30, 2004 and
2003, respectively, ($5.23 per unit for each applicable quarter). The
distribution for the nine months ended September 30, 2003, included $250,000 of
net sales proceeds from the 2003 sale of the Property in Angleton, Texas. The
special distribution in 2003 was effectively a return of a portion of the
limited partners' investment, although in accordance with the Partnership
agreement, it was applied to the limited partners' unpaid cumulative 10%
Preferred Return. As a result of the sales of the Properties in previous years
and the current year, our total revenues have declined and are expected to
remain reduced in subsequent periods, while the majority of our operating
expenses remained and are expected to remain fixed. Due to these sales and to
current and anticipated future cash from operations, distributions of net cash
flow were adjusted commencing during the quarter ended March 31, 2003. No
distributions were made to the general partners for the nine months ended
September 30, 2004 and 2003. We intend to continue to make distributions of cash
to the limited partners on a quarterly basis.
Total liabilities, including distributions payable, were $480,764 at
September 30, 2004, as compared to $376,886 at December 31, 2003. The increase
was primarily due to an increase in accounts payable and accrued expenses and
amounts due to related parties. The general partners believe that we have
sufficient cash on hand to meet our current working capital needs.
Long-Term Liquidity
We have no long-term debt or other long-term liquidity requirements.
Results of Operations
Rental revenues from continuing operations were $321,250 during the
nine months ended September 30, 2004, as compared to $371,239 during the same
period of 2003, $102,376 and $124,134 of which were earned during the third
quarters of 2004 and 2003, respectively. The decrease in rental revenues from
continuing operations was a result of the fact that in February 2004, American
Hospitality Concepts, Inc., the parent company of The Ground Round, Inc., filed
for Chapter 11 bankruptcy protection. As a result, we stopped recording rental
revenues relating to the one lease The Ground Round, Inc. had with us. In April
2004, the tenant rejected the lease. We re-leased the Property to a new tenant
during September 2004 with rental revenues commencing by January 1, 2005.
9
We earned $32,378 in contingent rental income for the nine months ended
September 30, 2004, as compared to $16,264 for the same period of 2003, $26,263
and $13,778 of which were earned during the quarters ended September 30, 2004
and 2003, respectively. The increase in contingent rental income during 2004 was
due to an increase in gross sales of certain restaurant Properties, the leases
of which require the payment of contingent rent.
We earned $35,855 attributable to net income earned by unconsolidated
joint ventures during the nine months ended September 30, 2004, as compared to
$36,299 during the same period of 2003, $12,027 and $12,117 of which were earned
during the quarters ended September 30, 2004 and 2003, respectively. Net income
earned by unconsolidated joint ventures during 2004, as compared to the same
period of 2003, remained relatively constant, as the leased property portfolio
did not change.
In October 2003, Chevy's, Inc., the tenant of the Property in
Vancouver, Washington, which we own as tenants-in-common with affiliates of the
general partners, filed for Chapter 11 bankruptcy protection. We own a 12.17%
interest in this Property. While the tenant has neither rejected nor affirmed
the one lease it has with us, there can be no assurance that the lease will not
be rejected in the future. The lost revenues that would result if the tenant
were to reject this lease will have an adverse effect on the equity in earnings
of unconsolidated joint ventures if the tenancy in common is not able to
re-lease the Property in a timely manner.
During the nine months ended September 30, 2004, four of our lessees,
Wen-Atlanta, Inc., AJZ, Inc., Wendy's Old Fashioned Hamburgers of New York, Inc.
and Darrin Cobb each contributed more than 10% of our total rental revenues
(including our share of total rental revenues from the Property owned by a joint
venture and a Property owned with affiliates of the general partners as
tenants-in-common). We anticipate that based on the minimum rental payments
required by the leases, these lessees will each continue to contribute more than
10% of our total rental revenues. In addition, during the nine months ended
September 30, 2004, three restaurant chains, Wendy's Old Fashioned Hamburger
Restaurants, A.J. Gators Restaurant, and D.C. Sportsbar and Steakhouse
Restaurant, each accounted for more than 10% of our total rental revenues
(including our share of total rental revenues from the Property owned by a joint
venture and a Property owned with affiliates as tenants-in-common). We
anticipate these restaurant chains will each continue to account for more than
10% of the total rental revenues to which we are entitled under the terms of the
leases. Any failure of these lessees or restaurant chains will materially affect
our operating results if we are not able to re-lease the Properties in a timely
manner.
Operating expenses, including depreciation and amortization expense,
were $259,413 during the nine months ended September 30, 2004, as compared to
$187,830 during the same period of 2003, $97,223 and $54,012 of which were
incurred during the quarters ended September 30, 2004 and 2003, respectively.
The increase in operating expenses during the quarter and nine months ended
September 30, 2004, was primarily the result of incurring additional general
operating and administrative expenses, including, primarily, legal fees incurred
in connection with the merger transaction described above. In June 2004, the
contract for the sale of our Property in Camp Hill, Pennsylvania was terminated.
Therefore, the increase in operating expenses during 2004 was also attributable
to an increase in depreciation expense of $7,375 during the nine months ended
September 30, 2004, related to this Property as a result of the reclassification
of the related assets from real estate held for sale to real estate properties
with operating leases, and property related expenses such as insurance, repairs
and maintenance, legal fees and real estate taxes relating to this vacant
Property, as described above. We re-leased the Property to a new tenant during
September 2004.
We recognized income from discontinued operations (rental revenues less
property related expenses) of $33,890 during the nine months ended September 30,
2003, relating to the Properties in Angleton, Texas and Oklahoma City, Oklahoma.
We sold the Property in Angleton, Texas in January 2003 and recognized a loss on
disposal of discontinued operations of approximately $1,400. We recognized
income from discontinued operations of $10,281 during the quarter ended
September 30, 2003 relating to the Property in Oklahoma City, Oklahoma. We sold
this Property in February 2004. Because we had recorded a provision for
write-down of assets in 2003, no gain or loss was recognized on the disposal of
discontinued operations.
10
In December 2003, the Financial Accounting Standards Board issued a
revision to FASB Interpretation No. 46 (originally issued in January 2003) ("FIN
46R"), "Consolidation of Variable Interest Entities" requiring existing
unconsolidated variable interest entities to be consolidated by their primary
beneficiaries. Application of FIN 46R is required in financial statements of
public entities that have interests in variable interest entities for periods
ending after March 15, 2004. We adopted FIN 46R during the quarter ended March
31, 2004. We were not the primary beneficiary of a variable interest entity at
the time of adoption of FIN 46R, therefore the adoption had no effect on the
balance sheet, partners' capital or net income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
The general partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in our
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 our disclosure controls
and procedures as of the end of the period covered by this Quarterly Report on
Form 10-Q 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.
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
-----------------
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
-----------------------------------------------------------
Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
---------------------------------------------------
Item 5. Other Information. Inapplicable.
-----------------
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
2.1 Agreement and Plan of Merger among U.S. Restaurant
Properties, Inc., Ivanhoe Acquisition I LLC, and CNL
Income Fund, Ltd., dated as of August 9, 2004. (Included
as Exhibit 99.2 to Form 8-K filed with the Securities
and Exchange Commission on August 9, 2004, and
incorporated herein by reference.)
3.1 Certificate of Limited Partnership of CNL Income Fund,
Ltd., as amended. (Included as Exhibit 3.1 to Amendment
No. 1 to Registration Statement No. 33-2850 on Form S-11
and incorporated herein by reference.)
3.2 Amended and Restated Certificate and Agreement of
Limited Partnership of CNL Income Fund, Ltd. (Included
as Exhibit 3.2 to Form 10-K filed with the Securities
and Exchange Commission on March 27, 1998, and
incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund,
Ltd., as amended. (Included as Exhibit 4.1 to Amendment
No. 1 to Registration Statement No. 33-2850 on Form S-11
and incorporated herein by reference.)
4.2 Amended and Restated Certificate and Agreement of
Limited Partnership of CNL Income Fund, Ltd. (Included
as Exhibit 3.2 to Form 10-K filed with the Securities
and Exchange Commission on March 27, 1998, and
incorporated herein by reference.)
10.1 Property Management Agreement 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.)
12
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Included as
Exhibit 10.5 to Form 10-Q filed with the Securities and
Exchange Commission on August 13, 2002, and incorporated
herein 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.)
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 10th day of November 2004.
CNL INCOME FUND, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
--------------------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
--------------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibit Number
Exhibits
2.1 Agreement and Plan of Merger among U.S. Restaurant
Properties, Inc., Ivanhoe Acquisition I LLC, and CNL
Income Fund, Ltd., dated as of August 9, 2004. (Included
as Exhibit 99.2 to Form 8-K filed with the Securities
and Exchange Commission on August 9, 2004, and
incorporated herein by reference.)
3.1 Certificate of Limited Partnership of CNL Income Fund,
Ltd., as amended. (Included as Exhibit 3.1 to Amendment
No. 1 to Registration Statement No. 33-2850 on Form S-11
and incorporated herein by reference.)
3.2 Amended and Restated Certificate and Agreement of
Limited Partnership of CNL Income Fund, Ltd. (Included
as Exhibit 3.2 to Form 10-K filed with the Securities
and Exchange Commission on March 27, 1998, and
incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund,
Ltd., as amended. (Included as Exhibit 4.1 to Amendment
No. 1 to Registration Statement No. 33-2850 on Form S-11
and incorporated herein by reference.)
4.2 Amended and Restated Certificate and Agreement of
Limited Partnership of CNL Income Fund, Ltd. (Included
as Exhibit 3.2 to Form 10-K filed with the Securities
and Exchange Commission on March 27, 1998, and
incorporated herein by reference.)
10.1 Property Management Agreement 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 11, 2001, and incorporated
herein by reference.)
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Included as
Exhibit 10.5 to Form 10-Q filed with the Securities and
Exchange Commission on August 13, 2002, and incorporated
herein reference.)
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