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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, 2000
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 0-16850
CNL INCOME FUND III, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2809460
(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]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 50,000 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 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 III, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on June 1, 1987. 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 August 10, 1987, the Partnership offered
for sale up to $25,000,000 in limited partnership interests (the "Units")
(50,000 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
April 29, 1988, as of which date the maximum offering proceeds of $25,000,000
had been received from investors who were admitted to the Partnership as limited
partners (the "Limited Partners").
The Partnership was organized primarily 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,
totalled $22,125,102, and were used to acquire 32 Properties, including
interests in two Properties owned by joint ventures in which the Partnership is
a co-venturer.
During 1997, the Partnership sold its Properties in Chicago, Illinois;
Bradenton, Florida; Kissimmee, Florida; Roswell, Georgia and Mason City, Iowa.
The Partnership reinvested a portion of these net sales proceeds in a Property
in Fayetteville, North Carolina. In addition, the Partnership reinvested a
portion of these net sales proceeds in three Properties, one each in Englewood,
Colorado; Miami, Florida; and Overland Park, Kansas, as tenants-in-common, with
affiliates of the General Partners during 1997 and 1998. During 1998, the
Partnership sold its Properties in Daytona Beach, Fernandina Beach, and Punta
Gorda, Florida; Hazard, Kentucky; and a Po Folks Property in Hagerstown,
Maryland. The Partnership reinvested a portion of the net sales proceeds in a
joint venture arrangement, RTO Joint Venture, with an affiliate of the General
Partners to purchase, construct and hold one Property. During 1999, the
Partnership sold its Perkins Property in Flagstaff, Arizona and its Denny's
Property in Hagerstown, Maryland. The Partnership reinvested the majority of the
remaining net sales proceeds from the 1998 and 1999 sales in a Property in
Baytown, Texas as Tenants-in Common, with affiliates of the General Partners,
and in Properties in Montgomery, Alabama; and a Property in Auburn, Alabama.
During 2000, the Partnership sold its Property in Plant City, Florida.
As a result of the above transactions, as of December 31, 2000, the
Partnership owned 27 Properties. The 27 Properties include interests in three
Properties owned by joint ventures in which the Partnership is a co-venturer and
four Properties 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 will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. 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.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant Properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. Under the Agreement and Plan of Merger,
APF was to issue shares of its common stock as consideration for the Merger. On
March 1, 2000, the General Partners and APF announced that they had mutually
agreed to terminate the Agreement and Plan of Merger. The agreement to terminate
the Agreement and Plan of Merger was based, in large part, on the General
Partners' concern that, in light of market conditions relating to publicly
traded real estate investment trusts, the value of the transaction had
diminished. As a result of such diminishment, the General Partners' ability to
unequivocally recommend voting for the transaction, in the exercise of their
fiduciary duties, had become questionable. The General Partners are continuing
to evaluate strategic alternatives for the Partnership including alternatives to
provide liquidity to the Limited Partners.
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
terms ranging from 15 to 20 years (the average being 18 years), and expire
between 2002 and 2019. Generally, 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 generally provide for minimum base
annual rental payments (payable in monthly installments) ranging from
approximately $23,000 to $191,900. The majority of the leases provide for
percentage rent, based on sales in excess of a specified amount, to be paid
annually. In addition, some leases provide for increases in the annual base rent
during the lease term.
Generally, the leases of the Properties provide for two to five
five-year renewal options subject to the same terms and conditions as the
initial lease. Lessees of 21 of the Partnership's 27 Properties also have been
granted options to purchase Properties at each Property's then fair market
value, or pursuant to a formula based on the original cost of the Property, if
greater, after a specified portion of the lease term has elapsed. Fair market
value will be determined through an appraisal by an independent firm.
Additionally, certain leases provide the lessee an option to purchase up to a 49
percent interest in the Property, after a specified portion of the lease term
has elapsed, at an option purchase price similar to that described above,
multiplied by the percentage interest in the Property with respect to which the
option is being exercised.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership must first
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.
Major Tenants
During 2000, two lessees of the Partnership, Golden Corral Corporation
and IHOP Properties, Inc., each contributed more than ten percent of the
Partnership's total rental and earned income (including rental income from the
Partnership's consolidated joint venture and the Partnership's share of rental
and earned income from two Properties owned by unconsolidated joint ventures and
four Properties owned with affiliates of the General Partners as
tenants-in-common). As of December 31, 2000, Golden Corral Corporation was the
lessee under leases relating to five restaurants, and IHOP Properties Inc. was
the lessee under leases relating to four restaurants. It is anticipated that,
based on the minimum rental payments required by the leases, these lessees will
continue to contribute more than ten percent of the Partnership's total rental
and earned income in 2001. In addition, three Restaurant Chains, Golden Corral
Family Steakhouse Restaurants ("Golden Corral"), IHOP, and KFC, each accounted
for more than ten percent of the Partnership's total rental and earned income in
2000 (including rental income from the Partnership's consolidated joint venture
and the Partnership's share of the rental and earned income from two Properties
owned by unconsolidated joint ventures and four Properties owned with affiliates
of the General Partners as tenants-in-common). In 2001, it is anticipated that
these three Restaurant Chains each will continue to account for more than ten
percent of total rental and income to which the Partnership is entitled under
the terms of the leases. Any failure of these lessees or any of these Restaurant
Chains could materially affect the Partnership's income, if the Partnership is
not able to re-lease these Properties in a timely manner. As of December 31,
2000, Golden Corral Corporation leased Properties with an aggregate carrying
value in excess of 20 percent of the total assets of the Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into a joint venture arrangement,
Tuscawilla Joint Venture, with three unaffiliated entities to purchase and hold
one Property. In addition, the Partnership has entered into two separate joint
venture arrangements: Titusville Joint Venture with CNL Income Fund IV, Ltd., an
affiliate of the General Partners, to purchase and hold one Property; and RTO
Joint Venture with CNL Income Fund V, Ltd., an affiliate of the General
Partners, to construct and hold one Property. Construction for the Property
owned by RTO Joint Venture was completed and rent commenced in December 1998.
The affiliates are limited partnerships organized pursuant to the laws of the
state of Florida.
The joint venture arrangements provide for the Partnership and its
joint venture partners to share in all costs and benefits associated with the
joint venture in accordance with their respective percentage interests in the
joint venture. The Partnership has a 69.07%, 73.4%, and 46.88% interest in
Tuscawilla Joint Venture, Titusville Joint Venture, and RTO Joint Venture,
respectively. The Partnership and its joint venture partners are also jointly
and severally liable for all debts, obligations and other liabilities of the
joint venture.
Each joint venture has an initial term of approximately 20 years
(generally the same term as the initial term of the lease for the Property in
which the joint venture invested) and, after the expiration of the initial term,
continues in existence from year to year unless terminated at the option of any
joint venture partner 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.
The Partnership has management control of Tuscawilla Joint Venture and
shares management control equally with affiliates of the General Partners for
Titusville Joint Venture and RTO Joint Venture. The joint venture agreements
restrict each venturer's ability to sell, transfer or assign its joint venture
interest without first offering it for sale to its joint venture partners,
either upon such terms and conditions as to which the ventures may agree or, in
the event the ventures cannot agree, on the same terms and conditions as any
offer from a third party to purchase such joint venture interest.
Net cash flow from operations of Tuscawilla Joint Venture, Titusville
Joint Venture and RTO Joint Venture is distributed 69.07%, 73.4% and 46.88%,
respectively, to the Partnership and the balance is distributed to each other
joint venture partner in accordance with its respective percentage interest in
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.
In addition to the above joint venture arrangements, the Partnership
has entered into four agreements to hold a Property as tenants-in-common: one in
Englewood, Colorado, with CNL Income Fund IX, Ltd.; one in Overland Park,
Kansas, with CNL Income Fund II, Ltd. and CNL Income Fund VI, Ltd.; one in
Miami, Florida, with CNL Income Fund VII, Ltd., CNL Income Fund X, Ltd., and CNL
Income Fund XIII, Ltd.; and one in Baytown, Texas, with CNL Income Fund VI, Ltd.
Each of the CNL Income Funds is an affiliate of the General Partners. The
agreements provide for the Partnership and the affiliates to share in the
profits and losses of the Properties in proportion to each party's percentage
interest. The Partnership owns a 33 percent, 25.87%, 9.84% and 20 percent
interest in the Properties, respectively.
Each of the affiliates is a limited Partnership organized pursuant to
the laws of the state of Florida. The tenancy in common agreement restricts each
party's ability to sell, transfer, or assign its interest in the tenancy in
common's Property without first offering it for sale to the remaining party to
the agreement.
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
the Property if the proceeds are reinvested in an additional Property.
Property Management
CNL Funds Advisors, Inc., an affiliate of the General Partners, acts as
manager of the Partnership's Properties pursuant to a property management
agreement with the Partnership. Under this agreement, CNL Fund Advisors, Inc. is
responsible for collecting rental payments, inspecting the Properties and the
tenants' books and records, assisting the Partnership in responding to tenant
inquiries and notices and providing information to the Partnership about the
status of the leases and the Properties. CNL Fund Advisors, Inc. also assists
the General Partners in negotiating the leases. For these services, the
Partnership has agreed to pay CNL Fund Advisors, Inc. an annual fee of one-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 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.
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 and the officers and employees of APF, the parent Company of CNL
Fund Advisors, Inc., perform certain services for the Partnership. In addition,
the General Partners have available to them the resources and expertise of the
officers and employees of CNL 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, 2000, the Partnership owned 27 Properties. Of the 27
Properties, 20 are owned by the Partnership in fee simple, three are owned
through joint venture arrangements and four are owned through tenancy in common
arrangements. 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 11,800
to 74,600 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 as of
December 31, 2000 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation filed for the year ended December 31, 2000.
State Number of Properties
Alabama 2
Arizona 1
California 1
Colorado 1
Florida 5
Georgia 1
Illinois 1
Indiana 1
Kansas 2
Michigan 1
Minnesota 1
Missouri 1
Nebraska 1
North Carolina 1
Oklahoma 1
Texas 6
--------------
TOTAL PROPERTIES 27
==============
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The 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 7,900 square feet. Generally, 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, 2000, 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 31.5 and 40 years for
federal income tax purposes.
As of December 31, 2000, the aggregate cost of the Properties owned by
the Partnership and its consolidated joint venture, and the unconsolidated joint
ventures (including the Properties owned through tenancy in common arrangements)
for federal income tax purposes was $14,094,079 and $9,419,158, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 2000 by Restaurant Chain. Restaurant Chain Number of Properties
Burger King 2
Chevy's Fresh Mex 1
Darryl's 1
Golden Corral 6
IHOP 4
KFC 4
Pizza Hut 4
Po Folks 1
Red Oak Steakhouse 1
Ruby Tuesday 1
Taco Bell 2
--------------
TOTAL PROPERTIES 27
==============
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. Generally, a
lessee is required, under the terms of its lease agreement, to make such capital
expenditures as may be reasonably necessary to refurbish buildings, premises,
signs and equipment so as to comply with the lessee's obligations, if
applicable, under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures are required to be
paid by the lessee during the term of the lease. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
At December 31, 2000, 1999, 1998, 1997, and 1996, the Properties were
96%, 98%, 98%, 93%, and 94% occupied, respectively. The following is a schedule
of the average rent per Property for each of the years ended December 31:
2000 1999 1998 1997 1996
------------- ------------- --------------- -------------- ---------------
Rental Revenues (1) $1,947,948 $ 1,939,767 $ 1,798,973 $2,116,623 $2,469,718
Properties (2) 26 27 27 28 31
Average Rent per
Property $ 74,921 $ 71,843 $ 66,629 $ 75,594 $ 79,668
(1) Rental income includes the Partnership's share of rental income from
the Properties owned through joint venture arrangements and the
Properties owned through tenancy in common arrangements. Rental
revenues have been adjusted, as applicable, for any amounts for which
the Partnership has established an allowance for doubtful accounts.
(2) Excludes Properties that were vacant at December 31, and that did not
generate rental revenues during the year ended December 31.
The following is a schedule of lease expirations for leases in place as
of December 31, 2000 for the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- ----------------- -----------------
2001 -- $ -- --
2002 5 322,038 17.41%
2003 -- -- --
2004 -- -- --
2005 -- -- --
2006 1 87,849 4.75%
2007 4 190,856 10.32%
2008 5 370,481 20.03%
2009 -- -- --
2010 1 47,274 2.53%
Thereafter 10 831,692 44.96%
-------------
---------- ----------------
Total (1) 26 $ 1,850,190 100.00%
========== ================ =============
(1) Excludes one Property which was vacant at December 31, 2000.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2000 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Golden Corral Corporation leases five Golden Corral restaurants
pursuant to leases, each with an initial term of 15 years (expiring in 2002) and
an average minimum base annual rent of approximately $64,400 (ranging from
approximately $48,000 to $76,400).
IHOP Properties, Inc. leases four IHOP restaurants. The initial term of
each lease is 20 years (expiring between 2017 and 2019) and the average minimum
base annual rent is approximately $143,800 (ranging from approximately $120,200
to $163,200).
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective Properties, is 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 15, 2001, there were 2,037 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 2000, Limited Partners who
wished to sell their Units may 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), may have done so pursuant to such
Plan. The General Partners had the right to prohibit transfers of Units. From
inception through December 31, 2000, the price paid for any Unit transferred
pursuant to the Plan ranged from $382.50 to $475 per Unit. The price paid for
any Units 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 2000 and 1999 other than
pursuant to the Plan, net of commissions.
2000 (1) 1999 (1)
------------------------------------- ------------------------------------
High Low Average High Low Average
-------- --------- ---------- -------- --------- -----------
First Quarter $324 $324 $324 $400 $343 $371
Second Quarter 404 316 360 389 389 389
Third Quarter 320 283 306 354 285 324
Fourth Quarter 300 267 297 352 318 345
(1) A total of 215 and 387.5 Units were transferred other than pursuant to
the Plan for the years ended December 31, 2000 and 1999, respectively.
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, 2000 and 1999, the Partnership
declared cash distributions of $2,475,000 and $2,000,000, respectively, to the
Limited Partners. Distributions during 2000 included $600,000 in a special
distribution, as a result of the distribution of net sale proceeds from the 2000
sale of the Property in Plant City, Florida. This amount was applied toward the
Limited Partners' cumulative 10% Preferred Return. No distributions have been
made to the General Partners to date. This special distribution 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 preferred return. The reduced number of Properties
for which the Partnership receives rental payments, as well as ongoing
operations, reduced the Partnership's revenues. The decrease in Partnership
revenues, combined with the fact that a significant portion of the Partnership's
expenses are fixed in nature, resulted in a decrease in cash distributions to
the Limited Partners during 2000. No amounts distributed to the Limited Partners
for the years ended December 31, 2000 and 1999, are required to be or have been
treated by the Partnership as a return of capital for purposes of calculating
the Limited Partners' return on their adjusted capital contributions. No
distributions have been made to the General Partners to date. As indicated in
the chart below, these 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.
2000 1999
------------- --------------
First Quarter $ 500,000 $ 500,000
Second Quarter 500,000 500,000
Third Quarter 1,037,500 500,000
Fourth Quarter 437,500 500,000
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although the General Partners, in their sole discretion, may elect to pay
distributions monthly.
(b) Not applicable.
Item 6. Selected Financial Data
2000 1999 1998 1997 1996
-------------- ------------- ------------- -------------- -------------
Year ended December 31:
Revenues (1) $ 1,770,380 $ 1,994,242 $ 1,786,254 $ 2,023,495 $ 2,452,797
Net income (2) 1,313,432 1,730,671 1,736,883 2,391,835 1,814,657
Cash distributions
declared (3) 2,475,000 2,000,000 3,477,747 2,376,000 2,376,000
Net income per Unit (2) 26.27 34.28 34.44 47.47 35.93
Cash distributions
declared per Unit
(2)(3) 49.50 40.00 69.55 47.52 47.52
At December 31:
Total assets $ 15,157,134 $ 16,472,518 $ 16,701,732 $ 18,479,002 $ 18,608,907
Partners' capital 14,439,375 15,600,943 15,870,272 17,611,136 17,595,301
(1) Revenues include equity in earnings of the unconsolidated joint
ventures and minority interest in income of the consolidated joint
venture.
(2) Net income for the years ended December 31, 2000, 1999, 1998 and 1997,
includes gains on sale of assets of $16,855, $293,512, $497,321, and
$1,027,590, respectively. In addition, net income for the years ended
December 31, 1998 and 1997, includes provision for loss on assets of
$25,821 and $32,819, respectively.
(3) Distributions for the year ended December 31, 2000 and 1998, includes a
special distribution to the Limited Partners of $600,000 and
$1,477,747, respectively, as a result of the distribution of the net
sales proceeds from Properties sold.
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 June 1, 1987, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Propertie, as well as land upon which restaurant
Properties were to be constructed, to be leased primarily to operators of
selected national and regional fast-food Restaurant Chains. The leases generally
are triple-net leases, with the lessees generally responsible for all repairs
and maintenance, property taxes, insurance and utilities. As of December 31,
2000, the Partnership owned 27 Properties, either directly or indirectly through
joint venture or tenancy in common arrangements.
Capital Resources
During the years ended December 31, 2000, 1999 and 1998, the
Partnership generated cash from operations (which includes cash received from
tenants, distributions from joint ventures and interest received, less cash paid
for expenses) of $1,617,213, $1,825,724, and $1,821,296, respectively. The
decrease in cash from operations during 2000 as compared to 1999, was primarily
a result of changes in income and expenses as described in "Results of
Operations" below and the increase during 1999, as compared to 1998, was
primarily due to the changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
years ended December 31, 2000, 1999 and 1998.
In January 1998, the Partnership reinvested the remaining net sales
proceeds from the 1997 sale of the Property in Kissimmee, Florida in an IHOP
Property in Overland Park, Kansas, with affiliates of the General Partners, as
tenants-in-common. In connection therewith, the Partnership and the affiliate
entered into an agreement whereby each co-venturer shares in the profits and
losses of the Property in proportion to each co-venturer's percentage interest.
As of December 31, 2000, the Partnership owned a 25.87% interest in the
Property. A portion of the transaction relating to the sale of the Property in
Kissimmee, Florida, and the reinvestment of a portion of the proceeds in an IHOP
Property in Englewood, Colorado, qualified as a like-kind exchange transaction
for federal income tax purposes.
In addition, in June 1997, the Partnership sold its Property in
Roswell, Georgia, to a third party for $985,000 and received net sales proceeds
of $942,981, resulting in a gain of $237,608 for financial reporting purposes.
This Property was originally acquired by the Partnership in June 1988 and had a
cost of approximately $775,200, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $167,800 in excess of its original purchase price. In connection
therewith, the Partnership received $257,981 in cash and accepted the remaining
sales proceeds in the form of a promissory note in the principal sum of
$685,000, collateralized by a mortgage on the Property. During 1998, the
Partnership collected the full amount of the outstanding mortgage note
receivable balance of $678,730. In December 1997, the Partnership reinvested a
portion of the net sales proceeds in a Property located in Miami, Florida, as
tenants-in-common with an affiliate of the General Partners. In connection
therewith, the Partnership and the affiliate entered into an agreement whereby
each co-venturer shares in the profits and losses of the Property in proportion
to each co-venturer's percentage interest. As of December 31, 2000, the
Partnership owned a 9.84% interest in the Property. In addition, in January
1999, the Partnership reinvested the remaining net sales proceeds in a Burger
King Property in Montgomery, Alabama, at an approximate cost of $939,900. The
Partnership used the remaining net sales proceeds for other Partnership
purposes. The Partnership distributed amounts sufficient to enable the Limited
Partners to pay federal and state income taxes, if any (at a level reasonably
assumed by the General Partners), resulting from the sale.
In January 1998, the Partnership reinvested the net sales proceeds from
the 1997 sale of the Property in Mason City, Iowa in a Property in Overland
Park, Kansas, with affiliates of the General Partners, as tenants-in-common. A
portion of the transaction, relating to the sale of the Property in Mason City,
Iowa, and the reinvestment of the proceeds in a Property in Overland Park,
Kansas, with affiliates as tenants-in-common, qualified as a like-kind exchange
transaction for federal income tax purposes.
In January 1998, the Partnership sold its Property in Fernandina Beach,
Florida, to the tenant, for $730,000 and received net sales proceeds of $724,172
resulting in a gain of $242,129 for financial reporting purposes. In addition,
in January 1998, the Partnership sold its Property in Daytona Beach, Florida, to
the tenant for $1,050,000 and received net sale proceeds of $1,006,501,
resulting in a gain of $267,759 for financial reporting purposes. These
Properties were originally acquired by the Partnership in May 1988 and August
1988, respectively, and had a total cost of approximately $1,464,200, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the Properties for approximately $266,500 in excess of their
original purchase price. In connection with the sale of these Properties, the
Partnership incurred deferred, subordinated, real estate disposition fees of
$53,400. The Partnership distributed $1,477,747 of the net sales proceeds as a
special distribution to the Limited Partners and used the remaining proceeds to
pay liabilities of the Partnership. The Partnership distributed amounts
sufficient to enable the Limited Partners to pay federal and state income taxes,
if any (at a level reasonably assumed by the General Partners), resulting from
these sales.
In February 1998, the Partnership also sold its Property in Punta
Gorda, Florida, to a third party, for $675,000 and received net sales proceeds
of $665,973, resulting in a gain of $73,485 for financial reporting purposes. In
May 1998, the Partnership contributed the net sales proceeds to a joint venture
arrangement, RTO Joint Venture, as described below. The Partnership distributed
amounts sufficient to enable the Limited Partners to pay federal and state
income taxes, if any (at a level reasonably assumed by the General Partners),
resulting from these sales.
In May 1998, the Partnership entered into a joint venture, RTO Joint
Venture, with an affiliate of the General Partners, to construct and hold one
restaurant Property. As of December 31, 2000, the Partnership had contributed
$676,952 to purchase land and pay for construction relating to the joint
venture. Construction was completed and rent commenced in December 1998. As of
December 31, 2000 the Partnership has a 46.88% interest in the profits and
losses of the joint venture.
In June 1998, the Partnership sold its Po Folks Property in Hagerstown,
Maryland, to a third party, for $825,000 and received net sales proceeds of
$789,639, resulting in gain of $13,213 for financial reporting purposes. In
January 1999, the Partnership reinvested the majority of the net sales proceeds
in a Property in Montgomery, Alabama. The Partnership intends to use the
remaining net sales proceeds to pay distributions to the Limited Partners and
for other Partnership purposes. The Partnership distributed amounts sufficient
to enable the Limited Partners to pay federal and state income taxes, if any (at
a level reasonably assumed by the General Partners), resulting from these sales.
In September 1998, the Partnership entered into a new lease agreement
for the Golden Corral Property in Stockbridge, Georgia. In connection therewith,
the Partnership funded $150,000 in renovation costs.
In December 1998, the Partnership sold its Property in Hazard,
Kentucky, to a third party for $435,000 and received net sales proceeds of
$432,625, resulting in a loss of $99,265 for financial reporting purposes. The
Partnership intends to use the net sales proceeds to pay distributions to the
Limited Partners and for other Partnership purposes. The Partnership distributed
amounts sufficient to enable the Limited Partners to pay federal and state
income taxes, if any (at a level reasonably assumed by the General Partners).
In April 1999, the Partnership sold its Property in Flagstaff, Arizona,
to the tenant for $1,103,127 and received net sales proceeds of $1,091,192,
resulting in a gain of $285,350 for financial reporting purposes. This Property
was originally acquired by the Partnership in October 1988 and had a cost of
approximately $993,500, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the Property for approximately $97,700
in excess of its original purchase price. In October 1999, the Partnership
reinvested a portion of the net sales proceeds it received from the sale of this
Property, in an IHOP Property located in Auburn, Alabama, at an approximate cost
of $1,440,200. A portion of the transaction, relating to the sale of the
Property in Flagstaff, Arizona, and the reinvestment of the net sales proceeds
in a Property in Auburn, Alabama, qualified as a like-kind exchange transaction
for federal income tax purposes. The Partnership distributed amounts sufficient
to enable the Limited Partners to pay federal and state income taxes, if any,
(at a level reasonably assumed by the General Partners), resulting from the
sale.
In June 1999, the Partnership sold its Denny's Property in Hagerstown,
Maryland, to the tenant for $710,000 and received net sales proceeds of
$700,977, resulting in a gain of $8,162 for financial reporting purposes. In
October 1999, the Partnership invested a portion of the net sales proceeds it
received from the sale in a Property in Baytown, Texas, with an affiliate of the
General Partners as tenants-in-common for a 20 percent interest in the Property.
In addition, in October 1999, the Partnership reinvested the remaining net sales
proceeds in an IHOP Property in Auburn, Alabama, as described above. The
Partnership distributed amounts sufficient to enable the Limited Partners to pay
federal and state income taxes, if any (at a level reasonably assumed by the
General Partners), resulting from the sale.
In September 2000, the Partnership sold its Property in Plant City,
Florida, to the tenant, for $509,865 and received net sales proceeds of $492,069
resulting in a gain of $16,855 for financial reporting purposes. In connection
with the sale of this Property, the Partnership incurred deferred, subordinated,
real estate disposition fees of $15,296. The Partnership distributed these net
sales proceeds as a special distribution to the Limited Partners. The
Partnership distributed amounts sufficient to enable the Limited Partners to pay
federal and state income taxes, if any (at a level reasonably assumed by the
General Partners), resulting from these sales.
None of the Properties owned by the Partnership, or the joint ventures
or 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, in 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 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.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments such as
demand deposit accounts at commercial banks, money market accounts and
certificates of deposit with less than a 30-day maturity date, pending the
Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At December 31, 2000, the Partnership had
$1,011,733 invested in such short-term investments as compared to $578,746 at
December 31, 1999. The decrease in cash and cash equivalents at December 31,
2000, as compared to December 31, 1999, was partially a result of the
Partnership paying a special distribution of $600,000, as described below. As of
December 31, 2000, the average interest rate earned on the rental income
deposited in demand deposit accounts at commercial banks was approximately 3.47%
annually. The funds remaining at December 31, 2000, will be distributed to the
Limited Partners or used for other Partnership purposes.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and 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
cash flow in excess of operating expenses.
Due to low 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. To the extent,
however, that the Partnership has insufficient funds for such purposes, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations to the
extent that the General Partners determine that such funds are available for
distribution. Based primarily on current and anticipated future cash from
operations and, for 2000 and 1998, a portion of the sales proceeds received from
the sales of Properties, the Partnership declared distributions to the Limited
Partners of $2,475,000, $2,000,000, and $3,477,747, for the years ended December
31, 2000, 1999 and 1998, respectively. This represents distributions of $49.50,
$40.00, and $69.55 per Unit for the years ended December 31, 2000, 1999, and
1998, respectively. Distributions for 2000 included $600,000 as a result of the
distribution of the net sale proceeds from the sale of the Property is Plant
City, Florida, and the distributions for 1998 included $1,477,747 as a result of
the distribution of net sales proceeds from the sale of the Properties in
Fernandina Beach and Daytona Beach, Florida. This special distribution 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
Partner's unpaid cumulative 10% Preferred Return. The reduced number of
Properties for which the Partnership receives rental payments, as well as
ongoing operations, reduced the Partnership's revenues. The decrease in
Partnership revenues, combined with the fact that a significant portion of the
Partnership's expenses are fixed in nature, resulted in a decrease in cash
distributions to the Limited Partners during 2000 and 1998. No amounts
distributed to the Limited Partners for the years ended December 31, 2000, 1999,
or 1998 are required to be or have been treated by the Partnership as a return
of capital for purposes of calculating the Limited Partners return on their
adjusted capital contributions. The Partnership intends to continue to make
distributions of cash available for distribution to the Limited Partners on a
quarterly basis.
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 year ended December 31, 2000.
At December 31, 2000 and 1999, the Partnership owed $8,707, and
$53,231, respectively, to affiliates for operating expenses and accounting and
administrative services. As of March 15, 2001, all such amounts had been
reimbursed to affiliates. In addition, during the years ended December 31, 2000,
and 1998 the Partnership incurred $15,296 and $53,400, respectively, in real
estate disposition fees due to an affiliate as a result of services provided in
connection with the sale of the Properties in Plant City, Daytona Beach and
Fernandina Beach, Florida. 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 $494,987 at December 31, 2000, as compared
to $616,884 at December 31, 1999. The decrease during 2000, as compared to 1999,
is primarily a result of the fact that during 2000, the Partnership paid amounts
relating to the proposed merger with APF, as described below, that the
Partnership had accrued at December 31, 1999. The General Partners believe that
the Partnership has sufficient cash on hand to meet its current working capital
needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the year ended December 31, 1998, the Partnership and its
consolidated joint venture, Tuscawilla Joint Venture, owned and leased 27 wholly
owned Properties (including five Properties which were sold during 1998). During
the year ended December 31, 1999, the Partnership owned and leased 24 wholly
owned Properties (including two Properties which were sold during 1999). During
the year ended December 31, 2000, the Partnership owned and leased 21 wholly
owned Properties (including one Property which was sold during 2000). In
addition, during the years ended December 31, 1998, 1999 and 2000, the
Partnership was a co-venturer in a joint venture that owned and leased one
Property. During 1998, the Partnership also owned and leased three Properties,
with affiliates of the General Partners, as tenants-in-common. In addition,
during 1999 and 2000, the Partnership was a co-venturer in one additional joint
venture that owned and leased one Property and the Partnership owned and leased
one additional Property, with affiliates of the General Partners, as
tenants-in-common. As of December 31, 2000, the Partnership owned, either
directly or through joint venture arrangements, 27 Properties which are, in
general, subject to long-term, triple-net leases. The leases of the Properties
provide for minimum base annual rental amounts (payable in monthly installments)
ranging from approximately $23,000 to $191,900. The majority of the leases
provide for percentage rent based on sales in excess of a specified amount. In
addition, some leases provide for increases in the annual base rent during the
lease term. For a further description of the Partnership's leases and
Properties, see Item 1. Business - Leases and Item 2. Properties, respectively.
During the years ended December 31, 2000, 1999, and 1998, the
Partnership and its consolidated joint venture, earned $1,655,696, $1,620,310,
and $1,554,852, respectively, in rental income from operating leases (net of
adjustments to accrued rental income) and earned income from direct financing
leases. The increase in rental and earned income during 2000 and 1999, each as
compared to the previous year, is partially attributable to an increase of
approximately $132,000 and $119,000, respectively, due to the reinvestment of
the net sales proceeds received from Property sales during 1999 and 1998, in
additional Properties as described above in "Capital Resources." The increase in
rental income during 2000 and 1999, each as compared to the previous year, was
partially offset by a decrease of approximately $95,400 and $140,000,
respectively, as a result of Property sales during 2000, 1999, and 1998, as
described above in "Capital Resources."
In addition, the increase in rental and earned income during 1999, as
compared to 1998, was partially the result of the fact that, in 1998, the tenant
of the Property in Canton Township, Michigan, vacated the Property and ceased
operations. As a result, during 1998, the Partnership reversed approximately
$51,300 in accrued rental income (non-cash accounting adjustments relating to
the straight-lining of future scheduled rent increases over the term of the
lease in accordance with generally accepted accounting principles), due to
financial difficulties the tenant was experiencing. Although the former tenant
is continuing to pay under the lease obligation, the Partnership is currently
seeking either a replacement tenant or purchaser for this Property.
The increase in rental income during 1999, as compared to 1998, was
also partially attributable to the fact that, during 1998, the Partnership
terminated the lease with the tenant of the Property in Hazard, Kentucky, and
reversed approximately $29,500 of accrued rental income recognized since
inception relating to the straight-lining of future scheduled rent increases in
accordance with generally accepted accounting principles. In addition, the
decrease during 1998 was partially attributable to the Partnership reserving
approximately $41,400 in accrued rental income (non-cash accounting adjustment
relating to the straight-lining of future scheduled rent increases over the term
of the lease in accordance with generally accepted accounting principles). The
Partnership sold the Property in Hazard, Kentucky, in December 1998, as
described above in "Capital Resources."
During the years ended December 31, 2000, 1999, and 1998, the
Partnership also earned $67,909, $116,872, and $98,915, respectively, in
contingent rental income. The decrease in contingent rental income during 2000,
as compared to 1999, was primarily attributable to the sales of Properties
during 2000 and 1999, for which the leases required the payment of contingent
rental income. The increase in contingent rental income during 1999, as compared
to 1998, was primarily attributable to increased gross sales of certain
restaurant Properties requiring the payment of contingent rental income.
In addition, during 2000, 1999, and 1998, the Partnership earned
$40,193, $103,380, and $127,064, respectively, in interest and other income. The
decrease in interest and other income during 2000, as compared to 1999, was
partially due to a decrease in interest income that the Partnership earned on
sales proceeds pending reinvestment in additional Properties. The decrease in
interest and other income during 1999 as compared to 1998, was partially due to
the fact that in July 1998, the Partnership collected the full balance of a
mortgage note receivable related to the Property in Roswell, Georgia, that the
Partnership had accepted in conjunction with the sale of a Property in 1997.
The Partnership recognized income of $23,956, $170,966 and $22,708 for
the years ended December 31, 2000, 1999 and 1998, respectively, attributable to
net income by unconsolidated joint ventures in which the Partnership is a
co-venturer. Net income earned by joint venturers was lower in 1998, as compared
to 1999, due to the fact that during 1998, the operator of the Property owned by
Titusville Joint Venture (in which the Partnership owns a 73.4% interest)
vacated the Property and ceased operations. In conjunction therewith, during
1998, Titusville Joint Venture wrote off all uncollected balances and ceased
collection efforts. In addition, during 1998, the joint venture recorded an
allowance for loss on assets of approximately $125,300 for financial reporting
purposes. The allowance represented the difference between the Property's
carrying value at December 31, 1998 and the estimated net realizable value for
the Property. No such allowance was recorded during 1999. During 2000, the
Titusville Joint Venture increased the allowance for loss on assets for its
Properties by approximately $227,100 for financial reporting purposes. The
allowance represented the difference between the Property's carrying value at
December 31, 2000 and the estimated net realizable value for the Property.
Titusville Joint Venture is currently seeking either a replacement tenant or
purchaser for this Property. If Titusville Joint Venture fails to find a
replacement tenant or purchaser, there could be an adverse affect on equity in
earnings of unconsolidated joint ventures. The increase in income earned from
joint ventures during 1999, was primarily attributable to the fact that the
Partnership reinvested a portion of the net sales proceeds it received from
Property sales during 1998 and 1999, in four Properties with affiliates of the
General Partners as tenants-in-common and one Property through a joint venture
arrangement with an affiliate of the General Partners in 1998 and 1999.
During the year ended December 31, 1999, two lessees of the Partnership
and its consolidated joint venture, Golden Corral Corporation and IHOP
Properties, Inc., contributed more than ten percent of the Partnership's total
rental and earned income (including rental income from the Partnership's
consolidated joint venture and the Partnership's share of the rental and earned
income from Properties owned by unconsolidated joint ventures and Properties
owned with affiliates of the General Partners as tenants-in-common). As of
December 31, 2000, Golden Corral Corporation was the lessee under leases
relating to five restaurants, and IHOP Properties, Inc. was the lessee under
leases relating to four restaurants. It is anticipated that, based on the
minimum rental payments required by the leases, these lessees will each continue
to contribute more than ten percent of the Partnership's total rental and earned
income during 2001. In addition, during the year ended December 31, 2000, three
Restaurant Chains, Golden Corral, IHOP, and KFC, each accounted for more than
ten percent of the Partnership's total rental and earned income (including
rental income from the Partnership's consolidated joint venture and the
Partnership's share of the rental and earned income from Properties owned by
unconsolidated joint ventures and Properties owned with affiliates of the
General Partners as tenants-in-common). It is anticipated that in 2001, each of
these Restaurant Chains will continue to account for more than ten percent of
total rental and earned income to which the Partnership is entitled under the
terms of the leases. Any failure of these lessees or any of these Restaurant
Chains could materially affect the Partnership's income, if the Partnership is
not able to re-lease these Properties in a timely manner.
Operating expenses, including depreciation and amortization expense,
were $473,803, $557,083, and $520,871 for the years ended December 31, 2000,
1999, and 1998, respectively. The decrease in operating expenses during 2000, as
compared to 1999, and the increase during 1999, as compared to 1998, was
primarily due to the amount of the transaction costs that the Partnership
incurred related to the General Partners retaining financial and legal advisors
to assist them in evaluating and negotiating the proposed Merger with APF, as
described in "Termination of Merger."
The decrease in operating expenses during 2000, as compared to 1999,
was partially offset by an increase in depreciation expense due to the fact that
the Partnership acquired two Properties at the end of the year in 1999. The
decrease in operating expenses during 2000, as compared to 1999 was partially
due to, and the increase in operating expenses during 1999, as compared to 1998,
was partially offset by a decrease in depreciation expense due to the sale of
several Properties during 2000, 1999, and 1998, as described above in "Capital
Resources."
Operating expenses included amounts that the Partnership had recognized
in real estate tax expenses of approximately $7,500, during 1998, relating to
the Denny's and Po Folks Properties in Hagerstown, Maryland. The Partnership
recorded these amounts as expenses during 1998, due to the fact that payment of
these amounts by the former tenant was doubtful. The Partnership sold the Po
Folks Property in June 1998 and sold the Denny's Property in June 1999.
As a result of the Properties sales during 2000, 1999 and 1998, as
described above in "Capital Resources," the Partnership recognized gains on sale
of land and buildings totalling $16,855, $293,512, and $497,321 during the years
ended December 31, 2000, 1999 and 1998, respectively. In addition, during the
year ended December 31, 1998, the Partnership recorded an allowance for loss on
assets of $25,821, relating to the Denny's Property in Hagerstown, Maryland. The
allowance represented the difference between the carrying value of the
Properties at December 31, 1998, and the estimated net realizable value of each
Property at December 31, 1998.
The Partnership's leases as of December 31, 2000 are generally
triple-net leases and, in general, 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. Management expects that increases
in restaurant sales volumes due to inflation and real sales growth should result
in an increase in rental income (for certain Properties) over time. Continued
inflation also may cause capital appreciation of the Partnership's Properties.
Inflation and changing prices, however, also may have an adverse impact on the
sales of the restaurants and on potential capital appreciation of the
Properties.
In December 1999, the Securities and Exchange Commission released SAB
101, which provides the staff's view in applying generally accepted accounting
principles to selected revenue recognition issues. SAB 101 requires the
Partnership to defer recognition of certain percentage rental income until
certain defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material impact on the
Partnership results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments, embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The Statement requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. In June 1999, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB
Statement No. 133." FAS 137 deferred the effective date of FAS 133 for one year.
FAS 133, as amended, is now effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Partnership has reviewed both
statements and has determined that both FAS 133 and FAS 137 do not apply to the
Partnership as of December 31, 2000.
Termination of Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. Under the Agreement and Plan of Merger, APF was to
issue shares of its common stock as consideration for the Merger. On March 1,
2000, the General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger. The agreement to terminate the
Agreement and Plan of Merger was based, in large part, on the General Partners'
concern that, in light of market conditions relating to publicly traded real
estate investment trusts, the value of the transaction had diminished. As a
result of such diminishment, the General Partners' ability to unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become questionable.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 17
Financial Statements:
Balance Sheets 18
Statements of Income 19
Statements of Partners' Capital 20
Statements of Cash Flows 21-22
Notes to Financial Statements 23-38
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund III, Ltd.
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Income Fund III, Ltd. (a Florida limited partnership) at December 31,
2000 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedules listed in the index
appearing under item 14(a)(2) present 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
schedules are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules 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.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 2, 2001
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2000 1999
------------------ ----------------
ASSETS
Land and buildings on operating leases, less
accumulated depreciation $ 11,030,461 $11,772,766
Net investment in direct financing leases 1,101,738 1,120,608
Investment in joint ventures 2,235,081 2,418,036
Cash and cash equivalents 578,746 1,011,733
Receivables, less allowance for doubtful
accounts of $8,797 in 1999 5,780 658
Due from related parties 16,710 2,300
Prepaid expenses 4,122 5,896
Accrued rental income 155,142 111,167
Other assets 29,354 29,354
------------------ ----------------
$ 15,157,134 $16,472,518
================== ================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 20,260 $ 76,247
Accrued and escrowed real estate taxes payable 4,718 12,872
Distributions payable 437,500 500,000
Due to related parties 92,553 121,781
Rents paid in advance and deposits 32,509 27,765
------------------ ----------------
Total liabilities 587,540 738,665
Minority interest 130,219 132,910
Partners' capital 14,439,375 15,600,943
------------------ ----------------
$ 15,157,134 $16,472,518
================== ================
See accompanying notes to financial statements
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2000 1999 1998
-------------- -------------- --------------
Revenues:
Rental income from operating leases $ 1,529,714 $ 1,402,127 $ 1,500,950
Adjustments to accrued rental income -- -- (80,800 )
Earned income from direct financing leases 125,982 218,183 134,702
Contingent rental income 67,909 116,872 98,915
Interest and other income 40,193 103,380 127,064
-------------- -------------- --------------
1,763,798 1,840,562 1,780,831
-------------- -------------- --------------
Expenses:
General operating and administrative 125,570 129,447 137,245
Professional services 22,647 26,642 36,591
Real estate taxes -- -- 11,966
State and other taxes 11,645 13,541 12,249
Depreciation and amortization 286,621 268,798 308,593
Transaction costs 27,320 118,655 14,227
-------------- -------------- --------------
473,803 557,083 520,871
-------------- -------------- --------------
Income before Minority Interest in Income of
Consolidated Joint Venture, Equity in Earnings of
Unconsolidated Joint Ventures, Gain on Sale of Assets
and Provision for Loss on Assets 1,289,995 1,283,479 1,259,960
Minority Interest in Income of Consolidated Joint Venture (17,374 ) (17,286 ) (17,285 )
Equity in Earnings of Unconsolidated Joint Ventures 23,956 170,966 22,708
Gain on Sale of Assets 16,855 293,512 497,321
Provision for Loss on Assets -- -- (25,821 )
-------------- -------------- --------------
Net Income $ 1,313,432 $ 1,730,671 $ 1,736,883
============== ============== ==============
Allocation of Net Income:
General partners $ -- $ 16,733 $ 15,027
Limited partners 1,313,432 1,713,938 1,721,856
-------------- -------------- --------------
$ 1,313,432 $ 1,730,671 $ 1,736,883
============== ============== ==============
Net Income Per Limited Partner Unit $ 26.27 $ 34.28 $ 34.44
============== ============== ==============
Weighted Average Number of Limited Partner Units
Outstanding 50,000 50,000 50,000
============== ============== ==============
See accompanying notes to financial statements
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2000, 1999, and 1998
General Partners
--------------------------------------
Accumulated
Contributions Earnings
----------------- ------------------
Balance, December 31, 1997 $ 161,500 $ 178,111
Distributions to limited
partners ($69.55 per
limited partner unit) -- --
Net income -- 15,027
----------------- ------------------
Balance, December 31, 1998 161,500 193,138
Distributions to limited
partners ($40.00 per
limited partner unit) -- --
Net income -- 16,733
----------------- ------------------
Balance, December 31, 1999 161,500 209,871
Distributions to limited
partners ($49.50 per
limited partner unit) -- --
Net income -- --
----------------- ------------------
Balance, December 31, 2000 $ 161,500 $ 209,871
================= =================
Limited Partners
- ---------------------------------------------------------------------------
Accumulated Syndication
Contributions Distributions Earnings Costs Total
---------------- ---------------- ------------------ ------------------ ---------------
$ 25,000,000 $(23,149,640 ) $ 18,286,063 $ (2,864,898 ) $17,611,136
-- (3,477,747 ) -- -- (3,477,747 )
-- -- 1,721,856 -- 1,736,883
---------------- ---------------- ------------------ ------------------ ---------------
25,000,000 (26,627,387 ) 20,007,919 (2,864,898 ) 15,870,272
-- (2,000,000 ) -- -- (2,000,000 )
-- -- 1,713,938 -- 1,730,671
---------------- ---------------- ------------------ ------------------ ---------------
25,000,000 (28,627,387 ) 21,721,857 (2,864,898 ) 15,600,943
-- (2,475,000 ) -- -- (2,475,000 )
-- -- 1,313,432 -- 1,313,432
---------------- ---------------- ------------------ ------------------ ---------------
$ 25,000,000 $(31,102,387 ) $ 23,035,289 $ (2,864,898 ) $14,439,375
================ ================ ================== ================== ===============
See accompanying notes to financial statements.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2000 1999 1998
--------------- --------------- ---------------
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows From Operating Activities:
Cash received from tenants $1,672,373 $1,829,906 $1,768,910
Distributions from unconsolidated joint
ventures 206,911 169,140 142,001
Cash paid for expenses (300,193 ) (246,333 ) (202,117 )
Interest received 38,122 73,011 112,502
--------------- --------------- ---------------
Net cash provided by operating activities 1,617,213 1,825,724 1,821,296
--------------- --------------- ---------------
Cash Flows From Investing Activities:
Proceeds from sale of land and buildings 507,365 1,792,169 3,647,241
Investment in direct financing leases -- (612,920 ) --
Additions to land and buildings -- (1,761,236 ) (150,000 )
Investment in joint ventures -- (259,063 ) (1,096,678 )
Collections on mortgage note receivable -- -- 678,730
Decrease in restricted cash -- -- 245,377
--------------- --------------- ---------------
Net cash provided by (used in) investing
activities 507,365 (841,050 ) 3,324,670
--------------- --------------- ---------------
Cash Flows From Financing Activities:
Distributions to holder of minority interest (20,065 ) (20,081 ) (20,197 )
Distributions to limited partners (2,537,500 ) (2,000,000 ) (3,571,747 )
--------------- --------------- ---------------
Net cash used in financing activities (2,557,565 ) (2,020,081 ) (3,591,944 )
--------------- --------------- ---------------
Net Increase (Decrease) in Cash and Cash
Equivalents (432,987 ) (1,035,407 ) 1,554,022
Cash and Cash Equivalents at Beginning of Year 1,011,733 2,047,140 493,118
--------------- --------------- ---------------
Cash and Cash Equivalents at End of Year $ 578,746 $1,011,733 $2,047,140
=============== =============== ===============
See accompanying notes to financial statements.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2000 1999 1998
-------------- ------------- --------------
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Net income $ 1,313,432 $ 1,730,671 $ 1,736,883
-------------- ------------- --------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 286,621 268,798 299,355
Amortization -- -- 9,238
Minority interest in income of consolidated
joint venture 17,374 17,286 17,285
Equity in earnings of unconsolidated joint
ventures, net of distributions 182,955 (1,826 ) 119,293
Gain on sale of assets (16,855 ) (293,512 ) (497,321 )
Provision for loss on assets -- -- 25,821
Decrease (increase) in receivables (5,122 ) 88,861 (7,936 )
Increase in due from related parties (14,410 ) (2,300 ) --
Decrease in net investment in direct
financing leases 18,870 19,234 13,970
Decrease in prepaid expenses 1,774 855 7,610
Decrease (increase) in accrued rental income (63,505 ) (45,253 ) 88,824
Increase (decrease) in accounts payable and
accrued expenses (64,141 ) 71,830 173
Increase (decrease) in due to related parties (44,524 ) (31,106 ) 2,099
Increase in rents paid in advance and deposits 4,744 2,186 6,002
-------------- ------------- --------------
Total adjustments 303,781 95,053 84,413
-------------- ------------- --------------
Net Cash Provided by Operating Activities $ 1,617,213 $ 1,825,724 $ 1,821,296
============== ============= ==============
Supplemental Schedule on Non-Cash Investing and
Financing Activities
Deferred real estate disposition fee incurred and
unpaid at end of year $ 15,296 $ -- $ 53,400
============== ============= ==============
Distributions declared and unpaid at end of year $ 437,500 $ 500,000 $ 500,000
============== ============= ==============
See accompanying notes to financial statements.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2000, 1999, and 1998
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund III, 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 percent 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
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated 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. The leases are accounted for
using either the direct financing or the operating methods. Such
methods are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (Note 4). Unearned income is deferred and
amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Partnership's net
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method 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.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
1. Significant Accounting Policies - Continued:
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date. Whenever a tenant defaults
under the terms of its lease, or events or changes in
circumstance indicate that the tenant will not lease the
property through the end of the lease term, the Partnership
either reserves or reverses the cumulative accrued rental
income balance.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, will be removed from
the accounts and gains or losses from sales will be reflected in
income. The general partners of the Partnership review 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 fair value. Although the general partners
have made their best estimate of these factors based on current
conditions, it is reasonably possible that changes could occur in the
near term which could adversely affect the general partners' estimate
of net cash flows expected to be generated from its properties and the
need for asset impairment write-downs.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
and to decrease rental or other income or increase bad debt expense for
the current period, although the Partnership continues to pursue
collection of such amounts. If amounts are subsequently determined to
be uncollectible, the corresponding receivable and allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership accounts for its 69.07%
interest in Tuscawilla Joint Venture using the consolidation method.
Minority interest represents the minority joint venture partners'
proportionate share of the equity in the Partnership's consolidated
joint venture. All significant intercompany accounts and transactions
have been eliminated.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
1. Significant Accounting Policies - Continued:
The Partnership's investments in Titusville Joint Venture, RTO Joint
Venture, and a property in each of Englewood, Colorado, Miami, Florida,
Overland Park, Kansas, and Baytown, Texas held as tenants-in-common
with affiliates of the general partners, are accounted for using the
equity method since the Partnership shares control with affiliates of
the general partners.
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 and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
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.
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. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment.
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.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, 1998
1. Significant Accounting Policies - Continued:
Staff Accounting Bulletin No. 101 ("SAB 101") - In December 1999, the
Securities and Exchange Commission released SAB 101, which provides the
staff's view in applying generally accepted accounting principles to
selected revenue recognition issues. SAB 101 requires the Partnership
to defer recognition of certain percentage rental income until certain
defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material
impact on the Partnership results of operations.
Statement of Financial Accounting Standards No. 133 ("FAS 133") and
Statement of Financial Accounting Standards No. 137 ("FAS 137") - In
June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments, embedded in other contracts
(collectively referred to as derivatives), and for hedging activities.
The Statement requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. In June 1999, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, an Amendment
of FASB Statement No. 133." FAS 137 deferred the effective date of FAS
133 for one year. FAS 133, as amended, is now effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The
Partnership has reviewed both statements and has determined that both
FAS 133 and FAS 137 do not apply to the Partnership as of December 31,
2000.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 2000 and 1999
presentation. These reclassifications had no effect on partners'
capital or net income.
2. Leases:
-------
The Partnership leases its land and buildings primarily to operators of
national and regional fast-food restaurants. The leases are accounted
for under the provisions of Statement of Financial Accounting Standards
No. 13, "Accounting for Leases." The leases generally are classified as
operating leases; however, a few of the leases have been classified as
direct financing leases. For the leases classified as direct financing
leases,
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, 1998
2. Leases- Continued:
the building portions of the property leases are accounted for as
direct financing leases while the land portion of these leases are
operating leases. Substantially all leases are for 15 to 20 years and
provide for minimum and contingent rentals. In addition, the tenant
generally pays all property taxes and assessments, fully maintains the
interior and exterior of the building and carries insurance coverage
for public liability, property damage, fire and extended coverage. The
lease options generally allow tenants to renew the leases for two or
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.
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
2000 1999
------------------- ------------------
Land $ 5,677,699 $ 5,922,149
Buildings 8,261,795 8,622,136
------------------- ------------------
13,939,494 14,544,285
Less accumulated depreciation (2,909,033 ) (2,771,519 )
------------------- ------------------
$ 11,030,461 $ 11,772,766
=================== ==================
In January 1999, the Partnership reinvested the majority of the net
sales proceeds from the 1998 sale of a Po Folks property in Hagerstown,
Maryland, along with a portion of the amounts collected in 1998 under a
promissory note accepted in connection with the 1997 sale of a property
in Roswell, Georgia, in a Burger King property in Montgomery, Alabama.
The property had an approximate cost of $939,900. In accordance with
Statement of Financial Accounting Standards No. 13, "Accounting for
Leases," the land portion of this property was classified as an
operating lease while the building portion was classified as a direct
financing lease.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
3. Land and Buildings on Operating Leases - Continued:
---------------------------------------------------
In April 1999, the Partnership sold its property in Flagstaff, Arizona,
to the tenant for $1,103,127 and received net sales proceeds of
$1,091,192, resulting in a gain of $285,350 for financial reporting
purposes. This property was originally acquired by the Partnership in
October 1988 and had a cost of approximately $993,500, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the property for approximately $97,700 in excess of
its original purchase price. In October 1999, the Partnership
reinvested a portion of the net sales proceeds it received from the
sale of this property, in an IHOP property located in Auburn, Alabama,
at an approximate cost of $1,440,200.
In June 1999, the Partnership sold its Denny's property in Hagerstown,
Maryland, to the tenant for $710,000 and received net sales proceeds of
$700,977. Due to the fact that during 1998, the Partnership recorded an
allowance for doubtful accounts of $25,821 in accrued rental income,
representing income the Partnership had recognized since the inception
of the lease relating to the straight-lining of future scheduled rent
increases in accordance with generally accepted accounting principles,
the Partnership recognized a gain of $8,162 for financial reporting
purposes (see Note 4). In October 1999, the Partnership invested
approximately $259,100 of the net sales proceeds it received from the
sale in a property in Baytown, Texas, with an affiliate of the general
partners as tenants-in-common for a 20 percent interest in the
property. In addition, in October 1999, the Partnership reinvested the
remaining net sales proceeds it received from the sale of the property
in Hagerstown, Maryland, in an IHOP Property in Auburn, Alabama, as
described above.
In September 2000, the Partnership sold its property in Plant City,
Florida, for a total of $509,865 and received net sales proceeds of
$492,069, resulting in a total gain of $16,855 for financial reporting
purposes. In connection with the sale, the Partnership incurred a
deferred, subordinated, real estate disposition fee of $15,296. The
Partnership distributed these net sales proceeds as a special
distribution to the limited partners.
Some leases provide for escalating guaranteed minimum rents throughout
the lease terms. Income from these scheduled rent increases is
recognized on a straight-line basis over the terms of the leases. The
Partnership recognized income of $63,505 and $45,253 in 2000 and 1999,
respectively, and a loss of $88,824 (net of $25,996 in reserves and
$103,830 in reversals) during 1998 of such rental income.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
3. Land and Buildings on Operating Leases - Continued:
---------------------------------------------------
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2000:
2001 $ 1,444,300
2002 1,417,626
2003 1,141,755
2004 1,159,299
2005 1,171,154
Thereafter 7,525,469
---------------------
$ 13,859,603
=====================
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease term. In addition, this table does not include
any amounts for future contingent rentals which may be received on the
lease based on a percentage of the tenants' gross sales.
4. Net Investment in Direct Financing Leases:
The following lists the components of net investment in direct
financing leases at December 31:
2000 1999
---------------- ----------------
Minimum lease payments receivable $ 2,198,752 $ 2,343,603
Estimated residual value 292,354 292,354
Less unearned income (1,389,368 ) (1,515,349 )
---------------- ----------------
---------------- ----------------
Net investment in direct financing leases $ 1,101,738 $ 1,120,608
================ ================
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
4. Net Investment in Direct Financing Leases - Continued:
------------------------------------------------------
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2000:
2001 $ 144,852
2002 144,852
2003 144,852
2004 144,852
2005 144,852
Thereafter 1,474,492
------------------
$ 2,198,752
==================
The above table does not include future minimum lease payments for
renewal periods or contingent rental payments that may become due in
future periods (see Note 3).
In June 1999, the Partnership sold its Denny's property in Hagerstown,
Maryland, for which the building portion had been classified as a
direct financing lease. In connection therewith, the gross investment
(minimum lease payments receivable and estimated residual value) and
unearned income relating to this property were removed from the
accounts and the gain from the sale relating to this property was
reflected in income (see Note 3).
5. Investment in Joint Ventures:
As of December 31, 2000 the Partnership has a 73.4% and 46.88% interest
in the profits and losses of Titusville Joint Venture and RTO joint
Venture, respectively. The remaining interests in the Titusville Joint
Venture and the RTO Joint Venture, are held by affiliates of the
general partners. Also, the Partnership has a 33 percent, a 9.84%, and
a 25.87% interest in the profits and losses of a property in Englewood,
Colorado, Miami Florida and Overland Park, Kansas, respectively, held
as tenants-in-common with affiliates of the general partners.
In October 1999, the Partnership used the net sales proceeds from the
sale of the Denny's property in Hagerstown, Maryland to invest in a
property in Baytown, Texas with an affiliate of the general partners as
tenants-in-common. As of December 31, 2000, the Partnership owned a 20
percent interest in this property. Titusville Joint Venture, RTO
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
5. Investment in Joint Ventures - Continued:
Joint Venture, and the Partnership and affiliates, as tenants-in-common
in four separate tenancy-in-common arrangements, each own and lease one
property to operators of national fast-food or family-style
restaurants. The following presents the joint ventures' condensed
financial information at December 31:
2000 1999
------------------ ------------------
Land and buildings on operating
leases, less accumulated
depreciation and allowance
for loss on assets $ 4,535,402 $ 4,838,546
Net investment in direct
financing leases 3,373,785 3,397,358
Cash 41,902 83,524
Receivables 14,588 5,436
Accrued rental income 228,003 139,656
Other assets 3,036 3,248
Liabilities 85,539 100,586
Partners' capital 8,111,177 8,367,182
Revenues 852,872 739,487
Provision for loss on assets (227,093 ) --
Net income 528,006 659,928
The Partnership recognized income of $23,956, $170,966, and $22,708 for
the years ended December 31, 2000, 1999, and 1998, respectively, from
these joint ventures.
6. Allocations and Distributions:
From inception through December 31, 1999, generally, all net income and
net losses of the Partnership, excluding gains and losses from the sale
of properties, were allocated 99 percent 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 percent to the
limited partners and one percent to the general partners; provided,
however, that 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, ten percent, noncumulative,
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
6. Allocations and Distributions - Continued:
noncompounded annual return on their adjusted capital contributions
(the "10% Preferred Return").
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 percent
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 percent 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
accounts 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 percent to
the limited partners and five percent to the general partners.
Effective January 1, 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 partner in
succeeding years. Accordingly, the general partners were not allocated
any net income and did not receive any distributions during the year
ended December 31, 2000.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
6. Allocations and Distributions - Continued:
During the years ended December 31, 2000, 1999, and 1998 the
Partnership declared distributions to the limited partners of
$2,475,000, $2,000,000, and $3,477,747, respectively. Distributions for
the year ended December 31, 2000 and 1998, included $600,000 and
$1,477,797, respectively in a special distribution, as a result of the
distribution of net sales proceeds from the 2000 sale of the property
in Plant City, Florida and the 1998 sales of the properties in
Fernandina Beach and Daytona Beach, Florida. These amounts were applied
toward the limited partners' cumulative 10% Preferred Return. No
distributions have been made to the general partners to date.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
7. 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:
2000 1999 1998
------------- ------------- -------------
Net income for financial reporting purposes $1,313,432 $1,730,671 $ 1,736,883
Depreciation for tax reporting purposes in
excess of depreciation for financial
reporting purposes (10,755 ) (19,827 ) (17,075 )
Allowance for loss on assets -- -- 25,821
Direct financing leases recorded as operating
leases for tax reporting purposes 18,870 19,234 13,970
Gain on sale of land and buildings for tax reporting purposes in
excess of (less than) gain on sale for financial reporting
purposes 12,471 (285,874 ) (115,137 )
Equity in earnings of joint ventures for tax
reporting purposes in excess of (less
than)
equity in earnings of joint ventures for 123,152 (41,667 ) 59,725
financial reporting purposes
Allowance for doubtful accounts (8,797 ) (144,802 ) (871 )
Accrued rental income (63,505 ) (45,253 ) 88,824
Capitalization (Deduction) of transaction
costs (132,882 ) 118,655 14,227
for tax reporting purposes
Rents paid in advance 4,744 2,186 6,002
Minority interest in timing differences of
consolidated joint venture (257 ) (131 ) (35 )
------------- ------------- -------------
Net income for federal income tax purposes $1,256,473 $1,333,192 $ 1,812,334
============= ============= =============
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
8. 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 Fund Advisors, Inc. (the "Advisor") was a majority owned
subsidiary of CNL Financial Group, Inc. until it merged with CNL
American Properties Fund, Inc. ("APF"), effective September 1, 1999.
The individual general partners are stockholders and directors of APF.
The Advisor provides certain services relating to management of the
Partnership and its properties pursuant to a management agreement with
the Partnership. In connection therewith, the Partnership has agreed to
pay the Advisor an annual, noncumulative, subordinated 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 joint ventures
or competitive fees for comparable services. In addition, these fees
are incurred and 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 property
management fees will be due or payable for such year. As a result of
such threshold, no property management fees were incurred during the
years ended December 31, 2000, 1999 and 1998
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 sales.
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 the receipt by the limited partners of their aggregate,
cumulative 10% Preferred Return, plus their adjusted capital
contributions. During the years ended December 31, 2000 and 1998, the
Partnership incurred $15,296 and $53,400, respectively, in deferred,
subordinated real estate disposition fees as a result of the
Partnership's sale of the properties in Plant City, Florida, and the
properties in Daytona Beach and Fernandina Beach, Florida,
respectively. No deferred, subordinated real estate disposition fees
were incurred for the year ended December 31, 1999.
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
8. Related Party Transactions - Continued:
The Advisor and its affiliates provided accounting and administrative
services to the Partnership on a day-to-day basis including services
relating to the proposed and terminated merger. The Partnership
incurred $75,583, $97,597, and $89,756, for the years ended December
31, 2000, 1999, and 1998, respectively, for such services.
The amount due to related parties consisted of the following at
December 31:
2000 1999
--------------- ----------------
Due to the Advisor:
Expenditures incurred on
behalf of the Partnership $ 6,129 $ 42,926
Accounting and administrative
Services 2,578 10,305
Deferred, subordinated real
estate disposition fees 83,846 68,550
--------------- ----------------
$ 92,553 $ 121,781
=============== ================
9. Concentration of Credit Risk:
----------------------------
The following schedule presents total rental and earned income from
individual lessees, each representing more than ten percent of the
Partnership's total rental and earned income (including the
Partnership's share of rental and earned income from joint ventures and
the properties held as tenants-in-common with affiliates of the general
partners) for each of the years ended December 31:
2000 1999 1998
--------------- --------------- ---------------
Golden Corral Corp. $322,038 $322,038 $454,380
IHOP Properties, Inc. 280,573 N/A N/A
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
9. Concentration of Credit Risk - Continued:
----------------------------------------
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than
ten percent of the Partnership's total rental and earned income
(including the Partnership's share of rental and earned income from
joint ventures and the properties held as tenants-in-common with
affiliates of the general partners) for each of the years ended
December 31:
2000 1999 1998
-------------- -------------- -------------
Golden Corral Family
Steakhouse Restaurants $429,016 $ 487,590 $ 454,380
IHOP 280,573 N/A N/A
KFC 263,688 260,402 277,508
Pizza Hut N/A 213,298 211,507
The information denoted by N/A indicates that for each period
presented, the chains did not represent more than ten percent of the
Partnership's total rental and earned income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could 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 III, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
10. Selected Quarterly Financial Data:
- ------------------------------------------
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2000 and
1999.
2000 Quarter First Second Third Fourth Year
------------------------ -------------- ------------- ------------- -------------- --------------
Revenue (1) $501,230 $480,272 $486,668 $302,210 $ 1,770,380
Net income 346,438 345,784 403,956 217,254 1,313,432
Net income per
limited partner
unit 6.86 6.85 8.00 4.56 26.27
1999 Quarter First Second Third Fourth Year
------------------------ -------------- ------------- ------------- -------------- --------------
Revenue (1) $483,411 $509,963 $457,737 $543,131 $ 1,994,242
Net income 332,622 645,576 325,322 427,151 1,730,671
Net income per
limited partner
unit 6.59 12.79 6.44 8.46 34.28
(1) Revenues include equity in earnings of unconsolidated joint
ventures, minority interest in income of consolidated joint
ventures and interest and other income.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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 Fund Advisors, Inc.,
CNL Financial Group, Inc. and their affiliates, all of which are
affiliates of the General Partners.
James M. Seneff, Jr., age 54. 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 American Properties Fund, Inc. ("APF"), a public, unlisted
real estate investment trust, since 1994. Mr. Seneff served as Chief
Executive Officer of APF from 1994 through August 1999 and has served
as Co-Chief Executive Officer of APF since December 2000. Mr. Seneff
served as Chairman of the Board and Chief Executive Officer of CNL Fund
Advisors (the "Advisor") until it merged with APF in September 1999,
and in June 2000, was re-elected to those positions of the Advisor. Mr.
Seneff is a principal stockholder of CNL Holdings, Inc., the parent
company of CNL Financial Group, Inc. (formerly CNL 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 its formation in 1980. CNL Financial Group, Inc. 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. Mr. Seneff also serves as a Director,
Chairman of the Board and Chief Executive Officer of CNL Hospitality
Properties, Inc., a public, unlisted real estate investment trust, as
well as, CNL Hospitality Corp., its advisor. In addition, he serves as
a Director, Chairman of the Board and Chief Executive Officer of CNL
Retirement Properties, Inc., a public, unlisted real estate investment
trust and its advisor, CNL Retirement Corp. Since 1992, Mr. Seneff has
also served as a Director, Chairman of the Board and Chief Executive
Officer of Commercial Net Lease Realty, Inc., a public real estate
investment trust that is listed on the New York Stock Exchange. Mr.
Seneff has also served as a Director, Chairman of the Board and Chief
Executive Officer of CNL Securities Corp. since 1979; CNL Investment
Company since 1990; and CNL Institutional Advisors, Inc., a registered
investment advisor for pension plans, since 1990. Mr. Seneff formerly
served as a Director of First Union National Bank of Florida, N.A., and
currently serves as the Chairman of the Board of CNL 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 more than $60 billion of retirement funds. Mr. Seneff
received his degree in Business Administration from Florida State
University in 1968.
Robert A. Bourne, age 53. 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 is Director and Vice Chairman of the Board of Directors of
APF. Mr. Bourne served as President of APF from 1994 through February
1999. He also served as Treasurer from February 1999 through August
1999 and from May 1994 through December 1994. He also served in various
executive positions with the Advisor prior to its merger with APF
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. (formerly CNL Group, Inc.);
Director, Vice Chairman of the Board and President of CNL Hospitality
Properties, Inc., a public, unlisted real estate investment trust; as
well as, Director and President of CNL Hospitality Corp., its advisor.
In addition, Mr. Bourne serves as Director and President of CNL
Retirement Properties, Inc., a public, unlisted real estate investment
trust; as well as, a Director and President of its advisor, CNL
Retirement Corp. Mr. Bourne also serves as a Director of CNL Bank. He
has 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., a public real estate investment trust listed on the
New York Stock Exchange. Mr. Bourne also 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., a registered investment advisor for
pension plans. 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 45. Mr. McWilliams has served as Co-Chief
Executive Officer of APF since December 2000 and previously served as
Chief Executive Officer from September 1999 through December 2000.
Prior to the acquisition of the Advisor, Mr. McWilliams served as
President of APF from February 1999 until September 1999. From April
1997 to February 1999, he served as Executive Vice President of APF.
Mr. McWilliams joined CNL Financial Group, Inc. (formerly CNL Group,
Inc.) in April 1997 and served as an Executive Vice President until
September 1999. In addition, Mr. McWilliams served as President of the
Advisor and CNL Financial Services, Inc. from April 1997 until the
acquisition of such entities by APF 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.
John T. Walker, age 42. Mr. Walker has served as President of APF since
September 1999 and as Chief Operating Officer since March 1995. Mr.
Walker also served as a board member of CNL Restaurant Property
Services, Inc., a subsidiary of APF from December 1999 until December
2000. Previously, he served as Executive Vice President of APF from
January 1996 to September 1999. Mr. Walker joined the Advisor in
September 1994, as Senior Vice President responsible for Research and
Development. He served as the Chief Operating Officer of the Advisor
from April 1995 until September 1999 and as Executive Vice President
from January 1996 until September 1999, at which time it merged with
APF. Mr. Walker also served as Executive Vice President of CNL
Hospitality Properties, Inc. and CNL Hospitality Corp. (formerly CNL
Hospitality Advisors, Inc.) from 1997 to October 1998. From May 1992 to
May 1994, he was Executive Vice President for Finance and
Administration and Chief Financial Officer of Z Music, Inc., a cable
television network which was subsequently acquired by Gaylord
Entertainment, where he was responsible for overall financial and
administrative management and planning. From January 1990 through April
1992, Mr. Walker was Chief Financial Officer of the First Baptist
Church in Orlando, Florida. From April 1984 through December 1989, he
was a partner in the accounting firm of Chastang, Ferrell & Walker,
P.A., where he was the partner in charge of audit and consulting
services, and from 1981 to 1984, Mr. Walker was a Senior
Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a cum laude
graduate of Wake Forest University with a Bachelor of Science degree in
Accountancy and is a certified public accountant.
Steven D. Shackelford, age 37. Mr. Shackelford was promoted to
Executive Vice President and Chief Financial Officer of APF in July
2000. He served as Senior Vice President and Chief Financial Officer of
APF since January 1997. Mr. Shackelford also served as Secretary and
Treasurer of APF since September 1999. He also served as Chief
Financial Officer of the Advisor 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.
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
As of March 15, 2001, 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 15, 2001 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.
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, 2000, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Type of Amount Incurred
Compensation Method of For the Year
and Recipient Computation Ended December 31, 2000
------------- ----------- -----------------------
Reimbursement to affiliates for Operating expenses are reimbursed Accounting and administrative
operating expenses at the lower of cost or 90 percent services: $75,583
of the prevailing rate at 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 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.
Type of Amount Incurred
Compensation Method of For the Year
and Recipient Computation Ended December 31, 2000
------------- ----------- -----------------------
Deferred, subordinated real estate A deferred, subordinated real $ 15,296
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-
sub-ordinated share of Partnership equal to five percent of
net sales proceeds from a sale or Partnership distributions of such
sales not in liquidation of the net sales proceeds, subordinated
Partnership to certain minimum returns to the
Limited Partners.
Type of Amount Incurred
Compensation Method of For the Year
and Recipient Computation Ended December 31, 2000
------------- ----------- -----------------------
General Partners' share of Distributions of net sales $-0-
Partnership net sales proceeds from proceeds from a sale or sales of
a sale or sales in liquidation of substantially all of the
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.
PART IV
Item 14. 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, 2000 and 1999
Statements of Income for the years ended December 31, 2000,
1999, and 1998
Statements of Partners' Capital for the years ended December
31, 2000, 1999, and 1998
Statements of Cash Flows for the years ended December 31,
2000, 1999, and 1998
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 2000, 1999, and 1998
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2000
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2000
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 III, Ltd.
(Included as Exhibit 3.1 to Amendment No. 1 to Registration Statement
No. 33-15374 on Form S-11 and incorporated herein by reference.)
3.2 Amended and Restated Agreement and Certificate of Limited Partnership
of CNL Income Fund III, Ltd. (Included as Exhibit 3.2 to Form 10-K
filed with the Securities and Exchange Commission on April 5, 1993, and
incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund III, Ltd.
(Included as Exhibit 4.1 to Amendment No. 1 to Registration Statement
No. 33-15374 on Form S-11 and incorporated herein by reference.)
4.2 Amended and Restated Agreement and Certificate of Limited Partnership
of CNL Income Fund III, Ltd. (Included as Exhibit 3.2 to Form 10-K
filed with the Securities and Exchange Commission on April 5, 1993, and
incorporated herein by reference.)
10.1 Property Management Agreement (Included as Exhibit 10.1 to Form 10-K
filed with the Securities and Exchange Commission on April 5, 1993, 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 April 1,
1996, and incorporated herein by reference.)
(b) The Registrant filed no reports on Form 8-K during the period from
October 1, 2000 through December 31, 2000.
(c) Not Applicable.
(d) Other Financial Information
The Partnership is required to file audited financial information of
one of its tenants (Golden Corral Corporation) as a result of this
tenant leasing more than 20 percent of the Partnership's total assets
for the year ended December 31, 2000. Golden Corral Corporation is a
privately-held company and its financial information is not available
to the Partnership to include in this filing. The Partnership will file
this financial information under cover of a Form 10-K/A as soon as it
is available.
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 28th day of
March, 2001.
CNL INCOME FUND III, 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 28, 2001
---------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 28, 2001
---------------------------
James M. Seneff, Jr. (Principal Executive Officer)
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2000, 1999, and 1998
Additions Deductions
------------------------------ ------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning of Costs and Other Uncollec- be Col- at End
Year Description Year Expenses Accounts tible lectible of Year
- ---------- ----------------- ---------------- ------------- -------------- ------------- ------------- ------------
1998 Allowance for
doubtful
accounts (a) $ 169,853 $ 41,380 $ 3,828 (b) $ 15,384 (c) $ 4,699 $ 194,978
================ ============= ============== ============= ============= ============
1999 Allowance for
doubtful
accounts (a) $ 194,978 $ -- $ 5,199 (b) $ 191,380 (c) $ -- $ 8,797
================ ============= ============== ============= ============= ============
2000 Allowance for
doubtful
accounts (a) $ 8,797 $ -- $ -- $ 8,797 (c) $ -- $ --
================ ============= ============== ============= ============= ============
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
Costs Capitalized
Subsequent To
Initial Cost Acquisition
----------------------------- -------------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
---------- ------------ ----------- ----------- -------
Properties the Partnership has
Invested in Under Operating
Leases:
Burger King Restaurant:
Kansas City, Missouri - $236,055 $573,739 - -
Montgomery, Alabama - 326,997 - - -
Darryl's Restaurant:
Fayetteville, North Carolina - 688,672 584,290 - -
Golden Corral Family
Steakhouse Restaurants:
Altus, Oklahoma - 149,756 449,269 - -
Hastings, Nebraska - 110,800 332,400 23,636 -
Wichita, Kansas (f) - 147,349 442,045 - -
Stockbridge, Georgia - 384,644 685,511 150,000 -
Washington, Illinois - 221,680 517,833 - -
Schererville, Indiana (f) - 211,690 531,801 - -
IHOP Restaurant:
Auburn, Alabama - 373,763 1,060,478 - -
KFC Restaurants:
Calallen, Texas - 219,432 - 332,043 -
Katy, Texas - 266,768 - 279,486 -
Burnsville, Minnesota - 196,159 - 437,895 -
Page, Arizona - 328,729 - 270,755 -
Pizza Hut Restaurants:
Jacksboro, Texas - 54,274 147,337 - -
Seminole, Texas - 183,284 134,531 - -
Winter Springs, Florida - 268,128 270,372 - -
Austin, Texas - 301,778 372,137 - -
Red Oaks Steakhouse
Restaurant:
Canton Township, Michigan - 296,945 - - -
Taco Bell Restaurants:
Bishop, California - 363,964 - 272,150 -
Longwood, Florida - 346,832 - 394,087 -
------------ ----------- ----------- -------
$5,677,699 $6,101,743 $2,160,052 -
============ =========== =========== =======
Property of Joint Venture in Which
the Partnership has a 73.4%
Interest and has Invested in
Under an Operating Lease:
Po Folks Restaurant:
Titusville, Florida (g) - $271,350 - $750,985 -
============ =========== =========== =======
Property in Which the Partnership
has a 33.0% Interest as
Tenants-in- Common and has
Invested in Under an Operating
Lease:
IHOP Restaurant:
Englewood, Colorado - $552,590 - - -
============ =========== =========== =======
Property in Which the Partnership
has a 9.84% Interest as
Tenants-in- Common and has
Invested in Under an Operating
Lease:
Chevy's Fresh Mex
Restaurant:
Miami, Florida - $976,357 $974,016 - -
============ =========== =========== =======
Property of Joint Venture in Which
the Partnership has a 46.88%
Interest and has Invested in
Under an Operating Lease:
Ruby Tuesday Restaurant:
Orlando, FL - $623,496 - - -
============ =========== =========== =======
Property in Which the Partnership
has a 20% Interest as
Tenants-in- Common and has
Invested in Under an Operating
Lease:
IHOP Restaurant:
Baytown, Texas - $495,847 $799,469 - -
============ =========== =========== =======
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Burger King Restaurant:
Montgomery, Alabama - - $612,920 - -
------------ ----------- ----------- -------
Red Oaks Steakhouse
Restaurant:
Canton Township, Michigan - - $556,495 -
------------ ----------- ----------- -------
- $612,920 $556,495 -
============ =========== =========== =======
Property in Which the Partnership
has a 33.0% Interest as
Tenants-in- Common and has
Invested in Under Direct
Financing Lease:
IHOP Restaurant:
Englewood, Colorado - - $1,008,839 - -
============ =========== =========== =======
Property in Which the Partnership
has a 25.87% Interest as
Tenants-in- Common and has
Invested in Under Direct
Financing Lease:
IHOP Restaurant:
Overland Park, Kansas - - $1,608,508 - -
============ =========== =========== =======
Property of Joint Veture in Which
the Partnership has a 46.88%
Interest and has Invested in
Under Direct Financing Lease:
Ruby Tuesday Restaurant:
Orlando, Florida - - - $820,202 -
============ =========== =========== =======
Gross Amount at Which Life on Which
Carried at Close of Period (c) Depreciation in
----------------------------------------------- Date Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ----------- ------------- ------------ ------- -------- ------------
$236,055 $573,739 $809,794 $250,214 1984 12/87 (b)
326,997 (e) 326,997 (d) 1975 01/99 (d)
688,672 584,290 1,272,962 69,234 1984 06/97 (b)
149,756 449,269 599,025 198,427 1987 10/87 (b)
110,800 356,036 466,836 156,658 1987 10/87 (b)
147,349 442,045 589,394 194,009 1987 11/87 (b)
384,644 835,511 1,220,155 316,994 1987 11/87 (b)
221,680 517,833 739,513 227,272 1987 12/87 (b)
211,690 531,801 743,491 233,401 1987 12/87 (b)
373,763 1,060,478 1,434,241 41,906 1998 10/99 (b)
219,432 332,043 551,475 138,351 1988 12/87 (b)
266,768 279,486 546,254 118,393 1988 02/88 (b)
196,159 437,895 634,054 180,023 1988 02/88 (b)
328,729 270,755 599,484 113,943 1988 02/88 (b)
54,274 147,337 201,611 64,256 1983 12/87 (b)
183,284 134,531 317,815 58,672 1977 12/87 (b)
268,128 270,372 538,500 117,537 1987 01/88 (b)
301,778 372,137 673,915 159,709 1987 02/88 (b)
296,945 (e) 296,945 (d) 1988 02/88 (d)
363,964 272,150 636,114 110,750 1988 05/88 (b)
346,832 394,087 740,919 159,284 1988 06/88 (b)
----------- ----------- ------------- ------------
$5,677,699 $8,261,795 $13,939,494 $2,909,033
=========== =========== ============= ============
$271,350 $750,985 $1,022,335 $279,866 1988 12/88 (b)
=========== =========== ============= ============
$552,590 (e) $552,590 (d) 1996 07/97 (d)
=========== =============
$976,357 $974,016 $1,950,373 $97,491 1995 12/97 (b)
=========== =========== ============= ============
$623,496 (e) $623,496 (d) 1998 05/98 (d)
=========== =============
$495,847 $799,469 $1,295,316 $31,967 1998 10/99 (b)
=========== =========== ============= ============
- (e) (e) (d) 1975 01/99 (d)
-----------
- (e) (e) (d) 1988 02/88 (d)
-----------
-
===========
- (e) (e) (d) 1996 07/97 (d)
===========
- (e) (e) (d) 1997 01/98 (d)
===========
- (e) (e) (d) 1998 05/98 (d)
===========
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
(a) Transactions in real estate and accumulated depreciation during 2000,
1999, and 1998, are summarized as follows:
Accumulated
Cost Depreciation
---------------- ------------------
Properties the Partnership has Invested
in Under Operating Leases:
Balance, December 31, 1997 $ 18,217,870 $ 3,341,624
Acquisition 150,000 --
Dispositions (4,210,139 ) (902,084 )
Depreciation expense -- 299,355
---------------- ------------------
Balance, December 31, 1998 14,157,731 2,738,895
Acquisition 1,761,238 --
Dispositions (1,374,684 ) (236,174 )
Depreciation expense -- 268,798
---------------- ------------------
Balance, December 31, 1999 14,544,285 2,771,519
Acquisition -- --
Dispositions (604,791 ) (149,107 )
Depreciation expense -- 286,621
---------------- ------------------
Balance, December 31, 2000 $ 13,939,494 $ 2,909,033
================ ==================
Property of Joint Venture in Which the
Partnership has a 73.4% Interest and
has Invested in Under an Operating
Lease:
Balance, December 31, 1997 $ 1,022,335 $ 225,207
Depreciation expense -- 20,099
---------------- ------------------
Balance, December 31, 1998 1,022,335 245,306
Depreciation expense -- 17,566
---------------- ------------------
Balance, December 31, 1999 1,022,335 262,872
Depreciation expense -- 16,994
---------------- ------------------
Balance, December 31, 2000 $ 1,022,335 $ 279,866
================ ==================
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2000
Accumulated
Cost Depreciation
------------- ----------------
Property in Which the Partnership has a
33% Interest as Tenants-in-Common
and has Invested in Under an
Operating Lease:
Balance, December 31, 1997 $ 552,590 $ --
Depreciation expense (d) -- --
------------- ----------------
Balance, December 31, 1998 552,590 --
Depreciation expense (d) -- --
------------- ----------------
Balance, December 31, 1999 552,590 --
Depreciation expense (d) -- --
------------- ----------------
Balance, December 31, 2000 $ 552,590 $ --
============= ================
Property in Which the Partnership has a
9.84% Interest as Tenants-in-Common
and has Invested in Under an
Operating Lease:
Balance, December 31, 1997 $ 1,950,373 $ 89
Depreciation expense -- 32,468
------------- ----------------
Balance, December 31, 1998 1,950,373 32,557
Depreciation expense -- 32,466
------------- ----------------
Balance, December 31, 1999 1,950,373 65,023
Depreciation expense -- 32,468
------------- ----------------
Balance, December 31, 2000 $ 1,950,373 $ 97,491
============= ================
Property of Joint Venture in Which the
Partnership has a 46.88% Interest
and has Invested in Under an
Investment in Direct Financing
Lease:
Balance, December 31, 1998 $ 623,496 $ --
Depreciation expense (d) -- --
------------- ----------------
Balance, December 31, 1999 623,496 --
Depreciation expense (d) -- --
------------- ----------------
Balance, December 31, 2000 $ 623,496 $ --
============= ================
CNL INCOME FUND III, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2000
Accumulated
Cost Depreciation
-------------- ----------------
Property in Which the Partnership has a
20% Interest as Tenants-in-Common
and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisition 1,295,316 --
Depreciation expense -- 5,318
------------- ---------------
Balance, December 31, 1999 $ 1,295,316 $ 5,318
Depreciation expense -- 26,649
------------- ---------------
Balance, December 31, 2000 $ 1,295,316 $ 31,967
============= ===============
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2000, the aggregate cost of the Properties owned by
the Partnership, its consolidated joint venture and the unconsolidated
joint venture for federal income tax purposes was $14,094,079 and
$9,419,158, respectively. All of the leases are treated as operating
leases for federal income tax purposes.
(d) For financial reporting purposes, the portion of the lease relating to
the building has been recorded as a direct financing lease. The cost of
the building has been included in the net investment in direct
financing lease; therefore, depreciation is not applicable.
(e) For financial reporting purposes, certain components of the lease
relating to land and building have been recorded as a direct financing
lease. Accordingly, costs relating to these components of this lease
are not shown.
(f) The tenant of this Property, Golden Corral Corporation, has subleased
this Property to a local independent restaurant. Golden Corral
Corporation continues to be responsible for complying with all the
terms of the lease agreement and is continuing to pay rent on this
Property to the Partnership.
(g) For financial reporting purposes, the undepreciated cost of the
Property in Titusville, Florida, was written down to net realizable
value due to an impairment in value. The Partnership recognized the
impairment by recording an allowance for loss on land and building in
the amount of approximately $272,300 as of December 31, 1998. During
2000, the Partnership recorded an additional impairment of $227,094.
The cumulative allowance at December 31, 2000, represents the
difference between the Property's carrying value and the current
estimate of the net realizable value of the Property. The cost of the
Property presented on this schedule is the gross amount at which the
Property was carried at December 31, 2000, excluding the allowance for
loss on land and building.
EXHIBITS
EXHIBIT INDEX
Exhibit Number
3.1 Certificate of Limited Partnership of CNL Income Fund III,
Ltd. (Included as Exhibit 3.1 to Amendment No. 1 to
Registration Statement No. 33-15374 on Form S-11 and
incorporated herein by reference.)
3.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund III, Ltd. (Included as Exhibit
3.2 to Form 10-K filed with the Securities and Exchange
Commission on April 5, 1993, and incorporated herein by
reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund III,
Ltd. (Included as Exhibit 4.1 to Amendment No. 1 to
Registration Statement No. 33-15374 on Form S-11 and
incorporated herein by reference.)
4.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund III, Ltd. (Included as Exhibit
4.2 to Form 10-K filed with the Securities and Exchange
Commission on April 5, 1993, and incorporated herein by
reference.)
10.1 Property Management Agreement (Included as Exhibit 10.1 to
Form 10-K filed with the Securities and Exchange Commission on
April 5, 1993, 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 April 1, 1996, and incorporated herein
by reference.)